March 26,
2008
Dear
Stockholder:
You are cordially invited to attend the
Annual Meeting of Stockholders of Home Properties, Inc. The
Annual Meeting will be held on Thursday, May 1, 2008, 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.
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Sincerely,
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HOME
PROPERTIES, INC.
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Edward
J. Pettinella
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President
and Chief Executive Officer
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HOME
PROPERTIES, INC.
Suite
850
Clinton
Square
Rochester,
New York 14604
_______________________________________
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE
HELD ON MAY 1, 2008
_______________________________________
NOTICE IS HEREBY GIVEN that the 2008
Annual Meeting of Stockholders (the “Annual Meeting”) of Home Properties, Inc.
(the "Company") will be held on Thursday, May 1, 2008 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:
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1.
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To
elect ten directors of the Company to serve until the 2009 Annual Meeting
of Stockholders and until their respective successors are
elected;
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2.
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To
approve the Company’s 2008 Stock Benefit
Plan;
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3.
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To
approve an amendment to the Company’s Deferred Bonus
Plan;
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4.
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To
ratify the appointment of PricewaterhouseCoopers LLP as the Company’s
independent registered public accounting firm for 2008;
and
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5.
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To
consider and act upon any other matters that are properly brought before
the Annual Meeting and at any adjournments or postponements
thereof.
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The Board
of Directors of the Company (the “Board” or the “Board of Directors”) set the
close of business on March 7, 2008 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,
2008, the day before the Annual Meeting. You may change your vote or
revoke your proxy at any time before the Annual Meeting:
- by returning a later dated
proxy card;
- by sending written notice
to Ann M. McCormick, Secretary of the Company at 850 Clinton
Square,
Rochester, New York
14604;
- by entering a new vote by
internet or telephone; or
- by completing a written
ballot at the Annual Meeting.
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Rochester,
New York
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By
Order of the Board of Directors
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March
26, 2008
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Ann
M. McCormick
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Secretary
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EVEN IF
YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE BY ONE OF THE ABOVE
METHODS. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF
YOU WISH, EVEN IF YOU HAVE PREVIOUSLY VOTED.
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HOME
PROPERTIES, INC.
Suite
850
Clinton
Square
Rochester,
New York 14604
_______________________________________
PROXY
STATEMENT
_______________________________________
FOR 2008
ANNUAL MEETING OF STOCKHOLDERS
To Be
Held on May 1, 2008
March 26,
2008
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 2008 Annual Meeting of Stockholders of the Company (the "Annual
Meeting"). The Annual Meeting will be held on Thursday, May 1, 2008
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 March 26,
2008. 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 7, 2008, may
vote. On March 7, 2008, there were 31,877,797 shares of the Company’s
Common Stock outstanding. Each share of Common Stock has one vote. In
addition, on March 7, 2008, there were 13,429,504 limited partnership units
(“UPREIT Units”) outstanding in Home Properties, L.P. (the “Operating
Partnership”). The UPREIT Units are exchangeable on a one-for-one basis into
shares of Common Stock. The holders also receive distributions in the
same amount and on the same date as dividends are paid on the Company’s Common
Stock. Holders of UPREIT Units have no right to vote those units at
the Annual Meeting of Stockholders.
How
Do I Vote?
There are
four ways to vote:
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1.
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by
completing the enclosed proxy card and returning it in the enclosed
postage prepaid envelope;
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2.
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by
internet at http://www.proxyvoting.com/hme;
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3.
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by
toll-free telephone at (866) 540-5760;
or
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4.
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by
written ballot at the Annual
Meeting.
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How
Does a Proxy Work?
The
Company’s Board of Directors is asking for your proxy. By giving us
your proxy, you authorize the proxy holders (Edward J. Pettinella, the Company’s
Chief Executive Officer and David P. Gardner, the Company’s Chief Financial
Officer) to vote your shares at the Annual Meeting in the manner you
direct.
If you
vote by any of the above methods but do not specify how you wish to vote your
shares, your shares will be voted “for” the election of all nominees for
director and for the ratification of the appointment of PriceWaterhouseCoopers
LLP as the Company’s independent registered accounting firm for
2008. The proxy holder will also vote shares according to his
discretion on any other matter properly brought before the meeting.
Important
Notice Regarding the Availability of Proxy Materials
for
the Annual Stockholders Meeting to Be Held on May 1, 2008
This
Proxy Statement and the 2007 Annual Report are available at www.homeproperties.com/Investors/AnnualReports/Proxy
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.
What
Constitutes a Quorum?
The presence, in person or by proxy, of
holders of a majority of all of the shares of Common Stock entitled to vote is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. Votes withheld, abstentions and “broker non-votes” will be
counted for purposes of determining whether a quorum is present. A
“broker non-vote” refers to a share represented at the Annual Meeting which is
held by a broker or other nominee who has not received instructions from the
beneficial owner or person entitled to vote such share and with respect to
which, on one or more but not all proposals, such broker or nominee does not
have discretionary voting power to vote such share.
What
Vote is Required to Approve Each Proposal?
Proposal 1: The affirmative
vote of a plurality of all of the votes cast at the Annual Meeting is required
for the election of directors. Withhold votes are counted as votes
cast.
Proposal 2 and Proposal
3: The affirmative vote of a majority of the votes cast on each of
these Proposals is required for approval of the 2008 Stock Benefit Plan and the
amendment to the Deferred Bonus Plan provided that the total vote cast on each
of the Proposals represents over 50% in interest of all shares entitled to vote
on each of the Proposals. For purposes of the vote on Proposal 2 and
Proposal 3, abstentions and broker non-votes will have the same effect as votes
against the proposal, unless holders of more than 50% in interest of all common
shares entitled to vote on the Proposals cast votes, in which event abstentions
and broker non-votes will not have any effect on the result of the
vote.
Proposal 4: The affirmative vote of a
majority of all of the votes cast at the Annual Meeting is required for
ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s
independent registered public accounting firm for 2008. For purposes
of the vote on Proposal 4, abstentions will not be counted as votes cast and
will have no effect on the vote.
Can
I Change My Vote?
You may
revoke your proxy before it is voted at the meeting by entering a new vote by
internet or telephone, by submitting a new proxy with a later date, by voting in
person at the Annual Meeting or by notifying the Company’s Secretary in writing
prior to the Annual Meeting as follows: Ann M. McCormick, 850 Clinton
Square, Rochester, New York 14604.
Can
I Access the Notice of Annual Meeting, Proxy Statement, Annual Report on Form
10-K and the Annual Report on the Internet?
The Notice of Annual Meeting, Proxy
Statement, Annual Report on Form 10-K for the fiscal year ended December 31,
2007 and 2007 Annual Report are available in the Investors section of the
Company’s website at www.homeproperties.com/Investors/AnnualReport/Proxy. Instead
of receiving copies of the proxy statement and annual report in the mail, you
may elect to receive an email with a link to these documents on the
Internet. Receiving your proxy materials online saves the Company the
cost of producing and mailing documents to your home or business and gives you
an automatic link to the proxy voting site. Stockholders may enroll
to receive proxy materials online as follows:
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Stockholders
of Record. If your shares are registered in your own name, go
directly to our transfer agent’s website at www.bnymellon.com/shareowner/isd
anytime and follow the instructions to register for
m-link.
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·
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Beneficial
Stockholders. If your shares are not registered in your name,
check the information provided to you by your bank or broker, or contact
your bank or broker for information on electronic delivery
service.
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ELECTION
OF DIRECTORS
At the
Annual Meeting, ten individuals will be elected to serve as directors until the
2009 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, 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
eleven members to ten members. Thomas S. Summer, who has been a
director of the Company since 2004, notified the Company in January 2008 that he
would not stand for re-election to the Board of Directors because of
responsibilities associated with a new employment position. No
successor is currently being nominated to replace Mr. Summer.
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 7, 2008.
Josh E. Fidler, age 52, 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 Johns Hopkins Medicine and
President of the Board of Trustees of The Park School.
Alan L. Gosule, age 67, 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
(successor to Rogers & Wells) since August 1991 and prior to that time was a
partner in the law firm of Gaston & 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 Boards of
Directors of MFA Mortgage Investments, Inc. and F.L. Putnam Investment
Management Company. He also serves on the Board of Trustees of
Ursuline Academy.
Leonard F. Helbig, III, age
62, 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
& Wakefield, Inc. From 1990 until 2002, Mr. Helbig served as
President, Financial Services for Cushman & 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
Cushman & Wakefield’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 74, 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 & 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 72,
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 HPRS,
for which he had also 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 expired on December 31,
2007. He continues as an employee of the Company working as a liaison
to the development team, but he no longer has an employment
agreement. Nelson Leenhouts was the founder, and a co-owner, together
with Norman Leenhouts, of Home Leasing Corporation (“Home Leasing”), and
has continued to serve 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, the uncle
of Amy L. Tait and the step-father of executive officer, Johanna A.
Falk.
Norman P. Leenhouts, age 72,
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 currently serves as Chairman of the
following: Broadstone Net Lease, Inc., a private REIT that invests in
net lease properties, Broadstone Real Estate, LLC, a commercial property
manager, Broadstone Asset Management, LLC and Broadstone Ventures,
LLC. Mr. Leenhouts is also the sole owner of Knollwood Ventures,
Inc., a spin-off from Home Leasing as of January 1, 2006. He is a
member of the Board of Trustees of the University of Rochester 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 56,
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 Home Properties Resident Services,
Inc. From 1997 until February 2001, Mr. Pettinella served as
President, Charter One Bank of New York and Executive Vice President of Charter
One Financial, Inc. From 1980 through 1997, Mr. Pettinella served in
several managerial capacities for Rochester Community Savings Bank, Rochester,
NY, including the positions of Chief Operating Officer and Chief Financial
Officer. Mr. Pettinella serves on the Boards of Directors of the
Rochester Business Alliance, United Way of Greater Rochester, The Lifetime
Healthcare Companies, National Multi Housing Counsel, Syracuse University School
of Business and the Geneseo Foundation Board. He is also a member of
the 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
61, 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 72, 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.
Amy L. Tait, age 49, 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 founded Tait Realty Advisors, LLC in 2001, and is currently
the Chief Executive Officer and a director of Broadstone Net Lease, Inc. She is
also Chief Executive Officer and Secretary of Broadstone Real Estate, LLC, and
Broadstone Asset Management, LLC, and Chief Executive Officer of Broadstone
Ventures, LLC. 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 & T Bank
Regional Advisory Board and the boards of the United Way of Rochester, 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 B. Leenhouts.
The
Company is managed by its Board of Directors. If all of the Nominees
are elected, the Board will have ten members. With the decision of
Thomas S. Summer not to stand for re-election, the Board decided, at least for
the current time, to reduce the size of the Board from eleven members to
ten.
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 2007,
the Board of Directors met six times, including regular and special
meetings. Each director attended at least 75% of the Board’s
meetings. Nine of the eleven directors attended all of the meetings.
Two directors each missed one meeting.
Nine of
the Company’s eleven current Board members are not employed by the
Company. The Board of Directors has determined that seven of the nine
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: Josh Fidler,
Alan Gosule, Leonard Helbig, Roger Kober, Clifford Smith, Paul Smith and Thomas
Summer. Assuming all of the Nominees are re-elected, six of the ten
directors will be independent. 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 UPREIT Units does not bar the Board from
determining that a director is independent. Messrs. 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 four 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.
In 2007,
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.
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.
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.
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 2009 Annual Meeting and inclusion in the Proxy Statement for the 2009
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,
2008.
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.
None of the members of the Compensation
Committee is or has been an officer or employee of the Company or had any
relationship that is required to be disclosed as a transaction with a related
party.
The 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, 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 and Paul Smith 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 Tom Summer qualifies as an “audit committee financial expert” as
defined by applicable SEC rules, although Mr. Summer will no longer serve as a
Board member and as a member of the Audit Committee following the Annual
Meeting.
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 six times in 2007. Each of the members of the Audit
Committee attended at least 75% of the Committee’s meetings. In 2007,
the Audit Committee conducted a self-evaluation.
The Company has a separately designated
Compensation Committee. The Compensation Committee operates under a
written charter approved by the Committee and the Board. A copy of
the charter is available on the Company’s website at www.homeproperties.com
under the heading “Investors/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 Josh Fidler, Leonard Helbig, Roger
Kober and Clifford Smith, each of whom has been determined by the Board to be an
independent director. Leonard Helbig chairs this
Committee. Following the Annual Meeting, and contingent upon their
re-election to the Board, the Compensation Committee will continue to consist of
Josh Fidler, Leonard Helbig, Roger Kober and Clifford Smith, with Mr. Helbig
continuing as Chair.
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 sole authority
under its charter to retain, approve fees for and terminate advisors,
consultants and agents as it deems necessary to assist in the fulfillment of its
responsibilities. It reviews the total fees paid to outside
consultants by the Company to ensure that the consultants maintain their
objectivity and independence when rendering advice to the Compensation
Committee.
In 2007,
the Compensation Committee retained the services of FPL Advisory Group, Mercer
and First Niagara Consulting Group. 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 2007, they were retained to provide
information on compensation, current market trends and practices relating to the
Company’s development group. In 2007, Mercer was retained by the
Compensation Committee to assist with the preparation of the Compensation
Discussion and Analysis included in the 2007 Proxy Statement. In
2007, First Niagara Consulting Group was retained by the Compensation Committee
to conduct a wage and salary analysis for all positions below the executive
group. First Niagara is a human resources consulting firm focused on
employee compensation and benefits consulting.
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 2007. Each of the members of the Compensation Committee
attended at least 75% of the Committee’s meetings that occurred while he was a
member of the Committee. In 2007, the Compensation Committee
conducted a self-evaluation.
The Company has a separately designated
Corporate Governance/Nominating Committee. The Corporate Governance/Nominating
Committee operates under a written charter approved by the Committee and the
Board. A copy of the charter is available on the Company’s website at
www.homeproperties.com
under the heading “Investors/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 Alan Gosule,
Leonard Helbig, Clifford Smith and Paul Smith, each of whom has been determined
by the Board to be an independent director. Clifford Smith chairs the
Corporate Governance/Nominating Committee. Following the Annual Meeting, and
contingent upon their re-election to the Board, the Corporate
Governance/Nominating Committee will continue to consist of Alan Gosule, Leonard
Helbig, Clifford Smith and Paul Smith with Clifford Smith continuing 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 2007. Each of the members of this
Committee attended at least 75% of the Committee’s meetings that occurred while
he was a member of the Committee. In 2007, the Corporate
Governance/Nominating Committee conducted a self-evaluation.
The Company has a separately designated
Real Estate Investment Committee. The Real Estate Investment
Committee operates under a written charter approved by the Committee and the
Board. A copy of the charter is available on the Company’s website at
www.homeproperties.com
under the heading “Investors/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 consist of at least three
directors, at least a majority of whom shall be non-employee
directors.
Josh
Fidler, Leonard Helbig, Nelson Leenhouts, Edward Pettinella, Thomas Summer 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 their re-election to the Board, the
Committee will consist of Josh Fidler, Leonard Helbig, Nelson Leenhouts, Edward
Pettinella and Amy Tait, with Amy Tait continuing as Chair.
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 2007. Each of the members of this Committee
attended at least 75% of the Committee’s meetings that occurred while he or she
was a member of the Committee. In 2007, the Real Estate Investment
Committee conducted a self-evaluation.
In 2007,
the Company paid its non-employee directors an annual stipend of
$30,000. An additional stipend in the amount of $10,000 was paid to
the Chair of each of the committees. Norman Leenhouts was 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 property
acquisition and disposition activities. Non-employee directors were
also paid $1,400 for attendance (in person or by telephone) at each Board and
committee meeting. In addition, in 2007, each of the non-employee
directors was issued 940 shares of restricted stock and 3,747 options pursuant
to the Company’s Amended and Restated 2003 Stock Benefit Plan (the “2003 Stock
Benefit Plan”). The options were issued at an exercise price of
$55.50 per share, which was the closing price of a share of the Company’s Common
Stock on the date of grant which, according to the 2003 Stock Benefit Plan, was
the date of the 2007 Annual Meeting.
For 2008,
the Company will pay its non-employee directors an annual stipend of
$30,000. An additional stipend in the amount of $10,000 will be paid
to the Chair of each of the committees. 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. Non-employee directors will be paid
$1,400 for attendance (in person or by telephone) at each Board and committee
meeting. Contingent upon approval of the 2008 Stock Benefit Plan,
each of the non-employee directors will be issued restricted stock and options
having a value of $55,000 and $26,000, respectively. The number of
options to be issued will be calculated by dividing $26,000 by 12.5% of the
closing price of a share of the Company’s Common Stock on May 1, 2008, the day
of the Annual Meeting. The number of shares of restricted stock to be
issued will be calculated by dividing $55,000 by the closing price of a share of
the Company’s Common Stock on May 9, 2008. The Company cannot issue
restricted stock under the 2008 Stock Benefit Plan until a registration
statement relating to the underlying shares is filed with the SEC. It
cannot file a registration statement until after it files its Quarterly Report
on Form 10-Q for the quarter ending March 31, 2008, which is expected to occur
on May 9, 2008. The same restriction does not apply with respect to
the issuance of stock options under the 2008 Stock Benefit Plan. The
Board determined the 2007 and 2008 compensation levels 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 before the
compensation would otherwise have been paid, or with the number of shares of
restricted stock deferred. Participants' accounts are also credited
with the number of shares of the Company's Common Stock that could be purchased
with hypothetical dividends that would be paid with respect to shares previously
allocated to the accounts on the same date and at the same price that shares are
purchased for participants in the dividend reinvestment feature of the Company's
Dividend Reinvestment and Direct Stock Purchase Plan (the
“DRIP”). Payments out of the deferred accounts, upon vesting or
otherwise, are made by issuance of Common Stock, except in the event of payment
by reason of a change in control in which event payment may be made in cash or
by issuance of Common Stock at the election of the Compensation
Committee. The Director Deferred Compensation Plan is designed to
provide substantially the same benefits to the non-employee directors as are
provided to eligible employees under the Company's Deferred Bonus Plan (the
“Deferred Bonus Plan”).
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, 2007. 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.
2007
DIRECTOR COMPENSATION TABLE
|
Name(1)
|
Fees
Earned or Paid in Cash
($)
|
Stock Awards
($)(2)
|
Option Awards
($)(3)
|
All
Other Compensation
($)(4)
|
Total ($)
|
||||||||||
|
Norman
P. Leenhouts, Co-Chair(5)
|
166,400 | 54,999 | 25,168 | 1,842 | 248,409 | ||||||||||
|
William
Balderston, III
|
66,900 | - | 9,979 | 6,296 | 83,175 | ||||||||||
|
Josh
E. Fidler
|
53,800 | 54,999 | 28,066 | 6,736 | 143,601 | ||||||||||
|
Alan
L. Gosule
|
66,400 | 54,999 | 35,148 | 10,389 | 166,936 | ||||||||||
|
Leonard
F. Helbig III
|
81,200 | 54,999 | 35,148 | 11,170 | 182,517 | ||||||||||
|
Roger
W. Kober
|
62,000 | 54,999 | 35,148 | 10,656 | 162,803 | ||||||||||
|
Clifford
W. Smith Jr.
|
100,550 | 54,999 | 35,148 | 12,492 | 203,189 | ||||||||||
|
Paul
L. Smith
|
70,600 | 54,999 | 35,148 | 8,985 | 169,732 | ||||||||||
|
Thomas
S. Summer
|
67,800 | 54,999 | 28,066 | 6,736 | 157,601 | ||||||||||
|
Amy
L. Tait
|
66,600 | 54,999 | 35,148 | 8,563 | 165,310 | ||||||||||
(1) William
Balderston, III is listed on this table since he served as a director until the
2007 Annual Stockholders Meeting on May 1, 2007. Nelson Leenhouts is
not listed on this table since he continues to be an employee of the Company as
described in “Transactions with Related Persons, Promoters and Certain Control
Persons” beginning on page 36. He did not receive any compensation
for his services as a director in 2007.
(2) Each
of the listed directors, except for William Balderston, was granted 940 shares
of restricted stock in 2007. This column includes the grant date fair
value of the restricted stock award, which was calculated using the closing
price ($58.51) of a share of the Company’s Common Stock on the grant date
(February 28, 2007). In recognition of his retirement following the
2007 Annual Meeting of Stockholders and the fact that, at retirement, he served
as a director for half of the Board’s 2007 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 cash
amount is included in the first column next to his name.
(3) Each
of the listed directors, except for William Balderston, was granted options to
purchase 3,747 shares of the Company’s Common Stock in 2007. This
column represents the dollar amount recognized for financial statement reporting
purposes with respect to 2007 for the fair value of stock options granted to
each of the directors in 2007 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 $6.72 per
share or $25,180 in the aggregate per director. This value was
calculated using the Black-Scholes formula. For additional
information on the valuation assumptions with respect to the 2007 grants as well
as the grants made prior to 2007, refer to note 9 of the Company’s financial
statements in the Form 10-K for the year ended December 31, 2007, as filed with
the SEC.
(4) 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
2007 on the Company 10% match shares in the listed director’s deferred
compensation account.
(5) In
addition to the above amounts, Norman Leenhouts received $66,285 in dividends
paid in 2007 on shares of restricted stock issued to him when he was still an
employee of the Company. In addition, as a result of his retirement
as an employee of the Company, all amounts ($1,117,944) deferred by Mr.
Leenhouts pursuant to the Deferred Bonus Plan were issued in
stock.
A
significant part of the Company’s culture is the focus on “doing the right
thing.” The Company has adopted a Code of Business Conduct and Ethics
(“Code of Ethics”) to embody the Company’s commitment to continue to conduct
business in accordance with the highest ethical standards. The Code
of Ethics applies to all employees and directors of the Company. The
Code of Ethics covers such topics as conflicts of interest, proper use of
Company property, complete and accurate reporting and disclosure of its business
and financial results and compliance with laws. Each employee and
each member of the Board of Directors is required on an annual basis to
acknowledge that they have received a copy of and reviewed the Code of Ethics
and to disclose any situation that may conflict with the provisions of the Code
of Ethics.
The
Company has also adopted a Code of Ethics for Senior Financial Officers (“Senior
Financial Officer Code of Ethics”) that applies to the Chief Executive Officer,
Chief Financial Officer, 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.
The Board
of Directors has adopted corporate governance guidelines (the “Guidelines”)
which meet the requirements of the listing standards of the NYSE and cover such
topics as director qualifications and responsibilities, director access to
management, and director orientation and continuing education. Some
specific policies included in the Guidelines follow.
Retirement
Age. The retirement age for directors is 75.
Change
of Employment. Any director who changes jobs or employers or
otherwise experiences a significant change in job responsibilities is to submit
a letter to the Board offering to resign as a Board member.
Other
Boards. 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 2007 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.
The 2003
Stock Benefit Plan and the proposed 2008 Stock Benefit Plan include some
features that are designed to closely align the interests of management with
those of the stockholders. Options may not be
repriced. Options granted to directors and executive officers do not
vest automatically upon retirement but continue to vest as
scheduled. Directors and the executive officers of the Company may
receive cash on an exercise only in an amount sufficient to pay the exercise
price and related taxes and must hold an equivalent number of shares as were
issued on an option exercise for a one-year period.
The
Company's mission is to maximize long-term stockholder value by acquiring,
repositioning, developing, and managing market-rate apartment communities while
enhancing the quality of life for its residents and providing employees with
opportunities for growth and accomplishment. The Company’s vision is to be a
prominent owner and manager of market-rate apartment communities located in
selected high barrier, high growth 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, are less efficient to operate, or are located in
markets where growth has slowed to a pace below the markets targeted for
acquisition; and (v) maintaining a strong and flexible capital structure with
cost-effective access to the capital markets.
The
Company's executive compensation philosophy 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:
|
|
·
|
Attraction
and Retention: The Company seeks to
attract and retain highly capable executives both from within and outside
the multifamily REIT industry by offering a competitive total compensation
package.
|
|
|
·
|
Motivation: The Company endeavors
to motivate its executives to maximize the long-term value of the Company
by achieving certain operational and financial
goals.
|
|
|
·
|
Linkage: The Company’s
executive compensation program is tied directly to the operating,
financial and stock performance of the Company since the pay-out under the
bonus plan and the value of equity awards are directly impacted by that
performance. By so ensuring that executives are rewarded in
step with the Company’s performance, their interests are aligned with the
interests of the Company’s
stockholders.
|
Oversight
of the Executive Compensation Program
The
Compensation Committee (the “Committee”) is responsible for, among other things,
establishing, administering and reviewing compensation plans and policies for
executive officers and ensuring that these executive officers are compensated in
a manner consistent with the philosophy and objectives outlined
above. The Committee also 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 8.
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 current 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) between the 50th and
75th
percentile of the market with factors such as length of service, the current
recruiting or retention market for a position and the value of the position
impacting where the compensation for a particular executive falls within that
range.
The
Committee believes it is necessary to appropriately balance the total package
and ensure that each component of the package contributes appropriately to the
achievement of the objectives of the executive compensation program in order to
provide a market-competitive level of compensation and benefits, as well as to
ensure the health of the Company, which benefits employees and stockholders
alike. 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 three tally sheets outlining
the Chief Executive Officer’s compensation: (1) a three-year view of
total compensation broken down by each individual compensation component; (2)
stock ownership; and (3) termination scenarios with four distinct views. Each
component of compensation is evaluated first separately and then as a whole
against achievement of established financial performance measures and corporate
objectives and peer group market data described below (see “Competitive
Benchmarking”). All tally sheets are considered and influence the final
recommendation regarding CEO compensation made by the Compensation Committee to
the full Board for approval. The full Board also considers
written evaluations of the Chief Executive Officer’s performance completed by
each member of the Board 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
In
addition to considering input provided by 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. In particular, the Chief Executive Officer
annually reviews the performance of each of the executive officers. He also
works with the Company’s human resources team to evaluate each component of
compensation paid to the other executive officers separately and then as a whole
against industry data, achievement of corporate and personal objectives and
financial performance. The conclusions reached and recommendations for each
compensation component for each of the executive officers are presented to the
Committee. The Committee can exercise its discretion in modifying any
recommended component of the executives’ compensation.
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.
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 Executive Officers, is the peer
group in the multifamily REIT industry (the “Industry Peer Group”). This is
substantially 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 17. 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
2007, the Industry Peer Group was comprised of the following
companies:
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·
|
Apartment
Investment & Management Company
|
|
|
·
|
Archstone-Smith
Trust (2006 proxy data)
|
|
|
·
|
AvalonBay
Communities, Inc.
|
|
|
·
|
BRE
Properties, Inc.
|
|
|
·
|
Camden
Property Trust
|
|
|
·
|
Equity
Residential
|
|
|
·
|
Essex
Property Trust, Inc.
|
|
|
·
|
Mid-America
Apartment Communities, Inc.
|
|
|
·
|
Post
Properties, Inc.
|
|
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·
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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. First Niagara Consulting assists with the
collection and analysis of the data. 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 U.S. property and investment markets
and from Watson Wyatt, a global human resource consulting
firm. The compensation data from NAREIT reflects the real
property sector classification (including multifamily and other real estate
sectors) and the compensation data from Watson Wyatt reflects services industry
companies with comparable revenue within the New York/Northeast and Mid-Atlantic
regions.
For the
Chief Executive Officer and the Chief Financial Officer, the Committee primarily
uses the Industry Peer Group data to determine the appropriate level of
pay. For the other Named Executive Officers, peer group data is not
as readily available as positions and the importance of the positions vary from
company to company. Therefore, with respect to other Named Executive
Officers, the Committee and the Chief Executive Officer rely more heavily on the
NAREIT and Watson Wyatt data in their compensation deliberations. In
certain instances, some interpolation between market data points must be made as
the responsibilities associated with a Named Executive Officer’s position do not
match the responsibilities described as being associated with the data
point.
For 2007,
the Chief Executive Officer’s total compensation was 70% of the straight average
amount paid to the CEOs of the Industry Peer Group in 2006 and below the 50th
percentile of that paid in 2007 to CEOs according to the NAREIT
data. Also, according to the NAREIT data, the total compensation paid
to the Named Executive Officers in 2007 generally ranged between the 50th and the
75th
percentile of that paid to similarly positioned executives in 2007 (after some
interpolation as described above). Given the relative market cap of the Company,
the length of service of the various executives, the financial performance of
the Company in relation to the Industry Peer Group and the achievement of
corporate objectives, the Compensation Committee is very comfortable that the
compensation paid to the Company’s senior executives in 2007 was
appropriate.
2007
Executive Compensation Components
For 2007, the primary elements of
compensation for the Named Executive Officers were:
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|
·
|
base
salary,
|
|
|
·
|
annual
incentive awards,
|
|
|
·
|
long-term
equity incentive awards,
|
|
|
·
|
deferred
compensation, and
|
|
|
·
|
retirement
and other benefits
|
The
amount of cash compensation paid in 2007 in the form of salary and bonus in
proportion to total compensation for the Named Executive Officers ranges from
56% to 65%, with the Chief Executive Officer receiving the lowest percentage of
his total compensation in the form of cash. The Chief Executive
Officer also received a higher percentage of his cash compensation in the form
of bonus rather than salary. This is consistent with the Committee’s
philosophy that the proportion of an individual’s total compensation that varies
with Company performance should increase as the individual’s total compensation
and business responsibilities increase.
Base
Salary
The
Company provides Named Executive Officers and other employees with base salary
to compensate them for services rendered during the fiscal year. Base
salaries for the executive officers, including the Named Executive Officers,
generally are established based on the individual’s job responsibilities,
performance and experience, including specific experience in the position, the
Company’s overall budget for merit increases and the competitive
environment. On an annual basis, the Committee reviews and approves
salary adjustments for the executive officers, other than the Chief Executive
Officer, based on a review of competitive market data, an assessment of Company
performance, as well as recommendations of the Chief Executive Officer. With
respect to salary adjustments for the Chief Executive Officer, the Committee
reviews competitive market data, assesses the annual performance reviews for the
Chief Executive Officer completed by each member of the Board of Directors and
his direct reports, assesses Company performance, and, after extensive
discussion at a Committee executive session, makes a recommendation to the full
Board for approval during a Board executive session. 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
2007 Summary Compensation Table on page 23, represents the base salary paid from
January 1, 2007 to March 15, 2007 at the level approved in February 2006 and for
the period from March 16, 2007 to December 31, 2007 at the level approved in
February 2007. In February 2008, the Committee approved base salaries
for the Named Executive Officers (other than the Chief Executive Officer) for
the period from March 16, 2007 to March 15, 2008 as follows: Mr.
Gardner - $320,000; Mrs. McCormick - $272,000; Mr. Doyle - $250,000 and Mr.
Smith $240,000. In addition, based on a recommendation by the
Compensation Committee, the Board approved a base salary for Mr. Pettinella in
the amount of $550,000.
Annual
Incentive Awards
The
Company’s Amended and Restated Annual Incentive Plan (the “Bonus Plan”) was
approved by the Board in February 2005 and is an annual cash incentive program
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 2007, this was properties owned since January 1, 2006) 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 adverse events outside of the control of
management, and the receipt of income not related to the operations of the
Company’s business. 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 achieving that range
of FFO and NOI 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 the Industry Peer Group and extraordinary
events. The Committee did not need to exercise that discretion in
2007 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. By basing
the bonus on year-over-year change in FFO, rather than absolute FFO, the
Company’s bonus payments are sensitive to performance, which may cause the
amount of the payments to vary significantly from year to year.
At the
beginning of each year, the Committee also assigns a bonus factor to the Chief
Executive Officer and, with input from the Chief Executive Officer, assigns a
bonus factor to each of the other Named Executive Officers. It is the
Committee's philosophy that the proportion of an individual's total compensation
that varies with individual and Company performance should increase as the
individual's business responsibilities increase. Bonus factors
therefore range from 1% to 13%, depending on an individual’s role and
responsibility. The 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 50% to 75% of their base salaries and the
Chief Executive Officer will earn bonus payments approximating 100% of his base
salary.
The bonus
factor assigned to each of the Named Executive Officers for 2007 can be found on
page 23 in footnote 4 to the 2007 Summary Compensation Table. In
February 2008, the Committee considered the bonus factors assigned to each of
the Named Executive Officers and decided not to change them for
2008.
The
Committee has discretion for determining and recommending to the Board what
portion (up to 100%) of the annual cash bonus otherwise earned should be paid to
the Chief Executive Officer. In making its determination as to what
portion of the 2007 annual incentive (payable in 2008) 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 2008, the Committee recommended and the Board approved
payment to the Chief Executive Officer of 100% of his 2007 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 at least 100% of their 2007 annual incentive. From
time to time, the Company decides to provide in excess of 100% of the incentive
award calculated under the Bonus Plan in recognition of extraordinary
efforts. For 2007, Mr. Gardner received 109.3% and Mrs. McCormick
received 109.6% of the annual incentive payable under the Bonus
Plan.
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 is required to
return to the Company so much of the cash bonus paid to them for services
rendered during the restated period that would not have been paid if the
restated financial results had been originally stated correctly.
Awards
made to the Named Executive Officers under the Bonus Plan in 2008 for
performance in 2007 are reflected in the 2007 Summary Compensation Table on page
23.
Long-Term
Equity Incentive Awards
Equity
incentive awards are provided to the Company’s Named Executive Officers, as well
as other key employees, in order to increase their personal stake in the
Company’s success and motivate them to enhance the long-term value of the
Company. Although the Committee does not target a specific mix of equity versus
cash compensation when setting awards each year, it does strive to deliver a
relatively large portion of the Named Executive Officers’ overall targeted
compensation in the form of equity.
By using
a mix of stock options and restricted stock, the Company is able to encourage
employees to seek long-term appreciation in the value of the Company's Common
Stock and retain key employees.
On an
annual basis, the Committee reviews and approves the equity incentives to be
issued to each of the Named Executive Officers for that year. At the
same time, it makes a recommendation relating to the Chief Executive Officer to
the full Board for approval at an executive session. Since 2006,
grants of restricted stock and options have been made on the date of the Annual
Meeting of Stockholders. Timing these awards with the Annual
Meeting of Stockholders 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 2007, 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. The Committee engaged Mercer to
examine market trends in long-term equity compensation. The Committee
maintains that a mix of both restricted stock and stock options provides the
proper incentive. For 2007, the Committee determined that a mix of
55% restricted stock and 45% options was appropriate for the senior
executives.
The
level of stock awards to be granted was based on the value of the grant rather
than a fixed number of shares. The Committee adjusts the value and
the mix on an annual basis depending on various factors including the
competitiveness of the executive’s overall total compensation and the
executive’s performance.
Equity
incentive awards made to the Named Executive Officers in 2007 are described in
the 2007 Grants of Plan-Based Awards Table on page 25.
At the 2008 Annual Meeting, the
stockholders are being asked to approve the 2008 Stock Benefit Plan, which, if
approved, will replace the plan under which existing incentive awards have been
made. See “Proposal 2” beginning on page 37.
Deferred
Compensation
Prior to
the 2006 bonus, participants in the Bonus Plan, including the Named Executive
Officers, who were eligible for a bonus factor of 3% or higher were required to
defer their annual cash bonus 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.
At the
2008 Annual Meeting, the stockholders are being asked to approve an amendment to
this Plan to add 50,000 shares. See “Proposal 3” beginning on page
42.
Further
details with respect to the Deferred Bonus Plan and voluntary deferrals under
that Plan are provided in the “Introduction to 2007 Summary Compensation”
beginning on page 22 and in the 2007 Nonqualified Deferred Compensation Table on
page 29.
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.
Health and Life
Insurance
Health and life insurance benefits are
provided to the Named Executive Officers on the same basis as they are provided
to other employees of the Company.
Perquisites and Other
Personal Benefits
The
Committee has adopted and the Board has approved a policy of not providing
perquisites to its executives unless they 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 Mr.
Pettinella, which was originally entered into on May 17, 2004 and which was
amended and restated effective January 1, 2007. The amended and
restated agreement 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 his agreement, the
level of compensation, including stock option grants and restricted stock
awards, are at the discretion of the Compensation Committee of the Board of
Directors.
Mr.
Pettinella is, therefore, not guaranteed any specific level of compensation
during the term of his 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 Mr. Pettinella’s agreement is in the best interest of
the Company and its stockholders in order to provide stability to the Company
and that it is an appropriate expression of their confidence in Mr. Pettinella
and represents a level of commitment to Mr. Pettinella that is necessary in
order to retain the services of a talented executive in a competitive
market. Mr. Pettinella’s agreement also includes non-compete and
confidentiality provisions, and the Committee and the full Board also believe
that these commitments are of significant value to the Company and its
stockholders.
Change
in Control Arrangements
In 1999,
the Committee and the full Board determined that it was in the best interest of
the Company and its stockholders to assure that the Company will have the
continued dedication of its key executives and employees in the event of a
threat or occurrence of a change in control. They continue to believe
that it is in the best interests of the stockholders to diminish the inevitable
distraction of these individuals because of personal uncertainties and risks
created by the ongoing consolidation in the REIT industry and to encourage the
executives’ full attention and dedication to the Company’s business currently
and in the event of any threatened or pending change in control. As a
result, the Company adopted an Executive Retention Plan that provides for
severance benefits to the Company’s
officers,
including the Named Executive Officers, and certain employees, upon a change in
control. The Committee and the full Board believe that the triggering
events stipulated in the Executive Retention Plan for equity acceleration are
appropriate so that 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. 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.
Pursuant
to his employment agreement, the benefits to be paid to the Chief Executive
Officer under the Executive Retention Plan are the same as those provided in the
Executive Retention Plan to other Named Executive Officers, except that the
Chief Executive Officer is paid three times his base salary and three times his
last bonus. The Committee believes that this level of change in
control severance benefit is appropriate to ensure Mr. Pettinella’s full
attention to the Company’s business and the stockholders’ best interests in
light of the active consolidation environment in the REIT industry and in order
to be competitive with the benefits provided by other companies in the REIT
industry.
A more
detailed description of the Executive Retention Plan and a schedule showing the
amount of estimated payments and benefits payable to the Named Executive
Officers upon various termination scenarios and a change in control are
disclosed under “Potential Payments upon Termination or Change in Control”
beginning on page 29.
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 Statement of Financial Accounting Standards No. 123R, Share
Based Payments.
The
Compensation Committee of the Company has reviewed and discussed the above
Compensation Discussion and Analysis with management and based on such review
and discussions, the Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy
Statement.
|
Submitted
by the Compensation Committee,
|
|
|
Leonard
F. Helbig, III, Chair
|
|
|
Josh
E. Fidler
|
|
|
Roger
W. Kober
|
|
|
Clifford
W. Smith, Jr.
|
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 2006 for the period from January 1, 2007 to
March 15, 2007 and the salary level approved in February 2007 for the period
from March 16, 2007 to December 31, 2007.
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 and 2007. 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 2008 meetings and payment was
made on February 22, 2008.
Pursuant
to the Deferred Bonus Plan, eligible employees, including the Named Executive
Officers, can elect to defer up to 100% of their bonus under the Bonus Plan for
three, five or ten years. The Company matches 10% of the amount
deferred (referred to as the “10% Company Match”), which amount vests after
three years. A "phantom" stock account is established for both
amounts. Each deferral and 10% Company Match is reflected by
crediting those accounts with the number of shares of the Company's Common Stock
that could be purchased with the amounts deferred and contributed at the Common
Stock's fair market value as of the day before the bonus would otherwise have
been paid. The equivalent of dividends on those shares is also
credited to the accounts at the time dividends are paid on the Company's Common
Stock. Shares that could be purchased with the hypothetical dividends
are credited to accounts at the same price that shares are purchased for
participants under the dividend reinvestment feature of the Company's
DRIP. Payments out of deferred accounts, upon vesting or otherwise,
are made by issuance of Common Stock, except in the event of payment by reason
of a change in control in which event payment may be made in cash or by issuance
of Common Stock at the election of the Compensation Committee.
The
following table sets forth the compensation paid to or earned by the Named
Executive Officers during 2007. 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.
2007
SUMMARY COMPENSATION TABLE
|
Name and Principal Position
|
Year
|
Salary
($)(1)
|
Stock
Awards
($)(2)
|
Option Awards
($)(3)
|
Non-Equity
Incentive Plan Compensation ($)(4)
|
All
Other Compensation ($)(5)
|
Total
($)
|
||||||
|
Edward
J. Pettinella,
|
|||||||||||||
|
President
and
|
2006
|
519,792 | 426,535 | 187,650 | 680,459 | 102,617 | 1,917,053 | ||||||
|
Chief
Executive Officer
|
2007
|
544,792 | 553,875 | 274,833 | 640,947 | 105,085 | 2,119,532 | ||||||
|
David
P. Gardner,
|
|||||||||||||
|
Executive
Vice President
|
2006
|
292,292 | 197,487 | 63,712 | 264,904 | 47,651 | 866,046 | ||||||
|
and
Chief Financial Officer
|
2007
|
315,833 | 258,632 | 97,283 | 281,246 | 48,293 | 1,001,287 | ||||||
|
Ann
M. McCormick,
|
|||||||||||||
|
Executive
Vice President,
|
|||||||||||||
|
General
Counsel and
|
2006
|
257,817 | 164,859 | 55,768 | 233,659 | 41,208 | 753,311 | ||||||
|
Secretary
|
2007
|
269,583 | 215,851 | 82,100 | 240,576 | 41,539 | 849,649 | ||||||
|
Scott
A. Doyle,
|
2006
|
238,542 | 101,017 | 41,491 | 168,148 | 27,098 | 576,296 | ||||||
|
Senior
Vice President
|
2007
|
247,917 | 133,707 | 59,390 | 157,055 | 27,136 | 625,205 | ||||||
|
John
E. Smith,
|
2006
|
220,833 | 80,638 | 44,076 | 155,665 | 23,892 | 525,104 | ||||||
|
Senior
Vice President
|
2007
|
236,875 | 126,879 | 78,394 | 150,060 | 25,775 | 617,983 |
(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 the year indicated for the fair value of restricted
stock granted in the year indicated 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, 2007, as filed with the
SEC. See the 2007 Grants of Plan-Based Awards Table on page 25 for
information on restricted stock awards made in 2007. 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 2007. Of the amounts listed
in this column, the following amounts represent that value for 2006 and 2007,
respectively: Mr. Gardner $2,928 and $2,003; Mrs. McCormick $2,413
and $3,378 and Mr. Doyle $2,172 and $4,414.
(3) This
column represents the dollar amount recognized for financial statement reporting
purposes with respect to the year indicated for the fair value of stock options
granted to each of the Named Executive Officers in the year indicated 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 2007 grants as well as the grants made
prior to 2007, refer to note 9 of the Company’s financial statements in the Form
10-K for the year ended December 31, 2007, as filed with the SEC. See
the Grants of Plan-Based Awards Table for information on options granted in
2007.
(4) This
column represents the payments received by the Named Executive Officers for
services rendered in the year indicated pursuant to the Company’s Bonus
Plan. The bonus factors assigned to the Named Executive Officers for
both years are as follows: Mr. Pettinella – 13%; Mr. Gardner – 9%; Mrs.
McCormick – 9%; Mr. Doyle – 7% and Mr. Smith – 7%. The following
Named Executive Officer deferred a portion of the 2006 payment pursuant to the
Company’s Deferred Bonus Plan as follows: Mrs. McCormick $46,732 and
Mr. Doyle $67,259. The gross payment (before deferral) is listed in
this column.
(5) This
column represents (a) $6,600 and $6,750 for 2006 and 2007, respectively for each
of the Named Executive Officers as the Company’s contribution under the
Company’s 401(k) Savings Plan plus (b) dividends paid in 2006 and 2007,
respectively on all shares of restricted stock held by each of the Named
Executive Officers as follows: Mr. Pettinella $96,017 and $98,335;
Mr. Gardner $40,171 and $40,770; Mrs. McCormick $33,744 and $33,737; Mr. Doyle
$20,054 and $19,697; and Mr. Smith $17,292 and $19,025 plus (c) the value of all
hypothetical dividends paid in 2006 and 2007, respectively on the 10% Company
Match shares in the accounts of the following Named Executive Officers pursuant
to the Company’s Deferred Bonus Plan: Mr. Gardner $880 and $773; Mrs.
McCormick $864 and $1,052; and Mr. Doyle $444 and $689.
|
|
Introduction
|
All stock options and restricted stock
were issued pursuant to the Company’s 2003 Stock Benefit Plan.
Prior to
the exercise of an option, the holder has no rights as a stockholder with
respect to the shares subject to such option, including voting rights and the
right to receive dividends or dividend equivalents. Individuals receiving
restricted stock awards have voting rights and are entitled to receive dividends
or dividend equivalents prior to vesting.
To
further enforce the Company’s focus on long-term stock appreciation and support
retention of key executive talent, stock options generally vest 20% per year
over the first five years of the ten-year option term and restricted stock
grants generally vest 25% per year over a four-year period. However, in the
event of termination of employment due to total disability, death, or
retirement, stock options vest immediately and are exercisable for the lesser of
one year or the remaining option term, except that for executive officers, stock
options do not vest automatically upon retirement but continue to vest as
scheduled. Additionally, in the event the Company terminates the
employment of an option holder for any reason except “good cause,” stock options
held for more than 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
following table provides information about plan-based awards granted to the
Named Executive Officers in 2007. These awards consist of stock
options and restricted stock and cash paid pursuant to the Bonus
Plan. There are no amounts to be reported in the Estimated Future
Payouts Under Equity Incentive Plan Awards column so it has not been
included.
The stock
options granted to the Named Executive Officers have the same term (ten years)
and vesting (20% per year) as the options granted to other employees in
2007. Restricted shares granted to the Named Executive Officers vest
on the same terms as the restricted shares granted to other employees in 2007
(25% per year).
2007
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(1)
|
Stock
or
|
Underlying
|
of
Option
|
and
Option
|
|||||||||||||
|
Threshold
|
Target
|
Maximum
|
Units
|
Options
|
Awards
|
Awards
|
|||||||||||
|
Name
|
Plan Name
|
Grant Date
|
($)
|
($)
|
($)
|
(#)(2)
|
(#)(3)
|
($/Sh)(4)
|
($)(5)
|
||||||||
|
Edward
J. Pettinella
|
Bonus
Plan
|
2/22/2008
|
283,292 | 566,583 | 849,875 | ||||||||||||
|
Stock
Plan
|
5/1/2007
|
9,909 | 64,864 | 55.50 | 993,391 | ||||||||||||
|
David
P. Gardner
|
Bonus
Plan
|
2/22/2008
|
113,700 | 227,400 | 341,099 | ||||||||||||
|
Stock
Plan
|
5/1/2007
|
4,657 | 30,486 | 55.50 | 466,880 | ||||||||||||
|
Ann
M. McCormick
|
Bonus
Plan
|
2/22/2008
|
97,050 | 194,099 | 291,149 | ||||||||||||
|
Stock
Plan
|
5/1/2007
|
3,815 | 24,972 | 55.50 | 382,453 | ||||||||||||
|
Scott
A. Doyle
|
Bonus
Plan
|
2/22/2008
|
69,417 | 138,833 | 208,250 | ||||||||||||
|
Stock
Plan
|
5/1/2007
|
2,477 | 16,216 | 55.50 | 248,334 | ||||||||||||
|
John
E. Smith
|
Bonus
Plan
|
2/22/2008
|
66,325 | 132,650 | 198,975 | ||||||||||||
|
Stock
Plan
|
5/1/2007
|
2,725 | 17,837 | 55.50 | 273,180 | ||||||||||||
(1) These
columns represent amounts that could have been paid to the Named Executive
Officers under the Company’s Bonus Plan for services rendered in
2007. That Plan is described in more detail in the “Executive
Compensation Discussion and Analysis” beginning on page 13 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 2008 for
services rendered in 2007 are listed in the 2007 Summary Compensation Table on
page 23.
(2) This
column represents restricted stock awarded to each of the Named Executive
Officers in 2007.
(3) This
column represents options granted to the Named Executive Officers in
2007.
(4) The
exercise price is the closing price ($55.50) on the grant date (May 1, 2007) as
provided in the 2003 Stock Benefit Plan.
(5) For
stock options, grant date fair value is calculated using the Black-Scholes
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, 2007. For restricted stock, the grant date
fair value is calculated using the closing price ($55.50) of a share of the
Company’s Common Stock on the award date (May 1, 2007). The grant
date fair value for both the option grants and restricted stock awards are
computed in accordance with SFAS 123R.
The following table provides
information about unexercised options and restricted stock that has not vested,
both of which were issued under the 2003 Stock Benefit Plan or previous stock
benefit plans. It also includes all phantom shares in the Named
Executive Officers’ accounts under the Deferred Bonus Plan that were credited to
the accounts as a result of the 10% Company Match but only to the extent that
the phantom shares have not vested. There are no unearned options or
shares under the Company’s equity incentive plans so related columns are not
included.
|
Option Awards(1)
|
Stock Awards
|
||||||||||||||||||||
|
Name
|
Number
of Securities Underlying Unexercised Options (Exercisable)
(#)
|
Number
of Securities Underlying Unexercised Options
(Unexercisable)
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
|||||||||||||||
|
Edward
J. Pettinella
|
100,000 | - | 27.010 |
02/07/11
|
39,459 | (2) | 1,769,736 | ||||||||||||||
| 50,000 | - | 30.150 |
07/31/11
|
||||||||||||||||||
| 50,000 | - | 34.650 |
08/05/12
|
||||||||||||||||||
| 40,000 | 10,000 | 36.850 |
08/05/13
|
||||||||||||||||||
| 33,000 | 22,000 | 38.830 |
08/03/14
|
||||||||||||||||||
| 26,000 | 39,000 | 41.950 |
05/06/15
|
||||||||||||||||||
| 13,000 | 52,000 | 51.060 |
05/04/16
|
||||||||||||||||||
| - | 64,864 | 55.500 |
05/01/17
|
||||||||||||||||||
|
David
P. Gardner
|
960 | - | 27.125 |
08/03/09
|
16,579 | (3) | 743,568 | ||||||||||||||
| 15,000 | - | 31.375 |
08/01/10
|
||||||||||||||||||
| 15,000 | - | 30.150 |
07/31/11
|
||||||||||||||||||
| 15,000 | - | 34.650 |
08/05/12
|
||||||||||||||||||
| 12,000 | 3,000 | 36.850 |
08/05/13
|
||||||||||||||||||
| 9,000 | 6,000 | 38.830 |
08/03/14
|
||||||||||||||||||
| 10,000 | 15,000 | 41.950 |
05/06/15
|
||||||||||||||||||
| 5,000 | 20,000 | 51.060 |
05/04/16
|
||||||||||||||||||
| - | 30,486 | 55.500 |
05/01/17
|
||||||||||||||||||
|
Ann
M. McCormick
|
12,599 | - | 31.375 |
08/01/10
|
13,785 | (4) | 618,257 | ||||||||||||||
| 15,000 | - | 30.150 |
07/31/11
|
||||||||||||||||||
| 15,000 | - | 34.650 |
08/05/12
|
||||||||||||||||||
| 12,000 | 3,000 | 36.850 |
08/05/13
|
||||||||||||||||||
| 9,000 | 6,000 | 38.830 |
08/03/14
|
||||||||||||||||||
| 8,000 | 12,000 | 41.950 |
05/06/15
|
||||||||||||||||||
| 4,000 | 16,000 | 51.060 |
05/04/16
|
||||||||||||||||||
| - | 24,972 | 55.500 |
05/01/17
|
||||||||||||||||||
|
Scott
A. Doyle
|
10,000 | - | 31.375 |
08/01/10
|
8,277 | (5) | 371,223 | ||||||||||||||
| 10,000 | - | 30.150 |
07/31/11
|
||||||||||||||||||
| 10,000 | - | 34.650 |
08/05/12
|
||||||||||||||||||
| 8,000 | 2,000 | 36.850 |
08/05/13
|
||||||||||||||||||
| 7,500 | 5,000 | 38.830 |
08/03/14
|
||||||||||||||||||
| 6,000 | 9,000 | 41.950 |
05/06/15
|
||||||||||||||||||
| 3,000 | 12,000 | 51.060 |
05/04/16
|
||||||||||||||||||
| - | 16,216 | 55.500 |
05/01/17
|
||||||||||||||||||
|
John
E. Smith
|
5,000 | - | 31.375 |
08/01/10
|
7,750 | (6) | 347,588 | ||||||||||||||
| 4,240 | - | 34.650 |
08/05/12
|
||||||||||||||||||
| 8,000 | 2,000 | 36.850 |
08/05/13
|
||||||||||||||||||
| 6,000 | 4,000 | 38.830 |
08/03/14
|
||||||||||||||||||
| 6,000 | 9,000 | 41.950 |
05/06/15
|
||||||||||||||||||
| 3,000 | 12,000 | 51.060 |
05/04/16
|
||||||||||||||||||
| - | 17,837 | 55.500 |
05/01/17
|
||||||||||||||||||
(1) All
option grants have a ten year term. With the exception of Edward Pettinella's
grant issued 2/7/01, which vested immediately, all option grants vest pro rata
as to 20% of the option grant beginning on the first anniversary of grant date,
thus the vesting dates for each of the option awards in this table can be
calculated accordingly.
(2) Mr.
Pettinella’s restricted stock will vest as follows: 2,478 shares on 5/1/2008;
2,500 shares on 2/16/2009; 2,477 shares on each of 5/1/2009, 5/1/2010 and
5/1/2011 and 2,750 shares on each of 5/4/2008, 5/4/2009 and
5/4/2010. Since December 31, 2007, restricted stock vested as
follows: 3,300 shares on 2/5/2008; 2,500 shares on 2/16/2008; and
13,000 shares on 2/27/2008.
(3) Mr.
Gardner’s restricted stock will vest as follows: 1,165 shares on 5/1/2008; 1,375
shares on 2/16/2009; 1,164 shares on each of 5/1/2009, 5/1/2010 and 5/1/2011;
1,500 shares on each of 5/4/2008, 5/4/2009 and 5/4/2010. Since December 31, 2007
restricted stock vested as follows: 1,500 shares on 2/5/2008; 1,375
shares on 2/16/2008; and 3,000 shares on 2/27/2008. In addition, 172
shares in Mr. Gardner's deferred bonus account representing the 10% Company
Contribution and hypothetical dividends on those shares
vested 3/9/2008.
(4) Mrs.
McCormick’s restricted stock will vest as follows: 1,125 shares on 2/16/2009;
954 shares on each of 5/1/2008, 5/1/2009 and 5/1/2010; 1,250 shares on each of
5/4/2008, 5/4/2009 and 5/4/2010 and 953 on 5/1/2011. Shares in Ms. McCormick's
deferred bonus account representing the 10% Company Contribution and
hypothetical dividends on those shares will vest as follows: 47 shares on
2/22/2009 and 78 shares on 2/22/2010. Since December 31, 2007
restricted stock vested as follows: 1,250 shares on 2/5/2008; 1,125
shares on 2/16/2008; and 2,500 shares on 2/27/2008. In addition, 95
shares in her deferred bonus account vested on 3/9/2008.
(5) Mr.
Doyle’s restricted stock will vest as follows: 750 shares on each of
5/4/2008, 2/16/2009, 5/4/2009 and 5/4/2010; 620 shares on 5/1/2008 and 619
shares each on 5/1/2009, 5/1/2010 and 5/1/2011. Shares in Mr. Doyle's deferred
bonus account representing the 10% Company Contribution and hypothetical
dividends on those shares will vest as follows: 113 shares on
2/22/2010. Since December 31, 2007 restricted stock vested as
follows: 750 shares each on 2/5/2008 and 2/16/2008; and 1,000 shares
vested on 2/27/2008. In addition, 187 shares in his deferred bonus
account vested on 3/9/2008.
(6) Mr.
Smith’s restricted stock will vest as follows: 682 shares on 5/1/2008; 500
shares on 2/16/2009; 681 shares on each of 5/1/2009, 5/1/2010 and 5/1/2011 and
875 shares on each of 5/4/2008, 5/4/2009 and 5/4/2010. Since December
31, 2007 restricted stock vested as follows: 400 shares on 2/5/2008;
500 shares on 2/16/2008; and 1,000 shares on 2/27/2008.
The following table provides
information for each of the Named Executive Officers concerning the following
events that occurred during 2007: 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(1)
|
Stock Awards
|
|||||||||||||||
|
Name
|
Number
of Shares Acquired on
Exercise(#)
|
Value
Realized on
Exercise($)
|
Number
of Shares Acquired on
Vesting(#)
|
Value
Realized on Vesting($)(2)
|
||||||||||||
|
Edward
J. Pettinella
|
-
|
-
|
10,550
|
644,891 | ||||||||||||
|
David
P. Gardner
|
-
|
-
|
5,375 | 327,463 | ||||||||||||
|
Ann
M. McCormick
|
-
|
-
|
4,750 | 289,646 | ||||||||||||
|
Scott
A. Doyle
|
-
|
-
|
3,050 | 186,829 | ||||||||||||
|
John
E. Smith
|
-
|
-
|
2,575 | 155,614 | ||||||||||||
(1) None
of the Named Executive Officers exercised options in 2007.
(2) The
aggregate dollar amount realized upon vesting was computed by multiplying the
number of shares of stock by the market value of the underlying shares on the
vesting date.
UNDER
EQUITY COMPENSATION PLANS
Information on equity compensation
plans as of December 31, 2007 under which equity securities of the Company are
authorized for issuance is set forth in the following table. If the
2008 Stock Benefit Plan is approved by the stockholders, no additional awards
will be made under the existing plans.
|
Number
of Securities
to
be Issued
upon
Exercise of
Outstanding
Options/Stock
Awards(#)
|
Weighted
Average
Exercise
Price of
Outstanding Options($)
|
Number
of
Securities
Remaining
Available
for
Future Issuance(#)
|
||||||||||
|
Options:
|
||||||||||||
|
Equity
compensation plans approved
|
||||||||||||
|
by
security holders
|
2,481,328 | 44.06 | 149,775 | |||||||||
|
Equity
compensation plans not approved
|
||||||||||||
|
by
security holders
|
170,194 | 32.70 | - | |||||||||
|
Total
Options
|
2,651,522 | 43.33 | 149,775 | |||||||||
|
Restricted
Stock Awards:
|
||||||||||||
|
Equity
compensation plans approved
|
||||||||||||
|
by
security holders
|
164,099 | - | 15,373 | |||||||||
|
Equity
compensation plans not approved
|
||||||||||||
|
by
security holders
|
51,800 | - | - | |||||||||
|
Total
Restricted Stock Awards
|
215,899 | - | 15,373 | |||||||||
The Company does not maintain a defined
benefit pension plan or supplemental pension plan.
A description of the Company’s Deferred
Bonus Plan is included in the “Introduction to 2007 Summary Compensation”
beginning on page 22 and in Proposal 3 beginning on page 42. There
were no contributions by the Named Executive Officers in 2007 so the related
column has not been included.
|
Name
|
Registrant
Contributions
in 2007
($)(1)
|
Aggregate
Earnings in 2007
($)(2)
|
Aggregate
Withdrawal Distributions
($)(3)
|
Aggregate
Balance at 12/31/2007 ($)(4)
|
||||||||||||
|
Edward
J. Pettinella
|
- | - | - | - | ||||||||||||
|
David
P. Gardner
|
773 | 7,726 | 52,912 | 140,670 | ||||||||||||
|
Ann
M. McCormick
|
1,052 | 10,520 | 15,026 | 212,188 | ||||||||||||
|
Scott
A. Doyle
|
689 | 6,886 | - | 148,288 | ||||||||||||
|
John
E. Smith
|
- | - | - | - | ||||||||||||
(1) This
column represents the value of all hypothetical dividends paid in 2007 on all
shares in the Named Executive Officer’s deferred bonus account as a result of a
10% Company Match. The amounts listed above were also reported in the Summary
Compensation Table.
(2) 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 (1)
above.
(3) The
amounts listed in this column represent the value of the phantom stock on the
issue date, which includes the value of the deferred amount, the 10% Company
Match, hypothetical dividends reinvested and appreciation.
(4) The
total includes the following amounts also reported on the Summary Compensation
Table for 2007: Mr. Gardner $2,776; Mrs. McCormick $4,430; and Mr.
Doyle $5,103. It also includes the following amounts that were listed
as “bonus” in prior years’ proxy statements: Mr. Gardner $86,892;
Mrs. McCormick $147,955; and Mr. Doyle $132,434.
Other than Mr. Pettinella, none of the
Named Executive Officers have employment agreements which provide for any cash
payment or other benefits in the event of the termination of
employment. Any rights that any of the Named Executive Officers have
to such payments and benefits are the result of provisions in the various
compensation plans that, 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 2003 Stock
Benefit Plan and the proposed 2008 Stock Benefit Plan, in the event of the
termination of employment by the Company without good cause, any options held
for more than six months (one year with respect to the 2008 Stock Benefit Plan)
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 the Named Executive Officers 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, triggers benefits under disability and life
insurance plans provided by the Company. The benefits payable to the
Named Executive Officers under those plans are the same as those available to
other salaried employees, so no amount in respect to those plans is reported on
the table below.
The following table provides
information about the estimated amounts to be paid to the Named Executive
Officers 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.
|
Executive
Benefits and Payments Upon
Termination
|
Voluntary
Termination
($)
|
Involuntary
Not for Cause Termination
($)
|
For
Cause Termination
($)
|
Involuntary,
Voluntary or
Good
Reason
Termination
(Change
in Control)
($)
|
Retirement
($)
|
Death
or Disability
($)
|
||||||||||||||||||
|
Edward
J. Pettinella
|
||||||||||||||||||||||||
|
Severance
|
- | 3,553,228 | (1) | - | 3,675,753 | - | - | |||||||||||||||||
|
Accelerated
Vesting of Long-Term
Incentives(2)
|
- | 325,540 | - | 2,095,276 | 955,305 | 2,095,276 | ||||||||||||||||||
|
Other
Benefits and Tax Gross-Up
|
- | 42,136 | (3) | - | 985,495 | - | - | |||||||||||||||||
|
David
P. Gardner
|
||||||||||||||||||||||||
|
Severance
|
- | - | - | 1,161,474 | - | - | ||||||||||||||||||
|
Accelerated
Vesting of Long-Term
Incentives(2)
|
- | 103,620 | - | 839,474 | 325,163 | 839,474 | ||||||||||||||||||
|
Other
Benefits and Tax Gross-Up
|
- | - | - | - | - | - | ||||||||||||||||||
|
Ann
M. McCormick
|
||||||||||||||||||||||||
|
Severance
|
- | - | - | 1,006,484 | - | - | ||||||||||||||||||
|
Accelerated
Vesting of Long-Term
Incentives(2)
|
- | 94,920 | - | 703,310 | 269,100 | 703,310 | ||||||||||||||||||
|
Other
Benefits and Tax Gross-Up
|
- | - | - | - | - | - | ||||||||||||||||||
|
Scott
A. Doyle
|
||||||||||||||||||||||||
|
Severance
|
- | - | - | 832,130 | - | - | ||||||||||||||||||
|
Accelerated
Vesting of Long-Term
Incentives(2)
|
- | 72,200 | - | 429,968 | 145,763 | 429,968 | ||||||||||||||||||
|
Other
Benefits and Tax Gross-Up
|
- | - | - | - | - | - | ||||||||||||||||||
|
John
E. Smith
|
||||||||||||||||||||||||
|
Severance
|
- | - | - | 785,080 | - | - | ||||||||||||||||||
|
Accelerated
Vesting of Long-Term
Incentives(2)
|
- | 66,180 | - | 413,768 | 107,640 | 413,768 | ||||||||||||||||||
|
Other
Benefits and Tax Gross-Up
|
- | - | - | - | - | - | ||||||||||||||||||
(1) This
payment would be made pursuant to Mr. Pettinella’s employment agreement and is
based on his 2007 salary and 2006 bonus paid in 2007. This does not
include the amount Mr. Pettinella would receive in the year following
termination, which would equal the amount of incentive compensation that he
would have earned if he had been employed on December 31 of the year of
termination.
(2) The
vesting of options and restricted stock upon the occurrence of certain
termination triggers is made in accordance with the terms of the 2003 Stock
Benefit Plan, the Company’s prior stock benefit plans, or the Executive
Retention Plan, as applicable. For options, the amount listed
represents the gain realized for unvested stock option grants as of December 31,
2007, using a year-end closing stock price of $44.85. For restricted
stock, the amount listed represents the number of unvested restricted shares as
of December 31, 2007 multiplied by $44.85.
(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, 2007 until December 31, 2010.
The
following table sets forth information as of March 7, 2008 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.
|
Name of Owner
|
#
of Shares
Beneficially
Owned(1)
|
%
of
Shares
Outstanding(1)
|
#of
Shares/
UPREIT
Units
Owned(2)
|
%
of Shares/
UPREIT
Units
Outstanding(2)
|
||||||||||||
|
Edward
J. Pettinella(3)
|
545,086 | 1.691 | % | 545,086 | 1.194 | % | ||||||||||
|
Josh
E. Fidler(4)
|
7,565 | * | 524,672 | 1.158 | % | |||||||||||
|
Alan
L. Gosule(5)
|
29,411 | * | 29,411 | * | ||||||||||||
|
Leonard
F. Helbig, III(6)
|
68,844 | * | 68,844 | * | ||||||||||||
|
Roger
W. Kober(7)
|
29,899 | * | 29,899 | * | ||||||||||||
|
Nelson
B. Leenhouts(8)
|
104,138 | * | 308,362 | * | ||||||||||||
|
Norman
P. Leenhouts(9)
|
83,480 | * | 287,952 | * | ||||||||||||
|
Clifford
W. Smith, Jr.(10)
|
54,851 | * | 54,851 | * | ||||||||||||
|
Paul
L. Smith(11)
|
15,842 | * | 15,842 | * | ||||||||||||
|
Thomas
S. Summer(12)
|
8,565 | * | 8,565 | * | ||||||||||||
|
Amy
L. Tait(13)
|
69,844 | * | 83,657 | * | ||||||||||||
|
David
P. Gardner(14)
|
162,301 | * | 165,807 | * | ||||||||||||
|
Ann
M. McCormick(15)
|
148,176 | * | 150,478 | * | ||||||||||||
|
Scott
A. Doyle(16)
|
80,955 | * | 80,955 | * | ||||||||||||
|
John
E. Smith(17)
|
64,838 | * | 64,838 | * | ||||||||||||
|
All
executive officers and
|
||||||||||||||||
|
directors
as a group (19 persons)
|
1,639,129 | (18) | 4.994 | %(19) | 2,584,553 | 5.588 | (20) | |||||||||
*Less
than 1%
(1) Assumes
that all currently exercisable options or options exercisable within 60 days
(“Currently Exercisable Options”) issued to the person have been exercised 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 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
350,973 shares which may be acquired upon the exercise of Currently Exercisable
Options and 20,659 shares of restricted stock. Of the shares owned by
Mr. Pettinella, 154,654 have been pledged as collateral.
(4) Includes
3,150 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.
(5) Includes
17,350 shares which may be acquired upon the exercise of Currently Exercisable
Options and 1,940 shares of restricted stock. There are 5,794
additional shares in Mr. Gosule’s account pursuant to the Director Deferred
Compensation Plan.
(6) Includes
13,150 shares which may be acquired upon the exercise of Currently Exercisable
Options and 940 shares of restricted stock. There are 8,147
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.
(7) Includes
17,350 shares which may be acquired upon the exercise of Currently Exercisable
Options and 940 shares of restricted stock. There are 6,802
additional shares in Mr. Kober’s account pursuant to the Director Deferred
Compensation Plan.
(8) Includes
54,835 shares which may be acquired upon the exercise of Currently Exercisable
Options and 16,736 shares of restricted stock. There are 3,542
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. The fourth column also includes
50,000 UPREIT Units owned by Nelson Leenhouts’ spouse as to which he disclaims
beneficial ownership.
(9) Includes
34,082 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
16,426 shares of restricted stock. There are 929 additional shares in
Mr. Leenhouts’ account pursuant to the Director Deferred Compensation
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.
(10) Includes
17,350 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 17,058 additional shares in Mr. Smith’s account pursuant to the Director
Deferred Compensation Plan.
(11) Includes
5,950 shares which may be acquired upon the exercise of Currently Exercisable
Options and 3,215 shares of restricted stock. There are 1,413
additional shares in Mr. Paul Smith’s account pursuant to the Director Deferred
Compensation Plan. Of the shares owned, 6,377 have been pledged as
collateral.
(12) Includes
4,750 shares which may be acquired upon the exercise of Currently Exercisable
Options of 2,815 shares of restricted stock.
(13) Includes
17,350 shares which may be acquired by Mrs. Tait upon the exercise of Currently
Exercisable Options and 3,215 shares of restricted stock. Also
includes 5,036 shares held in a custodial account for Mrs. Tait’s minor children
and 2,115 shares owned by Mrs. Tait's spouse as to which she disclaims
beneficial ownership. Mrs. Tait shares voting and dispositive power
with respect to 15,000 shares with her spouse. The fourth column also
includes 11,195 UPREIT Units that Mrs. Tait owns individually, 2,548 UPREIT
Units with respect to which she shares voting and dispositive power with her
spouse and 70 UPREIT Units that her spouse owns and as to which Mrs. Tait
disclaims beneficial ownership. All of the jointly held
shares and UPREIT Units have been pledged as collateral, as have 1,400 shares
and 70 UPREIT Units owned by Mrs. Tait’s spouse and 26,821 shares and 11,195
UPREIT Units that Mrs. Tait owns individually.
(14) Includes
98,058 shares which may be acquired upon the exercise of Currently Exercisable
Options and 10,532 shares of restricted stock. Mr. Gardner shares
voting and dispositive power with his spouse with respect to 53,711 shares, all
of which have been pledged as collateral. The fourth column also
includes 3,506 UPREIT Units owned by Mr. Gardner. There are 1,925
additional shares in Mr. Gardner’s account pursuant to the Deferred Bonus
Plan.
(15) Includes
88,594 shares which may be acquired upon the exercise of Currently Exercisable
Options and 8,690 shares of restricted stock. Mrs. McCormick shares
voting and dispositive power with her spouse with respect to 50,892 shares, all
of which have been pledged as collateral. 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. There are 4,798 additional shares in Mrs. McCormick’s account
pursuant to the Deferred Bonus Plan.
(16) Includes
63,744 shares which may be acquired upon exercise of Currently Exercisable
Options, 5,477 shares of restricted stock and 222 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 3,353
additional shares in Mr. Doyle’s account pursuant to the Deferred Bonus
Plan.
(17) Includes
41,808 shares which may be acquired upon exercise of Currently Exercisable
Options, 5,850 shares of restricted stock and 540 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.
(18) Includes
937,077 shares which may be acquired upon the exercise of Currently Exercisable
Options and 110,763 shares of restricted stock. In addition to the
shares pledged as collateral as indicated in the footnotes above, 15,639 shares
have been pledged as collateral by other executive officers of the
Company.
(19) Assumes
that all Currently Exercisable Options issued to all listed persons have been
exercised and all shares of restricted stock issued to such persons have
vested.
(20) Same
assumptions as footnote (19) plus assumes that all UPREIT Units issued to all
listed persons have been exchanged for shares of Common Stock.
The following table sets forth
information regarding the beneficial ownership of Common Stock by each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock as of December 31, 2007. In preparing this
table, the Company has relied on information contained in filings with the
Securities and Exchange Commission.
|
Name and Address of Beneficial
Owner
|
Amount
and Nature of
Beneficial Ownership
|
Percentage
of Outstanding
Common Stock(1)
|
|
Cohen
& Steers, Inc.
280
Park Avenue, 10th
Floor
New
York, NY 10017
|
4,568,401(2)
|
14.01%
|
|
FMR,
LLC
82
Devonshire Street
Boston,
MA 02109
|
4,060,438(3)
|
12.46%
|
|
ING
Groep N.V.
Amstelveenseweg
500
1081
KL Amsterdam
The
Netherlands
|
2,443,937(4)
|
7.50%
|
|
The
Vanguard Group, Inc.
100
Vanguard Blvd.
Malvern,
PA 19355
|
2,109,674(5)
|
6.47%
|
|
Barclays
Global Investors, N.A.
45
Fremont Street
San
Francisco, CA 94105
|
1,953,221(6)
|
5.99%
|
(1) Percentage
is based on actual number of shares outstanding as of December 31, 2007 and may
be different than the percentage referenced in the reports described
below.
(2) Based
on a report on Schedule 13G (Amendment No. 4) filed jointly by Cohen &
Steers, Inc., and Cohen & Steers Capital Management, Inc. on February 13,
2008, reflecting that: Cohen & Steers, Inc. and Cohen & Steers
Management, Inc. beneficially own and have sole dispositive power with respect
to 4,568,401 shares and have sole voting power with respect to 4,366,636
shares. Cohen & Steers, Inc. holds a 100% interest in Cohen &
Steers Capital Management, Inc.
(3) Based
on a report on Schedule 13G (Amendment No. 1) filed by FMR LLC on February 14,
2008 reflecting that FMR LLC beneficially owns and has sole dispositive power
with respect to 4,060,438 shares and has sole voting power with respect to
978,700 shares.
(4) Based
on a report on Schedule 13G filed jointly by ING Groep N.V. and ING Clarion Real
Estate Securities, L.P. on February 14, 2008, reflecting
that: (a) ING Groep N.V. beneficially owns and has sole
voting and sole dispositive power with respect to 2,443,937 shares;
and (b) ING Clarion Real Estate Securities, L.P. beneficially owns and has sole
dispositive power over 2,356,913 shares, has sole voting power with respect to
961,627 shares and shared voting power with respect to 2,200
shares. Of the shares held by ING Groep N.V. 2,437,237 shares are
held by indirect subsidiaries of ING Groep N.V. in their role as a discretionary
manager of client portfolios and 6,700 shares are held by indirect subsidiaries
of ING Groep N.V. in their role as trustee. In addition to the
2,443,937 shares beneficially owned, ING Groep N.V. also holds 9,000 custodian
shares.
(5) Based
on a report on Schedule 13G (Amendment No. 3) filed by The Vanguard Group, Inc.
on February 14, 2008, reflecting that The Vanguard Group, Inc. beneficially owns
and has sole dispositive power with respect to 2,109,674 shares and has sole
voting power with respect to 33,436 shares.
(6) Based
on a report on Schedule 13G filed jointly by Barclays Global Investors, N.A.,
Barclays Global Fund Advisors, Barclays Global Investors, Ltd., Barclays Global
Investors Japan Trust and Banking Company Limited, Barclays Global Investors
Japan Limited, Barclays Global Investors Canada Limited, Barclays Global
Investors Australia Limited and Barclays Global Investors (Deutschland) AG, on
February 5, 2008, reflecting that (a) Barclays Global Investors, N.A.
beneficially owns and has sole dispositive power with respect to 1,259,063
shares and has sole voting power with respect to 1,051,305 shares; (b) Barclays
Global Fund Advisors beneficially owns and has sole voting and dispositive power
with respect to 673,647 shares; Barclays Global Investors, Ltd beneficially owns
and has sole voting and dispositive power with respect to 4,726 shares; and
Barclays Global Investors Japan Limited beneficially owns and has sole voting
and dispositive power with respect to 15,785 shares.
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
executive officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and the
NYSE. Officers, directors and greater than 10% stockholders are
required to furnish the Company with copies of all Section 16(a) forms
they file.
To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required during the fiscal year ended December 31, 2007, all Section 16(a)
filing requirements applicable to its executive officers, directors and greater
than 10% beneficial owners were satisfied, except as follows. The
purchase of 2,000 shares of Common Stock by Mr. Helbig was reported late as a
result of a delay related to a new filing software system used by the
Company. The redemption by the Company on March 26, 2007 of the 1,850
shares of Series F Cumulative Redeemable Preferred Stock (the “Series F
Preferred Stock”) held by Mr. Helbig was reported late. These shares
were redeemed by the Company on the same date and on the same terms as were all
of the other shares of Series F Preferred Stock. The accrual of
phantom stock units under the Company’s Deferred Bonus Plan (to be converted
into common shares at the end of the deferral period) into the deferred bonus
accounts of the following executive officers was reported late as was the
deposit of additional shares into those accounts pursuant to the dividend
reinvestment feature of the Deferred Bonus Plan: Johanna Falk: 479
phantom units on initial deferral/14 phantom units on dividend reinvestment;
Robert J. Luken: 392 phantom units on initial deferral/5 phantom units on
dividend reinvestment; Ann M. McCormick: 833 phantom units on initial
deferral/44 phantom units on dividend reinvestment; and Scott Doyle: 1,198
phantom units on initial deferral/22 phantom units on dividend
reinvestment. All of the above transactions were subsequently
reported on a Form 4.
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 2007 was
approximately $895,000, which remains unchanged for 2008. The lease
also requires the Operating Partnership to pay its pro-rata portion of property
improvements, real estate taxes and common area maintenance.
The Board
of Directors, in February 2007, approved the terms of an Employment Agreement
with Nelson Leenhouts in which he agreed to continue in his leadership role in
connection with the development activities of the Company. The
Employment Agreement was retroactive to January 1, 2007 as Mr. Leenhouts had
been performing the duties specified in the agreement since that
date. The base salary paid to Mr. Leenhouts for the period from
January 1, 2007 to December 31, 2007 was $300,000. In addition, Mr.
Leenhouts was paid a bonus in the amount of $157,500 in February 2008 for
services performed in 2007. The amount of the bonus was approved by
the Board of Directors. In 2008, Nelson Leenhouts will continue as an
employee of the Company, serving as a liaison to the development
team. The amount of base salary he will receive for 2008 will be
$292,000. He will also participate in the Company’s Incentive
Compensation Plan and has been assigned a bonus factor of 12%.
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 member of their immediate
family, is involved in any transaction or arrangement in which the Company is a
participant, that individual is to provide a written disclosure of that
transaction or arrangement. 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 which are
required to be reported in this Proxy Statement were approved by the Corporate
Governance/Nominating Committee pursuant to that policy.
APPROVAL
OF THE COMPANY’S 2008 STOCK BENEFIT PLAN
The Board of Directors believes that
the availability of stock options and other stock-based incentives is important
to the Company’s ability to attract and retain experienced employees and
non-employee directors and to provide an incentive for them to exert their best
efforts on behalf of the Company. There are currently three stock
benefit plans pursuant to which options and restricted stock have been issued to
employees and non-employee directors: the 1994 Stock Benefit Plan,
the 2000 Stock Benefit Plan and the 2003 Stock Benefit Plan. At the
2005 Annual Meeting of Stockholders, the stockholders approved an amendment to
the 2003 Stock Benefit Plan to increase the number of awards available for
issuance. The Board of Directors previously determined that no
additional shares will be awarded under the 1994 Stock Benefit Plan and the 2000
Stock Benefit Plan. The Board of Directors also has determined that
no additional awards will be made under the 2003 Stock Benefit Plan, as amended,
if the 2008 Stock Benefit Plan is approved by the stockholders. As of
March 7, 2008 and with respect to all three of the Company’s Stock Benefit
Plans, there were 2,764,506 awards outstanding, which represents 6.1% of the
aggregate of the Company’s outstanding Common Stock, UPREIT Units and Common
Stock equivalents (the “Outstanding Equity”).
The
outstanding UPREIT Units were issued over the course of the Company’s existence
as purchase price consideration to individuals and entities from whom the
Company purchased apartment communities. A key Company business strategy is the
acquisition and repositioning of multifamily communities that are 20 to 30 years
old. These are typically owned by sellers who may have initially
developed the communities and/or owned them since they were built. As
a result of receiving UPREIT Units, these sellers were able to defer the taxable
gain they would otherwise have incurred on the sale of their property. The Board
of Directors and management believe that the use of this deferral vehicle
contributed to the Company’s ability to buy apartment communities that fit one
of the Company’s core strategies at favorable prices. The Company has made more
use of the UPREIT Unit vehicle than others in its peer group. With UPREIT Units
comprising approximately 29% of the Company’s equity capitalization as of
December 31, 2007, the Company ranked in the top tier of all REITs for use of
this form of equity. To exclude UPREIT Units from the calculation of
Outstanding Equity would limit the Company’s ability to issue restricted stock
and options to its employees and directors at levels that are consistent with
those of its peer group who issued common stock rather than limited partnership
interests to fund their growth.
UPREIT
Units are exchangeable on a one-for-one basis into shares of Common
Stock. The exchange of an UPREIT Unit for Common Stock has no effect
on diluted earnings per share as unitholders and stockholders effectively share
equally in the net income of the Operating Partnership. In addition,
holders of UPREIT Units receive distributions in the same amount and at the same
time that dividends are paid to the Company’s stockholders. They are
also allocated a pro-rata share of the Company’s earnings, pari passu with the
holders of Common Stock. UPREIT Units are like Common Stock in
substantially every way, except with respect to voting rights. UPREIT
unitholders cannot vote at the Annual Meeting of Stockholders.
The Board
of Directors is recommending that the stockholders approve the 2008 Stock
Benefit Plan to provide for up to 2,450,000 shares for issuance of stock options
and restricted stock to employees (including the executive officers) and
non-employee directors. If the 2008 Stock Benefit Plan is approved by
the stockholders, the aggregate of the shares of Common Stock subject to
outstanding options, shares of restricted stock outstanding and shares available
for issuance under the 2008 Stock Benefit Plan would equal 11.5% of the
Outstanding Equity and 10.3% of the Outstanding Equity plus the aggregate of
shares of Common Stock subject to outstanding options, shares of restricted
stock outstanding and shares available for issuance under the 2008 Stock Benefit
Plan.
If the 2008 Stock Benefit Plan is not
approved by the stockholders, the Board of Directors believes that the Company
would be at a disadvantage compared to other companies in providing a
market-competitive total compensation package necessary to attract, retain and
motivate the talented employees and directors who are critical to the future
success of the Company.
The Company recognizes that
equity-based compensation is a valuable and limited resource, and understands
the risk of dilution to its stockholders. It, therefore, actively
manages its use of equity-based compensation. The Company’s “burn
rate” for equity awards for 2007, 2006 and 2005 was 1.45%, 1.53% and 1.47%
respectively, for a three-year average rate of 1.48%. The burn rate
is calculated by dividing the total of the options and restricted stock (with
each share of restricted stock being valued as 2.5 options) granted in each year
divided by the weighted average Outstanding Equity for the related
year. In connection with the proposed 2008 Stock Benefit Plan,
over the next three years (through the Annual Meeting of Stockholders in 2011),
the Company intends to maintain an average burn rate of 2.0% or
less.
The complete text of the 2008 Stock
Benefit Plan is attached to this Proxy Statement as Exhibit
A. The following description of the 2008 Stock Benefit Plan is
a summary of certain provisions and is qualified in its entirety by reference to
Exhibit
A.
Eligibility. All
employees (including officers) of the Company and non-employee directors are
eligible to be selected for awards under the 2008 Stock Benefit
Plan. The number of persons who currently hold awards granted under
the 2003 Stock Benefit Plan is approximately 300.
Shares Subject to
Plan. The maximum number of shares of Common Stock which may
be subject to an award under the 2008 Stock Benefit Plan is
2,450,000. Stock options awarded reduce the number of shares
available for awards by one share for every one share granted. Awards
of restricted stock reduce the number of shares available for award by one share
for every one share awarded, up to 250,000 shares; beyond that, restricted stock
reduces the number of shares available for award by 3.5 shares for every one
share awarded.
Administration. The
2008 Stock Benefit Plan is administered by the Compensation Committee of the
Board of Directors (the “Committee”). The Committee has full
authority to administer the 2008 Stock Benefit Plan, including authority to
interpret and construe any provision of the 2008 Stock Benefit Plan and to adopt
such rules and regulations for administering the 2008 Stock Benefit Plan as it
may deem necessary. The Committee determines the individuals to whom
awards are made under the 2008 Stock Benefit Plan, the amount of the awards, and
the other terms and conditions of the awards. The Committee, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Committee’s authority and duties with respect to awards, including
the granting thereof, to individuals who are not executive officers of the
Company. The Committee may revoke or amend the terms of a delegation
at any time but such action shall not invalidate any prior actions of the
Committee’s delegate or delegates that were consistent with the terms of the
Plan.
Duration of the
Plan. The 2008 Stock Benefit Plan will continue until the
later of: (a) last expiration date of any option awarded under the
Stock Plan; and (b) the last vesting date of any restricted stock awarded under
the 2008 Stock Benefit Plan. No Awards will be granted under the 2008
Stock Benefit Plan after May 1, 2018.
Limitation. A
participant under the 2008 Stock Benefit Plan may not receive more than 200,000
shares underlying options in any calendar year. In addition, the aggregate fair
market value of Common Stock with respect to which incentive stock options are
exercisable for the first time by a participant during any calendar year may not
exceed $100,000.
Terms and Conditions of
Awards. The Committee may grant awards subject to vesting
schedules or restrictions and contingencies acceptable to the Committee provided
that: (i) the vesting schedule for stock options shall not be any
shorter than 33.34% per year; (ii) the restrictions on restricted stock granted
shall not lapse fewer than three years after the date of grant. Awards may be
subject to acceleration such that they become fully vested, exercisable and
released from any restrictions or contingencies upon the occurrence of a change
of control (as defined in the 2008 Stock Benefit Plan), death and total
disability. Upon retirement, however, options held by any director or executive
officer participant continue according to their original vesting schedule and
the restrictions on any restricted stock continue as specified when the
restricted stock was issued.
No option award may be granted with a
term of more than ten years from the date of grant.
Additional Restrictions on Executive
Officers and Directors. The executive officers and the
non-employee directors are subject to additional restrictions under the 2008
Stock Benefit Plan. Executive officers may only sell that number of shares in
connection with a stock option exercise as is necessary to pay the exercise
price and related commissions as well as to satisfy tax withholding
requirements. They must also retain the equivalent number of shares (or share
equivalents) received in an option exercise for no less than one year following
the exercise. Non-employee directors may only sell that number of shares in
connection with a stock option exercise as is necessary to pay the exercise
price and any related income tax but not to exceed 35% of the gain. Non-employee
directors are subject to the same one-year holding requirement as the executive
officers.
Director
Awards. The 2008 Stock Benefit Plan provides for the issuance
of stock options and restricted stock to the non-employee directors in each of
2008, 2009 and 2010. For 2008, the number of options and shares of
restricted stock to be issued is to be equal to a value of $26,000 and $55,000,
respectively, with the value to be determined as described in the 2008 Stock
Benefit Plan. For 2009 and 2010, the Committee will determine the
number of options and shares of restricted stock to be issued based on a peer
comparison and other factors. No more than, 6,000 options and 2,000
shares of restricted stock can be issued to each eligible director in each of
2009 and 2010.
Exercise
Price. The 2008 Stock Benefit Plan authorizes the Committee to
grant options at an exercise price of not less than 100% of the fair market
value of the shares on the date of grant, based on the last reported sale price
on the New York Stock Exchange on that date. The exercise price is generally
payable in cash, check, surrender of pre-owned shares of common stock that have
been held for more than six months, an exercise and sale, or by such other means
determined by the Committee.
Option Repricing
Prohibited. The exercise price for any outstanding option may
not be decreased after the date of grant, nor may any outstanding option be
surrendered as consideration for the grant of a new option with a lower exercise
price.
Transferability of
Awards. An option shall be exercisable during the
participant’s lifetime only by the participant, his or her guardian or legal
representative or by such other means as the Committee may approve subject to
applicable securities laws. Generally, awards may not be transferred other than
by will or the laws of descent and distribution.
Adjustments Upon Changes in
Capitalization. The number and types of shares covered by
outstanding awards, the number of shares authorized for issuance under the 2008
Stock Benefit Plan, the exercise price of each outstanding award, the maximum
number and types of shares that may be granted to any participant in a fiscal
year, and other terms may be adjusted by the Committee in the event of any stock
dividend, stock split, merger, consolidation, reorganization, recapitalization,
spin-off or similar transaction, or any other change in corporate structure
affecting shares.
Change of
Control. In the event of a change of control as defined in the
2008 Stock Benefit Plan, outstanding awards will be subject to accelerated
vesting and the restrictions on restricted stock shall lapse.
Amendment or
Termination. The Board of Directors may amend or terminate the
2008 Stock Benefit Plan at any time, subject to stockholder approval in certain
circumstances described in the 2008 Stock Benefit Plan. Generally, material
amendments to the 2008 Stock Benefit Plan require stockholder approval. No
amendment or termination of the 2008 Stock Benefit Plan may adversely affect
outstanding awards unless consented to by the participant in
writing.
Certain Federal Tax
Consequence. The grant of stock options under the 2008 Stock
Benefit Plan normally will not result in any federal income tax consequences to
the grantee or to the Company.
Upon
exercise of a non-statutory stock option the grantee recognizes ordinary
compensation income on the difference between the option exercise price and the
fair market value of the shares on the date of exercise. Any gain or loss on the
grantee’s subsequent disposition of the shares will receive capital gain or loss
treatment.
In the
case of an incentive option, the grantee recognizes no federal taxable income
upon exercising the option (subject to the alternative minimum tax rules
discussed below), except that if the incentive option, if exercisable, is
exercised more than three months (one year in the case of death or disability)
after termination of employment, the tax treatment described above for
non-statutory options will apply. In the event of a disposition of stock
acquired upon exercise of an incentive option, the tax consequences depend upon
how long the grantee has held the shares. If the grantee does not dispose of the
shares within two years after the incentive option was granted, or within one
year after exercise, the grantee will recognize a long-term capital gain (or
loss) equal to the difference between the sale price of the shares and the
exercise price. Failure to satisfy either of the above holding periods results
in ordinary compensation income in the year of disposition (a “disqualifying
disposition”) equal to the lesser of: (i) the difference between the amount
realized on the disposition and the exercise price; or (ii) the difference
between the fair market value of the stock on the exercise date and the exercise
price. Any gain to the grantee in excess of the amount taxed as ordinary income
will be treated as capital gain. The difference between the fair market value of
the shares at exercise and the exercise price is classified as an item of
adjustment in the year of exercise of an incentive option for purposes of the
grantee’s alternative minimum tax. This treatment will not apply if there is a
disqualifying disposition in the same calendar year in which the incentive stock
options are exercised.
Grantees
of restricted stock will recognize no income at the time of grant. On the date
that the restrictions lapse, the recipient will recognize ordinary compensation
income on the difference between the amount paid for such stock (normally zero)
and the fair market value of these shares on that date. Any gain or loss on the
recipient’s later disposition of the shares will receive capital gain or loss
treatment.
Recipients
of restricted stock may, within 30 days after issuance, make a “Section 83(b)
election” to recognize as ordinary compensation income in the year that
restricted stock is received the amount equal to the spread between the amount
paid for such stock and the fair market value on the date of the issuance of the
stock. If that election is made, the recipient recognizes no further
compensation income upon the lapse of restrictions and any subsequent
disposition will give rise to capital gain or loss based on the difference
between the compensation income recognized under the election and the sale
proceeds.
Compensation
income recognized by an employee in the various situations discussed above may
be subject to withholding for federal income and employment tax
purposes.
Capital
gain or loss is treated as long-term or short-term depending on whether the
shares are held for more than one year following exercise (one year following
lapse of the restrictions in the case of restricted stock). Capital
gain income is not subject to tax withholding.
The foregoing is only a summary of
the federal income tax consequences of 2008 Stock Benefit Plan transactions and
is based upon federal income tax laws in effect on the date of this Proxy
Statement. Reference should be made to the applicable provisions of the Internal
Revenue Code. This summary does not purport to be complete, and does not discuss
the tax laws of any municipality, state or foreign country to which the grantee
may be subject.
The following table sets forth
information relating to grants to be made under the 2008 Stock Benefit Plan
pursuant to the specific provisions of the 2008 Stock Benefit Plan. Additional
awards may be made from time to time under the 2008 Stock Benefit Plan to
non-employee directors, executive officers and other employees at the discretion
of the Committee.
|
Name and Position
|
Dollar Value($)
|
Number
of Shares Subject to Options/Restricted Stock Awards(#)
|
||||||
|
Edward
J. Pettinella
|
$ |
0
|
(1) | |||||
|
President
and Chief Executive Officer
|
||||||||
|
David
P. Gardner
|
$ | 0 | (1) | |||||
|
Executive
Vice President and Chief Financial Officer
|
||||||||
|
Ann
M. McCormick
|
$ | 0 | (1) | |||||
|
Executive
Vice President, General Counsel and Secretary
|
||||||||
|
Scott
A. Doyle
|
$ | 0 | (1) | |||||
|
Senior
Vice President
|
||||||||
|
John
E. Smith
|
$ | 0 | (1) | |||||
|
Senior
Vice President
|
||||||||
|
Named
Executives Group
|
$ | 0 | (1) | |||||
|
Non-Employee
Directors as a Group(2)
|
- | 143,528/45,392 | ||||||
|
Non-Named
Executives Employees as a Group
|
$ | 0 | (1) | |||||
(1) The
2008 Stock Benefit Plan is to be administered by the Committee, which will
determine the persons to be granted awards under the 2008 Stock Benefit Plan and
the number and type of awards to be granted. It is expected that the Committee
will consider an unknown number and type of awards for grant to the Named
Executive Officers following the Annual Meeting of Stockholders in May
2008. The exercise price of any option may not be less than 100% of
the fair market value of the Company’s Common Stock on the date of the
grant.
(2) The
2008 Stock Benefit Plan provides that each of the non-employee directors will be
granted options to purchase shares of the Company’s Common Stock having a value
of $26,000 immediately following the Annual Meeting of Stockholders in May 2008
and options to purchase up to 6,000 shares of the Company’s Common Stock
immediately following the Annual Meeting of Stockholders in 2009 and 2010. The
options are to have an exercise price equal to the fair market value of the
Company’s Common Stock on the date of the grants. The 2008 Stock Benefit Plan
also provides for the grant of restricted stock having a value of $55,000 to
each of the non-employee directors on May 9, 2008 and up to 2,000 shares of
restricted stock immediately following the Annual Meeting of Stockholders in
2009 and 2010. Assuming all of the Nominees are elected, there will
be eight non-employee directors following the 2008 Annual Meeting of
Stockholders, with the anticipation that a ninth non-employee director will be
appointed prior to the 2009 Annual Meeting of Stockholders. For
purposes of the table, it has been assumed that each of the eligible directors
has been issued the maximum number of options and shares of restricted stock in
2009 and 2010. For 2008, the number of options and shares of
restricted stock listed on the table is calculated as if the award were based on
the closing price of a share of the Company’s Common Stock on March 7,
2008.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2008
STOCK BENEFIT PLAN.
APPROVAL
OF THE AMENDMENT TO
DEFERRED
BONUS PLAN
Management and the Board of Directors
believe that the Company’s Deferred Bonus Plan assists the Company in remaining
competitive in attracting and retaining its key employees because that plan
assists those employees with their individual tax and financial
planning. The Company also believes that it is important for key
employees to hold a significant stake in the Company so that their interests are
closely aligned with those of the stockholders. The Deferred Bonus
Plan is one method whereby employees can easily acquire more of the Company’s
Common Stock. The Company contributes 10% of the cash amount each
participant defers in order to encourage employees to use this
method. Payments of vested amounts under the Deferred Bonus Plan are
generally made in shares of Common Stock.
The Deferred Bonus Plan as originally
adopted in 1998 provided for the issuance of up to 100,000 shares. As
of March 7, 2008, only 9,204 shares remain available for issuance.
The
stockholders are being asked to approve an amendment to the Deferred Bonus Plan
to increase the total number of shares of Common Stock to be available for
issuance there under to 150,000 shares. If the stockholders do not
approve the increase in the number of shares of Common Stock available for
issuance under the plan to 150,000, the Board of Directors may independently
decide to do so. If the Board of Directors were to determine to add
the 50,000 shares without stockholder approval, it would also eliminate the 10%
Company contribution as it is the only feature of the plan that requires
stockholder approval.
The complete text of Deferred Bonus
Plan is attached as Exhibit
B. If this Proposal 3 is approved, the first sentence of
Section 5(h) of the Deferred Bonus Plan would be amended to provide: “An
aggregate of 150,000 shares of Company Common Stock (subject to substitution or
adjustment as provided below) shall be available for stock payments under this
Plan”.
The following description of the
Deferred Bonus Plan is a summary of certain provisions and is qualified entirely
by reference to Exhibit
B.
Description
of the Deferred Bonus Plan
Eligibility. Every
employee who has been assigned a bonus factor of 3% and above under the
Company’s Incentive Compensation Plan, who also qualify as a “highly compensated
employee” as defined in the Internal Revenue Code of 1986, as well as a member
of a “select group of management or highly compensated employees” as defined in
Employee Retirement Income Security Act of 1974 (ERISA) is eligible to
participate in the Deferred Bonus Plan. There are currently
approximately 35 employees eligible to participate.
Administration. The
Deferred Bonus Plan is administered by the Compensation Committee of the
Board. The Committee has full authority to administer this plan and
to adopt rules and regulations for carrying out this plan and to interpret,
construe and implement its provisions.
Contributions. Eligible
employees can elect to defer up to 100% of their total annual bonus under the
Company’s Incentive Compensation Plan for three, five or ten
years. The Company matches 10% of the deferred cash amount, which
amount vests after three years.
Accounts. A
“phantom” stock account is established for each of the employee and Company
contribution amounts. Each deferral and the Company contribution is
reflected by crediting those accounts with the phantom equivalent of the number
of shares of the Company’s Common stock that could be purchased with the amounts
deferred and contributed at the Common Stock’s fair market value the day before
the compensation would otherwise have been paid. Participants'
accounts are also credited with the number of shares of the Company's Common
Stock that could be purchased with hypothetical dividends that would be paid
with respect to shares previously allocated to the accounts on the same date and
at the same price that shares are purchased for participants in the dividend
reinvestment feature of the Company's DRIP.
Payment of Deferred
Amounts. Payment of vested amounts from a participant’s
accounts is to be made in a lump sum payment or in annual installments, at the
participant’s option, commencing on the first dividend payment date following an
elected anniversary or termination of employment, except that for certain key
employees, payment upon termination of employment shall be delayed for six
months to the extent required by Section 409A of the Internal Revenue Code of
1986. 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 Committee.
Transferability of
Award. The rights of a participant under the Deferred Bonus
Plan are not transferable other than by will or the laws of descent and
distribution and may be exercised during the participant’s lifetime only by the
participant or by his or her guardian or legal representative.
Adjustments Upon Change in
Capitalization. The number and kind of shares which are
available for stock payments under the Deferred Bonus Plan may be adjusted by
the Committee in the event of any stock dividend, recapitalization,
reorganization, merger, consolidation, split-up, combination, exchange of shares
or similar transactions.
Change of
Control. In the event of a change of control as defined in the
Deferred Bonus Plan, all account balances become fully and immediately vested
and are paid in cash or Common Stock at the discretion of the
Committee.
Amendment or
Termination. The Board of Directors may amend or terminate the
Deferred Bonus Plan at any time provided that no such action may accelerate the
time or schedule of payment of any amount under the plan, except as permitted by
the Internal Revenue Code. No amendment or termination may adversely
affect a participant’s account under this plan, without his or her
consent.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
DEFERRED BONUS PLAN.
RATIFICATION
OF APPOINTMENT OF THE COMPANY’S
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2008
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,
2008. PricewaterhouseCoopers LLP (and its predecessor, Coopers &
Lybrand, L.L.P.) has served as the Company’s independent registered public
accounting firm since commencement of the Company’s operations and is considered
by the Audit Committee, the Board of Directors and management of the Company to
be well qualified. The stockholders are being asked to ratify the
Audit Committee’s appointment of PricewaterhouseCoopers LLP. If the
stockholders fail to ratify this appointment, the Audit Committee may, but is
not required to, reconsider whether to retain that firm. Even if the
appointment is ratified, the Audit Committee in its discretion may direct the
appointment of a different accounting firm at any time during the year if it
determines that such a change would be in the best interests of the Company and
its stockholders. A representative of PricewaterhouseCoopers LLP will
be present at the Annual Meeting and will be given the opportunity to make a
statement if he or she so desires and will be available to respond to
appropriate questions.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM OF THE COMPANY FOR THE 2008 FISCAL YEAR.
The Audit
Committee of the Board of Directors of the Company is composed entirely of
independent directors as required by applicable securities laws and the current
listing standards of the NYSE. Its members are identified at the end
of this report. The Audit Committee operates under a written charter
adopted by the Committee and the Board.
As described more fully in its Charter,
the Audit Committee assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing and financial
reporting practices of the Company. Among other matters, the Audit
Committee is responsible for the selection and oversight of the Company’s
independent registered public accounting firm.
The management of the Company is
responsible for the preparation and integrity of the financial reporting
information and related systems of internal controls. The independent
registered public accounting firm is responsible for performing an integrated
audit on the Company’s consolidated financial statements as well as on the
effectiveness of the Company’s internal control over financial reporting in
accordance with 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
2007, the Committee met six 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, 2007, for filing with the
Securities and Exchange Commission.
|
Submitted
by the Audit Committee,
|
|
|
Paul
L. Smith, Chair
|
|
|
Alan
L. Gosule
|
|
|
Roger
W. Kober
|
|
|
Thomas
S. Summer
|
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
2007 and 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 for the years
ended December 31, 2007 and 2006, were:
|
2007
|
2006
|
|||||||
|
Audit
fees(1)
|
$ | 893,450 | $ | 871,000 | ||||
|
Audit-related
fees(2)
|
55,000 | 257,000 | ||||||
|
Tax
fees(3)
|
182,160 | 154,500 | ||||||
|
All
other fees(4)
|
51,825 | 59,500 | ||||||
|
Total
fees
|
$ | 1,182,435 | $ | 1,342,000 | ||||
(1) Audit
fees consisted of professional services rendered for the audits of the
consolidated financial statements of the Company and the audit of the Company’s
effectiveness 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 ($102,760 for 2007 and $91,500 for 2006) and tax planning and tax advice
($79,400 for 2007 and $63,000 for 2006).
(4) All
other fees consisted of license fees for software developed by
PricewaterhouseCoopers LLP that assists with partner allocations for the
Operating Partnership.
The cost of solicitation of proxies in
the form enclosed herewith will be paid by the Company. In addition
to the solicitation of proxies by mail, the directors, officers and employees of
the Company may also solicit proxies personally or by telephone without
additional compensation for such activities. The Company will also
request persons, firms and corporations holding shares in their names or in the
names of their nominees, which are beneficially owned by others, to send proxy
materials to and obtain proxies from such beneficial owners. The
Company will reimburse such holders for their reasonable
expenses. The Company has also retained The Bank of New York Mellon
Corporation to aid in the solicitation of proxies by mail and
telephone. The Company will reimburse Mellon for its reasonable
out-of-pocket expenses in connection with those services.
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 2009 Annual Meeting of stockholders
must be received by the Company by the close of business on December 4,
2008. Any proposal received after February 16, 2009 will not, under
the rules of the SEC, be considered timely for presentation at the 2009 Annual
Meeting. A proposal must comply with the requirements as to form and
substance established by the SEC for such a proposal to be included in the Proxy
Statement and form of proxy, and the proponent or a representative of the
proponent must attend the annual meeting to present the proposal.
Copies
of the Form 10-K may be obtained without charge from Shareholder Services, Home
Properties, Inc., 850 Clinton Square, Rochester, New York 14604. A
copy of the Form 10-K is also available through the Company’s Web site at
www.homeproperties.com or from the SEC at its Web site at
www.sec.gov.
The Board
of Directors does not know of any matters other than those described in this
Proxy Statement which will be presented for action at the Annual
Meeting. If other matters are presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
REGARDLESS
OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT TO THE
COMPANY. PLEASE VOTE
BY INTERNET, TELEPHONE OR COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD TODAY.
HOME
PROPERTIES, INC.
2008
STOCK BENEFIT PLAN
1. PURPOSES
OF THE PLAN
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The
purposes of this 2008 Stock Benefit Plan (the "Plan") are to enable Home
Properties, Inc. (the "Company") and its Subsidiaries to attract and
retain the services of individuals who are important to the future success
of the Company, including key employees, as well as members of the Board
of Directors and to provide them with increased motivation and incentive
to exert their best efforts to enhance the long term value of the Company
by enlarging their personal stake in its
success.
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2. GENERAL
PROVISIONS
2.1 Definitions.
As used in the Plan:
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(a)
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"Award"
means a grant of a Stock Option or Restricted
Stock.
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(b)
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"Board
of Directors" means the Board of Directors of the
Company
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(c)
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“Business
Day” means any day other than a Saturday, Sunday or a day on which state
or federally chartered banking institutions in New York City, New York are
not required to be open.
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(d)
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“Business
Combination” means a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company.
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(e)
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“Change
of Control” means an event that is “a change in the ownership or effective
control of the corporation, or in the ownership of a substantial portion
of the assets of the corporation” within the meaning of Code Section 409A
and that also falls within one of the following
circumstances:
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(i)
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a
change of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A or to Item 5.01 of Form 8-K
promulgated under the Securities Exchange Act of 1934, as amended;
or
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(ii)
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any
“person” (as such term is used in Sections 13(d) and 14(d)(2) of such Act)
is or becomes the beneficial owner, directly or indirectly, of securities
of the Company representing 30% or more of the combined voting power of
the Company’s then outstanding securities;
or
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(iii)
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during
any period of twenty-four (24) consecutive months, individuals who at the
beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company’s shareholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
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(f)
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"Code"
means the Internal Revenue Code of 1986, including any and all amendments
thereto.
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(g)
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"Committee"
means the committee appointed by the Board of Directors from time to time
to administer the Plan pursuant to Section 2.2. Until changed
by the Board of Directors, the Committee shall be the Compensation
Committee of the Board of
Directors.
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(h)
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"Common
Stock" means the Company's Common Stock, $.01 par
value.
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(i)
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"Company"
means Home Properties, Inc. and any of its predecessors, subsidiaries or
successors.
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(j)
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"Eligible
Director" means a member of the Company's Board of Directors who is not
otherwise an employee of the Company or any
Subsidiary.
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(k)
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“Exchange
Act” means the Exchange Act of 1934, including any and all amendments
thereto.
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(l)
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“Executive
Officer” means each officer of the Company who is subject to the reporting
provisions and trading restrictions of Section 16 of the Exchange
Act.
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(m)
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“Exercise
Date” means the date that the notice of exercise and payment are received
by the office of the Corporate Secretary of the Company or its designee as
to the number of shares as to which the option is then being
exercised.
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(n)
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"Fair
Market Value" on any given date means the last reported sale price at
which a share of Common Stock is traded on such date or, if no shares of
Common Stock are traded on such date, the most recent date on which a
share of Common Stock was traded, as reflected on the New York Stock
Exchange or, if applicable, any other national stock exchange on which the
Common Stock is traded.
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(o)
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“Good
Cause” means that a Participant’s employment by, relationship with or
service as an Eligible Director of the Company has been terminated by
written notice because: (i) of his or her conviction of a felony for
a crime involving an act of fraud or dishonesty, (ii) of intentional acts
or omissions on such Participant's part causing material injury to the
property or business of the Company, or (iii) such Participant shall have
breached any material term of any employment agreement in place between
such Participant and the Company and shall have failed to correct such
breach within any grace period provided for in such agreement or an
employee shall have breached any material condition of employment and
shall have failed to correct that breach within a reasonable period of
time. "Good cause" for termination shall not include bad
judgment or any act or omission reasonably believed by such Participant,
in good faith, to have been in, or not opposed to, the best interests of
the Company.
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(p)
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"Incentive
Stock Option" means an option granted under the Plan that is intended to
qualify as an incentive stock option under Section 422 of the
Code.
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(q)
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“Merger
Price” means the value (as determined by the Committee) of the
consideration payable for shares of Common Stock pursuant to a Business
Combination.
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(r)
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"Non-Qualified
Stock Option" means an option granted under the Plan that is not an
Incentive Stock Option.
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(s)
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“Option
Value” means the value of a Stock Option which shall be calculated by
multiplying the number of shares of Common Stock that are subject to the
Stock Option by 12.5% of the Fair Market Value of a share of Common Stock
on the grant date of the Stock
Option.
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(t)
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"Participant"
means a person to whom an Award has been granted under the
Plan.
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(u)
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“Person”
means any individual, entity or
group.
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(v)
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"Restricted
Stock" means shares of Common Stock awarded to a Participant subject to
such conditions on vesting, transferability and other restrictions as are
provided in Sections 4.1 and 4.2 of this Plan or as otherwise established
by the Committee.
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(w)
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“Restricted
Stock Value” means the value of shares of Restricted Stock which shall be
calculated by multiplying the number of shares of Restricted Stock times
the Fair Market Value of a share of Common Stock on the issue date of the
Restricted Stock.
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(x)
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“Retirement”
means with respect to an employee Participant a retirement pursuant to the
Company’s policies and with respect to an Eligible Director means
mandatory retirement pursuant to Board
policy.
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(y)
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"Rule
16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor rule.
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(z)
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"Stock
Option" means an Incentive Stock Option or a Non-Qualified Stock Option
granted under the Plan.
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(aa)
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"Subsidiary"
means Home Properties, L.P., Home Properties Resident Services, Inc., or
any partnership of which the Company is general partner and holder of a
majority of interests or any other entity in which the Company, directly
or indirectly owns 50% or more of the voting stock or other equity or
holds interests with the right to elect the governing body of such
entity.
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(bb)
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“Total
Disability” means total and permanent mental or physical disability as
determined by the Committee.
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(cc)
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“Transaction”
shall have the meaning given to it in Section
5.2.
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2.2
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Administration
of the Plan.
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(a)
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The
Plan shall be administered by the Committee appointed by the Board of
Directors which shall at all times consist of three (3) or more persons,
each of whom shall be members of the Board of Directors and shall qualify
as an “independent director” within the meaning of the New York Stock
Exchange Listed Company Manual, as amended from time to time and any
successor thereto, as an “outside director” within the meaning of Section
162(m) of the Code and as a “non-employee director” within the meaning of
Rule 16b-3 promulgated under the Exchange Act. The Board of Directors may
from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall
be filled by the Board of Directors. The Committee shall select
one of its members as Chairman, and shall hold meetings at such times and
places as it may determine.
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(b)
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The
Committee shall have the full power, subject to and within the limits of
the Plan, to: (i) interpret and administer the Plan, and any Awards
made under it; (ii) make and interpret rules and regulations for the
administration of the Plan and to make changes in and revoke such rules
and regulations (and in the exercise of this power, shall generally
determine all questions of policy and expediency that may arise and may
correct any defect, omission, or inconsistency in the Plan or any
agreement evidencing the grant of any Award in a manner and to the extent
it shall deem necessary to make the Plan fully effective); (iii) determine
those persons to whom Awards shall be granted and the number of Awards and
the nature of the Awards to be granted to any person subject to any
limitations imposed by applicable law or regulations or resolutions of the
Board of Directors of the Company; (iv) determine the terms of Awards
granted under the Plan, consistent with the provisions of the Plan; and
(v) generally, exercise such powers and
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perform
such acts in connection with the Plan as are deemed necessary or expedient
to promote the best interests of the Company. The
interpretation and construction by the Committee of any provisions of the
Plan or of any Award shall be final, binding and
conclusive.
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(c)
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The
Committee may act only by a majority of its members then in office;
however, the Committee may authorize any one or more of its members or any
officer of the Company to execute and deliver documents on behalf of the
Committee.
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(d)
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The
Committee, in its discretion, may delegate to the Chief Executive Officer
of the Company all or part of the Committee’s authority and duties with
respect to Awards, including the granting thereof, to individuals who are
not Executive Officers of the Company. The Committee may revoke
or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Committee’s delegate or delegates that
were consistent with the terms of the
Plan.
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(e)
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No
member of the Committee shall be liable for any action taken or omitted to
be taken or for any determination made by him or her in good faith with
respect to the Plan, and the Company shall indemnify and hold harmless
each member of the Committee against any cost or expense (including
counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any act or
omission in connection with the administration or interpretation of the
Plan, unless arising out of such person's own fraud or bad
faith.
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2.3
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Effective
Date.
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This
2008 Stock Benefit Plan has been adopted by the Board of Directors and
shall be effective upon approval by the Company’s
stockholders.
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2.4
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Duration.
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The
Plan shall remain in effect until the later of: (a) latest
exercise date of any Stock Option awarded under the Plan and (b) the last
vesting date of any Restricted Stock Award under the Plan. No
Awards shall be granted under this Plan after May 1,
2018.
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2.5
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Shares
Subject to the Plan.
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The
maximum number of shares of Common Stock which may be subject to Awards
granted under the Plan shall be Two Million Four Hundred Fifty Thousand
(2,450,000). Stock Options awarded shall reduce the number of
shares available for Awards by one share for every one share
granted. Awards of Restricted Stock shall reduce the number of
shares available for Award by one share for every one share awarded, up to
250,000 shares; beyond that, Restricted Stock shall reduce the number of
shares available for Award by 3.5 shares for every one share
awarded.
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The
Awards shall be subject to adjustment in accordance with Section 5.1
and shares to be issued upon exercise of Awards may be either authorized
and unissued shares of Common Stock or authorized and issued shares of
Common Stock purchased or acquired by the Company for any
purpose.
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If
any shares of Common Stock subject to an Award are forfeited, cancelled,
exchanged or surrendered or if an Award terminates or expires without a
distribution of shares of Common Stock to the Participant, to the extent
of any such forfeiture, cancellation, exchange, surrender, termination or
expiration, such shares shall again be available for Awards under the
Plan. If shares of Common Stock are surrendered or withheld as
payment of either the exercise price of an Award and/or withholding taxes
in respect of such an Award, such shares of Common Stock shall not be
returned to the Plan and shall not be available for future awards under
the Plan.
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2.6
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Amendments.
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The
Plan may be suspended, terminated or reinstated, in whole or in part, at
any time by the Board of Directors. This Plan may be amended
only with the approval of the holders of a majority of the shares of
Common Stock eligible to vote. Notwithstanding the prior
sentence, the Board of Directors may from time to time make amendments to
the Plan without shareholder consent if such amendments are made
to: (i) reflect a change that is of an immaterial nature or to
cure any ambiguity; (ii) comply with Section 422 of the Code with respect
to Incentive Stock Options, Rule 16b-3 and the rules of the New York Stock
Exchange or any successor or replacement provisions and any regulations
issued thereunder; (iii) satisfy any requests, conditions or guidelines
contained in any order, direction, opinion, ruling or regulation of a
federal or state agency or contained in federal or state law; and (iv)
comply with Section 409A of the
Code.
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Except
as otherwise provided herein, termination or amendment of the Plan shall
not, without the consent of a Participant, affect such Participant's
rights under any Award previously granted to such
Participant.
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Subject
to the restrictions contained in Section 3.3 of this Plan, the Committee
may also amend or modify the grant of any outstanding Award in any manner
to the extent that the Committee would have had the authority to make such
Award as so modified or amended.
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2.7
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Participants
and Grants.
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Awards
may be granted by the Committee to Eligible Directors and to those
employees of the Company who the Committee determines have the capacity to
make a substantial contribution to the success of the
Company. The Committee may grant Stock Options to purchase such
number of shares of Common Stock (subject to the limitations of Sections
2.5 and 3.2) as the Committee may, in its sole discretion,
determine. The Committee also may grant Restricted Stock
(subject to the limitations in Sections 2.5 and 4.2) as the Committee may,
in its discretion determine. Notwithstanding the foregoing, the
maximum number of shares of Common Stock covered by all Awards granted in
any calendar year to any Participant may not exceed 200,000
shares.
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3.
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STOCK
OPTIONS
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3.1
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General.
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Incentive
Stock Options may be granted only to employees of the Company or any
Subsidiary that is a “subsidiary corporation” within the meaning of
Section 424(f) of the Code. To the extent that any option does
not qualify as an Incentive Stock Option, it shall constitute a
Non-Qualified Stock Option.
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All
Stock Options granted under the Plan shall be evidenced by a notice to the
Participant, or at the election of the Committee, by written agreements
executed by the Company and the Participant to whom granted, which notice
or agreement shall state the number of shares of Common Stock which may be
purchased upon the exercise thereof and shall contain such investment
representations and other terms and conditions as the Committee may from
time to time determine, or, in the case of Incentive Stock Options, as may
be required by Section 422 of the Code, or any other applicable
law.
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3.2
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Grant
of Options to Eligible Directors.
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An
option to purchase the following number of shares of Common Stock (subject
to adjustment as provided in Section 5.1) shall be granted in each of the
following years on the date of the annual meeting of the Company's
stockholders, to each member of the Company’s Board of Directors who is an
Eligible Director at such time immediately following such annual
meeting.
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(a)
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2008
– that number of shares having an Option Value equal to
$26,000
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(b)
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2009
– up to 6,000 shares
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(c)
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2010
– up to 6,000 shares
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For
2009 and 2010, the Committee shall determine the number of Stock Options
to be granted to each of the Eligible Directors (not to exceed 6,000
shares for each year) based on an analysis of the amount and type of
compensation paid to the members of the boards of directors of the
Company’s peer group, as well as other factors as may reasonably be
considered by the Committee.
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3.3
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Exercise
Price.
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Subject
to the provisions of Sections 3.8(d) and 5.1, the exercise price per share
of Common Stock subject to a Stock Option shall in no case be less than
one hundred percent (100%) of the Fair Market Value of a share of Common
Stock on the date the Stock Option is granted. Notwithstanding
anything to the contrary herein other than any adjustments pursuant to
Section 5.1, the exercise price per share of Common Stock subject to a
Stock Option may not be reduced after the Stock Option is
granted. No outstanding Stock Option may be surrendered as
consideration for the grant of a new Stock Option with a lower exercise
price.
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3.4
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Term.
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Subject
to the provisions of Section 3.8(d), the duration or term of each Stock
Option granted under the Plan shall be for such period as the Committee
shall determine but in no event more than ten (10) years from the date of
grant thereof.
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3.5
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Exercise.
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Stock
Options shall be exercisable at such time or times as the Committee shall
specify when granting the Stock Option, except that the vesting schedule
for any Stock Options shall not be any shorter than 33.34 percent of such
Stock Option on each of the first three (3) anniversaries of the date of
grant, subject to acceleration of the vesting period upon the occurrence
of certain events as provided herein. Once exercisable, a Stock
Option shall be exercisable, in whole or in part, until the expiration or
termination of its term by giving a notice of exercise by the Person
exercising the Stock Option, to the Secretary of the Company at the
principal office of the Company or to such other Person and address as
specified by the corporate Secretary specifying the number of shares of
Common Stock as to which the Stock Option is then being exercised together
with payment of the full exercise price for the number of shares being
purchased. The date both such notice and payment are received
by the office of the corporate Secretary of the Company or the corporate
Secretary’s designee shall be the date of exercise of the Stock Option as
to such number of shares. Notwithstanding any provision to the
contrary, no Stock Option may at any time be exercised with respect to a
fractional share.
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3.6
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Payment
of Exercise Price.
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The
exercise price for shares of Common Stock as to which a Stock Option has
been exercised and any amount required to be withheld, as
contemplated by Section 5.6, may be
paid:
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(a)
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in
cash, or by check, bank draft or money order payable in United States
dollars to the order of the Company;
or
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(b)
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by
the delivery (or attestation to the ownership) by the Participant to the
Company or its designee of whole shares of Common Stock already owned by
the Participant for at least six months (and in the case of delivery of
shares acquired by exercise of an Incentive Stock Option, for at least one
year) having an aggregate Fair Market Value on the Business Day prior to
the Exercise Date equal to the aggregate of the exercise price of Common
Stock as to which the Stock Option is then being exercised;
or
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(c)
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so
long as not prohibited by law, by delivery by the Participant of a
properly executed exercise notice to the Company or its designee, together
with a copy of irrevocable instructions to a broker to deliver promptly to
the Company the amount necessary to pay the exercise price, and, if
requested, any applicable withholding taxes and commissions provided that
in the event the Participant chooses to pay the purchase price as so
provided, the Participant and the broker shall comply with such procedures
and enter into such agreements of indemnity and other agreements as the
Committee shall prescribe as a condition of such payment
procedure.
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(d)
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by
any combination of (a), (b) or (c)
above.
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The
Committee may, in its discretion, impose limitations, conditions and
prohibitions on the use by a Participant of shares of Common Stock to pay
the exercise price payable by such Participant upon the exercise of a
Stock Option.
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To
facilitate the payment alternative described in paragraph (c) above, the
Company may enter into agreements for coordinated procedures with one or
more brokerage firms. The issuance of shares of Common Stock to
be purchased pursuant to the exercise of a Stock Option will be contingent
upon receipt from the Participant (or a purchaser acting in their stead in
accordance with the provisions of the Stock Option) by the Company or its
designee of the full purchase price for such shares and the fulfillment of
any other requirements contained in the Stock Option or applicable
provisions of laws. In the event a Participant chooses to pay
the purchase price by previously-owned shares of Common Stock through the
attestation method, the shares of Common Stock transferred to the
Participant upon the exercise of the Stock Option shall be net of the
number of shares attested to.
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3.7
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Limitation
of Rights.
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Neither
the recipient of an Option under the Plan nor the recipient's successor or
successors in interest shall have any rights as a shareholder of the
Company with respect to any shares of Common Stock subject to an Option
granted to such person until the date of issuance of such shares of Common
Stock.
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3.8
|
Special
Rules for Incentive Stock Options.
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Notwithstanding
any other provision of the Plan, the following provisions shall apply to
Incentive Stock Options granted under the
Plan:
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(a)
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Incentive
Stock Options shall only be granted to Participants who are employees of
the Company or its Subsidiaries.
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(b)
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To
the extent that the aggregate Fair Market Value of Common Stock, with
respect to which Incentive Stock Options are exercisable for the first
time by a Participant during any calendar year under this Plan and any
other Plan of the Company or a Subsidiary, exceeds $100,000 (determined by
using the Fair Market Value as of the grant date), such Stock Options
shall be treated as Non-Qualified Stock
Options.
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(c)
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Any
Participant who disposes of shares of Common Stock acquired upon the
exercise of an Incentive Stock Option by sale or exchange either within
two (2) years after the date of the grant of the Incentive Stock Option
under which the shares were acquired or within one (1) year of the
acquisition of such shares, shall promptly notify the Secretary of the
Company at the principal office of the Company of such disposition, the
amount realized, the exercise price per share paid upon exercise and the
date of disposition.
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(d)
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No
Incentive Stock Option shall be granted to a Participant who, at the time
of the grant, owns stock representing more than ten percent (10%) of the
total combined voting power of all classes of stock either of the Company
or any parent or Subsidiary of the Company, unless the purchase price of
the shares of Common Stock purchasable upon exercise of such Incentive
Stock Option is at least one hundred ten percent (110%) of the Fair Market
Value (at the time the Incentive Stock Option is granted) of the Common
Stock and the Incentive Stock Option is not exercisable more than five (5)
years from the date it is granted.
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3.9
|
Termination.
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(a)
|
If
a Participant’s employment by the Company shall terminate but the
Participant remains or becomes an Eligible Director then the Participant’s
relationship with the Company shall be deemed to have continued and
notwithstanding anything to the contrary contained herein, all rights
under any outstanding Stock Option held by such Participant which shall
not have previously lapsed or terminated shall continue in full force and
effect as granted, except this service continuation sole shall not apply
to any Stock Option that is intended to be an Incentive Stock Option or
except as required by the Code. If subsequent to a Participant’s
termination of employment by, relationship with or service as an Eligible
Director of the Company, but prior to the exercise of a Stock Option, the
Board of Directors determines that, either prior or subsequent to the
Participant’s termination, the Participant engaged in conduct which would
constitute “Good Cause”, then any outstanding Stock Option held by such
Participant which shall not have previously lapsed or terminated shall
expire immediately, whether or not such Stock Option is vested or
otherwise exercisable.
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(b)
|
If
a Participant's employment by, relationship with or service as an Eligible
Director of the Company or its Subsidiaries shall terminate as a
result of such Participant's Total Disability, each Stock Option held by
such Participant (which has not previously lapsed or terminated) shall
immediately become fully exercisable as to the total number of shares of
Common Stock subject thereto (whether or not exercisable to that extent at
the time of such termination) and shall remain so exercisable by such
Participant for a period of one (1) year after termination unless such
Stock Option expires earlier by its
terms.
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(c)
|
In
the event of the death of a Participant, each Stock Option held by such
Participant (which has not previously lapsed or terminated) shall
immediately become fully exercisable as to the total number of shares of
Common Stock subject thereto (whether or not exercisable to that extent at
the time of death) by the executor or administrator of the Participant's
estate or by the person or persons to whom the deceased Participant's
rights thereunder shall have passed by will or by the laws of descent or
distribution, and shall remain so exercisable for a period of one (1) year
after such Participant's death unless such Stock Option expires earlier by
its terms.
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(d)
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If
an employee Participant's employment by the Company shall terminate by
reason of such Participant's Retirement, each Stock Option held by such
employee Participant at the date of termination (which has not previously
lapsed or terminated) shall immediately become fully exercisable as to the
total number of shares of Common Stock subject thereto (whether or not
exercisable to that extent at the time of such termination) and shall
remain so exercisable by such Participant for a period of one (1) year
aftertermination, unless the Stock Option expires earlier by its
terms. Notwithstanding the above, if a Participant as described
in the preceding sentence is an Executive Officer of the Company at the
time of his or her Retirement, then each Stock Option held by such
Participant at the date of Retirement (which has not previously lapsed or
terminated) shall continue to be exercisable at such time or times as the
Committee shall have specified when granting the Stock Option, except as
otherwise required by the Code. In the event of the termination
of an Eligible Director’s service as a member of the Board of Directors by
reason of Retirement, each Stock Option held by such Eligible Director
at
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the
date of termination (which had not previously lapsed or terminated) shall
continue to be exercisable at such time or times as shall have been
specified when the Stock Option was granted, except as otherwise required
by the Code.
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(e)
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In
the event the Company terminates the employment of an employee Participant
for any reason except "Good Cause" and except upon such Participant's
death, Total Disability or Retirement, each Stock Option, which has been
held by such Participant for more than one year prior to such termination,
shall immediately become fully exercisable as to the total number of
shares of Common Stock subject thereto (whether or not exercisable as to
that extent at the time of such termination) and shall remain exercisable
for a period of one (1) year after such termination unless such Stock
Option expires earlier by its terms. Any Stock Option held by
an employee Participant for less than one year shall expire
immediately. Any Stock Option held by an Employee Participant
whose employment is terminated for Good Cause or whose employment
terminates as a result of resignation shall expire immediately, whether or
not such Stock Option is vested or otherwise
exercisable.
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(f)
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In
the event of the termination of an Eligible Director’s service as a member
of the Board of Directors for any reason except “Good Cause” and except
upon such Eligible Director’s Death, Total Disability or Retirement, each
Stock Option which has been held by such Eligible Director for more than
one year prior to such termination shall continue to be exercisable at
such time or times as shall have been specified when the Stock Option was
granted, except as otherwise required by the Code. Any Stock
Options held by an Eligible Director for less than one year prior to such
termination shall expire immediately. Any Stock Option held by
an Eligible Director whose service as a member of the Board of Directors
is terminated for Good Cause shall expire immediately, whether or not such
Stock Option is vested or otherwise
exercisable.
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(g)
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Notwithstanding
the foregoing provisions of this Section 3.9, if a Stock Option is
intended to be an Incentive Stock Option, in no event may the time for
exercise be later than three (3) months after the Participant’s
termination of employment; provided, however, in the case of a
Participant’s Total Disability or death within three (3) months after the
termination of employment, the Stock Option may be exercised within one
(1) year after the date of the Participant’s termination of employment,
but in no event after the date of expiration of the term of the Stock
Option.
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3.10
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Effect
of Leaves of Absence.
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It
shall not be considered a termination of employment when a Participant is
on an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee’s right to
re-employment (or other business relationship) is guaranteed either by a
statute or by contract or under the policy pursuant to which the leave of
absence was granted or if the Committee otherwise so provides in
writing.
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3.11
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Additional
Restrictions on Executive Officers and Eligible
Directors.
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As
a condition to exercising a Stock Option issued pursuant to this Plan,
each Executive Officer and Eligible Director shall be deemed to have
agreed that not notwithstanding anything to the contrary in this
Plan: (a) such Participant will not exercise such Stock Option
or any part thereof in such a manner that such Participant will realize an
immediate cash payment in connection with such exercise except that such
Participant may direct that the number of shares of Common Stock as to
which the Stock Option is then being exercised may be sold to pay the
exercise price, as well as to pay a related commission to a third party on
such Participant’s behalf and, in the case of Executive Officers, the
amount necessary to pay any withholding taxes to the Company; and (b) such
Participant shall retain for a period of no less than one calendar year
following the exercise of the Stock Option or any part thereof beneficial
ownership of no fewer than the same number of shares of the Company’s
Common Stock (or share equivalent, including limited partnership
units
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in
Home Properties, L.P.) as was received by such Participant upon the
exercise of that Stock Option or any part thereof. An Eligible
Directors also may receive cash to be used to pay applicable taxes due
with respect to any taxable gain realized on the exercise of that Stock
Option or any part thereof provided that the cash received shall not
exceed 35% (thirty-five percent) of that gain. The Committee
may waive the requirements of this Section 3.11 with respect to any
Participant if they determine such waiver to be appropriate in their sole
discretion.
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4.
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RESTRICTED
STOCK AWARDS
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4.1
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General.
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The
Committee may, in its discretion, grant one or more Restricted Stock
Awards to any eligible employee.
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Each
grant of Restricted Stock shall be evidenced by a notice to the
Participant of the Restricted Stock Award, which shall specify the number
of shares of Common Stock to be issued to the Participant, the date of
such issuance and such other information as shall be deemed
appropriate. The restrictions imposed on any grant of
Restricted Stock Awards shall not lapse and the shares shall not vest
fewer than three (3) years after the date of grant, subject to
acceleration of the vesting period upon the occurrence of certain events
provided herein. Shares of Restricted Stock subject to
restrictions shall be held by the Company until the restrictions on such
shares shall have lapsed and the shares shall have vested in accordance
with the provisions of the Award. Promptly after the lapse of
restrictions, the number of shares of Common Stock as to which the
restrictions have lapsed shall be delivered to the
Participant. The Participant shall deliver to the Company such
further assurance and documents as the Committee may require as a
condition to delivery of the
shares.
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4.2
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Grants
of Restricted Stock to Eligible
Directors.
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A
grant of the following number of shares of Restricted Stock (as adjusted
pursuant to Section 5.1) shall be granted on the indicated dates, to each
member of the Company’s Board of Directors who is an Eligible Director at
such time.
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(a)
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May
9, 2008 – that number of shares having a Restricted Stock Value equal to
$55,000
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(b)
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On
the date of and immediately following the Annual Meeting of the Company’s
Stockholders in 2009 and 2010 - up to 2,000 shares on each
date
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For
2009 and 2010, the Committee shall determine the number of shares of
Restricted Stock to be issued to each of the Eligible Directors (not to
exceed 2,000 shares) based on an analysis of the amount and type of
compensation paid to the members of the boards of directors of the
Company’s peer group, as well as other factors as may reasonably be
considered by the Committee.
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4.3
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Restrictions.
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(a)
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Pre-Vesting
Restraints. Shares of Common Stock comprising any Restricted
Stock Award may not be sold, assigned, transferred, pledged or otherwise
disposed of or encumbered, either voluntarily or involuntarily, until the
restrictions have lapsed.
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(b)
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Dividend
and Voting Rights. Unless otherwise provided in the applicable
notice of the Restricted Stock Award, a Participant receiving a Restricted
Stock Award shall be entitled to cash dividend and voting rights for all
shares of Common Stock issued even though they are not vested, provided
that such rights shall terminate immediately as to any Restricted Stock
that ceases to be eligible for
vesting.
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(c)
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Accelerated
Vesting. The restrictions on Restricted Stock shall lapse upon the
Participant’s termination of service as an employee or as an Eligible
Director of the Company, as applicable, by reason of Total Disability or
death.
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(d)
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Continued
Vesting. In the event of the Retirement of an employee
Participant or if an Eligible Director’s services as a member of the Board
of Directors terminates by reason of Retirement, expiration of the
director’s term in office (without re-nomination or re-election) or by
voluntary resignation, the restrictions on the Restricted Stock held by
such Participant shall not lapse but shall continue as specified when the
Restricted Stock was awarded, provided however that any restriction
related to continued employment, with respect to an employee Participant,
or continued service as a member of the Board of Directors, with respect
to an Eligible Director, shall no longer be
applicable.
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(e)
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Forfeiture. Except
as provided in Sections 4.3(c) and 4.3(d), Restricted Stock as to which
the restrictions have not lapsed in accordance with the provisions of the
Award or pursuant to Section 4.3(c) shall be forfeited upon a
Participant’s termination of service as an employee or as an Eligible
Director, including but not limited to by reason of voluntary resignation
by an employee, or termination of the services of an employee or Eligible
Director for Good Cause. Upon the occurrence of any forfeiture
of shares of Restricted Stock, such forfeited shares shall be
automatically transferred to the Company without payment of any
consideration by the Company and without any action by the Participant and
shall be available for future grants of Restricted Stock under the
Plan.
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4.4
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Section
83(b) Election.
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Pursuant
to Section 83(b) of the Internal Revenue Code, a Participant may elect
within 30 days of the date of grant to include in his or her gross income
the fair market value of the Restricted Stock covered by an Award in the
taxable year of grant. The election must be made by filing the
appropriate notice with the Internal Revenue Service within 30 days of the
date of grant. If the Participant makes this election, the
Participant shall promptly notify the Company by submitting to the
Committee a copy of the election notice filed with the Internal Revenue
Service.
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5.
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MISCELLANEOUS
PROVISIONS
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5.1
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Recapitalizations.
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If,
through or as a result of any Business Combination, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other similar transaction, the outstanding shares of Common
Stock are increased or decreased or are exchanged for a different number
or kind of shares or other securities of the Company, or additional shares
or new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Common
Stock or other securities, the Committee shall make an appropriate or
proportionate adjustment in: (i) the maximum number of shares
reserved for issuance under the Plan; (ii) the number of Stock Options or
shares of Restricted Stock that can be granted to any one individual
participant; (iii) the number and kind of shares or other securities
subject to any then outstanding Awards under the Plan; and (iv) the price
for each share subject to any
then outstanding Stock Options under the Plan, without changing the
aggregate exercise price (i.e., the exercise price multiplied by the
number of Stock Options) as to which such Stock Options remain
exercisable. The adjustment by the Committee shall be final,
binding and conclusive. No fractional shares of Common Stock
shall be issued under the Plan resulting from any such adjustment, but the
Committee in its discretion may make a cash payment in lieu of fractional
shares.
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5.2
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Mergers.
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Upon
consummation of a Business Combination in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of an
unrelated corporation or business entity or in the event of a liquidation
of the Company (in each case, a “Transaction”), the Committee may, in its
discretion, take any one or more of the following actions, as to
outstanding Stock Options: (i) provide that such Stock Options
shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof), (ii) upon
written notice to the optionees, provide that all unexercised Stock
Options will terminate immediately prior to the consummation of the
Transaction unless exercised by the optionee within a specified period
following the date of such notice, and/or (iii) in the event of a Business
Combination under the terms of which holders of the Common Stock of the
Company will receive upon consummation thereof a cash payment for each
share surrendered in the Business Combination, make or provide for a cash
payment to the optionees equal to the difference between (a) the Merger
Price times the number of shares of Common Stock subject to such
outstanding Stock Options (to the extent then exercisable at prices not in
excess of the Merger Price) and (b) the aggregate exercise price of all
such outstanding Stock Options in exchange for the termination of such
Stock Options. In the event Stock Options will terminate upon
the consummation of the Transaction as provided in clause (ii), each
optionee shall be permitted, within a specified period determined by the
Committee, to exercise all non-vested Stock Options, subject to the
consummation of the Transaction.
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5.3
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Substitute
Awards.
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The
Committee may grant Awards under the Plan in substitution for stock and
stock based awards held by employees of another corporation who
concurrently become employees of the Company or a Subsidiary as the result
of a merger or consolidation of the employing corporation with the Company
or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee
may direct that the substitute awards be granted on such terms and
conditions as the Committee considers appropriate in the
circumstances. Any substitute awards granted under this Plan
shall not count against the share limitation set forth in Section
2.5.
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5.4
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Change
of Control.
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Notwithstanding
any other provision of this Plan to the contrary, unless the Committee
shall determine otherwise at the time of grant with respect to a
particular Award, in the event of a Change of
Control:
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(a)
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All
Stock Options shall automatically become fully exercisable and vested;
and
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(b)
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Any
restrictions applicable to any Restricted Stock shall lapse and such
Restricted Stock shall become free of all restrictions and limitations and
become fully vested and
transferable.
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5.5
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Non-Transferability.
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No
Award shall be transferable except by will or the laws of descent and
distribution, nor shall any Award be exercisable during the Participant's
lifetime by any person other than the Participant or their guardian or
legal representative. Any purported transfer contrary to this
provision will be null and void and without
effect.
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5.6
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Withholding.
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The
Company's obligations under this Plan are subject to applicable federal,
state and local tax withholding requirements. Unless otherwise provided by
the Committee in the notice of Award, a Participant may elect to have such
tax withholding obligation satisfied, in whole or in part, by (i)
authorizing the Company to withhold from shares of Common stock to be
issued pursuant to any Award a number of shares with an aggregate Fair
Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, (ii) transferring to the Company
shares of Common Stock owned by the Participant with an aggregate Fair
Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (iii) in a combination of (i) and
(ii). If the Participant shall fail to pay, or make
arrangements satisfactory to the Committee for the payment, to the Company
of all such federal, state and local taxes required to be withheld by the
Company, then the Company shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to such
Participant an amount equal to (or shares of Common Stock having a value
equal to) any federal, state or local taxes of any kind required to be
withheld by the Company.
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5.7
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Compliance
with Law and Approval of Regulatory
Bodies.
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No
Award shall be exercisable and no shares will be delivered under the Plan
except in compliance with all applicable federal and state laws and
regulations including, without limitation, compliance with all federal and
state securities laws and withholding tax requirements and with the rules
of all domestic stock exchanges on which the Common Stock may be
listed. Any share certificate issued, or any notice of issuance
of uncertificated shares to evidence shares for which an Award or
Director's Option is exercised may bear legends and statements the
Committee shall deem advisable to assure compliance with federal and state
laws and regulations. No Stock Option shall be exercisable and
no shares will be delivered under the Plan, until the Company has obtained
consent or approval from regulatory bodies, federal or state, having
jurisdiction over such matters as the Committee may deem
advisable. In the case of the exercise of a Stock Option by a
person or estate acquiring the right to exercise the Stock Option as a
result of the death of the Participant, the Committee may require
reasonable evidence as to the ownership of the Stock Option and may
require consents and releases of taxing authorities that it may deem
advisable.
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5.8
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Compliance
with Code Section 409A.
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No
Award shall provide for deferral of compensation that does not comply with
Section 409A of the Code, unless the Committee, at the time of grant,
specifically provides that the Award is not intended to comply with
Section 409A of the Code. The Committee shall exercise its
powers under this Plan in a manner that is consistent with this intent and
all applicable requirements under Code Section
409A. Notwithstanding any other provision of the Plan, the
Committee may in its discretion amend the Plan or any Award so as to
comply with applicable requirements of Section 409A of the
Code.
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5.9
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No
Right to Employment or
Directorship.
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Neither
the adoption of the Plan nor its operation, nor any document describing or
referring to the Plan, or any part thereof, nor the granting of any Award
hereunder, shall confer upon any Participant under the Plan any right to
continue in the employ or as a director of the Company or any Subsidiary,
or shall in any way affect the right and power of the Company or any
Subsidiary to terminate the employment or directorship of any Participant
at any time with or without assigning a reason therefore, to the same
extent as might have been done if the Plan had not been
adopted.
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5.10
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Exclusion
from Pension Computations.
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By
acceptance of any Award under the Plan, the Participant shall be deemed to
agree that any income realized upon the receipt or exercise thereof or
upon the disposition of the shares received upon exercise will not be
taken into account as "base remuneration", "wages", "salary" or
"compensation" in determining the amount of any contribution to or payment
or any other benefit under any pension, retirement, incentive,
profit-sharing or deferred compensation plan of the Company or any
Subsidiary.
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5.11
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Abandonment
of Options.
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A
Participant may at any time abandon a Stock Option prior to its expiration
date. The abandonment shall be evidenced in writing, in such
form as the Committee may from time to time prescribe. A
Participant shall have no further rights with respect to any Stock Option
so abandoned.
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5.12
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Severability.
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If
any of the terms of provisions of the Plan conflict with the requirements
of Rule 16b-3, then such terms or provisions shall be deemed inoperative
as to directors and Executive Officers to the extent they so conflict with
the requirements of Rule 16b-3.
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5.13
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Interpretation
of the Plan.
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Headings
are given to the Sections of the Plan solely as a convenience to
facilitate reference; such headings, numbering and paragraphing shall not
in any case be deemed in any way material or relevant to the construction
of the Plan or any provision hereof. The use of the masculine
gender shall also include within its meaning the feminine. The
use of the singular shall also include within its meaning the plural and
vice versa.
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5.14
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Use
of Proceeds.
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Funds
received by the Company upon the exercise of Stock Options shall be used
for the general corporate purposes of the
Company.
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5.15
|
Construction
of Plan.
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The
place of administration of this Plan shall be in the State of New York,
and the validity, construction, interpretation, administration and effect
of this Plan and of its rules and regulations, and rights relating to this
Plan, shall be determined solely in accordance with the laws of the State
of New York.
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HOME
PROPERTIES, INC.
DEFERRED
BONUS PLAN
(Amended
and Restated as of January 1, 2008)
1. Purpose
Home Properties, Inc. (the “Company”)
has adopted this Home Properties, Inc. Deferred Bonus Plan (the “Plan”) to
assist its 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. The Plan permits eligible employees to defer the receipt of
annual cash bonuses which they may be entitled to receive from the Company and
the Company to contribute matching contributions on their behalf.
2. Eligibility
An
employee of the Company is eligible to participate in this Plan if he or she is
in the 3% and above bonus group, is designated by the Committee established
pursuant to section 9 as eligible to participate, is a “highly compensated
employee” as this term is defined in Section 414(q) of the Internal Revenue
Code, and is a member of a “select group of management or highly compensated
employees” as this term is defined in Title I of ERISA.
3. Contributions
(a) Participant
Contributions.
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(1)
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Amount of
Deferral. A participant may elect to defer receipt of
any whole percent (100 percent maximum) of his or her annual cash bonus
otherwise payable to the participant by the Company during a calendar
year.
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(2)
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Time for Electing
Deferral. Deferral elections shall be made before the
beginning of the calendar year during which the participant will perform
the services to which the annual bonus relates. For example, if
a participant wished to defer to a portion of his or her 2009 annual
bonus, the participant’s written deferral election must be made on or
before December 31, 2008 (before the first day of the calendar year in
which the bonus performance period begins), even though the 2009 annual
bonus may be actually paid in 2010. Any election to defer shall
be made in accordance with subsection 3
below.
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Notwithstanding
the foregoing, a newly-eligible participant may make an initial deferral
election within 30 days of the time the participant first becomes eligible
to participate in this Plan, provided that deferrals with respect to this
election may be made only with respect to a prorated portion of the
participant’s annual bonus for the performance period currently in effect
(i.e., the annual bonus amount multiplied by the ratio of the number of
days remaining in the performance period after the election over the total
number of days in the performance period). This initial
eligibility rule shall not apply if the participant is, or ever has been,
eligible to participate in another deferred compensation plan sponsored by
the Company that is an “account balance plan” under the plan aggregation
rules of Code Section 409A.
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(3)
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Manner of Electing
Deferral. A participant shall elect a deferral by giving
written notice to the Committee in a form prescribed by the
Committee. The notice shall include (1) the bonus period with
respect to which the deferral relates; (2) the amount to be deferred; (3)
the length of the deferral period; and (4) for deferrals relating to
services performed in 2008 or thereafter, the form of payment as either a
lump sum payment or annual installment payments over a specified period
not to exceed 10 years. A participant may designate a deferral
period of three, five or ten years in
which
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case
payment will commence on the Company’s first quarterly dividend payment
date following the applicable anniversary date measured from the date the
amounts are deferred.
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If a
participant elects annual installment payments, the installment payments shall
be substantially equal in amount, provided that any hypothetical dividends
credited to the Participant Account (as described in Section 4(a) below) during
the installment payment period shall be paid with the final installment
payment. Each such payment shall be paid on the Company’s first
quarterly dividend payment date in each designated year.
For
example, a participant may elect in December 2008 to defer for three years a
bonus payable in 2010 with respect to 2009 services. If the bonus is
otherwise payable in cash in January 2010, it will be deferred and payment will
commence on the Company’s first quarterly dividend payment date following the
anniversary date that falls in January 2013.
For
deferrals made prior to 2008, notwithstanding the foregoing, in the event the
participant terminates employment, vested benefits payments shall be paid on the
Company’s first quarterly dividend payment date following termination
notwithstanding any later date specified in the participant’s election
form. For deferrals relating to services performed in 2008 or
thereafter, a Participant may elect to receive payment of deferred amounts on
(i) a specified payment date, (ii) termination of employment, or (iii) the
earlier of a specified payment date or termination of employment. For
purposes of the Plan, termination of employment shall mean the separation of
service with the Company (within the meaning of Section 409A), voluntarily or
involuntarily, for any reason other than an authorized leave of
absence.
If a
participant dies before receiving all vested benefits in his or her Participant
Account, the remaining balance shall be paid to the participant’s estate in a
lump sum as soon as administratively practicable following the participant’s
death, and in no event later than March 15th of the
calendar year following the calendar year in which the death occurred,
notwithstanding any later date(s) specified in the participant’s election
form(s).
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(b)
|
Company Matching
Contributions. The Company shall contribute 10 percent
of the amount each participant defers. The Company’s
contribution shall be made as of the same date as the participant’s
deferral to which it relates and shall be deferred to the same payment
date as the related participant
deferral.
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4. Participant
Accounts
For each participant there shall be
established a Participant Account. The maintenance of individual
Participant Accounts is for bookkeeping purposes only. The Company is
not obligated to make actual contributions to fund this plan or to acquire or
set aside any particular assets for the discharge of its obligations, nor is any
participant to have any property rights in any particular assets held by the
Company, whether or not held for the purpose of funding the Company’s
obligations hereunder.
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(a)
|
Valuation of
Accounts. A Participant’s Account shall be valued as of
each day there occurs a transaction affecting the Account. Each
deferral or Company contribution shall be reflected by crediting the
Participant Account with the number of shares of Company Common Stock that
could be purchased at the Common Stock’s then fair market value with the
amounts deferred by the participant, or contributed by the Company on
behalf of a participant. With respect to the hypothetical
dividends payable on the Company Common Stock previously credited to a
Participant Account, each such Participant Account shall be credited with
the number of shares of Company Common Stock that could be purchased with
the hypothetical dividends on the same date at the same price that shares
are purchased for participants in the dividend reinvestment feature of
the
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Company’s
Dividend Reinvestment and Direct Stock purchase
Plan. Distributions from, or forfeiture of, the Participant
Account shall be recorded as of the day of such distributions or
forfeitures. The Account shall also be adjusted as of the date
of any transaction requiring additions to or distributions from the
Account to reflect any gains (or losses) in the fair market value of
Company Common Stock held in the Account. Two subaccounts shall
be established within the Account to track separately participant and
Company contributions and the earnings and distributions on
each. The Common Stock’s fair market value shall be the
composite closing price for a share of the Company’s Common Stock as
listed on the New York Stock Exchange on the date before the transaction
occurs.
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(b)
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Vesting. All
amounts credited to participant contribution subaccounts shall be fully
vested at all times. Except for the possible claims of the
Company’s general creditors, they shall not be subject to forfeiture on
account of any action by a participant or by the Company, including
termination of employment. Amounts credited to a participant’s
Company contribution subaccount shall become fully vested on the third
anniversary of the date first credited to the subaccount if the
participant has been in continuous employment with the Company through the
third anniversary of the contribution date, or if the participant
terminates employment on account of disability, death, retirement on or
after age 60, or upon a change in control as hereinafter provided. For
this purpose, “disability” shall mean the participant (i) is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or can be expected to last for a continuous period of not less
than 12 months, or (ii) is, by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
can be expected to last for a continuous period of not less than 12
months, receiving income replacement benefits for a period of not less
than 3 months under an accident and health plan covering employees of the
Company. Amounts payable under this Plan shall be paid only to
the participant provided that in the event of his or her death payments
shall be made to his or her estate.
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If
a participant’s Company subaccount becomes forfeitable, he or she shall
forfeit both Company contributions and the earnings
thereon.
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5. Payment of Deferred
Amounts
No withdrawal may be made from a
Participant Account except as provided in this section 5.
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(a)
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Commencement
of Benefits. Payments of vested amounts from an Account shall
normally be made in a lump sum or annual installment payments in
accordance with the participant’s deferral election and section 3 of the
Plan, commencing on the Company’s first quarterly dividend payment date
following an elected anniversary date or the participant’s termination of
employment.
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(b)
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Specified
Employees. Notwithstanding any other provision of the Plan to
the contrary or a Participant’s election of a payment date, a distribution
from a Participant Account of a Specified Employee that is triggered by a
separation from service may not be made before the date which is six
months after the separation from service date. For purposes of
the Plan, the term “Specified Employee” shall have the meaning defined in
Section 409A, as determined under rules established by the
Committee.
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(c)
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Hardship
Withdrawals. Except for earlier payments expressly authorized
by this Plan and Code Section 409A, no benefit may be paid earlier than
the date specified in a deferral election. Notwithstanding the
payment terms set forth in a participant’s deferral election, however, the
Committee may, in its sole discretion, authorize an in-service withdrawal
on account of a participant’s Unforeseeable Financial
Emergency. A distribution based upon Unforeseeable Financial
Emergency shall not exceed the lesser of the participant’s account
balance, or the amount reasonably needed to satisfy the Unforeseeable
Financial Emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the payouts, after taking into account the
extent to which the Unforeseeable Financial Emergency is or may be
relieved through reimbursement or compensation by insurance or otherwise
or by liquidation of the participant’s assets (to the extent the
liquidation of assets would not itself cause severe financial
hardship). A distribution based
upon
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Unforeseeable
Financial Emergency shall be permitted only to the extent permitted under
Section 409A.
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For
purposes of the Plan, the term “Unforeseeable Financial Emergency” shall
mean an unanticipated emergency that is caused by an event beyond the
control of the participant that would result in severe financial hardship
to the participant resulting from (i) an illness or accident of the
participant, the participant’s spouse or a dependent of the participant,
(ii) a loss of the participant’s property due to casualty, or (iii) such
other extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the participant, all as determined in the
sole discretion of the Committee.
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(d)
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Subsequent
Deferral Election. No subsequent deferral election shall be
permitted to extend the payment of benefits beyond the payment date set
forth in the relevant deferral election, except for a subsequent deferral
election that satisfies all of the following
conditions:
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·
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the
subsequent election must be made 12 months or more prior to the
previously-selected payment date;
and
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·
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the
new payment commencement date must be at least five years later than the
previously-selected payment date;
and
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·
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the
subsequent election may not be effective until at least 12 months after
the date on which it is made.
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Only one
such subsequent deferral election may be made after the initial deferral
election.
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(e)
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Code
Section 162(m). If any scheduled payment from this Plan during
a taxable year of the Company would, in combination with other
compensatory payments to the participant during such year, result in the
participant’s compensation exceeding the $1 million cap under Code Section
162(m), the Company shall defer benefit payments to the first subsequent
year when the participant’s compensation will not exceed the $1 million
cap. Such payments shall be made in a manner as consistent as
possible with the participant’s original deferral
election.
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(f)
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Form
of Payment. Payments for any reason other than a change in
control shall be made only in stock provided that any fractional shares
from a Participant Account shall be paid in
cash.
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(g)
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Change
in Control. In the event of a change in control, all account
balances shall become fully and immediately vested and shall be paid, in
cash or stock as the Committee in its sole discretion may determine,
within five days of the change in control. For this purpose,
the term “change in control” means a change that is a change in the
ownership, a change in the effective control or a change in the ownership
of a substantial portion of the assets of the Company, all as defined in
IRS regulations under Code Section 409A, provided that such change also
satisfies one of the following:
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i.
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a
change of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A or to
Item 5.01 of Form 8-K promulgated under the Securities Exchange
Act of 1934, as amended;
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ii.
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any
“person” (as such term is used in Sections 13(d) and 14(d)(2) of such
Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 30% or more of the combined voting
power of the Company’s then outstanding securities;
or
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iii.
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during
any period of twenty-four (24) consecutive months, individuals who at the
beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company’s shareholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
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(h)
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Authorized
Shares. An aggregate of 100,000 shares of Company Common Stock
(subject to substitution or adjustment as provided below) shall be
available for stock payments under this Plan. Such shares may
be authorized and unissued shares or may be treasury shares. In
the event of any change in the Common Stock of the Company by reason of
any stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights
offering to purchase Common Stock at a price substantially below fair
market value, or of any similar change affecting the Common Stock, the
number and kind of shares which thereafter are available for stock
payments under the Plan shall be appropriately adjusted consistent with
such change in such manner as the Committee may deem equitable to prevent
substantial dilution or enlargement of the rights granted to, or available
for, participants in the Plan.
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6. Participant’s Rights
Unsecured
The right of any participant or, if
applicable, the participant’s estate, to receive benefits under the provisions
of this Plan shall be an unsecured claim against the general assets of the
Company. Any amounts held in a Participant Account, including amounts
that may be set aside by the Company for the purpose of meeting its obligations
under this Plan, are a part of the Company’s general assets and shall be
reachable by the general creditors of the Company.
7. Statement of
Account
Statements will be sent to participants
no less frequently than annually setting forth the value of their Participant
Accounts.
8. Transferability
The rights of a participant under this
Plan shall not be transferable other than by will or by the laws of descent and
distribution and are exercisable during the participant’s lifetime only by the
participant or by his guardian or legal representative.
9. Plan
Administrator
The administrator of this Plan shall be
a committee of the Board of Directors of the Company as from time to time
designated by the Board. The Committee’s members shall not be
employees of the Company. The Committee shall have the authority to
adopt rules and regulations for carrying out the Plan and to interpret, construe
and implement the provisions of the Plan. The Committee may delegate
some or all of its functions to another person as it may deem
appropriate.
10. Taxes
Amounts contributed to this Plan are
subject to FICA and Medicare taxes at the time they become
vested. Contributed amounts are not subject to income taxes until
they are paid or otherwise made available. The Company may make
arrangements with participants to ensure that any withholding requirements are
satisfied, including withholding the number of shares needed to satisfy the
requirements, withholding on other cash payments from the Company to the
participant or receiving from the participant sufficient cash that can be used
by the Company to satisfy its withholding requirements.
11. Amendment
This Plan may at any time or from time
to time be amended, modified or terminated by the Company’s Board of Directors,
provided that any such amendment, modification or termination shall comply with
the requirements of Code Section 409A. No amendment, modification or
termination shall, without the consent of a participant, adversely affect such
participant’s accruals in his or her Participant Account.
12. Section
409A
This Plan shall be governed by and
subject to the requirements of Section 409A and shall be interpreted and
administered in accordance with that intent. If any provision of this
Plan would otherwise conflict with or frustrate this intent, that provision will
be interpreted and deemed amended so as to avoid the conflict. The
Committee reserves the right to take any action it deems appropriate or
necessary to comply with the requirements of Section 409A and may take advantage
of such transition rules under Section 409A as it deems necessary or
appropriate.
13. Governing
Law
This Plan and any participant elections
hereunder shall be interpreted and enforced in accordance with the laws of the
State of New York.
14. Effective
Date
The
original effective date of this Plan is January 1, 1998. The
effective date of this restatement is January 1, 2008.
B-6
