UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)

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Filed by a Party other than the Registrant		o

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ProLogis

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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4545 Airport Way

Denver, Colorado 80239

 

March 31, 2010

 

Dear Shareholder,

 

You are cordially invited to attend the annual meeting of shareholders of ProLogis, which will take place on May 14, 2010, at our world headquarters in Denver, Colorado.

 

We have elected to take advantage of the Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their shareholders on the Internet. We believe that these rules will allow us to provide our shareholders with the information they need, while lowering the costs of printing and delivery and reducing the environmental impact of our annual meeting.

 

Details of the business to be conducted at the meeting are set forth in the formal notice of annual meeting of shareholders and proxy statement that accompany this letter.

 

Your vote is important. Whether or not you plan to attend the annual meeting, it is important that your shares be represented and voted at the meeting. I urge you to promptly vote and authorize your proxy instructions electronically through the Internet, by telephone or, if you have requested and received a paper copy of the proxy statement, by completing, signing, dating, and returning the proxy card enclosed with the proxy statement. Voting through the Internet or by telephone will eliminate the need to return your proxy card. 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,

 

/s/ Walter C. Rakowich

Walter C. Rakowich

Chief Executive Officer

and Trustee

 

TABLE OF CONTENTS

 

 

 

 

 

 

10:30 a.m., May 14, 2010

ProLogis World Headquarters

4545 Airport Way

Denver, Colorado 80239

 

March 31, 2010           

 

To our Shareholders:

 

The 2010 annual meeting of shareholders of ProLogis, a Maryland real estate investment trust, will be held at ProLogis’ world headquarters, 4545 Airport Way, Denver, Colorado 80239, on Friday, May 14, 2010, at 10:30 a.m., local time, for the following purposes:

 

 

Shareholders of record at the close of business on March 16, 2010 are entitled to notice of, and to vote at, the meeting and any adjournments or postponements of the meeting. On or about March 31, 2010, we intend to mail our shareholders a notice containing instructions on how to access our 2010 proxy statement and 2009 annual report to shareholders on the Internet and also how to vote on the Internet. The notice also provides instructions on how you can request a paper copy of these documents if you desire. If you received your annual materials via e-mail, the e-mail contains voting instructions and links to the proxy statement and annual report on the Internet.

 

For the Board of Trustees,

 

 

/s/ Edward S. Nekritz

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 2010 annual meeting of shareholders of ProLogis. Distribution and electronic availability of this proxy statement and proxy card are scheduled to begin on or about March 31, 2010.

 

In accordance with the rules of the Securities and Exchange Commission (SEC), instead of mailing a printed copy of our proxy materials to each shareholder of record or beneficial owner, we are now furnishing proxy materials (our 2010 proxy statement and our 2009 annual report to shareholders, which includes our Annual Report on Form 10-K) by providing access to such documents on the Internet. Our shareholders will not receive printed copies of the proxy materials unless they elect this form of delivery or they are participants in our 401(k) Savings Plan and Trust (401(k) Plan). Printed copies will be provided upon request at no charge.

 

A Notice of Meeting and Internet Availability of Proxy Materials (Notice of Internet Availability) was mailed to our shareholders on or about March 31, 2010. The Notice of Internet Availability was provided in lieu of mailing the printed proxy materials and instructed our shareholders as to how they may: (i) access and review all of the proxy materials on the Internet; (ii) submit their proxy; and (iii) receive printed proxy materials.

 

Shareholders may request to receive printed proxy materials by mail or electronically by e-mail on an ongoing basis by following the instructions included in the Notice of Internet Availability. Providing future proxy materials by e-mail will save us some of the costs associated with printing and delivering the materials and will reduce the environmental impact of our annual meetings. An election to receive proxy materials by e-mail will remain in effect until such time as the shareholder elects to terminate it.

 

You can ensure that your shares are voted at the meeting by authorizing your proxy through the Internet, by telephone, or by completing, signing, dating, and returning the printed proxy card provided with the printed materials. If you are a shareholder of record, you may still attend the meeting and vote despite having previously authorized 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 through the Internet or by telephone, by providing new instructions by the same means. An admission ticket is required to attend the 2010 annual meeting. Admission tickets are provided with the printed proxy materials and with the Notice of Internet Availability.

 

For shares held in “street name” through a broker or other nominee, the broker or nominee is not permitted to exercise voting discretion with respect to certain of the matters to be acted upon. Thus, if shareholders do not give their broker or nominee specific instructions, their shares will not be voted on those matters and will not be counted in determining the number of shares necessary for approval. Shares represented by such “broker non-votes” will, however, be counted in determining whether there is a quorum.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be Held on May 14, 2010:

 

This proxy statement and our 2009 annual report to shareholders, which includes our Annual Report on Form 10-K, are available at http://ir.prologis.com.

 

 

Nominees:  At the annual meeting you will be asked to elect to the board of trustees the ten persons nominated by the board of trustees. The trustees will be elected to one-year terms and will hold office until the 2011 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.

 

•  Proposal 2:  Approve and Adopt an Amendment to the ProLogis 2006 Long-Term Incentive Plan — Increase authorized shares and certain individual grant limits

 

Amendment to the ProLogis 2006 Long-Term Incentive Plan:  At the annual meeting you will be asked to approve an amendment to the ProLogis 2006 Long-Term Incentive Plan to increase the authorized number of common shares that may be issued under the plan by 14,500,000 and to increase the maximum number of common shares that may be granted to any one participant during any calendar year as performance-based compensation from 200,000 to 500,000.

 

Vote Required:  You may vote for, vote against, or abstain from voting on approving and adopting this amendment to the ProLogis 2006 Long-Term Incentive Plan to increase the shares authorized and certain individual grant limits. Assuming a quorum is present, the affirmative vote of a majority of the common shares voted on the proposal at the meeting in person or by proxy will be required to approve this amendment to the ProLogis 2006 Long-Term Incentive Plan, provided that the total vote cast on the proposal represents over 50% of all shares entitled to vote on the proposal.

 

•  Proposal 3:  Approve and Adopt Amendments to Certain ProLogis Equity Incentive Plans — Allow for a one-time share option exchange program for employees, other than named executive officers and trustees

 

Amendments to Certain ProLogis Equity Incentive Plans:  At the annual meeting you will be asked to approve and adopt amendments to certain of our equity incentive plans to allow for a one-time share option exchange program for employees, other than named executive officers and trustees.

 

Vote Required:  You may vote for, vote against, or abstain from voting on approving and adopting the amendments to certain of our equity incentive plans to allow for a one-time share option exchange program for employees, other than named executive officers and trustees. Assuming a quorum is present, the affirmative vote of a majority of the common shares voted on the proposal at the meeting in person or by proxy will be required to approve these amendments to the equity incentive plans, provided that the total vote cast on the proposal represents over 50% of all shares entitled to vote on the proposal.

 

•  Proposal 4:  Ratification of the Appointment of Independent Registered Public Accounting Firm

 

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 2010.

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 on the proposal 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 2010 annual meeting, all ten trustee nominees are standing to be elected to hold office until the 2011 annual meeting and until their successors are elected and qualify. The ten nominees for election at the 2010 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 within three days after certification of the voting results. The board, generally through a process managed by the board governance and nomination committee, will decide what action to take with regard to the tendered resignation. A tendered resignation is effective 90 days from the date of tender unless the board affirmatively determines to reject the tendered resignation or accept the resignation on a specified future date or upon the appointment of a replacement trustee to fill the vacancy that will result from the resignation. 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 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 http://ir.prologis.com/governance.cfm. 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 all of our trustees, other than Mr. Rakowich, are independent. The board reached its decision after reviewing trustee questionnaires, considering any 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.

 

Leadership Structure.  Currently, we have split the roles of chairman of the board and chief executive officer. Our chairman of the board, Mr. Feinberg, is an outside trustee (meaning he is not an officer or employee of ProLogis). Our chief executive officer is Mr. Rakowich. The board believes that the current leadership structure is appropriate at this time based on the board’s understanding of corporate governance best practice. The board does not have a policy specifying a particular leadership structure as it believes that it should have the flexibility to choose the appropriate structure as circumstances change. Our outside trustees meet in regular executive sessions without management being present. The chair of these executive sessions is Mr. Feinberg. Since our chairman is an outside trustee, we do not have a lead trustee.

 

Board’s Role in Risk Oversight.  One of the board’s primary responsibilities, as provided in our governance guidelines, is to review the adequacy of the company’s systems for compliance with all applicable laws and regulations for safeguarding the company’s assets and for managing the major risks it faces. The board executes its responsibility for risk management directly and through its committees. The committees oversee risk matters associated with their respective areas of responsibility. The full board regularly considers risks relating to our strategic plan, our capital structure, and our significant investing activities. At least annually, the full board reviews the company’s risk identification, assessment and processes, and the guidelines and policies by which key risks are managed. The audit committee regularly considers major financial risk exposures and the steps taken to monitor and control such exposures, including our risk assessment and risk management policies. The audit committee also reviews risks associated with our financial accounting and reporting processes, litigation matters, and our compliance with legal and regulatory requirements. The investment and finance committee regularly considers risks associated with strategic investment issues and various financial and operating matters. The management development and compensation committee considers risks associated with our compensation policies and practices, management development, and retention. The board governance and nomination committee considers risks relating to governance matters. The committees advise the full board of their risk oversight and activities.

 

Communicating with Trustees.  You can communicate with any of the trustees, individually or as a group, by writing to them in care of 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 that 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.

Nominees for Trustee.  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 board governance and nomination committee believes must be met by a nominee. The committee considers a variety of factors in identifying potential candidates including, but not limited to, independence, integrity, business judgment, ethics, and ability and willingness to serve. The committee seeks nominees whose backgrounds and experiences will strengthen and enhance the board. The committee will consider candidates recommended by shareholders, trustees, officers, third-party search firms, employees, and others. The committee screens all potential candidates in the same manner regardless of the source of the recommendation. The committee may request interviews or additional information as it deems necessary, and will sometimes retain executive search firms on a fee basis to identify candidates for the board who are then screened following the same procedures as all other candidates. The committee reviews its recommendations for board candidates with the board, which in turn selects the final nominees. The committee and the board evaluate each current trustee in determining whether he or she should be nominated to stand for re-election under the same criteria discussed above along with the trustee’s individual contributions to the board during their term of service. The board does not have a formal policy concerning diversity with respect to trustee nominees but does consider the various factors noted above, as appropriate under the circumstances, in considering the nominees for the board.

 

Shareholder Recommended Nominees for Trustee.  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 must contain the following information as to the shareholder giving notice and as to any Shareholder Associated Person (as defined below):

 

 

A Shareholder Associated Person means, with respect to any shareholder, any person controlling, directly or indirectly, or acting in concert with, such shareholder, any beneficial owner of our shares owned of record or beneficially by such shareholder, and any person controlling, controlled by, or under common control with such Shareholder Associated Person.

 

Shareholder recommendations for board candidates should be sent to the Board Governance and Nomination Committee in care of 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 “Additional Information — Shareholder Nominations and Other Shareholder Proposals for Presentation at Next Year’s Annual Meeting.”

 

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, together with any future changes, on our website at http://ir.prologis.com/governance.cfm. 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 establishes formal procedures for reporting illegal or unethical behavior to the ethics administrator and 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, or by calling 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 11 trustees, ten of whom are independent under the requirements of the NYSE listing rules. All of our current trustees, other than Mr. Zollars, are standing for re-election at the 2010 annual meeting of shareholders. The board held nine meetings in 2009, including telephonic meetings, and all of the trustees attended 75% or more of the board meetings during the periods they served. All of the trustees attended at least 75% of the meetings of the committees on which they served during the periods they served, except for Mr. Zollars who attended four of eight of the meetings of the management development and compensation committee. Each of the trustees attended at least 75% of the aggregate number of meetings of the board and the committees on which they served during the periods they served in 2009, except for Mr. Zollars who attended 14 of the 20 applicable meetings. Each trustee standing for election in 2010 is expected to attend the annual meeting of shareholders, either in person or telephonically, absent cause, and all trustees attended the annual meeting last year, in person or telephonically.

 

The five standing committees of the board are: audit committee, board governance and nomination committee, management development and compensation committee, investment and finance committee, and corporate responsibility committee. These committees make regular reports to the board of trustees.

 

Audit Committee.  The members of the audit committee are trustees Steuert, who chairs the committee, Fotiades, Garvey, Jacobs, and Zulberti, each of whom is independent under the rules of the NYSE. This committee’s purpose is to be an informed, vigilant, and effective overseer of our financial accounting and reporting processes. This committee is directly responsible for the appointment, compensation, and oversight of our public accountants. Further, the committee monitors: (i) the integrity of our financial statements; (ii) our compliance with legal and regulatory requirements; (iii) our public accountant’s qualifications and independence; and (iv) the performance of our internal audit function and public accountants. This committee also reviews the adequacy of its charter on an annual basis. The board has determined that all members of the audit committee are financially literate and that Mr. Steuert qualifies as an audit committee financial expert within the meaning of the SEC regulations. There were eight meetings of this committee in 2009. The committee’s report appears below 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 http://ir.prologis.com/governance.cfm. In addition, copies of the committee’s 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.

 

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. This committee’s purpose is to: (i) review and make recommendations to the board on board organization and succession matters; (ii) assist the full board in evaluating the effectiveness of the board and its committees, including, without limitation, evaluating the process used by the management development and compensation committee to evaluate the performance of the chief executive officer; (iii) review and make recommendations for committee appointments to the board; (iv) identify individuals qualified to become board members and propose to the board a slate of nominees for election to the board; (v) assess and make recommendations to the board on corporate governance matters; and (vi) develop and recommend to the board a set of corporate governance principles applicable to the company. This committee also reviews the adequacy of its charter on an annual basis. There were three meetings of this committee in 2009. 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 http://ir.prologis.com/governance.cfm. In addition, copies of the committee’s 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 Zulberti, who chairs the committee, Feinberg, Jackson, and Zollars, each of whom is independent under the rules of the NYSE. This committee’s purpose is to discharge the board’s responsibilities relating to compensation of our executives and produce an annual report on executive compensation. 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 officer’s performance in light of those goals and objectives, and setting the chief executive officer’s compensation level based on this evaluation, including incentive and equity-based plans; (iii) setting the amount and form of compensation for the senior executive officers; (iv) making recommendations to the board on general compensation practices, including incentive and equity-based plans, and adopting, administering, and making awards under annual and long-term incentive compensation and equity based plans, and reviewing and monitoring awards under such plans; (v) retaining and terminating a compensation consulting firm for which the committee has sole authority, including sole authority to approve the firm’s fees and other retention terms; (vi) reviewing and assessing the adequacy of its charter on an annual basis in light of current circumstances and changes in regulations and recommending any proposed changes to the charter for the board’s approval; (vii) confirming that relevant reports are made to the board or in periodic filings as required by governing rules and regulations of the SEC and the NYSE; (viii) participating in succession planning for key executives; and (ix) forming and delegating authority to subcommittees when deemed appropriate. There were eight meetings of this committee in 2009. 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 http://ir.prologis.com/governance.cfm. In addition, copies of the committee’s 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.

 

Our chief executive officer also reports regularly to the compensation committee on our management development activities. The compensation committee has retained the independent compensation consultant Frederic W. Cook & Co., Inc. (FW Cook) to assist the committee in assessing our compensation programs for senior officers. FW Cook does not advise management, receives no compensation from the company other than for its work in advising the compensation committee, and maintains no other economic relationships with the company. FW Cook 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 the compensation for our senior officers (excluding his own compensation). The committee’s report appears under “Compensation Matters — Compensation Committee Report.” Please also see “Compensation Matters — Compensation Discussion and Analysis” for additional information about, and the processes and procedures for determining, executive officer compensation.

Compensation Committee Interlocks and Insider Participation.  No member of the compensation committee: (i) was, during the year ended December 31, 2009, 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, 2009, between any member of the board or the compensation committee and an executive officer of the company.

 

Investment and Finance Committee.  The members of the investment and finance committee are trustees Jacobs, who chairs the committee, Feinberg, Fotiades, Jackson, Lyons, and Zulberti. This committee’s purpose is to: (i) discharge the board’s responsibilities relating to strategic investment issues; (ii) increase discussion and analysis of our largest investments; (iii) further the discussion regarding our investment environment around the world; and (iv) review and make recommendations to the board and management about our financial affairs and operations. This committee also approves certain significant acquisitions, dispositions, and other investment decisions, periodically reviews significant investment risk metrics, and provides guidance to the board and management with respect to: (i) capital structure; (ii) capital and debt issuances, purchases, and restructurings; (iii) financial strategies and activities; and (iv) other transactions and financial issues as necessary. This committee reviews and assesses its charter on an annual basis. There were four meetings of this committee in 2009. The investment and finance committee’s responsibilities are stated more fully in its charter which can be viewed, together with any future changes, on our website at http://ir.prologis.com/governance.cfm.

 

Corporate Responsibility Committee.  The members of the corporate responsibility committee are trustees Teixeira, who chairs the committee, Jackson, and Steuert. This committee’s purpose is to provide assistance to the board in reviewing and approving the company’s activities, goals, and policies concerning environmental stewardship and social responsibility matters. The committee is also responsible for reviewing and assessing its charter periodically. There were two meetings of this committee in 2009. The corporate responsibility committee’s responsibilities are stated more fully in its charter which can be viewed, together with any future changes, on our website at http://ir.prologis.com/governance.cfm.

 

 

•  Common Shares Beneficially Owned

 

The following table shows the number of our common shares beneficially owned, as of March 16, 2010 (or such other date indicated in the footnotes below), 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 FMR LLC and certain related entities is included herein based on a Schedule 13G filed with the SEC on February 16, 2010, relating to such shares beneficially owned as of December 31, 2009. Such report provides that: (i) FMR LLC, an investment advisor, is beneficial owner of 40,042,212 of such common shares and with Edward C. Johnson III each have sole dispositive power with respect to the common shares beneficially owned by FMR LLC; neither FMR LLC nor Mr. Johnson has sole power to vote or direct the voting of these shares; (ii) Pyramis Global Advisors Trust Company (PGATC) is the beneficial owner of 2,342,616 of such common shares and FMR LLC and Mr. Johnson, through their control of PGATC, each have sole power to vote or to direct the voting and sole dispositive power with respect to the common shares beneficially owned by PGATC; (iii) FIL Limited is the beneficial owner and has sole dispositive power with respect 3,527,880 of such common shares and has sole power to vote or direct the voting with respect to 3,494,300 of such common shares; and (iv) Pyramis Global Advisors, LLC (PGA LLC) is beneficial owner of 407,344 of such common shares and FMR LLC and Mr. Johnson, through their control of PGA LLC, each have sole power to vote or direct the voting and sole dispositive power with respect to the common shares beneficially owned by PGA LLC.

 

⁽²⁾ Entities included in the Schedule 13G filing have represented that the common shares reported were acquired and are held in the ordinary course of business and were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of ProLogis and were not acquired and are not held in connection with or as a participant in any transaction having such purpose or effect.

 

⁽³⁾ Information regarding beneficial ownership of our common shares by The Vanguard Group, Inc. (Vanguard) and Vanguard Fiduciary Trust Company (VFTC), a wholly-owned subsidiary of Vanguard, is included herein based on a Schedule 13G/A filed with the SEC on February 4, 2010, relating to such shares beneficially owned as of December 31, 2009. Such report provides that: (i) Vanguard is beneficial owner and has sole dispositive power with respect to 42,944,828 of such common shares and has sole power to vote or direct the vote with respect to 755,980 of such common shares and (ii) VFTC is beneficial owner and has shared dispositive power and directs the vote with respect of 675,971 of such common shares.

 

⁽⁴⁾ Information regarding beneficial ownership of our common shares by entities related to Cohen & Steers, Inc. is included herein based on a Schedule 13G filed with the SEC on February 12, 2010, relating to such shares beneficially owned as of December 31, 2009. Such report provides that: (i) Cohen & Steers Capital Management, Inc. is beneficial owner and has sole dispositive power with respect to 40,456,139 of such common shares and has sole voting power with respect to 33,604,864 of such common shares and (ii) Cohen & Steers Europe S.A. is beneficial owner and has sole dispositive power with respect to 890,375 of such common shares and sole voting power with respect to 410,530 of such common shares.

 

⁽⁵⁾ Information regarding beneficial ownership of our common shares by Blackrock, Inc. (Blackrock) is included herein based on a Schedule 13G filed with the SEC on January 29, 2010, relating to such shares beneficially owned as of December 31, 2009. Such report provides that Blackrock is beneficial owner and has sole power to vote or direct the vote and sole power to dispose or direct the disposition with respect to all of such common shares. On December 1, 2009 Blackrock completed the acquisition of Barclays Global Investors NA and, as a result, substantially all of the subsidiaries of Barclays Global Investors NA are now included as subsidiaries of Blackrock for purposes of Schedule 13G filings.

The following table shows the number of our common shares beneficially owned, as of March 16, 2010, by: (i) our chief executive officer; (ii) our chief financial officer; (iii) our other named executive officers; (iv) each of our trustees; and (v) our trustees and all of our 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 beneficially owned directly or indirectly, including vested common shares owned through our 401(k) Plan, but excluding common shares that may be acquired within 60 days. 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 the exercise of vested, non-voting options to purchase our common shares and through scheduled vesting of restricted share units and associated dividend equivalent units (DEUs). Unless indicated otherwise, all interests are owned directly and the indicated person will have sole voting and investment power upon receipt.

 

This column does not include vested, non-voting equity awards or other common shares, receipt of which has been deferred at the election of the executive officer or the trustee, as these awards cannot be distributed within 60 days. Our executive officers have not deferred any such equity awards as of March 16, 2010. The vested, non-voting equity awards or other common shares not included for each trustee (consisting of deferred share units and associated accrued DEUs and common shares deferred under the trustees’ deferred fee plan (see “Compensation Matters — Trustee Compensation for Fiscal Year 2009”)) are:

 

 

⁽⁴⁾ The common shares beneficially owned by Mr. Rakowich include: (i) 437,142 common shares held in a trust for Mr. Rakowich’s family of which Mr. Rakowich is a trustee and a beneficiary; (ii) 872 common shares owned by Mr. Rakowich’s children; (iii) 504 common shares held in a trust in which Mr. Rakowich is trustee and for which he disclaims beneficial ownership; and (iv) 549 common shares held in a trust for Mr. Rakowich’s family for which he disclaims beneficial ownership.

 

⁽⁵⁾ The percent is less than 1% of the total common shares outstanding.

 

⁽⁶⁾ The common shares beneficially owned by Mr. Feinberg 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.

 

⁽⁷⁾ The common shares beneficially owned by Mr. Lyons include 226,613 shares which are issuable upon exchange of limited partnership units. The limited partnership interest is explained further below under “Certain Relationships and Related Transactions.”

 

⁽⁸⁾ The common shares beneficially owned by Ms. Zulberti are held in a trust for which Ms. Zulberti shares voting and investment power.

 

•  Certain Relationships and Related Transactions

 

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 the board 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. Also, 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 would consider all relevant facts and circumstances in considering any such waiver or review and approval, including:

 

 

Relationship with Mr. Lyons.  In 1993, we acquired an industrial real estate portfolio from entities in which Mr. Lyons was an owner and principal officer. The transaction was negotiated at arm’s length before we became affiliated with him. As a result of the transaction, Mr. Lyons, through entities in which he has ownership interests, acquired an ownership interest in ProLogis Limited Partnership-I (the entity formed to own the acquired real estate assets). Mr. Lyons’ indirect interest is 1.6% as of December 31, 2009 (equal to 226,613 units which are exchangeable for 226,613 ProLogis common shares). ProLogis Limited Partnership-I currently has $26.4 million of secured loans with a third-party lender. Mr. Lyons and other limited partners of ProLogis Limited Partnership-I entered into an agreement in 2003 to guarantee up to $25 million of these secured loans. The guaranty was not required by ProLogis, nor did it affect ProLogis, but was entered into for reasons personal to Mr. Lyons and the other limited partners. The board believes that this relationship is consistent with our related parties transaction policy discussed above.

COMPENSATION MATTERS

 

This Compensation Discussion and Analysis describes for our shareholders our material compensation policies and practices generally, as well as their application to the compensation awards and decisions made with respect to 2009 for our named executive officers. Our named executive officers for 2009 are: Walter C. Rakowich, chief executive officer, Ted R. Antenucci, president and chief investment officer, William E. Sullivan, chief financial officer, and Edward S. Nekritz, general counsel, head of global strategic risk management, and secretary.

 

This discussion should be read in conjunction with the other compensation information presented in this proxy statement, specifically the tables and narratives that follow. While the following discussion primarily focuses on the 2009 information that is presented in the accompanying tables and narratives, it also addresses decisions that were taken in other periods to the extent that these decisions are relevant to the full understanding of the compensation decisions for 2009.

 

•  Compensation Philosophy

 

Our compensation philosophy is to:

 

 

Although portions of our compensation program are performance-based, we do not believe that our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on the company.

 

Generally, our compensation program employs common elements across our senior management team, including our named executive officers. Differentiation is achieved primarily by the size of the award rather than by the type of award. This approach aligns the objectives of senior management while providing a fair and transparent program that can be easily understood across management levels. Our compensation structure is straightforward and primarily consists of a cash component (base salary and target cash bonus) and a long-term equity component. Additionally, our compensation program includes certain benefits (broad-based, senior level, and change in control). We do not maintain a post-retirement benefit plan for executives but we do have a 401(k) Plan and deferred compensation plans. We do not generally enter into employment agreements, other than change in control or executive protection agreements, with executives and currently we have employment agreements in place with only Mr. Rakowich, our chief executive officer, and Mr. Antenucci, our president and chief investment officer. The employment agreements are described in more detail in the narrative discussion that follows the Grants of Plan-Based Awards in Fiscal Year 2009 table and certain provisions of the employment and executive protection agreements are described under “— Potential Payments Upon Termination or Change in Control.”

 

•  Compensation Administration

 

Our compensation committee administers our executive compensation program. On an annual basis, the compensation committee reviews the elements of compensation for our executive officers, including our named executive officers, which includes an evaluation of the program’s effectiveness with respect to our ability to hire, retain, and motivate key employees, as well as through our ability to create long-term shareholder value.

Generally, this review involves input from the independent compensation consultant retained by the committee, as well as advice from our chief executive officer (except with respect to his own compensation) and certain members of management.

 

The compensation committee periodically reviews the performance of its independent compensation consultant and undertook such a review in 2009. As part of this process, the committee interviewed several independent compensation consulting firms, including its current compensation consultant, FW Cook. After completing the review process, the committee decided to retain FW Cook as its independent compensation consultant to assist in assessing our compensation programs for all senior officers, including the named executive officers. FW Cook does not advise management, receives no compensation from the company other than for its work in advising the compensation committee, and maintains no other economic relationships with the company. After hiring FW Cook, the compensation committee authorized them to, in addition to the annual competitive review, perform a comprehensive review of our compensation policies, including a thorough review of our pay structures and processes. This comprehensive review is on-going, however, several recommendations were incorporated into the compensation decisions for 2009. These include changes to the comparison group and a move to incorporate more objective performance measures, while maintaining discretion in the compensation decision-making process. As the company’s long-term strategy continues to evolve, the compensation committee will be refining their processes further to adapt to this strategy and expects that, in the future, the process will further incorporate objective performance measurements.

 

•  Components of Compensation for Named Executive Officers

 

Compensation comprises these components: base salary, cash bonus, long-term equity awards, and benefits (broad-based, senior level and change in control). Each element is described in more detail below with respect to the purpose, payment terms, criteria for award, and eligibility.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Components of Compensation Program

 

Recoupment Policy.  Our board has adopted a recoupment policy which provides that, in the event of a substantial restatement of our previously issued financial statements, a review will be undertaken by the board of performance-based compensation awarded to executive and certain other officers that was attributable to our financial performance during the time periods restated. The board will determine whether the restated results would have resulted in the same performance-based compensation for such officers. If not, the board will consider: (i) whether the restatement was the result of error or misconduct; (ii) the amount of additional compensation paid to the relevant officers as a result of the previously issued financial statements; (iii) the best interests of the company in the circumstances; and (iv) any other relevant facts or circumstances the board deems appropriate for consideration. If the board determines that an executive or other officer was improperly compensated and that it is in our best interests to recover or cancel such compensation, the board will pursue all reasonable legal remedies to recover or cancel such performance based compensation. The policy further provides that if the board learns of any misconduct by an executive officer or certain other officers that caused the restatement, the board shall take such action as it deems necessary to remedy the misconduct, prevent its recurrence and, if appropriate, based on all relevant facts and circumstances, punish the wrongdoer. Such punishment by the board could include dismissal, legal action for breach of fiduciary duty, or such other action to enforce the executive’s or other officer’s obligations to us as may fit the facts surrounding the particular case. In determining the appropriate punishment, the board may take into account punishments imposed by third parties and the board’s power to determine the appropriate punishment for the wrongdoer is in addition to, and not in replacement of, remedies imposed by such third parties. Mr. Rakowich’s employment agreement also contains provisions with respect to recovery of amounts earned by him to the extent that the amount earned was based on satisfaction of goals and objectives that were impacted by a financial statement restatement or modification. See further discussion of Mr. Rakowich’s employment agreement in the narrative discussion that follows the Grants of Plan-Based Awards in Fiscal Year 2009 table.

 

Share Ownership Guidelines.  In December 2008, in light of the then current global economic conditions and recent market prices of our common shares, the board suspended certain requirements of the share ownership guidelines applicable to both executives and trustees. This suspension remained in effect until February 2010 (for executives) and March 2010 (for trustees), when the board reinstated all of the guidelines with certain changes. The current guidelines are applicable for the named executive officers, certain other executives, and trustees. The guidelines require each executive to maintain an ownership level in our common shares equal to a multiple of his or her base salary (five times base salary for Mr. Rakowich and three times base salary for Messrs. Antenucci, Sullivan, and Nekritz). Further, the guidelines require trustees to maintain an ownership level in our common shares equal to five times their annual retainer (an aggregate of $250,000 for 2010). Shares counted under the guidelines for executives include common shares owned outright, vested and unvested restricted share units, vested and unvested performance share awards that have been earned after the completion of the performance period, vested dividend equivalent units, vested common shares in the 401(k) Plan and nonqualified deferred compensation plan, and operating partnership units. Once the value prescribed in the ownership guidelines has been met by an executive, the number of shares required to meet the guidelines at that point in time will be computed and will be fixed as the “required share count” for meeting the guidelines in future periods. Until such time as the guidelines are met, we will require the executive to hold 50% of the net profit shares from any award distributions under the Plan (net profit shares are the shares remaining after shares are withheld to pay the exercise price and/or taxes due by the executive). The share ownership guidelines applicable to our trustees are also discussed in the narrative discussion that follows the Trustee Compensation for Fiscal Year 2009 table.

 

The hedging policy portion of the previous guidelines have remained in effect and were not changed. Specifically, our trustees and named executive officers are prohibited from hedging the economic risk associated with common shares held in compliance with our share ownership guidelines.

 

Risk Mitigation.  We do not believe that our compensation policies and practices encourage our named executive officers or any of our other employees to take inappropriate or excessive risks. In addition, elements in our compensation program serve to mitigate excessive risk taking — for example, our recoupment policy and our share ownership guidelines (both described above). Furthermore, we believe that the reviews and other processes performed by our investment and finance committee and the internal management controls, which include a series of checks and balances with respect to the commitment of capital, further ensure that excessive risk taking is not undertaken.

 

•  Compensation Committee’s Process

 

The compensation committee is responsible for, among other things, reviewing the performance of our chief executive officer and determining the compensation of our named executive officers. In determining compensation, the compensation committee: (i) considers market compensation levels for similarly situated executives as a frame of reference for its analysis, as confirmed by FW Cook; (ii) generally believes that the compensation for the named executive officers as compared with the market should reflect the scope and characteristics of our operations, as well as specific challenges present at our company; and (iii) generally believes that a larger portion of total compensation should consist of long-term equity incentive compensation as an executive’s level of responsibility increases because this compensation mix promotes a closer alignment of long-term interests between the named executive officers and shareholders. In determining the compensation payable to our named executive officers, the compensation committee evaluates all factors that it deems relevant, in light of the company’s compensation philosophy that is discussed above under “— Compensation Philosophy.” The material factors considered for 2009 included:

 

 

Other significant factors considered by the compensation committee in determining individual compensation levels for our executives for 2009 included:

 

 

The compensation committee also considers the amount and mix of compensation payable to the company’s other executives when it determines appropriate compensation for a specific individual. All factors are considered

as a whole without specific weighting of individual factors. The compensation committee did not rely on formulas in determining compensation for 2009.

 

FW Cook’s comparisons and related reports provide the competitive information for similarly situated executives at the comparison group companies (described below) that the compensation committee uses as a frame of reference for its analysis. Such comparisons are not the sole factor in any compensation decisions. The compensation committee does not specifically target any compensation amounts for our named executive officers to the compensation practices of the comparison group companies.

 

In addition, the compensation committee reviews and discusses 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). Our chief executive officer attends certain of the meetings of the compensation committee at which compensation matters (excluding his own compensation) are discussed. He also reviews portions of the report prepared by FW Cook and has the ability to discuss such report with both the consultant and the committee. Our chief executive officer’s compensation recommendations and performance opinions are among the factors considered by the compensation committee in determining the amount and mix of compensation for the executive and senior officers, but are not the sole factor in any compensation decisions.

 

Competitive Review by Independent Compensation Consultant

 

For consideration by the compensation committee, FW Cook conducted a comprehensive competitive review of the compensation program for the named executive officers, in terms of both structure and magnitude. This review, as it has in the past, included comparisons 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 periodically evaluates the appropriate companies to include in the comparison group. As such, certain changes to the composition of the comparison group were made for the 2009 analysis. In determining the appropriate comparison group companies for 2009, the compensation committee and FW Cook specifically reviewed data on funds from operations (direct and from property funds), total assets, real estate assets owned and managed, market capitalization, enterprise value, total shareholder return, and geographic coverage (as measured by countries, states, and markets). While reviewing the data provided by FW Cook, the compensation committee noted that when taken as a whole, our size, breadth, business complexity, and geographic reach, were substantially greater than that of the companies that made up the comparison group. These significant differences were considered by the compensation committee when evaluating the comparison group compensation practices and structures as compared to our practices and structures. The comparison group companies for 2009 consisted of AMB Property Corporation, Apartment Investment and Management Company, AvalonBay Communities, Inc., Boston Properties, Inc., Developers Diversified Realty Corporation, Duke Realty Corporation, Equity Residential, HCP, Inc., Host Hotels & Resorts Inc., Kimco Realty Corporation, The Macerich Company, Plum Creek Timber Company, Inc., Public Storage, Inc, Simon Property Group, Inc., SL Green, Ventas, Inc., and Vornado Realty Trust.

 

In the competitive review, the total compensation of our named executive officers was compared with the total compensation of similar positions in the comparison group or to the named executive officers of the comparison group companies if similar positions were not identifiable. Such comparison group information was publicly available with respect to all 17 comparison companies with respect to the chief executive officer and chief financial officer positions. Comparison group information was publicly available to FW Cook with respect to 13 companies for the position of chief investment officer and nine companies for the position of general counsel. The competitive review also analyzed other aspects of competitive compensation practices including: (i) executive and non-employee trustee/director stock ownership guidelines; (ii) aggregate potential share dilution associated with potential equity awards; (iii) aggregate annual share usage associated with potential equity awards; and (vi) aggregate annual shareholder value transfer (the aggregate annual grant value of long-term incentives as a percentage of market capitalization) associated with potential equity awards.

2009 Compensation Decisions

 

The compensation decisions with respect to our named executive officers for 2009 are described below. These decisions were reached by the committee after reviewing and discussing FW Cook’s findings and in light of the other factors described below. The compensation committee has concluded that these decisions are consistent with our compensation philosophy and such decisions and conclusions were subsequently reviewed and discussed with the full board.

 

The compensation committee determines the amount and mix of cash and equity compensation each year based on the achievement of strategic goals and objectives for the company. We, like most companies, were impacted by the pervasive and fundamental disruptions of the global financial markets, primarily beginning late in the third quarter of 2008. Further, we experienced a significant decline in our common share price during the latter part of 2008. In addition, in November 2008 our then chief executive officer resigned and Mr. Rakowich was subsequently appointed to that position. In response to market conditions, we modified our business strategy to limit our development activities to focus on our core business of owning and managing industrial properties. The narrowing of our focus was necessary to allow management to take the appropriate steps toward reducing our debt and enhancing our liquidity and cash flow. The modified business strategy was the basis for the company and individual performance goals and objectives established for 2009.

 

Specifically, the determination of earned performance share awards (PSAs) and the earned cash bonus awards for 2009 were based in part on these company and individual goals and objectives for the performance period ended on December 31, 2009:

 

 

As noted above, the company goals and objectives for 2009 were related to repositioning the company’s business strategy and enhancing its liquidity and cash flow. Individual goals and objectives for 2009 related to each named executive officer’s responsibilities toward meeting the overall company goals and objectives and reflected their expected participation in the achievement of the overall company goals and objectives. The named executive officers’ individual goals and objectives for 2009 included:

 

 

Each of these goals and objectives was achieved and, in certain cases, substantially exceeded. As such, the final awards for the performance shares and bonuses reflected the company’s achievements and the individual named executive officer’s responsibilities for and contributions toward these achievements.

 

As a result of its annual review, as detailed above, the compensation committee made decisions on the primary compensation components for the named executive officers. Such decisions are discussed below. Please also refer to the 2009 information that is presented in the accompanying tables and narratives. Certain decisions that were made in other periods are relevant to the compensation earned in 2009. These decisions are also discussed below.

 

 

The annual base salaries for the named executive officers for 2009 were set at the February 2009 compensation committee meeting. The 2009 base salary levels were the same as the 2008 levels, with the exception of Mr. Rakowich. For 2009, Mr. Rakowich’s salary was increased from $630,000 to $1,000,000, as provided in his employment agreement and consistent with his promotion to chief executive officer in November 2008. The compensation committee did not change the annual base salaries of the named executive officers for 2010. The compensation committee considered the overall compensation structure in setting the base salaries for 2009. Mr. Rakowich’s employment agreement is described in more detail in the narrative discussion that follows the Grants of Plan-Based Awards in Fiscal Year 2009 table.

 

 

The target cash bonus levels for which the named executive officers were eligible for 2009 were set at the February 2009 compensation committee meeting. The 2009 target cash bonus levels were the same as the 2008 levels, with the exception of Mr. Rakowich. Mr. Rakowich’s target cash bonus level for 2009 was increased from $840,000 to $2,000,000, as provided in his employment agreement and consistent with his promotion to chief executive officer. Mr. Rakowich’s employment agreement provides that he is eligible to earn between zero and two times his target cash bonus level. Mr. Rakowich’ s employment agreement is described in more detail in the narrative discussion that follows the Grants of Plan-Based Awards in Fiscal Year 2009 table.

 

The earned cash bonus awards for 2009 were based on the compensation committee’s evaluation of the performance of the company and each individual named executive officer with respect to the company and individual goals and objectives established for 2009, as well as the other factors discussed above, reflecting the levels of responsibility of each named executive officer with respect to meeting the company’s overall goals and objectives. Additionally, the compensation committee considered the overall compensation structure and the target levels previously established in determining the earned cash bonus awards. The earned cash bonuses for 2009, payable in February 2010, for the named executive officers were as follows:

 

 

The compensation committee chooses the mix of equity awards to appropriately support the company’s business strategy. Prior to 2008, the annual long-term equity awards to the named executive officers were in equal parts full value awards (restricted shared units (RSUs)), performance-based shares (generally contingent performance shares (CPSs)) and share options. However, the compensation committee changed the form of long-term equity awards when such awards were granted in February 2009 (for 2008) to reflect the change in our business strategy in late 2008 to focus on growth in cash flow and dividends per share. Share options were not granted as part of the annual long-term equity awards for 2008 because options are tied only to our share price appreciation. As a real estate investment trust, a significant portion of our total shareholder return is often provided in the form of dividends so share options do not fully align the interests of management with our shareholders. The annual equity awards granted to the named executive officers in 2009 (for 2008) were all performance based awards but, rather than granting CPSs, the committee granted

PSAs because PSAs incorporate both company and individual goals and objectives whereas CPSs are based solely on a relative total shareholder return goal (as discussed below).

 

The named executive officers were granted target PSAs in February 2009 (for 2008) that had a performance period that ended on December 31, 2009. At that time, in light of the then current economic conditions, Mr. Rakowich asked that he not receive an award, even though his employment agreement provided for an equity award with a value of $3,500,000.

 

After the performance period ended on December 31, 2009, the compensation committee determined the earned PSAs through a review and analysis of the achievements of the named executive officers with respect to the company and individual performance goals and objectives previously established for these awards, as discussed above, and reflecting the levels of responsibility of each named executive officer with respect to meeting the company’s overall goals and objectives. Additionally, the compensation committee considered the overall compensation structure and the target levels previously established in determining the earned PSAs which were:

 

 

Messrs. Antenucci, Sullivan, and Nekritz were vested in 34% of the earned PSAs and associated DEUs on December 31, 2009 and will vest in the remaining earned award in equal amounts on December 31, 2010 and 2011 provided that they remain in our employ. Once earned, the PSAs that are subject to only continued service requirements will earn cash dividends over the vesting period rather than DEUs.

 

The PSAs granted in February 2009 (for 2008) provided that a minimum of 50% could be earned. Therefore, this portion of the PSAs had essentially the same characteristics as RSUs. In making the awards for 2009 (granted in January and February 2010), the compensation committee chose a mix of 50% PSAs and 50% RSUs. This mix is essentially the same as the mix provided for 2008, but simplifies the administration of the awards. The named executive officers can earn between zero and 200% of the PSAs granted for 2009 based on a combination of company and individual performance goals and objectives for the performance period ending on December 31, 2010. The RSUs and earned PSAs will vest ratably over three years (first vesting date is January 28, 2011). The earned PSAs will earn DEUs during the performance period, which will only be paid if the underlying PSA is earned. RSUs and earned PSAs that are subject only to continued service requirements will earn cash dividends over the vesting period rather than DEUs.

 

The compensation committee believes that the annual equity awards for 2009 are commensurate with the individual named executive officer’s overall compensation structure and responsibilities and, for Mr. Antenucci, in accordance with the contractual obligations contained in his employment contract which provides for a minimum annual equity award valued at $1.2 million. Mr. Rakowich’s employment contract provides for an annual equity award valued at $7.5 million. However, in light of the economic environment in which the company continues to operate, Mr. Rakowich agreed to accept a grant for 2009 with a target value (based on our share price at the time the grant was made) of approximately $3 million. These employment agreements are described in more detail in the narrative discussion that follows the Grants of Plan-Based Awards in Fiscal Year 2009 table.

 

Additionally, in January 2010, the compensation committee reviewed the performance criteria of the CPSs granted in 2006 with a performance period that ended December 31, 2009. Each of the named executive officers, other than Mr. Sullivan, had an outstanding CPS award from 2006. For the performance period ended December 31, 2009, the company’s ranking yielded a zero payout of the original award. As such, the compensation committee cancelled the outstanding target CPS awards and accrued DEUs. The established performance criteria compared the company’s total shareholder return to the total shareholder return of the fifty largest (by market capitalization) equity real estate investment trusts listed on the National Association of Real Estate Investment Trusts’ published index as of the beginning of the performance period. For this purpose, total shareholder return includes the share price change plus cash dividends, with the assumption

that all dividends are immediately reinvested in our common shares (as calculated using data available in Bloomberg). As of December 31, 2009, the comparison group of companies were:

 

Alexandria Real Estate Equities, Inc., AMB Property Corporation, Apartment Investment and Management Company, Archstone-Smith Trust, AvalonBay Communities, Inc., Boston Properties, Inc., BRE Properties, Inc., Camden Property Trust, CBL & Associates Properties, Inc., Colonial Properties Trust, Cousins Properties Incorporated, Crescent Real Estate Equities Company, Developers Diversified Realty Corporation, Duke Realty Corporation, Equity Office Properties Trust, Equity Residential, Essex Property Trust, Inc., Federal Realty Investment Trust, First Industrial Realty Trust, Inc., General Growth Properties, Inc., HCP, Inc., Health Care REIT, Inc., Hospitality Properties Trust, Host Hotels & Resorts, Inc., HRPT Properties Trust, Kilroy Realty Corporation, Kimco Realty Corporation, LaSalle Hotel Properties, Liberty Property Trust, The Macerich Company, Mack-Cali Realty Corporation, The Mills Corporation, New Plan Excel Realty Trust, Inc., Pan Pacific Retail Properties, Inc., Pennsylvania Real Estate Investment Trust, Plum Creek Timber Company, Inc., ProLogis, Public Storage, Inc., Rayonier, Reckson Associates Realty Corp., Regency Centers Corporation, Simon Property Group, Inc., SL Green Realty Corp., Sovran Self Storage, Inc., Taubman Centers, Inc., Trizec Properties, Inc., UDR, Inc., Ventas, Inc., Vornado Realty Trust, and Weingarten Realty Investors.

 

Certain companies in the originally identified group of comparison companies no longer have publicly traded equity securities. For purposes of the return calculation, we used the actual performance of each of these companies up to the date that was sixty days prior to the first public announcement that such company would be involved in a transaction pursuant to which it would cease to have publicly traded equity securities and, from that date to the end of the performance period, we used the mean performance of the other companies remaining in the group. The companies for which this adjustment was necessary are: Archstone-Smith Trust, Crescent Real Estate Equities Company, Equity Office Properties Trust, General Growth Properties, Inc., The Mills Corporation, New Plan Excel Realty Trust Inc., Pan Pacific Retail Properties, Inc., Reckson Associates Realty Corp., and Trizec Properties, Inc.

 

 

Our overall strategic objectives for 2010 reflect our improved liquidity position and focus on our longer-term strategy of conservative growth through the ownership, management, and development of industrial properties with a concentrated focus on customer service. These objectives include: retaining development assets, monetization of our investment in land, and continued focus on staggering and extending our debt maturities. These strategic objectives are incorporated into the company and individual goals and objectives for the performance period associated with the target cash bonus for 2010 and the target PSAs awarded in 2010 (for 2009).

 

The compensation committee did not change the target cash bonus levels for the named executive officers for 2010. Target cash bonus levels are: Mr. Rakowich — $2,000,000; Mr. Antenucci — $870,000; Mr. Sullivan — $600,000; and Mr. Nekritz — $400,000. Mr. Rakowich’s employment agreement provides that he is eligible to earn between zero and two times his target cash bonus level. Mr. Antenucci’s employment agreement provides for a minimum cash bonus of 80% of the target cash bonus level. These employment agreements are described in more detail in the narrative discussion that follows the Grants of Plan-Based Awards in Fiscal Year 2009 table.

 

The compensation committee granted equity awards to the named executive officers for 2009 at its January and February 2010 meetings in the following amounts after considering the overall compensation structure and goals and objectives for 2010 (PSAs have a performance period ending on December 31, 2010):

 

 

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, 2009.

 

Management Development and Compensation Committee:

 

Andrea M. Zulberti (Chair)
Stephen L. Feinberg
Lawrence V. Jackson
William D. Zollars

 

 

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

 

** Mr. Rakowich was our president and chief operating officer until November 10, 2008, when he was appointed as our chief executive officer.

 

*** Mr. Sullivan was hired on March 26, 2007.

 

 

⁽¹⁾ The cash bonuses earned for a fiscal year are paid in the subsequent fiscal year, generally within the first two months (e.g., the bonuses earned for 2009 were paid in February 2010). The amounts presented in columns (c) and (d) include the amount, if any, of the named executive officer’s salary and cash bonus, respectively, for which payment was deferred at their election. The following table presents the amounts in columns (c) and (d) that each of the named executive officers deferred under the 401(k) Plan, the Nonqualifed Savings Plan (NSP), or other deferral arrangement in 2009, 2008 and 2007. See further discussion under “— Nonqualified Deferred Compensation in Fiscal Year 2009” below.

 

 

⁽²⁾ These amounts represent the value of equity awards granted in 2009 (for performance in 2008), 2008 (special awards associated with change in chief executive officer in November 2008), and 2007 (for performance in 2007). Information on how the awards are valued is included under “— Grants of Plan-Based Awards in Fiscal Year 2009” below and in the narrative discussion that follows that table. Prior to 2008, the equity awards were granted at the end of a particular year based on the performance for that year. The awards for 2008 were granted in February 2009 and the awards for 2009 were granted in January and February 2010 and, as such, are not included in this table.

 

⁽³⁾ The amounts in column (i) represent the other compensation amounts paid to each of the named executive officers in 2009, 2008, and 2007. These amounts include the following items:

 

 

(a) Periodically, we grant shares of stock in our subsidiaries to certain of our officers to enable the subsidiary to meet the ownership requirements for a real estate investment trust.

 

(b) Represents premiums paid for life insurance and accidental death and dismemberment insurance provided to the employees based on their salary level.

 

(c) Under Mr. Sullivan’s relocation agreement with us, a relocation firm employed by us purchased Mr. Sullivan’s home in Illinois directly from him for $1,987,500 in June 2008. The purchase price was the average of two independent appraisals of the home. The home is currently being marketed for resale at a price of $1,295,000. The amount included in column (c) for 2008 is our estimate of the closing costs and sales commissions that will ultimately be costs to us related to the transaction with our relocation firm. The actual cost to us may differ from this amount. In addition, we incurred $58,587 and $20,571 in 2009 and 2008, respectively, associated with the relocation firm’s ownership of the home, consisting primarily of insurance, utilities, property taxes, and maintenance. We do not consider these additional costs, or any future loss on the ultimate sale of the home, to be compensation to Mr. Sullivan and have not included such costs in the summary compensation table.

 

(d) This column represents the aggregate incremental costs of perquisites or personal benefits received by the named executive officer. An individual perquisite amount is presented if the aggregate amount for the individual is $10,000 or more. Perquisites presented for 2009 for Mr. Rakowich include personal legal expenses associated with negotiating his 2008 employment agreement (certain costs were not paid until 2009), home office telephone services, costs associated with annual health examination (including travel), and airline travel club memberships.

 

(4) Represents the grant date fair value of the target number of PSAs granted to Messrs. Antenucci, Sullivan, and Nekritz in 2009 — Mr. Antenucci 100,000 PSAs, Mr. Sullivan — 63,000 PSAs, and Mr. Nekritz — 31,500 PSAs. The value in column (e) is the value that is used for accounting purposes to expense the grant. This value is computed at the target level of PSAs each valued at $6.90, the closing price of our common shares on March 23, 2009, the day the performance goals were communicated to the named executive officers. Each named executive officer could earn between 50% and 150% of the number of PSAs granted. These grants were made in February 2009, in relation to performance in 2008. While Mr. Rakowich’s employment agreement provided for an equity award with a value of $3,500,000 for 2008, in light of then current economic conditions and other factors, in February 2009, Mr. Rakowich asked that he not receive an annual long-term equity award from the compensation committee for 2008. See “— Compensation Discussion and Analysis — 2009 Compensation Decisions.”

 

On December 31, 2009, based on the achievement of the company and individual performance goals and objectives associated with the PSAs granted in 2009, the compensation committee determined that such PSAs were earned as follows: Mr. Antenucci — 125,000 (125% of target), Mr. Sullivan — 94,500 (150% of target), and Mr. Nekritz — 47,250 (150% of target). The named executive officers were vested in 34% of these shares on December 31, 2009 and the remaining shares will vest in equal amounts on each of December 31, 2010 and 2011 should the executive be in our employ on each respective date. See “— Grants of Plan-Based Awards in Fiscal Year 2009” table and the narrative discussion that follows that table.

 

 

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

 

⁽¹⁾ Represents the annual awards for fiscal year 2008 that were granted in 2009. Annual awards for fiscal year 2009 were granted in January and February 2010 and are not included in this table. See “— Compensation Discussion and Analysis — 2009 Compensation Decisions.”

 

⁽²⁾ Represents PSAs granted to Messrs. Antenucci, Sullivan, and Nekritz in 2009. The target award in column (g) represents the base number of shares that could be earned. The amount in column (f) represents the minimum number of shares (50%) that the named executive officer could earn and the amount in column (h) represents the maximum number of shares (150%) that the named executive officer could earn. On December 31, 2009, based on the achievement of specific company and individual performance goals and objectives for each named executive officer in 2009, the compensation committee determined that such PSAs were earned as follows: Mr. Antenucci — 125,000, Mr. Sullivan — 94,500, and Mr. Nekritz — 47,250. The named executive officers were vested in 34% of the earned PSAs on December 31, 2009. The remaining earned PSAs are subject to a continued service requirement and will vest in equal amounts on each of December 31, 2010 and 2011. While Mr. Rakowich’s employment agreement provided for an equity award with a value of $3,500,000 for 2008, in light of then current economic conditions and other factors, in February 2009, Mr. Rakowich asked that he not receive an annual long-term equity award from the compensation committee for 2008. See “— Compensation Discussion and Analysis — 2009 Compensation Decisions.”

 

⁽³⁾ The value in column (l) represents the award in column (g) valued at $6.90 per share, which was the closing price of our common shares on March 23, 2009, the day the performance goals were communicated to the executives. The value in column (l) is the value that is used for accounting purposes to expense the grant. See additional discussion of PSAs under “— Compensation Discussion and Analysis” and in the narrative discussion that follows these footnotes.

 

Narrative Discussion to the Summary Compensation Table for Fiscal Year 2009 and the Grants of Plan-Based Awards in Fiscal Year 2009 Table.

 

 

We have employment agreements with Mr. Rakowich and Mr. Antenucci.

 

Mr. Rakowich’s Employment Agreement. Our original employment agreement with Mr. Rakowich was entered into in 2007. In February 2008, Mr. Rakowich announced his plan to retire as our president and chief operating officer effective January 1, 2009 and his agreement was amended at that time. However, upon the resignation of our previous chief executive officer, Mr. Rakowich reconsidered his plan to retire and was appointed our chief executive officer on November 10, 2008. To entice Mr. Rakowich to rescind his retirement and accept the position of chief executive officer, the board offered Mr. Rakowich substantially the same annual compensation package that had been included in the employment agreement with our previous chief executive officer with the primary difference being the type and value of long-term equity awards. Accordingly, we entered into an amended agreement with Mr. Rakowich which was substantially completed in December 2008. Certain provisions concerning the amount of Mr. Rakowich’s donations to the ProLogis Foundation in relation to the amount of his annual long-term equity awards were finalized in January 2009.

 

The current employment agreement with Mr. Rakowich is effective through December 31, 2011 and provides that he will:

 

 

With respect to 2008, the employment agreement provided for a guaranteed target cash bonus of $840,000, however, in light of the then current economic conditions, Mr. Rakowich agreed to receive a cash bonus of

$420,000 or 50% of the target level for 2008. In addition, the employment agreement provided that Mr. Rakowich was entitled to a grant of equity-based awards under the Plan for 2008 (to be granted in February 2009) having an aggregate value of at least $3,500,000. In light of the then current economic conditions and other factors, Mr. Rakowich asked that he not receive an annual long-term equity award from the compensation committee for 2008. The employment agreement also provided for the payment of certain professional fees incurred to negotiate the agreement.

 

The current employment agreement also sets forth the terms for the special grant of RSUs and share options with an aggregate fair value at issuance of $4,615,000 that Mr. Rakowich received in November 2008 upon appointment as our chief executive officer and provides for special vesting terms for certain awards. The special vesting terms generally allow for the continuation of original vesting terms for unvested share awards after Mr. Rakowich’s termination as if he had remained our employee until such time as all awards have vested.

 

Mr. Rakowich’s agreement provides for excise tax gross-up payments with respect to certain payments required under the agreement under certain circumstances and 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.” Additionally, the current employment agreement contains provisions with respect to recovery of amounts earned by Mr. Rakowich to the extent that the amount earned was based on satisfaction of goals and objectives that were impacted by any material financial statement restatements or modifications. Mr. Rakowich’s previous employment agreements with us provided for the granting of special equity-based awards to him and/or have modified certain vesting provisions of existing awards. Such awards and these modified terms are included in the applicable tables in this proxy statement and, as applicable, have been included in previous proxy statements.

 

Mr. Antenucci’s Employment Agreement. Mr. Antenucci’s employment agreement was amended and restated as of December 31, 2008, to comply with applicable federal tax law changes with respect to deferred compensation. The term of the employment agreement with Mr. Antenucci ends on December 31, 2012 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.

 

The employment agreement further provides that Mr. Antenucci will:

 

 

Additionally, Mr. Antenucci’s agreement provides for excise tax gross-up payments with respect to certain payments required under the agreement under certain circumstances and 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.” Mr. Antenucci’s previous employment agreements with us have provided for the granting of special equity-based awards to him. Such awards are included in the applicable tables in this proxy statement and, as applicable, have been included in previous proxy statements.

 

At December 31, 2009, our named executive officers had outstanding equity awards in the form of RSUs, PSAs, CPSs and share options. The general terms of these types of awards are as follows: