UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant toss.240.14a-12
HOME PROPERTIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form
displays a currently valid OMB control number.
March 30, 2006
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 4, 2006,
at 2:30 p.m. at the Dryden Theatre of the International Museum of Photography at
George Eastman House, 900 East Avenue, Rochester, New York 14607.
A Notice of Annual Meeting and a Proxy Statement are attached. They
describe the matters to be acted upon at the Annual Meeting.
I hope that you will join us at the meeting. Whether you attend or not,
your vote on all of the matters described in the Proxy Statement is very
important. Please sign, date and return the enclosed proxy card in the envelope
provided. Alternatively, you may choose to vote by telephone or internet. Voting
by any of these methods before the meeting will insure that your shares are
represented at the meeting.
I look forward to seeing you at the meeting.
Sincerely,
HOME PROPERTIES, INC.
/s/ Edward J. Pettinella
Edward J. Pettinella
President and Chief Executive Officer
HOME PROPERTIES, INC.
Suite 850
Clinton Square
Rochester, New York 14604
_______________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 4, 2006
_______________________________________
NOTICE IS HEREBY GIVEN that the 2006 Annual Meeting of Stockholders of Home
Properties, Inc. (the "Company") will be held on Thursday, May 4, 2006 at 2:30
p.m. at the Dryden Theatre of the International Museum of Photography at George
Eastman House, 900 East Avenue, Rochester, New York 14607 for the following
purposes:
1. To elect twelve directors of the Company to serve until the 2007
Annual Meeting of Stockholders and until their respective successors
are elected;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent registered public accounting firm for 2006; and
3. To consider and act upon any other matters that are properly brought
before the Annual Meeting and at any adjournments or postponements
thereof.
The Board of Directors set the close of business on March 8, 2006 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
11:00 p.m. Eastern Standard Time on May 3, 2006, the day before the Annual
Meeting. You may change your vote or revoke your proxy at any time before the
Annual Meeting:
- by returning a later dated proxy card;
- by sending written notice to Ann M. McCormick, Secretary of the
Company at 850 Clinton Square, Rochester, New York 14604;
- by entering a new vote by internet or telephone; or
- by completing a written ballot at the Annual Meeting.
Rochester, New York By Order of the Board of Directors
March 30, 2006
/s/ Ann M. McCormick
Ann M. McCormick
Secretary
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE BY ONE OF THE ABOVE METHODS.
IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF
YOU HAVE PREVIOUSLY VOTED.
HOME PROPERTIES, INC.
Suite 850
Clinton Square
Rochester, New York 14604
_______________________________________
PROXY STATEMENT
_______________________________________
FOR 2006 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 4, 2006
March 30, 2006
GENERAL INFORMATION
This Proxy Statement is delivered to you in connection with the
solicitation of proxies by the Board of Directors of Home Properties, Inc. (the
"Company") for use at the 2006 Annual Meeting of Stockholders of the Company
(the "Annual Meeting"). The Annual Meeting will be held on Thursday, May 4, 2006
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 30, 2006.
Who May Vote
Stockholders of the Company as of the Company's record date, March 8, 2006,
may vote.
Outstanding Shares
On March 8, 2006, 31,334,423 shares of the Company's Common Stock were
outstanding. Each share of Common Stock has one vote.
How to Vote
There are four ways to vote:
1. by completing the enclosed proxy card and returning it in the
enclosed postage prepaid envelope;
2. by internet at http://www.proxyvoting.com/hme;
3. by toll-free telephone at (866) 540-5760; or
4. by written ballot at the Annual Meeting.
How Proxies Work
The Company's Board of Directors is asking for your proxy. By giving us
your proxy, you authorize the proxy holder (Edward J. Pettinella, the Company's
Chief Executive Officer) to vote your shares at the Annual Meeting in the manner
you direct.
If you vote by any of the above methods but do not specify how you wish to
vote your shares, your shares will be voted "for" all the enumerated matters
specified in the Notice of Meeting. The proxy holder will also vote shares
according to his discretion on any other matter properly brought before the
meeting.
You may receive more than one proxy card depending on how you hold your
shares. For example, if you hold shares through someone else, such as a
stockbroker, you may get proxy material from them. In order for you to vote
those shares, you must provide instructions to the record holder as provided in
their instructions to you. Even though you have not provided instructions to
your record holder, they may vote your shares "for" the election of the nominees
for director and "for" the ratification of the independent registered public
accounting firm.
Quorum
In order to carry out the business of the Annual Meeting, we must have a
quorum. This means that at least a majority of the outstanding shares eligible
to vote must be represented at the meeting, either by proxy or in person.
Votes Needed
The affirmative vote of a plurality of the votes cast at the Annual Meeting
is required for the election of directors. The ratification of the appointment
of PricewaterhouseCoopers LLP as the Company's independent registered public
accounting firm for 2006 and any other matter properly brought before the
meeting requires the favorable vote of a majority of the votes cast. Under
Maryland law, if a stockholder abstains on a vote, the abstention does not
constitute a vote "for" or "against" a matter. Thus, abstentions are disregarded
in determining the "votes cast."
Changing Your Vote
You may revoke your proxy before it is voted at the meeting by entering a
new vote by internet or telephone, by submitting a new proxy with a later date,
by voting in person at the Annual Meeting or by notifying the Company's
Secretary in writing prior to the Annual Meeting as follows: Ann M. McCormick,
850 Clinton Square, Rochester, New York 14604.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, twelve individuals will be elected to serve as
directors until the 2007 Annual Meeting and until their successors are elected.
The Board of Directors has nominated William Balderston, III, Josh E.
Fidler, Alan L. Gosule, Leonard F. Helbig, III, Roger W. Kober, Nelson B.
Leenhouts, Norman P. Leenhouts, Edward J. Pettinella, Clifford W. Smith, Jr.,
Paul L. Smith, Thomas S. Summer, and Amy L. Tait to serve as directors (the
"Nominees"). Each of the Nominees is currently serving as a director of the
Company. The Board of Directors anticipates that each of the Nominees will serve
as a director if elected.
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.
Brief biographical descriptions of the Nominees follow. The information was
furnished to the Company by the Nominees. The information is up to date through
March 8, 2006.
William Balderston, III, age 78, has been a director of the Company since
1994. From 1991 to the end of 1992, he was an Executive Vice President of The
Chase Manhattan Bank, N.A. From 1986 to 1991, he was President and Chief
Executive Officer of Chase Lincoln First Bank, N.A., which was merged into The
Chase Manhattan Bank, N.A. He is a Senior Trustee of the University of Rochester
and a member of the Board of Governors of the University of Rochester Medical
Center. Mr. Balderston is a graduate of Dartmouth College.
Josh E. Fidler, age 50, 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
has also 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 and the Board of Trustees of The Park School.
Alan L. Gosule, age 65, has been a director of the Company since 1996. Mr.
Gosule has been a partner in the New York Office of the law firm of Clifford
Chance US LLP since August 1991 and prior to that time was a partner in the law
firm of Gaston & Snow. Mr. Gosule is a graduate of Boston University and its Law
School and received an LLM in Taxation from Georgetown University. Mr. Gosule
also serves on the Board of Directors of MFA Mortgage Investments, Inc. He is a
member of the Board of Advisors of Paloma, LLC, which is the general partner of
Simpson Housing Limited Partnership, and is a voting trustee of F.L. Putnam
Investment Management Company.
Leonard F. Helbig, III, age 60, 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 that firm's Board of Directors and Executive
Committee. Mr. Helbig is a member of the Urban Land Institute, the Pension Real
Estate Association and the International Council of Shopping Centers. Mr. Helbig
is a graduate of LaSalle University and holds the MAI designation of the
American Institute of Real Estate Appraisers.
Roger W. Kober, age 72, 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 70, 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 their formation, he has also served as a
director of Home Properties Management, Inc. ("HP Management") and Home
Properties Resident Services ("HPRS"), for which he had also served in various
officer capacities prior to his retirement. Mr. Leenhouts also currently serves
as a Senior Advisor to the Company pursuant to an Employment Agreement and as an
employee relating to the development operations of the Company pursuant to a
Development Agreement. The term of both agreements expires on December 31, 2006.
Nelson Leenhouts was the founder, and a co-owner, together with Norman
Leenhouts, of Home Leasing Corporation ("Home Leasing"), and has served as
President of Home Leasing since 1967. He is a member of the Board of Directors
of the Genesee Valley Trust Company. Nelson Leenhouts is a graduate of the
University of Rochester. He is the twin brother of Norman Leenhouts.
Norman P. Leenhouts, age 70, 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 their formation, he has also served as a
director of HP Management and HPRS. Mr. Leenhouts also currently serves as a
Senior Advisor to the Company pursuant to an Employment Agreement with a term
that expires on December 31, 2006. Prior to January 1, 2006, Norman Leenhouts
was a co-owner, together with Nelson Leenhouts, of Home Leasing, where he had
served as Board Chair since 1971. He is currently the Chairman of Broadstone
Ventures, LLC and Broadstone Real Estate, LLC, formed to continue the property
management business of Home Leasing. He is a member of the Board of Trustees of
the University of Rochester, Roberts Wesleyan College, The Charles E. Finney
School and the Free Methodist Foundation, 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.
Edward J. Pettinella, age 54, 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 HP Management and HPRS. From 1997 until
February 2001, Mr. Pettinella served as President, Charter One Bank (NY
Division) and Executive Vice President of Charter One Financial, Inc. From 1980
through 1997, Mr. Pettinella served in several managerial capacities for
Rochester Community Savings Bank, Rochester, NY, including the positions of
Chief Operating Officer and Chief Financial Officer. Mr. Pettinella serves on
the Board of Directors of United Way of Greater Rochester, Rochester Business
Alliance, The Lifetime Healthcare Companies, National Multi Housing Counsel,
Syracuse University School of Business and YMCA of Greater Rochester. He is also
on the Board of Governors of National Association of Real Estate Investment
Trusts and is a member of Urban Land Institute. Mr. Pettinella is a graduate of
the State University at Geneseo and holds an MBA Degree in finance from Syracuse
University.
Clifford W. Smith, Jr. age 59, has been a director of the Company since
1994. Mr. Smith is the Epstein Professor of Finance of the William E. Simon
Graduate School of Business Administration of the University of Rochester, where
he has been on the faculty since 1974. He has written numerous books and
articles on a variety of financial, capital markets and risk management topics
and has held editorial positions for a variety of journals. Mr. Smith is a
graduate of Emory University and has a PhD from the University of North Carolina
at Chapel Hill.
Paul L. Smith, age 70, has been a director of the Company since 1994. Mr.
Smith was a director, Senior Vice President and the Chief Financial Officer of
the Eastman Kodak Company from 1983 until he retired in 1993. He was a member of
the Financial Accounting Standards Advisory Council. He is currently a director
of Constellation Brands, Inc. He is also a member of the Board of Trustees of
the George Eastman House and Ohio Wesleyan University. Mr. Smith is a graduate
of Ohio Wesleyan University and holds an MBA Degree in finance from
Northwestern University.
Thomas S. Summer, age 52, has been a director of the Company since August,
2004. Mr. Summer has been the Executive Vice President and Chief Financial
Officer of Constellation Brands, Inc. since 1997. Prior to that, he held various
positions in financial management with Cardinal Health, Inc., PepsiCo, Inc., and
Inland Steel Industries. He is also a member of the Boards of Greatbatch, Inc.
and AIDS Rochester, Inc. Mr. Summer is a graduate of Harvard University and
holds an MBA degree in finance and accounting from the University of Chicago.
Amy L. Tait, age 47, has served as a director of the Company since its
inception in 1993. Effective February 15, 2001, Mrs. Tait resigned her full-time
position as Executive Vice President of the Company and as a director of HP
Management. She continued as a consultant to the Company pursuant to a
consulting agreement that terminated on February 15, 2002. She is currently the
Chief Executive Officer and a director of Broadstone Ventures, LLC and
Broadstone Real Estate, LLC, where she also serves as Secretary. Mrs. Tait
joined Home Leasing in 1983 and held several positions with the Company,
including Senior and Executive Vice President and Chief Operating Officer. She
currently serves on the M & T Bank Regional Advisory Board and the boards of the
United Way of Rochester, Princeton Club of Rochester, Al Sigl Center, Center for
Governmental Research, Allendale Columbia School, and Monroe County Center for
Entrepreneurship. 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.
BOARD MATTERS
Board Composition
The Company is managed by its Board of Directors. If all of the Nominees
are elected, the Board will have twelve members.
Board Meetings
The Board holds regular meetings on a quarterly basis. Pursuant to the
Company's By-Laws, the Board Chair, President or a majority of the Board of
Directors may call for a special meeting of the Board. During 2005, the Board of
Directors met eight times, including regular and special meetings. Each director
attended at least 75% of the Board's meetings. Ten of the twelve directors
attended all of the meetings. Two directors each missed one meeting.
Board Independence
Nine of the Company's twelve Board members are not employed by the Company.
The Board of Directors has determined that eight of the non-employee directors
are "independent" within the meaning of the Securities and Exchange Commission
("SEC") and the New York Stock Exchange ("NYSE") current director independence
standards. The independent directors are: William Balderston, Josh Fidler, Alan
Gosule, Leonard Helbig, Roger Kober, Clifford Smith, Paul Smith and Thomas
Summer. This represents more than a majority of the members of the Board of
Directors.
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. Consistent with the
standard of the NYSE with respect to ownership of common stock, the Board has
determined that ownership of limited partnership units ("Units") in Home
Properties, L.P. (the "Operating Partnership"), which are exchangeable on a
one-for-one basis for Common Stock and have customarily received distributions
equivalent to distributions on the Company's Common Stock, does not bar the
Board from determining that a director is independent of management. Messrs.
Balderston, Gosule, Helbig, Kober, C. Smith, P. Smith and Summer have no
relationship with the Company other than their compensation and benefits as
members of the Board and its Committees and ownership of the Company's Common
Stock.
In evaluating the independence of Mr. Fidler, the Corporate
Governance/Nominating Committee and the full Board considered the additional
relationships between Mr. Fidler and the Company and determined that none of
them was material and that Mr. Fidler is independent. Specifically, Mr. Fidler
is a principal in a diversified real estate development business known as The
Macks Group. In 1999, the Company acquired 3,297 apartment units from affiliates
of The Macks Group. As partial consideration for the purchase, Mr. Fidler and
members of his family acquired approximately 800,000 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
Units could be exchanged, to pay dividends on the Units comparable to those paid
on the Company's Common Stock, and to provide the holders of the 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 two 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.
In considering the relationships between Amy Tait and the Company, the
Board has determined that Ms. Tait is not an independent director because of her
prior employment as an officer of the Company and because Norman Leenhouts, her
father, was Co-Chief Executive Officer until January 1, 2004.
Board Evaluation
In 2005, each Board member participated in a 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.
Board Committees
Audit Committee. The Company has a separately designated Audit Committee,
which currently consists of Alan Gosule, Leonard Helbig, Roger Kober, Paul Smith
and Thomas Summer. Paul Smith chairs this Committee. The Audit Committee assists
the Board in fulfilling its responsibility for general oversight of the
integrity of the Company's financial statements, the Company's compliance with
applicable laws and regulations including the Company's own Code of Business
Conduct and Ethics, and the Company's internal and disclosure controls and
procedures. The Audit Committee also selects and oversees the Company's
independent registered public accounting firm.
The Audit Committee has adopted procedures for the receipt, retention and
treatment of concerns and complaints about accounting, internal controls and
auditing matters. The Audit Committee oversees the existence of a "hot line"
(1-877-888-0002) where such concerns and complaints can be anonymously reported.
The Board of Directors has reviewed the qualifications of each member of
the Audit Committee and has determined that each member is independent as
required by applicable securities laws and by the listing standards of the NYSE.
No Audit Committee member serves on the audit committee of more than one other
public company. In the exercise of its business judgment, the Board of Directors
has also determined that each member of the Audit Committee is financially
literate. Finally, the Board has determined that each of Roger Kober, Paul Smith
and Thomas Summer qualifies as an "audit committee financial expert" as defined
by applicable SEC rules.
The Audit Committee operates under a written charter approved by the
Committee and the Board. A copy of the charter is attached to this Proxy
Statement as Exhibit A and is available on the Company's website at
www.homeproperties.com under the heading "Investment Information/Corporate
Governance/Highlights." In 2005, the Audit Committee conducted a
self-evaluation.
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 seven times in 2005. Each of the members of the Audit
Committee attended at least 75% of the Committee's meetings.
Compensation Committee. The Company has a separately designated
Compensation Committee. The Compensation Committee currently consists of William
Balderston, Roger Kober and Clifford Smith, each of whom is independent as
required by applicable securities laws and by the listing standards of the NYSE.
Clifford Smith chairs this Committee. 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 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 "Investment
Information/Corporate Governance/Highlights." In 2005, the Compensation
Committee conducted a self-evaluation.
The Compensation Committee met four times in 2005. Each of the members of
the Compensation Committee attended all of the Committee's meetings.
Corporate Governance/Nominating Committee. The Company has a separately
designated Corporate Governance/Nominating Committee. Pursuant to its charter,
this Committee at all times consists of at least three directors, all of whom
are independent directors and two of whom are the Chairs of the Audit and
Compensation Committees. This Committee currently consists of William
Balderston, Clifford Smith and Paul Smith, each of whom is independent as
required by applicable securities laws and by the listing standards of the NYSE.
William Balderston chairs this Committee. The Corporate Governance/Nominating
Committee identifies individuals qualified to become Board members consistent
with criteria approved by the Board, evaluates the size, composition and
organization of the Board, monitors implementation of specific corporate
governance initiatives, reviews any stockholder proposals submitted to the
Company and oversees the evaluation of the Board and management.
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
"Investment Information/Corporate Governance/Highlights." In 2005, the Corporate
Governance/Nominating Committee conducted a self-evaluation.
The Corporate Governance Committee met four times in 2005. Each of the
members of this Committee attended all of the Committee's meetings.
Real Estate Investment Committee. The Company has a separately designated
Real Estate Investment Committee. Josh Fidler, Leonard Helbig, Nelson Leenhouts,
Edward Pettinella and Amy Tait are the current members of this Committee. Amy
Tait chairs this Committee. The charter for this Committee requires that it
consists of at least three directors, at least a majority of whom shall be
non-employee directors. The purpose of this 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 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 "Investment
Information//Corporate Governance/Highlights." In 2005, the Real Estate
Investment Committee conducted a self-evaluation.
The Real Estate Investment Committee met six times in 2005. Each of the
members of the Committee attended all of the Committee's meetings.
Board Compensation
In 2005, the Company paid its non-employee directors an annual stipend of
$20,000. An additional annual stipend in the amount of $9,000 was paid to the
Chair of each of the Committees. Non-employee directors were also paid $1,200
per day for attendance (in person or by telephone) at Board and Committee
meetings provided the Committee meetings were held on a different day from the
Board meetings. In addition, in 2005, each of the non-employee directors was
issued 875 shares of restricted stock and 4,000 options pursuant to the
Company's Amended and Restated 2003 Stock Benefit Plan. The options were issued
at an exercise price of $41.95 per share, which was the closing price of a share
of the Company's common stock on the date of the 2005 Annual Meeting.
For 2006, the annual stipend will increase to $30,000, the additional
stipend paid to the Committee Chairs will increase to $10,000 and the meeting
fees will remain at $1,200 per day. The Amended and Restated 2003 Stock Benefit
Plan provides for the issuance of up to 1,000 shares of restricted stock to each
of the non-employee directors in 2006. The Board authorized a grant of 1,000
shares to each non-employee director, which was awarded in February, 2006. The
Amended and Restated 2003 Stock Benefit Plan also provides for the issuance of
up to 10,000 options to each of the non-employee directors in 2006. The Board
has approved the issuance of 4,000 options to each of the non-employee directors
immediately following the 2006 Annual Meeting. The Board determined the 2006
compensation level for non-employee directors based on an analysis of the amount
and type of consideration paid to the boards of the Company's peer group.
Under the Second Amended and Restated Director Deferred Compensation Plan
approved by the stockholders at the 2005 Annual Meeting, the non-employee
directors can defer up to 100% of their total annual cash compensation
(including meeting fees) for three, five or ten years and their compensation in
the form of restricted stock for five or ten years. The Company matches 10% of
the deferred cash amount, which amount vests after three years. A "phantom"
stock account is established for each of the director and the Company
contribution amounts. Each deferral and the Company contribution is reflected by
crediting those accounts with the phantom equivalent of the number of shares of
the Company's Common Stock that could be purchased with the amounts deferred and
contributed at the Common Stock's fair market value as of the day when the
compensation would otherwise have been paid, or with the number of shares of
restricted stock deferred. Participants' accounts are also credited with the
number of shares of the Company's Common Stock that could be purchased with
hypothetical dividends that would be paid with respect to shares previously
allocated to the accounts on the same date and at the same price that shares are
purchased for participants in the dividend reinvestment feature of the Company's
Dividend Reinvestment and Direct Stock Purchase Plan (the "DRIP"). Payments out
of the deferred accounts, upon vesting or otherwise, are made by issuance of
Common Stock, except in the event of payment by reason of a change in control in
which event payment may be made in cash or by issuance of Common Stock at the
election of the Compensation Committee. The Director Deferred Compensation Plan
is designed to provide substantially the same benefits to the non-employee
directors as are provided to eligible employees under the Company's Deferred
Bonus Plan. Under the Director Deferred Compensation Plan, five and four of the
nine non-employee directors elected to defer some or all of the compensation
earned by them in 2005 and 2006, respectively.
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.
Director Qualifications
The Board has established certain minimum qualifications for prospective
Board members. These include a present or past (retired) successful professional
career as well as the potential to contribute to the effectiveness of the Board
as a whole. Specific qualifications or skills that a prospective Board member
must possess include candor, trustworthiness, high ethical standards, dedication
and a desire to work hard. Specific expertise must include one of the following:
successful financial, legal, academic, mergers and acquisitions, technology
utilization or business operating experience.
Identifying and Evaluating Nominees for Directors
The Corporate Governance/Nominating Committee utilizes a variety of methods
for identifying and evaluating nominees for director. The Committee develops and
updates a list of potential Board candidates that meet the Board qualifications.
Candidates may come to the attention of the Committee through current Board
members, stockholders, management or other persons. To date, the Committee has
not utilized the services of a professional service firm to identify potential
candidates, but it may do so in the future. If a vacancy on the Board occurs or
is anticipated, the Committee selects candidates to have personal meetings with
members of the Committee, the Co-Chairs of the Board and the Chief Executive
Officer. Selected candidates would then be invited to interact with other Board
members and management. A candidate, if acceptable, would then be elected by the
Board (in the event of a mid-term vacancy) or be nominated to stand for election
at the next annual stockholders meeting.
Stockholder Nominees
The Corporate Governance/Nominating Committee will consider director
candidates proposed by stockholders on the same basis as it considers other
potential candidates for Board membership. Stockholders may submit nominations,
which should include the name and address of the proposed candidate as well as
biographical information evidencing that the proposed candidate meets the
minimum qualifications and possesses the skills and expertise as required by the
Board and as described above under "Director Qualifications." The submission
must also include the candidate's written consent to the nomination and to serve
if elected. To be considered for nomination for election at the 2007 Annual
Meeting, 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 February 15, 2007.
Director Communications
Stockholders 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. Stockholders
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.
CORPORATE GOVERNANCE
Code of Ethics
A very significant part of the Company's culture is the focus on "doing the
right thing." The Company has adopted a Code of Business Conduct and Ethics
("Code of Ethics") to embody the Company's commitment to continue to conduct
business in accordance with the highest ethical standards. The Code of Ethics
applies to all employees and directors of the Company. The Code of Ethics covers
such topics as conflicts of interest, proper use of Company property, complete
and accurate reporting and disclosure of its business and financial results and
compliance with laws. Each employee and each member of the Board of Directors is
required on an annual basis to acknowledge that they have received a copy of and
reviewed the Code of Ethics.
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
are also 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 "Investment
Information/Corporate Governance/Highlights." Amendments to the Code of Ethics
and Senior Financial Officer Code of Ethics and any waivers granted thereunder
will be posted on the Company's website under that heading. The Audit Committee
of the Board of Directors monitors the implementation and enforcement of both
Codes.
Corporate Governance Guidelines
The Board of Directors has adopted a set of corporate governance guidelines
(the "Guidelines") which meet the requirements of the listing standards of the
NYSE and cover such topics as director qualifications and responsibilities,
director access to management, and director orientation and continuing
education. Some specific policies included in the Guidelines follow.
Retirement Age. The retirement age for directors was changed in February
2006 to 75. Previously, the retirement age of 75 was subject to exceptions if a
determination was made by the other directors after confidential discussion that
the over age 75 director was expected to make a significant contribution to the
Company during the following year. As of the 2007 Annual Meeting, no exceptions
will be permitted.
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 $100,000.
Meeting Attendance. Directors are expected to attend each annual
stockholders meeting, all Board meetings and meetings of the Committees on which
they serve. All of the directors attended the 2005 Annual Meeting of
Stockholders.
Executive Sessions. The non-management directors are to meet at least
quarterly in executive sessions and, at least once per year, without any
directors who are not independent directors. The Chair of the Corporate
Governance/ Nominating Committee presides at the executive sessions unless the
Board determines otherwise.
A copy of the Guidelines is available on the Company's website at
www.homeproperties.com under the heading "Investment Information/Corporate
Governance/Highlights."
Stock Option Restrictions
The Amended and Restated 2003 Stock Benefit Plan approved by the Company's
stockholders at the 2005 Annual Meeting includes some features that are designed
to closely align the interests of management with those of the stockholders.
Options may not be repriced. Options do not vest automatically upon retirement
but continue to vest as scheduled. Directors and the executive officers of the
Company must hold an equivalent number of shares as were issued on an option
exercise for a one year period and are not permitted to receive cash on an
option exercise other than the amount necessary to pay the exercise price and
withholding taxes.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during 2003, 2004 and
2005 to the Company's Chief Executive Officer, the four next most highly
compensated executive officers and the two Board Co-Chairs and Senior Advisors
(collectively the "Named Executives").
Summary Compensation Table
Long-Term
Compensation Awards
Securities
Annual Compensation($) Restricted Underlying All Other
Name and Principal Position Year Salary Bonus (1) Stock Awards($)(2) Options(#)(3) Compensation($)(4)
- --------------------------- ---- ------ --------- ---------------------------------------------------
Edward J. Pettinella (5) 2003 $400,000 $113,520 $411,450 50,000 $6,000
President and Chief Executive 2004 475,000 433,770 529,320 55,000 6,150
Officer 2005 500,000 352,625 416,500 65,000 6,300
David P. Gardner (6) 2003 215,000 92,498 97,725 15,000 6,000
Executive Vice President and 2004 245,000 171,673 246,608 15,000 6,150
Chief Financial Officer 2005 263,000 114,142 229,075 25,000 6,300
Ann M. McCormick (7) 2003 205,000 89,023 80,905 15,000 6,000
Executive Vice President 2004 235,000 165,412 203,808 15,000 6,150
General Counsel and Secretary 2005 248,000 107,632 189,578 20,000 6,300
Scott A. Doyle (8) 2003 175,000 64,217 31,650 10,000 6,000
Senior Vice President 2004 215,000 130,349 126,817 12,500 6,150
2005 233,000 88,482 124,950 15,000 6,300
John E. Smith (9) 2003 170,000 60,966 31,650 10,000 6,000
Senior Vice President 2004 189,166 99,433 64,160 10,000 6,150
2005 205,000 77,849 83,300 15,000 6,300
Other Employees:
Nelson B. Leenhouts (10) 2003 450,000 127,710 2,970,282 50,000 6,000
Co-Chair and Senior Advisor 2004 300,000 273,960 434,655 33,330 6,150
2005 225,000 146,475 222,685 25,000 6,300
Norman P. Leenhouts (11) 2003 450,000 127,710 2,969,967 50,000 6,000
Co-Chair and Senior Advisor 2004 300,000 273,960 434,655 33,330 6,150
2005 225,000 146,475 222,685 25,000 6,300
(1) All amounts listed in the following footnotes as having been subject to
mandatory deferral were required to be deferred under the Company's
Incentive Compensation Plan. When the deferred amounts are paid, they are
paid with interest as provided in that plan. See the description of this
plan under "Incentive Compensation Plan" on page 15 of this Proxy
Statement.
(2) Amounts in this column include the value of shares of restricted stock and,
where applicable, the amount of the Company's contribution of 10% of the
bonus deferred voluntarily by the Named Executives pursuant to the
Company's Deferred Bonus Plan (a "10% Company Contribution"). The value of
the restricted stock is based on the closing price of a share of Common
Stock on the NYSE on the date of grant. The amount of the 10% Company
Contribution under the Deferred Bonus Plan is credited to the applicable
Named Executive's account in the form of shares as described under
"Deferred Bonus Plan" on page 16 of this Proxy Statement ("Plan Shares").
The restrictions on the shares of restricted stock granted in February 2003
lapse in February 2008. The restrictions on the shares of restricted stock
granted to Nelson and Norman Leenhouts in October 2003 vest 20% per year on
the anniversary date of the grant. The restrictions on the shares of
restricted stock granted in 2004 and 2005 vest 25% per year on the
anniversary date of the grant. The Plan Shares vest on the three-year
anniversary of the date they were first credited to the applicable Named
Executive's deferred bonus account. Dividends are paid on the restricted
shares as and when dividends are paid on the Common Stock. The equivalents
of dividends are paid on the Plan Shares at the time dividends are paid on
the Common Stock and are reinvested. The value of all of the restricted
stock (including Plan Shares) listed in this column for the Named
Executives as of December 31, 2005 was as follows: Edward Pettinella
$1,342,320; David Gardner $539,939; Ann McCormick $444,139; Scott Doyle
$261,918; John Smith $171,360; Nelson Leenhouts $2,800,503; Norman
Leenhouts $2,800,144.
(3) All options granted in 2003, 2004 and 2005 were granted under the 2003
Stock Benefit Plan. All options are exercisable for ten years following
grant. All options vest 20% each year for five years. The exercise price
for all options granted in 2003 is $36.85 per share. The exercise price for
all options granted in 2004 is $38.83 per share. The exercise price for all
options granted in 2005 is $41.95 per share. The exercise price for all
options granted is the closing price of a share of the Company's Common
Stock on the date of grant.
(4) Represents contributions made by the Company to the Named Executive's
account under the Company's retirement savings plan.
(5) The amount in the restricted stock column represents the value of 13,000
shares of restricted stock granted to Mr. Pettinella in 2003, 13,200 shares
granted to him in 2004 and 10,000 shares granted to him in 2005. In
addition to the listed compensation, in 2005 Mr. Pettinella received
$93,357 in dividends paid on the restricted stock held by him.
(6) Mr. Gardner's 2003 and 2004 bonuses include $21,311 and $22,517,
respectively, which represents 50% of his 2002 bonus that was subject to
mandatory deferral plus interest. The amount in the restricted stock column
includes the 10% Company Contribution which was credited to Mr. Gardner's
deferred bonus account in the form of 70 and 149 Plan Shares, respectively,
for 2003 and 2004. The amount in the restricted stock column also includes
the value of 3,000 shares of restricted stock granted to Mr. Gardner in
2003, 6,000 shares granted to him in 2004 and 5,500 shares granted to him
in 2005. In addition to the listed compensation, in 2005 Mr. Gardner
received $37,950 in dividends paid on the restricted stock held by him.
(7) Mrs. McCormick's 2003 and 2004 bonuses include $21,147 and $22,344,
respectively, which represents 50% of her 2002 bonus that was subject to
mandatory deferral plus interest. The amount in the restricted stock column
includes the 10% Company Contribution which was credited to Mrs.
McCormick's deferred bonus account in the form of 45, 82 and 43 Plan
Shares, respectively, for 2003, 2004 and 2005. The amount in the restricted
stock column also includes the value of 2,500 shares granted to Mrs.
McCormick in 2003, 5,000 shares granted to her in 2004 and 4,500 shares
granted to her in 2005. In addition to the listed compensation, in 2005
Mrs. McCormick received $32,257 in dividends paid on the restricted stock
held by her.
(8) Mr. Doyle's 2003 and 2004 bonuses include $14,552 and $15,375,
respectively, which represents 50% of his 2002 bonus that was subject to
mandatory deferral plus interest. The amount in the restricted stock column
includes the 10% Company Contribution which was credited to Mr. Doyle's
deferred bonus account in the form of 162 Plan Shares for 2004. The amount
in the restricted stock column represents the value of 1,000 shares granted
to Mr. Doyle in 2003, 3,000 shares granted to him in 2004 and 3,000 shares
granted to him in 2005. In addition to the listed compensation, in 2005 Mr.
Doyle received $19,860 in dividends paid on the restricted stock held by
him.
(9) Mr. Smith's 2003 and 2004 bonuses include $12,720 and $13,440,
respectively, which represents 50% of his 2002 bonus that was subject to
mandatory deferral plus interest. The amount in the restricted stock column
represents the value of 1,000 shares granted to Mr. Smith in 2003, 1,600
shares granted to him in 2004 and 2,000 shares granted to him in 2005. In
addition to the listed compensation, in 2005 Mr. Smith received $14,674 in
dividends paid on the restricted stock held by him.
(10) Prior to January 1, 2004, Nelson Leenhouts served as President of the
Company. The amount in the restricted stock column includes the Company's
10% Contribution which was credited to Nelson Leenhouts' deferred bonus
account in the form of 315, 671 and 291 Plan Shares for 2003, 2004 and
2005, respectively. For 2003, 2004 and 2005, the restricted stock column
also includes the value of 80,935, 10,166 and 5,000 shares, respectively,
of restricted stock granted to Mr. Leenhouts in those years. In addition to
the listed compensation, in 2005 Mr. Leenhouts received $203,128 in
dividends paid on the restricted stock held by him.
(11) Prior to January 1, 2004, Norman Leenhouts served as Chairman of the
Company. The amount in the restricted stock column includes the 10% Company
Contribution which was credited to Norman Leenhouts' deferred bonus account
in the form of 307, 671 and 291 Plan Shares, respectively, for 2003, 2004
and 2005. The amount in the restricted stock column for 2003, 2004 and 2005
also includes the value of 80,935, 10,166 and 5,000 shares, respectively,
of restricted stock granted to Mr. Leenhouts in those years. In addition to
the listed compensation, in 2005 Mr. Leenhouts received $203,128 in
dividends paid on the restricted stock held by him.
Stock Benefit Plans
The Company's 1994 Stock Benefit Plan was adopted by the Company at the
time of its initial public offering. As of March 8, 2006, options to purchase
1,542,381 shares have been granted to employees and options to purchase 153,654
shares have been granted to non-employee directors under the 1994 Stock Benefit
Plan. Of the options granted under the 1994 Stock Benefit Plan, 42,991 issued to
employees and none issued to non-employee directors were outstanding on March 8,
2006. The Board of Directors has determined that no additional awards will be
made under this Plan.
At the 2000 Annual Meeting, the stockholders approved the Company's 2000
Stock Benefit Plan. As of March 8, 2006, options to purchase 2,101,220 shares
have been granted to employees and options to purchase 163,760 shares have been
granted to non-employee directors under the 2000 Stock Benefit Plan. In
addition, as of March 8, 2006, 350,702 shares of restricted stock have been
issued under the 2000 Stock Benefit Plan to the executive officers and other key
employees and 2,700 shares of restricted stock had been issued to the
non-employee directors under the 2000 Stock Benefit Plan. Of the awards made
under the 2000 Stock Benefit Plan 818,077 options and 223,963 shares of
restricted stock issued to employees and 49,000 options and 2,100 shares of
restricted stock issued to the non-employee directors were outstanding on March
8, 2006. The Board of Directors has determined that no additional awards will be
made under this Plan.
At the 2003 Annual Meeting, the stockholders approved the Company's 2003
Stock Benefit Plan. The stockholders approved an amended and restated version of
that plan at the 2005 Annual Meeting. The Amended and Restated 2003 Stock
Benefit Plan provides up to 2,500,000 shares for issuance of stock options to
employees (including the executive officers) and 110,000 shares for issuance of
shares of restricted stock to employees (including the executive officers),
220,000 shares for issuance of stock options to non-employee directors and
29,475 shares for issuance of shares of restricted stock to non-employee
directors. As of March 8, 2006, options to purchase 1,694,130 shares have been
granted to employees and no shares of restricted stock have been granted to
employees, options to purchase 148,000 shares have been issued to non-employee
directors and 20,475 shares of restricted stock have been granted to
non-employee directors under the original and the Amended and Restated 2003
Stock Benefit Plan. Of the options granted under the original and the Amended
and Restated 2003 Stock Benefit Plan, 1,381,675 issued to employees and 148,000
issued to non-employee directors were issued and outstanding as of March 8,
2006. All 20,475 shares of restricted stock granted to non-employee directors
also remain issued and outstanding as of March 8, 2006.
Options and restricted stock that have been issued and that are
subsequently terminated, cancelled or surrendered without being exercised are
available for future grant under the Amended and Restated 2003 Stock Benefit
Plan. Taking those shares in account, as of March 8, 2006, 1,028,590 are
available for issuance of stock options to employees and 110,000 shares are
available for issuance of restricted stock to employees. In addition 72,000
shares are available for issuance of stock options to non-employee directors and
9,000 shares are available for issuance of restricted stock to non-employee
directors.
As of March 8, 2006 and with respect to all three of the Company's Stock
Benefit Plans, the aggregate of the shares of Common Stock subject to
outstanding option grants, the shares of restricted stock outstanding and the
shares still available for issuance of awards equals 8.1% of the aggregate of
the Company's outstanding Common Stock and other equity that is convertible into
Common Stock on an as-converted basis.
Option Grants in Fiscal Year 2005
The following table sets forth certain information relating to options
granted to the Named Executives during the fiscal year ended December 31, 2005.
These options were granted under the Amended and Restated 2003 Stock Benefit
Plan. The columns labeled "Potential Realizable Value" are based on hypothetical
5% and 10% growth assumptions in accordance with the rules of the SEC. The
Company cannot predict the actual growth rate of the Common Stock.
Option Grants in Last Fiscal Year(1)
Individual Grants
Percent of
Number of Total Options Potential Realizable Value
Shares Granted to at Assumed Annual Rates of
Underlying Employees in Exercise or Stock Price Appreciation Grant Date
Options Fiscal Base Price Expiration for Option Term($) Fair
Name Granted(#) Year ($/sh.) (2) Date 5% 10% Value($)(3)
---- ---------- ---- ----------- ---- -- --- -----------
Executive Officers:
Edward J. Pettinella 65,000 12.5% $41.95 05/06/2015 $1,714,838 $4,345,737 $228,743
David P. Gardner 25,000 4.8% 41.95 05/06/2015 659,553 1,671,437 87,978
Ann M. McCormick 20,000 3.8% 41.95 05/06/2015 527,643 1,337,150 70,383
Scott A. Doyle 15,000 2.9% 41.95 05/06/2015 395,732 1,002,862 52,787
John E. Smith 15,000 2.9% 41.95 05/06/2015 395,732 1,002,862 52,787
Other Employees:
Nelson B. Leenhouts 25,000 4.8% 41.95 05/06/2015 659,553 1,671,437 87,978
Norman P. Leenhouts 25,000 4.8% 41.95 05/06/2015 659,553 1,671,437 87,978
(1) Stock appreciation rights were not granted in 2005.
(2) The exercise price was the closing price of a share of the Company's Common
Stock on the NYSE on the date of grant, May 6, 2005.
(3) The value of stock option awards granted in May, 2005 is based on the grant
date fair value estimated by the Company for financial reporting purposes
($3.52 per option) using the Black-Sholes option-pricing model. The
ultimate values of the options will depend on the future market price of
the Company's stock, which cannot be forecasted with reasonable accuracy.
The actual value, if any, an employee will realize upon exercise of an
option will depend on the excess of the fair market value of the Company's
common stock less the grant price on the date the option is exercised.
Option Exercises and Year-End Option Values
The following table sets forth the value of options held as of December 31,
2005 by the Company's Named Executives.
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values (1)
Number of
Shares Number of Shares Value of Unexercised
Acquired Underlying Unexercised in-the-Money Options at
On Value Options at Fiscal Year End(#) Fiscal Year End($)(2) End(#)
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
Executive Officers:
Edward J. Pettinella 0 0 231,000 139,000 $2,319,670 $205,180
David P. Gardner 11,140 $173,829 45,960 55,000 367,263 128,040
Ann M. McCormick 0 0 57,600 50,000 530,440 128,040
Scott A. Doyle 0 0 39,000 37,000 353,938 89,300
John E. Smith 7,000 103,080 25,000 35,000 188,965 85,360
Other Employees:
Nelson B. Leenhouts 3,686 45,319 76,666 111,664 477,382 400,528
Norman P. Leenhouts 3,187 25,257 73,479 111,664 447,345 400,528
(1) Stock appreciation rights were not granted in 2005.
(2) Based on the closing price of a share of the Company's Common Stock on the
NYSE on December 31, 2005 of $40.80 less the per share exercise price of
the options.
Employment Agreements
Edward Pettinella entered into an employment agreement with the Company for
a term that commenced on January 1, 2004 and terminates on December 31, 2006.
The agreement provides for the employment of Mr. Pettinella during that term as
the President and Chief Executive Officer of the Company. Pursuant to the
agreement, his base salary for 2004 was $475,000 and his base salary for 2005
and 2006 is to be determined in the discretion of the Compensation Committee,
but is to be no less then $475,000. The factor to be applied to his salary for
purposes of determining his bonus pool under the Company's Incentive
Compensation Plan is to be a minimum of 12% for all three years. The
Compensation Committee determined Mr. Pettinella's salary for 2005 and 2006
(actually March 15, 2006 to March 14, 2007) was to be $500,000 and $525,000,
respectively. The Committee increased his bonus factor to 13% in 2005 where it
remains for 2006. Options and restricted stock awards to be made to Mr.
Pettinella during the term of the agreement are not specified but are rather to
be made in the discretion of the Compensation Committee. The Compensation
Committee recommended and the full Board approved the issuance of 55,000 and
65,000 stock options in 2004 and 2005, respectively and the issuance of 13,200
and 10,000 shares of restricted stock in 2004 and 2005, respectively. The
Compensation Committee expects to make a recommendation as to the number of
options and shares of restricted stock to be issued in 2006 to Mr. Pettinella at
the May 2006 Board meeting. The "Compensation Committee Report on Executive
Compensation" included later in the Proxy Statement describes the rationale for
the Committee's prior recommendations relating to Mr. Pettinella's compensation.
Mr. Pettinella's employment agreement also provides that, if employment is
terminated by the Company without cause or by Mr. Pettinella for good reason,
Mr. Pettinella is entitled to receive an amount equal to two 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 such event, Mr. Pettinella would also be paid an amount to
compensate him for the loss of future awards of stock options and restricted
stock. In addition, all options previously granted to him would vest and the
restrictions would lapse on all restricted stock held by Mr. Pettinella.
Pursuant to the employment agreement, Mr. Pettinella is subject to a covenant
not to compete until January 1, 2007 unless he is terminated by the Company for
cause or if he resigns without good reason, in which event the covenant applies
for two years after termination.
In the event of a change of control, Mr. Pettinella is entitled to receive
the benefits provided under the Executive Retention Plan (described on page 16
of this Proxy Statement) except he would receive three times his base salary and
bonus instead of two times as provided to other beneficiaries of that plan.
In October, 2003, Nelson and Norman Leenhouts entered into employment
agreements with the Company providing for a three-year term expiring on December
31, 2006. Under the employment agreements, the Leenhoutses agree to serve as
Senior Advisors as well as Co-Chairs of the Board (provided they continue to be
elected by the stockholders as directors of the Company). These employment
agreements reflect the gradual reduction of the Leenhoutses' obligations to act
as Senior Advisors to the Company with the portion of their business time to be
spent on those obligations reducing from a maximum of two-thirds in 2004, to
one-half in 2005, to one-third in 2006. Their base salary is also
proportionately reduced under the employment agreements from $225,000 in 2005 to
$150,000 in 2006. They remain entitled to receive incentive compensation at
their pre-retirement bonus level factor of 12% but since the Company's Incentive
Bonus Plan provides that the bonus paid is calculated based on base salary, if
the total bonus payout remained the same, the bonus to be paid to the
Leenhoutses will be proportionately reduced as well.
Pursuant to their employment agreements, each of the Leenhoutses was
granted 64,935 shares of restricted stock in October 2003 in consideration for
both past and future services to the Company. The restrictions on those shares
lapse in equal amounts over the five years following the execution of the
employment agreements. The agreements also provide for minimum option and
restricted stock grants to the Leenhoutses. The minimum amount of options to be
granted to each of the Leenhoutses is 25,000 in 2005 and 16,665 in 2006. The
minimum number of shares of restricted stock to be granted to each is 5,000 in
2005 and 3,333 in 2006. The Leenhoutses each were granted 5,000 shares of
restricted stock in 2005. No determination has been made yet with respect to
2006 grants.
The employment agreements also provide that if employment is terminated by
the Company without cause, or by the Leenhoutses for good reason at any time,
each of the Leenhouts is entitled to receive an amount equal to twice his base
salary and incentive compensation for the year preceding 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 such event, the Leenhoutses would also receive the minimum
number of restricted shares yet to be issued under the employment agreements as
well as the value of the options not yet granted. In addition, all options
previously granted to them would vest and the restrictions would lapse on all
restricted stock held by them. Pursuant to their employment agreements, each of
Norman and Nelson Leenhouts are subject to a covenant not to compete with the
Company during the term of the agreements and, if either is terminated by the
Company for cause or resigns without good reason, for two years thereafter.
In addition, Nelson Leenhouts recently entered into a Development Agreement
with the Company whereby he agrees to perform certain additional functions
related to the development activities of the Company. That agreement is
described in more detail on page 27 of this Proxy Statement.
Incentive Compensation Plan
Under the Company's Incentive Compensation Plan as in effect for 2005 and
2006, eligible officers and key employees could earn a cash bonus based on two
metrics: (1) year over year growth in the Company's FFO per share/unit (computed
on a diluted basis); and (2) percentage of growth in the Company's same store
net operating income ("NOI") from the prior year as compared to its peer group
performance for the same period. Certain non-recurring items are removed from
published FFO results for purposes of making the bonus calculation. In
calculating the bonus units, the FFO component receives 75% weighting and the
NOI component receives 25% weighting.
In the event the Company experiences financial performance in either of the
metrics below the established floor or above the established ceiling, the
Compensation Committee has complete discretion in determining bonus unit award
levels that it will recommend for the Board's approval.
To calculate the actual bonus amount payable to each participant, the
number of bonus units is multiplied by a factor that is assigned to each
participant. That product is then multiplied by each participant's salary to
calculate the bonus payable to them.
The entire amount of the bonus otherwise payable to the Chief Executive
Officer is payable in the discretion of the Compensation Committee and 50% of
the bonus otherwise payable to other participants is payable in the discretion
of senior management.
Incentive Plan participants in the 1% and 2% bonus categories are limited
to bonuses equal to 10% and 20%, respectively, of their salaries. There is no
limit for participants in the 3% bonus category and above, except there is a
deferral component if the number of bonus units awarded exceeds eight bonus
units. For 2005, 5.425 bonus units were awarded. No changes to the Incentive
Compensation Plan are anticipated in 2006.
Deferred Bonus Plan
Eligible employees can elect to defer up to 100% of their bonus under the
Incentive Compensation Plan for three, five or ten years. The Company matches
10% of the amount deferred, which amount vests after three years. A "phantom"
stock account is established for both amounts. Each deferral and Company
contribution is reflected by crediting those accounts with the number of shares
of the Company's Common Stock that could be purchased with the amounts deferred
and contributed at the Common Stock's fair market value as of the day when the
bonus would otherwise have been paid. The equivalent of dividends on those
shares is also credited to the accounts at the time dividends are paid on the
Company's Common Stock. Shares that could be purchased with the hypothetical
dividends are credited to accounts at the same price that shares are purchased
for participants under the dividend reinvestment feature of the Company's DRIP.
Payments out of deferred accounts, upon vesting or otherwise, are made by
issuance of Common Stock, except in the event of payment by reason of a change
in control in which event payment may be made in cash or by issuance of Common
Stock at the election of the Compensation Committee.
This plan was adopted in 1998 and has not been submitted to the
stockholders for approval. It provides for the issuance of 100,000 shares. As of
December 31, 2005, 72,320 shares have been issued or reserved for issuance under
this plan.
Under the Deferred Bonus Plan, the Named Officers collectively deferred
approximately $310,000 of their 2005 bonuses.
Executive Retention Plan
The Company's Executive Retention Plan provides for severance benefits and
other compensation to be received by certain employees, including the executive
officers, in the event of a change of control of the Company and a subsequent
termination of their employment by the employer without cause or by the employee
for good reason at any time following the change of control and, with respect to
the executive officers, for any reason for a thirty day window following the one
year anniversary of the change of control. Under this Plan, the executive
officers, in the event of a termination covered by the Plan, would receive a
lump sum payment equal to two times their current base salary, two times their
last paid bonus under the Incentive Compensation Plan plus a "gross-up" amount
necessary to pay any excise tax due on the payment. In addition, all accrued or
deferred bonuses under the Incentive Compensation Plan would be paid, all stock
options would vest and the restrictions on all restricted stock would lapse
automatically.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
During the fiscal year 2005, the Compensation Committee was comprised of
William Balderston, III, Roger Kober and Clifford W. Smith, Jr. None of the
above individuals has ever been an officer of the Company or any of its
subsidiaries.
Compensation Committee Report on Executive Compensation
The Compensation Committee administers the Company's executive compensation
program, as well as broad based compensation plans for the Company's other
officers and employees. In this regard, the role of the Committee is to oversee
all compensation plans and policies and to administer the Company's stock option
plans (including reviewing and approving stock option grants and other awards to
executive officers). On an ongoing basis, the Committee also 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 also makes
specific annual compensation recommendations to the Board relating to the
Company's Chief Executive Officer and generally approves the compensation for
the other executive officers.
The Compensation Committee consists solely of independent directors. The
Committee meets on at least a quarterly basis and more often as appropriate. The
Committee Chair reports on Committee actions and recommendations at Board
meetings. The Committee's Charter reflects the various responsibilities of the
Committee and the Board periodically reviews and revises the Committee's
Charter.
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. In addition, the Committee
has the authority to engage the services of outside advisors and experts to
assist the Committee.
Compensation Philosophy. The Company's compensation philosophy is designed
to support its primary goal of creating long-term value for its stockholders.
The Committee continues to believe that the success of the Company in achieving
that goal is, in large part, attributable to the performance and dedication of
its employees and, in particular, to the leadership efforts of its executive
officers. The Committee also continues to believe that it is important that the
interests of its executives and other employees are aligned closely with the
interests of the Company's stockholders.
Compensation Objectives. The Committee's objectives for the Company's
compensation program continue to be to: (i) attract and retain highly capable
employees by offering a competitive total compensation package; (ii) link
compensation to the operating and financial performance of the Company; and
(iii) provide appropriate incentives to motivate employees to maximize the
long-term going-concern value of the Company.
Components of Compensation. The Company's executive compensation program
consists of three components: base salary, annual incentive compensation in the
form of a bonus under the Incentive Compensation Plan, and awards of restricted
stock and stock options under the Company's stock benefit plans. It is the
Committee's practice to provide a balanced mix of cash and equity based
compensation that the Committee believes appropriate to align the short and
long-term interests of the Company's executives with that of its stockholders
and to encourage executives to act as equity owners of the Company. 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, the Company's 401-k match and
accumulated option and restricted stock gains, are taken into consideration.
The Committee believes that appropriately balancing the total package and
ensuring the viability of each component of the package is necessary in order to
provide market-competitive compensation and benefits, and 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 ask for
additional information as necessary and to raise and discuss further questions.
As part of its consideration as to the appropriateness of the executive
officers' compensation, the Committee reviews market data for executives in the
property 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 is, however, its
thirteen member peer group in the apartment REIT industry. This is the same peer
group that is used to calculate the bonus payable pursuant to the Company's
Incentive Compensation Plan. Compensation data from the peer group is taken from
their most recently available proxy statements. These proxy statements typically
contain compensation information that is over one year old. The Committee takes
the age of this information into consideration when setting compensation levels.
This benchmarking is done with respect to the key elements of the executive
compensation program, as well as the compensation of individual executives where
job descriptions are sufficiently similar. The Committee does not aim to achieve
compensation levels within a particular range related to levels provided by
industry peers, but uses these comparisons as one factor in determining the
expected total value of salary, short-term incentives and long-term incentives
that fairly compensate executive officers when considered in combination.
Base Salary. In general, base pay for each employee, including executive
officers, is established based on the individual's job responsibilities,
performance and experience, the Company's overall budget for merit increases and
the competitive environment. On an annual basis, the Committee reviews and
approves adjustments for the executive officers based on the recommendations of
the Chief Executive Officer. With respect to Chief Executive Officer
adjustments, the Committee takes a vote at an executive session and a
recommendation is made to the full Board for approval.
The Committee's philosophy with respect to setting base salary is generally
to compensate executive officers with reasonable current income on a competitive
basis. In both 2005 and 2006, the Committee reviewed peer market data for the
Chief Executive Officer and the other executive officers. Based on that peer
review and the performance of the Company, the Committee increased Mr.
Pettinella's salary by 5.3% and 5.0% in 2005 and 2006, respectively. The other
executive officers received increases averaging 7.4% and 6.7%, respectively.
Incentive Compensation. The Incentive Compensation Plan is designed to
motivate employees to maximize the Company's annual operating and financial
performance. The Committee reviews the Plan on an annual basis to determine
whether it continues to provide the appropriate level and type of motivation.
Specifically, the Committee considers the weighting of the two metrics used in
the formula - FFO and same store NOI. The plan continues to place emphasis on
FFO (75%) because the Committee believes FFO to be the metric that best captures
the performance of the Company. Same store NOI (25%) continues as the other
metric because it is considered by the Committee to be an important driver of
real estate property values and thus stockholder value.
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. While most
participants in the Incentive Compensation Plan have factors of 3% or less
assigned to them, Mr. Pettinella's bonus factor for 2005 was 13% and remains 13%
for 2006. The bonus factor for the other executive officers ranged from 5% to 8%
in 2005 and has been increased to a range of 6% to 9% for 2006.
The Committee also determines and recommends to the Board what portion of
the bonus otherwise earned should be paid to the Chief Executive Officer. In
making its determination as to what portion of the 2005 bonus (payable in 2006)
should be paid to Mr. Pettinella, the Committee considered a variety of factors
including leadership and managerial ability, focus, business knowledge,
execution of the Company's business plan and overall business strategy,
adherence to the Company's values as well as a performance appraisal completed
by directors and each executive officer. In addition, the Committee considered
progress on several initiatives led by Mr. Pettinella. The Committee recommended
and the Board approved payment to Mr. Pettinella of 100% of his 2005 bonus. The
Chief Executive Officer, with input from other members of senior management,
determines what portion of their bonus should be paid to the other executive
officers (50% is discretionary). Consideration is given to the achievement of
individual initiatives as well as to the overall performance of the Company.
Each of the executive officers received 100% of their 2005 bonus.
Stock Compensation. The purpose of equity compensation grants is to provide
employees an incentive to maximize their efforts to promote the Company's
long-term going concern value and thereby advance the interests of the Company's
stockholders. To encourage employees to seek long-term appreciation in the value
of the Company's common stock, stock options granted to employees have not been
immediately exercisable, but vest over five years. In addition, with respect to
options issued in 2002 and later, executive officers of the Company may not
receive cash upon an option exercise and must retain for a period of not less
than one year ownership of no less than the same number of shares as the officer
received in an option exercise.
Executive officers receive a relatively large portion of their overall
targeted compensation in the form of equity in order to align interests of
management and stockholders and promote a focus on long-term results. In 2005,
the Compensation Committee reviewed the 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's
business and the comparison to the peer group.
As a result, in February 2005, the Committee recommended and the Board of
Directors approved the issuance of 39,000 shares of restricted stock to
executive officers. This number does not include the shares of restricted stock
that the Company was contractually obligated to issue to Nelson and Norman
Leenhouts pursuant to their employment agreements. Mr. Pettinella received
10,000 shares of restricted stock and the other executive officers received
various numbers of shares of restricted stock ranging from 1,200 to 5,500
shares.
In addition, in May 2005, the Compensation Committee recommended and the
Board of Directors approved the issuance of up to 448,600 additional options to
purchase Common Stock to certain officers and employees of the Company at an
option price equal to the closing price on the NYSE for a share of the Company's
Common Stock on the date of the grant. Edward Pettinella received 65,000
additional options. The other executive officers received options granted
ranging from 15,000 to 25,000 shares. These options vest 20% per year and expire
in ten years.
While the Committee has traditionally made its recommendation with regard
to restricted stock grants in February of each year and with regard to option
grants in August of each year, for 2006 and beyond the Committee expects to make
its recommendation with respect to both restricted stock and option grants at
the May Board meetings. This will enable the Committee to review more recent
peer group data for this component of compensation because the peer group proxy
statements for the current year will be available. It will also enable the
Committee to consider both of these components of equity compensation at the
same time.
Perquisites. The Committee has adopted and the Board has approved a policy
of providing only modest perquisites to its executives. For example, the Company
does not provide for the payment or reimbursement for Company vehicles or
aircraft, country club memberships, tax preparation or financial counseling
services or similar benefits frequently provided by other companies.
Chief Executive Officer Compensation. The Committee considers and develops
recommendations to the full Board on matters pertaining to the compensation of
Edward J. Pettinella substantially in conformity with the policies described
above for all other executive officers of the Company. In addition, in 2006, the
Committee reviewed a compensation tally sheet detailing Mr. Pettinella's total
compensation (salary, bonus, equity and the Company's 401-k match) for 2004 and
2005, an overview of his equity ownership and an overview of compensation that
would be due to him under various termination scenarios. The Committee also
considered internal pay equity analyses that compared Mr. Pettinella's total
compensation to the total compensation paid to the members of the senior
management team as well as to the average total compensation paid to employees
in the Company's first level management position within property management. For
2005 and 2006, the Board also considered a written evaluation of Mr.
Pettinella's performance completed by each member of the Board of Directors, as
well as each of the other executive officers. The Board meets in executive
session to approve compensation levels for the Chief Executive Officer.
Section 162(m). As a real estate investment trust, the Company does not pay
tax at the corporate level and thus the limit on deductibility under Section
162(m) of the Internal Revenue Code and related regulations does not impact the
Company. Nevertheless, it is the Committee's present intention to use the
requirements of Section 162(m) as a guide in its compensation related decisions,
except where the best interests of the Company and its stockholders dictate
otherwise.
Summary. The Committee's review of the Company's executive compensation
programs and practices includes an analysis of all elements of compensation,
consisting of base salary, incentive compensation, equity grants, retirement
programs, and health and welfare benefits. As a result of this review, tnd 2006
executive compensation that it believes are appropriate and reasonable.he
Committee made determinations with respect to 2005 and 2006 executive
compensation that it believes are appropriate and reasonable.
Submitted by the Compensation Committee,
Clifford W. Smith, Jr., Chair
William Balderston, III
Roger W. Kober
Performance Graph
The following graph compares the cumulative return on the Company's Common
Stock during the five year period ended December 31, 2005 to the cumulative
return of the NAREIT All Equity REIT Index and the Standard and Poor's 500 Index
for the same period. The total return assumes that dividends were reinvested
quarterly at the same discounted price as provided under the Company's DRIP and
is based on a $100 investment on December 31, 2000. Stockholders should note
that past performance does not predict future results.
12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005
---------- ---------- ---------- ---------- ---------- ----------
HME $100.00 $122.97 $144.16 $181.11 $205.23 $207.01
NAREIT $100.00 $113.93 $118.29 $162.21 $213.43 $239.39
S&P 500 $100.00 $88.11 $68.64 $88.33 $97.94 $102.75
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of the Company is composed
entirely of independent directors as required by applicable securities laws and
the current listing standards of the NYSE. Its members are identified at the end
of this report. The Audit Committee operates under a written charter adopted by
the Committee and the Board. A copy of the Third Amended and Restated Audit
Committee Charter is attached as Exhibit A to this Proxy Statement and is
available on the Company's website at www.homeproperties.com under the heading
"Investment Information/Corporate Governance/Highlights."
As described more fully in its Charter, the Audit Committee assists the
Board in fulfilling its responsibility for oversight of the quality and
integrity of the accounting, auditing and financial reporting practices of the
Company. Among other matters, the Audit Committee is responsible for the
selection and oversight of the Company's independent registered public
accounting firm.
The management of the Company is responsible for the preparation and
integrity of the financial reporting information and related systems of internal
controls. The independent registered public accounting firm is responsible for
performing an integrated audit on the Company's consolidated financial
statements as well as on Management's Report on Internal Control over Financial
Reporting in accordance with generally accepted auditing standards and for
issuing a report thereon. The Committee, in carrying out its role, relies on the
Company's senior management and its independent public accountants.
During 2005, the Committee met seven 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 were prepared in accordance with generally accepted
accounting principles and reviewed significant accounting and disclosure issues
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 (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, 2005, for filing with the
Securities and Exchange Commission.
Submitted by the Audit Committee,
Paul L. Smith, Chair
Alan L. Gosule
Leonard F. Helbig, III
Roger W. Kober
Thomas S. Summer
Principal Accounting Fees and Services
The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the Company's independent registered public
accounting firm. The Committee pre-approves on an annual basis the provision of
certain audit, audit related and tax services specifically described to the
Committee. Any additional engagements require separate pre-approval. As
permitted by the SEC's rules, the Audit Committee has authorized its Chair, Paul
Smith, to approve any additional non-audit services to be provided by the
independent registered public accounting firm, provided that such service is
permitted under applicable regulations and reported to the full Audit Committee
at its next meeting.
All of the services described below for 2005 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 service was compatible with the maintenance of independence.
Aggregate fees for professional services rendered to the Company by
PricewaterhouseCoopers LLP as of or for the years ended December 31, 2005 and
2004, were:
2005 2004
---- ----
Audit fees (1) $1,642,000 $1,615,000
Audit-related fees (2) 37,000 74,000
Tax fees (3) 136,000 220,000
All other fees (4) 51,000 3,000
------ -----
Total fees $1,866,000 $1,912,000
========== ==========
(1) Audit fees consisted of professional services rendered for the audits of
the consolidated financial statements of the Company and the audit of
Management's Report on Internal Controls over Financial Reporting.
(2) Audit-related fees consisted of assurance and related services related to
SEC Regulation S-X Rule 3-14 audits performed in connection with property
acquisitions, issuance of comfort letters, consents and assistance with
review of documents filed with the SEC.
(3) Tax fees consisted of services related to preparation of tax returns and
claims for refunds ($89,000 for 2005 and $142,000 for 2004) and tax
planning and tax advice ($47,000 for 2005 and $78,000 for 2004).
(4) All other fees consisted of license fees for software developed by
PricewaterhouseCoopers LLP that assists with partner allocations for the
Operating Partnership.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Securities Ownership of Management
The following table sets forth information as of March 8, 2006 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 Units beneficially owned by the
persons included in (i) and (ii) above (such 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.
Amount of Amount of
Shares and Shares/Units and
Nature of Percentage of Nature of
Beneficial Shares Beneficial Percentage of
Name of Beneficial Owner Ownership (1) Outstanding (1) Ownership (2) Shares/Units (2)
------------------------ ------------- --------------- ------------- ----------------
Edward J. Pettinella (3) 397,204 1.27% 397,204 1.27%
Nelson B. Leenhouts (4) 132,648 * 336,872 (5) 1.07%
Norman P. Leenhouts (6) 135,913 * 340,385 (7) 1.08%
William Balderston, III (8) 37,232 * 37,232 *
Josh E. Fidler (9) 2,675 * 519,782 1.64%
Alan L. Gosule (10) 28,947 * 28,947 *
Leonard F. Helbig, III (11) 60,005 * 60,005 *
Roger W. Kober (12) 31,983 * 31,983 *
Clifford W. Smith, Jr. (13) 51,646 * 51,646 *
Paul L. Smith (14) 19,791 * 19,791 *
Thomas S. Summer (15) 3,675 * 3,675 *
Amy L. Tait (16) 127,253 * 141,066 *
David P. Gardner (17) 108,461 * 111,967 *
Ann M. McCormick (18) 101,444 * 103,746 *
Scott A. Doyle (19) 56,061 * 56,061 *
John E. Smith (20) 43,426 * 43,426 *
All executive officers and
directors as a group (19 1,471,338 (21) 4.59% (22) 2,416,762 7.32% (23)
persons)
__________
* 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 that restrictions on all restricted stock issued to the
person have lapsed. 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 none of the restrictions on
restricted stock issued to any other person have lapsed. Does not include
shares in certain of the listed individual's accounts pursuant to the
Company's Deferred Bonus Plan (employees) and the Director Deferred
Compensation Plan (non-employee directors). 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 Units in the Operating
Partnership 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 none of the Units issued
to any other person have been exchanged for shares of Common Stock.
(3) Includes 244,000 shares which may be acquired upon the exercise of
Currently Exercisable Options and 29,100 shares of restricted stock.
(4) Includes 64,853 shares which may be acquired upon the exercise of Currently
Exercisable Options and 66,794 shares of restricted stock. There are 15,860
additional shares in Mr. Leenhouts' account pursuant to the Deferred Bonus
Plan.
(5) Includes Units owned by Home Leasing. Nelson Leenhouts is a director,
officer and sole stockholder of Home Leasing. Also includes 50,000 Units
owned by Nelson Leenhouts' spouse as to which he disclaims beneficial
ownership.
(6) Includes 61,666 shares which may be acquired upon the exercise of Currently
Exercisable Options, 700 shares in custodial accounts for the benefit of
Mr. Leenhouts' grandchildren (as to which he disclaims beneficial
ownership) and 66,794 shares of restricted stock. There are 24,976
additional shares in Mr. Leenhouts' account pursuant to the Deferred Bonus
Plan.
(7) Includes Units owned by Knollwood Ventures, Inc. Norman Leenhouts is a
director, officer and sole stockholder of Knollwood Ventures, Inc. Also
includes 50,000 Units owned by Norman Leenhouts' spouse as to which he
disclaims beneficial ownership.
(8) Includes 14,800 shares which may be acquired upon the exercise of Currently
Exercisable Options and 2,575 shares of restricted stock. There are 380
additional shares in Mr. Balderston's account pursuant to the Director
Deferred Compensation Plan.
(9) Includes 800 shares which may be acquired upon the exercise of Currently
Exercisable Options and 1,875 shares of restricted stock. The Shares/Units
owned include 101,126 Units held by Mr. Fidler's wife as to which he
disclaims beneficial ownership and 343,442 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 Units. He disclaims beneficial ownership of the
balance of the Units owed by FLP.
(10) Includes 21,800 shares which may be acquired upon the exercise of Currently
Exercisable Options and 1,300 shares of restricted stock. There are 8,278
additional shares in Mr. Gosule's account pursuant to the Director Deferred
Compensation Plan.
(11) Includes 14,800 shares which may be acquired upon the exercise of Currently
Exercisable Options. Mr. Helbig is also the holder of 1,850 shares of the
Company's Series F Cumulative Redeemable Preferred Stock. There are 11,690
additional shares in Mr. Helbig's account pursuant to the Director Deferred
Compensation Plan.
(12) Includes 14,800 shares which may be acquired upon the exercise of Currently
Exercisable Options. There are 6,982 additional shares in Mr. Kober's
account pursuant to the Director Deferred Compensation Plan.
(13) Includes 14,800 shares which may be acquired upon the exercise of Currently
Exercisable Options. Also includes 1,400 shares owned by Mr. 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 13,565 additional shares in Mr. Smith's
account pursuant to the Director Deferred Compensation Plan.
(14) Includes 7,800 shares which may be acquired upon the exercise of Currently
Exercisable Options and 2,575 shares of restricted stock. There are 2,287
additional shares in Mr. Smith's account pursuant to the Director Deferred
Compensation Plan.
(15) Includes 800 shares which may be acquired upon the exercise of Currently
Exercisable Options of 1,875 shares of restricted stock.
(16) Includes 29,800 shares which may be acquired by Mrs. Tait upon the exercise
of Currently Exercisable Options and 2,575 shares of restricted stock. Also
includes 6,036 shares held in a custodial account for Mrs. Tait's minor
children and 10,655 shares and 70 Units 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 and 2,548 Units with her
spouse.
(17) Includes 50,960 shares which may be acquired upon the exercise of Currently
Exercisable Options and 11,125 shares of restricted stock. Mr. Gardner
shares voting and dispositive power with his spouse with respect to 10,240
shares. There are 3,740 additional shares in Mr. Gardner's account pursuant
to the Deferred Bonus Plan.
(18) Includes 46,599 shares which may be acquired upon the exercise of Currently
Exercisable Options and 9,375 shares of restricted stock. Mrs. McCormick
shares voting and dispositive power with respect to 7,650 shares and 1,737
Units with her spouse. There are 3,790 additional shares in Mrs.
McCormick's account pursuant to the Deferred Bonus Plan.
(19) Includes 42,000 shares which may be acquired upon exercise of Currently
Exercisable Options, 5,550 shares of restricted stock and 209 shares held
in Mr. Doyle's account under the Company's retirement savings plan. There
are 1,889 additional shares in Mr. Doyle's account pursuant to the Deferred
Bonus Plan.
(20) Includes 28,000 shares which may be acquired upon exercise of Currently
Exercisable Options, 4,100 shares of restricted stock and 516 shares held
in Mr. Smith's account under the Company's retirement savings plan.
(21) Includes 741,778 shares which may be acquired upon the exercise of
Currently Exercisable Options and 214,713 shares of restricted stock.
(22) Assumes that all Currently Exercisable Options issued to all listed persons
have been exercised and that restrictions on all restricted stock issued to
such persons have lapsed.
(23) Same assumptions as footnote (22) plus assumes that all Units issued to all
listed persons have been exchanged for shares of Common Stock.
Security Ownership by Beneficial Owners of More than 5% of The Company's Common
Stock
The following table sets forth information regarding the beneficial
ownership of Common Stock by each person known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock as of December
31, 2005. In preparing this table, the Company has relied on information
supplied by certain stockholders and on information contained in filings with
the Securities and Exchange Commission.
Amount and Nature of Percentage of Outstanding
Name and Address of Beneficial Owner Beneficial Ownership Common Stock(1)
- ------------------------------------ -------------------- ---------------
Cohen & Steers, Inc. 4,564,000(2) 14.64%
280 Park Avenue, 10th Floor
New York, NY 10017
Mac-Per-Wolf Company 1,947,852(3) 6.25%
311 S. Wacker Drive
Suite 6000
Chicago, IL 60606
Janus Capital Management LLC 1,900,172(4) 6.10%
151 Detroit Street
Denver, CO 80206
The Vanguard Group, Inc. 1,597,481(5) 5.12%
100 Vanguard Blvd.
Malvern, PA 19355
(1) Percentage is based on actual number of shares outstanding as of December
31, 2005 and may be different than the percentage referenced in the reports
described below.
(2) Based on a report on Schedule 13G (Amendment No. 2) filed jointly by Cohen
& Steers, Inc., Cohen & Steers Capital Management, Inc. and Houlihan Rovers
SA on February 13, 2006, reflecting that: (a) Cohen & Steers, Inc.
beneficially owns 4,564,000 shares, has sole voting power with respect to
4,396,702 shares, sole dispositive power with respect to 4,546,400 shares,
and shared voting and dispositive power with respect to 17,600 shares; (b)
Cohen & Steers Capital Management, Inc. beneficially owns 4,546,400 shares,
has sole voting power with respect to 4,396,702 shares and sole dispositive
power with respect to 4,546,400 shares; and (c) Houlihan Rovers SA
beneficially owns 17,600 shares and has sole voting and dispositive power
with respect to 17,600 shares. Cohen & Steers, Inc. holds a 100% interest
in Cohen & Steers Capital Management, Inc. and a 50% interest in Houlihan
Rovers SA.
(3) Based on a report on Schedule 13G (Amendment No. 5), filed February 15,
2006, reflecting that Mac-Per-Wolf & Company beneficially owns 1,947,852
shares, has sole voting and dispositive power with respect to 47,680 shares
and shared voting and shared dispositive power with respect to 1,900,172
shares. The report was filed on behalf of two subsidiaries, PWMCO, LLC and
Perkins, Wolf, McDonnell and Company, LLC, the latter of which furnishes
investment advice to others, including Janus Capital Management LLC, a
minority owner of Perkins, Wolf, McDonnell and Company, LLC, which filed a
separate Schedule 13G reflecting that it has sole voting and dispositive
power with respect to 1,900,172 shares.
(4) Based on a report on Schedule 13G filed by Janus Capital Management LLC on
February 14, 2006, reflecting that Janus Capital Management LLC
beneficially owns 1,900,172 shares and has shared voting and dispositive
power of all of the listed shares. Janus Capital Management LLC has an
indirect 77.5% ownership stake in Enhanced Investment Technologies LLC and
indirect 30% ownership stake in Perkins, Wolf, McDonnell and Company LLC.
Due to the foregoing ownership structure, holdings for Janus Capital
Management LLC, Enhanced Investment Technologies LLC and Perkins, Wolf,
McDonnell and Company, LLC are aggregated for purposes of filing of the
Schedule 13G.
(5) Based on a report on Schedule 13G filed by The Vanguard Group, Inc. on
February 13, 2006, reflecting that: (a) The Vanguard Group, Inc.
beneficially owns 1,597,481 shares and has sole voting power with respect
to 42,859 shares and sole dispositive power with respect to 1,597,481
shares; and (b) Vanguard Fiduciary Trust Company, a wholly owned subsidiary
of the Vanguard Group, Inc., is the beneficial owner of 42,859 shares as a
result of its serving as investment manager of collective trust accounts
and it directs the voting of such shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
10% of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and the NYSE. Officers,
directors and greater than 10% stockholders are required to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 2005, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were satisfied.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 2005 was approximately $884,000,
which increased to approximately $895,000 for 2006. The lease also requires the
Operating Partnership to pay its pro-rata portion of property improvements, real
estate taxes and common area maintenance.
On a month-to-month basis, the Operating Partnership subleases 3,379 square
feet of its corporate headquarters to Home Leasing, LLC a company currently
owned by Nelson Leenhouts. For 2006, the gross monthly rental payment is
$6,163.86.
Josh E. 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. In connection with that transaction,
Mr. Fidler and members of his family acquired approximately 800,000 Units in the
Operating Partnership. 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 rights under the acquisition agreements
continue to survive as described on page 5 of this Proxy Statement.
In March, 2005, the Company, the Operating Partnership and Home Leasing
entered into a settlement agreement with Genesee Valley Medical Center, L.P. and
certain of its limited partners ("GVMC"), which had commenced a legal action in
2000 against the Company, the Operating Partnership and Home Leasing. The law
suit related to the exclusion of a commercial property from the Company's
initial public offering in 1994. Pursuant to the settlement agreement, GVMC was
paid $3.5 million. The Board of Directors of the Company authorized the Company
to pay the full settlement and to reimburse Home Leasing for approximately
$200,000 of legal fees that it incurred in defending this action. This was in
recognition of the fact that the matters alleged in the law suit against Home
Leasing related directly and solely to the promotion and creation of the
Company.
In March, 2006, Nelson Leenhouts entered into a Development Agreement with
the Company, which is retroactive to January 1, 2006 and terminates on December
31, 2006. This is in addition to his Employment Agreement described on page 15
of this Proxy Statement. Pursuant to the Development Agreement, Nelson Leenhouts
agrees to assume a leadership role in connection with the development activities
of the Company as more specifically outlined in a development plan approved by
the Board of Directors of the Company. In consideration for his services, Mr.
Leenhouts is to be paid a base annual amount of $250,000 in monthly
installments. In addition, he is entitled to earn a bonus of up to $150,000 upon
the achievement of certain specified objectives.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF THE COMPANY'S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2006
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, 2006. 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. A representative of PricewaterhouseCoopers LLP
will be present at the Annual Meeting, will be given the opportunity to make a
statement if he or she so desires and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM OF THE COMPANY FOR THE 2006 FISCAL YEAR.
ADDITIONAL INFORMATION
Solicitation of Proxies
The cost of solicitation of proxies in the form enclosed herewith will be
paid by the Company. In addition to the solicitation of proxies by mail, the
directors, officers and employees of the Company may also solicit proxies
personally or by telephone without additional compensation for such activities.
The Company will also request persons, firms and corporations holding shares in
their names or in the names of their nominees, which are beneficially owned by
others, to send proxy materials to and obtain proxies from such beneficial
owners. The Company will reimburse such holders for their reasonable expenses.
Stockholder Proposals
A stockholder proposal submitted pursuant to Rule 14a-8 under the Exchange
Act for inclusion in the Company's proxy statement and form of proxy for the
2007 Annual Meeting of stockholders must be received by the Company by the close
of business on December 1, 2006. Any proposal received after February 15, 2007
will not, under the rules of the SEC, be considered timely for presentation at
the 2007 Annual Meeting. A proposal must comply with the requirements as to form
and substance established by the SEC for such a proposal to be included in the
proxy statement and form of proxy, and the proponent or a representative of the
proponent must attend the annual meeting to present the proposal.
Form 10-K
Copies of the Form 10-K may be obtained without charge from Yvonne Wheeler,
Home Properties, Inc., 850 Clinton Square, Rochester, New York 14604. A copy of
the Form 10-K is also available through the Company's Web site at
www.homeproperties.com or from the SEC at its Web site at www.sec.gov.
Other Matters
The Board of Directors does not know of any matters other than those
described in this Proxy Statement which will be presented for action at the
Annual Meeting. If other matters are presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT TO THE
COMPANY. PLEASE VOTE BY INTERNET, TELEPHONE OR COMPLETE, SIGN, DATE AND PROMPTLY
RETURN THE ENCLOSED PROXY CARD TODAY.
EXHIBIT A
HOME PROPERTIES, INC.
Third Amended and Restated Audit Committee Charter
Mission Statement
The Audit Committee will assist the Board of Directors of Home Properties, Inc.
(the "Company") in fulfilling its oversight responsibilities. The Audit
Committee will review the financial reporting process, the integrity of the
Company's financial statements, the system of internal controls, the audit
process, and the Company's process for monitoring compliance with laws and
regulations and with the Company's Code of Business Conduct and Ethics,
including the Code of Conduct for Senior Financial Officers (the "Code of
Conduct"). In performing its duties, the Committee will maintain effective
working relationships with the Board of Directors, management, and the internal
and independent auditors. To perform his or her role effectively, each Committee
member will obtain an understanding of the Company's business, operations, and
risks.
Organization
The Audit Committee shall consist of three or more directors as determined by
the Board, each of whom shall be independent directors for purposes of Audit
Committee membership in accordance with the rules of the New York Stock Exchange
Securities and Exchange Commission and all other applicable legal and regulatory
requirements. All members of the Committee shall have a working familiarity with
basic finance and accounting practices, and at least one member of the Committee
shall have accounting or related financial management expertise and shall meet
the criteria for a "financial expert" as such term is defined in regulations of
the Securities and Exchange Commission issued pursuant to Section 407 of the
Sarbanes-Oxley Act.
No director may serve as a member of the Committee if he or she serves on the
Audit Committee of more than two other public companies, unless the Board
determines that such simultaneous service would not impair the ability of such
individual to serve on the Committee effectively. Any such determination will be
disclosed in the Company's annual proxy statement.
The members of the Committee shall be appointed by a majority vote of the Board.
Unless a Chair is elected by the full Board, the members of the Committee may
designate a Chair by majority vote of the full Committee Membership.
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management, the manager of the
internal auditing department and the independent auditors in separate executive
sessions to discuss any matters that the Committee or each of these groups
believe should be discussed privately.
The Committee shall have the right to unrestricted access to members of
management, employees and any relevant information.
Roles and Responsibilities
Internal Controls
o Evaluate whether management is setting the appropriate tone at the top by
communicating the importance of internal controls;
o Focus on the extent to which internal and independent auditors review
computer systems and applications, the security of such systems and
applications, and the contingency plan for processing financial information
in the event of a systems breakdown;
o Gain an understanding of whether internal control recommendations made by
internal and independent auditors have been implemented by management; and
o Provide the opportunity for the independent auditors to keep the audit
committee informed about any acts of suspected fraud, illegal acts,
deficiencies in internal controls, and certain other matters.
Financial Reporting
General
o Review significant accounting and reporting issues, including recent
professional and regulatory pronouncements, and understand their impact on
the financial statements;
o Discuss with management the form and type of information generally to be
included in earnings press releases and in other financial disclosures, as
well as financial information and earnings guidance provided to analysts
and rating agencies;
o Ask management and the internal and independent auditors about significant
risks and exposures and the plans to manage such risks; and
o On a periodic basis, meet separately with management and with the
independent auditors.
Annual Financial Statements
o Review the annual financial statements and determine whether they are
consistent with the information known to Committee members, and assess
whether the financial statements reflect appropriate accounting principles;
o Pay particular attention to complex and/or unusual transactions;
o Review issues involving valuation of assets and liabilities, including, for
example, the accounting for and disclosure of asset impairment; loan
losses; environmental liability; litigation reserves; and other commitments
and contingencies;
o Meet with management and the independent auditors to review the financial
statements and the results of the audit, as well as any audit problems or
difficulties and management's response;
o Review management's handling of proposed audit adjustments identified by
the independent auditors;
o Discuss the Company's annual audited financial statements with management
and the independent auditors, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"; and
o Require the independent auditors to communicate certain required matters to
the Committee and discuss with the Committee the quality, not just the
acceptability of the Company's accounting principles and underlying
estimates.
Interim Financial Statements
o Be briefed on how management develops and summarizes quarterly financial
information, the extent of internal audit involvement, the extent to which
the independent auditors review quarterly financial information;
o Discuss the Company's quarterly audited financial statements with
management and the independent auditors, including the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations";
o Review interim financial statements and related press releases before they
are released and before filing of the related Form 10-Q; and
o Require the independent auditors to communicate certain required matters to
the Committee and representatives of financial management prior to the
filing of the Form 10-Q.
Compliance with Laws and Regulations
o Review the systems in place for monitoring compliance with laws and
regulations and the results of management's investigation and follow-up
(including disciplinary action) on any fraudulent acts or accounting
irregularities;
o Periodically obtain updates from management, general counsel, and tax
manager regarding compliance; and
o Review the findings of any examinations by regulatory agencies such as the
Securities and Exchange Commission, or the Internal Revenue Service.
Compliance with Code of Conduct
o Regularly review that a Code of Conduct is formalized in writing and that
all employees are aware of it;
o Evaluate whether management is setting the appropriate tone at the top by
communicating the importance of the Code of Conduct and the guidelines for
acceptable business practices;
o Review the program for monitoring compliance with the Code of Conduct; and
o Periodically obtain updates from management and general counsel regarding
compliance.
Internal Audit
o Review the activities and organizational structure of the internal audit
function;
o Review the qualifications of the internal audit function and concur in the
appointment, replacement, reassignment, or dismissal of the internal audit
manager;
o Review the effectiveness of the internal audit function; and
o On a periodic basis, meet separately with the internal audit staff.
External Audit
o Pre-approve or adopt policies and procedures for pre-approval of all
auditing services (including providing comfort letters in connection with
securities offerings) and non-audit services (including tax services)
provided to the Company or its subsidiaries by the Company's independent
auditors. The Audit Committee may delegate to one or more of its members
the authority to grant pre-approvals of audit and permitted non-audit
services, provided the decision is reported to the full Audit Committee at
its next scheduled meeting;
o Be directly responsible for the appointment, termination, compensation, and
oversight of the work of any independent accounting firm employed by the
Company (including resolution of disagreements between management and the
independent auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work. Each such independent
accounting firm will report directly to the Audit Committee;
o Have the sole authority to approve all audit engagement fees and terms, as
well as all significant non-audit engagements of the Company's independent
auditors;
o Review and confirm in writing the independence of the independent auditors
by reviewing the non-audit services provided and the auditors' assertion of
their independence in accordance with professional standards;
o The Company shall provide for appropriate funding, as determined by the
Audit Committee, for payment of compensation to the independent auditors;
o In order to evaluate the independent auditors' qualifications, performance
and independence, at least annually obtain and review a report by the
independent auditors describing: the firm's internal quality control
procedures; any material issues raised by the most recent internal quality
control review, or peer review, of the firm, or by any inquiry or
investigation by government or professional authorities within the
preceding five years, respecting one or more independent audits carried out
by the firm, and any steps taken to deal with any such issues; and (to
assess the auditor's independence) all relationships between the
independent auditors and the Company. This evaluation should include review
of the partner in the independent auditing firm who has principal
responsibility for its audits of the Company's financial statements and
should take into account the opinions of management and the Company's
internal auditors; and.
o Recommend to the Board policies for the Company's hiring of employees or
former employees of the independent auditors who participated in any
capacity in the audit of the Company.
Other Responsibilities
o Review the significant findings and recommendations made by the internal
and independent auditors and management's handling of them;
o Discuss policies with respect to risk assessment and management of risk;
o Review with the appropriate counsel, any legal matters that could have a
significant impact on the Company's financial statements;
o Review the policies and procedures in effect for officers' expenses and
perquisites;
o If necessary, institute special investigations and, if appropriate, hire
special counsel or experts to assist the Committee with the Company
providing appropriate funding, as determined by the Audit Committee, for
payment of professional services of any such advisors employed by the
Committee;
o Perform other oversight functions as requested by the full Board;
o Review the Charter and update as appropriate after receiving approval of
any changes from the Board;
o Establish procedures for (a) the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters; and (b) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters; and
o Conduct an annual evaluation of its own performance.
Reporting Responsibilities
o Regularly update the Board of Directors about Committee activities and make
appropriate recommendations;
o The Audit Committee must prepare a report for inclusion in the annual proxy
statement, followed by the names of all Committee members, stating whether
the Committee:
o Reviewed and discussed the audited financial statements with management
o Discussed with the auditors the matters requiring discussion by SAS 61
o Received the written disclosures and letter from the auditors required by
Independence Standards Board No.1, and discussed with the auditors their
independence
o Based on the above, recommended to the full board that the audited
financial statements be included in the company's Annual Report on Form
10-K
Approved: November 4, 2005
| THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED THEREON. IF NO DIRECTION IS MADE, IT WILL BE VOTED “FOR” PROPOSALS 1 AND 2. IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. | Please | o | |
| SEE REVERSE SIDE |
| PROPOSAL ONE - | FOR all nominees listed (except as marked to the contrary) | WITHHOLD AUTHORITY to vote for the nominees listed | PROPOSAL TWO - | FOR | AGAINST | ABSTAIN | ||
| To elect the following persons as directors to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. | o | o | To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2006. | o | o | o | ||
Nominees 01 William Balderston, III 02 Josh E. Fidler 03 Alan L. Gosule 04 Leonard F. Helbig, III | 05 Roger W. Kober 06 Norman P. Leenhouts 07 Nelson B. Leenhouts 08 Edward J. Pettinella | 09 Clifford W. Smith, Jr. 10 Paul L. Smith 11 Thomas S. Summer 12 Amy L. Tait | ||||||
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| (Instruction: To withhold authority to vote for any individual nominee, write that nominee’s name in the space provided below.) | ||||||||
| Please mark, sign, date and return this proxy card using the enclosed envelope. |
| Signature _____________________________ Signature _____________________________ Date ________________ |
| NOTE: (Please sign above exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.) |
| Ù FOLD AND DETACH HEREÙ |
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
http://www.proxyvoting.com/hme Use the internet to vote your proxy. Have your proxy card in hand when you access the web site. | 1-866-540-5760 Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. | Mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. |
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
HOME PROPERTIES, INC.
REVOCABLE PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS MAY 4, 2006
The undersigned hereby appoints Edward J. Pettinella as Proxy with full power of substitution to represent the undersigned and to vote all Common Stock of Home Properties, Inc. which the undersigned would be entitled to vote at the 2006 Annual Meeting of Stockholders of the Company to be held on May 4, 2006 and any adjournment thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
| Address Change/Comments (Mark the corresponding box on the reverse side) |
| Ù FOLD AND DETACH HEREÙ |