UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12

 

ProLogis

(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):

þ		No fee required.
o		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 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:

o		Fee paid previously with preliminary materials.
o		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:

Notice of 2007

Annual Meeting

    and

Proxy Statement

 

 

April 6, 2007

 

 

4545 Airport Way

Denver, Colorado 80239

 

April 6, 2007

 

Dear Shareholder,

 

You are cordially invited to attend the annual meeting of shareholders of ProLogis, which will take place on May 15, 2007, at our world headquarters in Denver, Colorado.

 

Details of the business to be conducted at the meeting are set forth in the accompanying notice of annual meeting and proxy statement.

 

Whether or not you plan to attend, it is important that your shares be represented and voted at the meeting. I urge you to promptly vote and authorize your proxy instructions by phone, via the Internet, or by completing, signing, dating, and returning your proxy card in the enclosed envelope. If you decide to attend the annual meeting, you will be able to vote in person, even if you have previously submitted your proxy.

 

On behalf of the Board of Trustees, I would like to express our appreciation for your continued interest in ProLogis.

 

Sincerely,

 

K. Dane Brooksher

Chairman of the Board

TABLE OF CONTENTS

 

 

 

 

 

 

10:30 a.m., May 15, 2007

ProLogis World Headquarters

4545 Airport Way

Denver, Colorado 80239

 

April 6, 2007           

 

To our Shareholders:

 

The 2007 annual meeting of shareholders of ProLogis, a Maryland real estate investment trust, will be held at ProLogis’s world headquarters, 4545 Airport Way, Denver, Colorado 80239, on Tuesday, May 15, 2007, at 10:30 a.m. for the following purposes:

 

 

Shareholders of record at the close of business on March 12, 2007 are entitled to notice of, and to vote at, the meeting and any adjournments or postponements of the meeting.

 

For the Board of Trustees,

 

 

Edward S. Nekritz

Secretary

 

 

PROXY STATEMENT

ProLogis, 4545 Airport Way, Denver, Colorado 80239

 

This proxy statement is furnished in connection with the solicitation of proxies by the board of trustees of ProLogis for the 2007 annual meeting of shareholders of ProLogis. Distribution of this proxy statement and a proxy card to shareholders is scheduled to begin on or about April 6, 2007.

 

You can ensure that your shares are voted at the meeting by authorizing your proxy by phone, via the Internet, or by completing, signing, dating, and returning the enclosed proxy card in the envelope provided. If you are a shareholder of record, you may still attend the meeting and vote despite authorizing your proxy by any of these methods. A shareholder of record who gives a proxy may revoke it at any time before it is exercised by voting in person at the annual meeting, by delivering a subsequent proxy, by notifying the inspector of election in writing of such revocation, or, if previous instructions were given by phone or via the Internet, by providing new instructions by the same means.

SUMMARY OF PROPOSALS SUBMITTED FOR VOTE

 

•  Proposal 1:  Election of Trustees

 

Nominees:  At the annual meeting you will be asked to elect twelve trustees to the board of trustees. The trustees will be elected to a one-year term and will hold office until the 2008 annual meeting and until their successors are elected and qualify.

 

Vote Required:  You may vote for or withhold your vote from any of the trustee nominees. Assuming a quorum is present, the trustees receiving a majority of the votes cast in person or by proxy at the meeting will be elected. For this purpose, a majority of the votes cast means that the number of common shares that are cast and are voted “For” the election of a trustee must exceed the number of common shares that are withheld from his or her election.

 

 

Independent Registered Public Accounting Firm:  At the annual meeting you will be asked to ratify the audit committee’s appointment of KPMG LLP as the company’s independent registered public accounting firm for the year 2007.

 

Vote Required:  You may vote for, vote against, or abstain from voting on ratifying the appointment of the independent registered public accounting firm. Assuming a quorum is present, the affirmative vote of a majority of the common shares voted at the meeting in person or by proxy will be required to ratify the audit committee’s appointment of the independent registered public accounting firm.

 

The board of trustees unanimously recommends that the shareholders vote FOR each of the proposals listed above.

 

 

 

 

 

At the 2007 annual meeting, all twelve trustee nominees are to be elected to hold office until the 2008 annual meeting and until their successors are elected and qualify. The twelve nominees for election at the 2007 annual meeting, all proposed by the board of trustees, are listed below with brief biographies. They are all now ProLogis trustees. We do not know of any reason why any nominee would be unable or unwilling to serve as a trustee. However, if a nominee becomes unable to serve or will not serve, proxies may be voted for the election of such other person nominated by the board as a substitute or the board may reduce the number of trustees.

 

Under our bylaws, trustees in non-contested elections must receive a majority of affirmative votes cast for election at a meeting at which a quorum is present. For this purpose, a majority of the votes cast means that the number of common shares that are cast and are voted “For” the election of a trustee must exceed the number of common shares that are withheld from his or her election. If a trustee fails to obtain a majority, he or she must tender his or her resignation to the board. The board, generally through a process managed by the board governance and nomination committee, will decide whether to accept the resignation no later than 90 days after it is received. The board will then explain its decision to accept or reject the tendered resignation in a Current Report on Form 8-K which will be filed promptly with the Securities and Exchange Commission (SEC).

 

The board of trustees unanimously recommends that the shareholders vote FOR the election of each nominee.

 

 

CORPORATE GOVERNANCE

 

ProLogis remains committed to furthering meaningful corporate governance practices and maintaining a business environment of uncompromising integrity. We continue to implement this commitment through, among other things, our governance policies and compliance with the Sarbanes-Oxley Act of 2002 and the rules of the New York Stock Exchange (NYSE). Our board has formalized several policies, procedures and standards of corporate governance that are reflected in our governance guidelines. These governance guidelines, some of which we touch on below, can be viewed, together with any future changes, on our website at www.prologis.com.  In addition, copies of our governance guidelines can be obtained by any shareholder, free of charge, upon written request to Edward S. Nekritz, Secretary, ProLogis, 4545 Airport Way, Denver, Colorado 80239.

 

Trustee Independence.  We require that a majority of our board be independent in accordance with NYSE requirements. To determine whether a trustee is independent, the board must affirmatively determine that there is no direct or indirect material relationship between the company and the trustee. The board has determined that trustees Feinberg, Fotiades, Garvey, Jacobs, Steuert, Teixeira, Zollars, and Zulberti are independent. Our former trustee Kenneth N. Stensby, who retired in connection with the 2006 annual meeting, was independent through the time of his retirement. The board reached its decision after reviewing trustee questionnaires, considering transactions and relationships between us, our affiliates, members of our senior management and their affiliates, and each of the trustees, members of each trustee’s immediate family, and each trustee’s affiliates, and considering all other relevant facts and circumstances. The board has also determined that all members of the audit, management development and compensation, and board governance and nomination committees are independent in accordance with NYSE and SEC rules and that all members of the audit committee are financially literate.

 

Presiding Trustee.  Our outside trustees, meaning those trustees who are not officers or employees of ProLogis, meet in regular executive sessions without management being present. The chair of these executive sessions is the chairman of the board.

 

Communicating with Trustees.  You can communicate with any of the trustees, individually or as a group, by writing to them c/o Edward S. Nekritz, Secretary, ProLogis, 4545 Airport Way, Denver, Colorado 80239. All communications should prominently indicate on the outside of the envelope that they are intended for the full board, for outside trustees only, or for any particular group or member of the board. Each communication

intended for the board and received by the secretary which is related to the operation of the company and is not otherwise commercial in nature will be forwarded to the specified party following its clearance through normal security procedures. The outside trustees will be advised of any communications that were excluded through normal security procedures and they will be made available to any outside trustee who wishes to review them.

 

Shareholder Recommended Nominees for Trustee.  The board governance and nomination committee considers shareholder recommended nominees for trustees and screens all potential candidates in the same manner regardless of the source of the recommendation. Recommended nominees should be submitted to the committee following the same requirements as shareholder proposals generally and, like all proposals, must satisfy, and will be subject to, our bylaws and applicable SEC, NYSE, and Maryland rules and regulations. Submittals should also contain a brief biographical sketch of the candidate, a document indicating the candidate’s willingness to serve if elected, and evidence of the nominating person’s share ownership. Shareholder recommendations for board candidates should be sent to the Board Governance and Nomination Committee, c/o Edward S. Nekritz, Secretary, ProLogis, 4545 Airport Way, Denver, Colorado 80239. For more information on procedures for submitting nominees, see “Additional Information — Shareholder Proposals for Inclusion in Next Year’s Proxy Statement” and “— Shareholder Nominations and other Shareholder Proposals for Presentation at Next Year’s Annual Meeting.” The committee reviews its recommendations with the board, which in turn selects the final nominees. The committee may look at a variety of factors in identifying potential candidates and may request interviews or additional information as it deems necessary. Our declaration of trust requires that our trustees be individuals who are at least 21 years old and not under any legal disability. There are no other minimum qualifications that the committee believes must be met by a nominee. In the course of identifying and evaluating candidates, the committee will sometimes retain executive search firms to identify candidates for the board who are then screened following the same procedures as all other candidates. In addition to shareholder nominees, the committee will consider candidates recommended by trustees, officers, third party search firms, employees, and others.

 

Code of Ethics and Business Conduct.  We have adopted a code of ethics and business conduct that applies to all employees and trustees entitled A Commitment to Excellence and Integrity which can be viewed on our website at www.prologis.com. In addition, copies of our code of ethics and business conduct can be obtained, free of charge, upon written request to Edward S. Nekritz, Secretary, ProLogis, 4545 Airport Way, Denver, Colorado 80239. Our code details the expected behavior of all employees in routinely applying our institutional and personal values of honesty, integrity, and fairness to everything we do at ProLogis. The code outlines in great detail the key principles of ethical conduct expected of ProLogis employees, officers, and trustees, including matters related to conflicts of interest, use of company resources, fair dealing, and financial reporting and disclosure. The code also establishes formal procedures for reporting illegal or unethical behavior to the ethics administrator. In addition, it permits employees to report on a confidential or anonymous basis if desired, any concerns about the company’s accounting, internal accounting controls, or auditing matters. Employees may contact the ethics administrator by e-mail, in writing to a special address, or to a toll-free telephone number. Any significant concerns are reported to the audit committee.

BOARD OF TRUSTEES AND COMMITTEES

 

Our board of trustees currently consists of twelve trustees, eight of whom are independent under the requirements of the NYSE listing rules. All of our current trustees are standing for re-election at the 2007 annual meeting of shareholders. The board held five meetings during 2006 and, except as otherwise provided below, all trustees attended 75% or more of the board meetings and meetings of the committees on which they served during the periods they served. Each trustee is expected to attend the annual meeting of shareholders absent cause, and all trustees attended the annual meeting last year.

 

The four standing committees of the board are an audit committee, an investment committee, a board governance and nomination committee, and a management development and compensation committee.

 

Audit Committee.  The members of the audit committee are trustees Steuert, who chairs the committee, Fotiades, Garvey, and Jacobs, each of whom is independent under the rules of the NYSE. This committee’s primary duties and responsibilities include: (i) selecting and overseeing our independent registered public accounting firm, and monitoring the quality and integrity of the accounting, auditing, and reporting practices of the company in general; (ii) approving audit and non-audit services provided to the company; (iii) monitoring our internal audit function, internal controls, and disclosure controls; and (iv) reviewing the adequacy of its charter on an annual basis. The board has determined that Mr. Steuert is qualified as an audit committee financial expert within the meaning of the SEC regulations. There were nine meetings of this committee in 2006 and its report appears under “Audit Committee Report.” The audit committee’s responsibilities are stated more fully in its charter which can be viewed, together with any future changes, on our website at www.prologis.com. In addition, copies of the charter can be obtained by any shareholder, free of charge, upon written request to Edward. S. Nekritz, Secretary, ProLogis, 4545 Airport Way, Denver, Colorado 80239.

 

Investment Committee.  The members of the investment committee are trustees Feinberg, who chairs the committee, Fotiades, Rising, and Zulberti. This committee is responsible for approving certain significant acquisitions, dispositions, and other investment decisions of the company. This committee also approves annual total committed investment amounts by region based on our annual budget and reviews significant investment risk metrics. This committee makes regular reports to the board concerning its activities. There were ten meetings of this committee in 2006.

 

Board Governance and Nomination Committee.  The members of the board governance and nomination committee are trustees Fotiades, who chairs the committee, Garvey, Teixeira, and Zollars, each of whom is independent under the rules of the NYSE. The primary responsibilities of this committee, which we typically refer to as our governance committee, include: (i) reviewing potential board nominees and giving candidate recommendations to the board; (ii) assessing and making recommendations to the board on corporate governance matters and developing and recommending governance principles to the board; (iii) assisting with annual self-evaluations of the board and its committees and making recommendations to the board concerning committee appointments; and (iv) reviewing the adequacy of its charter on an annual basis. There were four meetings of this committee in 2006. The board governance and nomination committee’s responsibilities are stated more fully in its charter which can be viewed, together with any future changes, on our website at www.prologis.com. In addition, copies of the charter can be obtained by any shareholder, free of charge, upon written request to Edward. S. Nekritz, Secretary, ProLogis, 4545 Airport Way, Denver, Colorado 80239.

 

Management Development and Compensation Committee.  The members of the management development and compensation committee, which we typically refer to as our “compensation committee,” are trustees Jacobs, who chairs the committee, Feinberg, Zollars, and Zulberti, each of whom is independent under the rules of the NYSE. The compensation committee is responsible for: (i) reviewing and recommending to the board corporate goals and objectives relative to the compensation of our chief executive officer; (ii) evaluating the chief executive’s performance in light of those goals and objectives, and recommending to the board the chief executive officer’s compensation level based on that evaluation; (iii) reviewing and recommending to the board the compensation of the senior officers of the company; (iv) making recommendations to the board on general compensation practices; (v) retaining a compensation consulting firm, including sole authority to approve the

firm’s fees and other retention terms; (vi) reviewing and reassessing its charter on an annual basis; (vii) reviewing material regulatory and legal matters; (viii) ensuring reports are made to the board or in filings as required by the SEC and the NYSE; (ix) participating in succession planning for key executives; and (x) forming and delegating authority to subcommittees when deemed appropriate by the committee. The company’s chief executive officer also reports regularly to the compensation committee on the company’s management development activities. The compensation committee has retained the independent compensation consultant Frederic W. Cook & Co., Inc. to assist the committee in assessing our compensation programs for senior officers. The consultant does not advise management of the company, receives no compensation from the company other than for its work in advising the committee, and maintains no other economic relationships with the company. The compensation consultant conducts a comprehensive competitive review of the compensation program for the company’s senior officers, in terms of both structure and magnitude. The compensation committee uses the review to assist it in making compensation recommendations to the board. Our chief executive officer makes separate recommendations to the compensation committee concerning the form and amount of compensation for our senior officers (excluding his own compensation). Please see “Compensation Matters — Compensation Discussion and Analysis” for additional information about, and the processes and procedures for determining, executive officer compensation. There were six meetings of this committee in 2006 and its report appears under “Compensation Matters — Compensation Committee Report.” Mr. Zollars attended four of the six meetings. The compensation committee’s responsibilities are stated more fully in its charter which can be viewed, together with any future changes, on our website at www.prologis.com. In addition, copies of the charter can be obtained by any shareholder, free of charge, upon written request to Edward. S. Nekritz, Secretary, ProLogis, 4545 Airport Way, Denver, Colorado 80239.

 

Compensation Committee Interlocks and Insider Participation.  No member of the compensation committee: (i) was, during the year ended December 31, 2006, or had previously been, an officer or employee of the company or (ii) had any material interest in a transaction with the company or a business relationship with, or any indebtedness to, the company. No interlocking relationships existed during the year ended December 31, 2006, between any member of the board or the compensation committee and an executive officer of the company.

INFORMATION RELATING TO TRUSTEES, NOMINEES,
AND EXECUTIVE OFFICERS

 

•  Common Shares Beneficially Owned

 

The following table shows the number of our common shares beneficially owned, as of March 19, 2007, by each person known to us to be the beneficial owner of five percent or more, in the aggregate, of our outstanding common shares.

 

 

⁽¹⁾ Information regarding beneficial ownership of our common shares by The Vanguard Group, Inc. is included herein based on a Schedule 13G/A filed with the SEC on February 14, 2007. The Vanguard Group, Inc. has sole power to vote or to direct the vote with respect to 269,479 of the common shares reported and has sole dispositive power with respect to all of the common shares reported. The Vanguard Group, Inc. has represented that the common shares reported were acquired in the ordinary course of business and were not acquired for the purpose of, and do not have the effect of, changing or influencing the control of ProLogis and were not acquired in connection with, or as a participant in, any transaction having such purpose or effect.

 

⁽²⁾ Information regarding beneficial ownership of our common shares by Barclays Global Investors, NA and certain entities as a group is included herein based on a Schedule 13G filed with the SEC on January 23, 2007. Such report provides that: (i) Barclays Global Investors, NA has sole voting power with respect to 6,369,321 of such common shares and sole dispositive power with respect to 7,521,785 of such common shares; (ii) Barclays Global Fund Advisors has sole voting power with respect to 5,474,942 of such common shares and sole dispositive power with respect to 5,476,787 of such shares; (iii) Barclays Global Investors, Ltd has sole voting and dispositive power with respect to 742,200 of such common shares; (iv) Barclays Global Investors Japan Trust and Banking Company Limited has sole voting and dispositive power with respect to 244,898 of such common shares; and (v) Barclays Global Investors Japan Limited has sole voting and dispositive power with respect to 109,166 of such common shares. Such entities have represented that the common shares reported were acquired in the ordinary course of business and were not acquired for the purpose of, and do not have the effect of, changing or influencing the control of ProLogis and were not acquired in connection with, or as a participant in, any transaction having such purpose or effect.

The following table shows the number of our common shares beneficially owned, as of March 19, 2007, by: (i) our chief executive officer; (ii) our chief financial officer; (iii) our other executive officers who are included in the Summary Compensation Table For Fiscal Year 2006 under “Compensation Matters — Summary Compensation Table For Fiscal Year 2006” (collectively with our chief executive officer and our chief financial officer, our “named executive officers”); (iv) each of our trustees; and (v) our trustees and executive officers as a group.

 

 

⁽¹⁾ The principal address of each person is: c/o ProLogis, 4545 Airport Way, Denver, Colorado 80239.

 

⁽²⁾ This column includes common shares owned directly or indirectly, through contract, arrangement, understanding, or relationship, including vested common shares owned through our 401(k) Savings Plan and Trust (401(k) Plan). Unless indicated otherwise, all interests are owned directly and the indicated person has sole voting and investment power.

 

⁽³⁾ This column includes common shares that may be acquired within 60 days through: (i) the exercise of vested nonvoting options to purchase our common shares and (ii) the conversion of vested non-voting equity awards granted to the named executive officer or trustee under our equity compensation plans associated with their employment with the us or their service on our board. Unless indicated otherwise, all interests are owned directly and the indicated person has sole voting and investment power.

 

⁽⁴⁾ The common shares beneficially owned by Mr. Schwartz as of March 19, 2007 include 128,264 common shares which are issuable to him upon exchange of limited partnership units in two of our consolidated limited partnerships. Mr. Schwartz’s limited partnership interests are explained further below under “ — Certain Relationships and Related Transactions.” Mr. Schwartz has pledged these 128,264 limited partnership units as security.

 

⁽⁵⁾ The percent is less than 1% of the total common shares outstanding as of March 19,2007.

 

⁽⁶⁾ The common shares beneficially owned by Mr. Rakowich as of March 19, 2007 include: (i) 59,162 common shares held in a trust for Mr. Rakowich’s family of which he is a beneficiary; (ii) 872 common shares owned by his children; and (iii) 504 common shares held in a trust in which Mr. Rakowich is trustee and for which he disclaims beneficial ownership.

 

⁽⁷⁾ The common shares that may be acquired by May 18, 2007 by Ms. Bokides include 88,686 common shares that she may acquire as of March 31, 2007, the effective date of her resignation as our chief financial officer. The terms of the March 18, 2007 agreement with Ms. Bokides relating to her resignation are described below under “Compensation Matters — Potential Payments upon Termination or Change in Control.”

 

⁽⁸⁾ The common shares beneficially owned by Mr. Feinberg as of March 19, 2007 include: (i) 50,000 common shares owned by Dorsar Partners, LP of which Mr. Feinberg may be deemed to share voting and investment power; (ii) 40,000 common shares owned by Dorsar Investment Company of which Mr. Feinberg may be deemed to share voting and investment power; and (iii) 12,000 common shares in two trusts, one in which Mr. Feinberg is a beneficiary and one in which he is trustee and a relative is the beneficiary. Mr. Feinberg has pledged as security 156,480 of the common shares beneficially owned by him.

 

⁽⁹⁾ The common shares beneficially owned by Mr. Jacobs as of March 19, 2007 include 300 common shares held by Mr. Jacobs’s adult son, of which Mr. Jacobs disclaims beneficial ownership.

 

⁽¹⁰⁾ The common shares beneficially owned by Mr. Rising as of March 19, 2007 include 8,793 shares held by the Rising Family Foundation, a non-profit charitable foundation of which Mr. Rising and his wife are the sole directors.

•  Certain Relationships and Related Transactions

 

In 1993 and 1994, respectively, we acquired two industrial real estate portfolios from entities in which Irving F. Lyons, III and Mr. Schwartz, respectively, were owners and principal officers. These transactions were negotiated at arm’s length before either person was affiliated with us. As a result of these transactions, Mr. Lyons and Mr. Schwartz, through entities in which they have an ownership interest or individually, acquired ownership interests and became limited partners in certain of our limited partnerships that were formed to own the real estate assets of such portfolios. Mr. Lyons retired as our chief investment officer in December 2004 and as vice chairman of our board in May 2006.

 

Mr. Lyons has an ownership interest in an entity that has a direct ownership interest in ProLogis Limited Partnership-I. Mr. Lyons’s indirect ownership interest is 3.03% as of December 31, 2006 (equal to 436,471 units which are exchangeable for 436,471 of our common shares). This interest is valued at $26.5 million based on the closing price of our common shares as of December 31, 2006. ProLogis Limited Partnership-I has a $31.0 million secured loan with a third-party lender. Mr. Lyons and the other two limited partners of ProLogis Limited Partnership — I entered into an agreement in 2003 to guarantee up to $25.0 million of this secured loan. The guaranty was not required by the third-party lender or us, nor does it affect us, but was entered into for reasons personal to Mr. Lyons.

 

Mr. Schwartz has direct ownership interests in ProLogis Limited Partnership-III and ProLogis Limited Partnership-IV of 5.01% and 1.02%, respectively, as of December 31, 2006 (equal to 78,678 units, which are exchangeable for 78,678 of our common shares, and 49,587 units which are exchangeable for 49,587 of our common shares, respectively). These interests are valued at $4.8 million (ProLogis Limited Partnership-III) and $3.0 million (ProLogis Limited Partnership-IV) based on the closing price of our common shares as of December 31, 2006. ProLogis Limited Partnership-IV has a $4.0 million secured loan with us. Mr. Schwartz entered into an agreement in 2003 to guarantee $0.2 million of this secured loan. The guaranty was not required by us, nor does it affect us, but was entered into for reasons personal to Mr. Schwartz.

 

Related Parties Transaction Policy.  We recognize that transactions between us and related parties can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than our best interests and the best interests of our shareholders. Related parties may include our trustees, executives, significant shareholders, and immediate family members and affiliates of such persons.

 

Several provisions of our code of ethics and business conduct are intended to help us avoid the conflicts and other issues that may arise in transactions between us and related parties, including the following:

 

 

Our code may be amended, modified, or waived by our board or our governance and nomination committee, subject to the disclosure requirements and other provisions of the rules and regulations of the SEC and the NYSE. We have never waived the application of our code and have no intention to do so.

 

In addition, our declaration of trust provides that any transaction between the company and any trustee or any affiliates of any trustee must be approved by a majority of the trustees not interested in the transaction. And, our written governance guidelines state that one of the primary responsibilities of our board is to review the adequacy of the company’s systems for safeguarding the company’s assets.

Although we do not have detailed written procedures concerning the waiver of the application of our code of ethics and business conduct or the review and approval of transactions with trustees or their affiliates, our trustees consider all relevant facts and circumstances in considering any such waiver or review and approval, including:

 

 

COMPENSATION MATTERS

 

This Compensation Discussion and Analysis explains the material elements of the 2006 compensation of our named executive officers.

 

 

Our compensation philosophy is to reward superior company and executive performance and to attract and retain highly competent executives upon whose judgment, initiative, leadership, and continued efforts our success depends. Our compensation committee reviews and recommends all executive officer compensation policies. Our compensation committee also evaluates the effectiveness of our executive officer compensation programs in hiring, motivating, and retaining key employees and in creating long-term shareholder value. The policies and programs are primarily designed to:

 

 

All grants of share options, restricted share units, and contingent performance shares in 2006 were made under the ProLogis 2006 Long-Term Incentive Plan, which our shareholders approved in 2006. Each component is discussed in greater detail below, along with other arrangements used to reward, create incentives for, and retain our executive officers.

 

The basic elements of our compensation approach are:

 

Salary and Bonus.  Salary is paid for ongoing individual performance throughout the year and we generally pay salary at mid-market levels for similarly situated executives, as confirmed by our independent compensation consultant Frederic W. Cook & Co., Inc. Cash bonuses, paid in January for prior year performance, are also generally targeted at mid-market levels, however, the actual bonuses are ultimately based on both individual and company performance for the year.

 

Equity Awards Generally.  Share options and other equity awards were awarded in 2006 at the board’s regularly scheduled meeting in December. Equity awards have traditionally been awarded in connection with the determination of overall compensation for our executive officers near the end of our fiscal year. In connection with the hiring of new executive officers (as was the case with Ms. Bokides’s hiring in late 2005), we may grant equity awards earlier in the year in order to attract the executive to the company. In addition, we may consider the issuance of equity awards earlier in the year in order to reward individual performance or to retain the services of an executive (as was the case with the award of certain restricted share units and contingent performance shares awarded to Mr. Antennuci in connection with the amendment of his employment agreement in May 2006).

 

Share Options.  We believe that options to purchase our common shares are an effective incentive for executive officers and other key employees in performance and retention, and they promote a close identity of interests between the executives and the shareholders. The executive or employee benefits only when our common share price rises and if the executive remains employed during the vesting period. Generally, our share option awards vest ratably over four years. Share options are granted with an exercise price equal to the closing price of our common shares on the grant date. The exercise price for any outstanding share option may not be decreased after the date of grant except for reductions approved by our shareholders and for adjustments relating to an overall adjustment of shares.

 

Restricted Share Units (RSUs).  We grant RSUs to executive officers and other key employees. Each unit is equal to one common share and the awards generally vest ratably over four years (or longer in connection with the award of certain RSUs to Mr. Antennuci in connection with the amendment of his employment agreement in May 2006). RSUs provide further incentive to achieve long-range goals consistent with the interests of our shareholders. RSUs also encourage continued service because unvested RSUs are forfeited if the executive’s or employee’s service with the company is terminated. Dividend equivalent units are awarded with RSUs and vest under the same criteria as the underlying RSU.

 

Contingent Performance Shares (CPSs).  We grant CPSs (a type of long-term equity incentive compensation) to executive officers and other key employees because, like share options and RSUs, we believe they promote a close identity of longer-term interests between executive officers and shareholders by compensating executive officers based on the company’s performance. The company’s performance over a performance period, generally three years, is measured by comparing our total shareholder return to the fifty largest (by market capitalization) equity real estate investment trusts listed in the National Association of Real Estate Investment Trust’s published index as of the beginning of the performance period. Each award is equal to between zero and two common shares, based upon such performance. Each award vests, if earned, at the end of the performance period that generally begins on January 1st following the December award date. Mr. Antennuci’s amended employment agreement provides him with certain CPSs that have a longer performance period that is measured from May 2006. CPSs also encourage continued service because CPSs are forfeited if the executive or employee leaves the company before the award is earned and vests. Dividend equivalent units are awarded with CPSs and are earned and vest under the same criteria as the underlying CPSs.

 

Performance Share Awards (PSAs).  We granted PSAs to executive officers and other key employees in the past. Each award was equal to one common share. PSAs were earned based upon certain specified performance criteria, established in advance, for each executive and employee eligible for the grant. PSAs are forfeited if the executive or employee leaves the company before the completion of a two-year vesting period, thus encouraging

continued service. Dividend equivalent units are awarded with PSAs and are earned and vest under the same criteria as the underlying PSAs. The last PSAs awarded were earned on December 31, 2005 and will vest on December 31, 2007.

 

Dividend Equivalent Units (DEUs).  RSUs, CPSs, and PSAs earn DEUs on December 31st of each year that the award is outstanding. DEUs are awarded in the form of common shares at the rate of one common share per DEU. DEUs are accrued based on our annual common share distribution rate and are earned and/or vest under the same terms as the underlying award.

 

Other types of executive officer compensation and related arrangements include:

 

 

 

 

The compensation committee is responsible for, among other things, reviewing the performance of our chief executive officer and recommending to the board the compensation of our executive officers.

 

In determining the appropriate forms of compensation payable to our executive officers, the compensation committee believes that as an executive’s level of responsibility increases, a greater portion of total annual compensation should consist of long-term equity incentive compensation and a lesser portion consisting of their salary and cash bonus. The compensation committee believes that this structure promotes a close identity of longer-term interests between executive officers and shareholders and also creates the potential for greater variability in the individual’s compensation level from year to year. Cash compensation is typically paid at mid-market levels with cash bonuses ultimately based on both individual and company performance. Equity incentive compensation can be above or below median levels depending on company and individual performance. In general, the actual amount of equity incentive compensation payable to our executive officers reflects market practices (as confirmed by our compensation consultant), as well as each executive’s role and relative impact on business results consistent with our variable pay-for-performance (both individual and company) philosophy. The allocation of equity incentive compensation between share options, RSUs, and CPSs is approximately one-third each based on the compensation committee’s belief that this mix promotes the objectives of long-term shareholder value creation and executive officer retention.

 

Executive compensation for 2006 was determined after the compensation committee reviewed and assessed, among other things, the following:

 

 

 

Significant financial and operating achievements considered by the compensation committee in setting compensation policies and awards in 2006 included:

 

 

The compensation committee also retained the independent compensation consultant Frederic W. Cook & Co., Inc. to assist the committee in assessing our compensation programs for our executive and senior officers. The compensation consultant conducted a comprehensive competitive review of the compensation program for these officers, in terms of both structure and magnitude. Comparisons were made against a group of public real estate investment trusts that compete with us for investor capital, business, and executive talent (including the services of our named executive officers). Our compensation committee regularly evaluates the appropriate companies to include in the comparison group as our business evolves and the competition for talent changes. In addition, the compensation consultant prepared an analysis of our financial performance (including financial data such as one- and three-year total shareholder returns, funds from operations per share growth, and return on invested capital) on a stand-alone basis and as compared to the comparison group of companies for use by the compensation committee in setting compensation awards and policies in 2006. The 2006 comparison group companies consisted of AMB Property Corporation, Apartment Investment & Management Company, Archstone-Smith Trust, AvalonBay Communities, Inc., Boston Properties, Inc., Developers Diversified Realty Corporation, Duke Realty Corporation, Equity Office Properties Trust, Equity Residential, Host Hotels & Resorts Inc., Kimco Realty Corporation, The Macerich Company, Plum Creek Timber Company, Inc., Simon Property Group Inc., and Vornado Realty Trust. The independent compensation consultant, on behalf of the compensation committee, also

worked with management to review the amount of each element of compensation of executive and senior officers. Furthermore, the independent compensation consultant advised the compensation committee on the design of the compensation program for outside trustees.

 

In addition, the compensation committee reviewed and discussed our chief executive officer’s recommendations concerning compensation (excluding his own compensation) and his opinions concerning the performance of the company and our executive and senior officers (excluding his own performance).

 

After reviewing and discussing the consultant’s findings and the other factors described above, the compensation committee prepared compensation recommendations for each executive officer and other senior officers and concluded that our executive compensation packages are fair and reasonable. Our board subsequently reviewed and discussed those compensation recommendations and approved the compensation payable to each named executive officer.

 

We, the members of the management development and compensation committee of the board of trustees of ProLogis, have reviewed and discussed the Compensation Discussion and Analysis set forth above with the management of the company, and, based on such review and discussion, have recommended to the board of trustees that the Compensation Discussion and Analysis be included in this proxy statement and, through incorporation by reference from this proxy statement, the company’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

Management Development and Compensation Committee:

 

Donald P. Jacobs (Chair)

Stephen L. Feinberg

William D. Zollars

Andrea M. Zulberti

SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 2006*

 

 

* Columns (g) and (h) have been omitted from this table because they are not applicable.

 

** Ms. Bokides resigned as our chief financial officer effective March 31, 2007. The terms of the March 18, 2007 agreement with Ms. Bokides relating to her resignation are described below under “— Potential Payments upon Termination or Change in Control.”

 

⁽¹⁾ The bonuses earned in 2006 were paid in January 2007. The amounts presented in columns (c) and (d) include the amount, if any, of the named executive officer’s salary, and bonus for which payment was deferred at their election under our 401(k) Plan or our NSP. Of the amounts in column (c), each of the named executive officers deferred $13,200 under the 401(k) Plan and Mr. Nekritz deferred $70,000 under the NSP. Of the amounts in column (d), Mr. Nekritz deferred $67,500 under the NSP.

 

⁽²⁾ The amounts in column (e) represent the compensation expense that we recognized in 2006 associated with each of the named executive officer’s outstanding PSAs, CPSs and RSUs. PSAs, all of which were earned as of December 31, 2005, are valued at the market price of our common shares on the date they were earned. CPSs are valued using the Monte Carlo pricing model described below. RSUs are valued at the market price of our common shares on the date of grant. The market price represents either the closing price or the average of the high and low trading prices, depending on the date of grant.

 

 

Using the Monte Carlo pricing model, historical common share prices for us and the other fifty real estate investment trusts over a three-year look back period were utilized to generate volatility rates and to measure the correlation in the pattern of returns between the entities. Other inputs to the model include the risk-free interest rate and the length of the performance period. Utilizing these inputs, the total shareholder returns at the end of the performance period for us and the fifty comparison entities were simulated and our ranking in relation to the other entities was used to determine the projected amount of CPSs that will be awarded and the value of the CPSs upon issuance. The Monte Carlo model generates a factor that is scaled to the market price of our common shares on the date of grant thereby generating the fair value of the award. A factor of 1.13 was computed for CPSs granted in December 2005 with a performance period ending on December 31, 2008 and CPSs granted in May 2006 with a performance period ending on December 31, 2009 (using a risk-free interest rate of 5.10% and a look back period ending in November 2005). A factor of 1.159 was computed for CPSs granted in May 2006 with a performance period ending on December 31, 2010 (using a risk-free interest rate of 5.10% and a look back period ending in April 2006).

 

⁽³⁾ The amounts in column (f) represent the compensation expense that we recognized in 2006 associated with each of the named executive officer’s outstanding options to purchase our common shares. We value the options using the Black-Scholes pricing model.

 

 

 

Options to purchase our common shares that were expensed in 2006 were granted in 2002, 2003, 2004, and 2005. The assumptions used in the Black-Scholes model to determine the fair values for each of these years were as follows:

 

 

⁽⁴⁾ The aggregate incremental cost to us associated with perquisites or personal benefits received by the named executive officer in 2006 was less than $10,000.

 

⁽⁵⁾ Other compensation paid to Mr. Schwartz in column (i) consists of: (i) employer matching contributions under our 401(k) Plan of $6,600; (ii) stock in one of our subsidiaries (valued at $1,000) that we granted to Mr. Schwartz to enable our subsidiary to meet the ownership requirements for a real estate investment trust and a related tax offset payment of $698; (iii) the cost of life and accidental death and dismemberment insurance of $2,334; and (iv) relocation benefits of $27,190 and a related tax offset payment of $346.

 

⁽⁶⁾ Other compensation paid to Mr. Rakowich in column (i) consists of: (i) employer matching contributions under our 401(k) Plan of $6,600; (ii) stock in one of our subsidiaries (valued at $1,000) that we granted to Mr. Rakowich to enable our subsidiary to meet the ownership requirements for a real estate investment trust and a related tax offset payment of $698; and (iii) the cost of life and accidental death and dismemberment insurance of $2,334.

 

⁽⁷⁾ Other compensation paid to Mr. Antenucci in column (i) consists of: (i) employer matching contributions under our 401(k) Plan of $6,600 and a one-time employer matching contribution under Mr. Antenucci’s non-qualified deferred compensation plan with Catellus of $68,843 (the Catellus plan was assumed by us upon our merger with Catellus in 2005); (ii) stock in one of our subsidiaries (valued at $1,000) that we granted to Mr. Antenucci to enable our subsidiary to meet the ownership requirements for a real estate investment trust and a related tax offset payment of $451; (iii) the cost of life and accidental death and dismemberment insurance of $2,334; (iv) a lump-sum payment of $40,005 associated with unused vacation benefits earned by Mr. Antenucci during his employment with Catellus prior to the 2005 merger; and (v) perquisites of $17,346 comprised of airline travel club memberships, a car allowance (benefit was discontinued in May 2006), golf and fitness club memberships (benefit was discontinued in May 2006), and income tax consulting and 2005 income tax return preparation services (one-time benefit provided due to the tax impacts of the Catellus merger).

 

⁽⁸⁾ Other compensation paid to Ms. Bokides in column (i) consists of: (i) employer matching contributions under our 401(k) Plan of $6,600; (ii) stock in one of our subsidiaries (valued at $1,000) that we granted to Ms. Bokides to enable our subsidiary to meet the ownership requirements for a real estate investment trust and a related tax offset payment of $451; (iii) the cost of life and accidental death and dismemberment insurance of $1,923; (iv) relocation benefits of $175,104 and a related tax offset payment of $84,299; and (v) additional relocation benefits of $357,015, as described below.

 

Under Ms. Bokides’s relocation arrangement with us, a relocation firm employed by us purchased Ms. Bokides’s residence in Connecticut directly from her for $5,000,000 and is marketing the home for resale at that price. The purchase price was set at the average value based on two independent appraisals of the home. The amount in column (i) includes $357,015 representing our estimate of the closing costs, sales commissions and transfer taxes that will ultimately be costs to us related to the transaction with the relocation firm. The actual cost to us may differ from this estimate. In addition, we incurred costs of $44,262 in 2006, and expect to incur additional costs in 2007, associated with the relocation firm’s ownership of the home, primarily utilities, security, and property taxes and we bear the market risk associated with the sale of the home. We do not consider the additional costs of $44,262 to be compensation to Ms. Bokides and have not included such costs in the Summary Compensation Table for Fiscal Year 2006.

 

⁽⁹⁾ Other compensation paid to Mr. Nekritz in column (i) consists of: (i) employer matching contributions under our 401(k) Plan of $6,600; (ii) stock in one of our subsidiaries (valued at $1,000) that we granted to Mr. Nekritz to enable our subsidiary to meet the ownership requirements of a real estate investment trust and a related tax offset payment of $451; and (iii) the cost of life and accidental death and dismemberment insurance of $1,194.

 

GRANTS OF PLAN-BASED AWARDS FOR FISCAL YEAR 2006*

 

 

* Columns (c), (d), and (e) have been omitted from this table because they are not applicable.

 

** Ms. Bokides resigned as our chief financial officer effective March 31, 2007. The terms of the March 18, 2007 agreement with Ms. Bokides relating to her resignation are described below under “— Potential Payments upon Termination or Change in Control.”

 

⁽¹⁾ Represents CPSs that were granted as part of the named executive officer’s 2006 annual equity compensation award that will generally be earned by the named executive officer should: (i) our common shares meet certain specified performance criteria over a three-year performance period beginning on January 1, 2007 and ending on December 31, 2009 (as more fully described in “— Compensation Discussion and Analysis”) and (ii) the named executive officer is in our employ as of December 31, 2009. A target award has been established for each named executive officer (column (g)). The named executive officer can earn: (i) a maximum award of two times the amount of the target award (column (h)); (ii) a minimum (threshold) award of zero (column (f)); or (iii) an award ranging between the minimum and maximum amounts. The CPSs accrue DEUs over the performance period which will be earned based on the same criteria as the underlying CPSs. The value in column (l) is based on the Monte Carlo pricing model that has generated a value of $67.71 per share, which is equal to the closing price of our common shares on the date of grant scaled by a factor of 1.13 (using a risk-free interest rate of 4.64% and a look back period ending in December 2006). The Monte Carlo pricing model is discussed in the footnotes to the Summary Compensation Table for Fiscal Year 2006. Because Ms. Bokides resigned as our chief financial officer effective March 31, 2007, none of her 3,334 CPSs can be earned. See additional information concerning Ms. Bokides’s agreement below under “— Potential Payments upon Termination or Change in Control.”

 

⁽²⁾ Represents RSUs that were granted as part of the named executive officer’s 2006 annual equity compensation award that were earned as of the date of grant but will generally vest over a four-year continued employment or vesting period. The RSUs accrue DEUs over the vesting period which will vest under the same criteria as the underlying RSUs. On each of December 21, 2007, 2008, 2009, and 2010, the named executive officer will vest in 25% of the RSUs shown in column (i) and the associated accrued DEUs, provided that the named executive officer is in our employ on each date. The value in column (l) is based on the closing price of our common shares on the date of grant of $59.92 per share. Under the terms of the agreement with Ms. Bokides dated March 18, 2007, 834 of her unvested RSUs will vest as of March 31, 2007, the date of her resignation as our chief financial officer. Ms. Bokides’s remaining 2,500 RSUs will be forfeited as of March 31, 2007. See additional information concerning Ms. Bokides’s agreement below under “— Potential Payments upon Termination or Change in Control.”

 

⁽³⁾ Represents options to purchase our common shares that were granted as part of the named executive officer’s 2006 annual equity compensation award that were earned as of the date of grant but will generally become exercisable over a four-year continued employment or vesting period. The options do not accrue DEUs. On each of December 21, 2007, 2008, 2009, and 2010, 25% of the options shown in column (j) will vest and become exercisable, provided that the named executive officer is in our employ on each date. We value the options using the Black-Scholes pricing model. The value in column (1) is based on a Black-Scholes fair value of $10.42 per option that was computed using the following assumptions: a risk-free interest rate of 4.50%, a dividend yield of 3.40%, a volatility rate of 19.43%, and a weighted average option life of 5.8 years. Under the terms of the agreement with Ms. Bokides dated

March 18, 2007, 4,794 of her options will vest and become exercisable as of March 31, 2007, the date of her resignation as our chief financial officer. Ms. Bokides’s remaining 14,380 options will be forfeited as of March 31, 2007. See additional information concerning Ms. Bokides’s agreement below under “— Potential Payments upon Termination or Change in Control.”

 

⁽⁴⁾ Mr. Antenucci was granted a target amount of 50,000 CPSs (column (g)) under his employment agreement with us dated as of May 26, 2006. Mr. Antenucci will earn the CPSs should: (i) our common shares meet certain specified performance criteria over performance periods that begin on May 26, 2006 and continue through December 31, 2009 with respect to 25,000 CPSs and through December 31, 2010 with respect to 25,000 CPSs and (ii) he be in our employ as of the end of the applicable performance period.

 

 Mr. Antenucci can earn: (i) a maximum award of two times the amount of the target award (column (h)); (ii) a minimum (threshold) award of zero (column (f)); or (iii) an award ranging between the minimum and maximum amounts. The CPSs accrue DEUs over the performance periods which will be earned based on the same criteria as the underlying CPSs. The value in column (l) is based on the Monte Carlo pricing model that has generated a value of $56.05 per share (the average of the high and low trading prices of our common shares on the date of grant scaled by a factor of 1.13) for the 25,000 CPSs that have a performance period ending on December 31, 2009 and a value of $57.49 per share (the average of the high and low trading prices of our common shares on the date of grant scaled by a factor of 1.159) for the 25,000 CPSs that have a performance period ending on December 31, 2010. The Monte Carlo pricing model and the assumptions that were used to compute these factors are described in the footnotes to the Summary Compensation Table for Fiscal Year 2006. The relevant terms of Mr. Antenucci’s employment agreement are included in the narrative discussion following these footnotes.

 

⁽⁵⁾ Mr. Antenucci was granted 150,000 RSUs under his employment agreement with us dated as of May 26, 2006 that were earned as of the date of grant and will vest over a continued employment or vesting period. The RSUs accrue DEUs over the vesting period which will vest under the same criteria as the underlying RSUs. On December 31, 2010, Mr. Antenucci will vest in 100% of the RSUs and the associated accrued DEUs, provided that he is in our employ on that date. The value in column (l) is based on the average of the high and low trading prices of our common shares on May 26, 2006 of $49.60 per share. The relevant terms of Mr. Antenucci’s employment agreement are described in the narrative discussion following these footnotes.

 

⁽⁶⁾ Ms. Bokides was granted 3,528 RSUs on March 15, 2006 that were earned as of the date of grant and with vesting to occur over a continued employment or vesting period. The RSUs accrue DEUs over the vesting period which will vest under the same criteria as the underlying RSUs. Under the terms of the original award, on each of March 15, 2007, 2008, 2009, and 2010, Ms. Bokides would vest in 25% of the RSUs and the associated accrued DEUs, provided that she is in our employ on each date. The value in column (l) is based on the average of the high and low trading prices of our common shares on March 15, 2006 of $54.51 per share. Ms. Bokides vested in 901 RSUs and associated accrued DEUs on March 15, 2007. Under the terms of the agreement with Ms. Bokides dated March 18, 2007, the 2,704 unvested RSUs and associated accrued DEUs will vest as of March 31, 2007, the date of her resignation as our chief financial officer. See additional information concerning Ms. Bokides’s agreement below under “— Potential Payments upon Termination or Change in Control.”

 

Narrative Discussion to the Summary Compensation Table for Fiscal Year 2006 and the Grants of Plan-Based Awards for Fiscal Year 2006 Table.

 

The compensation packages for the named executive officers include both cash and equity components. The equity component for 2006 included awards of options to purchase our common shares, CPSs and RSUs. The CPSs and RSUs accrue DEUs. Each of these types of awards is more fully described in “— Compensation Discussion and Analysis.”

 

Our compensation committee’s philosophy has been to increase the proportion of equity compensation to total compensation as an executive officer’s level of responsibility increases.

 

We do not generally enter into employment contracts with our executive officers and have not entered into any such agreements with the named executive officers, other than Mr. Antenucci. Our agreement with Mr. Antenucci was entered into on June 5, 2005 and was amended and restated on May 26, 2006. The term of the agreement ends on December 31, 2010 and provides for automatic one-year extensions of the term unless we, or Mr. Antenucci, give notice of non-renewal at least three months prior to the last day of the then-current term. Mr. Antenucci was previously the president of Catellus, which we merged with in September 2005.

 

The employment agreement provides that Mr. Antenucci will:

 

 

 

Under the employment agreement, Mr. Antenucci was granted the following equity-based awards:

 

 

The agreement provides for accelerated vesting of unvested share awards, under certain limited circumstances, including certain events of termination and upon a change in control as described under “— Potential Payments upon Termination or Change in Control.”

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (DECEMBER 31, 2006)*