SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
February 14, 2007
HOME PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 1-13136 16-1455126
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
850 Clinton Square, Rochester, New York 14604
(Address of principal executive offices)
(585) 546-4900
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 5.02(c) DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS.
At its recent meeting, the Board of Directors of Home Properties, Inc. (the
"Company") nominated the individuals to be presented at the 2007 Annual
Stockholders' Meeting for election by the stockholders of the Company. All of
the current directors, except for William Balderston, III were nominated for
re-election. Mr. Balderston was not nominated because the Company's retirement
policy was amended in 2006 to provide for mandatory retirement at age 75, with
no exceptions permitted as of the 2007 Annual Stockholders' Meeting. Mr.
Balderston is 79 years old.
ITEM 5.02(e) COMPENSATION ARRANGMENTS OF CERTAIN OFFICERS.
At its recent meeting, the Board of Directors of the Company approved a
Base Salary of $550,000 per annum to be paid to Edward J. Pettinella, the
Company's President and Chief Executive Officer, commencing on March 16, 2007
pursuant to the terms of Mr. Pettinella's Employment Agreement with the Company.
In addition, the Board approved the amount of the bonus payment to Mr.
Pettinella pursuant to the Company's Incentive Compensation Plan for services
rendered in 2006. As reported in the proxy statement for the Company's 2006
Annual Stockholders' Meeting, the Board previously set Mr. Pettinella's bonus
factor under the plan at 13%. At its recent meeting, the Compensation Committee
of the Board of Directors determined that the application of the formula under
the Incentive Compensation Plan resulted in a pay-out of 10.07 bonus units for
all participants in the plan. The entire amount of the bonus payable to the
Chief Executive Officer of the Company is discretionary with the Compensation
Committee to make a recommendation to the Board as to what portion of the bonus
should be paid. The Compensation Committee recommended and the full Board
approved the payment of 100% of the 2006 bonus to Mr. Pettinella. This will
result in a bonus being paid to Mr. Pettinella in the amount of $680,459.20 on
or about February 21, 2007.
In addition, pursuant to a Development Agreement, dated March 27, 2006
between Nelson B. Leenhouts and the Company, Mr. Leenhouts, who is the
Co-Chairman of the Board of Directors of the Company, was to be paid a bonus of
up to $150,000 upon the achievement of certain objectives specified in the
Agreement. Mr. Pettinella, as Chief Executive Officer of the Company recommended
to the Compensation Committee that the full amount of the bonus be paid and the
Compensation Committee made the same recommendation to the Board of Directors.
At its recent meeting, the Board of Directors approved the payment of a $150,000
bonus to Mr. Leenhouts pursuant to the terms of the Development Agreement. Mr.
Leenhouts will therefore be paid a bonus of $150,000 on or about February 21,
2007.
The Development Agreement by its terms expired on December 31, 2006, as did
an Employment Agreement dated October 28, 2003 between the Company and Nelson
Leenhouts. Management determined that it would like Mr. Leenhouts to remain an
employee of the Company for an additional year in order to lead the Company's
development activities. The Board of Directors, at its recent meeting, therefore
approved the terms of an Employment Agreement with Mr. Leenhouts and authorized
Mr. Pettinella, as Chief Executive Officer, and Clifford Smith, as Chair of the
Compensation Committee to execute an Employment Agreement with Mr. Leenhouts.
The Employment Agreement is retroactive to January 1, 2007 as Mr. Leenhouts has
been performing the duties specified in the agreement since that date. The base
salary to be paid to Mr. Leenhouts for the period from January 1, 2007 to
December 31, 2007 is $300,000. In addition, Mr. Leenhouts is to be paid a bonus
of up to $350,000 upon the achievement of certain specified objectives. A copy
of the Employment Agreement is attached as an exhibit and its terms are
incorporated by reference into this Form 8-K.
Finally, the Board of Directors waived the application of the mandatory
deferral component of the Company's Incentive Compensation Plan with respect to
the bonus to be paid to all participants, including the Chief Executive Officer
and the other executive officers, for services rendered in 2006. The Board of
Directors also approved an amendment to the Incentive Compensation Plan to
eliminate the mandatory deferral provisions from the Plan for future bonus
payments. The mandatory deferral provision of the Plan provided that
participants that were assigned a bonus factor of 3% and higher would be subject
to a mandatory deferral of all amounts earned in excess of eight bonus units. A
copy of the Company's Second Amended and Restated Incentive Compensation Plan is
attached as an exhibit.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
c. Exhibits
Exhibit 10.1 Employment Agreement between Nelson B. Leenhouts and
Home Properties, Inc.
Exhibit 10.2 Second Amended and Restated Incentive Compensation
Plan
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 16, 2007 HOME PROPERTIES, INC.
(Registrant)
By /s/ David P. Gardner
David P. Gardner, Executive Vice President
and Chief Financial Officer
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into by
and among Home Properties, L.P., a New York limited partnership (the "Company"),
Home Properties, Inc., a Maryland corporation ("HME") and Nelson B. Leenhouts,
an individual (the "Employee").
WHEREAS, the Company and the Employee desire to enter into an Employment
Agreement to formalize the terms pursuant to which the Employee will continue to
be employed by the Company.
NOW, THEREFORE, in consideration of the mutual promises, benefits and
covenants herein contained, the parties hereby agree as follows:
1. Definitions.
"Affiliate" means any person, corporation, company, partnership or other
legal entity, which controls, is controlled by or is under common control with
the Company.
"Board of Directors" means the Board of Directors of Home Properties, Inc.
"Development Business" means the creation, operation and maintenance of a
development department within the Company and its Affiliates as outlined in the
Development Plan (hereinafter defined).
"Development Plan" means the Development Plan and Development Proforma
attached hereto as Exhibit A and made a part hereof.
2. Term. This Agreement will be effective on January 1, 2007 ("the
Commencement Date") and shall terminate on December 31, 2007 (the "Expiration
Date") unless terminated sooner in accordance with Section 5 of this Agreement.
3. Duties. During the term of this Agreement, subject to the direction and
control of the President and Chief Executive Officer of HME, Employee is
responsible for fostering all activities reasonably contemplated in the
Development Plan including, but not limited to: (a) creating, staffing and
leading a development department (the "Development Department") and the
undertaking by such Development Department of the activities outlined in the
Development Plan; (b) focusing on the key financial objectives
(investments/yields) included in the Development Plan; and (c) managing the
budget for the Development Department to be consistent with the budget included
in the Development Plan. The Employee shall devote substantially all of his
business time to the interests and business of the Company, HME and their
subsidiaries and affiliates except during vacation periods, periods of illness
and other absences beyond his control.
4. Compensation, Benefits and Expenses.
4.1 Base Salary. The Base Salary to be paid to the Employee under this
Agreement shall be $300,000.
4.2 Bonus. The Employee shall receive a bonus ("Bonus") of up to $350,000
payable within sixty (60) days after December 31, 2007 upon achievement of the
following objectives on or before that date. Achievement of the following
objectives shall be determined at the sole discretion of the Chief Executive
Officer of the Company after consultation with the Compensation Committee of the
Board of Directors.
(a) $70,000 payable if the actual Net FFO Contribution of development
activities for the year 2007 exceeds the budgeted Net FFO Contribution for
development activities for the year 2007 set forth in the Development Proforma
set forth in Exhibit A.
(b) $122,500 payable if approval of the project plan for the redevelopment
of Falkland Chase are received from Montgomery County
(c) $70,000 payable if the Company acquires two or more development sites
where substantially all of the zoning and other approvals are in place at the
time of purchase. These development sites can include the sites at 1200
East-West Highway and Huntington Metro.
(d) $70,000 payable if the Company acquires one or more development sites
where the zoning and other approvals are not in place at the time of purchase.
(e) $17,500 if the Company's Board of Directors approves the Development
Plan substantially in the form attached hereto as Exhibit A.
The Base Salary and Bonus shall be paid pursuant to the Company's standard
payroll policies and shall be subject to withholding or deductions as may be
mutually agreed between the Company and Employee or required by law.
4.3 Fringe Benefits. During the period of the Employee's employment, the
Company shall provide the Employee with such fringe benefits as shall be
determined by the Compensation Committee, provided such fringe benefits shall be
no less favorable than those provided to other senior executives of the Company,
HME or their subsidiaries or affiliates.
4.4 Expenses. During the term of this Agreement, the Company authorizes the
Employee to incur reasonable and necessary expenses in the course of performing
his duties and rendering services under this Agreement, and the Company shall
reimburse the Employee for all such expenses within 30 days after the Employee
renders to the Company an account of such expenses and such other substantiation
as the Company may reasonably request. At the Company's corporate office, the
Company shall provide the Employee with an office, office equipment and
appropriate clerical support to discharge Employee's duties under this
Agreement.
5. Termination.
5.1 Termination. This Agreement may be terminated by the Company (after
approval by the Chief Executive Officer) at any time, with or without "Cause,"
or by the Employee at any time, with or without "Good Reason."
5.2 Definition of Cause. As used herein, "Cause" shall be determined by the
Chief Executive Officer in the reasonable and good faith exercise of his
discretion, and shall mean: (a) dishonest or fraudulent actions by the Employee
in the conduct of his duties for the Company or the conviction of the Employee
of a felony; (b) death of the Employee; (c) a material failure by the Employee
to devote substantially all of his business time to the business of the Company;
(d) a material failure by the Employee to follow the Company's good faith
instructions and directives that is not cured by the Employee within 60 days
after receiving notice; (e) unreasonable and material neglect, refusal or
failure by the Employee to perform the duties assigned to him that is not cured
by the Employee within 30 days after receiving notice; (f) the Employee's
material breach of this Agreement that is not cured by the Employee within 30
days after receiving notice; (g) the Employee's material breach of any portion
of Section 7 of this Agreement; (h) the Employee's breach of the Code of
Business Conduct and Ethics of Home Properties, Inc. and its Affiliated
Companies and/or the Company's Code of Ethics for Senior Financial Officers (the
"Code of Ethics"); (i) any other act or omission which subjects the Company, HME
or their subsidiaries or affiliates to substantial public disrespect, scandal or
ridicule; (j) any governmental regulatory agency recommends or orders that the
Company terminate the employment of the Employee or relieve him of his duties;
or (k) any physical or mental disability of the Employee that prevents him from
performing his duties for 60 consecutive days or for an aggregate of 90 days in
any 12-month period.
5.3 Definition of Good Reason. As used herein, "Good Reason" shall mean:
(a) a material breach of this Agreement by the Company or HME that is not cured
within 30 days after receiving notice of such breach, with the determination as
to whether there has been a breach and whether the breach is material to be
determined by the Chief Executive Officer in the reasonable and good faith
exercise of his discretion; or (b) any requirement by the Company that the
Employee relocate to a principal place of business outside of the Rochester, New
York metropolitan area.
5.4 Termination for Cause or Without Good Reason. In the event that: (a)
the Company terminates this Agreement for Cause; or (b) the Employee resigns or
terminates without Good Reason, then the Employee's rights to receive any
payments and benefits pursuant to this Agreement shall, effective upon the date
of termination, terminate in all respects, except that the Company shall pay to
the Employee any payments and benefits hereunder that are accrued and unpaid up
to such date (which amount shall not include any Bonus and shall reimburse the
Employee for any expenses incurred as of such date pursuant to Section 4.4 of
this Agreement.
5.5 Termination Without Cause or for Good Reason. In the event that (a) the
Company terminates this Agreement for any reason other than for Cause, or (b)
the Employee resigns or terminates with Good Reason, then the Company shall pay
to the Employee any payments and benefits hereunder that are accrued and unpaid
up to, shall reimburse the Employee for any expenses incurred pursuant to
Section 4.4 of this Agreement prior to, the date of termination and shall
promptly pay to the Employee the full amount of the Bonus as described in
Section 4.2 hereof whether or not earned at the time of termination.
5.6 Termination Following A Change of Control. In the event of a "Change of
Control" as defined in the Company's Executive Retention Plan (including any and
all amendments thereto) (the "Retention Plan") and a subsequent termination of
the Employee's employment by the Company or by the Employee for good cause as
defined in the Executive Retention Plan, the benefits to be paid to the Employee
upon such a termination shall be two times the Employee's Base Salary, two times
the amount of the Employee's Bonus earned prior to the termination and the
Gross-Up Amount (as defined in the Executive Retention Plan).
5.7 Definition of Termination. For the purpose of any payments or
reimbursements to be made, or any benefits to be continued, by the Company to
the Employee under this Section 5 as a result of the Employee's termination,
"termination" shall mean a "separation of service" (as such term is defined in
Section 409A of the Internal Revenue Code of 1986, as amended (the "Code")).
5.8 Delay or Reduction of Payments, Reimbursements and Benefits.
5.8.1 Section 409A of the Code. Notwithstanding any provision of this
Section 5 to the contrary, if the Employee is a "specified employee" (as
such term is defined in Section 409A of the Code) at the time of his
termination, then, to the extent necessary to prevent any excise tax to the
Employee under Section 409A of the Code: (a) any payments or reimbursements
that would otherwise be made by the Company pursuant to this Section 5
before the first day of the seventh month following the Employee's
termination instead shall be accumulated and paid on the first day of the
seventh month following the Employee's termination; and (b) if any of the
benefits that would otherwise be provided by the Company pursuant to this
Section 5 before the first day of the seventh month following the
Employee's termination are treated as deferred compensation for purposes of
Section 409A of the Code, then the Employee shall bear the full cost of
such benefits during such period, and the Company shall reimburse the
Employee for any out-of-pocket costs so incurred on the first day of the
seventh month following the Employee's termination. This Section 5.8 is
intended to delay payments, reimbursements and benefits to the Employee
following termination only if such delay is required by Section 409A of the
Code, and shall be construed accordingly. Unless necessary to prevent any
excise tax to the Employee under Section 409A of the Code, this Section 5.8
shall not apply in the event of the Employee's termination as a result of
his death or his disability (if such disability qualifies as a "disability"
for purposes of Section 409A of the Code).
5.8.2 Section 162(m) of the Code. To the extent that any payment to be
made to the Employee under this Section 5 would be non-deductible by the
Company as a result of the $1 million compensation limit provisions of
Section 162(m) of the Code, then such payment shall not be made to the
Employee at that time, but shall instead, to the extent permissible under
Section 409A of the Code, be deferred and paid without interest to the
Employee in the first month of the taxable year in which such amount is
fully deductible by the Company under Section 162(m) of the Code.
5.8.3 Section 280G of the Code. In the event that payments and the
value of any benefit received or to be received by the Employee would
result in all or a portion of such payment being subject to excise tax
under Section 4999 of the Code (the "Excise Tax"), then the Employee's
payment shall be either (a) the full payment or (b) such lesser amount that
would result in no portion of the payment being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable
federal, state, and local employment taxes, income taxes, and the Excise
Tax, results in the receipt by the Employee, on an after-tax basis, of the
greatest amount of the payment notwithstanding that all or some portion of
the payment may be taxable under Section 4999 of the Code. All
determinations required to be made under this Section 5.8.3 shall be made
by the nationally recognized accounting firm which is the Company's outside
auditor immediately prior to the event triggering the payments that are
subject to the Excise Tax, which firm must be reasonably acceptable to the
Employee (the "Accounting Firm"). The Company shall cause the Accounting
Firm to provide detailed supporting calculations of its determinations to
the Company and the Employee. Notice must be given to the Accounting Firm
within 15 business days after an event entitling the Employee to a payment
under this Section 5. All fees and expenses of the Accounting Firm shall be
borne solely by the Company. The Accounting Firm's determinations must be
made with substantial authority (within the meaning of Section 6662 of the
Code).
5.9 No Voluntary Adverse Assistance. The Employee agrees that he will not
voluntarily assist any other person in preparing, bringing, or pursuing any
litigation, arbitration, administrative claim or other formal proceeding against
the Company, HME or their subsidiaries or affiliates, or their officers,
directors, employees or partners unless pursuant to subpoena or other compulsion
of law.
6. Notices. Any notices or other communications under this Agreement shall
be in writing and shall be given by personal delivery or by a nationally
recognized overnight delivery service, and shall be deemed given when personally
delivered, or on the next business day following delivery to a nationally
recognized overnight delivery service: (a) if to the Employee, addressed to his
last address on record with the Company; and (b) if to the Company, addressed
to: Home Properties, L.P., 850 Clinton Square, Rochester, NY 14604, Attn: Edward
Pettinella and Ann McCormick; or to such other address or addresses as either
party shall have specified in writing to the other party hereto.
7. Covenants as to Confidential Information and Non-Compete.
7.1 Non-Compete. The Employee recognizes that by virtue of his status as an
employee and a member of the Board of Directors, he is obligated to uphold his
fiduciary and other obligations to the Company and HME, and to comply with all
of the restrictions set forth in the Code of Ethics, which is incorporated
herein by reference. The Employee acknowledges and agrees that he will fully and
faithfully abide by the Code of Ethics for so long as he is an employee and/or a
member of the Board of Directors. In addition, the Employee acknowledges and
recognizes the highly competitive nature of the Company's business and agrees
that during the term of this Agreement, in the event this Agreement is
terminated for any reason other than with Cause or without Good Reason, the
Employee will not, directly or indirectly, without the written consent of the
Real Estate Investment Committee of the Board of Directors, own, manage,
operate, control, be employed by, or participate in or be connected with any
entity owning or having financial interest in, whether direct or indirect, a
business entity which is in the business of owning, operating, acquiring,
developing or otherwise dealing in Market-Rate (as subsequently defined)
multifamily residential real properties in the United States and Canada, except
as described below. In addition, in the event this Agreement is terminated for
Cause or without Good Reason then, for one year after the termination of this
Agreement, the Employee will not, directly or indirectly, without the written
consent of the Real Estate Investment Committee of the Board of Directors, own,
manage, operate, control, be employed by, or participate in or be connected with
any entity owning or having financial interest in, whether direct or indirect, a
business entity which is in the business of owning, operating, acquiring,
developing or otherwise dealing in Market-Rate multifamily residential real
properties in the United States and Canada, except as described below. A
property shall be deemed "Market-Rate" if there is no project-based governmental
assistance for residents of the property, if there is no government subsidized
interest rates that apply to the financing for the property and if no interests
in the entity owning the property have been sold to a third party for purposes
of that party acquiring tax credit benefits. The above restrictions shall not be
violated if and to the extent that the Employee owns, manages, operates,
controls, is employed by or participates in or is connected with any entity
owning or having a financial interest in a business entity which owns, operates,
acquires, develops or otherwise deals in any multifamily residential real
property consisting of: (a) 50 or fewer apartment units wherever located; (b)
200 or fewer apartment units if the property is located in a state in which the
Company does not own real property at the time that the acquisition or
transaction occurs, or if the property is located in Upstate New York; and/or
(c) to the extent that the Employee's interest in any entity consists of less
than a 5% limited partnership interest in the case of a partnership and less
than 5% of the outstanding vesting shares in the case of a corporation in all
cases so long as such ownership, management, operation or control does not
violate the Code of Ethics.
7.2 Confidential Information. In addition to the obligations of
confidentiality as set forth in the Code of Ethics, the Employee recognizes and
acknowledges the existence of confidential business matters, trade secrets, and
proprietary information of the Company and HME, including but not limited to
customer lists sales, products, markets, inventions, marketing strategies and
plans, research, practices, procedures, current and planned corporate
strategies, strategic customers and business partners, and the identity, skills
and interest of its employees, which matters are valuable, special, and unique
assets of the Company's and HME's business. The Employee shall not, during or
after the term of employment with the Company, disclose the Company's or HME's
confidential business matters to any person, firm, corporation, partnership,
association or other entity for any reason or purpose whatsoever, without the
prior written consent of the Board of Directors, except as required by law or
pursuant to legal process.
7.3 Remedies for Breach of this Section 7. The Employee further
acknowledges that (a) compliance with all of this Section 7 is necessary to
protect the Company's and HME's business and goodwill; (b) a breach of this
Section 7 will irreparably and constitutionally damage the Company and HME; and
(c) an award of money damages will not be adequate to remedy such harm.
Consequently, the Employee agrees that, and in addition to other remedies, in
the event he breaches or threatens to breach any of these covenants, the Company
and HME shall be entitled to both: (1) a preliminary or permanent injunction to
prevent the continuation of such harm; and (2) money damages, insofar as they
can be determined, including, without limitation, all reasonable costs and
attorneys' fees incurred by the Company and/or HME in the enforcement of the
provision.
7.4 Enforceability. The Employee acknowledges and agrees that the
provisions of this Agreement are reasonable and necessary for the protection of
the Company and HME. If, however, a final judicial determination is made by a
court having jurisdiction that the time or territory or any other restriction
contained in Section 7.1 of this Agreement is an unreasonable or otherwise
unenforceable restriction against the Employee, the provisions of Section 7.1 of
this Agreement shall not be rendered void, but rather shall be deemed amended to
apply as to the maximum time and territory and to the other extent as this court
may judicially determine or indicate to be reasonable.
8. Breach of Agreement. Each party agrees to indemnify and hold harmless
the others from and against any loss, liability, damages, judgments, suits,
costs or expenses (including the costs of investigating and enforcing each
party's rights under this Agreement and attorneys' fees and expenses) relating
to or arising from any breach by any party of the terms of this Agreement.
9. Section 409A of the Code. To the extent applicable, it is intended that
this Agreement comply with the provisions of Section 409A of the Code. This
Agreement shall be construed and administered in a manner consistent with this
intent, and any provision that would cause this Agreement to fail to satisfy
Section 409A of the Code shall have no force and effect unless and until such
provision is amended to comply with Section 409A of the Code (which amendment
may be retroactive to the extent permitted by Section 409A of the Code and may
be made by the Company without the consent of the Employee). Any amendment to
the timing and receipt of any payment or benefit provided hereunder shall be
effected in a manner that is intended to be in compliance with Section 409A of
the Code. Any reference in this Agreement to Section 409A of the Code will also
include any proposed, temporary or final regulation, or any other guidance,
promulgated with respect to such section by the U.S. Department of the Treasury
or the Internal Revenue Service.
10. Governing Law. ALL QUESTIONS PERTAINING TO THE VALIDITY, CONSTRUCTION,
EXECUTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
ITS PRINCIPLES OF CONFLICTS OF LAW.
11. Entire Agreement. This Agreement and the benefit plans referred to
herein constitute the entire agreement of the parties hereto with respect to the
matters contained herein, and no modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing and signed by
each of the parties hereto. No failure to exercise any right or remedy hereunder
shall operate as a waiver thereof. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns.
12. Headings. The section and subsection headings contained in this
Agreement are for reference purposes only and shall not affect the construction
or interpretation of this Agreement.
13. Counterparts. This Agreement may be executed in several counterparts,
and all counterparts so executed shall constitute one agreement, binding on the
parties hereto, notwithstanding that both parties are not signatory to the
original or the same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
respective dates set forth below, effective as of the latest such date.
HOME PROPERTIES, L.P.
By: Home Properties, Inc.
Its: General Partner
Date: February 15, 2007 By: /s/ Edward J. Pettinella
Edward J. Pettinella
President and Chief Executive Officer
HOME PROPERTIES, INC.
Date: February 16, 2007 By: /s/ Clifford W. Smith, Jr.
Clifford W. Smith, Jr.
Chair of Compensation
Committee of the Board of Directors
Date: February 16, 2007 By: /s/ Nelson B. Leenhouts
Nelson B. Leenhouts
EXHIBIT 10.2
HOME PROPERTIES, INC. SECOND AMENDED AND RESTATED
INCENTIVE COMPENSATION PLAN
PURPOSES OF THE PLAN.
The purposes of this Second Amended and Restated Incentive Compensation Plan
(the "Plan") are to enable Home Properties, Inc. (the "Company") and its
Subsidiary to attract and retain the services of key employees and persons with
managerial, professional or supervisory responsibilities and to provide them
with increased motivation and incentive to achieve and exceed prior performance
as a basis for increased stockholder return and value.
GENERAL PROVISIONS.
2.1 Definitions. As used in the Plan:
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Bonus Units" means the number calculated as described in Section
3.3(a) which is multiplied by a Participant's Bonus Factor to
determine the percentage of a Participant's base salary that is to be
paid to the Participant as incentive compensation.
(c) "Committee" means the Compensation Committee of the committee
appointed by the Board of Directors.
(d) "Common Stock" means the Company's Common Stock, $.01 par value.
(e) "Company" means Home Properties, Inc. and any of its affiliates,
predecessors or successors.
(f) "Funds from Operation" or "FFO" means income (loss) before gains
(losses) from the sale of property plus certain non-cash items,
primarily depreciation and amortization, as such term is defined by
the National Association of Real Estate Investment Trusts ("NAREIT")
and applied by the Company in its quarterly earnings press release.
(g) "Net Operating Income" or "NOI" means the Company's reported rental
income and property other income less operating and maintenance
expenses.
(h) "Operating FFO" means FFO adjusted for purposes of the bonus
calculation in order to remove certain non-recurring items from
published FFO as follows: (i) losses and/or impairment charges on the
sale of real estate will be excluded; (ii) prepayment penalties
incurred in connection with the sale of real estate will be considered
a reduction to the gain (loss) incurred and not a separate financing
transaction; (iii) issuance costs associated with preferred share
redemptions will be excluded; and (iv) such additional adjustments as
deemed necessary and approved by the Committee.
(i) "Operating FFO per share" means: (i) Operating FFO during a Plan Year
divided by: (ii) the average number of outstanding shares and
securities convertible into Common Stock (on an as-converted basis)
during the Plan Year.
(j) "Participant" means each full-time employee of the Company and its
Subsidiary, provided that employees participating in the Property
Management Incentive Plan are not eligible to participate in this Plan
except for Regional Property Managers and Regional Vice Presidents,
who will receive 10% and 20%, respectively, of their total calculated
incentive compensation awards under this Plan.
(k) "Participant Bonus Factor" means the percentage applied to a
Participant's base salary, which shall range from 1% to 13%.
(l) "Plan Year" shall be the fiscal year of the Company.
(m) "Subsidiary" means Home Properties, L.P.
2.2 Administration of the Plan.
(a) The Plan shall be administered by the Committee. The Board of
Directors may from time to time remove members from, or add members
to, the Committee. Vacancies on the Committee, howsoever caused, shall
be filled by the Board of Directors. The Committee shall select one of
its members as Chairman, and shall hold meetings at such times and
places as it may determine.
(b) The Committee shall have the full power, subject to and within the
limits of the Plan, to: (i) interpret and administer the Plan and any
incentive compensation under it; (ii) make and interpret rules and
regulations for the administration of the Plan and to make changes in
and revoke such rules and regulations (and in the exercise of this
power, shall generally determine all questions of policy and
expediency that may arise and may correct any defect, omission, or
inconsistency in the Plan); (iii) determine who shall be Participants
for any Plan Year; and (iv) generally, exercise such powers and
perform such acts in connection with the Plan as are deemed necessary
or expedient to promote the best interests of the Company. The
interpretation and construction by the Committee of any provisions of
the Plan shall be final, binding and conclusive.
(c) The Committee may act only by a majority of its members then in
office; however, the Committee may appoint such agents, who need not
be members of the Committee, as it may deem necessary for the
effective performance of its duties, and may delegate to such agents
such powers and duties as the Committee may deem appropriate.
(d) No member of the Committee shall be liable for any action taken or
omitted to be taken or for any determination made by him or her in
good faith with respect to the Plan, and the Company shall indemnify
and hold harmless each member of the Committee against any cost or
expense (including counsel fees) or liability (including any sum paid
in settlement of a claim with the approval of the Committee) arising
out of any act or omission in connection with the administration or
interpretation of the Plan, unless arising out of such person's own
fraud or bad faith.
2.3 Effective Date.
The Plan shall become effective upon its adoption by the Board of
Directors.
3. INCENTIVE AWARDS.
3.1 Establishment of Participation Levels.
Prior to the beginning of each Plan Year, the Committee shall establish the
Participant Bonus Factor for each Participant.
3.2 Calculation of Bonus Units Earned.
(a) The number of Bonus Units to be awarded for services rendered in each
Plan Year shall be based on two performance measures: (i) the
percentage of growth in the Company's Operating FFO per share from the
previous Plan Year; and (ii) the percentage of growth in same store
NOI from the previous Plan Year as compared to the Company's industry
peers. Initially, the FFO component is to receive 75% weighting and
the NOI component is to receive 25% weighting. The Committee will
review the weighting of the components on an annual basis and may
amend it in its discretion. Bonus Units earned given varying
percentages of growth are shown below:
Funds from Operations (FFO) Same Store NOI
--------------------------- --------------
% Growth Bonus Unit 75% % Growth Bonus Unit 25%
-------- ---------- --- -------- ---------- ---
-2% 4.00 3.00 -2% 4.00 1.00
-1% 4.50 3.38 -1% 4.50 1.13
0% 5.00 3.75 0% 5.00 1.25
1% 6.00 4.50 1% 6.00 1.50
2% 7.00 5.25 2% 7.00 1.75
3% 8.00 6.00 3% 8.00 2.00
4% 9.00 6.75 4% 9.00 2.25
5% 10.00 7.50 5% 10.00 2.50
6% 11.00 8.25 6% 11.00 2.75
7% and above 12.00 9.00 7% and above 12.00 3.00
(b) In the event that the Company experiences FFO growth and/or relative
NOI same store growth less than minus 2% or greater than 7%, the
Committee has complete discretion in determining Bonus Unit award
levels that it will recommend for the Board's approval. The Committee
will consider various factors, including economic conditions, the
Company's performance relative to its industry peers and the
occurrence of any extraordinary events in making its determination.
3.3 Calculation and Payment of Incentive Compensation.
(a) A Participant's bonus award equals the Participant's Base Salary
multiplied by the product (expressed as a percentage) of the
Participant's Bonus Factor and the Bonus Units earned plus or minus
performance factors.
(b) The entire amount of the bonus payable to the Chief Executive Officer
is discretionary with the Committee making a recommendation to the
full Board as to which portion of the bonus should be paid. Management
of the Company is authorized to determine the portion of the bonus to
be paid to other Participants provided that each Participant is
entitled to receive at least 50% of the calculated bonus. Factors to
be considered in determining the percentage to be paid include the
Participant's performance, the results of the Participant's department
and the Participant's relative influence on the Company's performance.
(c) Incentive compensation shall be calculated as soon as practicable
after the end of the Plan Year, and all incentive compensation shall
be paid prior to the end of the first fiscal quarter of the following
Plan Year. The Company's obligations under this Plan shall be subject
to applicable federal, state and local tax withholding requirements.
Federal, state and local withholding tax due at the time of payment of
incentive compensation required to be withheld by the Company may be
deducted from any payment of any kind otherwise due to each
Participant.
3.4 Bonus Deferrals.
Participant's having been assigned a Participant Bonus Factor of 3% and
higher and who are designated as "highly compensated" as defined in Section
414(q) of the Internal Revenue Code may participate in the Company's
Deferred Bonus Plan.
3.5 Termination of Employment.
If a Participant's employment terminates prior the payment date of a bonus
award for any reason other than retirement, death or disability, such
Participant shall not be entitled to receive any incentive compensation.
Participants must be employed on the date of the award payment to receive a
payment for the prior Plan Year. If a Participant's employment terminates
during any Plan Year by reason of retirement, death or disability, such
Participant or such Participant's legal representative shall receive any
incentive compensation with respect to such Plan Year pro rated for the
portion of the Plan Year during which Participant was an employee.
Incentive compensation to be paid to any Participant who becomes an
employee during a Plan Year also shall be pro-rated based on the portion of
the Plan Year during which the Participant was an employee.
4. MISCELLANEOUS PROVISIONS.
4.1 Non-Transferability.
No right to receive any incentive compensation shall be transferable except
by will or the laws of descent and distribution. Any purported transfer
contrary to this provision will be null and void and without effect.
4.2 No Right to Employment.
Neither the adoption of the Plan nor its operation, nor any document
describing or referring to the Plan, or any part thereof, nor the
designation of any employee as a Participant in the Plan shall confer upon
any Participant under the Plan any right to continue in the employ of the
Company or any Subsidiary, or shall in any way affect the right and power
of the Company or any Subsidiary to terminate the employment of any
Participant at any time with or without assigning a reason therefor, to the
same extent as might have been done if the Plan had not been adopted.
4.3 Exclusion from Pension Computations.
By acceptance of any incentive compensation under the Plan, the recipient
shall be deemed to agree that any compensation paid hereunder will not be
taken into account as "base remuneration", "wages", "salary" or
"compensation" in determining the amount of any contribution to or payment
or any other benefit under any pension, retirement, incentive,
profit-sharing or deferred compensation plan of the Company or any
Subsidiary.
4.4 Interpretation of the Plan.
Headings are given to the sections of the Plan solely as a convenience to
facilitate reference, such headings, numbering and paragraphing shall not
in any case be deemed in any way material or relevant to the construction
of the Plan or any provision hereof. The use of the masculine gender shall
also include within its meaning the feminine. The use of the singular shall
also include within its meaning the plural and vice versa.
4.5 Construction of Plan.
The place of administration of the Plan shall be in the State of New York,
and the validity, construction, interpretation, administration and effect
of the Plan and of its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws of the State
of New York.
Approved by Board of Directors February 14, 2007