Filed Pursuant to Rule 424(b)(3)
Registration No. 333-132616
A filing fee of $38,375, calculated in accordance with Rule 457(r),
has been transmitted to the SEC in connection with the securities offered from
the Registration Statement (File No. 333-132616) by means of this prospectus supplement.

 

PROSPECTUS SUPPLEMENT

(to Prospectus dated August 21, 2006)

 

$1,250,000,000

 

 

2.25% Convertible Senior Notes due 2037

and Common Shares of Beneficial Interest

 

ProLogis issued a total of $1,250,000,000 aggregate principal amount of its 2.25% Convertible Senior Notes due 2037 in a private placement in March 2007.

 

The notes bear interest at a rate of 2.25% per year. Interest on the notes is payable on April 1 and October 1 of each year, beginning on October 1, 2007.

 

Holders may at their option convert their notes into ProLogis common shares on any day prior to the close of business on the trading day immediately preceding the final maturity date of the notes only under the following circumstances: (1) during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per note for each day of that measurement period was less than 98% of the product of the last reported sale price per ProLogis common share and the conversion rate on each such day; (2) during any calendar quarter beginning after March 31,2007 if the closing sale price per ProLogis common share for at least 20 trading days in the 30 consecutive trading days ending on the last day of the preceding calendar quarter is more than 130% of the conversion price per ProLogis common share on the last day of such preceding calendar quarter; (3) if we have called such notes for redemption, at any time prior to the close of business on the day that is two business days prior to the redemption date; (4) upon the occurrence of specified corporate events; (5) if ProLogis’ common shares are not listed on a U.S. national securities exchange; or (6) at any time on or after February 1, 2012.

 

The initial conversion rate is 13.0576 ProLogis common shares per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $76.58 per ProLogis common share). The conversion price will be subject to adjustment in some events but will not be adjusted for accrued interest. In addition, if a “fundamental change” (as defined herein) occurs on or prior to April 5, 2012, we will increase the conversion rate for a holder that elects to convert its notes in connection with such fundamental change.

 

Upon the occurrence of any of the circumstances described above, holders may convert any outstanding notes into cash, ProLogis common shares or a combination of cash and ProLogis common shares, at our election. We will inform you through the trustee of the method we will choose to satisfy our conversion obligations within two trading days after our receipt of your conversion notice; provided, however, that at any time on or prior to February 1, 2012, we may irrevocably elect, in our sole discretion without the consent of the holders of the notes, to settle all of our future conversion obligations entirely in ProLogis common shares, and, provided further, that we are required to settle all conversions with a conversion date occurring on or after February 1,2012 in the same manner, and we will notify holders of the manner of settlement on or before such date. If we do not elect otherwise, we shall satisfy our conversion obligations pursuant to a net share settlement method as described in this prospectus supplement.

 

On or after April 5, 2012, we may at our option redeem all or part of the notes for cash, provided that, subject to our rights under the next sentence, we must make at least 10 semi-annual interest payments (including the interest payments on October 1, 2007 and April 1, 2012) in the full amount required by the indenture before redeeming any notes at our option. We may also redeem all of the notes at any time prior to maturity to the extent necessary to preserve ProLogis’ status as a real estate investment trust. Holders may require us to repurchase the notes for cash in full on April 1 of 2012, 2017, 2022, 2027 and 2032 and at any time prior to their maturity upon a fundamental change, in each case at a price equal to 100% of the principal amount of the notes being repurchased plus any accrued and unpaid interest up to, but excluding, the repurchase date.

 

The notes are our senior obligations which, together with our obligations under our global credit facility and certain of our other indebtedness, are secured by a pledge of certain intercompany loans. The notes are effectively subordinated to any of our debt that is secured by assets, other than the pledged intercompany loans, to the extent of the value of the assets securing such debt. In addition, except to the extent the notes become entitled to the benefits of the sharing agreements described in this prospectus supplement under “Description of Debt Securities — Security and Sharing Arrangements”, the notes are effectively subordinated to the debt and other liabilities, including trade payables, of our subsidiaries.

 

The notes will not be listed on any securities exchange or quoted on any automated quotation system. Currently, there is no public market for the notes.

 

The ProLogis common shares are listed on the New York Stock Exchange under the symbol “PLD”. On July 10, 2007 the last reported sale price of ProLogis common shares on the New York Stock Exchange was $57.44 per share.

 

The selling securityholders identified in this prospectus supplement may offer from time to time up to $1,250,000,000 aggregate principal amount of the notes and any ProLogis common shares issuable upon conversion of the notes. The notes and the ProLogis common shares may be offered in market transactions, in negotiated transactions or otherwise, and at prices and on terms which will be determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. See “Plan of Distribution” on page 53 for additional information on the methods of sale.

 

Investing in these securities involves risks. See “Risk Factors” beginning on page 5 for risks relating to an investment in our securities and beginning on page 16 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, which is incorporated herein by reference, for risks relating to our business.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

 

July 11, 2007

 

You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not, and the selling securityholders have not, authorized anyone to provide you with different information. We are not, and the selling securityholders are not, making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the front of this prospectus supplement. Our business, financial condition, results of operations and prospects may have changed since that date.

 

TABLE OF CONTENTS

 

 

References to “we,” “us,” and “our” in this prospectus supplement and the accompanying prospectus are to ProLogis and its consolidated subsidiaries, unless the context otherwise requires.

 

SUMMARY

Securities Offered		$1,250,000,000 principal amount of 2.25% convertible senior notes due 2037.
Maturity Date		April 1, 2037, unless earlier repurchased, converted or redeemed.
Interest		2.25% per year. Interest will be payable semiannually in arrears in cash on April 1 and October 1 of each year, beginning October 1, 2007.
Optional Redemption		Prior to April 5, 2012, we may not redeem the notes except to preserve our status as a real estate investment trust or “REIT” as described below. On or after April 5, 2012, we may at our option redeem all or part of the notes for cash at a price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest. We must make at least 10 semiannual interest payments (including the interest payment on October 1, 2007 and April 1, 2012) in the full amount required by the indenture before redeeming any notes at our option.
		If at any time we determine it is necessary to redeem the notes in order to preserve our status as a REIT, we may redeem all, but not less than all, of the notes then outstanding for cash at a price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, to the redemption date.
Conversion Rights		Holders may convert their notes prior to the close of business on the trading day immediately preceding the final maturity date of the notes, in multiples of $1,000 principal amount, at the option of the holder under the following circumstances:
		• during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per note for each day of such measurement period was less than 98% of the product of the last reported sale price per ProLogis common share and the conversion rate on each such day;
		• during any calendar quarter beginning after March 31, 2007, if the closing sale price per ProLogis common share for at least 20 trading days in the 30 consecutive trading days ending on the last day of the preceding calendar quarter is more than 130% of the conversion price per ProLogis common share on the last day of such preceding calendar quarter;
		• if we have called such notes for redemption, at any time prior to the close of business on the day that is two days prior to the redemption date;
		• upon the occurrence of specified corporate transactions described under “Description of Notes — Conversion Rights”;
		• if the ProLogis common shares are not listed on a U.S. national securities exchange; or
		• any time on or after February 1, 2012.

		The initial conversion rate is 13.0576 ProLogis common shares per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $76.58 per ProLogis common share), subject to adjustment.
		Upon the occurrence of any of the circumstances described above, holders may convert any outstanding notes into cash, ProLogis common shares or a combination of cash and ProLogis common shares, at our election. We will inform you through the trustee of the method we will choose to satisfy our conversion obligations within two trading days after our receipt of your conversion notice; provided, however, that at any time on or prior to February 1, 2012, we may irrevocably elect, in our sole discretion without the consent of the holders of the notes, to settle all of our future conversion obligations entirely in ProLogis common shares, and, provided further, that we are required to settle all conversions with a conversion date occurring on or after February 1, 2012 in the same manner and we will notify holders of the manner of settlement on or before such date. If we do not elect otherwise, our conversion obligations will be settled in a combination of cash and ProLogis common shares as follows: (i) we will pay cash in an amount equal to the lesser of the principal amount of the notes to be converted and the conversion value of the notes to be converted, calculated as described in this prospectus supplement, and (ii) to the extent that the conversion value of the notes to be converted exceeds the principal amount of the notes to be converted (such difference being referred to as the “excess amount”), we will issue ProLogis common shares or, at our election, cash, equivalent to the excess amount. The number of shares to be delivered will be determined based on a daily conversion value, as described in this prospectus supplement, calculated on a proportionate basis for each day of a 20 trading day observation period, as described in this prospectus supplement. However, we may elect to deliver cash in settlement of all or a portion of the excess amount or we may elect to settle our conversion obligations entirely in ProLogis common shares. See “Description of Notes — Conversion Rights — Payment Upon Conversion.”
		You will not receive any additional cash payment or additional shares representing accrued and unpaid interest upon conversion of a note, except in limited circumstances. Instead, interest will be deemed paid by the cash and ProLogis common shares, if any, issued to you upon conversion.
Repurchase at Holders’ Option		Holders may require us to repurchase the notes on April 1 of 2012, 2017, 2022, 2027 and 2032 at a price equal to 100% of the principal amount of the notes being repurchased plus any accrued and unpaid interest up to, but excluding, the repurchase date. We will pay cash for all notes so repurchased.
Fundamental Change		If we undergo a “fundamental change” (as defined in this prospectus supplement under “Description of Notes — Fundamental Change Permits Holders to Require Us to Repurchase Notes”), you will have the option to require us to purchase all or any portion of your notes.
		The fundamental change purchase price will be 100% of the principal amount of the notes to be purchased plus any accrued and unpaid

		interest to, but excluding, the fundamental change purchase date. We will pay cash for all notes so purchased.
		In addition, if a “fundamental change” occurs prior to April 5, 2012, we will increase the conversion rate for a holder who elects to convert its notes in connection with such a fundamental change upon conversion in certain circumstances as described under “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Fundamental Change.”
Ranking		The notes are our senior obligations which, together with our obligations under our global credit facility and certain of our other indebtedness, are secured by a pledge of certain intercompany loans. The notes are effectively subordinated to any of our debt that is secured by assets, other than the pledged intercompany loans, to the extent of the value of the assets securing such debt. In addition, except to the extent the notes become entitled to the benefits of the sharing agreements described in this prospectus supplement under “Description of Notes — Security and Sharing Arrangements,” the notes are effectively subordinated to the debt and other liabilities, including trade payables, of our subsidiaries. See “Risk Factors — The notes are effectively subordinated to our debt that is secured by assets, other than intercompany loans that are pledged to secure the notes, and to the liabilities of our subsidiaries.”
Registration Rights		We agreed to file with the SEC or otherwise make available a shelf registration statement relating to the resale of the notes and the ProLogis common shares that may be issuable upon conversion of the notes, and to use our best efforts to cause the shelf registration statement to become effective under the Securities Act, no later than 180 days after the first date of original issuance of the notes. See “Description of Notes — Registration Rights; Additional Interest” in this prospectus supplement.
		If we fail to comply with specified obligations under the registration rights agreement, additional interest will be payable on the notes. See “Description of Notes — Registration Rights; Additional Interest” in this prospectus supplement.
Use of Proceeds		We will not receive any proceeds from the sale of the notes offered by this prospectus supplement or the ProLogis common shares into which such notes are converted.
Risk Factors		You should read carefully the “Risk Factors” beginning on page 5 of this prospectus supplement, together with those included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, for certain considerations relevant to an investment in the notes and the ProLogis common shares.
U.S. Federal Income Taxation		The notes and the ProLogis common shares into which the notes may be converted are subject to special and complex U.S. federal income tax rules. Holders are urged to consult their respective tax advisors with respect to the application of the U.S. federal income tax laws to their own particular situation as well as any tax consequences of the ownership and disposition of the notes and ProLogis common shares arising under the federal estate or gift tax rules or under the laws of any

		state, local, foreign or other taxing jurisdiction or under any applicable treaty. See “Certain U.S. Federal Income Tax Considerations” in this prospectus supplement and “Federal Income Tax Considerations” in the accompanying prospectus.
Trading		The notes are a new issue of securities, and there is currently no established trading market for the notes. An active or liquid market may not develop for the notes or, if developed, may not be maintained. We have not applied and do not intend to apply for the listing of the notes on any securities exchange or for quotation on any automated dealer quotation system.
New York Stock Exchange Symbol for ProLogis Common Shares		PLD
Restriction of Ownership		In order to assist us in maintaining our qualification as a REIT for U.S. federal income tax purposes, no person may own more than 9.8% of the outstanding ProLogis common shares, with certain exceptions.
		Notwithstanding any other provision of the notes, no holder of notes will be entitled to convert such notes for ProLogis common shares to the extent that receipt of such shares would cause such holder (together with such holder’s affiliates) to exceed the ownership limit contained in the declaration of trust of ProLogis. See “Description of Common Shares — Restriction on Size of Holdings” in the accompanying prospectus.
No Shareholder Rights for Holders of Notes		Holders of notes, as such, will not have any rights as shareholders of ProLogis (including, without limitation, voting rights and rights to receive dividends or other distributions on ProLogis common shares).

 

Before you decide to invest in the notes, you should consider the factors set forth below as well as the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2006, which is incorporated by reference into this prospectus supplement. See “Where You Can Find More Information” in the accompanying prospectus.

 

The market price of the notes may be volatile.

 

The market price of the notes will depend on many factors that may vary over time and some of which are beyond our control, including:

 

 

As a result of these factors, you may only be able to sell your notes at prices below those you believe to be appropriate, including prices below the price you paid for them.

 

An increase in interest rates could result in a decrease in the relative value of the notes.

 

In general, as market interest rates rise, notes bearing interest at a fixed rate generally decline in value because the premium, if any, over market interest rates will decline. Consequently, if you purchase these notes and market interest rates increase, the market value of your notes may decline. We cannot predict the future level of market interest rates.

 

Our financial performance and other factors could adversely impact our ability to make payments on the notes.

 

Our ability to make scheduled payments with respect to our indebtedness, including the notes, will depend on our financial and operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control.

 

The notes are effectively subordinated to our debt that is secured by assets, other than the intercompany loans that are pledged to secure the notes, and to the liabilities of our subsidiaries.

 

Pursuant to various pledge agreements, we and certain of our subsidiaries have pledged specified intercompany loans to Bank of America, N.A., as collateral agent, for the benefit of the “Credit Parties” under and as defined in the Amended and Restated Security Agency Agreement dated as of October 6, 2005 (the “Security Agency Agreement”) among us, the collateral agent, Bank of America, N.A., as global administrative agent under our global senior credit facility, and various other of our creditors. The Credit Parties under the Security Agency Agreement include the holders of our specified credit obligations, including all obligations arising under our global credit facility, other “Designated Senior Debt” specified therein, as well as any of our other senior debt designated from time to time by us as “Designated Senior Debt” in accordance with the Security Agency Agreement. The notes are included within the definition of “Designated Senior Debt” and holders of the notes are entitled to a pro rata share in the proceeds of the collateral granted under the pledge agreements.

 

The notes will be effectively subordinated to any of our debt that is secured by assets, other than the pledged intercompany loans, to the extent of the value of the assets securing such debt. In addition, except to the extent that the notes become entitled to the benefits of the sharing arrangements described below, the notes will be effectively

subordinated to the debt and other liabilities, including trade payables, of our subsidiaries. As of March 31, 2007, the notes offered hereby ranked:

 

 

To the extent the notes become entitled to the benefits of the sharing arrangements described below, the notes will be entitled to share ratably in any recoveries received by the holders of the $2.9 billion of subsidiary debt subject to such arrangements, so as to effectively eliminate or mitigate the consequence of any structural subordination of the notes that might otherwise exist.

 

The Security Agency Agreement also provides that, upon the occurrence of a triggering event (which includes bankruptcy or insolvency events of us or any other borrower under our global credit facility, the acceleration of indebtedness under the global credit facility or other indebtedness in excess of $50 million and similar events), the Credit Parties will, subject to certain exceptions and limitations (including, in the case of the holders of the notes, the requirements set forth in the following paragraph), share payments and other recoveries received from us and our subsidiaries, to be applied toward the credit obligations held by such Credit Parties in such a manner that all Credit Parties receive payment of substantially the same percentage of their respective credit obligations. These sharing arrangements are intended to eliminate or mitigate structural subordination issues that otherwise might entitle some Credit Parties (such as Credit Parties that lend directly to one of our subsidiaries or that have the benefit of guarantees from one or more of our subsidiaries) to recover a higher percentage of their credit obligations than other Credit Parties that do not have the benefit of such arrangements.

 

Within 45 days after a triggering event, the collateral agent will deliver a notice of such event to the trustee. As promptly as practicable, but in any event within 90 days after receiving any notice from the collateral agent with respect to the occurrence of a triggering event, the trustee will (x) forward such notice to the holders of the notes, (y) execute and deliver, on behalf of the holders, an acknowledgment entitling the holders to participate in the sharing arrangements described in the preceding paragraph and (z) take such further actions as a majority of the holders (voting as a single class) may request with respect thereto and with respect to any rights such holders or the trustee may have under the Security Agency Agreement; provided that, in the case of this clause (z), such holders shall have offered the trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. Upon delivery of such acknowledgment by the trustee, the holders of the notes will be entitled to participate in the sharing arrangements described in the preceding paragraph.

 

The Security Agency Agreement allows us to: (i) designate our other senior debt as Designated Senior Debt; (ii) specify which Credit Parties are entitled to vote on issues arising under the Security Agency Agreement (and the holders of the notes will be non-voting Credit Parties); and/or (iii) revoke our designation of the notes as Designated Senior Debt effective not less than 90 days after disclosing such revocation (in a footnote or otherwise) in a Form 10-Q or Form 10-K filed with the SEC. In the event that we elect to revoke our designation of the notes as Designated Senior Debt under the Security Agency Agreement, the holders of the notes will cease to be Credit Parties and will no longer be entitled to any benefit of the security and sharing arrangements contemplated by the Security Agency Agreement and the related pledge agreements. In addition, a majority of the voting Credit Parties under the Security Agency Agreement may elect (a) to release some or all of the collateral held pursuant to the Security Agency Agreement and/or (b) under certain circumstances, to defer payments to Credit Parties pursuant to the sharing arrangements either (i) generally for various reasons or (ii) specifically to certain holders of debt (including the holders of the notes) if the collateral agent or the voting Credit Parties determine, in their sole discretion, that such holders might receive more than their share of payments and other recoveries pursuant to the Security Agency Agreement. Without notice to or consent of the holders of the notes, the Security Agency

Agreement may be amended by us, the collateral agent and a majority of the voting Credit Parties, even if such amendment is adverse to the interests of the holders of the notes.

 

The Security Agency Agreement provides that whenever the majority voting Credit Parties are granted and exercise the right to make decisions under the Security Agency Agreement, including decisions with respect to pledged collateral or how and when recoveries are shared, such decisions will be made in their sole and complete discretion. The voting Credit Parties have no obligation or duty (including implied obligations of reasonableness, good faith or fair dealing) to any holder of notes and have no obligation or duty to take into consideration the interests of the holders of the notes when taking any action or making any determination contemplated by the Security Agency Agreement. By accepting the benefits of the Security Agency Agreement, each holder of notes expressly waives and disclaims any claim or cause of action based upon any vote, decision or determination (including the giving or withholding of consent) made by the majority voting Credit Parties in accordance with the terms of the Security Agency Agreement. Bank of America, N.A., which acts as the collateral agent under the Security Agency Agreement and under the various pledge agreements, is also a voting Credit Party under the Security Agency Agreement and its interests in such capacity may conflict with the interests of the holders of the notes.

 

Notwithstanding any benefit to which a holder of notes may become entitled pursuant to the security and sharing arrangements referred to above, the notes will be effectively subordinated to: (1) our indebtedness that is secured by collateral other than the intercompany loans referred to above, to the extent of the value of such collateral and (2) liabilities of our subsidiaries that are not subject to, or are owing to creditors not parties to, the sharing arrangements.

 

The conditional conversion feature of the notes could result in your receiving less than the value of ProLogis common shares into which a note would otherwise be convertible.

 

The notes are convertible into cash, ProLogis common shares or a combination of both, at our election, only if specified conditions are met. If the specific conditions for conversion are not met, until February 1, 2012, you will not be able to convert your notes, and you may not be able to receive the value of the cash and/or ProLogis common shares into which the notes would otherwise be convertible.

 

The settlement feature of the notes may have adverse consequences.

 

Unless we elect to satisfy our conversion obligations entirely in ProLogis common shares, the notes will be subject to net share settlement, which means that we will satisfy our conversion obligation to holders by paying cash in settlement of the lesser of the principal amount and the daily conversion value of the notes and by delivering ProLogis common shares, or, at our election, cash, in settlement of any and all conversion obligations in excess of the principal amount of the notes, as described under “Description of Notes — Conversion Rights — Payment upon Conversion.” Accordingly, upon conversion of a note, holders might not receive any ProLogis common shares, or they might receive fewer ProLogis common shares relative to the daily conversion value of the note. In addition, any settlement of a conversion of notes will be delayed until at least the 25th trading day following our receipt of the holder’s conversion notice. Accordingly, you may receive less proceeds than expected because the value of any ProLogis common shares that you receive may decline (or fail to appreciate as much as you may expect) between the day that you exercise your conversion right and the day the daily conversion value of your notes is determined.

 

Our failure to convert the notes into ProLogis common shares, a combination of cash and ProLogis common shares, or, if we so elect, cash, upon exercise of a holder’s conversion right in accordance with the provisions of the indenture would constitute a default under the indenture. In addition, a default under the indenture could lead to a default under existing and future agreements governing our indebtedness. If, due to a default, the repayment of related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay such indebtedness and amounts owing in respect of the conversion of any notes.

There is no public market for the notes, which could limit their market price or the ability to sell them for an amount equal to, or higher than, their initial offering price.

 

There is currently no established public trading market for the notes. Although the initial purchasers of the notes have advised us that they intend to make a market in the notes, they are not obligated to do so and may discontinue any market-making at any time without notice. Accordingly, an active public trading market may not develop for the notes and, even if one develops, may not be maintained. If an active public trading market for the notes does not develop or is not maintained, the market price and liquidity of the notes is likely to be adversely affected and holders may not be able to sell their notes at desired times and prices, or at all. If any of the notes are traded after their purchase, they may trade at a discount from their purchase price.

 

The liquidity of the trading market, if any, and future trading prices of the notes will depend on many factors, including, among other things, the market price of the ProLogis common shares, prevailing interest rates, the financial condition, results of operations, business, prospects and credit quality of ProLogis and its subsidiaries, and other comparable entities, the market for similar securities, the overall securities market and the tax treatment of the notes. The liquidity of the trading market, if any, and future trading prices of the notes may be adversely affected by unfavorable changes in any of these factors, some of which are beyond our control and others of which would not affect debt that is not convertible or exchangeable into capital stock. Historically, the market for convertible or exchangeable debt has been volatile. Market volatility could materially and adversely affect the notes, regardless of the financial condition, results of operations, business, prospects or credit quality of ProLogis and its subsidiaries.

 

The notes have a number of features that may adversely affect the value and trading prices of the notes, including conversion conditions and the lack of certain financial and other restrictive covenants. Furthermore, even if the conversion conditions are met, since the daily conversion value of the notes is dependent on the closing sale price of ProLogis common shares, volatile or depressed market prices for such shares are likely to have a similar effect on the trading prices of the notes. It is impossible to assure holders of notes that future closing sale prices of the ProLogis common shares will not have an adverse effect on the trading prices of the notes.

 

If the market price of ProLogis common shares decreases, the market price of our notes may similarly decrease.

 

We expect that the market price of our notes will be significantly affected by the market price of ProLogis common shares. This may result in greater volatility in the market price of the notes than would be expected for non-convertible debt securities. The market price of ProLogis common shares will likely continue to fluctuate in response to factors, including the factors discussed elsewhere in this prospectus supplement and ProLogis’ Annual Report on Form 10-K for the year ended December 31, 2006, many of which are beyond our control. For instance, the price of ProLogis common shares could be affected by possible sales of ProLogis common shares by investors who view the notes as a more attractive means of equity participation in our company and by hedging or arbitrage trading activity that may develop involving ProLogis common shares. The hedging or arbitrage could, in turn, affect the trading prices of the notes. In addition, anticipated conversion of the notes issued in this offering into ProLogis common shares could depress the price of ProLogis common shares to the extent that any such conversion would result in the issuance by ProLogis of a significant number of additional ProLogis common shares. Future issuances of ProLogis common shares in other circumstances could likewise have a similar effect on the market price of the ProLogis common shares and therefore the market price of our notes.

 

We may be unable to repurchase notes on the specified dates or upon the occurrence of a fundamental change.

 

You have the right to require us to repurchase your notes on specified dates and upon the occurrence of a fundamental change as described under “Description of Notes — Repurchase of Notes at Your Option on Specified Dates” and “Description of Notes — Fundamental Change Permits Holders to Require Us to Repurchase Notes.” We cannot assure you that we will have enough funds to repurchase all the notes on the specified dates or if a fundamental change event occurs. In addition, future debt we incur may limit our ability to repurchase the notes on the specified dates or upon a fundamental change. Moreover, if you or other investors in our notes exercise the

repurchase right on the specified dates or upon a fundamental change, it may cause a default under that debt, even if the fundamental change itself does not cause a default owing to the financial effect of such a repurchase on us.

 

A change in control or a fundamental change may adversely affect us or the notes.

 

A fundamental change or change in control transaction involving us could have a negative effect on us and the trading price of ProLogis common shares and could negatively impact the trading price of the notes. Furthermore, the fundamental change provisions, including the provisions requiring the increase to the conversion rate for conversions in connection with a fundamental change prior to April 5, 2012, may in certain circumstances make it more difficult or discourage a takeover of our company and the removal of incumbent management.

 

The adjustment to the conversion rate for notes converted in connection with a fundamental change may not adequately compensate you for any lost value of your notes as a result of such transaction.

 

If a fundamental change occurs prior to April 5, 2012, we will increase the conversion rate by a number of additional ProLogis common shares for notes converted in connection with such fundamental change. The increase in the conversion rate will be determined based on the date on which the fundamental change becomes effective and the price paid per ProLogis common share in such transaction, as described below under “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Fundamental Change.” The adjustment to the conversion rate for notes converted in connection with a fundamental change may not adequately compensate you for any lost value of your notes as a result of such transaction. In addition, if the price of ProLogis common shares in the transaction is greater than $170.00 per share or less than $63.82 per share (in each case, subject to adjustment), no adjustment will be made to the conversion rate. Moreover, in no event will the total number of ProLogis common shares issuable upon conversion as a result of this adjustment exceed 15.6691 per $1,000 principal amount of notes, subject to adjustments in the same manner as the conversion rate as set forth under “Description of Notes — Conversion Rights — Conversion Rate Adjustments.” Our obligation to increase the conversion rate in connection with a fundamental change could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness of economic remedies.

 

A change in control involving us may not constitute a “fundamental change” for purposes of the notes.

 

The indenture, as amended with respect to the notes, contains no covenants or other provisions to afford protection to holders of the notes in the event of a change in control involving us except to the extent described under “Description of Notes — Fundamental Change Permits Holders to Require Us to Repurchase Notes,” and “Description of Notes — Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Fundamental Change.” However, the term “fundamental change” is limited and may not include every change in control event that might cause the market price of the notes to decline. As a result, your rights under the notes upon the occurrence of a fundamental change may not preserve the value of the notes in the event of a change in control involving us. In addition, any change in control involving us may negatively affect the liquidity, value or volatility of ProLogis common shares, negatively impacting the value of the notes.

 

Ownership limitations in the declaration of trust of ProLogis may impair the ability of holders to convert notes for ProLogis common shares.

 

Our declaration of trust restricts beneficial ownership of outstanding shares of beneficial interest by a single person, or persons acting as a group, to 9.8% of such shares. The purposes of the restriction are to assist in protecting and preserving our REIT status under the Internal Revenue Code of 1986, as amended, which we refer to as the “Code,” and to protect the interest of shareholders in takeover transactions by preventing the acquisition of a substantial block of shares without the prior consent of the board of trustees. For us to qualify as a REIT under the Code, not more than 50% in value of our outstanding shares of beneficial interest may be owned by five or fewer individuals at any time during the last half of any taxable year. The restriction permits five persons to acquire up to a maximum of 9.8% each, or an aggregate of 49% of the outstanding shares, and, thus, assists the board of trustees in protecting and preserving our REIT status under the Code.

Excess shares of beneficial interest owned by a person or group of persons in excess of 9.8% of the outstanding shares of beneficial interest 30% in the case of shareholders who acquired shares prior to our initial public offering are subject to redemption by us, at our option, upon 30 days’ notice, at a price equal to the average daily per share closing sale price during the 30-day period ending on the business day prior to the redemption date. We may make payment of the redemption price at any time or times up to the earlier of five years after the redemption date or liquidation. We may refuse to effect the transfer of any shares of beneficial interest which would make the transferee a holder of excess shares. Shareholders are required to disclose, upon demand of the board of trustees, such information with respect to their direct and indirect ownership of shares as the board of trustees deems necessary to comply with the provisions of the Code pertaining to qualification, for tax purposes, of REITs, or to comply with the requirements of any other appropriate taxing authority.

 

Notwithstanding any other provision of the notes, no holder of notes will be entitled to receive ProLogis common shares upon a conversion of notes to the extent that receipt of such ProLogis common shares would cause such holder (together with such holder’s affiliates) to exceed the ownership limit contained in the declaration of trust of ProLogis. In such case, such holder would receive cash upon conversion, as provided herein.

 

If you hold notes, you will not be entitled to any rights with respect to ProLogis common shares, but you will be subject to all changes made with respect to ProLogis common shares.

 

If you hold notes, you will not be entitled to any rights with respect to ProLogis common shares (including, without limitation, voting rights and rights to receive any dividends or other distributions on ProLogis common shares), but if you subsequently convert your notes for ProLogis common shares, you will be subject to all changes affecting the ProLogis common shares. You will have rights with respect to ProLogis common shares only if and when we deliver ProLogis common shares to you upon conversion of your notes and, to a limited extent, under the conversion rate adjustments applicable to the notes. For example, in the event that an amendment is proposed to ProLogis’ declaration of trust or bylaws requiring shareholder approval and the record date for determining the shareholders of record entitled to vote on the amendment occurs prior to delivery of ProLogis common shares to you, you will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes in the powers or rights of ProLogis common shares if you are issued shares upon conversion of your notes.

 

The value of the conversion right associated with the notes may be substantially lessened or eliminated if we are party to a merger, consolidation, or other similar transaction.

 

If we are party to a consolidation, merger, binding share exchange or sale of all or substantially all of our assets pursuant to which ProLogis common shares are converted into the right to receive cash, securities or other property, at the effective time of the transaction, the right to convert the notes into ProLogis common shares will be changed into a right to convert the notes into the kind and amount of cash, securities or other property which the holder would have received if the holder had converted its notes immediately prior to the transaction. This change could substantially lessen or eliminate the value of the conversion privilege associated with the notes in the future. For example, if all of the outstanding ProLogis common shares were acquired for cash in a merger transaction, each note would become convertible solely into cash and would no longer be convertible into securities whose value would vary depending on our future prospects and other factors.

 

In addition, holders of notes may not have the right to convert their notes upon the occurrence of such a transaction. The fundamental change conversion provisions of the notes will not afford holders the right to convert their notes in the event of a consolidation, merger, share exchange, sale or other transaction that does not constitute a fundamental change, even if ProLogis common shares would be converted into cash, securities or other property in such transaction.

 

The conversion rate of the notes may not be adjusted for all dilutive events, which may adversely affect the trading price of the notes.

 

The conversion rate of the notes is subject to adjustment for certain events, including, but not limited to, the issuance of share dividends or payment of certain cash dividends, whether quarterly or special, on ProLogis common shares, the issuance of certain rights or warrants, subdivisions, combinations, distributions of common

shares of beneficial interest, indebtedness, or assets, cash dividends and certain issuer tender or exchange offers as described under “Description of Notes — Conversion Rights — Conversion Rate Adjustments.” However, the conversion rate will not be adjusted for other events, such as certain exchange offers or an issuance of ProLogis common shares for cash, that may adversely affect the trading price of the notes or the ProLogis common shares. An event that adversely affects the value of the notes may occur, and that event may not result in an adjustment to the conversion rate.

 

You may be deemed to have received taxable income if the conversion rate of the notes is adjusted, even if you do not receive any cash.

 

If we pay a cash dividend on ProLogis common shares over a set dividend threshold amount described below under clause (4) of the heading “Description of Notes — Conversion Rights — Conversion Rate Adjustments — Adjustment Events,” an adjustment to the conversion rate may result, and you may be deemed to have received a taxable dividend subject to U.S. federal income tax without the receipt of any cash. In addition, adjustments (or failures to make adjustments) that have the effect of increasing a holder’s proportionate share in our assets or earnings may, in some circumstances, result in a deemed distribution to such holder. For example, if the conversion rate is increased at our discretion or in certain other circumstances (including in connection with the payment of a dividend to ProLogis’ common shareholders that results in an adjustment to the conversion rate and that is taxable to the ProLogis’ common shareholders), such increase may result in a deemed payment of a taxable dividend to holders of the notes, notwithstanding the fact that the holders do not receive a cash payment. See “Certain U.S. Federal Income Tax Considerations — United States Holders of the Notes — Adjustments to Conversion Rate.” If you are a Non-United States Holder (as defined in “Certain U.S. Federal Income Tax Considerations”), such deemed dividend may be subject to U.S. federal withholding tax at a 30% rate or such lower rate as may be specified by an applicable treaty. See “Certain U.S. Federal Income Tax Considerations — Non-United States Holders of the Notes — Adjustments to Conversion Rate.”

 

We cannot assure you that we will not be required to withhold on payments to Non-United States Holders of notes in connection with a sale, exchange, redemption, repurchase, conversion, or other disposition of notes based on the facts and circumstances at the time.

 

Although we believe that currently the notes do not constitute “U.S. real property interests” and we therefore do not currently intend to withhold under the Foreign Investment in Real Property Tax Act, or FIRPTA, we cannot assure you that the notes will not constitute U.S. real property interests depending on the facts in existence at the time of any sale, exchange, redemption, repurchase, conversion or other disposition of a note. If the notes were to constitute U.S. real property interests, withholding on payments to Non-United States Holders (as defined in “Certain U.S. Federal Income Tax Considerations”) in connection with such a sale, exchange, redemption, repurchase, conversion or other disposition of notes may be required regardless of whether such Non-United States Holders provided certification documenting their non-U.S. status. See “Certain U.S. Federal Income Tax Considerations — Non-United States Holders of the Notes — Sale, Conversion or Other Dispositions of the Notes.”

 

We will not receive any proceeds from the sale of the notes offered by this prospectus supplement or the ProLogis common shares into which such notes are convertible.

 

The following table sets forth our ratios of earnings to fixed charges for the periods indicated. For this purpose, “earnings” consist of earnings from continuing operations, excluding income taxes, minority interest share in earnings and fixed charges, other than capitalized interest, and “fixed charges” consist of interest on borrowed funds, including amounts that have been capitalized, and amortization of capitalized debt issuance costs, debt premiums and debt discounts.

 

 

The following description is a summary of the material provisions of the notes and the indenture (as defined below) and does not purport to be complete. This summary is subject to and is qualified by reference to all the provisions of the notes and the indenture, including the definitions of certain terms used in the indenture. We urge you to read the indenture because it, and not this description, defines your rights as a holder of the notes. The notes are referred to in the accompanying prospectus as “debt securities.” To the extent the following description is inconsistent with the description of the general terms and provisions of the debt securities in the accompanying prospectus, the following description controls.

 

General

 

The notes constitute a separate series of debt securities to be issued pursuant to an Indenture, dated as of March 1, 1995 (the “Original Indenture”), between us and U.S. Bank National Association (as successor in interest to State Street Bank and Trust Company), as trustee. The Indenture has been supplemented by a First Supplemental Indenture, dated February 9, 2005, a Second Supplemental Indenture, dated November 2, 2005, a Third Supplemental Indenture, dated November 2, 2005, and a Fourth Supplemental Indenture, dated March 26, 2007. We collectively refer to the Original Indenture as amended and supplemented by the First Supplemental Indenture, Second Supplemental Indenture, Third Supplemental Indenture and Fourth Supplemental Indenture as the “Indenture.” The terms of the notes include those provisions contained in the Indenture, portions of which are described in this prospectus supplement, and those made part of the Indenture by reference to the Trust Indenture Act of 1939. The notes are subject to all of these terms, and holders of notes are referred to the Indenture and the Trust Indenture Act for a statement of those terms. As of March 31, 2007, we had $4.7 billion aggregate principal amount of debt securities outstanding under the Indenture.

 

As described in this prospectus supplement in the section entitled “— Security and Sharing Arrangements,” pursuant to various pledge agreements, ProLogis and certain of its subsidiaries have pledged specified intercompany loans to Bank of America, N.A., as collateral agent, for the benefit of the Credit Parties under the Security Agency Agreement. The Credit Parties under the Security Agency Agreement include the holders of specified credit obligations of ProLogis, including all obligations arising under ProLogis’ global credit facility, other “Designated Senior Debt” specified therein, as well as any other senior debt of ProLogis designated from time to time by ProLogis as “Designated Senior Debt” in accordance with the Security Agency Agreement. The notes are included within the definition of “Designated Senior Debt” and holders of the notes are entitled to a pro rata share in the proceeds of the collateral granted under the pledge agreements.

 

The notes will be effectively subordinated to any of our debt that is secured by assets, other than the pledged intercompany loans, to the extent of the value of the assets securing such debt. In addition, except to the extent that the notes become entitled to the benefits of the sharing arrangements described below, the notes will be effectively subordinated to the debt and other liabilities, including trade payables, of our subsidiaries. See “Risk Factors — The notes are effectively subordinated to our debt that is secured by assets, other than the intercompany loans that are pledged to secure the notes, and to the liabilities of our subsidiaries.”

The notes will be limited initially to $1,250,000,000 aggregate principal amount. We may in the future, without the consent of holders, issue additional notes on the same terms and conditions and with the same CUSIP number as the notes being offered hereby. The notes and any additional notes subsequently issued under the Indenture would be treated as a single series for all purposes under the Indenture, including without limitation, waivers, amendments, redemptions and offers to purchase.

 

The Indenture permits us to issue different series of debt securities from time to time. The notes are a single, distinct series of debt securities. The specific terms of each other series may differ from those of the notes. The Indenture does not limit the aggregate amount of debt securities that may be issued under the Indenture, nor does it limit the number of other series or the aggregate amount of any particular series. When we refer to a “series of debt securities,” we mean a series of debt securities, such as the series of notes that are being offered by means of this prospectus supplement, issued under the Indenture. When we refer to “the notes” or “these notes,” we mean the 2.25% convertible senior notes due 2037 that are being offered by means of this prospectus supplement.

 

The notes will be issued only in denominations of $1,000 and integral multiples of $1,000. The registered holder of a note will be treated as the owner of it for all purposes.

 

Other than the restrictions described under “— Fundamental Change Permits Holders to Require Us to Repurchase Notes” and “— Merger, Consolidation or Sale” below, and except for the provisions set forth under “— Conversion Rights — Adjustment to Shares Delivered upon Conversion upon Fundamental Change,” the indenture as supplemented with respect to the notes contains no other provisions that would limit our ability to incur indebtedness or that would afford holders of the notes protection in the event of a highly leveraged or similar transaction involving us or in the event of a change of control or a decline in our credit rating as the result of a takeover, recapitalization, highly leveraged transaction or similar restructuring involving us that could adversely affect such holders.

 

Principal and Interest

 

The notes will bear interest at the rate of 2.25% per year and will mature on April 1, 2037. Interest on the notes will accrue from March 26, 2007 and will be payable semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 2007 (each such date being an “interest payment date”), to the persons in whose names the notes are registered in the security register on the preceding March 15 or September 15, whether or not a business day, as the case may be (each such date being a “regular record date”). Interest on the notes will be computed on the basis of a 360-day year consisting of twelve 30-day months.

 

If any interest payment date or the maturity date falls on a day that is not a business day, the required payment shall be made on the next business day as if it were made on the date the payment was due and no interest shall accrue on the amount so payable for the period from and after the interest payment date or the maturity date, as the case may be, until the next business day. A business day means any day, other than a Saturday or Sunday, or legal holidays on which banks in The City of New York or The City of Boston are not required or authorized by law or executive order to be closed. In addition, you will not receive any separate cash payment for accrued and unpaid interest, including additional interest, if any, upon conversion, except as described under “— Conversion Rights”

 

Conversion Rights

 

General

 

Upon the occurrence of any of the conditions described under the headings ‘‘— Conversion upon Satisfaction of Trading Price Condition,” “— Conversion Based upon ProLogis Common Shares Price,” “— Conversion upon Notice of Redemption,” “— Conversion upon Specified Corporate Transactions,” “— Conversion on or after February 1, 2012 and “— Conversion upon ProLogis Common Shares No Longer Being Listed,” holders may convert each of their notes at an initial conversion rate of 13.0576 ProLogis common shares per $1,000 principal amount of notes (equivalent to a conversion price of approximately $76.58 per ProLogis common share) at any time prior to the close of business on the trading day immediately preceding the final maturity date of the notes.

 

The conversion rate and the equivalent conversion price in effect at any given time are referred to as the “applicable conversion rate” and the “applicable conversion price,” respectively, and will be subject to adjustment

as described below. The conversion price at any given time will be computed by dividing $1,000 by the applicable conversion rate at such time. A holder may convert fewer than all of such holder’s notes so long as the notes converted are an integral multiple of $1,000 principal amount.

 

Upon conversion, we will have the right to deliver cash, ProLogis common shares, or a combination of cash and ProLogis common shares, in each case as described under “— Payment Upon Conversion.” We will inform you through the trustee of the method we will choose to satisfy our conversion obligations within two trading days after our receipt of your conversion notice; provided, however, that at any time on or prior to February 1, 2012, we may irrevocably elect, in our sole discretion without the consent of the holders of the notes, to satisfy all of our future conversion obligations entirely in ProLogis common shares, and, provided further, that we are required to settle all conversions with a conversion date occurring on or after February 1, 2012 in the same manner and we will notify holders of the manner of settlement on or before such date. If we do not elect otherwise, our conversion obligations will be settled in a combination of cash and ProLogis common shares as follows: (i) we will pay cash in an amount equal to the lesser of the principal amount of the notes to be converted and the conversion value of the notes to be converted, calculated as described in this prospectus supplement, and (ii) to the extent that the conversion value of the notes to be converted exceeds the principal amount of the notes to be converted, we will issue ProLogis common shares. The number of shares to be delivered will be determined based on a daily conversion value, as described below under “— Payment Upon Conversion — Net Share Settlement,” calculated on a proportionate basis for each day of a 20 trading day observation period, as described in this prospectus supplement. However, we may elect to deliver cash in settlement of all or a portion of the amount by which the conversion value of the notes to be converted exceeds the principal amount of such notes or we may elect to settle our conversion obligations entirely in ProLogis common shares.

 

Except as described below, you will not receive any separate cash payment for accrued and unpaid interest upon conversion. Our settlement of conversions as described below under “— Payment upon Conversion” will be deemed to satisfy our obligation to pay:

 

 

As a result, accrued and unpaid interest to, but not including, the conversion date will be deemed to be paid in full rather than cancelled, extinguished or forfeited.

 

Notwithstanding the preceding paragraph, if notes are converted after 5:00 p.m., New York City time, on a record date, holders of such notes at 5:00 p.m., New York City time, on the record date will receive the interest payable on such notes on the corresponding interest payment date notwithstanding the conversion. Notes surrendered for conversion during the period from 5:00 p.m., New York City time, on any regular record date to 9:00 a.m., New York City time, on the immediately following interest payment date must be accompanied by funds equal to the amount of interest payable on such notes on such interest payment date; provided that no such payment need be made:

 

 

If a holder converts notes, we will pay any documentary, stamp or similar issue or transfer tax due on the issue of any ProLogis common shares upon the conversion, unless the tax is due because the holder requests any shares to be issued in a name other than the holder’s name, in which case the holder will pay that tax.

 

Notes in respect of which a holder has delivered a repurchase notice or a notice of exercise of its option to require us to repurchase its notes upon the occurrence of a fundamental change (defined below) may not be surrendered for conversion until the holder has withdrawn the notice in accordance with the indenture.

Conversion upon Satisfaction of Trading Price Condition

 

A holder may convert notes during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the “trading price” per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price per ProLogis common share and the conversion rate for such date, subject to compliance with the procedures and conditions described below concerning our obligation to make a trading price determination.

 

The “trading price” of the notes on any date of determination means the average of the secondary market bid quotations obtained by the trustee for $2.0 million principal amount of the notes at approximately 3:30 p.m., New York City time, on such determination date from three independent nationally recognized securities dealers we select; provided that, if three such bids cannot reasonably be obtained, but two such bids are obtained, then the average of the two bids shall be used, and if only one such bid can reasonably be obtained, that one bid shall be used. If we cannot reasonably obtain at least one bid for $2.0 million principal amount of the notes from a nationally recognized securities dealer to provide to the trustee, then the trading price per $1,000 principal amount of notes will be deemed to be less than 98% of the product of the “last reported sale price” per ProLogis common share and the conversion rate.

 

In connection with any conversion upon satisfaction of the above trading pricing condition, and we shall have no obligation to make such request for a determination of the trading price unless a holder or holders of at least $1,000,000 aggregate principal amount of notes provides us with reasonable evidence that the trading price per $1,000 principal amount of notes would be less than 98% of the product of the last reported sale price per ProLogis common share and the conversion rate. At such time, we shall select three independent nationally recognized securities dealers to determine the trading price of the notes beginning on the next trading day and on each successive trading day until the trading price per $1,000 principal amount of notes is greater than or equal to 98% of the product of the last reported sale price per ProLogis common share and the conversion rate.

 

If the trading price condition has been met, we shall so notify the holders of the notes. If, at any point after the trading price condition has been met, the trading price per $1,000 principal amount of notes is greater than 98% of the product of the last reported sale price per ProLogis common share and the conversion rate for such date, we shall so notify the holders of notes.

 

The “last reported sale price” per ProLogis common share on any date means the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions for the principal U.S. securities exchange on which ProLogis common shares are traded. If ProLogis common shares are not listed for trading on a United States national or regional securities exchange on the relevant date, the “last reported sale price” will be the last quoted bid price per ProLogis common share in the over-the-counter market on the relevant date as reported by the National Quotation Bureau or similar organization. If ProLogis common shares are not so quoted, the last reported sale price will be the average of the mid-point of the last bid and ask prices per ProLogis common share on the relevant date from each of at least three nationally recognized independent investment banking firms selected by us for this purpose. The last reported sale price will be determined without reference to extended or after-hours trading.

 

“Trading day” means a day during which (i) trading in ProLogis common shares generally occurs, (ii) there is no market disruption event (as defined below) and (iii) a last reported sale price per ProLogis common share (other than a last reported sale price referred to in the next to last sentence of such definition) is available for such day; provided that if ProLogis common shares are not admitted for trading or quotation on or by any exchange, bureau or other organization referred to in the preceding paragraph (excluding the next to last sentence of that paragraph), “trading day” will mean any business day.

 

“Market disruption event” means the occurrence or existence for more than one-half hour period in the aggregate on any scheduled trading day for ProLogis common shares of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) in ProLogis common shares or in any options, contracts or future contracts relating to ProLogis common shares, and such suspension or limitation occurs or exists at any time before 1:00 p.m. (New York City time) on such day.

Conversion Based upon ProLogis Common Shares Price

 

Holders may surrender notes for conversion in any calendar quarter commencing at any time after March 31, 2007, and only during such calendar quarter, if the closing price of ProLogis common shares for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is more than 130% of the conversion price per ProLogis common share on the last day of such preceding calendar quarter, which we refer to as the “conversion trigger price.”

 

The conversion trigger price immediately following issuance of the notes is approximately $99.56, which is 130% of the initial conversion price per ProLogis common share. The foregoing conversion trigger price assumes that no events have occurred that would require an adjustment to the conversion rate.

 

The conversion agent will, on our behalf, determine at the beginning of each calendar quarter whether the notes are convertible as a result of the price of ProLogis common shares and notify us and the trustee.

 

Conversion upon Notice of Redemption

 

A holder may convert any note called for redemption at any time prior to the close of business on the day that is two business days prior to the redemption date, even if the notes are not otherwise convertible at such time. However, if a holder has already delivered a fundamental change repurchase notice with respect to a note, the holder may not convert until the holder has withdrawn the notice in accordance with the terms of the note.

 

Conversion upon Specified Corporate Transactions

 

If ProLogis elects to:

 

 

We must notify the holders of the notes at least 35 business days prior to the ex-dividend date (defined below) for such distribution. Once we have given such notice, holders may surrender their notes for conversion at any time until the earlier of 5:00 p.m., New York City time, on the business day immediately prior to the ex-dividend date or our announcement that such distribution will not take place, even if the notes are not otherwise convertible at such time. The ex-dividend date is the first date upon which a sale of ProLogis common shares does not automatically transfer the right to receive the relevant dividend from the seller of the common shares to its buyer. In addition, if we are party to any transaction or event that constitutes a fundamental change, a holder may surrender notes for conversion at any time from and after the 30th scheduled trading day prior to the anticipated effective date of such transaction or event until the corresponding fundamental change repurchase date. Holders who convert notes in connection with any such fundamental change occurring prior to April 5, 2012, will also be entitled to an increase in the conversion rate to the extent described below under “— Adjustment to Shares Delivered upon Conversion upon Fundamental Change.” Upon the occurrence of a fundamental change, holders will also have the right to require us to repurchase their notes as set forth below under “— Fundamental Change Permits Holders to Require Us to Repurchase Notes.” We will notify holders of the occurrence of a fundamental change and issue a press release no later than 30 scheduled trading days prior to the anticipated effective date of such transaction.

 

A holder will also have the right to convert notes if ProLogis is a party to a consolidation, merger, binding share exchange or sale or conveyance of all or substantially all of its property and assets, in each case pursuant to which ProLogis common shares would be converted into cash, securities and/or other property, even if such transaction does not also constitute a fundamental change. A holder may exercise this conversion right at any time beginning on the 15th calendar day prior to the anticipated effective date of such transaction and ending on the 15th calendar day

following the effective date of such transaction. We will notify holders of any such transaction at least 20 calendar days prior to the anticipated effective date of such transaction.

 

Conversion upon ProLogis Common Shares No Longer Being Listed

 

A holder may surrender notes for conversion at any time beginning on the first business day after any 30 consecutive trading day period during which ProLogis common shares are not listed on a U.S. national securities exchange.

 

Conversion on or after February 1, 2012

 

On or after February 1, 2012, a holder may surrender notes for conversion at any time prior to the close of business on the trading day immediately preceding the final maturity date of the notes.

 

Conversion Procedures

 

If you hold a beneficial interest in a global note, to exercise your conversion right you must comply with The Depository Trust Company’s (“DTC”) procedures for converting a beneficial interest in a global note and, if required, pay funds equal to interest payable on the next interest payment date and, if required, pay all taxes or duties, if any.

 

If you hold a certificated note, to convert you must:

 

 

The date you comply with these requirements is the “conversion date” under the indenture. If a holder has already delivered a repurchase notice as described under “— Fundamental Change Permits Holders to Require Us to Repurchase Notes” with respect to a note, the holder may not surrender that note for conversion until the holder has withdrawn the notice in accordance with the indenture.

 

Payment upon Conversion

 

In satisfaction of our obligation upon conversion of notes, we may elect to deliver cash, ProLogis common shares or a combination of cash and ProLogis common shares, if applicable.

 

We will inform the holders through the trustee of the method we choose to satisfy our obligation upon conversion no later than the second trading day immediately following our receipt of a notice of conversion, provided, however, that we may irrevocably elect, in our sole discretion and without the consent of the holders of the notes, on or prior to February 1, 2012, to settle all of our future conversion obligations entirely in ProLogis shares, and provided further, that we are required to settle all conversions with a conversion date occurring on or after February 1, 2012 in the same manner and will notify holders through the trustee of the manner of settlement on or before such date.

 

If we do not give notice, as described above, as to how we intend to settle, we will satisfy our conversion obligation in cash and ProLogis common shares or, at our option, cash in accordance with the net share settlement upon conversion method as described below under “— Net Share Settlement.” We will treat all holders of notes converting on the same trading day in the same manner. We will not, however, have any obligation to settle our conversion obligations arising on different trading days in the same manner, except for conversions with a conversion date occurring on or after February 1, 2012. That is, we may choose on one trading date to settle in ProLogis common shares only and choose on another trading day to settle in cash or a combination of cash and

ProLogis common shares, provided that we will settle all conversions with a conversion date occurring on or after February 1, 2012 in the same manner.

 

Settlement in Shares.  If we elect to satisfy our conversion obligation entirely in ProLogis common shares, we will deliver to you a number of shares equal to (i) the aggregate principal amount of notes to be converted divided by $1,000, multiplied by (ii) the applicable conversion rate (which will include any increases to reflect any additional shares which you may be entitled to receive as described “— Adjustment to Shares Delivered upon Conversion upon Fundamental Change”). We will deliver such shares as soon as practicable after we have informed you that we have elected to satisfy our conversion obligations entirely in ProLogis common shares.

 

Net Share Settlement.  If we do not elect otherwise, we will settle each $1,000 principal amount of notes being converted by delivering, on the third trading day immediately following the last day of the related observation period (as defined below), cash and ProLogis common shares or, at our option, cash, equal to the sum of the daily settlement amounts (as defined below) for each of the 20 trading days during the related observation period.

 

The “observation period” with respect to any note means the 20 consecutive trading day period beginning on and including the second trading day after you deliver your conversion notice to the conversion agent.

 

The “daily settlement amount,” for each of the 20 trading days during the observation period, shall consist of:

 

 

subject to our right to deliver cash in lieu of all or a portion of such ProLogis common shares as described below under “— Cash Settlement.”

 

The “daily conversion value” means, for each of the 20 consecutive trading days during the observation period, one-twentieth (1/20) of the product of (1) the applicable conversion rate and (2) the daily VWAP of ProLogis common shares (or the consideration into which ProLogis common shares have been converted in connection with certain corporate transactions) on such day.

 

The “daily VWAP” of ProLogis common shares means, for each of the 20 consecutive trading days during the observation period, the per share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page PLD <equity> AQR in respect of the period from 9:30 a.m. to 4:00 p.m. (New York City time) on such trading day (or if such volume-weighted average price is unavailable, the market value of one ProLogis common share on such trading day as our board of trustees determines in good faith using a volume-weighted method).

 

We will deliver cash in lieu of any fractional ProLogis common share issuable in connection with payment of the amounts above (based on the last reported sale price per ProLogis common share on the last day of the applicable observation period).

 

Cash Settlement.  If we so elect, as described in the second paragraph of this “Payment Upon Conversion” section, we may specify a percentage of the amount by which the daily conversion value exceeds $50 that will be settled in cash, or the “cash percentage,” and we will notify you of such cash percentage in the applicable time period as described in the second paragraph of this “— Payment Upon Conversion” section, which notice we refer to as the “cash percentage notice” (such settlement method is being referred to herein as the “cash settlement method upon conversion.”) If we elect to specify a cash percentage, the amount of cash that we will deliver in respect of each trading day in the applicable observation period will equal to the product of (1) the cash percentage and (2) the amount by which the daily conversion value exceeds $50 for such trading day. The number of ProLogis common shares deliverable in respect of each trading day in the applicable observation period will equal (i) the product of (a) 100% minus the cash percentage and (b) the amount by which the daily conversion value exceeds $50 for such trading day, divided by (ii) the daily VWAP of ProLogis common shares for such trading day. If we do not specify a cash percentage, we must settle the entire amount by which the daily conversion value exceeds $50 with ProLogis common shares as described under “— Net Share Settlement” above; provided, however, that we will

deliver cash in lieu of any fractional Prologis common shares issuable in connection with payment of the settlement amount as described above.

 

Except as described in this paragraph, no holder of notes will be entitled, upon conversion of the notes, to any cash payment or adjustment on account of accrued and unpaid interest, including additional interest, if any, on a converted note, or on account of dividends or distributions on ProLogis common shares issued on connection with the conversion. If notes are converted after the close of business on a record date and prior to the opening of business on the next interest payment date, including the date of maturity, holders of such notes at the close of business on the record date will receive interest, including additional interest, if any, payable on such notes on the corresponding interest payment date notwithstanding the conversion. In such event, when the holder surrenders the note for conversion, the holder must deliver payment to us of an amount equal to the interest payable on the interest payment date, including additional interest, if any, on the principal amount to be converted. The foregoing sentence shall not apply to notes called for redemption on a redemption date within the period between the close of business on the record date and the opening of business on the interest payment date, to notes surrendered for conversion in connection with a fundamental change in which we have specified a fundamental change repurchase date that is after a record date and on or prior to the next interest payment date, to notes surrendered for conversion after the record date immediately preceding the maturity date or to notes surrendered for conversion on the interest payment date.

 

Conversion Rate Adjustments

 

The conversion rate will be adjusted as described below, except that we will not make any adjustments to the conversion rate if holders of the notes participate, as a result of holding the notes, in any of the transactions described below without having to convert their notes.

 

Adjustment Events

 

(1) If ProLogis issues common shares as a dividend or distribution on ProLogis common shares, or if ProLogis effects a share split or share combination, the conversion rate will be adjusted based on the following formula:

 

CR’		=		CR0		x		OS’
								OS0

 

where,

 

CR₀ = the conversion rate in effect immediately prior to such event;

 

CR’ = the conversion rate in effect immediately after such event;

 

OS₀ = the number of ProLogis common shares outstanding immediately prior to such event; and

 

OS’ = the number ProLogis common shares outstanding immediately after such event.

 

(2) If ProLogis issues to all or substantially all holders of ProLogis common shares any rights, warrants or convertible securities entitling them, for a period of not more than 60 calendar days, to subscribe for or purchase ProLogis common shares at a price per share less than the last reported sale price per ProLogis common share on the business day immediately preceding the date of announcement of such issuance, the conversion rate will be adjusted based on the following formula (provided that the conversion rate will be readjusted to the extent that such rights, warrants or convertible securities are not exercised prior to their expiration):

 

CR’		=		CR0		x		OS0+X
								OS0+Y

 

where,

 

CR₀ = the conversion rate in effect immediately prior to such event;

 

CR’ = the conversion rate in effect immediately after such event;

 

OS₀ = the number of ProLogis common shares outstanding immediately prior to such event;

X = the total number of ProLogis common shares issuable pursuant to such rights; and

 

Y = the number of ProLogis common shares equal to the aggregate price payable to exercise such rights, warrants or convertible securities divided by the average of the last reported sale prices per ProLogis common share over the ten consecutive trading day period ending on the business day immediately preceding the record date (or, if later, the “ex-date” relating such distribution) for the issuance of such rights, warrants or convertible securities.

 

(3) If ProLogis distributes shares of beneficial interest, evidences of indebtedness or other assets or property of ProLogis to all or substantially all holders of ProLogis common shares, excluding:

 

 

then the conversion rate will be adjusted based on the following formula:

 

CR’

=

CR0

x

SP0

SP0

−

FMV

 

where,

 

CR₀ = the conversion rate in effect immediately prior to such distribution;

 

CR’ = the conversion rate in effect immediately after such distribution;

 

SP₀ = the average of the last reported sale prices of ProLogis common shares over the ten consecutive trading day period ending on the business day immediately preceding the record date for such distribution (or, if earlier, the “ex-date” relating to such distribution); and

 

FMV = the fair market value (as determined by the board of trustees of ProLogis) of the shares of beneficial interest, evidences of indebtedness, assets or property distributed with respect to each outstanding ProLogis common shares on the record date for such distribution (or, if earlier, the “ex-date” relating to such distribution).

 

With respect to an adjustment pursuant to this clause (3) where there has been a payment of a dividend or other distribution on ProLogis common shares in shares of beneficial interest of any class or series, or similar equity interest, of or relating to a subsidiary or other business unit, which we refer to as a “spinoff,” unless we distribute such shares of beneficial interest or equity interests to holders of the notes on the same basis as they would have received had they converted their notes solely into ProLogis common shares immediately prior to such dividend or distribution, the conversion rate in effect immediately before 5:00 p.m., New York City time, on the record date fixed for determination of shareholders entitled to receive the distribution will be increased based on the following formula:

 

CR’

=

CR0

x

FMV0

+

MP0

MP0

 

where,

 

CR₀ = the conversion rate in effect immediately prior to such distribution;

 

CR’ = the conversion rate in effect immediately after such distribution;

 

FMV₀ = the average of the last reported sale prices of the shares of beneficial interest or similar equity interest distributed to holders of ProLogis common shares applicable to one ProLogis common share over the first ten consecutive trading day period after the effective date of the spin-off; and

 

MP₀ = the average of the last reported sale prices of ProLogis common shares over the first ten consecutive trading day period after the effective date of the spin-off.

The adjustment to the conversion rate under the preceding paragraph will occur on the tenth trading day from, and including, the effective date of the spin-off; provided that in respect of any conversion within the ten trading days following any spin-off, references within this paragraph (3) to ten days shall be deemed replaced with such lesser number of trading days as have elapsed between such spin-off and the conversion date in determining the applicable conversion rate.

 

(4) If ProLogis pays any cash dividend or distribution to all or substantially all holders of ProLogis common shares to the extent that the aggregate of all such cash dividends or distributions paid in any quarter exceeds the dividend threshold amount (as defined below) for such quarter, the conversion rate will be adjusted based on the following formula:

 

CR’

=

CR0

x

SP0

−

T

SP0

−

C

 

where,

 

CR₀ = the conversion rate in effect immediately prior to the record date for such distribution;

 

CR’ = the conversion rate in effect immediately after the record date for such distribution;

 

SP₀ = the average of the last reported sale prices of ProLogis common shares over the ten consecutive trading-day period ending on the business day immediately preceding the record date for such distribution (or, if earlier, the “ex-date” relating to such distribution);

 

T = the dividend threshold amount, which shall initially be $0.46 per quarter and which amount shall be appropriately adjusted from time to time for any share dividends on, or subdivisions or combinations of, ProLogis common shares; provided, that if a conversion rate adjustment is required to be made as a result of a distribution that is not a quarterly dividend either in whole or in part, the dividend threshold amount shall be deemed to be zero; and

 

C = the amount in cash per share that ProLogis distributes to holders of ProLogis common shares.

 

(5) If ProLogis or any of its subsidiaries makes a payment in respect of a tender offer or exchange offer for ProLogis common shares, if the cash and value of any other consideration included in the payment per ProLogis common share exceeds the last reported sale price per ProLogis common share on the trading day next succeeding the last date on which tenders or conversions may be made pursuant to such tender or exchange offer, the conversion rate will be increased based on the following formula:

 

CR’

=

CR0

x

AC

+

(SP’

x

OS’)

SP’ × OS0

 

where,

 

CR₀ = the conversion rate in effect on the date such tender or exchange offer expires;

 

CR’ = the conversion rate in effect on the day next succeeding the date such tender or exchange offer expires;

 

AC = the aggregate value of all cash and any other consideration (as determined by the board of trustees of ProLogis) paid or payable for shares purchased in such tender or exchange offer;

 

OS₀ = the number of ProLogis common shares outstanding immediately prior to the date such tender or exchange offer expires;

 

OS’ = the number of ProLogis common shares outstanding immediately after the date such tender or exchange offer expires; and

 

SP’ = the average of the last reported sale prices per ProLogis common share over the ten consecutive trading-day period commencing on the trading day next succeeding the date such tender or exchange offer expires.

If, however, the application of the foregoing formula would result in a decrease in the conversion rate, no adjustment to the conversion rate will be made.

 

As used in this section, “ex-date” means the first date on which the ProLogis common shares trade on the applicable conversion or in the applicable market, regular way, without the right to receive the issuance or distribution in question.

 

Except as stated herein, we will not adjust the conversion rate for the issuance of ProLogis common shares or any securities convertible into or convertible for ProLogis common shares or the right to purchase ProLogis common shares or such convertible or convertible securities.

 

Events That Will Not Result in Adjustments

 

The applicable conversion rate will not be adjusted:

 

 

Adjustments to the applicable conversion rate will be calculated to the nearest 1/10,000th of a share. We will not be required to make an adjustment in the conversion rate unless the adjustment would require a change of at least 1% in the conversion rate. However, we will carry forward any adjustments that are less than 1% of the conversion rate and make such carried forward adjustments, regardless of whether the aggregate adjustment is less than 1% within one year of the first such adjustment carried forward, upon a fundamental change, upon any call of the notes for redemption or upon maturity. Except as described in this section, we will not adjust the conversion rate.

 

Treatment of Reference Property

 

In the event of:

 

 

you will be entitled thereafter to convert your notes, subject to our successor’s right to deliver cash, ProLogis common shares or common stock of our successor or a combination of cash and ProLogis common shares, as described under “— Payment Upon Conversion,” into:

 

 

The amount of cash and any reference property you receive will be based on the daily conversion values of reference property and the applicable conversion rate, as described above.

 

For purposes of the foregoing, the type and amount of consideration that a holder of ProLogis common shares would have been entitled to in the case of reclassifications, consolidations, mergers, sales or transfers of assets or other transactions that cause ProLogis common shares to be converted into the right to receive more than a single type of consideration (determined based in part upon any form of shareholder election) will be deemed to be the weighted average of the types and amounts of consideration received by the holders of ProLogis common shares that affirmatively make such an election.

 

Treatment of Rights.  To the extent that we have a rights plan in effect upon conversion of the notes into ProLogis common shares, you will receive, in addition to ProLogis common shares, the rights under the rights plan, unless prior to any conversion, the rights have separated from the ProLogis common shares, in which case the conversion rate will be adjusted at the time of separation as if we distributed to all holders of ProLogis common shares, our shares of beneficial interest, evidences of indebtedness or assets as described in clause (3) under “— Adjustment Events” above, subject to readjustment in the event of the expiration, termination or redemption of such rights.

 

Voluntary Increases of Conversion Rate.  We are permitted to the extent permitted by law and subject to the applicable rules of the NYSE to increase the conversion rate of the notes by any amount for a period of at least 20 days if our board of trustees determines that such increase would be in our best interest. We may also (but are not required to) increase the conversion rate to avoid or diminish income tax to holders of ProLogis common shares or rights to purchase ProLogis common shares in connection with a dividend or distribution of shares (or rights to acquire shares) or similar event.

 

Tax Effect.  A holder may, in certain circumstances, including the distribution of cash dividends to holders of ProLogis common shares, be deemed to have received a dividend subject to U.S. federal income tax as a result of an adjustment or the nonoccurrence of an adjustment to the conversion rate. For a discussion of the U.S. federal income tax treatment of an adjustment to the conversion rate, see “Certain U.S. Federal Income Tax Considerations.”

 

Adjustment to Shares Delivered upon Conversion upon Fundamental Change

 

If a fundamental change (as defined below) occurs prior to April 5, 2012, and if you elect to convert your notes at any time on or after the 30th scheduled trading day prior to the anticipated effective date of such fundamental change until the related fundamental change repurchase date, the conversion rate will be increased by an additional number of ProLogis common shares (the “additional shares”) as described below (subject to our right to satisfy all or any part of our conversion obligations in cash as described under “— Payment Upon Conversion”). We will notify holders of the occurrence of any such fundamental change and issue a press release no later than 30 scheduled trading days prior to the anticipated effective date of such transaction. We will settle conversions of notes as described below under “— Settlement of Conversions in a Fundamental Change.”

 

A “fundamental change” shall be deemed to occur upon the consummation of any transaction or event (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) in connection with which more than 50% of ProLogis common shares are exchanged for, converted into, acquired for or constitutes solely the right to receive, consideration which is not at least 90% common stock (or American Depositary Shares representing common shares) that is:

 

 

 

The term fundamental change is limited to specified transactions and may not include other events that might adversely affect our financial condition. In addition, the requirement that we offer to repurchase the notes upon a fundamental change may not protect holders in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.

 

The number of additional shares by which the conversion rate will be increased will be determined by reference to the table below, based on the date on which the fundamental change occurs or becomes effective (the “effective date”) and the price (the “share price”) paid per ProLogis common share in the fundamental change. If holders of ProLogis common shares receive only cash in the fundamental change, the share price will be the cash amount paid per share. Otherwise, the share price will be the average of the last reported sale prices per ProLogis common share over the five trading-day period ending on the trading day preceding the effective date of the fundamental change.

 

The share prices set forth in the first row of the table below (i.e., column headers) will be adjusted as of any date on which the conversion rate of the notes is otherwise adjusted. The adjusted share prices will equal the share prices applicable immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the conversion rate immediately prior to the adjustment giving rise to the share price adjustment and the denominator of which is the conversion rate as so adjusted. The number of additional shares will be adjusted in the same manner as the conversion rate as set forth under ‘‘— Conversion Rate Adjustments.”

 

The following table sets forth the share price and the number of additional shares by which the conversion rate per $1,000 principal amount of notes will be increased:

 

 

The exact share prices and effective dates may not be set forth in the table above, in which case:

 

 

Notwithstanding the foregoing, in no event will the total number of ProLogis common shares issuable upon conversion exceed 15.6691 per $1,000 principal amount of notes, subject to adjustments in the same manner as the conversion rate as set forth under “— Conversion Rate Adjustments.”

 

Our obligation to increase the conversion rate as described above could be considered a penalty, in which case the enforceability thereof would be subject to general principles of economic remedies.

 

Settlement of Conversions in a Fundamental Change

 

As described above under “Conversion Rate Adjustments — Treatment of Reference Property,” upon effectiveness of any fundamental change, the notes will be convertible into cash or cash and reference property, as

applicable. If, as described above, we are required to increase the conversion rate by the additional shares as a result of the fundamental change, notes surrendered for conversion will be settled as follows:

 

 

Ownership Limit

 

In order to assist us in maintaining our qualification as a REIT for U.S. federal income tax purposes, no person may own more than 9.8% of the ProLogis common shares, subject to certain exceptions. Notwithstanding any other provision of the notes, no holder of notes will be entitled to conversion of such notes for ProLogis common shares to the extent that receipt of such shares would cause such holder (together with such holder’s affiliates) to exceed the ownership limit contained in our declaration of trust. See “Description of Common Shares — Restrictions on Size of Holdings” in the accompanying prospectus.

 

Calculations in Respect of the Notes

 

Except as explicitly specified otherwise herein, we will be responsible for making all calculations required under the notes. These calculations include, but are not limited to, determinations of the conversion price and conversion rate applicable to the notes. We will make all these calculations in good faith and, absent manifest error, our calculations will be final and binding on holders of the notes. We will provide a schedule of our calculations to the trustee, and the trustee is entitled to rely upon the accuracy of our calculations without independent verification. The trustee will forward our calculations to any holder of notes upon request.

 

Optional Redemption by Us

 

Prior to April 5, 2012, we may not redeem the notes except to preserve ProLogis’ status as a REIT as described below. On or after April 5, 2012, we may at our option redeem all or part of the notes for cash at a price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, on at least 30 days’ and no more than 60 days’ notice. We may not provide notice of a redemption of notes at our option that specifies that we will settle conversions of notes prior to such redemption in cash and ProLogis common shares unless, at the time of such notice, we have available to us sufficient registered ProLogis common shares to satisfy our obligations in respect of any such notes that are converted into cash and ProLogis common shares.

 

You may convert notes or portions of notes called for redemption even if the notes are not otherwise convertible at that time, until the close of business on the day that is two business days prior to the redemption date.

If we decide to redeem fewer than all of the notes, the trustee will select the notes to be redeemed by lot, or in its discretion, on a pro rata basis. If any note is to be redeemed in part only, a new note in principal amount equal to the unredeemed principal portion will be issued. If a portion of your notes is selected for partial redemption and you convert a portion of your notes, the converted portion will be deemed to be part of the portion selected for redemption.

 

If at any time we determine it is necessary to redeem the notes in order to preserve ProLogis’ status as a REIT, we may redeem all of the notes then outstanding for cash at a price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, to the redemption date.

 

We or a third party may, to the extent permitted by applicable law, at any time purchase notes in the open market, by tender at any price or by private agreement. Any notes so purchased may, to the extent permitted by applicable law and subject to restrictions contained in the purchase agreement with the initial purchasers, be reissued or resold or may, at our or such third party’s option, be surrendered to the trustee for cancellation. Any notes surrendered for cancellation may not be reissued or resold and will be canceled promptly.

 

We may deduct and withhold, from the amount payable upon redemption, any amounts required to be deducted and withheld under applicable law.

 

No sinking fund is provided for the notes.

 

Repurchase of Notes at Your Option on Specified Dates

 

On April 1 of 2012, 2017, 2022, 2027, and 2032, you may require us to repurchase any outstanding notes for which you have properly delivered and not withdrawn a written repurchase notice, subject to certain additional conditions. You may submit your notes for repurchase to the paying agent at any time from the opening of business on the date that is 25 business days prior to the repurchase date until the close of business on the fifth business day prior to the repurchase date.

 

We will repurchase each outstanding note for which you have properly delivered and not withdrawn a written repurchase notice at a repurchase price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest up to, but excluding, the repurchase date.

 

We will pay the repurchase price in cash. For a discussion of the tax treatment of a holder receiving cash, see “Certain U.S. Federal Income Tax Considerations — United States Holders of Notes — Sale, Conversion or Redemption of Notes.”

 

Fundamental Change Permits Holders to Require Us to Repurchase Notes

 

If a fundamental change (as defined above in this section) occurs at any time, you will have the right, at your option, to require us to repurchase all of your notes, or any portion of the principal amount thereof that is equal to $1,000 or an integral multiple of $1,000, on a date (the “fundamental change repurchase date”) of our choosing that is not less than 20 nor more than 35 business days after the date of our notice of the fundamental change. The price we are required to pay is equal to 100% of the principal amount of the notes to be purchased plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. Any notes purchased by us will be paid for in cash.

 

On or before the 20th day after the occurrence of a fundamental change, we will provide to all holders of the notes, the trustee and the paying agent a notice of the occurrence of the fundamental change and of the resulting repurchase right. Such notice shall state, among other things:

 

 

 

Simultaneously with providing such notice, we will publish a notice containing this information in a newspaper of general circulation in New York City or publish the information on our website or through such other public medium as we may use at that time.

 

To exercise the repurchase right, you must deliver, on or before the fundamental change repurchase date, the notes to be purchased, duly endorsed for transfer, together with a written repurchase notice and the form entitled “Form of Fundamental Change Repurchase Notice” on the reverse side of the notes duly completed, to the paying agent. Your repurchase notice must state:

 

 

You may withdraw any repurchase notice (in whole or in part) by a written notice of withdrawal delivered to the paying agent prior to the close of business on the business day prior to the fundamental change repurchase date. The notice of withdrawal shall state:

 

 

We will be required to repurchase the notes on the fundamental change repurchase date. You will receive payment of the fundamental change repurchase price promptly following the later of the fundamental change repurchase date or the time of book-entry transfer or the delivery of the notes. If the paying agent holds money or securities sufficient to pay the fundamental change repurchase price of the notes on the second business day following the fundamental change repurchase date, then:

 

 

The repurchase rights of the holders could discourage a potential acquirer of us. The fundamental change repurchase feature, however, is not the result of management’s knowledge of any specific effort to obtain control of us by any means or part of a plan by management to adopt a series of anti-takeover provisions.

 

If a fundamental change were to occur, we may not have enough funds to pay the fundamental change repurchase price. See “Risk Factors” under the caption “We may be unable to repurchase notes on the specified dates or upon the occurrence of a fundamental change.” If we fail to repurchase the notes when required following a fundamental change, we will be in default under the indenture. In addition, we have incurred, and may in the future incur, other indebtedness with change in control provisions permitting the holders thereof to accelerate or to require us to repurchase such indebtedness upon the occurrence of specified change in control events or on some specific dates.

 

Certain of our debt agreements may limit our ability to repurchase notes.

No notes may be purchased at the option of holders upon a fundamental change if there has occurred and is continuing an event of default other than an event of default that is cured by the payment of the fundamental change repurchase price.

 

No Personal Liability

 

No past, present or future trustee, officer, employee or shareholder of ours or any successor to us will have any liability for any of our obligations under the notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of debt securities by accepting the debt securities waives and releases all such liability. The waiver and release are part of the consideration for the issue of debt securities.

 

No Shareholder Rights for Holders of Notes

 

Holders of notes, as such, will not have any rights as shareholders of ProLogis (including, without limitation, voting rights and rights to receive any dividends or other distributions on ProLogis common shares).

 

Security and Sharing Arrangements

 

Pursuant to various pledge agreements, ProLogis and certain of its subsidiaries have pledged specified intercompany loans to Bank of America, N.A., as collateral agent, for the benefit of the “Credit Parties” under and as defined in the Security Agency Agreement. The Credit Parties under the Security Agency Agreement include the holders of specified credit obligations of ProLogis, including, all obligations arising under ProLogis’ global credit facility, certain hedging obligations of ProLogis, other “Designated Senior Debt” specified therein, as well as any other senior debt of ProLogis designated from time to time by ProLogis as “Designated Senior Debt” in accordance with the Security Agency Agreement.

 

The notes are included within the definition of “Designated Senior Debt” and holders of the notes will be entitled to share ratably in any recoveries received by the holders of the subsidiary debt subject to such arrangements, so as to effectively eliminate or mitigate the consequence of any structural subordination of the notes that might otherwise exist.

 

The Security Agency Agreement also provides that, upon the occurrence of a triggering event (which includes bankruptcy or insolvency events of ProLogis or any other borrower under its global credit facility, the acceleration of indebtedness under the global credit facility or other indebtedness in excess of $50 million and similar events), the Credit Parties will, subject to certain exceptions and limitations (including, in the case of the holders of the debt securities, the requirements set forth in the following paragraph), share payments and other recoveries received from ProLogis and its subsidiaries to be applied toward the credit obligations held by such Credit Parties in such a manner that all Credit Parties receive payment of substantially the same percentage of their respective credit obligations. These sharing arrangements are intended to eliminate or mitigate structural subordination issues that otherwise might entitle some Credit Parties (such as Credit Parties that lend directly to a subsidiary of ProLogis or that have the benefit of guarantees from one or more subsidiaries of ProLogis) to recover a higher percentage of their credit obligations than other Credit Parties that do not have the benefit of such arrangements.

 

Within 45 days after a triggering event, the collateral agent will deliver a notice of such event to the trustee. As promptly as practicable, but in any event within 90 days after receiving any notice from the collateral agent with respect to the occurrence of a triggering event, the trustee will (x) forward such notice to holders of the debt securities, (y) execute and deliver, on behalf of the holders, an acknowledgment entitling the holders to participate in the sharing arrangements described in the preceding paragraph and (z) take such further actions as a majority of the holders (voting as a single class) may request with respect thereto and with respect to any rights such holders or the trustee may have under the Security Agency Agreement; provided that, in the case of this clause (z), such holders shall have offered the trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. Upon delivery of such acknowledgement by the trustee, the holders of the debt securities will be entitled to participate in the sharing arrangements described above.

The Security Agency Agreement allows ProLogis to (i) designate other senior debt of ProLogis as Designated Senior Debt; (ii) specify which Credit Parties are entitled to vote on issues arising under the Security Agency Agreement (and the holders of the debt securities will be non-voting Credit Parties); and/or (iii) revoke its designation of the debt securities as Designated Senior Debt effective not less than 90 days after disclosing such revocation (in a footnote or otherwise) in a Form 10-Q or Form 10-K filed with the SEC. In the event that ProLogis elects to revoke its designation of the debt securities as Designated Senior Debt under the Security Agency Agreement, the holders of the debt securities will cease to be Credit Parties and will no longer be entitled to any benefit of the security and sharing arrangements contemplated by the Security Agency Agreement and the related pledge agreements. In addition, a majority of the voting Credit Parties under the Security Agency Agreement may elect (a) to release some or all of the collateral held pursuant to the Security Agency Agreement and/or (b) under certain circumstances, to defer payments to Credit Parties pursuant to the sharing arrangements either (i) generally for various reasons or (ii) specifically to certain holders of debt (including the holders of the debt securities) if the collateral agent or the voting Credit Parties determine, in their sole discretion, that such holders might receive more than their share of payments and other recoveries pursuant to the Security Agency Agreement. Without notice to or consent of the holders of the debt securities, the Security Agency Agreement may be amended by ProLogis, the collateral agent and a majority of the voting Credit Parties, even if such amendment is adverse to the interests of the holders of the debt securities.

 

The Security Agency Agreement provides that whenever the majority voting Credit Parties are granted and exercise the right to make decisions under the Security Agency Agreement, including decisions with respect to pledged collateral or how and when recoveries are shared, such decisions will be made in their sole and complete discretion. The voting Credit Parties will have no obligation or duty (including implied obligations of reasonableness, good faith or fair dealing) to any holder of debt securities and have no obligation or duty to take into consideration the interests of the holders of the debt securities when taking any action or making any determination contemplated by the Security Agency Agreement. By accepting the benefits of the Security Agency Agreement, each holder of debt securities expressly waives and disclaims any claim or cause of action based upon any vote, decision or determination (including the giving or withholding of consent) made by the majority voting Credit Parties in accordance with the terms of the Security Agency Agreement. Bank of America, N.A., which acts as the collateral agent under the Security Agency Agreement and under the various pledge agreements, is also a voting Credit Party under the Security Agency Agreement and its interests in such capacity may conflict with the interests of the holders of the debt securities.

 

Notwithstanding any benefit to which a holder of notes may become entitled pursuant to the security and sharing arrangements referred to above, the notes will be effectively subordinated to (1) our indebtedness that is secured by collateral other than the intercompany loans referred to above, to the extent of the value of such collateral and (2) liabilities of our subsidiaries that are not subject to, or are owing to creditors not parties to, the sharing arrangements.

 

Investors in Designated Senior Debt should refer to the Security Agency Agreement for further information regarding the collateral subject thereto, the sharing arrangements set forth therein and the restrictions and limitations on the rights of the holders of the debt securities thereunder. By purchasing a debt security that falls within the definition of Designated Senior Debt, each investor will be deemed to acknowledge that its right to share in the benefits of such collateral and participate in such sharing arrangements are limited as described above and as more fully set forth in the Security Agency Agreement.

 

Merger, Consolidation or Sale

 

We may consolidate with or merge with or into another entity, or sell, lease or convey all or substantially all of our assets to another entity, provided that the following three conditions are met:

 

(1) After the transaction, we, or a person organized and existing under the laws of the United States or one of the fifty states or are the continuing entity. If the continuing entity is an entity other than us, that entity must also assume our payment obligations under the Indenture, as well as, the due and punctual performance and observance of all of the covenants contained in the Indenture;

(2) After giving effect to the transaction and treating any indebtedness which became an obligation of ours or any of our subsidiaries as a result of the transaction as having been incurred by us or such subsidiary at the time of such transaction, an event of default (or an event which, with notice or lapse of time or both, would become an event of default) has not occurred under the Indenture. Additionally, the transaction may not cause an event which, after notice or a lapse of time, or both, would become an event of default; and

 

(3) The continuing entity delivers an officer’s certificate and legal opinion covering (1) and (2) above.

 

Provision of Financial Information

 

Whether or not we are subject to Section 13 or 15(d) of the Exchange Act, we will file with the SEC, to the extent permitted under the Exchange Act, the annual reports, quarterly reports and other documents which we would have been required to file with the SEC pursuant to Section 13 or 15(d) if we were so subject. We will file the documents with the SEC on or prior to the respective filing dates by which we would have been required so to file the documents if we were so subject. We will also in any event within 15 days of each required filing date transmit to all holders of debt securities issued under the indenture, including the notes as their names and addresses appear in the security register, without cost to such holders, copies of the annual reports and quarterly reports which we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject to Section 13 or 15(d). Additionally, we will provide the trustee with copies of the annual reports, quarterly reports and other documents which we would have been required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act if we were subject to such sections. If filing the documents by us with the SEC is not permitted under the Exchange Act, we will promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder.

 

Events of Default, Notice and Waiver

 

Each of the following is an event of default with respect to the notes:

 

(1) default in the payment of any installment of interest or additional amounts payable on the notes which continues for 30 days;

 

(2) default in the payment of the principal or premium, if any, on the notes at its maturity or redemption date;

 

(3) failure by us to comply with our obligation to convert the notes into cash, ProLogis common shares or combination thereof, as applicable, upon exercise of a holder’s conversion right, and such failure continues for a period of 10 days;

 

(4) failure by us to issue a fundamental change notice when due, and such failure continues for a period of two days;

 

(5) default in the performance of any other of our covenants contained in the Indenture relating to the notes, which continues for 60 days after written notice as provided in the Indenture;

 

(6) default in the payment of an aggregate principal amount exceeding $10,000,000 ($50,000,000 with respect to debt securities issued after the date of the Second Supplemental Indenture, after such time as any debt securities issued under the Indenture prior to the date of the Second Supplemental Indenture are no longer outstanding) under any bond, note or other evidence of indebtedness or any mortgage, indenture or other instrument under which such indebtedness is issued or by which such indebtedness is secured (or any such indebtedness of any of our subsidiaries, which we have guaranteed), such default having occurred after the expiration of any applicable grace period and having resulted in the acceleration of the maturity of such indebtedness, but only if such indebtedness is not discharged or such acceleration is not rescinded or annulled within 10 days after written notice as provided in the Indenture;

 

(7) the entry by a court of competent jurisdiction of one or more judgments, orders or decrees against us or any of our subsidiaries in an aggregate amount, excluding amounts fully covered by insurance, in excess of $10,000,000 ($50,000,000 with respect to debt securities issued after the date of the Second Supplemental Indenture after such time as any debt securities issued under the Indenture prior to the date of the Second

Supplemental Indenture are no longer outstanding) and such judgments, orders or decrees remain undischarged, unstayed and unsatisfied in an aggregate amount, excluding amounts fully covered by insurance, in excess of $10,000,000 ($50,000,000 with respect to debt securities issued after the date of the Second Supplemental Indenture after such time as any debt securities issued under the Indenture prior to the date of the Second Supplemental Indenture are no longer outstanding) for a period of 30 consecutive days; and

 

(8) events of bankruptcy, insolvency or reorganization, or court appointment of a receiver, liquidator or trustee for us or any significant subsidiary or for all or substantially all of our or our significant subsidiary’s property.

 

The term significant subsidiary means each of our significant subsidiaries, as defined in Regulation S-X promulgated under the Securities Act.

 

If an event of default under the Indenture with respect to the notes occurs and is continuing, then in every such case, unless the principal of the notes shall already have become due and payable, the trustee or the holders of not less than 25% in principal amount of the notes may declare the principal on the notes to be due and payable immediately by written notice to us that payment of the notes is due, and to the trustee if given by the holders. However, at any time after such a declaration of acceleration with respect to the notes has been made, but before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of not less than a majority in principal amount of the notes may rescind and annul such declaration and its consequences if we shall have deposited with the trustee all required payments of the principal of, and premium and interest on, the notes, plus fees, expenses, disbursements and advances of the trustee and all events of default, other than the nonpayment of accelerated principal, and the interest, with respect to the notes have been cured or waived as provided in the Indenture. The Indenture also provides that the holders of not less than a majority in principal amount of the notes may waive any past default with respect to such series and its consequences, except a default in the payment of the principal of, or interest payable on the notes or in respect of a covenant or provision contained in the Indenture that cannot be modified or amended without the consent of the holder of each outstanding note affected the proposed modification or amendment.

 

The trustee is required to give notice to the holders of the notes within 90 days of a default under the Indenture; provided, however, that the trustee may withhold notice to the holders of the notes of any default except a default in the payment of the principal of, or interest payable on the notes if the responsible officers of the trustee consider such withholding to be in the interest of such holders.

 

The Indenture provides that no holders of the notes may institute any proceedings, judicial or otherwise, with respect to the Indenture or for any remedy which the Indenture provides, except in the case of failure of the trustee, for 60 days, to act after it has received a written request to institute proceedings in respect of an event of default from the holders of not less than 25% in principal amount of the outstanding notes, as well as an offer of reasonable indemnity. This provision will not prevent, however, any holder of the notes from instituting suit for the enforcement of payment of the principal of, or interest on, the notes at the due date of the notes.

 

Subject to provisions in the Indenture relating to its duties in case of default, the trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any holders of notes then outstanding under the Indenture, unless such holders shall have offered to the trustee reasonable security or indemnity. The holders of not less than a majority in principal amount of the outstanding notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or of exercising any trust or power conferred upon the trustee. However, the trustee may refuse to follow any direction which is in conflict with any law or the Indenture, which may involve the trustee in personal liability or which may be unduly prejudicial to the holders of the notes not joining in the proceeding.

 

Within 120 days after the close of each fiscal year, we must deliver to the trustee a certificate, signed by one of several specified officers, stating whether or not such officer has knowledge of any default under the Indenture and, if so, specifying each such default and the nature and status of the default.

Modification of the Indenture

 

Modifications and amendments of the Indenture may be made with the consent of the holders of not less than a majority in principal amount of all outstanding debt securities issued under the indenture, including the notes, which are affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the holder of each debt security affected by the modification or amendment:

 

(1) change the stated maturity of the principal of, or premium or make-whole amounts, if any, or any installment of principal of or interest or additional amounts payable on, any such debt security;

 

(2) reduce the principal amount of, or the rate or amount of interest on, or any premium or make-whole amounts payable on redemption of, or any additional amounts payable with respect to, any such debt security, or reduce the amount of principal of an original issue discount security or make-whole amount, if any, that would be due and payable upon declaration of acceleration of the maturity of the security or would be provable in bankruptcy, or adversely affect any right of repayment of the holder of any such debt security;

 

(3) change the place of payment, or the coin or currency, for payment of principal of, and premium or make-whole amounts, if any, or interest on, or any additional amounts payable with respect to, any such debt security;

 

(4) impair the right to institute suit for the enforcement of any payment on or with respect to any such debt security;

 

(5) reduce the above-stated percentage of outstanding debt securities of any series, including the notes, necessary to modify or amend the Indenture, to waive compliance with a provisions of the debt security or defaults and consequences under the Indenture or to reduce the quorum or voting requirements set forth in the Indenture; or

 

(6) modify any of the provisions relating to modification of the Indenture or any of the provisions relating to the waiver of past defaults or covenants, except to increase the required percentage to effect such action or to provide that other provisions may not be modified or waived without the consent of the holder of the affected debt security.

 

In addition, with respect to the notes, without the consent of each holder of an outstanding note affected, no amendment may make any change that adversely affects the conversion rights of any notes, or reduce the fundamental change repurchase price, redemption price or repurchase price of any note or amend or modify in any manner adverse to the holders of notes our obligation to make such payments or the provisions relating to redemption or repurchase of the notes, whether through an amendment or waiver of provisions in the covenants, definitions or otherwise.

 

The holders of not less than a majority in principal amount of outstanding notes have the right to waive our compliance with covenants in the Indenture applicable to the notes other than those covenants which require the consent of each affected note holder with respect to modifications or amendments to such covenant.

 

Modifications and amendments of the Indenture may be made by us and the trustee without the consent of any holder of debt securities for any of the following purposes:

 

(1) to evidence the succession of another person to us as obligor under the Indenture;

 

(2) to add to our covenants for the benefit of the holders of all or any series of debt securities or to surrender any right or power conferred upon us in the Indenture;

 

(3) to add events of default for the benefit of the holders of all or any series of debt securities;

 

(4) to add or change any provisions of the Indenture to facilitate the issuance of, or to liberalize terms of, debt securities in bearer form, or to permit or facilitate the issuance of debt securities in uncertificated form, provided that such action shall not adversely affect the interests of the holders of the debt securities of any series in any material respect;

(5) to change or eliminate any provisions of the Indenture, provided that any such change or elimination will become effective only when there are no debt securities outstanding of any series created prior to such change which are entitled to the benefit of that provision;

 

(6) to secure the debt securities;

 

(7) to establish the form or terms of debt securities of any series and any related coupons;

 

(8) to provide for the acceptance of appointment by a successor trustee or facilitate the administration of the trust under the Indenture by more than one trustee;

 

(9) to cure any ambiguity, defect or inconsistency in the Indenture or to make any other changes, provided that in each case, the action shall not adversely affect the interests of holders of debt securities of any series in any material respect;

 

(10) to close the Indenture with respect to the authentication and delivery of additional series of debt securities or to qualify, or maintain qualification of, the Indenture under the Trust Indenture Act of 1939; or

 

(11) to supplement any of the provisions of the Indenture to the extent necessary to permit or facilitate defeasance and discharge of any series of such debt securities, provided that the action shall not adversely affect the interests of the holders of the debt securities of any series in any material respect.

 

The Indenture provides that in determining whether the holders of the requisite principal amount of outstanding debt securities of a series have given any request, demand, authorization, direction, notice, consent or waiver under the Indenture or whether a quorum is present at a meeting of holders of debt securities:

 

(1) the principal amount of an original issue discount security that will be deemed to be outstanding shall be the amount of the principal of the security that would be due and payable as of the date of the determination upon declaration of acceleration of the maturity of the debt security;

 

(2) the principal amount of a debt security denominated in a foreign currency that will be deemed outstanding shall be the United States dollar equivalent, determined on the issue date for the debt security, of the principal amount, or, in the case of an original issue discount security, the United States dollar equivalent on the issue date of the debt security of the amount determined as provided in (1) above;

 

(3) the principal amount of an indexed security that shall be deemed outstanding will be the principal face amount of the indexed security at original issuance, unless otherwise provided with respect to the indexed security pursuant to Section 301 of the Indenture; and

 

(4) debt securities owned by us or any other obligor upon the debt securities or any of our affiliates or of the other obligor will be disregarded.

 

The Indenture contains provisions for convening meetings of the holders of debt securities of a series. A meeting may be called at any time by the trustee, and also, upon request, by us or the holders of at least 10% in principal amount of the outstanding debt securities of that series, in any such case upon notice given as provided in the Indenture.

 

Except for any consent that must be given by the holder of each debt security affected by modifications and amendments of the Indenture, any resolution presented at a meeting or at an adjourned meeting duly reconvened, at which a quorum is present, may be adopted by the affirmative vote of the holders of a majority in principal amount of the outstanding debt securities of that series; provided, however, that, except as referred to above, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that may be made, given or taken by the holders of a specified percentage, which is less than a majority, in principal amount of the outstanding debt securities of a series may be adopted at a meeting or adjourned meeting duly reconvened at which a quorum is present by the affirmative vote of the holders of the specified percentage in principal amount of the outstanding debt securities of that series. Any resolution passed or decision taken at any meeting of holders of debt securities of any series duly held in accordance with the Indenture will be binding on all holders of debt securities of that series. The quorum at any meeting called to adopt a resolution, and at any reconvened meeting, will be persons holding or representing a majority in principal amount of the outstanding debt securities of a series;

provided, however, that if any action is to be taken at the meeting with respect to a consent or waiver which may be given by the holders of not less than a specified percentage in principal amount of the outstanding debt securities of a series, the persons holding or representing the specified percentage in principal amount of the outstanding debt securities of that series will constitute a quorum.

 

Notwithstanding the foregoing provisions, if any action is to be taken at a meeting of holders of debt securities of any series with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that the Indenture expressly provides may be made, given or taken by the holders of a specified percentage in principal amount of all outstanding debt securities affected the action, or of the holders of that series and one or more additional series:

 

(1) there shall be no minimum quorum requirement for the meeting; and

 

(2) the principal amount of the outstanding debt securities of that series that vote in favor of the request, demand, authorization, direction, notice, consent, waiver or other action will be taken into account in determining whether the request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under the Indenture.

 

Any request, demand, authorization, direction, notice, consent, waiver or other action provided by the Indenture to be given or taken by a specified percentage in principal amount of the holders of any or all series of debt securities may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by the specified percentage of holders in person or by agent duly appointed in writing; and, except as otherwise expressly provided in the Indenture, the action will become effective when the instrument or instruments are delivered to the trustee. Proof of execution of any instrument or of a writing appointing any the agent will be sufficient for any purpose of the Indenture and, subject to the Indenture provisions relating to the appointment of any such agent, conclusive in favor of the trustee and us, if made in the manner specified above.

 

Registration and Transfer

 

Subject to limitations imposed upon debt securities issued in book-entry form, the debt securities of any series, including the notes, will be exchangeable for other debt securities of the same series and of a like aggregate principal amount and tenor of different authorized denominations upon surrender of the debt securities at the corporate trust office of the trustee. In addition, subject to the limitations imposed upon debt securities issued in book-entry form, the debt securities of any series may be surrendered for conversion or registration of transfer of the security at the corporate trust office of the trustee. Every debt security surrendered for registration of transfer or exchange will be duly endorsed or accompanied by a written instrument of transfer. No service charge will be made for any registration of transfer or exchange of any debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. We may at any time designate a transfer agent, in addition to the trustee, with respect to any series of debt securities. If we have designated such a transfer agent or transfer agents, we may at any time rescind the designation of any such transfer agent or approve a change in the location at which any such transfer agent acts, except that we will be required to maintain a transfer agent in each place of payment for the series.

 

Neither we nor the trustee will be required to

 

(1) issue, register the transfer of or exchange debt securities of any series during a period beginning at the opening of business 15 days before any selection of debt securities of that series to be redeemed and ending at the close of business on the day of mailing of the relevant notice of redemption;

 

(2) register the transfer of or exchange any debt security, or portion of security, called for redemption, except the unredeemed portion of any debt security being redeemed in part; or

 

(3) issue, register the transfer of or exchange any debt security which has been surrendered for repayment at the option of the holder, except the portion, if any, of such debt security not to be so repaid.

Trustee

 

U.S. Bank National Association will be the trustee, registrar, conversion agent, bid solicitation agent and paying agent. Under the Indenture, the trustee may resign or be removed with respect to the notes, and a successor trustee may be appointed to act with respect to the notes. If an event of default occurs and is continuing, the trustee will be required to use the degree of care and skill of a prudent man in the conduct of his own affairs. The trustee will become obligated to exercise any of its powers under the Indenture at the request of any of the holders of any notes only after those holders have offered the trustee indemnity satisfactory to it. If the trustee becomes one of our creditors, it will be subject to limitations on its rights to obtain payment of claims or to realize on some property received for any such claim, as security or otherwise. The trustee is permitted to engage in other transactions with us. If, however, it acquires any conflicting interest, it must eliminate that conflict or resign.

 

Governing Law

 

The indenture provides that it and the notes will be governed by, and construed in accordance with, the laws of the State of New York.

 

Registration Rights; Additional Interest

 

We and the initial purchasers of the notes entered into a registration rights agreement on March 26, 2007. Pursuant to the registration rights agreement, we agreed:

 

 

The registration rights agreement permits us to prohibit offers and sales of registrable securities pursuant to the shelf registration statement for a period not to exceed an aggregate of 45 days in any three-month period and not to exceed an aggregate of 90 days in any 12-month period, under certain circumstances relating to pending corporate developments, public filings with the SEC and similar events and subject to certain conditions. We refer to any such period during which we may prohibit offers and sales as a “suspension period.” We need not specify the nature of the event giving rise to a suspension in any notice to holders of the registrable securities of the existence of such a suspension. Each holder, by its acceptance of the notes, agrees to hold any such suspension notice in response to a notice of a proposed sale in confidence. However, if the suspension relates to a proposed or pending material business transaction, the disclosure of which our board of trustees determines in good faith would be reasonably likely to impede our ability to consummate such transaction, or would otherwise be seriously detrimental to us and our subsidiaries taken as a whole, we may extend the suspension period from 45 days to 60 days in any three-month period or from 90 days to 120 days in any 12-month period.

 

In addition, if we deem it necessary to file a post-effective amendment to the registration statement in order to make changes to the information in the prospectus regarding the selling holders or the plan of distribution, we may suspend sales under the registration statement until the date on which the post-effective amendment is declared effective by the SEC; provided, however, that any days in any such suspension period shall count towards the 45- and 90-day periods (or the extended 60-day and 120-day periods, if applicable) referred to in the previous paragraph.

“Registrable securities” means each note and any ProLogis common shares delivered upon conversion of the notes; however, that they will cease being registrable securities upon the earlier of:

 

 

Holders of registrable securities must deliver to us certain information to be used in connection with, and to be named as selling securityholders in, the shelf registration statement in order to have their registrable securities included in the shelf registration statement. Any holder that does not duly complete and deliver a questionnaire or provide the information it requires will not be named as a selling securityholder in the shelf registration statement and will not be permitted to sell any registrable securities held by that holder pursuant to the shelf registration statement. We cannot assure you that we will be able to maintain an effective and current shelf registration statement as required. The absence of an effective shelf registration statement is likely to limit a holder’s ability to sell its registrable securities and adversely affect the price, if any, at which it may sell its registrable securities.

 

If:

 

 

then we will pay additional interest to each holder of notes then outstanding that constitute registrable securities as set forth below.

 

We refer to each event described in the bullet points above as a “registration default.”

 

Additional interest will accrue on the notes then outstanding that constitute registrable securities, from, and including, the day following the registration default to, but excluding, the day on which the registration default has been cured. Additional interest will be paid semi-annually in arrears, with the first semi-annual payment due on the

first interest payment date, as applicable, following the date on which such additional interest begins to accrue, and will accrue at a rate per year equal to:

 

 

In no event will additional interest accrue at a rate per year exceeding 0.50%.

 

We will not pay any additional interest on any note after it has been converted for ProLogis common shares. If a note ceases to be outstanding during a registration default, we will prorate the additional interest to be paid with respect to that note. So long as a registration default continues, we will pay additional interest in cash on April 1 and October 1 of each year to each holder who is entitled to receive additional interest in respect to registrable securities of which the holder was the holder of record at the close of business on the immediately preceding March 15 and September 15, respectively. Following the cure of a registration default, additional interest will cease to accrue with respect to that registration default. In addition, no additional interest will accrue after the period we must keep the shelf registration statement effective under the Securities Act or on any note that ceases to be a registrable security. However, we will remain liable for any previously accrued additional interest. Other than our obligation to pay additional interest, we will not have any liability for damages with respect to a registration default on any registrable securities.

 

We agreed in the registration rights agreement to give notice to all holders of the filing and effectiveness of the initial shelf registration statement by release through a reputable national newswire service; provided that if we designate a previously filed and effective shelf registration statement for use by holders of registrable securities, in lieu of the foregoing notice we will provide notice of our designation of such shelf registration statement and the date on which we will first make available for use by selling securityholders a prospectus thereunder.

 

A holder of registrable securities that does not provide us with a completed questionnaire or the information called for by it on or prior to the tenth business day before the date the initial shelf registration statement becomes effective will not be named as a selling security holder in the shelf registration statement when it becomes effective and will not able to use the shelf registration statement to resell registrable securities. Similarly, if we designate an effective shelf registration statement for use by selling securityholders, a holder of registrable securities that does not provide us with a completed questionnaire or the information called for by it on or prior to the tenth business day before the date of the initial prospectus made available to selling securityholders will not be named as a selling securityholder in the prospectus and will not able to use the shelf registration statement to resell registrable securities. However, in either case, such a holder of registrable securities may thereafter provide us with a completed questionnaire, following which we will, as promptly as reasonable practicable after the date we receive the completed questionnaire, but in any event within ten business days after that date (except as described below), file a supplement to the prospectus relating to the shelf registration statement or, if required, file a post-effective amendment or a new shelf registration statement in order to permit resales of such holder’s registrable securities. However, if we receive the questionnaire during a suspension period, or we initiate a suspension period within five business days after we receive the questionnaire, then we will except as described below, make the filing within ten business days after the end of the suspension period. We will not be required to file more than three such amendments or supplements for all holders during a fiscal quarter. If we file a post-effective amendment or a new shelf registration statement, then we will use our respective reasonable best efforts to cause the post-effective amendment or new shelf registration statement to be declared effective under the Securities Act, as promptly as practicable, but in any event by the 30th day in the case of a post-effective amendment and the 60^th day in the case of a new shelf registration statement, after the date the registration rights agreement requires us to file the post-effective amendment or new registration statement, as applicable.

 

If a holder does not deliver a duly completed questionnaire on or before the tenth business day before the effective date of the original shelf registration statement or on or before the tenth business day before the date the prospectus is first made available for use by selling securityholders, the holder could experience significant additional delay. To the extent that any holder of registrable securities identified in the shelf registration statement is a broker-dealer, or is an affiliate of a broker-dealer that did not acquire its registrable securities in the ordinary

course of its business or that at the time of its purchase of registrable securities had an agreement or understanding, directly or indirectly, with any person to distribute the registrable securities, we understand that the SEC may take the view that such holder is, under the SEC’s interpretations, an “underwriter” within the meaning of the Securities Act.

 

This summary of the registration rights agreement is not complete and is qualified in its entirety by reference to the registration rights agreement.

 

Book-Entry System

 

The Depository Trust Company, New York, New York (“DTC”), is acting as securities depository for the notes. The notes have been issued as fully-registered securities registered in the name of Cede & Co., which is DTC’s nominee. Fully-registered global notes in book-entry form have been issued with respect to the notes.

 

Except as described below, each global note may be transferred, in whole and not in part, only to DTC, to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in global notes will be represented, and transfers of such beneficial interests will be made, through accounts of financial institutions acting on behalf of beneficial owners either directly as account holders, or indirectly through account holders, at DTC. Beneficial interests will be in minimum denominations of $1,000 and integral multiples of $1,000.

 

So long as DTC or its nominee is the registered owner of a global note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the debt securities represented by the global note for all purposes under the indenture. Owners of beneficial interests in a global note will not be entitled to have debt securities represented by such global note registered in their names, will not receive or be entitled to receive physical delivery of certificated notes, and will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the trustee thereunder. Accordingly, each holder owning a beneficial interest in a global note must rely on the procedures of DTC and, if such holder is not a participant or an Indirect Participant, on the procedures of the participant through which such holder owns its interest, to exercise any rights of a holder of debt securities under the Indenture or such global note. We understand that under existing industry practice, in the event that we request any action of holders of debt securities, or a holder that is an owner of a beneficial interest in a global note desires to take any action that DTC, as the holder of such global note, is entitled to take, DTC would authorize the participants to take such action and the participants would authorize holders owning through such participants to take such action or would otherwise act upon the instruction of such holders. Neither we nor the trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of debt securities by DTC, or for maintaining, supervising or reviewing any records of DTC relating to such debt securities.

 

Exchanges Among the Global Notes

 

Any beneficial interest in one of the global notes that is transferred to a person who takes delivery in the form of an interest in another global note will, upon transfer, cease to be an interest in such global note and become an interest in the other global note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other global note for as long as it remains such an interest.

 

Definitive Notes

 

A global note is exchangeable for definitive securities in registered certificated form (“certificated notes”) if

 

(1) DTC (a) notifies the issuer that it is unwilling or unable to continue as depositary for the global notes or (b) has ceased to be a clearing agency registered under the Exchange Act, and in each cash the issuer fails to appoint a successor depositary;

 

(2) we issuer, at our option, notifies the trustee in writing that we elects to cause the issuance of the certificated notes; or

 

(3) there shall have occurred and be continuing a default or event of default with respect to the debt securities.

In all cases, certificated notes delivered in exchange for any global note or beneficial interests in global notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of DTC (in accordance with its customary procedures).

 

Certain Book-Entry Procedures for the Global Notes

 

The descriptions of the operations and procedures of DTC set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the DTC and are subject to change by them from time to time. Neither we nor the initial purchasers take any responsibility for these operations or procedures, and investors are urged to contact the relevant system or its participants directly to discuss these matters.

 

DTC has advised us that it is:

 

(1) a limited-purpose trust company organized under the New York State Banking Law;

 

(2) a “banking organization” within the meaning of the New York State Banking Law;

 

(3) a member of the Federal Reserve System;

 

(4) a “clearing corporation” within the meaning of the New York Uniform Commercial Code, as amended; and

 

(5) a “clearing agency” registered pursuant to Section 17A of the Exchange Act.

 

DTC was created to hold securities for its participants and facilitates the clearance and settlement of securities transactions between participants through electronic book-entry changes to the accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. DTC’s participants include securities brokers and dealers (including one or more of the initial purchasers), banks and trust companies, clearing corporations and certain other organizations. Indirect access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the “Indirect Participants”) that clear through or maintain a custodial relationship with a participant, either directly or indirectly. Investors who are not participants may beneficially own securities held by or on behalf of DTC only through participants or Indirect Participants.

 

We expect that pursuant to procedures established by DTC (1) upon deposit of each global note, DTC will credit the accounts of participants designated by the initial purchasers with an interest in the global note and (2) ownership of the debt securities will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the interests of participants) and the records of participants and the Indirect Participants (with respect to the interests of persons other than participants).

 

The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Accordingly, the ability to transfer interests in the debt securities represented by a global note to such persons may be limited. In addition, because DTC can act only on behalf of its participants, who in turn act on behalf of persons who hold interests through participants, the ability of a person having an interest in debt securities represented by a global note to pledge or transfer such interest to persons or entities that do not participate in DTC’s system, or to otherwise take actions in respect of such interest, may be affected by the lack of a physical definitive security in respect of such interest.

 

Payments with respect to the principal of, and premium, if any, additional interest, if any, and interest on, any debt securities represented by a global note registered in the name of DTC or its nominee on the applicable record date will be payable by the trustee to or at the direction of DTC or its nominee in its capacity as the registered holder of the global note representing such debt securities under the Indenture. Under the terms of the indenture, we and the trustee may treat the persons in whose names the debt securities, including the global notes, are registered as the owners hereof for the purpose of receiving payment thereon and for any and all other purposes whatsoever. Accordingly, neither we nor the trustee has or will have any responsibility or liability for the payment of such amounts to owners of beneficial interests in a global note (including principal, premium, if any, additional interest, if any, and interest). We understand that it is DTC’s current practice, upon DTC’s receipt of any payment of principal of, or any interest or premium on, global securities such as the global notes, to credit the accounts of the

applicable direct participants on the applicable payment date with payment in amounts proportionate to their respective beneficial interests in the principal amount of a global note as shown on the records of DTC. Payments by the participants and the Indirect Participants to the owners of beneficial interests in a global note will be governed by standing instructions and customary industry practice and will be the responsibility of the participants or the Indirect Participants and DTC.

 

Transfers between participants in DTC will be effected in accordance with DTC’s procedures, and will be settled in same-day funds.

 

Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in global notes among participants in DTC, DTC is under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the trustee will have any responsibility for the performance by DTC or its respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

 

General

 

The following is a discussion of certain material U.S. federal income tax consequences of the purchase, ownership and disposition of the notes. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations under the Code (the “Treasury Regulations”), and administrative and judicial interpretations of the Code, as of the date of this prospectus supplement, all of which are subject to change, possibly on a retroactive basis. This summary is for general information only and does not consider all aspects of U.S. federal income taxation that may be relevant to the purchase, ownership and disposition of the notes and the ownership and disposition of the ProLogis common shares for which the notes may be converted by a prospective investor in light of his, her or its personal circumstances.

 

This discussion generally is limited to the U.S. federal income tax consequences to investors who are beneficial owners of the notes or ProLogis common shares for which the notes may be converted and who hold the notes or ProLogis common shares for which the notes may be converted as capital assets within the meaning of Section 1221 of the Code. This discussion does not address the U.S. federal income tax consequences to investors subject to special treatment under the U.S. federal income tax laws, such as dealers in securities or foreign currency, tax exempt entities, financial institutions, insurance companies, cooperatives, persons who hold the notes or ProLogis common shares for which the notes may be converted as part of a “straddle,” a “conversion transaction” or other integrated transaction, persons that have a “functional currency” other than the U.S. dollar, person that are liable for alternative minimum tax, certain expatriates or former long-term residents of the United States, and investors in pass-through entities (such as partnerships) that hold the notes or ProLogis common shares for which the notes may be converted.

 

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds the notes or ProLogis common shares for which the notes may be converted, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding the notes or ProLogis common shares for which the notes may be converted, you are particularly urged to consult your tax advisors.

 

We have not sought any rulings from the Internal Revenue Service (the “IRS”) with respect to the U.S. federal income tax consequences discussed below. The discussion below is not binding on the IRS or the courts. Accordingly, there can be no assurance that the IRS will not take, or that a court will not sustain, a position concerning the tax consequences of the purchase, ownership or disposition of the notes, the qualification and taxation of ProLogis as a REIT or the ownership or disposition of the ProLogis common shares for which the notes may be converted that is different from that discussed below.

 

Persons considering the purchase of notes or the conversion of notes for the ProLogis common shares should consult their own tax advisors concerning the application of U.S. federal income and other tax laws, as well as the law of any state, local or foreign taxing jurisdiction, to their particular situations.

As used in this discussion, the term “United States Holder” means any beneficial owner of notes or ProLogis common shares for which the notes may be converted who is:

 

 

A “Non-United States Holder” is any beneficial owner of notes or ProLogis common shares for which the notes may be converted that is an individual, corporation, estate or trust and is not a United States Holder and who is not, by reason of being either a United States expatriate or a former long-term resident, taxable under Section 877 of the Code.

 

United States Holders of the Notes

 

Interest.  Stated interest received on the notes by a United States Holder generally will be included in income and will be taxable as ordinary income: (1) when it accrues, if the holder uses the accrual method of accounting for U.S. federal income tax purposes; or (2) when the holder receives or is treated as receiving it, if the holder uses the cash method of accounting for U.S. federal income tax purposes, subject to the exception described below under “— Amortizable Bond Premium.”.

 

Market Discount.  If a United States Holder purchases a note for an amount that is less than its stated redemption price at maturity (i.e. the par amount of the note), the amount of the difference will be treated as market discount for U.S. federal income tax purposes, unless this difference is less than a specified de minimis amount.

 

A United States Holder will be required to treat any principal payment on, or any gain on the sale, exchange, retirement or other disposition of, a note as ordinary income to the extent of the market discount accrued on the note at the time of the payment or disposition. In general, the amount of market discount that has accrued is determined on a ratable basis, with an equal amount of market discount allocated to each day of every accrual period, unless this market discount has been previously included in income by the United States Holder pursuant to an election by the United States Holder to include market discount in income as it accrues, or pursuant to a constant yield election by the United States Holder as described below “— Original Issue Discount.” Market discount that is included in income as it accrueswill result in an increase in the United States Holder’s tax basis in the note. An election to include market discount currently applies to all debt instruments acquired by the United States Holder on or after the first day of the first taxable year to which the election applies, and is irrevocable without the consent of the IRS. If the note is disposed of in certain nontaxable transactions (not including its conversion into common stock), accrued market discount will be included as ordinary income to the United States Holder as if such United States Holder had sold the note in a taxable transaction at its then fair market value. In addition, the United States Holder may be required to defer, until the maturity of the note or its earlier disposition (including certain nontaxable transactions, but not including its conversion into Common Stock), the deduction of all or a portion of the interest expense on any indebtedness incurred or maintained to purchase or carry such note.

 

Upon conversion of a note acquired at a market discount, any market discount not previously included in income (including as a result of the conversion) will carryover to the common stock received. Any such market discount that is carried over to common stock received upon conversion will be taxable as ordinary income upon the sale or other disposition of the common stock. Whether a United States Holder that converts a note with market discount into cash and shares of our common stock is required to recognize income with respect to all or a portion of its accrued market discount not previously included in income is uncertain. Prospective purchasers should consult their own tax advisors as to the tax treatment of the conversion of a note for cash and shares of our common stock.

Amortizable Bond Premium.  If a United States Holder’s tax basis in a note, immediately after the purchase, is greater than the stated redemption price at maturity of the note, the holder will be considered to have purchased the note with amortizable bond premium. In general, amortizable bond premium with respect to any note will be equal in amount to the excess, if any, of the tax basis (reduced as set forth in the following sentence) over the stated redemption price at maturity of the note. For this purpose only, a holder’s tax basis in a note is reduced by an amount equal to the value of the option to convert the note into common stock; the value of this conversion option may be determined under any reasonable method. The United States Holder may elect to amortize any such bond premium, using a constant yield method, over the remaining term of the note. A United States Holder may generally use the amortizable bond premium allocable to an accrual period to offset qualified stated interest required to be included in such Holder’s income with respect to the note in that accrual period, and any excess over the stated interest may be deductible over the term of the note. A United States Holder who elects to amortize bond premium must reduce its tax basis in the note by the amount of the premium amortized in any year. An election to amortize bond premium applies to all taxable debt obligations then owned and thereafter acquired by the United States Holder and may be revoked only with the consent of the IRS.

 

If a United States Holder makes a constant yield election (as described below under “— Original Issue Discount”) for a note with amortizable bond premium, such election will result in a deemed election to amortize bond premium for all of the holder’s debt instruments with amortizable bond premium and may be revoked only with the permission of the IRS with respect to debt instruments acquired after revocation.

 

Original Issue Discount.  In general, if the terms of a debt instrument entitle a United States Holder to receive payments, other than fixed periodic interest, that exceed the issue price of an instrument by an amount equal to or greater than a statutory de minimis amount (1/4 of 1% of the stated redemption price at maturity times the number of complete years from issuance to maturity), such holder will be required to recognize as interest such original issue discount (“OID”) in advance of receipt as it accrues on a constant yield method.

 

Because (1) holders of the notes have the right to require ProLogis to repurchase their notes on April 1, 2012 for cash equal to 100 percent of the principal amount of the notes to be repurchased plus any accrued but unpaid interest and (2) the exercise of this put option on April 1, 2012 would maximize the yield to the holder, this put option will be deemed exercised for purposes of determining the maturity date of the notes and whether the statutory de minimis amount is equaled or exceeded. As a result, the statutory de minimis amount with respect to the notes is 1.25%.

 

Because the notes were issued at a discount greater than 1.25%, the notes are subject to the OID rules. A United States Holder calculates the amount of OID that it must include in income by adding the daily portions of OID with respect to the notes for each day during the taxable year or portion of the taxable year that such holder holds the notes. The United States Holder determines the daily portion of OID by allocating to each day in any accrual period a pro rata portion of the OID allocable to that accrual period. A United States Holder determines the amount of OID allocable to an accrual period by multiplying the note’s adjusted issue price at the beginning of the accrual period by the note’s yield to maturity. A United States Holder must determine the note’s yield to maturity on the basis of compounding at the close of each accrual period and adjusting for the length of each accrual period. Further, a United States Holder determines the Note’s adjusted issue price at the beginning of any accrual period by (1) adding the note’s issue price and any accrued OID for each prior accrual period and (2) subtracting any payments previously made on the note.

 

Notwithstanding that the put option will be deemed exercised for purposes of determining the maturity date of the notes, as discussed above, if in fact this put option is not exercised by holders of the notes on April 1, 2012, then, solely for purposes of determining the OID accrual on the notes, the yield and maturity of the notes are redetermined by treating the notes as retired and then reissued on such date for an amount equal to the adjusted issued price of the notes on that date.

 

A United States Holder may make an election to include in gross income all interest that accrues on a note (including stated interest, market discount and de minimis market discount, as adjusted by any amortizable bond premium) as original issue discount in accordance with a constant yield method based on the compounding of interest (a “constant yield election”). Such election applies on a note-by-note basis, and may be revoked only with the permission of the IRS.

Sale or Other Disposition of the Notes.  A United States Holder will recognize taxable gain or loss on the sale, redemption, repurchase, retirement or other taxable disposition of a note. The amount of a United States Holder’s gain or loss will equal the difference between the amount of cash and the fair market value of any property received for the note, minus the amount attributable to accrued interest on the note (which will be taxable as interest income if not previously included in gross income), and the United States Holder’s adjusted tax basis in the note. A United States Holder’s initial tax basis in a note equals the price paid for the note and will be increased by the amount of any OID or market discount, if any, previously included in income with respect to the note, and decreased by the amount of amortized bond premium and the amount of payments (other than stated interest payments) received with respect to the note Special rules may apply to notes redeemed in part

 

Subject to the market discount rules described above, any gain or loss on a taxable disposition of a note as described in the foregoing paragraph will generally constitute capital gain or loss and will be long-term capital gain or loss if such note was held by the United States Holder for more than one year at the time of the disposition. Under current law, net long-term capital gains of non-corporate holders, including individuals, generally are taxed at a maximum rate of 15% through 2010, and 20% thereafter. Capital gain of a non-corporate holder, including an individual, that is not long-term capital gain will be taxed at ordinary income tax rates. The deduction of capital losses is subject to certain limitations.

 

Conversion of the Notes.

 

Conversion Entirely for Cash.  In the event that ProLogis satisfies the conversion obligation entirely in cash, a United States Holder will recognize gain or loss equal to the difference between the proceeds received by such holder (excluding amounts attributable to accrued but unpaid interest, which will be taxable as ordinary income if not previously included in such holder’s income) and the United States Holder’s adjusted tax basis in the note. See “— Sale or Other Disposition of the Notes” above.

 

Conversion Entirely for ProLogis Common Shares.  If ProLogis satisfies the conversion obligation entirely in ProLogis common shares, a United States Holder will not recognize taxable gain or loss on the conversion (excluding shares allocable to interest, which will be taxable as ordinary income if not previously included in such holder’s income, and cash received in lieu of a fractional ProLogis common share). The United States Holder’s tax basis in the ProLogis common shares will equal the United States Holder’s adjusted tax basis in the notes (reduced by any tax basis allocable to a fractional ProLogis common share). The United States Holder’s holding period for the ProLogis common shares received will include the holding period for the notes (except for any ProLogis common shares received allocable to accrued but unpaid interest, which will have a holding period beginning on the day after receipt). Cash received in lieu of a fractional ProLogis common share upon conversion of the notes will generally be treated as a payment in exchange for such fractional share. Accordingly, the receipt of cash in lieu of a fractional ProLogis common share generally will result in capital gain or loss measured by the difference between the cash received for the fractional share and the United States Holder’s adjusted tax basis allocable to such fractional share.

 

Conversion for a Combination of Cash and ProLogis Common Shares.  If ProLogis satisfies the conversion obligation for a combination of cash and ProLogis common shares, the U.S. federal income tax treatment will depend upon whether the conversion is characterized as a recapitalization or as in part a conversion and in part a redemption of the notes. If the conversion of the notes constitutes a recapitalization, a United States Holder will recognize as taxable income any gain realized in the conversion to the extent of the cash received (excluding amounts or shares allocable to interest, which will be taxable as ordinary income if not previously included in such holder’s income, and cash received in lieu of a fractional ProLogis common share), but no loss will be recognized on such conversion. The United States Holder’s tax basis in the ProgLogis common shares permitted to be received tax-free will equal the United States Holder’s tax basis in the notes (reduced by any tax basis allocable to a fractional ProLogis common share), less the amount of cash received (excluding amounts allocable to accrued but unpaid interest and cash received in lieu of a fractional ProLogis common share), plus the amount of taxable gain recognized on the conversion. The United States Holder’s holding period for the ProLogis common shares will be as described above in “— Conversion Entirely for ProLogis Common Shares.” Cash received in lieu of a fractional ProLogis common share will be treated as described above in “— Conversion Entirely for ProLogis Common Shares.”

If the conversion of the notes is instead treated as in part a conversion into ProLogis common shares and in part a payment in redemption of the notes, a United States Holder would not recognize any taxable gain or loss with respect to the portion of the notes considered to be converted into ProLogis common shares, as described above in “— Conversion Entirely for ProLogis Common Shares.” The U.S. federal income tax treatment to United States Holders with respect to cash received in lieu of a fractional ProLogis common share, the United States Holder’s tax basis in the ProLogis common shares received, and the United States Holder’s holding period for the ProLogis common shares received will be as described above in “— Conversion Entirely for ProLogis Common Shares.” The cash received with respect to the portion of the notes considered to be redeemed would likely be treated as received in redemption of such portion. In that event, a United States Holder would generally recognize gain or loss as described above in “— Conversion Entirely for Cash.”

 

Constructive Dividends.  The conversion rate of the notes will be adjusted in certain circumstances. Under Section 305(c) of the Code, adjustments (or failures to make adjustments) that have the effect of increasing your proportionate interest in our assets or earnings may in some circumstances result in a deemed distribution to you. Adjustments to the conversion rate made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing the dilution of the interest of the holders of the notes, however, will generally not be considered to result in a deemed distribution to you. Certain of the possible conversion rate adjustments provided in the notes (including, without limitation, adjustments in respect of taxable dividends to holders of ProLogis common shares) will not qualify as being pursuant to a bona fide reasonable adjustment formula. If such adjustments are made, you may be deemed to have received a distribution even though you have not received any cash or property as a result of such adjustments. Any deemed distributions will be taxable as a dividend, return of capital, or capital gain in accordance with the earnings and profits rules under the Code. The U.S. federal income tax treatment of the constructive dividend is described in the accompanying prospectus under the heading “Federal Income Tax Considerations — Tax of ProLogis Shareholders.”

 

Information Reporting and Backup Withholding.  A United States Holder will generally be subject to information reporting and may also be subject to backup withholding tax, currently at a rate of 28%, when such holder receives payments of stated interest and accruals of OID on the note. Certain United States Holders (including, among others, corporations and certain tax-exempt organizations) are generally not subject to information reporting or backup withholding. In addition, the backup withholding tax will not apply to a United States Holder if such holder provides his taxpayer identification number (“TIN”) in the prescribed manner unless:

 

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding tax rules from a payment to a United States Holder may be refunded or credited against the United States Holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS in a timely manner.

 

Non-United States Holders of the Notes

 

This section applies to Non-United States Holders of the notes. For purposes of the discussion below, interest and gain on the sale, exchange, redemption or repayment of the notes will be considered to be “U.S. trade or business income” if such income or gain is (1) effectively connected with the Non-United States Holder’s conduct of a U.S. trade or business or (2) in the case of a treaty resident, attributable to a U.S. permanent establishment (or, in the case of an individual, a fixed base) in the United States.

 

Interest.  Subject to the discussion below regarding backup withholding, interest paid on the notes (including OID) to a Non-United States Holder generally will not be subject to U.S. federal income or withholding tax if such interest is not U.S. trade or business income and is “portfolio interest.” Generally, interest on the notes will qualify as portfolio interest if the Non-United States Holder (1) does not actually or constructively own 10% or more of the

common shares of ProLogis, (2) is not a controlled foreign corporation with respect to which ProLogis is a “related person” within the meaning of the Code, (3) is not a bank that is receiving the interest on a loan made in the ordinary course of its trade or business and (4) certifies, under penalties of perjury on a Form W-8BEN (or such successor form as the IRS designates), prior to the payment that such holder is not a United States person and provides such holder’s name and address, or a financial institution holding the note on behalf of the holder certifies, under penalty of perjury, that such statement has been received by it and furnishes us or our paying agent with a copy thereof.

 

The gross amount of payments of interest that do not qualify as portfolio interest and that are not U.S. trade or business income will be subject to U.S. withholding tax at a rate of 30% unless a treaty applies to reduce or eliminate withholding. U.S. trade or business income will be taxed at regular, graduated U.S. federal income tax rates rather than the 30% gross rate. In the case of a Non-United States Holder that is a corporation, such U.S. trade or business income may also be subject to the branch profits tax equal to 30% (or a lower rate under an applicable income tax treaty) of such amount, subject to certain adjustments. To claim the benefits of a treaty exemption from or reduction in withholding, a Non-United States Holder must provide a properly executed Form W-8BEN (or such successor form as the IRS designates), and to claim an exemption from withholding because income is U.S. trade or business income, a Non-United States Holder must provide a properly executed Form W-8ECI (or such successor form as the IRS designates), as applicable prior to the payment of interest. These forms must be periodically updated. A Non-United States Holder that is claiming the benefits of a treaty may be required in certain instances to obtain and to provide a U.S. TIN on a Form W-8BEN. As an alternative to providing a Form W-8BEN, in certain circumstances, a Non-United States Holder may provide certain documentary evidence issued by foreign governmental authorities to prove residence in the foreign country. Also, under applicable Treasury Regulations, special procedures are provided for payments through qualified intermediaries or certain financial institutions that hold customers’ securities in the ordinary course of their trade or business.

 

Sale, Conversion or Other Disposition of the Notes.  Subject to the discussion below concerning backup withholding, a Non-United States Holder will generally not be subject to U.S. federal income tax on any gain recognized on a sale, conversion, redemption or repayment of a note (other than any amount representing accrued but unpaid interest, which will be treated as such) unless (1) the gain is U.S. trade or business income (in which case the branch profits tax may also apply to a corporate Non-United States Holder), (2) the Non-United States Holder is an individual who is present in the United States for 183 or more days in the taxable year of the disposition and certain other requirements are met or (3) the notes constitute “U.S. real property interests” within the meaning of the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). Special rules may apply to notes redeemed in part.

 

We currently anticipate that we constitute a “domestically controlled REIT” (defined generally as a REIT in which at all times during a specified testing period less than 50% in value of the shares was held directly or indirectly by foreign persons), in which case gain recognized by a Non-United States Holder will not be taxable under FIRPTA. However, because ProLogis common shares are publicly traded, there can be no assurance that we have or will retain that status. Even if we do not qualify as a domestically-controlled REIT at the time a Non-United States Holder disposes of the notes, gain arising from such disposition still generally would not be subject to FIRPTA tax if any class of our interests is considered regularly traded under applicable Treasury regulations on an established securities market, such as the New York Stock Exchange, and either (1) if the notes are not regularly traded, on the date the notes were acquired by the Non-United States Holder, the Non-United States Holder did not own, actually or constructively, notes with a fair market value greater than the fair market value on that date of 5% of outstanding ProLogis common shares (or, possibly, of the regularly traded class of ProLogis common shares with the lowest fair market value) or (2) if the notes are regularly traded, the Non-United States Holder did not own, actually or constructively, more than 5% of the total fair market value of the notes throughout the shorter of the period during which the Non-United States Holder held the notes being sold or the five-year period ending on the date of the sale or exchange. If the gain on the sale of the notes were to be subject to taxation under FIRPTA, a Non-United States Holder would be subject to the same treatment as United States Holders with respect to the gain (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals and except in the case of certain conversions of notes described above in “— United States Holders of the Notes — Sale, Conversion or Other Disposition of Notes.”). Further, with respect to Non-United States Holders, withholding tax at a rate of 10% of the gross amount payable would apply, although

any withholding tax withheld pursuant to these rules would be creditable against such Non-United States Holder’s U.S. federal income tax liability.

 

Again, we currently anticipate that we are a domestically controlled REIT. Accordingly, we do not intend to withhold FIRPTA taxes from amounts payable upon a redemption, repurchase or conversion of the notes. However, because ProLogis common shares are currently publicly traded, there can be no assurance that we in fact are qualified or will continue to qualify as a domestically controlled REIT. Even if we do not qualify as a domestically controlled REIT, and as indicated immediately above, exemptions from FIRPTA may nonetheless apply depending on the level of ownership by a Non-United States Holder of notes and ProLogis common shares. If a sale, exchange, redemption, repurchase, conversion or other disposition of a note for shares of ProLogis common shares are exempt from U.S. federal income tax under FIRPTA, any amounts nonetheless withheld from payments with respect to such sale, exchange, repurchase, conversion or other disposition to a Non-United States Holder’s federal income tax liability, if any, if such Non-United States. Holder may be refunded or credited against such Non-United States Holder’s federal income tax liability, if any, if such Non-United States Holder timely files the required forms with the IRS.

 

Non-United States Holders are urged to consult their own tax advisors as to whether they will be subject to tax under FIRPTA upon a sale, redemption, repurchase, conversion or other disposition of their notes.

 

Adjustments to Conversion Rate.  The conversion rate is subject to adjustment in certain circumstances. Any such adjustment could, in certain circumstances, give rise to a deemed distribution to Non-United States Holders of the notes. See “— United States Holders of the Notes — Constructive Dividends” above. In such circumstances, we intend to take the position that Non-United States Holders will be deemed to have received constructive distributions from us even though Non-United States Holders have not received any cash or property as a result of such adjustments. The deemed distribution would be subject to the rules described in the accompanying prospectus under the heading “Federal Income Tax Considerations — Taxation of ProLogis Shareholders — Taxation of Foreign Shareholders.”

 

In the case of a deemed distribution, because such deemed distribution will not give rise to any cash from which any applicable U.S. federal withholding tax can be satisfied, the indenture provides that we may set off any withholding tax that we are required to collect with respect to any such deemed distribution against cash payments of interest or from cash or shares of ProLogis common shares otherwise deliverable to a Non-United States Holder upon a conversion of notes or a redemption or repurchase of a note. Until such time as judicial, legislative, or regulatory guidance becomes available that would, in our reasonable determination, permit us to treat such deemed distributions as other than deemed dividend distributions treated as ordinary income, we in general intend to withhold on such distributions at a 30% rate (or lower applicable treaty rate), to the extent such dividends are made out of our current or accumulated earnings and profits. A Non-United States Holder who is subject to withholding tax under such circumstances is particularly urged to consult its own tax advisor as to whether it can obtain a refund for all or a portion of the withholding tax.

 

Information Reporting and Backup Withholding.  We must report annually to the IRS and to each Non-United States Holder any interest (including OID) paid to the Non-United States Holder. Copies of these information returns may also be made available under the provisions of a specific treaty or other agreement to the tax authorities of the country in which the Non-United States Holder resides.

 

Treasury Regulations provide that the backup withholding tax (currently at a rate of 28%) and certain information reporting will not apply to such payments of interest with respect to which either the requisite certification that the Non-United States Holder is not a U.S. person, as described above, has been received or an exemption has otherwise been established; provided that neither we nor our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person or that the conditions of any other exemption are not in fact satisfied. The payment of the gross proceeds from the sale, conversion, redemption or repayment of notes to or through the United States office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its non-U.S. status under penalty of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge, or reason to know, that the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The payment of the gross proceeds from the sale, conversion, redemption or repayment of notes to or through a non-U.S. office of a

non-U.S. broker will not be subject to information reporting or backup withholding unless the non-U.S. broker has certain types of relationships with the United States (we refer to such a broker as a “United States Related Person”).

 

In the case of the gross payment of proceeds from the sale, conversion, redemption or repayment of notes to or through a non-United States office of a broker that is either a U.S. person or a United States Related Person, the Treasury Regulations require information reporting (but not backup withholding) on the payment unless the broker has documentary evidence in its files that the owner is a Non-United States Holder and the broker has no knowledge, or reason to know, to the contrary.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-United States Holder may be refunded or credited against the Non-United States Holder’s U.S. federal income tax liability, provided that the required information is furnished to the IRS in a timely manner.

 

We originally issued the notes to J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and UBS Securities LLC in a private placement in March 2007. The notes were immediately resold by the initial purchasers to persons reasonably believed by the initial purchasers to be qualified institutional buyers within the meaning of Rule 144A under the Securities Act in transactions exempt from registration under the Securities Act. Selling securityholders, including their transferees, pledgees or donees or their successors, may from time to time offer and sell the notes and the ProLogis common shares into which the notes are convertible in certain circumstances pursuant to this prospectus supplement. Our registration of the notes and the ProLogis common shares issuable, in certain circumstances, upon conversion of the notes does not necessarily mean that the selling securityholders will sell all or any of the notes or the ProLogis common shares. Unless set forth below, none of the selling securityholders has had within the past three years any material relationship with us or any of our predecessors or affiliates.

 

The following table sets forth certain information concerning the principal amount of notes beneficially owned by each selling securityholder and the number of ProLogis common shares that may be offered from time to time by each selling securityholder under this prospectus supplement. The information is based on information provided to us by or on behalf of the selling securityholders on or prior to July 10, 2007. The number of ProLogis common shares issuable upon conversion of the notes shown in the table below represents the maximum number of ProLogis common shares issuable upon conversion of the notes assuming conversion of the full amount of notes held by each holder at the initial exchange rate of 13.0576 ProLogis common shares per $1,000 principal amounts of the notes. This conversion rate is subject to adjustments in certain circumstances. Because the selling securityholders may offer all or some portion of the notes or ProLogis common shares issuable upon exchange of the notes, we have assumed for purposes of the table below that the named selling securityholders will sell all of the notes or convert all of the notes and sell all of the ProLogis common shares issuable upon exchange of the notes offered pursuant to this prospectus supplement. In addition, the selling securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of their notes since the date on which they provided the information regarding their notes in transactions exempt from the registration requirements of the Securities Act. Information about the selling securityholders may change over time. Any changed information given to us by the selling securityholders will be set forth in prospectus supplements if and when necessary or, if appropriate, a post-effective amendment to the registration statement of which this prospectus supplement is a part. Because the selling securityholders may offer all or some of their notes or the underlying ProLogis common shares from time to time, we cannot estimate the amount of notes or underlying ProLogis common shares that will be held by the selling securityholders upon the termination of any particular offering. See “Plan of Distribution” for further information.

 

To our knowledge, except as described below, the selling securityholders have sole voting and investment power with respect to all of the securities shown as beneficially owned by them.