WASHINGTON, DC 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.            )

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AMB PROPERTY CORPORATION

(Name of Registrant as Specified In Its Charter)

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

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March 26, 2007

 

Dear Stockholder:

 

You are cordially invited to attend the 2007 Annual Meeting of Stockholders of AMB PROPERTY CORPORATION. The Annual Meeting will be held on May 10, 2007, at 1:00 p.m., Pacific time, at AMB Property Corporation’s global headquarters, which are located at Pier 1, Bay 1, San Francisco, California 94111. Information about the Annual Meeting and the matters on which the stockholders will act is included in the Notice of Annual Meeting of Stockholders and Proxy Statement that follow. Also included is a proxy card and return envelope.

 

It is important that your shares be represented at the meeting. Whether or not you plan to attend, please complete and return your proxy card in the enclosed envelope as promptly as possible. You may also vote your proxy via the Internet or by telephone. Returning your proxy does not deprive you of your right to attend the meeting and vote your shares in person.

 

AMB’s 2006 Annual Report is also enclosed. We encourage you to read our Annual Report and hope you will find its message interesting and useful. Thank you for your continued interest in AMB.

 

Sincerely,

 

HAMID R. MOGHADAM

Chairman and CEO

 

This proxy statement and accompanying form of proxy are first being mailed to you on or about March 26, 2007.

 

AMB PROPERTY CORPORATION
Pier 1, Bay 1
San Francisco, California 94111

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 10, 2007

 

 

To the Stockholders of AMB Property Corporation:

 

 

By Order of the Board of Directors,

 

 

TAMRA D. BROWNE

Senior Vice President, General Counsel
and Secretary

 

March 26, 2007

San Francisco, California

AMB PROPERTY CORPORATION

Pier 1, Bay 1
San Francisco, California 94111

 

ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 10, 2007

 

 

 

 

PROXY STATEMENT

 

 

 

 

INFORMATION CONCERNING THE PROXY MATERIALS AND THE ANNUAL MEETING

 

Our Board of Directors is soliciting proxies to be voted at the 2007 Annual Meeting of Stockholders and at any adjournment(s) or postponement(s) thereof. You are invited to attend our Annual Meeting of Stockholders to be held on May 10, 2007 at our global headquarters, which are located at Pier 1, Bay 1, San Francisco, California 94111, beginning at 1:00 p.m., Pacific time (the “Annual Meeting”).

 

Your vote is very important. For this reason, our Board of Directors is requesting that you permit your common stock to be represented at the meeting by the proxies named on the enclosed proxy card. This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully.

 

Voting materials, which include this proxy statement, the proxy card and our 2006 Annual Report to Stockholders were mailed to stockholders on or about March 26, 2007. Our global headquarters are located at Pier 1, Bay 1, San Francisco, California 94111, telephone (415) 394-9000. References herein to “we,” “us,” “our,” the “company” and “AMB” refer to AMB Property Corporation and its subsidiaries, unless the context otherwise requires.

 

QUESTIONS AND ANSWERS

 

 

 

 

For the election of directors, abstentions and, if applicable, broker non-votes are not counted as votes cast and will have no effect on the result of the vote. Abstentions and, if applicable, broker non-votes will have no effect on the proposal to ratify the selection of our independent registered public accounting firm or the stockholder proposal. Under the New York Stock Exchange rules, for purposes of the vote to approve the Amended and Restated 2002 Stock Option and Incentive Plan, an abstention constitutes a vote cast, and a broker non-vote does not. If holders of more than 50% of all securities entitled to vote on the proposal cast votes, a broker non-vote will not have any effect on the result of the vote, while an abstention will have the same effect as a vote against the proposal.

 

 

 

 

The date of this proxy statement is March 26, 2007.

 

PROPOSAL 1: ELECTION OF DIRECTORS

 

Our Board of Directors currently consists of nine directors. A majority of the Board must be independent directors as defined by the New York Stock Exchange listing standards. Our Board has adopted the New York Stock Exchange listing standards of director independence. In general, an independent director is a director who the Board affirmatively determines has no material relationship with us. Under the New York Stock Exchange’s rules, the following relationships are considered material and will cause a director to be deemed not independent:

 

(i) a director who is, or within the past three years was, our employee, or who has an immediate family member who is, or within the past three years has been, one of our executive officers;

 

(ii) a director who has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $100,000 in direct compensation from us, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

 

(iii) a director who is (or has an immediate family member who is) a current partner or employee of our internal or external auditor;

 

(iv) a director who has an immediate family member who is a current employee of our internal or external auditor and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice;

 

(v) a director who was (or has an immediate family member who was) within the last three years a partner or employee of our internal or external auditor and personally worked on our audit within that time;

 

(vi) a director who is or has been (or has an immediate family member who is or has been) within the last three years, employed as an executive officer of another company where any of our present executive officers simultaneously serve or served on that company’s compensation committee; and

 

(vii) a director who is a current employee (or has an immediate family member who is a current executive officer) of a company that has made payments to, or received payments from, us for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.

 

Our Board of Directors has affirmatively determined that eight out of nine presently elected directors (specifically, Afsaneh M. Beschloss, T. Robert Burke, David A. Cole, Lydia H. Kennard, J. Michael Losh, Frederick W. Reid, Jeffrey L. Skelton and Thomas W. Tusher) are independent directors in accordance with the New York Stock Exchange listing standards, our corporate governance principles and our Bylaws. In determining the independence of the members of the Board of Directors, the Board considered Ms. Kennard’s former position as the executive director of Los Angeles World Airports (LAWA), an entity which has groundleases with AMB and may engage in potential real property transactions with AMB, and Mr. Burke’s prior relationship with AMB as a co-founder and as an employee until 2000, and determined that none of these relationships affected the independence determination with respect to such directors.

 

For J. Michael Losh, a majority of our Board, including the chair of our Nominating and Governance Committee, waived the limitation contained in our Corporate Governance Principles that no director may serve on the boards of more than five other public companies because the Board believes that Mr. Losh’s substantial ability, experience and expertise in public company financial reporting and management while serving as Chief Financial Officer of General Motors, a Fortune 100 company, among other similar positions, significantly benefits the Board and the company. The Board also determined that Mr. Losh’s service on other public company boards did not hinder his service to the company as he is currently retired and not serving in an executive officer capacity for another company. All members of the Board serve a one-year term, which expires at the following annual meeting of stockholders when their successors are duly elected and qualified.

 

The shares represented by the enclosed proxy will be voted for the election of each of the nominees named below, unless you indicate in the proxy that your vote should be cast against any or all of them or that you abstain. Each nominee elected as a director will continue in office until his or her successor has been duly elected and qualified, or until the earliest of his or her resignation, retirement or death.

Nominees For Director

 

The Board of Directors has proposed the following nominees for election as directors at the Annual Meeting: Hamid R. Moghadam, Afsaneh M. Beschloss, T. Robert Burke, David A. Cole, Lydia H. Kennard, J. Michael Losh, Frederick W. Reid, Jeffrey L. Skelton and Thomas W. Tusher. Each of the nominees is currently serving as a director of AMB Property Corporation.

 

The Board of Directors recommends a vote FOR the election of each of the nominees as directors.

 

Each of the nominees has consented to be named in this proxy statement and to serve as a director if elected. The principal occupation and certain other information regarding the nominees are set forth below as of the record date. Information about each nominee’s share ownership is set forth under the section entitled “Security Ownership of Certain Beneficial Owners and Management.”

 

 

Board of Directors Meetings and Attendance

 

Pursuant to the Maryland General Corporation Law and our Bylaws, our business, property and affairs are managed under the direction of the Board of Directors. Members of the Board are kept informed of our business through discussions with the Chairman of the Board and our officers, by reviewing materials provided to them and by participating in meetings of the Board and its committees.

 

During 2006, the Board held four meetings and did not act by unanimous written consent. Each incumbent director attended 75% or more of the total number of meetings of the Board and the committees of the Board on which such directors served. Six directors attended the 2006 Annual Meeting of Stockholders. We do not currently have a policy with regard to Board members’ attendance at annual meetings.

 

The Nominating and Governance Committee selects a lead director from the independent directors with at least one year of service. The lead director’s duties include chairing executive sessions of the independent directors, facilitating communications and resolving conflicts, if any, between the independent directors, other members of the Board and the management of the company, and consulting with and providing counsel to the company’s Chief Executive Officer as needed or requested. Jeffrey L. Skelton served as lead director for the 2006 fiscal year and will continue to serve as lead director for the 2007 fiscal year.

 

Board Committees

 

Our Board of Directors has an Audit Committee, a Compensation Committee, an Executive Committee and a Nominating and Governance Committee. Current committee charters are available on our website at http://www.amb.com, and in print to be sent to any of our stockholders upon request. Requests for such copies should be addressed to: AMB Property Corporation, Pier 1, Bay 1, San Francisco, California 94111, Attn: Investor Relations, telephone (415) 394-9000.

 

Audit Committee.  Our Board of Directors has a separately-designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee currently consists of three independent directors, as defined by the New York Stock Exchange’s listing standards: Mr. Losh, the chair, Dr. Skelton and Ms. Kennard. Our Board of Directors has determined that we have at least one audit committee financial expert, J. Michael Losh, serving on our Audit Committee. Our Board has determined that Mr. Losh is independent as this term is defined by the New York Stock Exchange’s listing standards. Our Board has determined that Mr. Losh’s simultaneous service on the audit committees of more than two other public companies would not impair his ability to effectively serve on the Audit Committee of our Board of Directors. In reaching this determination, the Board considered that Mr. Losh’s substantial ability, experience and expertise in public financial reporting and management while serving as Chief Financial Officer of General Motors, a Fortune 100 company, among other similar positions, significantly benefits the Board and the company. The Board also determined that Mr. Losh’s service on other public company boards did not hinder his ability to serve on the Audit Committee as he is currently retired and not serving in an executive officer capacity for another company. The purposes of the Audit Committee are to (a) assist the Board in the oversight of (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, (iii) the independent registered public accounting firm’s qualifications and independence, (iv) our internal control environment and risk management, including our Code of Business Conduct, and (v) the performance of the independent registered public accounting firm and our internal audit function, and (b) prepare the report of the Audit Committee, which is included in this proxy statement. The Audit Committee held ten meetings during 2006.

 

Compensation Committee.  The Compensation Committee currently consists of three independent directors, as defined by the New York Stock Exchange’s listing standards: Mr. Cole, the chair, Mr. Tusher and Mr. Reid. Our Board of Directors determines the Committee’s membership and has determined that each of the members of the Compensation Committee meets the independence and experience requirements of our Bylaws, as well as the rules and regulations of the New York Stock Exchange and the U.S. Securities and Exchange Commission, as currently applicable to us. The function of the Compensation Committee is to discharge the Board’s responsibilities relating to compensation of our directors and executive officers. The Compensation Committee operates under a written charter adopted by the Board of Directors, which was amended on December 6, 2006. The Committee and the

Board periodically review and revise the charter. During 2006, the Compensation Committee held eight meetings and acted once by unanimous written consent.

 

The Compensation Committee has overall responsibility for approving and evaluating our director and employee compensation plans, policies and programs, including our Third Amended and Restated 1997 Stock Option and Incentive Plan, as amended, our 2002 Stock Option and Incentive Plan, as amended, our 401(k) plan, the Amended and Restated AMB Nonqualified Deferred Compensation Plan, the AMB 2005 Nonqualified Deferred Compensation Plan and any other incentive programs, and recommending to the Board compensation programs for our non-employee directors. For more details regarding director compensation, please see the section entitled “Compensation of Directors” below. With respect to our executive management compensation, the Compensation Committee’s role is to oversee AMB’s compensation plans and policies, annually review and determine all executive officers’ compensation, and administer AMB’s equity incentive plans (including reviewing and approving grants to AMB’s executive officers). The Compensation Committee meets at scheduled times during the year, and it also considers and takes action by written consent. The Compensation Committee Chairman reports on committee actions and recommendations at Board meetings. As part of its function, the Compensation Committee has established policies governing the compensation and benefits of all our executives. The Compensation Committee approves the compensation of our executive officers, approves the bonus plan measures and goals, and reviews an annual evaluation of our CEO to determine the CEO’s compensation. In addition, the Compensation Committee reviews and makes recommendations concerning proposals by our management with respect to compensation, bonuses, long-term incentive awards, agreements and other benefits and policies respecting such matters for our employees, including our executive officers.

 

The Compensation Committee also directly engages an outside compensation consulting firm, Towers Perrin, to assist the committee in its review of compensation for the executive officers. On an annual basis, Towers Perrin reviews our executive compensation program with the Compensation Committee and assesses the competitiveness of compensation levels for the executive officers to ensure that the compensation is aligned with AMB’s executive compensation philosophy. Towers Perrin provides the Compensation Committee with a compensation analysis of our peer group (as determined by the committee) using information found in current proxy data and values each component of compensation awarded including base salary, bonus, equity awards and perquisites. The Compensation Committee considers this analysis along with company business strategies and objectives when setting annual compensation values for each component of total remuneration for the executives.

 

The Compensation Committee administers the Third Amended and Restated 1997 Stock Option and Incentive Plan, as amended, and the 2002 Stock Option and Incentive Plan, as amended, under which grants of stock options, share appreciation rights, shares of restricted stock and other awards may be made to our employees, including our executive officers. In order to facilitate the day-to-day management and administration of the 2002 Stock Option and Incentive Plan, the Compensation Committee also typically authorizes and approves a general grant or award of up to an annual aggregate of 250,000 shares of common stock which may be either incentive stock options, non-qualified stock options or shares of restricted stock to be made available to new employees and officers (excluding Section 16 officers) of the company or its affiliates, and with the identity of the recipients and the number of shares covered by the award to be subsequently determined by our Chairman and Chief Executive Officer (or his two designees), provided that no one individual can receive more than 50,000 shares or options to purchase shares of common stock, and provided further that his designees may not authorize the award of more than 5,000 shares or options to purchase shares of our common stock per individual. These same procedures will apply to the Amended and Restated 2002 Stock Option and Incentive Plan following stockholder approval of Proposal 3.

 

The Compensation Committee also administers the Section 401(k) Savings and Retirement Plan, the Amended and Restated AMB Nonqualified Deferred Compensation Plan and the AMB 2005 Nonqualified Deferred Compensation Plan. The Compensation Committee formed the following subcommittees to administer the day to day operations of these plans:

 

 

 

Executive Committee.  The Executive Committee currently consists of Mr. Burke, the chair, Mr. Moghadam and Dr. Skelton. The Executive Committee has the authority, within certain parameters, to acquire, dispose of and finance investments for us (including the issuance by AMB Property, L.P. of additional limited partnership units or other equity interests) and approve the execution of contracts and agreements including those related to the borrowing of money by us and generally exercise all other powers of the Board, except as prohibited by law. During 2006, the Executive Committee held one meeting and acted twice by unanimous written consent.

 

Nominating and Governance Committee.  The Nominating and Governance Committee currently consists of four independent directors, as defined by the New York Stock Exchange’s listing standards: Ms. Kennard, the chair, Mr. Cole, Mr. Reid and Ms. Beschloss. The purposes of the Nominating and Governance Committee are (a) to assist the Board by identifying individuals qualified to become Board members and to recommend to the Board nominees for the next annual meeting of stockholders, (b) to recommend to the Board the corporate governance principles applicable to us, (c) to lead the Board in its annual review of its performance, and (d) to recommend to the Board members and chairpersons of each committee. The Nominating and Governance Committee met one time during 2006.

 

To identify potential nominees for the Board, the Nominating and Governance Committee first evaluates the current members of the Board willing to continue in service. Current members of the Board are considered for re-nomination, balancing the value of their continued service with that of obtaining new perspectives and in view of our developing needs. If necessary, the Nominating and Governance Committee then solicits ideas for possible candidates from a number of sources, which can include other Board members, senior management, individuals personally known to members of the Board and research. The Nominating and Governance Committee may also retain a third party to assist it in identifying potential nominees, however, the committee has not done so in the past. The Nominating and Governance Committee will also consider nominees to our Board recommended by stockholders with respect to elections to be held at an annual meeting if notice of the nomination is timely delivered in writing to our Secretary prior to the meeting. To be timely, the notice must be delivered within the time permitted for submission of a stockholder proposal as described under “Deadline for Submitting Nominations for Directors” in the Q&A section of this proxy. The notice must include:

 

 

The Nominating and Governance Committee will evaluate nominees recommended by stockholders against the same criteria that it uses to evaluate other nominees. These criteria include the candidate’s skills, experience and personal qualities, as well as the other factors discussed in the Nominating and Governance Committee charter, which are evaluated in the context of the perceived needs of the Board at any given point in time.

 

Adoption of Majority Vote Standard for Election of Directors

 

In February 2007, the Board approved an amendment to our Bylaws, which changed the vote standard for election of directors from a plurality standard to a “majority vote of the votes cast” standard in uncontested elections of directors. Accordingly, directors are required to be elected by the majority of votes cast by the shares present in person or represented by proxy with respect to such director in uncontested elections. A majority of the votes cast means that the number of shares voted “for” a director must exceed the number of votes “against” (or, if applicable, withheld from) that director. In a contested election (where the number of director nominees exceeds the number of directors to be elected at a meeting), the vote standard will be a plurality of the votes cast with respect to such director. In the event of a contested election where the plurality vote standard applies, votes cast “for” a director nominee will be counted for such nominee, and votes cast “against” or which “abstain” in respect of a director nominee, will be counted as “withheld” from such nominee.

 

If a nominee who is serving as a director is not elected at the Annual Meeting, under Maryland law, such director would continue to serve as a “holdover director.” Under our Bylaws, any director who fails to be elected shall tender his or her resignation to the Board, subject to acceptance. The Nominating and Governance Committee will make a recommendation to the Board on whether to accept or reject the resignation, or whether other action should be taken. The Board will then act on the Nominating and Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of election results. In accordance with our Corporate Governance Principles, if the resignation is not accepted, the director will continue to serve until the next annual meeting and until the director’s successor is elected and qualified. The director who tenders his or her resignation will not participate in the Board’s decision. Non-incumbent directors who are not elected at the Annual Meeting would not become directors and would not serve on the Board as a “holdover director.” In 2007, all nominees for the election of directors are currently serving on the Board.

 

Compensation of Directors

 

The following table details compensation earned or paid to and equity accrued toward vesting for our independent directors in the year ended December 31, 2006. Our employee directors did not receive additional compensation for their service on the Board.

 

Director Compensation Table

 

 

 

 

The Board’s overall compensation philosophy in connection with our non-employee directors is to provide a mix of cash and equity-based compensation with a total compensation level targeted at the 50th percentile of general industry companies with market capitalization similar to AMB’s and at or above the 75th percentile of our peer companies within the constraints of the 90th percentile relative to directors at real estate investment trust, or REIT, peers based on an analysis performed by our compensation consultant, Towers Perrin. Officers who may also serve as a member of our Board of Directors are not paid any director’s fees nor granted equity as directors in addition to their regular employee compensation.

 

For meetings held during 2006, each non-employee director received $2,000 for each meeting of the Board of Directors and $1,500 for each meeting of a committee of the Board of Directors attended, and, for their service during 2006, the chairs of the Compensation Committee and the Nominating & Governance Committee received an additional $8,000, the chair of the Audit Committee received an additional $12,000, and the chair of the Executive Committee received an additional $5,000. In addition, Dr. Skelton received an additional $8,000 for services

performed as lead director. Each non-employee director is also reimbursed for reasonable expenses incurred to attend Board and committee meetings and educational programs.

 

Upon initial election to the Board, each non-employee director automatically receives an initial stock option grant under our 2002 Stock Option and Incentive Plan, as amended, to purchase 20,000 shares of our common stock. This initial stock option grant fully vests on the date of the next annual meeting of stockholders and has a term of ten years within which it can be exercised.

 

In addition to the directors’ automatic initial stock option grants, we grant stock options and/or restricted common stock to our non-employee directors on a discretionary basis under our 2002 Stock Option and Incentive Plan. Such stock option grants are granted at an exercise price equal to the fair market value of our common stock on the date of grant. The Board of Directors determines the amount of stock options and/or restricted stock to be granted to non-employee directors on an annual basis. In making this determination, the Board of Directors considers analyses of our compensation consultant to determine competitive director compensation practices of publicly traded real estate investment trusts and of publicly traded companies in general industry having total market capitalizations comparable to us. We expect that non-employee directors re-elected at each annual meeting of stockholders will be granted additional stock options and/or restricted stock by the Board of Directors.

 

During 2006, upon re-election, each non-employee director received a subsequent grant of restricted common stock, stock options or any combination of both, at their option, valued in the aggregate at $110,000 (so long as the restricted stock portion equaled at least 60% of the value of their election).

 

Vote Required

 

Under the majority vote standard for the election of directors, a majority of the votes cast at a meeting at which a quorum is present, either in person or by proxy, is required for the election of directors of each director nominee (i.e., the number of shares voted “for” a director nominee must exceed the number of votes “against” that director nominee for such nominee to be elected). Abstentions and broker “non-votes” are not counted for purposes of the election of directors and do not have any effect on the result of the vote for the election of directors.

 

The Board recommends a vote FOR the election of each of the nine director nominees to serve until the next annual meeting of stockholders and until their respective successors are duly elected and qualified.

 

PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

 

Upon the recommendation of the Audit Committee, our Board of Directors has selected PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007 and has further directed that management submit the selection of our independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. PricewaterhouseCoopers LLP has audited our financial statements since May 8, 2002. Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting and will have the opportunity to make statements if they desire and to respond to appropriate questions from stockholders.

 

Stockholder ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm is not required by our Bylaws or otherwise. However, the Board is submitting the selection of PricewaterhouseCoopers LLP to our stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee and the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee and the Board in their discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of our stockholders.

 

Fees Paid to Our Independent Registered Public Accounting Firm

 

During 2005 and 2006, we retained PricewaterhouseCoopers LLP as our independent registered public accounting firm to provide services in the following categories and amounts:

 

 

 

 

The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by our independent registered public accounting firm. Pre-approval is generally provided for up to one year and is detailed as to the particular services or category of services. The Audit Committee has delegated pre-approval authority to its chair for instances when approval outside of the scope of services previously approved is necessary prior to an Audit Committee meeting. Our independent registered public accounting firm and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with the pre-approval authority, and the fees for the services performed to such date. In the years ended December 31, 2006 and 2005, the Audit Committee or its chair approved all of the fees paid to the independent registered public accounting firm under the categories Audit-Related, Tax and All Other Fees described above prior to the rendering of such services.

 

The Audit Committee has considered whether the provision of non-audit services by PricewaterhouseCoopers LLP is compatible with maintaining their independence, and determined it was so.

 

Vote Required

 

The affirmative vote of a majority of the votes cast at the Annual Meeting, at which a quorum is present, either in person or by proxy, is required to approve this proposal. Abstentions and broker “non-votes” are not counted for purposes of the ratification of the selection of the independent registered public accounting firm and do not have an effect on the result of the vote for this proposal.

 

The Board recommends a vote FOR the ratification of the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007.

 

CERTAIN INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS

 

The following is a biographical summary of the experience of our executive officers as of March 6, 2007:

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Philosophy and Overview

 

Our compensation program is founded on the strong principle of pay-for-performance that is tied to stockholder value creation. The objectives of our compensation program are two-fold: (1) to reward and incentivize superior corporate, group and individual performance and (2) to attract talent and retain employees. Accordingly, annual compensation for most employees is comprised of a combination of salary and variable bonus and incentive pay.

 

Compensation for all employees includes an annual salary and the opportunity to earn an annual bonus, which is targeted as a percentage of annual salary. The target bonus is earned only when performance meets predetermined corporate, group and individual goals and objectives. Therefore, a portion of each employee’s compensation is “at risk” and earned only when performance meets or exceeds such goals and objectives. In addition, certain employees who are outstanding performers are eligible to participate in the long-term incentive program in which such employees can earn grants of stock options or restricted stock. Such equity grants align our employees interests with that of our stockholders and encourage retention because (1) stock options have value to our employees only to the extent our stock price increases and (2) such equity incentive awards generally vest over a period of 3 to 5 years, thus, employees must generally remain with the company in order to receive the full benefit of such awards.

 

As an employee becomes more senior and his/her responsibilities grow broader in scope, an increasingly greater portion of his/her total annual compensation consists of variable bonus and incentive pay and a larger portion of his/her annual compensation is delivered in the form of equity to align his/her interests with that of our stockholders. Therefore, the portion of compensation that is “at risk” increases as the role of an employee expands.

 

Corporate performance is determined based on certain pre-established performance objectives, which are established by the Compensation Committee at the beginning of each year. Specifically, corporate performance objectives used in evaluating annual bonus payments are set forth in the annual business plan approved by the Board of Directors each December preceding the annual bonus plan year. Generally, the company’s business plan details the key performance measures and outlines the financial, capital deployment and operational goals, as well as, strategic initiatives for the year. The business plan sets forth goals and objectives that measure absolute performance or relative performance against our peers depending upon the goal to be achieved. After the Board approves the business plan, the Compensation Committee approves the key performance measures for the annual bonus program utilizing the Board-approved corporate performance objectives. In contrast, corporate performance objectives used in evaluating long-term equity incentive payments for our executives are based on our total stockholder return relative to our peers over a three-year period. More detail on the specific corporate performance objectives used in determining 2006 annual bonus and long-term incentive payments follows in the “Executive Compensation Program — Annual Bonus Program” and “ — Long-Term Equity Incentive Program” sections below.

 

Group and individual performance is measured on the basis of quantitative and qualitative performance objectives that gauge a group and an individual’s contribution to our success. Once the business plan is approved by the Board, group performance goals are allocated to each executive by the Chairman and CEO. The business plan is distributed to group heads and managers who in turn use the plan to develop individual goals and objectives for the employees in their groups. We strongly believe that by providing a pay-for-performance compensation program, we will establish and maintain a performance and achievement-oriented environment throughout the organization and will attract and retain exceptional talent.

 

The following discussion and analysis provides a more detailed description of how each element of total compensation is determined for the executive team.

 

Executive Compensation Program

 

Consistent with our compensation philosophy and program for all employees, our executive compensation program offers three main elements of compensation: base salary, annual bonus and long-term equity incentive awards. The current executive compensation program targets cash compensation (salary and annual bonus) at the 50^th percentile of compensation for executive officers in our peer group and total remuneration (salary, annual bonus

and longer term equity incentives) between the 50^th and 60^th percentile of compensation for executive officers in our peer group. Our peer group is established by the Compensation Committee and currently consists of companies that comprise the Cohen & Steers Realty Majors. Generally, in determining each component of target compensation we benchmark our top executives with the named executive officers of our peer group companies.

 

The Compensation Committee has retained Towers Perrin as its independent compensation consultant to assist with the formulation and administration of the executive compensation program at the company. Towers Perrin does not provide any other services to the company. On an annual basis, Towers Perrin reviews the executive compensation program with the Compensation Committee and assesses the competitiveness of compensation levels for the executive officers to ensure that the compensation is aligned with AMB’s executive compensation philosophy. Towers Perrin provides the Compensation Committee with a compensation analysis of our peer group using information found in current proxy data and values each component of compensation awarded including base salary, bonus, equity awards and perquisites. Towers Perrin also shares with the Compensation Committee its observations on competitive market trends. The Compensation Committee considers this analysis along with company business strategies and objectives when setting annual compensation values for each component of total remuneration for the executives. Because our philosophy is to align the interests of our executives with the interests of our stockholders by (1) providing a substantial portion of our executives’ total compensation based on meeting or exceeding target performance objectives, (2) rewarding executives for performance that increases our stock price over the long term and (3) increasing the retention of our executives through vesting periods for our equity awards, we set base pay to comprise a smaller portion of our executives’ total compensation. In 2006, the base salary of our executives as a percentage of total target compensation (including base salary, target annual bonus and target long-term incentive amount) ranged from 17.7% to 25.3% of total target compensation.

 

We also offer a limited amount of perquisite benefits described in more detail below, as well as the opportunity to participate in health, welfare and benefit programs available to all of our employees, including medical, dental, vision benefit programs, life and disability insurance and 401(k) plan. In addition, along with our other U.S.-based officers, we offer executives the opportunity to participate in our nonqualified deferred compensation program as discussed further below in this proxy statement. We also provide certain benefits upon termination of an executive’s employment in the event of death, disability or change in control of the company under change in control and non-competition agreements, which is discussed more fully under “Executive Compensation — Change in Control and Noncompetition Agreements” below.

 

Base Salary

 

Base salary is intended to be competitive in the market for the scope and responsibilities of the job performed and are targeted at the median level of compensation in the market for similar positions. The base salaries for our executive officers are reviewed annually by the Compensation Committee and adjustments may be made based on the executive’s experience, responsibilities, individual performance and company affordability.

 

Annual Bonus Program

 

Our annual bonus program is a formal organization-wide incentive program that is intended to encourage teamwork and innovation, focus attention on specific business objectives and award the achievement of these objectives. It is intended to provide incentives to create value for our stockholders and to establish and maintain a performance and achievement-oriented environment throughout the organization.

 

Under our annual bonus program, executives are eligible to receive an annual bonus calculated as a percentage of their salary. Annual bonuses provide executives with the opportunity to earn cash compensation in excess of their annual target compensation level, but only in the event that corporate, group and/or individual goals have been exceeded. Conversely, if corporate, group and/or individual performance do not meet the pre-established objectives annual bonuses will be reduced below the target level.

 

In addition, the annual bonuses for executives are weighted between corporate, group and individual performance objectives. Generally, the bonuses of the Chairman and CEO are weighted more heavily toward the achievement of corporate performance levels while the bonuses of other executives, officers and employees are weighted more heavily toward the achievement of group and individual performance levels. The following table provides the target bonus percentages and weightings between corporate, group and individual performance for executive management for fiscal year 2006:

 

 

The corporate performance objectives used in evaluating the executives’ annual bonuses were set forth in the 2006 annual business plan approved by the Board of Directors in December 2005. Our 2006 business plan detailed the key performance measures for the annual bonus program and outlined the financial, capital deployment and operational goals, as well as strategic initiatives for the year. The business plan set forth goals and objectives that measured absolute performance or relative performance against the peer group depending upon the goal to be achieved. After the Board of Directors approved the 2006 business plan, the Compensation Committee approved the key performance measures for the annual bonus program. For 2006, the Compensation Committee approved the measurement of the company’s performance on the achievement of the following five key performance measures as set forth in our 2006 business plan:

 

 

We set performance targets based on historical results, market expectations and peer performance. In general, we set target goals that are more likely to be achieved than not achieved. Over the last five years, the company has performed below target in two years, at target in one year and exceeded target in two years. We assigned significantly more weight to the FFO (or funds from operations) performance measure relative to the other performance measures as we believe FFO provides the best assessment of our operating performance for the company as a whole. FFO⁽¹⁾ is a non-GAAP financial measure created by the National Association of Real Estate Investment Trusts as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income as defined by GAAP. Our FFO results are set forth on page 38 of our annual report on Form 10-K for the fiscal year ended December 31, 2006, Item 6, “Selected Company Financial and Other Data” and the calculation of FFO reconciled from net income is set forth beginning on page 63, “Supplemental Earnings Measures” of our annual report on Form 10-K for the fiscal year ended December 31, 2006.

 

 

 

Annual bonuses are paid once a year, after assessing our financial, operational and strategic performance and the employee’s individual performance. At the end of the fiscal year, our Chairman and CEO assessed our achievement of the 2006 business plan and key performance measures and recommended a corporate rating to the Compensation Committee for approval. Because we exceeded our corporate performance objectives and key performance measures for 2006, the Compensation Committee approved a corporate rating above target. Once approved by the Compensation Committee the corporate performance rating determines the company’s bonus pool and that rating is used to calculate the corporate performance portion of the executives’ bonus payment.

 

To determine how the bonus pool is distributed, the Chairman and CEO assesses the performance of each group against the goals and objectives in the 2006 business plan and awards a rating to each group. When taken in aggregate, the ratings for all the groups should approximately equal the overall corporate performance rating. Within each group, each supervisor evaluates individual performance on the basis of the individual’s goals and objectives and contribution to the group’s performance. In general, the average of all of the individual ratings within a group approximately equals the group’s overall performance. As a result, individual bonuses for non-executive employees reflect not only individual contributions; they are also weighted by the group score and the overall company performance; however, the group and individual portion of executive bonuses generally reflect a level at or below that of their group rating.

 

The Compensation Committee evaluates the individual performance of the Chairman and CEO and determines his aggregate annual bonus. The Chairman and CEO does not participate in or influence the decisions of the Compensation Committee with respect to his annual bonus. Based on recommendations by the Chairman and CEO, the Compensation Committee determines the annual bonus of the other executive officers. At the direction of the Compensation Committee, Towers Perrin reviews the bonus calculations for the Chairman and CEO as well as the other executive officers and confirms that the bonuses have been calculated in accordance with the terms and conditions of the annual bonus program.

 

Our executives may choose to receive all or a portion of their annual bonuses in cash, shares of restricted stock (valued at 125% of the cash bonus, with three year vesting), stock options (valued at 150% of the cash bonus, with three year vesting on the portion attributable to the value above 100% of the cash bonus and immediate vesting on the portion attributable to the 100% value of the cash bonus), or any combination of the foregoing, subject to certain limits on the aggregate number of options elected. In 2006, we set the limit so that no more than a total of 800,000 shares can be distributed under this program and no individual may receive more than 50% of the pool of shares. While this program may result in additional compensation for our executives, it gives our executives an opportunity to increase their ownership in the company by exchanging their cash compensation into equity. This feature is designed to further align the interests of our executives with the interests of our stockholders and to increase the retention of our executives through vesting periods of three years.

 

Long-Term Equity Incentive Program

 

The long-term equity incentive program is intended to provide our executives with incentives to maximize our long-term performance and to promote the interests of our stockholders by providing the opportunity for our executives to receive, in addition to annual bonuses, grants of stock options, restricted stock or other equity-based awards upon approval of the Compensation Committee. Consequently, long-term equity comprises a significant portion of total compensation for our executives.

 

In determining whether to award executive officers any long-term equity incentive grants for the prior year’s performance, the Compensation Committee reviews and analyzes several factors. First, the Compensation Committee reviews the company’s three-year total stockholder return (TSR) relative to a peer group comprised 60% of the Cohen & Steers Realty Majors and 40% of our other industrial peers, including Prologis, Duke Realty,

First Industrial and East Group. The Compensation Committee has set the following measures to determine the value of the awards:

 

 

Second, the Compensation Committee considers each executive’s individual performance and may modify by reducing or increasing the final awards based on his/her group and individual performance.

 

The Compensation Committee evaluates the individual performance of the Chairman and CEO and determines his long-term equity award. The Chairman and CEO does not participate in or influence the decisions of the Compensation Committee with respect to the Chairman and CEO’s long-term equity award. Based on recommendations by the Chairman and CEO, the Compensation Committee determines the value of the long-term equity award of the other executive officers. At the direction of the Compensation Committee, Towers Perrin reviews the value of the long-term equity awards for the Chairman and CEO and other executive officers to ensure compliance with the goals and objectives of the long-term equity incentive program. Members of executive management receiving a long-term equity incentive award may choose to receive stock options, restricted stock or a combination of both with the restriction that no more than 40% of the award is in the form of stock options.

 

All shares of restricted stock granted with respect to the long-term equity incentive program generally vest over a period of five years, at a rate of one-fifth of such grant, on January 1st or February 1st of each year, thereby encouraging the retention of our executives. Stock options awarded under the long-term equity incentive program are granted with an exercise price set at the fair market value of our common stock on the date of the grant and generally vest over a period of three years, at a rate of one-third of such grant, on January 1st or February 1st and each option has a term of ten years, thereby encouraging the retention of our executives. Stock option grants will only be of value to our executives if our stock price increases over time. The Compensation Committee uses the Black-Scholes methodology to calculate the number of underlying shares of stock in a stock option grant that an individual would receive under either the annual bonus and/or long-term equity incentive program. For 2007, our Black-Scholes value was $11.90 per share. We utilized the following assumptions to determine our Black-Scholes valuation:

 

 

(while stock options have a term of ten years, we assume a shorter term to reflect the historical forecasted average length of time that employees hold the options until exercise)

 

 

Perquisites

 

Each executive officer is provided company-paid parking. Executive officers also are eligible to receive financial planning assistance. Each executive is required to pay 30% of the financial planning fee. Not all executives elect to receive the financial planning perquisite. See the tables below for a more detailed description of the value of each perquisite. AMB’s health care, insurance and other welfare programs are the same for all eligible employees. AMB has no outstanding loans to its executive officers, and since our initial public offering in 1997, has not made any loans to its executive officers. In addition, we will continue to comply with federal laws enacted in 2002 which prohibit the company from making any new loans to its executive officers.

 

Impact of Accounting and Tax Treatment

 

We expense our base salary cash compensation in the year it is earned or paid. We expense our annual bonus cash compensation in the year it is earned. In accordance with FAS 123R, we expense our stock options and restricted stock awarded as part of our annual bonus exchange program and long-term equity incentive program over the vesting period.

 

2006 Chairman and Chief Executive Officer and Other Named Executive Officers’ Compensation

 

The Chairman and CEO and the other named executive officers’ compensation for 2006 were determined using the framework discussed under “Compensation Philosophy and Overview” and “Executive Compensation Program” above. Specifically, to determine the executives’ annual bonuses, the Compensation Committee evaluated their performance measured against our 2006 business plan, their achievement of individual pre-established goals and relative pay versus that of our competitors’ similarly held positions. The Compensation Committee considered the company’s following achievements for the year under the team’s leadership including:

 

The company:

 

 

To determine the executives’ long-term incentive awards the Compensation Committee acknowledged that the company’s three-year annualized stockholder return of 26.25% was within the +/− 200 bps target range of the peer group three-year annualized total stockholder return of 27.90%.

 

As described previously, our executives may choose to receive all or a portion of their annual bonuses in cash, shares of restricted stock, stock options or any combination of the foregoing, subject to certain limits on the aggregate number of options elected. Additionally, executive officers receiving a long-term equity incentive award may choose to receive stock options, restricted stock or a combination of both with the restriction that no more than 40% of the award is in the form of stock options. On February 15, 2007, the date of grant by Compensation Committee of the annual bonus and long-term incentive awards, the shares of restricted stock were valued at $64.18 per share and stock options were valued at $11.90.

 

Based upon such results, compensation, annual cash incentive awards to Messrs. Moghadam, Coke, Jaquier, Reilly and Roberts were awarded at above-target levels, pursuant to achievement of individual, group and corporate performance objectives for 2006 as described above. In addition, these executives were granted long-term incentive awards to reflect our performance with that of our peer group with respect to total stockholder return and to reflect the executive’s individual performance.

 

The summary compensation table on page 34 details total annual compensation as required by SEC rules. Please note, however, that the total compensation discussed in this section differs from that disclosed in the summary compensation table because we include (i) the value of the bonus amount awarded to the Named Executive Officers for 2006 performance and exchanged into equity as part of our annual bonus exchange program and (ii) long-term equity incentive awards, and we exclude the value of equity awards accrued toward vesting and expensed in 2006 under FAS 123R that were awarded in prior years. The following provides a more detailed

description for the annual bonus and long-term incentive equity awards and other compensation awarded to our Named Executive Officers for performance in 2006.

 

2006 Annual Salary, Bonus and Incentive Compensation

 

 

 

 

Note: W. Blake Baird resigned from AMB effective December 1, 2006. In connection with his separation, Mr. Baird received a payment of $2,038,750, and the vesting date for 60,757 shares of restricted stock and 51,293 stock options was accelerated to December 1, 2006. In 2006, Mr. Baird also received base salary earnings of $413,750 through December 1, 2006 and the perquisites and other compensation listed in the tables below.

2006 Perquisites and Other Compensation

 

 

2006 Total Compensation for Named Executive Officers

 

 

 

 

The company does not provide to any of its employees including the Chairman and CEO and other members of executive management with any of the following: severance plans other than the change in control and noncompetition agreements described in this proxy statement, or supplemental retirement benefits.

 

Stock Option Grant Timing Practices

 

We award grants of stock options or restricted stock to certain employees to recognize the following circumstances: when such employees begin employment; when an employee is promoted to vice president; when an officer exchanges their cash annual bonus in equity and as an award under the long-term equity incentive program. We do not have a program, plan or practice to time option grants to our executives in coordination with the release of material non-public information.

 

All stock option awards have an exercise price equal to the closing sales price of such stock on the date of grant. New executive grants are approved by the Compensation Committee and made on the first day of employment. Generally, any new employee grants are granted on a predetermined date on or after they begin employment with the company. In order to facilitate the day-to-day management and administration of the plan with respect to such new employee grants, the Compensation Committee also typically authorizes and approves a general grant or award of up to an annual aggregate of 250,000 shares of common stock which may be either incentive stock options, non-qualified stock options or shares of restricted stock to be made available to new employees or officers (excluding Section 16 officers) of the company or its affiliates, and with the identity of the recipients and the number of shares covered by the award to be subsequently determined by our Chairman and Chief Executive Officer (or his two designees), provided that no one individual can receive more than 50,000 shares or options to purchase shares of common stock, and subject to certain other restrictions.

 

Prior to calendar year end, as part of our annual bonus exchange program, our executives and other U.S.-based officers elect whether to receive a portion of their current year bonus in stock option grants or restricted stock grants to be awarded in February or March of the following year. Stock options awarded as a result of the executives or officers participation in the annual bonus exchange program or under the long-term equity incentive program are

approved and granted by the Compensation Committee on the day the Compensation Committee meets, and thus the exercise price is the closing sales price of our common stock on that day. Annual long-term equity grants are also awarded to non-officer employees at the same meeting. These stock option grant timing practices are applied consistently to executive officers and our other employees. Our fiscal year earnings results are generally announced at the end of January, and we do not time the February or March meeting to coincide with the announcement of any other material non-public information.

 

Stock Ownership Guidelines

 

Because the Board of Directors of the company believes strongly in linking the interests of our non-employee directors, senior officers and stockholders, the Board has established stock ownership guidelines for our non-employee directors and senior officers. The ownership guidelines specify a number of shares and/or partnership units that AMB’s non-employee directors and U.S.-based senior officers (Senior Vice Presidents and above) must accumulate and hold, which may include the value attributed to unvested shares of restricted stock. Non-employee directors are expected to own or acquire, by the later of September 2007 or three years of first becoming a director, shares having a market value of at least $100,000. Senior officers are expected to own or acquire a certain amount of shares or units by the later of September 2009 or five years after the officer’s appointment to a senior position. The specific share and unit requirements for senior officers are based on the equity market value of a multiple of annual base salary compensation, with the higher multiples applying to executive officers having the highest levels of responsibility. Our Chairman and CEO is expected to hold shares and/or units worth at least five times his base salary; other executive officers are expected to hold shares and/or units worth at least three times their base salary; and our senior vice presidents are expected to hold shares and/or units worth at least one time their base salary. Compliance with the guidelines is monitored by our human resources department.

 

Summary

 

We believe the compensation programs for our executive officers are reasonable and are competitive with compensation programs provided to similarly situated officers at our peer companies. We believe the annual incentive payments made to the executive officers named in the Summary Compensation Table in respect of the year 2006 are appropriate and commensurate with our 2006 financial and strategic performance and their individual achievements during the year. We believe the long-term incentive opportunities provided to our executive officers, in the form of stock options and restricted stock, are also appropriate and are awarded in a manner consistent with our philosophy of basing a substantial component of total executive compensation on the total returns realized by our stockholders.

 

EXECUTIVE COMPENSATION

 

The following table sets forth the annual base salary rates and other compensation earned or expensed for the year ended December 31, 2006 to our Chief Executive Officer and Chief Financial Officer during fiscal year 2006, our next three most highly compensated executive officers other than our Chief Executive Officer and Chief Financial Officer who were serving as executive officers at the end of 2006, and our former President who would have been among our next three most highly compensated executive officers had he remained as an executive officer until the end of 2006 (collectively, the “Named Executive Officers”).

 

Summary Compensation Table

 

 

 

 

Grants of Plan-Based Awards

 

The following table shows certain information relating to restricted shares of common stock and options to purchase shares of our common stock granted to the Named Executive Officers in 2006.

 

All such 2006 grants were made in connection with performance in 2005. For information on 2007 grants made in connection with performance in 2006, please see our Compensation Discussion and Analysis and the footnotes to the Summary Compensation Table.

 

 

 

 

Equity Compensation Plan Information

 

We have two equity compensation plans: (1) the Third Amended and Restated 1997 Stock Option and Incentive Plan, as amended, and (2) the 2002 Stock Option and Incentive Plan, as amended. A total of 18,950,000 shares of common stock are reserved for issuance pursuant to the plans. Currently, awards under the stock option and incentive plans consist of non-qualified stock options and restricted shares of common stock. Our stockholders have approved both stock option and incentive plans. As of December 31, 2006:

 

 

Exercises and Holdings of Previously Awarded Equity

 

The following table sets forth certain information concerning exercised and unexercised options held by the Named Executive Officers at December 31, 2006.

 

Outstanding Equity Awards at Fiscal Year-End