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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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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Notice of 2008

Annual Meeting

    and

Proxy Statement

 

 

March 27, 2008

 

 

4545 Airport Way

Denver, Colorado 80239

 

March 27, 2008

 

Dear Shareholder,

 

You are cordially invited to attend the annual meeting of shareholders of ProLogis, which will take place on May 9, 2008, 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,

 

/s/ Jeffrey H. Schwartz

Jeffrey H. Schwartz

Chairman of the Board and

Chief Executive Officer

 

TABLE OF CONTENTS

 

 

 

 

 

 

10:30 a.m., May 9, 2008

ProLogis World Headquarters

4545 Airport Way

Denver, Colorado 80239

 

March 27, 2008           

 

To our Shareholders:

 

The 2008 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 9, 2008, at 10:30 a.m. for the following purposes:

 

 

Shareholders of record at the close of business on March 13, 2008 are entitled to notice of, and to vote at, the meeting and any adjournments or postponements of the meeting.

 

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 2008 annual meeting of shareholders of ProLogis. Distribution of this proxy statement and a proxy card to shareholders is scheduled to begin on or about March 27, 2008.

 

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 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 by phone or via the Internet, by providing new instructions by the same means.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be Held on May 9, 2008

 

This proxy statement, form of proxy, and our 2007 annual report are available at http://ir.prologis.com.

 

 

 

Nominees:  At the annual meeting you will be asked to elect ten trustees to the board of trustees. The trustees will be elected to one-year terms and will hold office until the 2009 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 2008.

 

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 2008 annual meeting, all ten trustee nominees are standing to be elected to hold office until the 2009 annual meeting and until their successors are elected and qualify. The ten nominees for election at the 2008 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 http://ir.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, Jackson, Jacobs, Steuert, Teixeira, Zollars, and Zulberti 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 and that all members of the audit committee are financially literate.

 

Lead 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 was trustee Brooksher until February 22, 2008, when the trustees named trustee Feinberg as lead trustee to chair these executive sessions.

 

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 on a fee basis to identify

candidates for the board (as was the case for Mr. Jackson in connection with his appointment to the board in March 2008) 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, together with any future changes, on our website at http://ir.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 thirteen trustees, nine of whom are independent under the requirements of the NYSE listing rules. All of our current trustees, other than K. Dane Brooksher, Walter C. Rakowich, and Nelson C. Rising, are standing for re-election at the 2008 annual meeting of shareholders, The board held eleven meetings in 2007 and 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 eight meetings of this committee in 2007 and its 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. 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 six meetings of this committee in 2007.

 

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 three meetings of this committee in 2007. The 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. 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 officer’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 four meetings of this committee in 2007 and its report appears under “Compensation Matters — Compensation Committee Report.” 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. 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, 2007, 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, 2007, between any member of the board or the compensation committee and an executive officer of the company.

 

 

•  Common Shares Beneficially Owned

 

The following table shows the number of our common shares beneficially owned, as of March 13, 2008 (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 Barclays Global Investors, NA and certain related entities is included herein based on a Schedule 13G filed with the SEC on February 6, 2008 relating to such shares beneficially owned as of December 31, 2007. Such report provides that: (i) Barclays Global Investors, NA has sole voting power with respect to 12,037,324 of such common shares and sole dispositive power with respect to 14,892,186 of such common shares; (ii) Barclays Global Fund Advisors has sole voting and dispositive power with respect to 6,356,453 of such common shares; (iii) Barclays Global Investors, Ltd has sole voting power with respect to 1,910,970 of such common shares and sole dispositive power with respect to 2,126,500 of such common shares; (iv) Barclays Global Investors Canada Limited has sole voting and dispositive power with respect to 220,887 of such common shares; and (v) Barclays Global Investors Japan Limited has sole voting and dispositive power with respect to 785,132 of such common shares. Such entities 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.

 

⁽²⁾ 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 12, 2008 relating to such shares beneficially owned as of December 31, 2007. The Vanguard Group, Inc. has sole power to vote or to direct the vote with respect to 259,955 of the common shares reported and has sole dispositive power with respect to all of the common shares reported. The Schedule 13G/A also provides that Vanguard Fiduciary Trust Company (VFTC), a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 36,660 of our common shares as a result of its serving as investment manager of collective trust accounts and VFTC directs the voting of such shares. 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.

 

The following table shows the number of our common shares beneficially owned, as of March 13, 2008, by: (i) our chief executive officer; (ii) our chief financial officer; (iii) our other executive officers (other than Ms. Bokides, who resigned as our chief financial officer effective March 31, 2007) who are included in the Summary Compensation Table For Fiscal Year 2007 under “Compensation Matters — Summary Compensation Table For Fiscal Year 2007” (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 the exercise of vested, non-voting options to purchase our common shares. 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 named executive officer or the trustee, as these awards cannot be distributed within 60 days. The total number of vested, non-voting equity awards or other common shares not included for each named executive officer and trustee is:

 

⁽⁴⁾ Mr. Schwartz has pledged 128,263 of the common shares beneficially owned by him as of March 13, 2008 as security.

 

⁽⁵⁾ The percent is less than 1% of the total common shares outstanding as of March 13, 2008.

 

⁽⁶⁾ The common shares beneficially owned by Mr. Rakowich as of March 13, 2008 include: (i) 54,012 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; (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.

 

⁽⁷⁾ The common shares beneficially owned by Mr. Brooksher as of March 13, 2008 include 366,451 common shares held in four trusts. Mr. Brooksher is trustee for three of the trusts, and he shares trustee responsibilities with his wife for the other.

 

⁽⁸⁾ The common shares beneficially owned by Mr. Feinberg as of March 13, 2008 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 162,760 of the common shares beneficially owned by him as security.

 

⁽⁹⁾ The common shares beneficially owned by Mr. Rising as of March 13, 2008 include 2,912 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 Mr. Schwartz was an owner and principal officer. These transactions were negotiated at arm’s length before he became affiliated with us. As a result of these transactions, Mr. Schwartz, through entities in which he has an ownership interest or individually, acquired an ownership interest and became a limited partner in certain of our limited partnerships that were formed to own the real estate assets of such portfolios.

 

Mr. Schwartz had direct ownership interests in ProLogis Limited Partnership-III and ProLogis Limited Partnership-IV of 5.01% and 1.02%, respectively, until June 8, 2007, at which time he exchanged all such interests for 78,677 of our common shares, and 49,586 of our common shares, respectively.

 

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 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:

 

 

 

 

 

This Compensation Discussion and Analysis explains the material elements of the 2007 and 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 2007 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 cash bonuses are ultimately determined by the compensation committee based on its judgment of a variety of relevant factors as described below in “— How Executive Pay Levels are Determined.”

 

Equity Awards.  Share options and other equity awards are normally awarded 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 when performance factors for the year are typically known. In connection with the hiring of new executive officers, we may grant equity awards at other times in the year in order to attract the executive to the company. In addition, we occasionally issue equity awards earlier in the year in order to reward individual performance or to retain the services of an executive. Equity awards are also generally targeted at mid-market levels for similarly situated executives, as confirmed by our independent compensation consultant, however, the actual equity awards are ultimately determined by the compensation committee based on its judgment of a variety of relevant factors as described below in “— How Executive Pay Levels are Determined.” The allocation of equity incentive compensation between share options, restricted share units, and contingent performance shares 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.

 

 

 

¹ As of December 31, 2007, the following companies comprised this group: Apartment Investment and Management Company, Alexandria Real Estate Equities, Inc., AMB Property Corporation, 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, 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. The following companies no longer have publicly traded equity securities and, for purposes of the return calculation, assume the mean performance of the other companies in this group as of the date, with respect to each such company, 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: Trizec Properties, Inc., Pan Pacific Retail Properties, Inc., Reckson Associates Realty Corp., Equity Office Properties Trust, The Mills Corporation, New Plan Excel Realty Trust, Inc., Crescent Real Estate Equities Company, and Archstone-Smith Trust.

 

Other types of executive officer compensation and related arrangements consist of:

 

 

 

 

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 compensation payable to our executive officers, the compensation committee subjectively evaluated all factors that it deemed material to the determination and relied on its judgment to determine the amount and mix of compensation that it believed appropriate in light of such evaluation and the company’s compensation philosophy. The material factors considered, as described in more detail below, included company financial and operating performance, individual performance, the compensation practices of certain comparison companies, the competitive review of our compensation program for our executive officers prepared by the committee’s compensation consultant, and our chief executive officer’s recommendations concerning compensation (excluding his own compensation). Furthermore, the compensation committee considered the amount and mix of compensation payable to the company’s other executives when it determined appropriate compensation for a specific individual. These factors were considered as a whole without specific weighting of individual factors. The compensation committee did not rely on the achievement of specific performance targets or on formulas (other than for CPS award payouts) in determining compensation, although the committee: (i) considered mid-market compensation levels for similarly situated executives as a frame of reference for its analysis; (ii) generally believes that base salaries should be paid at mid-market levels; and (iii) 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 identity of long-term interests between executive officers and shareholders. In addition, some elements of Mr. Antenucci’s and Mr. Rakowich’s compensation were affected by the terms of their respective employment agreements. Mr. Schwartz’s compensation in 2007 and 2006 was not affected by the terms of his new employment agreement entered into on March 14, 2008.

 

For executive officers overall, salaries are paid at mid-market levels for similarly situated executives in accordance with our philosophy of attracting and retaining competent executives (as confirmed by the committee’s independent compensation consultant), and cash bonuses and equity awards are generally targeted at mid-market levels (as confirmed by the committee’s independent compensation consultant). However, individual salaries, actual cash bonuses and equity awards are determined by the compensation committee based on its judgment of the various relevant performance and other factors described in the paragraph above consistent with our variable pay-for-performance (both individual and company) philosophy. In general, cash bonuses in 2007 and 2006 were at or above mid-market levels and equity awards made in 2007 and 2006 were above mid-market levels for similarly situated executives at the comparison group companies as a result of the committee’s judgment of such factors and 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.

 

Individual performance factors reviewed and assessed by the compensation committee included the following:

 

 

Significant financial and operating achievements considered by the compensation committee in 2007 included:

 

 

 

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

 

 

The compensation committee retained the independent compensation consultant Frederic W. Cook & Co., Inc. to assist the committee in assessing our compensation programs for our executive officers, including the named executive 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 with the group of companies used by the compensation committee in setting compensation awards and policies. The 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 Residential, Host Hotels & Resorts Inc., Kimco Realty Corporation, The Macerich Company, Plum Creek Timber Company, Inc., Simon Property Group, Inc., and Vornado Realty Trust. With respect to some of our named executive officers, other than our chief executive officer and our chief financial officer, compensation data for directly comparable executives at such comparison

group companies was not always publicly available and the comparative data provided by the compensation consultant for such other officers constituted the best available comparative data in the judgment of the committee. The comparisons and related reports prepared by the compensation consultant constituted a portion of the factors evaluated by the committee but were not solely determinative of any compensation decisions. The committee does not specifically target any compensation amounts payable to our named executive officers to the compensation practices of the comparison group companies, except, in general, for salary. The compensation consultant comparisons and related reports provided the committee with the competitive information for similarly situated executives at the comparison group companies that the committee used as a frame of reference for its analysis as well as the salary data that the committee considered in determining salary levels.

 

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). Our chief executive officer attended the meetings of the compensation committee at which compensation matters (excluding his own compensation) were discussed. He also reviewed the report prepared by the independent compensation consultant retained by the committee and had the ability to discuss such report with both the consultant and the committee. Our chief executive officer’s compensation recommendations and performance opinions were among the factors considered by the committee in determining the amount and mix of compensation but were not solely determinative of any compensation decisions.

 

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, reasonable and competitive and consistent with our compensation philosophy. 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, 2007, as amended.

 

Management Development and Compensation Committee:

 

Donald P. Jacobs (Chair)

Stephen L. Feinberg

William D. Zollars

Andrea M. Zulberti

 

 

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

 

** Mr. Sullivan became our chief financial officer on March 31, 2007. 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 a fiscal year are paid in January of the subsequent fiscal year (i.e., the bonuses earned in 2007 were paid in January 2008). The amounts presented in columns (c) and (d) include the amount, if any, of the named executive officer’s salary and bonus, respectively, for which payment was deferred at their election. The following table represents the amounts in columns (c) and (d) that each of the named executive officers deferred under the 401(k) Plan, the NSP, or other deferral arrangement in 2007 and 2006. See further discussion under “— Nonqualified Deferred Compensation for Fiscal Year 2007” below.

 

 

⁽²⁾ The amounts in column (e) represent the compensation expense that we recognized in 2007 and 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 a Monte Carlo pricing model described in the narrative discussion that follows the next table. 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. The table below indicates the total compensation expense that was recognized by us for each named executive officer in 2007 and 2006 and the underlying share awards that are being expensed in each year (share awards are generally expensed over the vesting period).

 

 

(a) The value of Ms. Bokides’s PSAs, CPSs, and RSUs, for which vesting was accelerated under her resignation agreement, is the closing price of our common shares as of the date the award vested, which was $65.57 per share. The terms of the agreement with Ms. Bokides that provided for the accelerated vesting are described below under “— Potential Payments upon Termination of Change in Control.”

 

⁽³⁾ The amounts in column (f) represent the compensation expense that we recognized in 2007 and 2006 associated with each of the named executive officer’s outstanding options to purchase our common shares. We value share options using the Black-Scholes pricing model described in the narrative discussion that follows the next table.

 

 

(a) The value of Ms. Bokides’s share options, for which vesting was accelerated under her resignation agreement, is determined as the difference between the closing price of our common shares as of the date the option vested, which was $65.57 per share, and the exercise prices of the options, which ranged from $43.57 to $59.92 per share. The terms of the agreement with Ms. Bokides that provided for the accelerated vesting are described below under “— Potential Payments upon Termination of Change in Control.”

 

 

(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) Other includes the following:

 

 

In addition, we incurred costs of $132,869 in 2007 associated with the relocation firms’ ownership of the home, primarily utilities, interest, maintenance, and insurance. The home was sold in November 2007 for $2,520,000. We do not consider the difference between the purchase price and the sale price or these additional costs to be compensation to Mr. Schwartz and have not included such costs in the Summary Compensation Table for Fiscal Year 2007.

 

 

Mr. Antenucci: Amount for 2006 includes: (i) an employer matching contribution under Mr. Antenucci’s non-qualified compensation plans of $68,843 which are described below under “— Nonqualified Deferred Compensation for Fiscal Year 2007” and (ii) 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.

 

 

Ms. Bokides: Amount for 2006 — Under Ms. Bokides’s relocation agreement with us, a relocation firm employed by us purchased Ms. Bokides’s residence in Connecticut directly from her for $5,000,000 in September 2006 and marketed the home for resale. The purchase price was the average value of two independent appraisals of the home. The $357,015 amount is our estimate of the closing costs, sales commissions and transfer taxes that will ultimately be costs to us related to the transaction with our relocation firm. The actual cost to us may differ from this estimate.

 

In addition, we incurred costs of $189,365 in 2007 and $44,262 in 2006 associated with the relocation firm’s ownership of the home, primarily interest, utilities, security, maintenance, and insurance, and we bear the market risk associated with the sale of the home. We do not consider these additional costs to be compensation to Ms. Bokides and have not included such costs in the Summary Compensation Table for Fiscal Year 2007.

 

(c) 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 of the perquisites for the individual is $10,000 or more.

 

 

 

 

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

 

** Mr. Sullivan became our chief financial officer on March 31, 2007. 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 2007 annual equity compensation award. The value in column (l) represents the target payout in column (g) valued at $71.48 per share, which is based on a Monte Carlo pricing model. See additional discussion of CPSs under “— Compensation Discussion and Analysis” and in the narrative discussion that follows these footnotes. Also, with respect to Mr. Rakowich, see the narrative discussion following these footnotes for more information on his employment agreement and the terms of his equity compensation awards.

 

⁽²⁾ Represents RSUs that were granted as part of the named executive officer’s 2007 annual equity compensation award. The value in column (l) represents the award in column (i) valued at $60.60 per share, which was the closing price of our common shares on the date of grant. See additional discussion of RSUs under “— Compensation Discussion and Analysis” and in the narrative discussion that follows these footnotes. Also, with respect to Mr. Rakowich, see the narrative discussion following these footnotes for more information on his employment agreement and the terms of his equity compensation awards.

 

⁽³⁾ Represents options to purchase our common shares that were granted as part of the named executive officer’s 2007 annual equity compensation award. The value in column (l) represents the award in column (j) valued at $11.41 per share, which is based on the Black-Scholes pricing model. See additional discussion of share options under “— Compensation Discussion and Analysis” and in the narrative discussion that follows these footnotes. Also, with respect to Mr. Rakowich, see the narrative discussion following these footnotes for more information on his employment agreement and the terms of his equity compensation awards.

 

⁽⁴⁾ Mr. Rakowich was granted 4,933 RSUs on February 21, 2007. On each of February 21, 2008, 2009, 2010, and 2011, Mr. Rakowich will vest in 25% of these RSUs that are shown in column (i). The RSUs accrue DEUs over the vesting period, which will vest under the same criteria as the underlying RSUs. The value in column (l) is based on the closing price of our common shares on the date of grant of $70.95 per share. See additional discussion of RSUs under “— Compensation Discussion and Analysis” and in the narrative discussion that follows these footnotes. Also, with respect to Mr. Rakowich, see the narrative discussion following these footnotes for more information on his employment agreement and the terms of his equity compensation awards.

 

⁽⁵⁾ Mr. Rakowich was granted 100,000 RSUs under the terms of his employment agreement with us, dated as of September 19, 2007 and amended and restated on February 6, 2008. The RSUs shown in column (i) will vest as follows: 25,000 on December 31, 2008 and 37,500 on each of December 31, 2009 and 2010. The RSUs accrue DEUs over the vesting period which will vest under the same criteria as the underlying RSUs. The value in column (l) is based on the closing price of our common shares on the date of grant of

$66.43 per share. See additional discussion of RSUs under “— Compensation Discussion and Analysis” and in the narrative discussion that follows these footnotes. Also, with respect to Mr. Rakowich, see the narrative discussion following these footnotes for more information on his employment agreement and the terms of his equity compensation awards.

 

⁽⁶⁾ Mr. Antenucci was granted 100,000 RSUs under the terms of the first amendment to his amended and restated employment agreement with us, dated as of September 19, 2007. The RSUs shown in column (i) will vest on December 31, 2012, provided that he is in our employ as of that date. The RSUs accrue DEUs over the vesting period, which will vest under the same criteria as the underlying RSUs. The value in column (l) is based on the closing price of our common shares on the date of grant of $66.43 per share. See additional discussion of RSUs under “— Compensation Discussion and Analysis” and in the narrative discussion that follows these footnotes. Also, see the narrative discussion following these footnotes for more information Mr. Antenucci’s employment agreement.

 

⁽⁷⁾ Mr. Sullivan was granted 18,512 RSUs on May 15, 2007, in conjunction with his becoming our chief financial officer. On each of May 15, 2008, 2009, 2010, and 2011, Mr. Sullivan will vest in 25% of these RSUs that are shown in column (i), provided that he is in our employ on each date. The RSUs accrue DEUs over the vesting period which will vest under the same criteria as the underlying RSUs. The value in column (l) is based on the closing price of our common shares on the date of grant of $64.82 per share. See additional discussion of RSUs under “— Compensation Discussion and Analysis” and in the narrative discussion that follows these footnotes.

 

⁽⁸⁾ Ms. Bokides resigned as our chief financial officer effective March 31, 2007. Consequently, she was not granted any equity compensation in 2007. 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 2007 and the Grants of Plan-Based Awards for Fiscal Year 2007 Table.

 

 

The compensation packages for the named executive officers include both cash and equity components. The equity component for 2007 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.

 

 

Share Options. Options to purchase our common shares are valued using the Black-Scholes model.

 

2007 Awards: The options issued to our named executive officers in December 2007 have a fair value of $11.41 per share. The assumptions used in the Black-Scholes model to determine this fair value were: a risk-free interest rate of 3.77%, a dividend yield of 3.44%, a volatility rate of 23.45%, and a weighted average option life of 5.8 years.

 

2006 Awards: The options issued to our named executive officers in December 2006 have a fair value of $10.42 per share. The assumptions used in the Black-Scholes model to determine this fair value were: 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.

 

Compensation Expense: The expense in 2007 is associated with options held by our named executive officers that were granted in 2003, 2004, 2005, and 2006. The expense in 2006 is associated with options held by our named executive officers that were granted in 2002, 2003, 2004, and 2005. The fair values and the assumptions used in the Black-Scholes model to determine the fair values for each of these years were as follows (assumptions for 2006 are noted above):

 

 

 

Contingent Performance Shares. CPSs are valued using a Monte Carlo pricing model. Under this model, historical common share prices for us and fifty other real estate investment trusts over a three-year look back period that matches the vesting period of the award 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.

 

2007 Awards: The CPSs issued to our named executive officers in December 2007 have a fair value of $71.48 per share. This fair value is based on the closing price of our common shares on the date of grant of $60.60 adjusted by a factor of 1.1796. These awards have a performance period ending on December 31, 2010. Assumptions used to generate this factor include a risk-free interest rate of 3.35% and a look back period ending in December 2007.

 

2006 Awards: The CPSs issued to our named executive officers in December 2006 have a fair value of $67.71 per share. This fair value is based on the closing price of our common shares on the date of grant of $59.92 adjusted by a factor of 1.13. These awards have a performance period ending on December 31, 2009. Assumptions used to generate this factor include a risk-free interest rate of 4.64% and a look back period ending in December 2006. Additionally, 50,000 CPSs were granted to Mr. Antenucci in May 2006. Of these awards, 25,000 have a performance period ending on December 31, 2009 (fair value of $56.05 per share based on the closing price of our common shares on the date of grant of $49.60 adjusted by a factor of 1.13) and 25,000 have a performance period ending on December 31, 2010 (fair value of $57.49 per share based on the closing price of our common shares on the date of grant of $49.60 adjusted by a factor of 1.159). Assumptions used to generate the 1.13 factor include a risk-free interest rate of 5.10% and a look back period ending in November 2005. Assumptions used to generate the 1.159 factor include a risk-free interest rate of 5.10% and a look back period ending in April 2006.

 

Compensation Expense: The expense in 2007 is associated with CPSs held by our named executive officers that were awarded in 2005 and 2006. The expense in 2006 is associated with CPSs held by our named executive officers that were awarded in December 2005 and in May 2006 discussed above. The CPSs issued to our named executive officers in December 2005 have a fair value of $52.77 per share. This fair value is based on the closing price of our common shares on the date of grant of $46.70 adjusted by a factor of 1.13. Assumptions used to generate this factor are noted above.

 

Restricted Share Units and Performance Share Awards. RSUs and PSAs are valued based on the market price of our common shares on the date the awards are granted. The market price represents either the closing price or the average of the high and low trading prices, depending on the date of grant. All RSUs granted in 2007 are valued based on the closing price. No PSAs were granted in 2007.

 

 

We have employment agreements with Mr. Antenucci, Mr. Rakowich, and Mr. Schwartz. Our employment agreement with Mr. Antenucci was entered into on June 5, 2005 and was amended and restated on May 26, 2006. A first amendment to the amended and restated employment agreement was entered into on September 19, 2007. Our employment agreement with Mr. Rakowich was entered into on September 19, 2007 and was amended and restated on February 6, 2008. Our employment agreement with Mr. Schwartz was entered into on March 14, 2008, and is effective as of January 1, 2008.

Mr. Antenucci’s Employment Agreement. 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 provides that Mr. Antenucci will be our President and Chief Investment Officer. Previously, Mr. Antenucci was our President of Global Development and, before joining us, Mr. Antenucci was the president of Catellus, which we merged with in September 2005.

 

The employment agreement provides that Mr. Antenucci will:

 

 

Mr. Antenucci’s agreements have provided for the following grants of equity-based awards:

 

 

Mr. Antenucci’s agreement also 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.”

 

Mr. Rakowich’s Employment Agreement. The term of the amended and restated employment agreement with Mr. Rakowich ends on January 1, 2009 and Mr. Rakowich has announced that he plans to retire as of that date. The employment agreement provides that Mr. Rakowich will continue as our President and Chief Operating Officer through January 1, 2009.

The employment agreement provides that Mr. Rakowich will:

 

 

Under the original agreement, Mr. Rakowich was granted 100,000 RSUs on September 19, 2007, which originally were to vest in equal amounts over a four-year period. However, the amended and restated agreement provides for vesting of 25,000 of the RSUs on December 31, 2008 and 37,500 of the RSUs on each of December 31, 2009 and 2010.

 

Mr. Rakowich’s agreement also provides for accelerated vesting of unvested and unearned 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.” Further, the employment agreement provides that all unvested share awards as of the date of Mr. Rakowich’s retirement after January 1, 2009 will continue to vest in accordance with the original terms of the share award as if Mr. Rakowich had remained our employee until such time as all awards have vested. As applicable, upon his retirement after January 1, 2009 all of Mr. Rakowich’s share awards shall be amended to include an expiration date equal to the ten-year anniversary of the date of grant.

 

Mr. Schwartz’s Employment Agreement. On March 14, 2008, we entered into an employment agreement with Mr. Schwartz that was approved by our outside trustees. The agreement is effective as of January 1, 2008. The term of the employment agreement ends on December 31, 2012. The employment agreement provides for Mr. Schwartz’s continued employment as our Chief Executive Officer. The agreement positions his targeted total compensation in the top quartile of the comparison companies described above under “— How Executive Pay Levels are Determined,” but is structured so that top quartile realized or delivered compensation will only result if there are commensurately high total shareholder returns. There are also limitations on the total amount of compensation that could be deliverable under the agreement and post-employment restrictive covenants to protect shareholders.

 

The employment agreement provides that Mr. Schwartz will:

 

 

In addition, the agreement provides for two retention awards of contingent performance units under our 2006 Long-Term Incentive Plan, which may be earned over the performance period beginning March 14, 2008 and ending December 31, 2012. The company’s performance is measured by the company’s Total Shareholder Return (TSR) during the performance period. TSR is defined in the agreement as the compound annualized internal rate of return on a constant holding of our common shares during the performance period based on the sum of all

dividends paid to shareholders during the performance period as if reinvested in additional shares on the dividend payment date and the increase or decrease in the average closing share prices on the 20 trading days immediately preceding the end of the performance period above or below the closing share price at the commencement of the performance period. The awards are as follows:

 

 

Two types of dividend equivalents accrue with respect to the second contingent performance unit award:

 

 

Earned contingent performance unit awards, and the related dividend equivalents on the 100,000 unit award, are payable as shares after the units are vested. Mr. Schwartz will vest in the earned units on December 31, 2012, if he is in our employ on that date.

 

The agreement provides that, in order to safeguard shareholders against the payment of potentially excessive compensation to Mr. Schwartz in relation to the shareholder value created, the amount of realized or delivered total compensation to be payable to Mr. Schwartz attributable to the agreement (including salary, bonus, option profits, all other earned and vested equity-based awards, and severance payments, as described below, if any) is intended not to exceed $175 million in the aggregate. This amount was chosen because in order to generate such payments based on the total compensation structure provided by the agreement, the TSR would have to exceed 20%.

 

If the amount of compensation payable to Mr. Schwartz otherwise would exceed $175 million, as determined on December 31, 2012 or his earlier termination date, then the amount of the retention awards in the form of contingent performance units described above shall be reduced, with such reduction first being made from the 100,000 unit award, and then to the extent necessary, from the 200,000 unit award. If the total compensation still exceeds $175 million, vested option awards granted under the agreement will be cancelled to the extent necessary to reduce total compensation to $175 million. If the total amount of compensation still exceeds $175 million after elimination of the retention awards and cancellation of all vested option awards, no further action will be taken to reduce Mr. Schwartz’s total compensation. In addition, if we are required to materially restate or otherwise modify our financial statements, and compensation previously paid to Mr. Schwartz in satisfaction of the achievement of performance goals was based on our financial statements prior to restatement, then Mr. Schwartz will be required to return any such compensation that was previously paid to him that exceeds the amount he would have received based on the restated financial statements.

 

The agreement includes a non-competition covenant that will generally apply during Mr. Schwartz’s employment and for a period of one year following the termination of Mr. Schwartz’s employment for any reason other than constructive discharge or involuntary termination without cause. The agreement also includes a non-

solicitation covenant that will generally apply during Mr. Schwartz’s employment and for a period of one year following the termination of Mr. Schwartz’s employment for any reason.

 

The agreement supersedes and replaces all prior and contemporaneous agreements between us and Mr. Schwartz that relate to the same subject matter, including the executive protection agreement, dated as of March 15, 2005, and the confidentiality and noncompetition agreement, dated as of September 8, 1997.

 

Mr. Schwartz’s agreement is further described under “— Potential Payments upon Termination or Change in Control.”

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (DECEMBER 31, 2007)*