UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A INFORMATION

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

Filed by the Registrant  x

Filed by a Party other than the Registrant  o

Check the appropriate box:

o

Preliminary Proxy Statement

o

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §240.14a-12

 

SL GREEN REALTY CORP.

(Name of Registrant as Specified In Its Charter)

 

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

 

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x

No fee required.

o

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(1)

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(2)

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(3)

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Total fee paid:

 

 

 

o

Fee paid previously with preliminary materials.

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1)

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(3)

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(4)

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GRAPHIC

April 16, 2007

Dear Stockholder:

You are invited to attend the annual meeting of stockholders of SL Green Realty Corp. This year’s meeting will be held on Thursday, May 24, 2007 at 10:00 a.m., local time, at the Grand Hyatt New York Hotel, Park Avenue at Grand Central Terminal, 109 East 42nd Street, New York, New York.

The attached proxy statement, with the accompanying formal notice of the meeting, describes the matters expected to be acted upon at the meeting. We urge you to review these materials carefully and to take part in the affairs of our company by voting on the matters described in the accompanying proxy statement. We hope that you will be able to attend the meeting. Our directors and management team will be available to answer questions. Afterwards, there will be a vote on the matters set forth in the accompanying proxy statement.

Your vote is important. Whether you plan to attend the meeting or not, please complete the enclosed proxy card and return it as promptly as possible. If you attend the meeting, you may continue to have your shares of common stock voted as instructed in the proxy or you may withdraw your proxy at the meeting and vote your shares of common stock in person. We look forward to seeing you at the meeting.

Sincerely,

GRAPHIC

Stephen L. Green

Chairman of the Board




SL GREEN REALTY CORP.
420 Lexington Avenue
New York, New York  10170-1881


NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

to be held on May 24, 2007


The 2007 annual meeting of stockholders of SL Green Realty Corp. will be held on Thursday, May 24, 2007 at 10:00 a.m., local time, the Grand Hyatt New York Hotel, Park Avenue at Grand Central Terminal, 109 East 42nd Street, New York, New York. At the annual meeting, stockholders will vote upon the following proposals:

1.     To elect one Class I director to serve until the 2010 annual meeting of stockholders and until his successor is duly elected and qualified;

2.     To ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007;

3.     To authorize and approve our amended and restated 2005 Stock Option and Incentive Plan in order to increase the number of shares that may be issued pursuant to such plan;

4.     To authorize and approve articles of amendment and restatement of our Articles of Incorporation in order to (i) increase the number of authorized shares of common stock and (ii) make various ministerial changes to our current Articles of Incorporation; and

5.     To consider and act upon any other matters that may properly be brought before the annual meeting and at any adjournments or postponements thereof.

Any action may be taken on the foregoing matters at the annual meeting on the date specified above, or on any date or dates to which, by original or later adjournment, the annual meeting may be adjourned, or to which the annual meeting may be postponed.

Our Board of Directors has fixed the close of business on March 20, 2007 as the record date for determining the stockholders entitled to notice of, and to vote at, the annual meeting, and at any adjournments or postponements thereof. Only stockholders of record of our common stock at the close of business on that date will be entitled to notice of, and to vote at, the annual meeting, and at any adjournments or postponements thereof. A list of stockholders entitled to vote at the annual meeting will be available at the annual meeting and for ten calendar days prior to the annual meeting, between the hours of 8:30 a.m. and 4:30 p.m., local time, at our corporate offices located at 420 Lexington Avenue, New York, New York  10170-1881. You may arrange to review this list by contacting our Secretary, Andrew S. Levine.

You are requested to fill in and sign the enclosed form of proxy, which is being solicited by our Board of Directors, and to mail it promptly in the enclosed postage-prepaid envelope. Any proxy may be revoked by delivery of a later dated proxy. In addition, stockholders of record who attend the annual meeting may vote in person, even if they have previously delivered a signed proxy.

By Order of our Board of Directors

 

GRAPHIC

 

Andrew S. Levine

 

Secretary

 

New York, New York
April 16, 2007

Whether or not you plan to attend the annual meeting, please complete, sign, date and promptly return the enclosed proxy card in the postage-prepaid envelope provided. For specific instructions on voting, please refer to the instructions on the proxy card or the information forwarded by your broker, bank or other holder of record. If you attend the annual meeting, you may vote in person if you wish, even if you have previously signed and returned your proxy card. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote in person at the meeting, you must obtain a proxy issued in your name from such broker, bank or other nominee.




TABLE OF CONTENTS

 

Page

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

 

1

Who is entitled to vote at the meeting?

 

1

What is the purpose of the meeting?

 

1

What constitutes a quorum?

 

1

What vote is needed to approve each proposal?

 

2

Can I change my vote after I submit my proxy card?

 

2

How do I vote?

 

2

How is my vote counted?

 

2

What other information should I review before voting?

 

3

Who is soliciting my proxy?

 

3

PROPOSAL 1: ELECTION OF DIRECTORS

 

4

Information Regarding the Nominee and the Continuing Directors

 

4

Biographical Information Regarding Executive Officers Who Are Not Directors

 

6

The Board of Directors and its Committees

 

7

Director Compensation

 

9

PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

11

Fee Disclosure

 

11

Pre-Approval Policies and Procedures of our Audit Committee

 

12

AUDIT COMMITTEE REPORT

 

13

PROPOSAL 3: APPROVAL OF OUR AMENDED AND RESTATED 2005 STOCK OPTION AND INCENTIVE PLAN

 

15

Summary of the Provisions of Our Amended and Restated 2005 Stock Option and Incentive Plan

 

15

Material U.S. Federal Income Tax Consequences

 

19

PROPOSAL 4: APPROVAL OF AMENDMENT AND RESTATEMENT OF OUR ARTICLES OF INCORPORATION

 

21

CORPORATE GOVERNANCE MATTERS

 

23

Corporate Governance Guidelines

 

23

Director Independence

 

23

Code of Business Conduct and Ethics

 

23

Audit Committee Financial Expert

 

24

Communications with our Board of Directors

 

24

Whistleblowing and Whistleblower Protection Policy

 

24

Director Attendance at Annual Meetings

 

24

Identification of Director Candidates

 

24

Executive Sessions of Non-Management Directors

 

25

Disclosure Committee

 

25

EXECUTIVE COMPENSATION

 

26

Compensation Discussion and Analysis

 

26

Compensation Committee Report

 

32

Summary Compensation Table

 

33

Grants of Plan-Based Awards

 

34

Outstanding Equity Awards

 

35

Option Exercises and Stock Vested

 

37

i




 

Pension Benefits

 

37

Nonqualified Deferred Compensation

 

37

Potential Payments Upon Termination or Change-in-Control

 

37

Equity Compensation Plan Information

 

53

Compensation Committee Interlocks and Insider Participation

 

57

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

58

Section 16(a) Beneficial Ownership Reporting Compliance

 

59

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

60

Policies and Procedures With Respect to Related Party Transactions

 

60

Cleaning/Security/Messenger and Restoration Services

 

60

Leases

 

61

Management Fees

 

61

Management Indebtedness

 

61

Brokerage Services

 

61

Gramercy Capital Corp.

 

62

OTHER MATTERS

 

67

Solicitation of Proxies

 

67

Stockholder Proposals

 

67

Householding of Proxy Materials

 

67

Other Matters

 

68

APPENDIX A  AMENDED AND RESTATED 2005 STOCK OPTION AND INCENTIVE PLAN

 

A-1

APPENDIX B  ARTICLES OF AMENDMENT AND RESTATEMENT

 

B-1

 

ii




SL GREEN REALTY CORP.

420 Lexington Avenue
New York, New York 10170-1881


PROXY STATEMENT


FOR 2007 ANNUAL MEETING OF STOCKHOLDERS

to be held on May 24, 2007

We are sending this proxy statement and the enclosed proxy card to our stockholders on or about April 16, 2007 in connection with the solicitation of proxies by the Board of Directors of SL Green Realty Corp. for use at the 2007 annual meeting of stockholders to be held on Thursday, May 24, 2007 at 10:00 a.m., local time, the Grand Hyatt New York Hotel, Park Avenue at Grand Central Terminal, 109 East 42nd Street, New York, New York, or at any postponement or adjournment of the meeting.

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

Who is entitled to vote at the meeting?

If our records show that you were a stockholder of our common stock at the close of business on March 20, 2007, which is referred to in this proxy statement as the record date, you are entitled to receive notice of the meeting and to vote the shares of common stock that you held on the record date. Each outstanding share of common stock entitles its holder to cast one vote for each matter to be voted upon.

What is the purpose of the meeting?

At the annual meeting, you will be asked:

·       to vote upon the election of one Class I director;

·       to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007;

·       to authorize and approve our amended and restated 2005 Stock Option and Incentive Plan to increase the number of shares that may be issued pursuant to the plan;

·       to authorize and approve articles of amendment and restatement of our Articles of Incorporation in order to (i) increase the number of authorized shares of common stock and (ii) make various ministerial changes to our current Articles of Incorporation; and

·       to consider and act upon any other matters that may properly be brought before the meeting and at any adjournments or postponements thereof.

What constitutes a quorum?

The presence, in person or by proxy, of holders of a majority of the total number of outstanding shares of common stock entitled to vote at this meeting is necessary to constitute a quorum for the transaction of business at the meeting. As of the record date, there were 59,180,818 shares of common stock outstanding and entitled to vote at the meeting.

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What vote is needed to approve each proposal?

The affirmative vote of the holders of record of a plurality of all of the votes cast at the meeting at which a quorum is present is necessary for the election of the Class I director. The affirmative vote of the holders of record of a majority of all of the votes cast at the meeting at which a quorum is present is required for the ratification of our independent registered public accounting firm, approval of our amended and restated 2005 Stock Option and Incentive Plan and the approval of any other matters properly presented at the meeting for stockholder approval. The affirmative vote of at least two-thirds of all the outstanding shares of our common stock is necessary to approve the proposed articles of amendment and restatement of our Articles of Incorporation. We will treat abstentions as shares that are present and entitled to vote for purposes of determining the presence or absence of a quorum. With respect to the proposal to amend and restate our Articles of Incorporation, abstentions will have the effect of a vote cast “against” the proposal. With respect to the other proposals, abstentions do not constitute a vote “for” or “against,” will not be counted as “votes cast” and will have no effect on such proposals. Broker “non-votes,” or proxies from brokers or nominees indicating that such broker or nominee has not received instructions from the beneficial owner or other entity entitled to vote such shares on a particular matter with respect to which such broker or nominee does not have discretionary voting power, will be treated in the same manner as abstentions for purposes of the annual meeting. None of the proposals, if approved, entitle stockholders to appraisal rights under Maryland law or our Articles of Incorporation.

Can I change my vote after I submit my proxy card?

If you cast a vote by proxy, you may revoke it at any time before it is voted by:

·       filing a written notice revoking the proxy with our Secretary at our address;

·       signing and forwarding to us a proxy with a later date; or

·       appearing in person and voting by ballot at the meeting.

If you attend the meeting, you may vote in person whether or not you have previously given a proxy, but your presence (without further action) at the meeting will not constitute revocation of a previously given proxy.

How do I vote?

We request that you complete, sign, date and promptly return the accompanying proxy card in the enclosed postage-prepaid envelope. You may also attend the meeting in person and vote in person. If your shares of common stock are held by a broker, bank or other nominee (i.e., in “street name”), you will receive instructions from your nominee, which you must follow in order to have your shares of common stock voted. Such stockholders who wish to vote in person at the meeting will need to obtain a proxy form from the broker, bank or other nominee that holds their shares of common stock of record.

How is my vote counted?

If you properly execute a proxy in the accompanying form, and if we receive it prior to voting at the meeting, the shares of common stock that the proxy represents will be voted in the manner specified on the proxy. If no specification is made, the common stock will be voted “for” the election of the nominee for the Class I director named in this proxy statement, “for” ratification of our Audit Committee’s selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007, “for” approval of our amended and restated 2005 Stock Option and Incentive Plan, “for” approval of the proposed articles of amendment and restatement of our Articles of Incorporation and as recommended by our Board of Directors with regard to all other matters in its discretion. It is not anticipated that any matters other than those set forth in the proxy statement will be presented at the

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meeting. If other matters are presented, proxies will be voted in accordance with the discretion of the proxy holders. In addition, no stockholder proposals or nominations were received on a timely basis, so no such matters may be brought to a vote at the annual meeting.

What other information should I review before voting?

For your review, our 2006 annual report, including financial statements for the fiscal year ended December 31, 2006, is being mailed to you concurrently with the mailing of this proxy statement. You may also obtain, free of charge, a copy of our 2006 annual report on our website at http://www.slgreen.com. The information found on, or accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the SEC. You may also obtain a copy of our Annual Report on Form 10-K, which contains additional information about our company, free of charge, by directing your request in writing to SL Green Realty Corp., 420 Lexington Avenue, New York, New York  10170-1881, Attention:  Investor Relations. The 2006 annual report and the Annual Report on Form 10-K, however, are not part of the proxy solicitation material.

Who is soliciting my proxy?

This solicitation of proxies is made by and on behalf of our Board of Directors. We will pay the cost of the solicitation of proxies. We have retained Morrow & Co., Inc. at an aggregate estimated cost of $5,500, plus out-of-pocket expenses, to assist in the solicitation of proxies. In addition to the solicitation of proxies by mail, our directors, officers and employees may solicit proxies personally or by telephone.

No person is authorized on our behalf to give any information or to make any representations with respect to the proposals other than the information and the representations contained in this proxy statement, and, if given or made, such information and/or representations must not be relied upon as having been authorized and the delivery of this proxy statement shall, under no circumstances, create any implication that there has been no change in our affairs since the date hereof.

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PROPOSAL 1:  ELECTION OF DIRECTORS

Our Board of Directors currently consists of five members and is divided into three classes, with the directors in each class serving for a term of three years and until their successors are duly elected and qualified. The term of one class expires at each annual meeting of stockholders.

At the annual meeting, one director will be elected to serve until the 2010 annual meeting and until his successor is duly elected and qualified. Our Nominating and Corporate Governance Committee has recommended Edwin Thomas Burton, III to our Board of Directors as a nominee for election to serve as a Class I director. This nominee is currently serving as a Class I director. Following the recommendation of the Nominating and Corporate Governance Committee, our Board has nominated Edwin Thomas Burton, III to serve as a Class I director. Our Board anticipates that the nominee will serve, if elected, as a director. However, if the nominee is unable to accept election, proxies voted in favor of the nominee will be voted for the election of such other person or persons as our Nominating and Corporate Governance Committee may recommend to our Board.

The Board of Directors unanimously recommends a vote “FOR” the Nominee.

Information Regarding the Nominee and the Continuing Directors

The following table and biographical descriptions set forth certain information with respect to the nominee for election as a Class I director at the 2007 annual meeting and the continuing directors whose terms expire at the annual meetings of stockholders in 2008 and 2009, respectively, based upon information furnished by each director.

 

Name

 

 

Age

 

Director Since

 

Class I Nominee Director (term expires in 2010)

 

 

 

 

 

 

 

 

 

Edwin Thomas Burton, III

 

 

64

 

 

 

1997

 

 

Class II Continuing Directors (terms to expire in 2008)

 

 

 

 

 

 

 

 

 

Marc Holliday

 

 

40

 

 

 

2001

 

 

John S. Levy

 

 

71

 

 

 

1997

 

 

Class III Continuing Directors (terms expire in 2009)

 

 

 

 

 

 

 

 

 

John H. Alschuler, Jr.

 

 

59

 

 

 

1997

 

 

Stephen L. Green

 

 

69

 

 

 

1997

 

 

 

Class I Nominee Director—Term Expires 2010

Edwin Thomas Burton, III has served as one of our directors since 1997 and serves as Chairman of our Audit Committee, and is a member of our Compensation and Nominating and Corporate Governance Committees. Mr. Burton is a member of, and from 1997 until March 2001 served as Chairman of the Board of Trustees of, the Investment Advisory Committee of the Virginia Retirement System for state and local employees of the Commonwealth of Virginia. Mr. Burton served as the Chairman of the Virginia Retirement System Special Committee on the sale of RF&P Corporation, a $570 million real estate company. Since 1988, he has served as a professor of economics at the University of Virginia. Mr. Burton served as a director of Virginia National Bank from 1998 until 2004. From 1994 until 1995, Mr. Burton served as Senior Vice President, Managing Director and member of the board of directors of Interstate Johnson Lane, Incorporated, an investment banking firm where he was responsible for the Corporate Finance and Public Finance Divisions. From 1987 to 1994, Mr. Burton served as President of Rothschild Financial Services, Incorporated (a subsidiary of Rothschild, Inc. of North America), an investment banking company headquartered in New York City that is involved in proprietary trading, securities lending and other investment activities. Mr. Burton also serves as a consultant to numerous companies on investment strategy and investment banking. Mr. Burton served on the board of directors of Capstar, a

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publicly-traded hotel company, and SNL Securities, a private securities data company. He has held various teaching positions at York College, Rice University and Cornell University and has written and lectured extensively in the field of economics. Mr. Burton received a B.A. degree and an M.A. degree in economics from Rice University and a Ph.D. degree in economics from Northwestern University.

Class II Continuing Directors—Terms Expire in 2008

Marc Holliday has served as our Chief Executive Officer since January 2004. Mr. Holliday has also served as one of our directors since December 2001 and is a member of our Executive Committee of our Board of Directors. Mr. Holliday stepped down as our President in April 2007, when Mr. Mathias was promoted to that position. Mr. Holliday joined our company as Chief Investment Officer in July 1998. Since joining our company, Mr. Holliday has directed our focused business plan of repositioning and strategically upgrading of the portfolio to larger avenue properties with higher quality tenants, while at the same time driving strong earnings performance and growth in stockholder value. Mr. Holliday implemented this plan by overseeing a diversified strategy involving selective acquisitions and dispositions coupled with a successful joint venture initiative and structured finance program. Under Mr. Holliday’s investment guidance, we have grown to be the largest owner of commercial office properties in Manhattan. Mr. Holliday has also served as the president and Chief Executive Officer and a director of Gramercy Capital Corp., or Gramercy (NYSE: GKK), since August 2004. Prior to joining our company, he was Managing Director and Head of Direct Originations for New York-based Capital Trust (NYSE:CT), a mezzanine finance company. While at Capital Trust, Mr. Holliday was in charge of originating direct principal investments for the firm, consisting of mezzanine debt, preferred equity and first mortgages. From 1991 to 1997, Mr. Holliday served in various management positions, including senior vice president at Capital Trust’s predecessor company, Victor Capital Group, a private real estate investment bank specializing in advisory services, investment management, and debt and equity placements. Mr. Holliday received a B.S. degree in Business and Finance from Lehigh University in 1988, as well as an M.S. degree in Real Estate Development from Columbia University in 1990.

John S. Levy has served as one of our directors since 1997 and serves as Chairman of our Nominating and Corporate Governance Committee and as a member of our Audit and Compensation Committees. Mr. Levy is a private investor. Mr. Levy was associated with Lehman Brothers Inc. (or its corporate predecessors) from 1983 until 1995. During that period, Mr. Levy served as Managing Director and Chief Administrative Officer of the Financial Services Division, Senior Executive Vice President and Co-Director of the International Division overseeing the International Branch System, and Managing Partner of the Equity Securities Division, where he managed the International, Institutional, Retail and Research Departments. Prior to that period, Mr. Levy was associated with A.G. Becker Incorporated (or its corporate predecessors) from 1960 until 1983. At A.G. Becker, Mr. Levy served as Managing Director of the Execution Services Division, Vice President-Manager of Institutional and Retail Sales, Manager of the Institutional Sales Division, Manager of the New York Retail Office and a Registered Representative. Mr. Levy received a B.A. degree from Dartmouth College.

Class III Continuing Directors—Terms Expire in 2009

John H. Alschuler, Jr. has served as one of our directors since 1997. He serves as Chairman of our Compensation Committee and as a member of our Audit, Executive and Nominating and Corporate Governance Committees. Mr. Alschuler is the President of Hamilton, Rabinowitz & Alschuler, Inc., a consulting organization with offices in New York and Los Angeles. He directs a consulting practice devoted to urban development, real estate transactions, and the re-restructuring of public institutions. His work focuses on managing large scale developments in urban areas, planning the revitalization of under-utilized areas, and strategic business planning for downtowns and regions. He has advised a wide range of public and private clients, including General Growth Properties, Trinity Church Real Estate, Macerich, the

5




Guggenheim Foundation, the New York Blood Center, Governors Island Preservation and Education Corporation, the Anacostia Waterfront Corporation, Madison Square Garden, the Related Companies, the Brooklyn Bridge Park Development Corporation, the Battery Park City Authority, the New Jersey Performing Arts Center, the Brooklyn Academy of Music, and Brookfield Properties. He has also served as an advisor to the Government of Kuwait, the Cities of Columbus and Cincinnati, Ohio, Washington, D.C., and is a regular advisor to the City and State of New York. Mr. Alschuler is an Adjunct Associate Professor at Columbia University where he teaches real estate development for the graduate program. Mr. Alschuler received a B.A. degree from Wesleyan University and an Ed.D. degree from the University of Massachusetts at Amherst.

Stephen L. Green has served as our Chairman and member of our Executive Committee of our Board of Directors since 1997 and is a full-time executive officer of our company with responsibility for developing key market relationships and real estate opportunities while overseeing our long-term strategic direction. Mr. Green stepped down as our Chief Executive Officer in January 2004, when Marc Holliday was promoted to that position. Mr. Green founded our predecessor, S.L. Green Properties, Inc., in 1980. Prior to our initial public offering in 1997, Mr. Green had been involved in the acquisition of over 50 Manhattan office buildings containing in excess of 4.0 million square feet. Mr. Green has also served as the chairman of the board of directors of Gramercy (NYSE: GKK), since August 2004. Mr. Green is an at-large member of the Executive Committee of the Board of Governors of the Real Estate Board of New York and has previously served as Chairman of the Real Estate Board of New York’s Tax Committee. He currently serves as a member on the board of directors of Street Squash. Mr. Green received a B.A. degree from Hartwick College and a J.D. degree from Boston College Law School.

Biographical Information Regarding Executive Officers Who Are Not Directors

Gregory F. Hughes was appointed as our Chief Operating Officer in April 2007 and has served as our Chief Financial Officer since February 2004. Mr. Hughes has also served as the Chief Credit Officer of Gramercy (NYSE:GKK) since August 2004. Mr. Hughes is responsible for finance, capital markets, investor relations and administration. Prior to joining our company, from 2002 to 2003, Mr. Hughes was a Managing Director and the Chief Financial Officer of the real estate private equity group at JP Morgan Partners. From 1999 to 2002, Mr. Hughes was a Partner and the Chief Financial Officer of Fortress Investment Group. While at Fortress Investment Group, Mr. Hughes was actively involved in evaluating a broad range of real estate equity and structured finance investments and arranged various financings to facilitate acquisitions and fund recapitalizations. Mr. Hughes also served as Chief Financial Officer of Wellsford Residential Property Trust and Wellsford Real Properties, where he was responsible for the firm’s financial forecasting and reporting, treasury and accounting functions, capital markets and investor relations. While at Wellsford, Mr. Hughes was involved in numerous public and private debt and equity offerings. From 1985 to 1992, Mr. Hughes worked at Kenneth Leventhal & Co., a public accounting firm specializing in real estate and financial services. Mr. Hughes received his B.S. degree in Accounting from the University of Maryland and is a Certified Public Accountant. Mr. Hughes is 43 years old.

Andrew S. Levine was appointed as our Chief Legal Officer in April 2007 and has served as our General Counsel, Executive Vice President and Secretary since November 2000. Prior to joining our company, Mr. Levine was a partner at the law firm of Pryor, Cashman, Sherman & Flynn, LLP. Mr. Levine was also a partner at the firm of Dreyer & Traub. As a member of the REIT and Real Estate Transactions and Business groups at Pryor, Cashman, Sherman & Flynn, LLP, Mr. Levine served as counsel for a diverse client base of public and private real estate companies, national retailers, REITs, private developers, investment advisers and lenders. Mr. Levine received a B.A. degree from the University of Vermont in 1980 and a J.D. degree from Rutgers School of Law in 1984. Mr. Levine is 48 years old.

Andrew Mathias was appointed as our President in April 2007 and has served as our Chief Investment Officer since January 2004. Mr. Mathias is responsible for the firm’s equity and structured finance

6




investments. Mr. Mathias also oversees the firm’s acquisitions/dispositions and its joint venture program. Mr. Mathias joined our company in March 1999 as a Vice President and was promoted to Director of Investments in 2002, a position he held until his promotion to Chief Investment Officer. Mr. Mathias has also served as the Chief Investment Officer of Gramercy (NYSE:GKK) since August 2004. Prior to joining our company, from July 1998, Mr. Mathias was with New York-based Capital Trust (NYSE:CT), a mezzanine finance company. From June 1995 to July 1998, Mr. Mathias worked at CT’s predecessor company, Victor Capital Group, a private real estate investment bank specializing in advisory services, investment management, and debt and equity placements. While there, he worked on a wide variety of real estate principal investments and advisory transactions, both on behalf of third-party clients and for the firm’s own account. Mr. Mathias also worked on the high yield/restructuring desk at Bear Stearns and Co. Mr. Mathias received a degree in Economics from the Wharton School at the University of Pennsylvania. Mr. Mathias is 33 years old.

The Board of Directors and its Committees

We are managed by a five-member Board of Directors. The Board has affirmatively determined that Messrs. John H. Alschuler, Jr., Edwin Thomas Burton, III and John S. Levy, representing a majority of its members, are independent of our management, as such term is defined by the rules of the New York Stock Exchange Inc., or the NYSE. Our Board of Directors held seventeen meetings during fiscal year 2006. Each of the directors attended at least 75% of the total number of meetings of our Board of Directors held during 2006 and Messrs. Holliday and Green attended our 2006 annual meeting.

Audit Committee.   We have a standing Audit Committee, consisting of John H. Alschuler, Jr., Edwin Thomas Burton, III (Chairman) and John S. Levy, each of whom is “independent” within the meaning of the rules of the NYSE and the U.S. Securities and Exchange Commission, or the SEC. The Board of Directors has determined that Mr. Burton is an “audit committee financial expert” as defined in rules promulgated by the SEC under the Sarbanes-Oxley Act of 2002. Our Audit Committee is responsible for, among other things, engaging our independent registered public accounting firm, reviewing with the independent registered public accounting firm the plans and results of their audit engagement, approving professional services to be provided by the independent registered public accounting firm, reviewing the independence of the auditors, considering the range of audit and non-audit fees, reviewing the adequacy of our internal controls, accounting and reporting practices and assessing the quality and integrity of our consolidated financial statements. In 2004, our Board approved a new amended written charter for our Audit Committee, a copy of which is available on our website at http://www.slgreen.com. Additional information regarding the functions performed by our Audit Committee is set forth in the “Audit Committee Report” included in this annual proxy statement. Our Audit Committee held eight meetings during fiscal year 2006. Each of the committee members attended at least 75% of the total number of meetings of our Audit Committee held during fiscal year 2006.

Compensation Committee.   We have a standing Compensation Committee, consisting of John H. Alschuler, Jr. (Chairman), Edwin Thomas Burton, III and John S. Levy, each of whom is “independent” within the meaning of the rules of the NYSE. Our Compensation Committee is responsible for, among other things, (1) reviewing and approving corporate goals and objectives relevant to the compensation of the Chairman of our Board of Directors, the Chief Executive Officer and such other executive officers that may be designated by the Chairman of our Board of Directors and/or Chief Executive Officer, evaluating the performance of such officers in light of such goals and objectives, and determining and approving the compensation of such officers based on these evaluations, (2) approving the compensation of our other executive officers, (3) recommending to our Board of Directors for approval the compensation of the non-employee directors, (4) overseeing our incentive-compensation and stock-based compensation plans and (5) reviewing the Compensation Discussion and Analysis for inclusion in this annual proxy statement. Our Compensation Committee also has authority to grant awards under our 2005 Stock Option and Incentive

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Plan, including our 2006 Long-Term Outperformance Compensation Plan, 2005 Long-Term Outperformance Compensation Plan and our 2003 Long-Term Outperformance Compensation Program. With respect to the compensation of our executive officers, our Compensation Committee solicits recommendations from our Chief Executive Officer regarding total compensation for all executive officers and reviews his recommendations in terms of total compensation and the allocation of such compensation among base salary, annual bonus amounts and other long-term incentive compensation as well as the allocation of such items among cash and equity compensation. Our Compensation Committee has retained SMG Advisory Group, an outside compensation consulting firm, or SMG, to provide relevant market data concerning the marketplace, our peer group and other compensation developments. See “Executive Compensation—Compensation Discussion and Analysis.”  In 2004, our Board approved a written charter for our Compensation Committee, a copy of which is available on our website at http://www.slgreen.com. Our Compensation Committee held six meetings during fiscal year 2006. Each of the committee members attended at least 75% of the total number of meetings of our Compensation Committee held during fiscal year 2006.

Nominating and Corporate Governance Committee.   We have a standing Nominating and Corporate Governance Committee, consisting of John H. Alschuler, Jr., Edwin Thomas Burton, III and John S. Levy (Chairman), each of whom is “independent” within the meaning of the rules of the NYSE. Our Nominating and Corporate Governance Committee is responsible for, among other things, assisting the Board in identifying individuals qualified to become Board members, recommending to the Board the director nominees to be elected at each annual meeting of stockholders, recommending to the Board the directors to serve on each of the Board’s committees, developing and recommending to the Board the corporate governance principles and guidelines applicable to our company and directing the Board in an annual review of its performance. In 2004, our Board approved a written charter for our Nominating and Corporate Governance Committee, a copy of which is available on our website at http://www.slgreen.com. Our Nominating and Corporate Governance Committee was established in December 2003 by our Board to replace our Nominating Committee which consisted of Messrs. Burton, Alschuler and Levy. Our Nominating and Corporate Governance Committee held one meeting during fiscal year 2006, in which it nominated two Class III directors whose nomination was successfully voted on at our 2006 annual meeting. All of the committee members attended the meeting of our Nominating and Corporate Governance Committee held during fiscal year 2006.

Executive Committee.   Subject to the supervision and oversight of our Board of Directors, our Executive Committee, which consists of Stephen L. Green, Marc Holliday and John H. Alschuler, Jr., has the authority to approve the acquisition, disposition and financing of investments by us and to authorize the execution of certain contracts and agreements, including those relating to the borrowing of money by us, and to exercise generally all other powers of our Board of Directors, except for those which require action by all directors or the independent directors under our articles of incorporation or bylaws or under applicable law.

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Director Compensation*

Directors of our company who are also employees receive no additional compensation for their services as directors. The following table sets forth information regarding the compensation paid to, and the compensation expense we recognized with respect to, our non-employee directors during the fiscal year ended December 31, 2006.

 

Name

 

 

Fees Earned
or Paid in
Cash (1)
($)

 

Stock
Awards (2)
 
($)

 

Option
Awards (3)
($)

 

All Other
Compensation (4)

($)

 

Total 
($)

 

Edwin T. Burton, III

 

 

$

108,000

 

 

 

$

42,619

 

 

 

$

105,261

 

 

 

$

7,581

 

 

$

263,461

 

John H. Alschuler, Jr.

 

 

$

105,500

 

 

 

$

42,619

 

 

 

$

105,261

 

 

 

$

5,143

 

 

$

258,523

 

John S. Levy

 

 

$

104,500

 

 

 

$

42,619

 

 

 

$

105,261

 

 

 

$

5,693

 

 

$

258,073

 


*                    The columns for “Non-Equity Incentive Plan Compensation” and “Change in Pension Value and Nonqualified Deferred Compensation Earnings” have been omitted because they are not applicable.

(1)          Each of Mr. Burton and Mr. Levy deferred all of their 2006 cash compensation and Mr. Alschuler deferred $25,000 of his 2006 cash compensation pursuant to our Independent Directors’ Deferral Program. Deferred compensation includes annual fees, chairman fees and board and committee meeting fees and is credited in the form of phantom stock units. Messrs. Burton, Levy and Alschuler received 1,021 units, 985 units and 226 units, respectively, in connection with 2006 cash compensation each elected to defer.

(2)          Amounts shown do not reflect compensation actually received by the non-employee director. Instead, the amounts shown are the compensation costs recognized by our company in fiscal year 2006 for stock awards as determined pursuant to Statement of Financial Accounting Standards No. 123(R), or FAS 123R. The assumptions used to calculate the value of stock awards are set forth under Note 2 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2006, which was filed with the SEC on February 28, 2007. At December 31, 2006, the aggregate number of stock awards, including phantom stock units, outstanding was as follows:  Mr. Burton—17,871; Mr. Alschuler—4,352; and Mr. Levy—4,743.

(3)          Amounts shown do not reflect compensation actually received by the non-employee director. Instead, the amounts shown are the compensation costs recognized by our company in fiscal year 2006 for option awards as determined pursuant to FAS 123R. The assumptions used to calculate the value of option awards are set forth under Note 2 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2006, which was filed with the SEC on February 28, 2007. The full grant date fair value of the awards to each non-employee director calculated in accordance with FAS 123R is $105,261. At December 31, 2006, the aggregate number of option awards outstanding was as follows:  Mr. Burton—12,000; Mr. Alschuler—18,000; and Mr. Levy—48,000.

(4)          Represents the value of dividends paid in 2006 on the phantom stock units held by each non-employee director.

During the fiscal year ended December 31, 2006, each non-employee director received an annual fee in the amount of $50,000. Each non-employee director also received $1,500 for each meeting of our Board of Directors or a committee of our Board of Directors that he attended. The annual fee payable to our non-employee directors is payable quarterly, half in restricted stock and half in cash, unless an non-employee director elects to have the director fee paid 100% in stock or elects to defer all or part of the annual fee pursuant to our Independent Directors’ Deferral Program as described below. Any portion of the annual fee that is paid in stock is made under our 2005 Stock Option and Incentive Plan. The meeting

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fees are paid in cash unless a non-employee director elects to defer all or part of the meeting fees pursuant to our Independent Directors’ Deferral Program. One of our non-employee directors who resides outside of New York is reimbursed for expenses of attending Board of Director and committee meetings.

The Chairman of our Audit Committee, the Chairman of our Compensation Committee and the Chairman of our Nominating and Corporate Governance Committee received additional annual fees of $7,500, $5,000 and $4,000, respectively, which are payable in cash unless such chairman elects to defer all or part of such fee pursuant to our Independent Directors’ Deferral Program. In addition, each member of our Audit Committee was entitled to receive a fee of $4,000 per meeting for any special meetings of the Audit Committee held independently of meetings of our Board of Directors. One such meeting was held in 2006. The special meeting fees are paid in cash unless a non-employee director elects to defer all or part of the meeting fees pursuant to our Independent Directors’ Deferral Program. Each non-employee director, upon initial election or appointment to our Board of Directors, receives options under our 2005 Stock Option and Incentive Plan, to purchase 6,000 shares of common stock at the market price of the common stock at the close of business on the day preceding our annual meeting of stockholders. In addition, under our 2005 Stock Option and Incentive Plan, each non-employee director is entitled to an annual grant of stock options to purchase 6,000 shares of common stock, which are priced at the close of business on the day preceding our annual stockholder meeting in the year of grant, all of which vest on the date of grant. Each non-employee director was also entitled to an annual grant (reviewed annually) of 1,000 shares of restricted common stock pursuant to our 2005 Stock Option and Incentive Plan, a third of which will vest one year from the date of grant, and each of the following two years, respectively, subject to the non-employee director being a member of our Board on the date such award is expected to vest. A non-employee director may elect to defer all or part of the annual stock grant pursuant to our Independent Directors’ Deferral Program.

Our Board of Directors has adopted an Independent Directors’ Deferral Program for non-employee directors. Our non-employee directors may elect to defer up to 100% of their annual fee, chairman fees, meeting fees and annual stock grant under the program. Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of phantom stock units. The phantom stock units are convertible into an equal number of shares of common stock upon such director’s termination of service from our Board of Directors or a change in control by us, as defined by the program. Phantom stock units are credited quarterly to each non-employee director quarterly using the closing price of our common stock on the applicable dividend record date for the respective quarter. Each participating non-employee director’s account is credited for an equivalent amount of phantom stock units based on the dividend rate for each quarter.

For the 2007 fiscal year, our Board of Directors made no changes to the compensation to be received by our non-employee directors, except that for 2007 and subsequent years, the annual grant of stock options to purchase 6,000 shares of common stock will be priced at the close of business on the first business day in the year of grant.

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PROPOSAL 2:  RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

Our Audit Committee has selected the accounting firm of Ernst & Young LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2007, subject to ratification of this appointment by our common stockholders. Ernst & Young LLP has served as our independent registered public accounting firm since our formation in June 1997 and is considered by our management to be well-qualified. Ernst & Young LLP has advised us that neither it nor any member thereof has any financial interest, direct or indirect, in our company or any of our subsidiaries in any capacity.

A representative of Ernst & Young LLP will be present at the annual meeting, will be given the opportunity to make a statement if he or she so desires and will be available to respond to appropriate questions.

Fee Disclosure

Audit Fees

Fees, including out-of-pocket expenses, for audit services totaled approximately $2,346,000 in fiscal year 2006 and $1,428,000 in fiscal year 2005. Audit fees include fees associated with our annual audit and the reviews of our quarterly reports on Form 10-Q. In addition, audit fees include Sarbanes-Oxley Section 404 planning and testing, fees for public filings in connection with various property acquisitions, joint venture audits, and services relating to public filings in connection with preferred and common stock offerings and certain other transactions, including the acquisition of Reckson Associates Realty Corp. Our joint venture partners paid approximately half of the joint venture audit fees. Audit fees also include fees for accounting research and consultations.

Audit-Related Fees

Fees for audit-related services totaled approximately $78,000 in 2006 and $78,000 in 2005. The audit-related services principally include fees for operating expense, tax certiorari audits and employee benefit plan audits. In addition, the audit-related services include fees for agreed-upon procedures projects and acquisition due diligence.

Tax Fees

Fees for tax services, including tax compliance, tax advice and tax planning totaled approximately none in 2006 and none in 2005.

All Other Fees

Fees for all other services not included above totaled none in 2006 and none in 2005.

Our Audit Committee considers whether the provision by Ernst & Young LLP of the services that are required to be described under “All Other Fees” is compatible with maintaining Ernst & Young LLP’s independence from both management and our company.

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Pre-Approval Policies and Procedures of our Audit Committee

Our Audit Committee must pre-approve all audit services and permissible non-audit services provided by our independent registered public accounting firm, except for any de minimis non-audit services. Non-audit services are considered de minimis if (1) the aggregate amount of all such non-audit services constitutes less than 5% of the total amount of revenues we paid to our independent registered public accounting firm during the fiscal year in which they are provided; (2) we did not recognize such services at the time of the engagement to be non-audit services; and (3) such services are promptly brought to our Audit Committee’s attention and approved prior to the completion of the audit by our Audit Committee or any of its member(s) who has authority to give such approval. None of the fees reflected above were approved by our Audit Committee pursuant to this de minimis exception. Our Audit Committee may delegate to one or more of its members who is an independent director the authority to grant pre-approvals. All services provided by Ernst & Young LLP in 2006 were pre-approved by our Audit Committee.

Our Board of Directors unanimously recommends a vote “FOR” the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm.

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AUDIT COMMITTEE REPORT

The following is a report by our Audit Committee regarding the responsibilities and functions of our Audit Committee. This Report shall not be deemed to be incorporated by reference in any previous or future documents filed by us with the SEC under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate the Report by reference in any such document.

Our Audit Committee oversees our financial reporting process on behalf of our Board of Directors, in accordance with our Audit Committee Charter. Management has the primary responsibility for the preparation, presentation and integrity of our financial statements, accounting and financial reporting principles, internal controls, and procedures designed to ensure compliance with accounting standards, applicable laws and regulations. In fulfilling its oversight responsibilities, our Audit Committee reviewed the audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2006 with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.

Our Audit Committee reviewed with the independent registered public accounting firm, who is responsible for auditing our financial statements and for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed with the Audit Committee under Statement on Auditing Standards No. 61, as currently in effect. Our Audit Committee received the written disclosure and the letter from our independent registered public accounting firm required by the Independence Standards Board Standard No. 1, as currently in effect, discussed with our independent registered public accounting firm the auditors’ independence from both management and our company and considered the compatibility of our independent registered public accounting firms’ provision of non-audit services to our company with their independence.

Our Audit Committee discussed with our independent registered public accounting firm the overall scope and plans for their audit. Our Audit Committee met with our independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls and the overall quality of our financial reporting, including off-balance sheet investments and our compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

In reliance on the reviews and discussions referred to above, but subject to the limitations on the role and responsibilities of our Audit Committee referred to below, our Audit Committee recommended to our Board of Directors (and our Board of Directors has approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2006 for filing with the SEC.

Our Board of Directors has determined that our Audit Committee has at least one “audit committee financial expert,” as defined in Item 401(h) of SEC Regulation S-K, such expert being Mr. Edwin Thomas Burton, III, and that he is “independent,” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended.

Our Audit Committee held eight meetings during fiscal year 2006 (including non-management director sessions after certain of these meetings). The members of our Audit Committee are not professionally engaged in the practice of auditing or accounting. Committee members rely, without independent investigation or verification, on the information provided to them and on the representations made by management and independent registered public accounting firm. Accordingly, our Audit Committee’s oversight does not provide an independent basis to determine that management has

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maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, our Audit Committee’s considerations and discussions referred to above do not assure that the audit of our financial statements has been carried out in accordance with the standards of the Public Company Accounting Oversight Board (United States), that the financial statements are presented in accordance with accounting principles generally accepted in the United States or that Ernst & Young LLP is in fact “independent.”

Submitted by our Audit Committee

 

Edwin Thomas Burton, III (Chairman)

 

John H. Alschuler, Jr.

 

John S. Levy

 

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PROPOSAL 3:  APPROVAL OF OUR AMENDED AND RESTATED 2005 STOCK OPTION AND INCENTIVE PLAN

At our annual meeting, the stockholders are being asked to vote on a proposal to ratify and approve the adoption of our Amended and Restated 2005 Stock Option and Incentive Plan. The plan was approved by our Board of Directors (the “Board”) on March 14, 2007, subject to approval by the stockholders.

Under our 2005 Stock Option and Incentive Plan 1,536,286 shares (or Fungible Units) currently remain available for awards. Under the proposal, an additional 3,500,000 Fungible Units shall be made available under our Amended and Restated 2005 Stock Option and Incentive Plan. Accordingly, our Amended and Restated 2005 Stock Option and Incentive Plan will provide for a maximum of 7,000,000 Fungible Units to be issued thereunder, however, if the stockholders approve the proposal, a total of 5,036,286 will remain available for new awards (comprising the 1,536,286 Fungible Units currently available for awards, plus the additional 3,500,000 Fungible Units added by the proposed amendment).

In addition, as summarized below, our 2005 Stock Option and Incentive Plan is proposed to be amended to reflect changes in the valuation methodology utilized by Institutional Shareholder Services (ISS) with respect to calculating the value of full-value awards and the rate at which awards will be made thereunder. These amendments will provide that (as applied to the Amended and Restated 2005 Stock Option and Incentive Plan) (i) awards based upon the full value of a share shall be counted against the overall share limitation as 3.0 units (from 3.9 units under the prior plan), (ii) awards based upon the full value of a share that vest or are granted based upon the achievement of certain performance goals (“Full-Value Performance Awards”) shall be counted against the overall share limitation as 2.0 units (from 2.6 units under the prior plan), and (iii) stock options, stock appreciation rights and other awards that do not deliver the value at grant thereof of the underlying share and that expire five years from the date of grant shall be counted against the overall share limitation as 0.7 of a unit (from 0.8 of a unit under the prior plan). Stock options, stock appreciation rights and other awards that do not deliver the value at grant thereof of the underlying share and that expire 10 years from the date of grant shall continue to be counted against the overall share limitation as 1.0 unit. With respect to the total Fungible Units available under the Plan, Full-Value Performance Awards continue to be discounted by 35% against awards based upon the full value of shares (consistent with the terms of the Plan prior to the amendment and restatement). In addition, Full-Value Performance Awards are subject to the same performance measures as applied to our 2005 Stock Option and Incentive Plan prior to its amendment and restatement (subject to a revision to the list of peer group companies to add three companies in replacement of companies which were acquired since the initial effective date of our 2005 Stock Option and Incentive Plan). In addition, our 2005 Stock Option and Incentive Plan is proposed to be amended to provide that at the end of the third calendar year following the effective date of our Amended and Restated 2005 Stock Option and Incentive Plan, the three year average of (A) the number of shares subject to awards granted in a single year, divided by (B) the number of shares of our outstanding common stock at the end of such year shall not exceed the greater of 2.23% or the mean of the applicable peer group.

Summary of the Provisions of Our Amended and Restated 2005 Stock Option and Incentive Plan

The following summary of our Amended and Restated 2005 Stock Option and Incentive Plan, or our stock option and incentive plan, is qualified in its entirety by the specific language of the plan, a copy of which is attached hereto as Appendix A, marked to reflect changes to our current 2005 Stock Option and Incentive Plan.

Administration

Our Compensation Committee has the authority to administer and interpret our stock option and incentive plan, to authorize the granting of awards, to determine the eligibility of an employee, director or consultant to receive an award, to determine the number of shares of common stock to be covered by each award, to determine the terms, provisions and conditions of each award, to prescribe the form of

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instruments evidencing awards and to take any other actions and make all other determinations that it deems necessary or appropriate. Our Compensation Committee may, among other things, establish performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse. Our stock option and incentive plan will be administered by our Compensation Committee, each member of which is, to the extent required by Rule 16b-3 under the Securities Exchange Act of 1934, a non-employee director and will, at such times as the Company is subject to Section 162(m) of the Internal Revenue Code of 1986, or the Code, qualify as an outside director for purposes of Section 162(m) of the Code, or, if no committee exists, our Board of Directors. Nevertheless, grants to members of our Compensation Committee will be made and administered by our Board of Directors rather than our Compensation Committee. References below to our Compensation Committee include a reference to our Board of Directors for those periods in which our Board of Directors is acting. Our Compensation Committee, in its discretion, may delegate to our chief executive officer all or part of our Compensation Committee’s authority and duties with respect to awards; however, our Compensation Committee may not delegate its authority and duties with respect to awards that have been, or will be, granted to certain of our officers.

Available Shares

Subject to adjustments upon certain corporate transactions or events, up to a maximum of 7,000,000 Fungible Units (the “Fungible Pool Limit”) may be subject to stock options, restricted stock, phantom stock units, dividend equivalent rights and other equity-based awards under our stock option and incentive plan. Each Share issued or to be issued in connection with awards other than stock options, stock appreciation rights or other awards that do not deliver the full value at grant thereof of the underlying shares (e.g., restricted stock) (“Full-Value Awards”) that vest or are granted based on the achievement of certain performance goals that are based on (A) FFO growth, (B) total return to stockholders (either in absolute terms or compared with other companies in the market), (C) total return to stockholders in the top one-third of the “peer group” (which for these purposes shall comprise:  Alexandria Real Estate Equities, Inc., American Financial Realty Trust, Boston Properties, Inc., Brandywine Realty Trust, Corporate Office Properties Trust, Crescent Real Estate Equities Company, Douglas Emmett, Duke Realty Corporation, Highwoods Properties, Inc., HRPT Properties, Kilroy Realty Corporation, Liberty Property Trust, Mack-Cali Realty Corporation, Maguire Properties, Parkway Properties, SL Green Realty Corp., and Washington REIT) or (D) a combination of the foregoing (as set forth in our stock option and incentive plan), shall be counted against the Fungible Pool Limit as 2.0 units (also referred to herein as Full-Value Performance Awards). Each share issued or to be issued in connection with any other Full-Value Awards shall be counted against the Fungible Pool Limit as 3.0 units. Options, stock appreciation rights and other awards that do not deliver the value at grant thereof of the underlying shares and that expire 10 years from the date of grant shall be counted against the Fungible Pool Limit as 1 unit. Options, stock appreciation rights and other awards that do not deliver the value at grant thereof of the underlying Shares and that expire five years from the date of grant shall be counted against the Fungible Pool Limit as 0.7 of a unit. Thus, under the foregoing rules, depending on the type of grants made, while a total of 5,036,286 shares remain available for awards, as many as 7,194,694 shares can be the subject of grants under the stock option and incentive plan. At the end of the third calendar year following the effective date of our 2005 Stock Option and Incentive Plan, as well as at the end of the third calendar year following the effective date of our Amended and Restated Stock Option and Incentive Plan, (i) the three-year average of (A) the number of shares subject to awards granted in a single year, divided by (B) the number of shares of our outstanding common stock at the end of such year shall not exceed the (ii) greater of (A) 2% with respect to the third calendar year following the effective date of our 2005 Stock Option and Incentive Plan, or 2.23% with respect to the third calendar year following the effective date of our Amended and Restated 2005 Stock Option and Incentive Plan or (B) the mean of the applicable peer group. For purposes of calculating the number of shares granted in a year in connection with the limitation set forth in the foregoing sentence, shares underlying Full-Value Awards will be taken into account as

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(i) 1.5 shares if our annual common stock price volatility is 53% or higher, (ii) two shares if our annual common stock price volatility is between 25% and 52%, and (iii) four shares if our annual common stock price volatility is less than 25%. No award may be granted to any person who, assuming exercise of all options and payment of all awards held by such person, would own or be deemed to own more than 9.8% of the outstanding shares of our common stock. In addition, subject to adjustment upon certain corporate transactions or events, a participant may not receive awards (with shares subject to awards being counted, depending on the type of award, in the proportions ranging from 0.7 to 3.0, as described above) in any one year covering more than 700,000 shares; thus, under this provision, depending on the type of grant involved, as many as 1,000,000 shares can be the subject of option grants to any one person in any year, and as many as 350,000 shares may be granted as restricted stock (or be the subject of other Full-Value Grants) to any one person in any year. If an option or other award granted under the stock option and incentive plan expires or terminates, the common stock subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Shares of our common stock distributed under our stock option and incentive plan may be treasury shares or authorized but unissued shares. Unless the stock option and incentive plan is previously terminated by our Board of Directors, no new award may be granted under the stock option and incentive plan after the tenth anniversary of the date that such plan was initially approved by our Board of Directors.

Awards Under the Plan

Our key employees, directors, officers, advisors, consultants or other personnel or other persons expected to provide significant services (of a type expressly approved by our Compensation Committee as covered services for these purposes) to us or our subsidiaries are eligible to be granted Options, Restricted Stock, Phantom Shares, Dividend Equivalent Rights and other equity-based awards under our stock option and incentive plan. Eligibility for awards under our stock option and incentive plan is generally determined by our Compensation Committee.

Stock Options.   The terms of specific options, including whether options shall constitute “incentive stock options” for purposes of Section 422(b) of the Internal Revenue Code, shall be determined by our Compensation Committee of our Board of Directors. The exercise price of an option shall be determined by our Compensation Committee and reflected in the applicable award agreement. The exercise price may not be lower than 100% (110% in the case of an incentive stock option granted to a 10% stockholder, if permitted under the plan) of the fair market value of our common stock on the date of grant. Each option will be exercisable after the period or periods specified in the award agreement, which will not exceed ten years from the date of grant. Options will be exercisable at such times and subject to such terms as determined by our Compensation Committee.

Restricted Stock.   A restricted stock award is an award of shares of common stock that is subject to restrictions on transferability and such other restrictions, if any, as our Board of Directors or Compensation Committee may impose at the date of grant. Grants of restricted stock may be subject to vesting schedules as determined by our Compensation Committee. The restrictions may lapse separately or in combination at such times, under such circumstances, including, without limitation, (i) a specified period of employment or the satisfaction of one or a combination of the performance goals set forth in Exhibit B of our stock option and incentive plan (which is attached hereto as Appendix A), or (ii) based on other goals established by our Compensation Committee. Unless otherwise provided in the applicable award agreement, upon a termination of employment or other service for cause or by the grantee for any reason, all shares of restricted stock still subject to restrictions shall be forfeited. In addition, unless otherwise provided in an applicable award agreement, a participant granted restricted stock shall have all the rights of a stockholder of our company, including the right to vote the shares and the right to receive any cash dividends currently. Dividends paid on all restricted stock will be at the same rate and on the same date as on shares of our common stock. Holders of restricted stock are prohibited from selling such shares until they vest.

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Phantom Shares.   Phantom shares will vest as provided in the applicable award agreement. A phantom share represents a right to receive the fair market value of a share of our common stock, or, if provided by our Compensation Committee, the right to receive the fair market value of a share of our common stock in excess of a base value established by our Compensation Committee at the time of grant. Phantom shares may generally be settled in cash or by transfer of shares of common stock (as may be elected by the participant or our Compensation Committee, as may be provided by our Compensation Committee at grant). Unless otherwise provided in the applicable award agreement, subject to elections by the grantee in accordance with the plan, the settlement date with respect to a phantom share is the first day of the month to follow the date on which the phantom share vests. Our Compensation Committee may, under certain circumstances, permit a participant to receive as settlement of the phantom shares installments over a period not to exceed ten years. In addition, our Compensation Committee may establish a program under which distributions with respect to phantom shares may be deferred for additional periods as set forth in the preceding sentence.

Dividend Equivalents.   A dividend equivalent is a right to receive (or have credited) the equivalent value (in cash or shares of common stock) of cash distributions made on shares of common stock otherwise subject to an award (e.g., an award of options or phantom shares); provided, however, that a dividend equivalent right may not be granted in connection with an award of options or stock appreciation rights. Our Compensation Committee may provide that amounts payable in the ordinary course with respect to dividend equivalents shall be converted into cash or additional shares of common stock. Our Compensation Committee will establish all other limitations and conditions of awards of dividend equivalents as it deems appropriate.

Other Stock-Based Awards.   Our stock option and incentive plan will authorize the granting of (i) other awards based upon the common stock including shares based upon certain conditions, convertible preferred shares, convertible debentures and other exchangeable or redeemable securities or equity interests, and stock appreciation rights, (ii) limited-partnership or any other membership or ownership interests (which may be expressed as units or otherwise) in a subsidiary or operating or other partnership (or other affiliate of the company), with any shares being issued in connection with the conversion of (or other distribution on account of) such interest being subject to the Fungible Pool Limit and the other provisions of our stock option and incentive plan, and (iii) awards valued by reference to book value, fair value or performance parameters relative to the company or any subsidiary or group of subsidiaries.

Adjustments in General; Certain Change in Control Provisions

In the event of certain corporate reorganizations or other events, our Compensation Committee generally may make certain adjustments in its discretion to the manner in which our stock option and incentive plan operates (including, for example, to the number of shares available under our stock option and incentive plan), and may otherwise take actions which, in its judgment, are necessary to preserve the rights of plan participants. Upon a change in control (as defined in the plan), our Compensation Committee generally may make such adjustments as it, in its discretion, determines are necessary or appropriate in light of the change in control, if our Compensation Committee determines that the adjustments do not have an adverse economic impact on the participants, and certain other special provisions may apply.

Amendment and Termination

We may grant awards under our stock option and incentive plan until the 10th anniversary of the earlier of the date on which it is approved by (i) our Board of Directors or (ii) our stockholders. Our Board of Directors may generally amend our stock option and incentive plan as it deems advisable, except in certain respects regarding outstanding awards. In addition, our stock option and incentive plan may not be amended without stockholder approval if the absence of such approval would cause our stock option and incentive plan to fail to comply with any applicable legal requirement or applicable stock exchange or similar rule.

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Material U.S. Federal Income Tax Consequences

Incentive Stock Options

In general, neither the grant nor the exercise of an incentive stock option will result in taxable income to an option holder or a deduction for us. To receive special tax treatment as an incentive stock option under the Internal Revenue Code as to shares acquired upon exercise of an incentive stock option, an option holder must not dispose of the shares either within two years after the incentive stock option is granted or within one year after the transfer of the shares to the option holder pursuant to exercise of the option. In addition, the option holder must be an employee of ours or of a qualified subsidiary at all times between the date of grant and the date three months (one year in the case of disability) before exercise of the option. (Special rules apply in the case of the death of the option holder.)  Incentive stock option treatment under the Internal Revenue Code generally allows any gain resulting from the sale of common stock received upon the exercise of an incentive stock option to be treated as a capital gain to the option holder, but we will not be entitled to a tax deduction. The exercise of an incentive stock option (if the holding period rules described in this paragraph are satisfied), however, will give rise to income includable by the option holder in his or her alternative minimum taxable income for purposes of the alternative minimum tax in an amount equal to the excess of the fair market value of the stock acquired on the date of the exercise of the option over the exercise price.

If the holding period rules noted above are not satisfied, certain gain recognized on the disposition of the shares acquired upon the exercise of an incentive stock option will be characterized as ordinary income. This gain will be equal to the difference between the exercise price and the fair market value of the shares at the time of exercise. (Special rules may apply to disqualifying dispositions where the amount realized is less than the value at exercise.)  We will generally be entitled to a deduction for federal income tax purposes equal to the amount of such gain included by an option holder as ordinary income. Any excess of the amount realized upon such disposition over the fair market value at exercise will generally be long-term or short-term capital gain depending on the holding period involved. Notwithstanding the foregoing, if exercise of the option is permitted other than by cash payment of the exercise price, various special tax rules may apply.

Non-Qualified Stock Options

No income will be recognized by an option holder at the time a non-qualified stock option is granted. Ordinary income will generally be recognized by an option holder, however, at the time a non-qualified stock option is exercised in an amount equal to the excess of the fair market value of the underlying common stock on the exercise date over the exercise price. We will generally be entitled to a deduction for federal income tax purposes in the same amount as the amount included in ordinary income by the option holder with respect to his or her non-qualified stock option. Gain or loss on a subsequent sale or other disposition of the shares acquired upon the exercise of a non-qualified stock option will be measured by the difference between the amount realized on the disposition and the tax basis of such shares, and will generally be long-term or short-term capital gain depending on the holding period involved. The tax basis of the shares acquired upon the exercise of any non-qualified stock option will be equal to the sum of the exercise price of the non-qualified stock option and the amount included in income with respect to the option. Notwithstanding the foregoing, in the event that exercise of the option is permitted other than by cash payment of the exercise price, various special tax rules may apply.

Restricted Stock

Unless a holder of restricted stock makes an “83(b) election” (as discussed below), there generally will be no tax consequences as a result of the grant of restricted stock until the restricted stock is no longer subject to a substantial risk of forfeiture or is transferable (free of the risk). Generally, when the

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restrictions are lifted, the holder will recognize ordinary income, and we will be entitled to a deduction for federal income tax purposes, equal to the difference between the fair market value of the stock at that time and the amount, if any, paid by the holder for the restricted stock. Subsequently realized changes in the value of the stock generally will be treated as long-term or short-term capital gain or loss, depending on the length of time the shares are held prior to their disposition. Unless an “83(b) election” is made (as discussed below), dividends on shares subject to restrictions will generally be considered compensation income. In general terms, if a holder makes an 83(b) election (under Section 83(b) of the Internal Revenue Code) upon the award of restricted stock, the holder will recognize ordinary income on the date of the award of restricted stock, and we will be entitled to a deduction, equal to (i) the fair market value of the restricted stock as though the stock were (A) not subject to a substantial risk of forfeiture or (B) transferable, minus (ii) the amount, if any, paid for the restricted stock. If an 83(b) election is made, generally there will be no tax consequences to the holder upon the lifting of restrictions, and all subsequent appreciation or depreciation in the restricted stock generally will be eligible for capital gains treatment.

Phantom Shares

The phantom shares have been designed with the intention that there will be no tax consequences as a result of the granting of a phantom share until payment is made to the participant with respect to the phantom share. When payment is made, the participant generally will recognize ordinary income, and we will generally be entitled to a deduction, equal to the fair market value of the common stock and/or cash, as applicable, received upon payment.

Dividend Equivalents

There generally will be no tax consequences as a result of the award of a dividend equivalent. When payment is made, the holder of the dividend equivalent generally will recognize ordinary income, and we will be entitled to a deduction, equal to the amount received in respect of the dividend equivalent.

Securities Exchange Act of 1934, as amended

Additional special tax rules may apply to those award holders who are subject to the rules set forth in Section 16 of the Securities Exchange Act of 1934, as amended.

To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that, any U.S. federal tax advice contained in this proxy statement is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another person any transaction or matter addressed in this proxy statement.

Our Board of Directors unanimously recommends a vote “FOR” the approval of our Amended and Restated 2005 Stock Option and Incentive Plan.

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PROPOSAL 4: APPROVAL OF AMENDMENT AND RESTATEMENT OF OUR ARTICLES OF INCORPORATION

Our Board of Directors has declared the articles of amendment and restatement of our Articles of Incorporation advisable and has directed that the proposal be submitted for consideration at the annual meeting. A form of Articles of Amendment and Restatement, marked to reflect changes to our current Articles of Incorporation, is attached to this proxy statement as Appendix B, and this summary of the provisions of the Articles of Amendment and Restatement is qualified in its entirety by reference to Appendix B, which you should read in its entirety.

Our company is presently authorized by its Articles of Incorporation to issue up to 100,000,000 shares of common stock. At March 20, 2007, 59,180,818 shares of common stock were issued and outstanding and 7,373,885 shares of common stock have been reserved for issuance for purposes of conversion of outstanding convertible securities, dividend reinvestment and direct purchases, and stock options and stock purchases under stockholder approved employee benefit plans, leaving only 33,445,297 shares of common stock available for issuance. Consequently, we may not have a sufficient number of authorized shares of common stock available if necessary for future mergers and acquisitions, capital raising activities, stock splits and other legitimate corporate purposes.

If the proposal is approved by the holders of our common stock, our current Articles of Incorporation will be amended and restated to provide that our company has the authority to issue 260,000,000 shares of stock, consisting of 160,000,000 shares of common stock, 25,000,000 shares of preferred stock and 75,000,000 shares of excess stock, each with a par value $0.01 per share. We currently have the authority to issue 200,000,000 shares of stock, consisting of 100,000,000 shares of common stock, 25,000,000 shares of preferred stock and 75,000,000 shares of excess stock, each with a par value of $0.01 per share. Because the number of outstanding shares of common stock is approaching the maximum number of shares of common stock authorized by our current Articles of Incorporation, we wish to increase the number of authorized shares of stock to permit us to issue additional shares of common stock in the future.

In addition, if the proposal is approved by the holders of common stock, various ministerial changes not requiring stockholder approval will be made to our current Articles of Incorporation.

Our Board of Directors believes that it is in the best interests of our company and our stockholders to increase the number of authorized shares of common stock. This will provide flexibility with respect to future transactions, including acquisitions of other businesses where we would have the option to use our common stock (or securities convertible into or exercisable for common stock) as consideration (rather than cash), financing future growth, financing transactions, stock splits and other corporate purposes.

Our stockholders will not have any preemptive rights with respect to the additional shares being authorized. No further approval by stockholders would be necessary prior to the issuance of any additional shares of common stock, except as may be required by law or applicable NYSE rules. In certain circumstances, generally relating to the number of shares to be issued and the identity of the recipient, the rules of the NYSE require stockholder authorization in connection with the issuance of such additional shares. Subject to law and the rules of the NYSE, our Board of Directors has the sole discretion to issue additional shares of common stock on such terms and for such consideration as may be determined by our Board of Directors. The issuance of any additional shares of common stock may have the effect of diluting the percentage of stock ownership of our present stockholders.

We have not proposed the increase to our authorized stock with the intention of using the additional common stock for anti-takeover purposes, although we could theoretically use the additional stock in the future to make it more difficult or to discourage an attempt to acquire control of our company. As of the

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date of this proxy statement, we are unaware of any pending or threatened efforts to acquire control of our company.

If the holders of common stock approve the proposal, the Articles of Amendment and Restatement will be filed with the State Department of Assessments and Taxation of Maryland, or the SDAT, and the amendment and restatement of our Articles of Incorporation as described above will be effective upon the acceptance for record of the Articles of Amendment and Restatement by the SDAT.

The Board of Directors unanimously recommends a vote “FOR” the approval of the Amendment and Restatement of our Articles of Incorporation.

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CORPORATE GOVERNANCE MATTERS

This section of our proxy statement contains information about a variety of our corporate governance policies and practices. In this section, you will find information about how we are complying with the NYSE’s final corporate governance rules that were approved by the SEC. We are committed to operating our business under strong and accountable corporate governance practices. You are encouraged to visit the corporate governance section of the “Investors—Corporate Governance” page of our corporate website at http://www.slgreen.com to view or to obtain copies of our committee charters, code of business conduct and ethics, corporate governance principles and director independence standards. The information found on, or accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the SEC. You may also obtain, free of charge, a copy of the respective charters of our committees, code of business conduct and ethics, corporate governance principles and director independence standards by directing your request in writing to SL Green Realty Corp., 420 Lexington Avenue, New York, New York 10170-1881, Attention:  Investor Relations. Additional information relating to the corporate governance of our company is also included in other sections of this proxy statement.

Corporate Governance Guidelines

Our Board of Directors has adopted Corporate Governance Guidelines that address significant issues of corporate governance and set forth procedures by which our Board carries out its responsibilities. Among the areas addressed by the Corporate Governance Guidelines are director qualification standards, director responsibilities, director access to management and independent advisors, director compensation, director orientation and continuing education, management succession, annual performance evaluation of the Board and management responsibilities. Our Nominating and Corporate Governance Committee is responsible for assessing and periodically reviewing the adequacy of the Corporate Governance Guidelines and will recommend, as appropriate, proposed changes to the Board.

Director Independence

Our Corporate Governance Guidelines provide that a majority of our directors serving on our Board must be independent as required by the listing standards of the NYSE and the applicable rules promulgated by the SEC. In addition, our Board of Directors has adopted director independence standards, which are certain additional categorical standards to assist in making determinations with respect to the independence of directors. Our Board has affirmatively determined, based upon its review of all relevant facts and circumstances, that each of the following directors and director nominees has no direct or indirect material relationship with us and is independent under the listing standards of the NYSE and the applicable rules promulgated by the SEC:  Messrs. Edwin T. Burton, III, John H. Alschuler, Jr. and John S. Levy. Our Board has determined that Messrs. Green and Holliday, our two other directors, are not independent because they are also executive officers of our company.

Code of Business Conduct and Ethics

Our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to our directors, executive officers and employees. The Code of Business Conduct and Ethics was designed to assist our directors, executive officers and employees in complying with the law, resolving moral and ethical issues that may arise and in complying with our policies and procedures. Among the areas addressed by the Code of Business Conduct and Ethics are compliance with applicable laws, conflicts of interest, use and protection of our company’s assets, confidentiality, communications with the public, accounting matters, records retention, fair dealing, discrimination and harassment and health and safety.

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Audit Committee Financial Expert

Our Board of Directors has determined that our Audit Committee has at least one “audit committee financial expert,” as defined in Item 401(h) of SEC Regulation S-K, such expert being Mr. Edwin T. Burton, III, and that he is “independent,” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as amended. Mr. Burton has agreed to serve as our audit committee financial expert.

Communications with our Board of Directors

We have a process by which stockholders and/or other parties may communicate with our Board of Directors or individual directors. Any such communications may be sent to our Board by U.S. mail or overnight delivery and should be directed to Andrew S. Levine, Secretary, at SL Green Realty Corp., 420 Lexington Avenue, New York, New York  10170-1881, who will forward them on to the intended recipient. Any such communications may be made anonymously.

Whistleblowing and Whistleblower Protection Policy

Our Audit Committee has established procedures for (1) the receipt, retention and treatment of complaints received by our company regarding accounting, internal accounting controls or auditing matters, and (2) the confidential and anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. If you wish to contact our Audit Committee to report complaints or concerns relating to the financial reporting of our company, you may do so in writing to the Chairman of our Audit Committee, c/o General Counsel, SL Green Realty Corp., 420 Lexington Avenue, New York, New York  10170-1881. Any such communications may be made anonymously.

Director Attendance at Annual Meetings

We encourage each member of our Board of Directors to attend each annual meeting of stockholders. Messrs. Holliday and Green attended the annual meeting of stockholders held on May 17, 2006.

Identification of Director Candidates

Our Nominating and Corporate Governance Committee assists our Board of Directors in identifying and reviewing director candidates to determine whether they qualify for membership on the Board and for recommending to the Board the director nominees to be considered for election at our annual meeting of stockholders.

In making recommendations to our Board, our Nominating and Corporate Governance Committee considers such factors as it deems appropriate. These factors may include judgment, skill, diversity, education, experience with businesses and other organizations comparable to our company, the interplay of the candidate’s experience with the experience of other Board members, the candidate’s industry knowledge and experience, the ability of a nominee to devote sufficient time to the affairs of our company and the extent to which the candidate generally would be a desirable addition to the Board and any committees of the Board.

Our Nominating and Corporate Governance Committee may solicit and consider suggestions of our directors or management regarding possible nominees. Our Nominating and Corporate Governance Committee may also procure the services of outside sources or third parties to assist in the identification of director candidates.

Our Nominating and Corporate Governance Committee may consider director candidates recommended by our stockholders. Our Nominating and Corporate Governance Committee will apply the same standards in considering candidates submitted by stockholders as it does in evaluating candidates

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submitted by members of our Board. Any recommendations by stockholders should follow the procedures outlined under “Stockholder Proposals” in this proxy statement and should also provide the reasons supporting a candidate’s recommendation, the candidate’s qualifications and the candidate’s written consent to being considered as a director nominee. In addition, any stockholder recommending a director candidate should submit information demonstrating the number of shares of common stock that he or she owns.

Executive Sessions of Non-Management Directors

In accordance with the Corporate Governance Guidelines, the non-management directors serving on our Board of Directors generally meet in executive session after each regularly scheduled meeting of the Audit Committee without the presence of any directors or other persons who are part of our management. The executive sessions regularly are chaired by the chair of the Board committee having jurisdiction over the particular subject matter to be discussed at the particular session or portion of a session.

Disclosure Committee

We maintain a Disclosure Committee consisting of members of our executive management and senior employees. Our Disclosure Committee meets at least quarterly. The purpose of our Disclosure Committee is to bring together representatives from our core business lines and employees involved in the preparation of our financial statements so that the group can discuss any issues or matters of which the members are aware that should be considered for disclosure in our public SEC filings. Our Disclosure Committee reports to our Chief Executive Officer and Chief Financial Officer and, as appropriate, to our Audit Committee.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This section of our proxy statement discusses the principles underlying our executive compensation policies and decisions and the most important factors relevant to an analysis of these policies and decisions. It provides qualitative information regarding the manner and context in which compensation is awarded to, and earned by, our named executive officers and places in perspective the data presented in the tables and narrative that follow.

Throughout this proxy statement, the individuals who served as our Chief Executive Officer and Chief Financial Officer during our 2006 fiscal year, as well as the other individuals included in the “Summary Compensation Table” on page 33, are referred to as the “named executive officers,” or our “executives.”

Objectives of Our Compensation Program

Our Compensation Committee, in consultation with our Chief Executive Officer, sets our compensation philosophy, which is based upon three primary objectives:

·       Attract, Motivate and Retain Key Employees. Our Compensation Committee believes that the success of our company is closely correlated with having a strong management team and other talented key employees. The New York City commercial real estate market is an intensely competitive environment where investment banks, merchant banks, opportunity and hedge funds, REITs and other private real estate investors compete for qualified and experienced individuals with a successful track record. Therefore, the existence of a competitive compensation program is essential for our long-term success through the retention and motivation of our current management team, and the ability to successfully attract new key performers.

·       Link Compensation to Performance. One of the cornerstones of our compensation philosophy is the correlation between executive compensation and performance of our company. Our Compensation Committee sets executive compensation based on the attainment of company and individual performance goals. Performance is measured both against company specific goals and relative to the performance of our key competitors. A substantial portion of our compensation is performance-based and contains significant back-end vesting to encourage retention and continued performance. We have been the top performing REIT in the office sector for each of the past three years and for the past one-, three- and five-year periods based on total return to stockholders, and one of the top performing companies in the entire REIT industry in those respective periods, including the top performing equity REIT in 2006. We believe that total return to stockholders is an important measure of management performance.

·       Alignment of Management’s Interest with Stockholders. To more fully align the interest of our executive officers with those of our stockholders, we structure a substantial portion (generally two-thirds) of our executive compensation in the form of equity awards that allow our executive officers to share in the creation of value for our stockholders through stock appreciation and dividends. These equity awards are generally subject to time and/or performance-based vesting requirements designed to promote the retention of management and to achieve strong performance for our company. Additionally, substantial portions of our performance-based awards have time-based vesting requirements with significant back-end vesting after the achievement of the performance metrics. This is designed to encourage retention and continued performance. As a result, our executives would suffer a material economic forfeiture should they leave our employment.

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Setting Executive Compensation

Our Compensation Committee determines compensation for our executive officers and is comprised of our three independent directors, John H. Alschuler, Jr. (Chairman), Edwin Thomas Burton, III and John S. Levy. Our Compensation Committee exercises independent discretion in respect of executive compensation matters and administers our stock option and incentive plan (including reviewing and approving equity grants to our executives pursuant to this plan). Our Compensation Committee operates under a written charter adopted by our Board of Directors, a copy of which is available on our website at http://www.slgreen.com.

Our Compensation Committee has retained SMG Advisory Group, an outside compensation consulting firm, or SMG. SMG provides our Compensation Committee and Chief Executive Officer with relevant market data concerning the marketplace, our peer group and other compensation developments. SMG regularly participates in Committee meetings and meets with management. Our Compensation Committee has the authority to replace SMG or hire additional consultants at any time. SMG also provides additional professional services to our company and receives market-based compensation with respect to these services.

With respect to the compensation of our executive officers, our Compensation Committee solicits recommendations from our Chief Executive Officer regarding total compensation for all executive officers and reviews his recommendations in terms of total compensation and the allocation of such compensation among base salary, annual bonus amounts and other long-term incentive compensation as well as the allocation of such items among cash and equity compensation. We do not have a pre-established policy for the allocation between cash and non-cash compensation or between annual and long-term incentive compensation, but we attempt to pay the majority of our total compensation in the form of long-term equity incentives. Our Compensation Committee also reviews materials and data provided by SMG in analyzing these recommendations. The ultimate determination on total compensation and the elements that comprise that total compensation is made solely by our Compensation Committee.

Our Compensation Committee meets regularly during the year (six meetings in 2006) to evaluate executive performance against the goals and objectives set at the beginning of the year, to monitor market conditions in light of these goals and objectives, to solicit input from the compensation consultant on market practices and any new developments and to review our compensation practices. Our Compensation Committee makes regular reports to our Board of Directors.

What Our Compensation Program is Designated to Reward

Our Compensation Committee has designed our executive compensation program to achieve three primary objectives: (i) attracting, motivating and retaining our key employees; (ii) linking compensation to performance; and (iii) aligning the interests of our executive officers with our stockholders. We expect our company to perform at the highest levels of the REIT office sector and industry in general. We accomplish this by maintaining our ability to attract, engage, motivate and retain employees in key positions who represent “best in class” and that foster a high-performance culture.

Our Compensation Committee rewards the achievement of specific annual, long-term and strategic goals of both our company and the individual executive. Our Compensation Committee measures performance on an absolute basis against financial and other measures established at the beginning of the year and on a relative basis by comparing our company’s performance against other office REITs and against the REIT industry generally. Comparative performance is an important metric since market conditions may affect the ability to meet specific performance criteria. We have been the top performing REIT in the office sector for each of the past three years and for the past one-, three- and five-year periods based on total return to stockholders, or TRS, and one of the top performing companies in the entire REIT industry in those respective periods, including the top performing equity REIT in 2006. We believe that TRS is an important measure of management performance.

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Historically and in 2006, our Compensation Committee paid approximately two-thirds of total compensation to our executive officers in the form of equity incentive compensation based on the superior performance of our company. The annual bonus rewards the achievement of goals set by our Chief Executive Officer with input from our Board of Directors and each individual executive at the beginning of the year. Long-term incentive compensation is designed to provide incentives for each executive to successfully implement our long-term strategic goals and to retain such executive. Additionally, a substantial portion of performance-based awards have time-based vesting requirements with significant back-end vesting after the achievement of the performance metrics. This is designed to encourage retention and continued performance. As a result, our executives would suffer a material economic forfeiture should they leave our employment. Our named executive officers (other than Mr. Green) were not founders of our company and, therefore, did not have an ownership interest in our company prior to their employment with us. Therefore, we have designed our annual and long-term incentive programs to award performance-based equity to allow our executives to grow their ownership in our company and create a further alignment with our stockholders.

Measuring 2006 Performance

The following goals for our company, among others, were set for 2006:  (i) be at the top of the office REIT sector in TRS (measured as growth in share price plus dividends); (ii) increase same-store performance by four to six percent; (iii) increase Funds From Operations, or “FFO,” by seven and one-half to ten percent; (iv) raise the dividend per common share by six to eight percent; (v) increase portfolio occupancy by one hundred basis points; (vi) continue the growth of Gramercy Capital Corp. (an NYSE listed commercial mortgage REIT externally advised by one of our subsidiaries); (vii) dispose of $100.0 to $150.0 million of non-core assets; (viii) use existing capital and recycled capital from the disposition of non-core assets for new acquisitions; and (ix) finish the redevelopment and leasing of Grand Central Square.

We achieved all of these objectives and many more. Particular emphasis was placed on one-, three- and five-year TRS of 77.7%, 257.1% and 424.1%, respectively, and that the one-year TRS achieved by our company for each of 2004, 2005 and 2006 was the highest of all office REITs in such years. In addition, the one-year TRS by our company for 2006 was the highest in the equity REIT industry. From January 1, 2004 to December 31, 2006, our stock price went from $41.05 to $132.78 per share. Our company produced substantial value for its stockholders in 2005 and 2006, creating $4.8 billion and $4.0 billion, respectively, of additional enterprise value. Our company also:

·       had the highest one-year TRS (77.7%) of all equity REITs in 2006,

·       increased same-store performance by 9.0%,

·       increased FFO by 10.8%,

·       increased our dividend by 16.7%,

·       increased occupancy by 100.0 basis points,

·       increased, through our subsidiary manager, Gramercy Capital Corp.’s assets by over $1.0 billion and produced a 46.5% TRS,

·       sold $160.0 million of non-core assets generating a $2.07 per share gain,

·       acquired seven new assets totaling over $1.0 billion,

·       leased nearly 1.0 million square feet to attain a 93% occupancy at Grand Central Square,

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·       raised approximately an aggregate of $800.3 million through public offerings of our common stock in 2006, and

·       entered into a merger agreement to acquire Reckson Associates Realty Corp., or Reckson, for approximately $6.0 billion and a separate agreement with an asset-purchasing venture led by former executives of Reckson to sell to such venture over $2.0 billion of assets from the Reckson portfolio. Both transactions closed in January 2007.

Elements of Our Compensation Program and Why We Chose Each Element

Our executive officers’ compensation currently has three primary components:

·       annual base salary;

·       annual incentives, which include cash and equity bonuses; and

·       long-term incentives, which include restricted stock awards, stock options or performance awards made pursuant to an executive officer’s employment agreement or our 2005 Plan (as defined below) or Outperformance Plans (as defined below), as applicable.

We view the various components of compensation as related but distinct. Our Compensation Committee designs total executive compensation packages that it believes will best create retention incentives, link compensation to performance and align the interests of our executive officers and our stockholders. Each of our named executive officers has an employment agreement with us, which are described under—Potential Payments Upon Termination or Change of Control. Such agreements provide for certain severance or change of control payments under specified circumstances.

Annual Base Salary.   We pay annual base salaries for each of our executive officers in accordance with the employment agreement between us and such executive officer, which salaries are reviewed annually by our Compensation Committee. Our Compensation Committee pays our executive officers annual base salaries to compensate them for services rendered during the fiscal year, which compensation is designed to be competitive with investment banks, merchant banks, opportunity and hedge funds, REITs and other private real estate investors in the New York City commercial real estate market. Our Compensation Committee believes that the base salaries for our executive officers are in the median of those companies we benchmark ourselves against. Our Compensation Committee’s annual review of an executive includes a review of his individual performance, his performance against the other executive officers and our company’s overall performance. Increases to the annual salary set forth in the executive’s employment agreement are based on our Compensation Committee’s assessment of such executive’s performance as well as our company’s overall performance. We intentionally structure an executive’s annual base salary to be a relatively low percentage of total compensation.

Annual Incentives.   Annual incentives are provided in the form of cash and equity bonuses to be paid if certain performance objectives are achieved and as provided by an executive officer’s employment agreement. Our Compensation Committee may adjust the annual incentives following its evaluation of an executive officer’s individual performance. Our annual incentives are designed to focus an executive officer on achieving key corporate financial objectives (both individually and company-based), to motivate certain desired individual behaviors and to reward substantial achievement of these objectives and individual goals. We pay our executive officers annual incentives shortly after completion of the fiscal year when year-end financial results are available. This allows the Compensation Committee to evaluate the Company’s performance against its stated goals and objectives.

Our Compensation Committee delivers a substantial portion of an executive officer’s year-end compensation in the form of equity awards which links an executive officer’s net worth directly to the performance of our stock price. This encourages our executive officers to make decisions with an

29




ownership mentality. The vesting provisions of these equity awards (generally three to five years) are designed to act as a retention device and provide a strong incentive to the executives to increase stockholder value long after they performed the services in the year for which the equity awards were granted. The awards also contain forfeiture provisions, with a significant portion of the vesting back-ended, if the executive voluntarily leaves or is terminated with cause. These provisions protect our interests by, among other things, providing a strong economic incentive for an executive to stay with our company. Additionally, restricted stock awards and certain other equity awards generally are accompanied by receipt of tax gross-up payments to avoid having the executive sell stock to satisfy the tax obligation created from this incentive award. The 2006 annual incentives were designed to compensate our executive officers for their industry leading performance in terms of TRS, creation of enterprise value, achievement of corporate objectives and for entering into the Reckson merger agreement.

Long-Term Incentives.   Long-term incentives are provided to our executive officers through the grant of restricted stock awards, stock options or performance awards, including awards of interests in GKK Manager LLC, or the Manager Interests, and awards of Class B limited partner interests in GKK Capital L.P., or the Class B Interests, pursuant to our 2005 Stock Option and Incentive Plan, or our 2005 Plan, and our 2006 Outperformance Plan, 2005 Outperformance Plan and 2003 Long-Term Outperformance Compensation Program, or collectively our Outperformance Plans. For an overview of our 2005 Plan and our Outperformance Plans, see “—Equity Incentive Plans.”

A large portion of our long-term incentive compensation is comprised of equity awards under our Outperformance Plans, which are designed to compensate our executive officers upon the attainment of certain goals with respect to TRS and to provide an incentive for such executives to remain with our company and focus on long-term growth in our stock price. Under our Outperformance Plans, the executives receive restricted stock or equity-based awards based upon TRS over a performance threshold, but in all events, subject to an overall cap. In addition to performance thresholds which are designed to achieve an average TRS of ten percent over a three- or four-year period (subject to certain acceleration provisions), the awards also include time-based vesting requirements following the achievement of the performance thresholds. This creates, in the aggregate, up to a seven-year period (with most of the awards vesting in the final two years)  that the executive needs to stay at our company to reap a significant majority of the value of these awards. The result of the structure of our Outperformance Plans is to tie a large portion of an executive officer’s compensation to creation of stockholder value and continued employment with our company over a long-term basis. Therefore, an executive has a strong economic incentive to continue his employment with our Company. It also provides the executive an added incentive to maximize the value of our stock long after the achievement of the performance that triggered the award.

All stock options are priced in accordance with the terms of our 2005 Plan and are based on the price of our company’s common stock at the close of business on the day prior to the date of grant. We do not coordinate grants of options so that they are made before announcement of favorable information or after the announcement of unfavorable information.

How Each Element and Our Decisions Regarding Each Element Fit Into Our Overall Compensation Objectives and Affect Decisions Regarding Other Elements

Our compensation program seeks to reward our executive officers for superior performance, which is competitive with the total compensation paid to executive officers at investment banks, merchant banks, opportunity and hedge funds, REITs and other private real estate investors in the New York City commercial real estate market, while closely aligning the interests of our executive officers with the interests of our stockholders. In making compensation decisions, our Compensation Committee considers various measures of company and industry performance, including (i) TRS (over the prior one-, three- and five-year periods), (ii) growth in FFO per share, (iii) growth in dividends per share and (iv) certain material corporate events consummated during the applicable fiscal year. Consistent with this approach,

30




our Compensation Committee pays our named executive officers annual base salaries in order to provide them with a minimum compensation level that is intended to reflect such officer’s unique value and historical contributions to our success in light of salary norms of our company’s competitive marketplace. Our Compensation Committee pays our named executive officers annual incentives to reward our executive officers for achievement of financial and other performance (both company and individual based) during the last completed fiscal year, with a substantial portion of the annual incentive payment made in restricted stock, options or other equity-based awards in order to ensure focus on long-term company performance and continued service with our company. In connection with the payment of annual base salaries and annual incentives, our Compensation Committee seeks to implement a pay-for-performance philosophy. Finally, our Compensation Committee pays our executive officers long-term incentives, primarily based on the performance of our stock price or the consummation of material corporate events, to act as a retention tool and to provide continued and additional incentives to maximize our stock price and thereby more closely align the economic interests of our executive officers with those of our stockholders. In doing so, our Compensation Committee considers equity awards granted in connection with employment agreements of our executive officers and potential payouts to our executive officers under our Outperformance Plans. Through the elements of our compensation program, our Compensation Committee seeks to maintain a competitive total compensation package for each executive, while being sensitive to our fiscal year budget, annual accounting costs and the impact of share dilution in making such compensation payments.

Employee Benefits

We have implemented a 401(k) Savings/Retirement Plan, or our 401(k) Plan, to cover eligible employees of ours and of any designated affiliate. Our 401(k) Plan permits eligible employees to defer up to 15% of their annual compensation, subject to certain limitations imposed by the Internal Revenue Code of 1986, as amended. The employees’ elective deferrals are immediately vested and non-forfeitable upon contribution to the 401(k) Plan.

Perquisites and Other Personal Benefits

We do not provide significant perquisites or personal benefits to our executive officers, except that we reimburse our Chief Executive Officer and the Chairman of our Board of Directors for costs associated with automobiles they lease for personal use. Additionally, we provide the Chairman of our Board of Directors with a full-time driver and our Chief Executive Officer receives certain insurance benefits. We reimburse our directors for travel and lodging expenses, if any, in connection with our Board of Director’s (including committee) meetings. In addition, we reimburse our executive officers and our other employees for certain meals and we provide car service as appropriate.

Other Matters

Tax and Accounting Treatment.   Our Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended. Section 162(m) limits the deductibility on our tax return of compensation over $1 million to any of our named executive officers unless, in general, the compensation is paid pursuant to a plan which is performance-related, non-discretionary and has been approved by our stockholders. Our Compensation Committee’s policy with respect to Section 162(m) is to make every reasonable effort to ensure that compensation is deductible to the extent permitted while simultaneously providing our executives with appropriate compensation for their performance. We paid compensation to certain of our named executive officers during 2006, a portion of which may be nondeductible under the limitations set forth in Section 162(m). Our Compensation Committee may make compensation payments that are not fully

31




deductible if in its judgment such payments are necessary to achieve the objectives of our compensation program.

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. While the final regulations have not become effective yet, we believe we are operating in good faith compliance with the statutory provisions that were effective January 1, 2005.

Beginning on January 1, 2003, we began accounting for stock-based payments through our equity incentive plans, including our Outperformance Plans, in accordance with the requirements of Statement of Financial Accounting Standards No. 123-R.

Adjustments for Certain Items.   Our Compensation Committee has not considered whether it would attempt to recover compensation awards or payments based on our financial performance where our financial statements are restated in a downward direction sufficient to reduce the amount of such awards or payments that should have been made or paid under applicable criteria.

Other Policies

We do not have any policy in place regarding minimum ownership requirements for either our executive officers or directors. We do not have any policy in place regarding the ability of our executive officers or directors to engage in hedging activities with respect to our common stock.

Compensation Committee Report

Our Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, our Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this annual proxy statement.

Submitted by our Compensation Committee

 

John H. Alschuler, Jr. (Chairman)

 

Edwin Thomas Burton, III

 

John S. Levy

 

32




Summary Compensation Table*

The following table sets forth information regarding the compensation paid to, and the compensation expense we recognized with respect to, our Chief Executive Officer, Chief Financial Officer and each of our three most highly compensated executive officers, other than our Chief Executive Officer and Chief Financial Officer, whose total compensation exceeded $100,000 during the fiscal year ended December 31, 2006 (collectively, the “named executive officers”). It is noted that a number of the executive compensation arrangements described below may be subject to adjustment for changes to be made in light of Section 409A of the Internal Revenue Code.

Name And 
Principal Position**

 

 

 

Year

 

Salary ($)

 

Bonus ($)

 

Stock
Awards 
(1) ($)

 

Option
Awards 
(2) ($)

 

All Other
Compensation 
(3) ($)

 

Total ($)

 

Marc Holliday

 

 

2006

 

 

 

$

600,000

 

 

$

7,500,000

 

 

$

5,183,508

 

 

 

$

691,406

 

 

 

$

2,831,955

 

 

$

16,806,869

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stephen L. Green

 

 

2006

 

 

 

$

600,000

 

 

 

 

$

2,781,322

 

 

 

 

 

 

$

2,583,572

 

 

$

5,964,894

 

 

Chairman of the Board

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Andrew Mathias

 

 

2006

 

 

 

$

300,000

 

 

$

5,625,000

 

 

$

2,621,091

 

 

 

$

83,997

 

 

 

$

1,309,145

 

 

$

9,939,232

 

 

President and Chief Investment Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gregory F. Hughes

 

 

2006

 

 

 

$

400,000

 

 

$

3,750,000

 

 

$

1,235,083

 

 

 

$

70,027

 

 

 

$

562,178

 

 

$

6,017,287

 

 

Chief Operating Officer and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Andrew S. Levine

 

 

2006

 

 

 

$

300,000

 

 

$

937,500

 

 

$

400,305

 

 

 

 

 

 

$

84,940

 

 

$

1,722,745

 

 

Chief Legal Officer and
General Counsel

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


*                      The columns for “Non-Equity Incentive Plan Compensation” and “Change in Pension Value and Nonqualified Deferred Compensation Earnings” have been omitted because they are not applicable.

**                 Mr. Holliday stepped down as President effective April 16, 2007, when Mr. Mathias was promoted to that position. Mr. Hughes and Mr. Levine were promoted to the positions of Chief Operating Officer and Chief Legal Officer, respectively, effective April 16, 2007.

(1)                Amounts shown do not reflect compensation actually received by the named executive officer. Instead, the amounts shown are the compensation costs recognized by our company in fiscal year 2006 for stock awards (which consist of restricted stock awards, awards made pursuant to our Outperformance Plans, awards of interests in GKK Manager LLC, or the Manager Interests, and awards of Class B limited partner interests in GKK Capital L.P., or the Class B Interests, some of which were granted in prior years) as determined pursuant to Statement of Financial Accounting Standards No. 123(R), or FAS 123R. The assumptions used to calculate the value of stock awards are set forth under Notes 2 and 6 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2006, which was filed with the SEC on February 28, 2007. For a description of the Manager Interests and the Class B Interests, see “—Equity Compensation Plan Information—Other Equity Incentive Awards.”

(2)                Amounts shown do not reflect compensation actually received by the named executive officer. Amounts shown are the compensation costs recognized by our company in fiscal year 2006 for option awards as determined pursuant to FAS 123R. The assumptions used to calculate the value of option awards are set forth under Note 2 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2006, which was filed with the SEC on February 28, 2007.

(3)                The table below shows the components of this column, which include perquisites, tax gross-ups, and loan forgiveness amounts.

Name

 

 

 

Perquisites ($)

 

Tax 
Gross-Ups ($)
(a)

 

Loan Forgiveness
($)

 

Total “All Other
Compensation” ($)

 

Marc Holliday

 

 

$

22,065

(b)

 

 

$

2,690,787

 

 

 

$

119,103

 

 

 

$

2,831,955

 

 

Stephen L. Green

 

 

$

187,650

(c)

 

 

$

2,395,922

 

 

 

 

 

 

$

2,583,572

 

 

Gregory F. Hughes

 

 

$

6,600

(d)

 

 

$

555,578

 

 

 

 

 

 

$

562,178

 

 

Andrew Mathias

 

 

$

6,600

(d)

 

 

$

1,302,545

 

 

 

 

 

 

$

1,309,145

 

 

Andrew S. Levine

 

 

$

6,600

(d)

 

 

$

78,340

 

 

 

 

 

 

$

84,940

 

 


(a)                 Represents the cash payments made with respect to tax payments due on the restricted stock awards made to the named executive officers.

(b)                Represents (i) our company’s matching contributions with respect to amounts earned by the named executive officer under our 401(k) plan, (ii) leased car payments and (iii) life insurance premiums. Our company’s 401(k) matching contributions are credited in the year subsequent to which employees make their contributions.

33




(c)                 Represents (i) our company’s matching contributions with respect to amounts earned by the named executive officer under our 401(k) plan and (ii) leased car and full-time driver payments. Our company’s 401(k) matching contributions are credited in the year subsequent to which employees make their contributions.

(d)                Represents our company’s matching contributions with respect to amounts earned by the named executive officer under our 401(k) plan. Our company’s 401(k) matching contributions are credited in the year subsequent to which employees make their contributions.

Grants of Plan-Based Awards

The following table sets forth certain information with respect to each grant of an award made to a named executive officer in the fiscal year ended December 31, 2006.

Name

 

 

 

Grant Date

 

Estimated Future
Payouts Under
Non-Equity Incentive
Plan Awards

 

Estimated Future
Payouts Under
Equity Incentive
Plan Awards (1)

 

All Other
Stock
Awards;
Number
of Shares
of Stock or
Units(2)

(#)

 

All Other
Option
Awards;
Number of
Securities
Underlying
Options
(#)

 

Exercise
or Base
Price of
Option
Awards(3)
($/Sh)

 

Grant Date
Fair Value
of
Equity
Awards(4)
($)

 

 

 

 

 

Threshold
($)

 

Target
($)

 

Maximum
($)

 

Threshold
(#)

 

Target
(#)

 

Maximum
(#)

 

 

 

 

 

 

 

 

 

Marc Holliday

 

 

01/01/2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,050

 

 

 

 

 

 

$

2,115,525

 

 

 

03/13/2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

260,000

 

 

$

93.31

 

$

4,306,536

 

 

 

06/14/2006

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

N/A

 

 

136,736

 

 

 

 

 

 

 

 

$

530,000

 

Stephen L. Green

 

 

01/01/2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,843

 

 

 

 

 

 

$

1,893,722

 

 

 

 

06/14/2006

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

N/A

 

 

91,157

 

 

 

 

 

 

 

 

$

353,333

 

Gregory F. Hughes

 

 

01/01/2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,042

 

 

 

 

 

 

$

506,721

 

 

 

06/14/2006

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

N/A

 

 

50,643

 

 

 

 

 

 

 

 

$

196,296

 

Andrew Mathias

 

 

01/01/2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,850

 

 

 

 

 

 

$

1,793,925

 

 

 

 

06/14/2006

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

N/A

 

 

91,157

 

 

 

 

 

 

 

 

$

353,333

 

Andrew S. Levine

 

 

01/01/2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,500

 

 

 

 

 

 

$

329,525

 

 

 

06/14/2006

 

 

 

 

 

 

 

 

 

 

 

 

0

 

 

 

N/A

 

 

20,257

 

 

 

 

 

 

 

 

$

78,519

 


(1)                For information regarding the performance criteria for this award, see “—2005 Long-Term Outperformance Compensation Plan.”

(2)                The amounts shown in this column reflect a restricted stock award granted to each named executive officer on January 1, 2006, which vests in three annual installments of 25%, 25% and 50%.

(3)                The exercise price for all options granted to the named executive officer is 100% of the fair market value of the shares on the grant date. We do not pay dividend equivalents on stock options.

(4)                The value of a stock award or option award is based on the fair value as of the grant date of such award determined pursuant to FAS 123R.

For a discussion of each named executive officer’s employment agreement and our Outperformance Plans, see “—Potential Payments Upon Termination or Change of Control” and “—Outperformance Plans,” respectively.

34




Outstanding Equity Awards

The following table sets forth certain information with respect to all outstanding equity awards held by each named executive officer at the fiscal year ended December 31, 2006.

 

Option Awards

 

Stock Awards

 

 

 

Number
of Securities
Underlying
Unexercised
Options
(#)

 

Number
of Securities
Underlying
Unexercised
Options
(#)_

 

Equity
Incentive
Plan
Awards:
Number
of Securities
Underlying
Unexercised
Unearned
Options

 

Option
Exercise
Price

 

Option
Expiration

 

Number
of Shares
or Units
of Stock
That Have
Not Vested

 

Market
Value
of Shares
or Units
of Stock
That Have
Not Vested

 

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested

 

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested

 

Name

 

Exercisable

 

Unexercisable

 

(#)

 

($)

 

Date

 

(#)

 

($)

 

(#)

 

($)

 

Marc Holliday

 

 

63,000

(1)

 

 

84,000

(1)

 

 

 

 

 

$

28.10

 

 

 

10/10/2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

260,000

(2)

 

 

 

 

 

$

93.31

 

 

 

03/13/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

345,133

(3)

 

$

45,826,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43,749

(4)

 

$

26,427,192

 

Stephen L. Green

 

 

 

 

 

60,000

(5)

 

 

 

 

 

$

29.53

 

 

 

11/09/2011

 

 

 

 

 

 

 

 

 

 

 

 

 

63,000

(6)

 

 

84,000

(6)

 

 

 

 

 

$

28.10

 

 

 

10/10/2012

 

 

 

 

 

 

 

 

 

 

 

 

 

260,000

(7)

 

 

 

 

 

 

 

 

$

76.39

 

 

 

12/30/2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

193,600

(8)

 

$

25,706,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,000

(9)

 

$

19,867,300

 

Gregory F. Hughes

 

 

 

 

 

70,000

(10)

 

 

 

 

 

$

43.25

 

 

 

02/02/2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,985

(11)

 

$

10,089,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,000

(12)

 

$

8,883,300

 

Andrew Mathias

 

 

8,333

(13)

 

 

 

 

 

 

 

 

$

29.53

 

 

 

11/09/2011

 

 

 

 

 

 

 

 

 

 

 

 

 

12,500

(14)

 

 

12,500

(14)

 

 

 

 

 

$

28.10

 

 

 

10/10/2012

 

 

 

 

 

 

 

 

 

 

 

 

 

2,833

(15)

 

 

52,500

(15)

 

 

 

 

 

$

36.55

 

 

 

11/11/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

171,622

(16)

 

$

22,787,969

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,531

(17)

 

$

16,280,706

 

Andrew S. Levine

 

 

31,000

(18)

 

 

15,000

(18)

 

 

 

 

 

$

28.10

 

 

 

10/10/2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,157

(19)

 

$

3,871,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

N/A(20)

 

 

$

4,063,790

 


             (1)  Includes an option award granted on 10/10/2002, which vests in four annual installments of 10%, 20%, 30% and 40%.

             (2)  Includes an option award granted on 03/13/2006, which vests in five equal annual installments.

             (3)  Includes restricted stock awards granted on: (i) 07/17/1998, which vests on 07/17/2007; (ii) 01/17/2001, 14,219 shares of which vest on 07/17/2007, 30,834 shares of which vest on 07/17/2008, 30,832 shares of which vest on 07/17/2009 and 12,498 shares of which vest on 01/01/2010; (iii) 02/01/2005, which vests in five annual installments of 10%, 10%, 20%, 30% and 30%; and (iv) 01/01/2006, which vests in three annual installments of 25%, 25% and 50%. Our stock price on the date of each of those grants was $23.75 per share, $26.44 per share, $53.46 per share and $76.39 per share, respectively. Also includes an award in the form of LTIP Units under our 2005 Outperformance Plan, which vests one-third on each of November 30, 2008, 2009 and 2010. For a discussion of our 2005 Outperformance Plan, see “—2005 Long-Term Outperformance Compensation Plan.”

             (4)  Includes a restricted stock award granted on 01/01/2004, 50% of which vests in six equal annual installments based on continued employment and 50% of which vests in six annual installments subject to the attainment of specified performance goals during the vesting period. Our stock price on the date of this grant was $41.05 per share. Also includes awards under our 2003 Outperformance Plan and our 2006 Outperformance Plan. For a discussion of our 2003 Outperformance Plan and our 2006 Outperformance Plan, see “—Equity Compensation Plan Information—2003 Long-Term Outperformance Compensation Program and 2006 Long-Term Outperformance Compensation Program.” Also includes a Manager Interest award and a Class B Interest award made in May 2005.The value of these awards is based on an independent third-party appraisal that was done as of March 31, 2005 and which has not been subsequently updated. For a discussion of these awards, see “—Equity Compensation Plan Information—Other Equity Incentive Awards.’’

             (5)  Includes an option award granted on 11/09/2001, which vests in five equal annual installments.

             (6)  Includes an option award granted on 10/10/2002, which vests in four annual installments of 10%, 20%, 30% and 40%.

             (7)  Includes an option award granted on 12/30/2005, which vested immediately.

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             (8)  Includes restricted stock awards made on: (i) 02/01/2005, which vests in five annual installments of 10%, 10%, 20%, 30% and 30%; and (ii) 01/01/2006, which vests in three annual installments of 25%, 25% and 50%. Also includes an award in the form of LTIP Units under our 2005 Outperformance Plan, which vests one-third on each of November 30, 2008, 2009 and 2010. Our stock price on the date of each of these grants was $53.46 per share and $76.39 per share, respectively. For a discussion of our 2005 Outperformance Plan, see “—Equity Compensation Plan Information—2005 Long-Term Outperformance Compensation Plan.”

             (9)  Includes a restricted stock award made on 01/23/2003, 50% of which vests in five equal annual installments based on continued employment and 50% of which vests in five equal installments subject to the attainment of specified performance goals during the vesting period. Our stock price on the date of this grant was $30.55 per share. Also includes awards under our 2003 Outperformance Plan and our 2006 Outperformance Plan. For a discussion of our 2003 Outperformance Plan and 2006 Outperformance Plan, see “—Equity Compensation Plan Information—2003 Long-Term Outperformance Compensation Program and 2006 Long-Term Outperformance Compensation Program.” Also includes a Manager Interest award and a Class B Interest award made in May 2005. For a discussion of these awards, see “—Equity Compensation Plan Information—Other Equity Incentive Awards.’’

        (10)  Includes an option award granted on 02/01/2004, which vests in five annual installments of 15%, 15%, 20%, 20% and 30%.

        (11)  Includes restricted stock awards granted on:  (i) 02/01/2005, which vests in five annual installments of 10%, 10%, 20%, 30% and 30%; and (ii) 01/01/2006, which vests in three annual installments of 25%, 25% and 50%. Our stock price on the date of each of these grants was $53.46 per share and $76.39 per share, respectively. Also includes an award in the form of LTIP Units under our 2005 Outperformance Plan, which vests one-third on each of November 30, 2008, 2009 and 2010. For a discussion of our 2005 Outperformance Plan, see “—Equity Compensation Plan Information—2005 Long-Term Outperformance Compensation Plan.”

        (12)  Includes a restricted stock award granted on 02/03/2004, 50% of which vests in three annual installments based on continued employment and 50% of which vests in three installments subject to the attainment of specified performance goals during the vesting period. Our stock price on the date of this grant was $43.53 per share. Also includes awards under our 2003 Outperformance Plan and our 2006 Outperformance Plan. For a discussion of our 2003 Outperformance Plan and our 2006 Outperformance Plan, see “—Equity Compensation Plan Information—2003 Long-Term Outperformance Compensation Program and 2006 Long-Term Outperformance Compensation Program.” Also includes a Manager Interest award and a Class B Interest award made in May 2005. The value of these awards is based on an independent third-party appraisal that was done as of March 31, 2005 and which has not been subsequently updated. For a discussion of these awards, see “—Equity Compensation Plan Information—Other Equity Incentive Awards.’’

        (13)  Includes an option award granted on 11/09/2001, which vests in five equal annual installments (subject to rounding).

        (14)  Includes an option award granted on 11/09/2001, which vests in six equal annual installments.

        (15)  Includes an option award granted on 11/11/2003, which vests in four annual installments.

        (16)  Includes restricted stock awards granted on:  (i) 03/29/2002, which vests on 01/01/2007; (ii) 12/29/2003, which vests on 01/01/2007; (iii) 01/01/2004, which vests in four annual installments of 10%, 20%, 30% and 40%; (iv) 02/01/2005, which vests in five annual installments of 10%, 10%, 20%, 30% and 30%; and (v) 01/01/2006, which vests in three annual installments of 25%, 25% and 50%. Our stock price on the date of each of these grants was $33.60 per share, $40.95 per share, $41.05 per share, $53.46 per share and $76.39 per share, respectively. Also includes an award in the form of LTIP Units under our 2005 Outperformance Plan, which vests one-third on each of November 30, 2008, 2009 and 2010. For a discussion of our 2005 Outperformance Plan, see “—Equity Compensation Plan Information—2005 Long-Term Outperformance Compensation Plan.”

        (17)  Includes restricted stock awards granted on:  (i) 03/29/2002, 50% of which vests in four annual installments based on continued employment and 50% of which vests in four installments subject to the attainment of specified performance goals during the vesting period; and (ii) 01/01/2004, 50% of which vests in four annual installments based on continued employment and 50% of which vests in four installments subject to the attainment of specified performance goals during the vesting period. Our stock price on the date of each of these grants was $33.60 per share and $41.05 per share, respectively. Also includes awards under our 2003 Outperformance Plan and our 2006 Outperformance Plan. For a discussion of our 2003 Outperformance Plan and our 2006 Outperformance Plan, see “—2003 Long-Term Outperformance Compensation Program and our 2006 Long-Term Outperformance Compensation Program.” Also includes a Manager Interest award and a Class B Interest award made in May 2005. The value of these awards is based on an independent third-party appraisal that was done as of March 31, 2005 and which has not been subsequently updated.  For a discussion of these awards, see “—Equity Compensation Plan Information—Other Equity Incentive Awards.’’

        (18)  Includes an option award granted on 11/09/2001, which vests in six equal annual installments.

        (19)  Includes restricted stock awards granted on:  (i) 02/01/2005, which vests in five annual installments of 10%, 10%, 20%, 30% and 30%; and (ii) 01/01/2006, which vests in three annual installments of 25%, 25% and 50%. Our stock price on the date of each of these grants was $53.46 per share and $76.39 per share, respectively. Also includes an award in the form of LTIP Units under our 2005 Outperformance Plan, which vests one-third on each of November 30, 2008, 2009 and 2010. For a discussion of our 2005 Outperformance Plan, see “—Equity Compensation Plan Information—2005 Long-Term Outperformance Compensation Plan.”

        (20)  Includes awards under our 2003 Outperformance Plan and our 2006 Outperformance Plan. For a discussion of our 2003 Outperformance Plan and our 2006 Outperformance Plan, see “—Equity Compensation Plan Information—2003 Long-Term Outperformance Compensation Program and our 2006 Long-Term Outperformance Compensation Program.” Also includes a Manager Interest award and a Class B Interest award made in May 2005. The value of these awards if based on an independent third party appraisal that was done as of March 31, 2005 and which has not been subsequently updated. For a discussion of these awards, see “—Equity Compensation Plan Information—Other Equity Incentive Awards.’’

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Option Exercises and Stock Vested

The following table sets forth certain information with respect to the exercise of stock options, stock appreciation rights, or SARs, and similar instruments, and the vesting of stock, including restricted stock, restricted stock units and similar instruments for each named executive officer during the fiscal year ended December 31, 2006.

 

 

Option Awards

 

Stock Awards

 

Name

 

 

 

Number of Shares
Acquired on Exercise
(#)

 

Value Realized on
Exercise (1)
($)

 

Number of Shares
Acquired on Vesting
(#)

 

Value Realized on
Vesting (2)
($)

 

Marc Holliday

 

 

 

 

 

 

 

 

45,400

 

 

 

$

4,836,520

 

 

Stephen L. Green

 

 

183,000

 

 

 

$

9,948,300

 

 

 

40,400

 

 

 

$

3,126,170

 

 

Gregory F. Hughes

 

 

15,000

 

 

 

$

607,542

 

 

 

9,200

 

 

 

$

763,460

 

 

Andrew Mathias

 

 

25,000

 

 

 

$

1,262,497

 

 

 

26,284

 

 

 

$

2,030,065

 

 

Andrew S. Levine

 

 

10,000

 

 

 

$

754,544

 

 

 

4,350

 

 

 

$

336,743

 

 


(1)             Amounts reflect the difference between the exercise price of the option and the market price at the time of exercise.

(2)             Amounts reflect the market value of the stock on the day the stock vested.

Pension Benefits

Our named executive officers received no benefits in fiscal year 2006 from us under defined pension or defined contribution plans other than our tax-qualified 401(k) Plan. See “—Summary Compensation Table.”

Nonqualified Deferred Compensation

Our company does not have a nonqualified deferred compensation plan that provides for deferral of compensation on a basis that is not tax-qualified for our named executive officers.

Potential Payments Upon Termination or Change-in-Control

General

Each of our named executive officers is a party to an employment and non-competition agreement between us and such executive officer. This section describes the material terms of each named executive officer’s employment and non-competition agreement and provides the amount of compensation that would be paid to each named executive officer by us under these agreements and our other executive compensation programs in the event of termination of such executive’s employment with us or a Change-in-Control without termination of employment.  The amount of compensation payable to each named executive officer upon (i) a “Change-in-Control” without termination of the executive officer, (ii) termination of the executive officer by us for “Cause” or by the executive officer without “Good Reason,” (iii) termination of the executive officer by us without “Cause” or by the executive officer with “Good Reason,” (iv) termination of the executive officer in connection with a “Change-in-Control,” (v) termination of the executive officer in the event of the disability of the executive officer and (vi) termination of the executive officer in the event of the death of the executive officer (each a “Triggering Event”) is described below. The types of events constituting Cause, Good Reason, disability and a Change-in-Control may differ in some respects among the different arrangements providing for benefits to the named executive officers; however, for consistency in presentation, our executive compensation arrangements have been grouped together based on these concepts without regard for any such differences.

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The amounts shown below assume that such Change-in-Control or such termination was effective as of December 31, 2006 and are estimates of the amounts that would be paid out to the named executive officers upon such Change-in-Control or their termination. The value of the acceleration of vesting of shares of restricted stock, LTIP Units, the Manager Interests and the Class B Interests is based on the value of unvested awards set forth in the “Outstanding Equity Awards” table above. The value of the acceleration of vesting of stock options is based on the difference between the exercise price of unvested stock options that accelerate upon the relevant event and $132.78, which was the closing price of our common stock on the NYSE on December 31, 2006. Health and welfare benefits are valued based on the estimated amount of future premiums that would be paid on behalf of the named executive officer under our existing plans, based on the premiums in effect as of December 31, 2006. The actual amounts to be paid out can only be determined at the time of such Change-in-Control or such named executive officer’s separation from our company. The amounts described below do not include payments and benefits to the extent they have been earned prior to the termination of employment or Change-in-Control or are provided on a non-discriminatory basis to salaried employees upon termination of employment. These include: accrued salary and vacation pay; distribution of plan balances under our 401(k) plan; life insurance proceeds in the event of death; and disability insurance payouts in the event of disability. All of the cash severance payments described in the employment agreements below are to be made as lump sum payments at the time of termination; provided that, to the extent necessary to avoid the imposition of an additional tax under Section 409A of the Internal Revenue Code, the payments are to be delayed until six months after termination, during which time the payments will accrue interest at the rate of 5% per annum.

Employment and Non-Competition Agreements

Stephen L. Green.   Stephen L. Green’s employment and non-competition agreement was amended in 2000 and was set to expire on August 20, 2002. Effective August 20, 2002, Mr. Green entered into a new employment and non-competition agreement with us that runs through December 31, 2007. The agreement provides for an automatic renewal for successive one-year terms unless notice of non-renewal is given at least three months prior to the expiration of such renewal term. Pursuant to the agreement, Mr. Green receives, among other things, an annual base salary of $600,000, effective January 1, 2003 and such discretionary annual bonuses as we, in our sole discretion, may deem appropriate to reward Mr. Green for job performance. Pursuant to the agreement, Mr. Green received a grant of 175,000 shares of restricted common stock in January 2003, 50% of which will vest equally over five years subject to continued employment, and the remaining 50% of which will vest equally over five years, subject to the attainment of specified financial performance goals during the vesting period. The performance-based vesting each year is based on the achievement of either of the following financial performance goals during the prior year (or on a cumulative basis since 2002): (i) 7% or greater increase in funds from operations on a per-share basis and a 10% or greater total return to stockholders or (ii) total return to stockholders in the top one-third of a peer group of companies determined each year by our Compensation Committee. Mr. Green is also entitled to cash payments intended to serve as a tax gross-up upon the vesting of the shares of restricted stock granted under his agreement in an amount equal to 40% of the value of the shares vesting. Pursuant to the agreement, if Mr. Green is terminated for any reason, he will be subject to the following obligations: (i) noncompetition with our company for 18 months; (ii) nonsolicitation of our employees for 18 months; and (iii) nondisparagement of our company for one year. In connection with a Triggering Event, Mr. Green will be entitled to the following payments and benefits:

·       Change-in-Control without termination. Mr. Green will receive no payments or benefits.

·       Termination with Cause or without Good Reason. Mr. Green will receive no payments or benefits.

·       Termination without Cause or with Good Reason. Mr. Green will receive a cash severance payment in an amount of $11,100,000, which is equal to three times his base salary, plus a bonus equal to the average bonuses paid to him for the preceding two years, plus a pro-rata bonus. Mr. Green will also continue to receive his medical and welfare benefits for three years, the cost of which to us is projected to total in aggregate approximately $50,192. All of Mr. Green’s outstanding restricted

38




stock and stock option awards, other than those made under the Outperformance Plans, will fully vest at termination. In addition, he will receive a tax gross-up in respect of the vesting of his restricted stock awards. The combination of the accelerated vesting and the tax gross-up results in a total value to be received of $40,537,674. Mr. Green will also have an additional 12 months of vesting for his award under the 2005 Outperformance Plan.

·       Termination in connection with a Change-in-Control. Mr. Green will receive a cash severance payment of $11,100,000, which is equal to three times his base salary, plus a bonus equal to the average bonuses paid to him for the preceding two years, plus a pro-rata bonus. Mr. Green will also continue to receive his medical and welfare benefits for three years, the cost of which to us is projected to total in aggregate approximately $50,192. All of Mr. Green’s outstanding restricted stock awards, stock option awards and awards granted to him under the Outperformance Plans will fully vest at termination and, as of December 31, 2006, the performance hurdles with respect to the awards under the Outperformance Plans will be deemed to have been met, entitling Mr. Green to the full benefit of these awards.  See “—Equity Compensation Plan Information—Outperformance Plans.”  In addition, he will receive a tax gross-up in respect of the vesting of his restricted stock award. The combination of the accelerated vesting and the tax gross-up results in total value to be received of $67,861,501. Under the employment agreement, in the event that any payment or benefit constitutes an excess “parachute payment” under Section 280G of the Internal Revenue Code subject to an excise tax, Mr. Green is entitled to receive a tax gross-up payment in an amount sufficient to put him in the same after-tax position (assuming the highest possible applicable tax rates applied) that he would have been in if such payment or benefit did not constitute an excess parachute payment. The amount of this excise tax gross-up would be $11,008,390.

·       Termination upon disability. Mr. Green will receive a cash severance payment of $11,100,000, which is equal to three times the amount of his average base salary and bonuses paid to him for the preceding two years, plus a pro-rata bonus. All of Mr. Green’s outstanding restricted stock awards, stock option awards and awards granted to him under the Outperformance Plans will fully vest at termination.  In addition, the performance hurdles with respect to the awards under the Outperformance Plans will be deemed to have been met and Mr. Green will get the full benefit of such awards. See “—Equity Compensation Plan Information—Outperformance Plans.”  In addition, he will receive a tax gross-up in respect of the vesting of his restricted stock award. The combination of the accelerated vesting and the tax gross-up results in total value to be received of $67,861,501.

·       Termination upon death. Mr. Green’s estate will receive a cash severance payment in an amount equal to a pro-rata bonus. All of Mr. Green’s outstanding restricted stock awards, stock option awards and awards granted to him under the Outperformance Plans will fully vest at termination. In addition, the performance hurdles with respect to the restricted stock and LTIP Unit awards under the Outperformance Plans will be deemed to have been met and Mr. Green will get the full benefit of such awards. See “—Equity Compensation Plan Information—Outperformance Plans.” In addition, he will receive a tax gross-up in respect of the vesting of his restricted stock award. The combination of the accelerated vesting and the tax gross-up results in total value to be received of $67,861,501.

As a result of our extraordinary and industry leading increase in share price through December 31, 2006 (314.0%) from the time we executed this employment agreement in August 2002 and the fact that we have designed our retention policy, in part, through significant back-end vesting requirements to the executive’s equity-based awards, certain of these termination and Change-in-Control provisions result in significant payments in the event of certain termination events or a Change-in-Control. We have designed our equity-based awards to encourage retention and continued performance. As a result, the executive would suffer a material economic forfeiture should the executive leave our employment without Good Reason.

39




Marc Holliday.   Marc Holliday’s amended and restated employment and non-competition agreement, dated as of January 1, 2004, or the Prior Agreement, was subsequently amended and restated on April 16, 2007. The agreement has a term of six years commencing on January 1, 2004 and ending on January 17, 2010, which will automatically renew for successive one-year periods unless either party serves the required notice under the agreement. The agreement provides for an annual salary of at least $600,000, to be adjusted upwards every two years to correspond to increases in the consumer price index, and such discretionary annual bonuses as we, in our sole discretion, may deem appropriate to reward Mr. Holliday for job performance. Pursuant to the Prior Agreement, Mr. Holliday received a grant of 175,000 shares of restricted common stock in addition to the 127,500 shares of restricted common stock that were outstanding at the time. The shares under these restricted stock grants are subject to time-based vesting based on continued employment and, with respect to a total of 238,750 of these shares, performance-based vesting criteria. The shares vest or vested in accordance with the following schedule:

Vesting Date

 

 

 

Time-Based Vesting Shares

 

Time- and Performance-Based
Vesting Shares

 

July 17, 2004

 

 

14,583

*

 

 

25,417

 

 

July 17, 2005

 

 

14,583

*

 

 

25,417

 

 

July 17, 2006

 

 

14,583

*

 

 

25,417

 

 

July 17, 2007

 

 

14,583

 

 

 

35,417

 

 

July 17, 2008

 

 

14,583

 

 

 

45,417

 

 

July 17, 2009

 

 

14,585

 

 

 

45,417

 

 

January 17, 2010

 

 

0

 

 

 

12,498

 

 


*                    All shares have vested as of December 31, 2006.

The performance-based vesting each year is based on the achievement of either of the following financial performance goals during the prior year (or on a cumulative basis since 2001, with respect to 127,500 of the shares, or 2003, with respect to the remaining 87,500 shares): (i) 7% or greater increase in funds from operations on a per-share basis and a 10% or greater total return to stockholders or (ii) total return to stockholders in the top one-third of a peer group of companies determined each year by our Compensation Committee. The Prior Agreement also provided for a signing bonus of 95,000 shares of our restricted stock that were immediately vested, subject to a prohibition on disposition for two years. Mr. Holliday is also entitled to cash payments intended to serve as a tax gross-up upon the vesting of the shares of restricted stock granted under his agreement in an amount equal to 40% of the value of the shares vesting. Under the agreement, we are also obligated to maintain a life insurance policy for the benefit of Mr. Holliday’s beneficiaries in the face amount of $10 million, or if not available at reasonable rates, to self-insure Mr. Holliday up to the maximum cash severance payable under the agreement. Pursuant to the agreement, if Mr. Holliday is terminated for any reason, he will be subject to the following obligations: (i) noncompetition with our company for 18 months (or one year if employment is terminated due to a non-renewal of the term of employment or two years if Mr. Holliday terminates his employment without Good Reason); (ii) nonsolicitation of our employees for two years (unless employment is terminated by us without Cause or Mr. Holliday with Good Reason in connection with or within 18 months after a Change-in-Control); and (iii) nondisparagement of our company and non-interference with its business for one year. In connection with a Triggering Event, Mr. Holliday will be entitled to the following payments and benefits:

·       Change-in-Control without termination. Under Mr. Holliday’s employment agreement, all of his outstanding restricted stock, Class A partnership units, or Class A Units, in our operating partnership that are convertible into shares of our common stock or cash, at our election, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest upon a Change-in-Control. In addition, he will receive, or become entitled to receive, a tax gross-up payment in cash in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units, or the Gross-Up Payment. With respect to the shares of restricted stock and Class A Units, the Gross-Up Payment

40




will equal 40% of the value of the shares vesting and will be payable upon vesting. With respect to the LTIP Units, the Gross-Up Payment will equal 20% of the value of the LTIP Units vesting and will be payable upon the redemption of the LTIP Units, which is when the tax is expected to be due by the executive officer, except that if the LTIP Units are taxed in the same manner as shares of restricted stock, the tax gross-up payment will be the same as for shares of restricted stock. The shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans and the Manager Interest and Class B Interest will fully vest upon a Change-in-Control and, as of December 31, 2006, the performance hurdles with respect to such awards would have been deemed to have been met, entitling Mr. Holliday to the full benefit of these awards. See “Equity Compensation Plan Information—Outperformance Plans and—Other Equity Incentive Awards.” The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $104,701,250. Under the employment agreement, in the event that any payment or benefit constitutes an excess “parachute payment” under Section 280G of the Internal Revenue Code subject to an excise tax, Mr. Holliday is entitled to receive a tax gross-up payment in an amount sufficient to put him in the same after-tax position (assuming the highest possible applicable tax rates applied) that he would have been in if such payment or benefit did not constitute an excess parachute payment.  The amount of this excise tax gross-up would be $13,246,718.

·       Termination with Cause or without Good Reason. Mr. Holliday will receive no payments or benefits.

·       Termination without Cause or with Good Reason. Under Mr. Holliday’s employment agreement, Mr. Holliday will receive a cash severance payment of $10,458,800, which is equal to the sum of (i) his average annual base salary in effect during the preceding 24 months, or his Average Annual Base Salary, plus (ii) a bonus equal to the average bonuses (including any equity awarded as bonus) paid to him for the two most recently completed fiscal years, or his Average Annual Cash Bonus, plus (iii) a pro-rata bonus for the year in which Mr. Holliday’s employment was terminated (and the prior year if such bonus had not yet been determined) based on Mr. Holliday’s Average Annual Cash Bonus. Under Mr. Holliday’s employment agreement, Mr. Holliday will also continue to receive his medical and welfare benefits for 12 months, the cost of which to us is projected to total in aggregate approximately $17,072. Under Mr. Holliday’s employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest at termination. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $68,127,244. Under Mr. Holliday’s employment agreement and the Outperformance Plans, Mr. Holliday will also have 12 months of additional vesting for his awards under the Outperformance Plans. Under the award agreements with respect to the Manager Interest and the Class B Interest, Mr. Holliday will be deemed to have continued his employment with respect to these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. Mr. Holliday will only be entitled to the severance payments and the acceleration of vesting of equity awards described above upon Mr. Holliday’s execution of a mutual release agreement that releases us from all claims he may have against us; provided, however, such release shall not be required if there is a termination of the executive by us without Cause or by the executive with Good Reason within 18 months of a Change-in-Control.

·       Termination in connection with a Change-in-Control. Under Mr. Holliday’s employment agreement, if Mr. Holliday is terminated by us without Cause or by Mr. Holliday for any reason in connection with or within 18 months after a Change-in-Control, Mr. Holliday will receive a cash severance payment of $31,376,400, which is equal to the sum of (i) three times the sum of his Average Annual Base Salary and Average Annual Cash Bonus, plus (ii) a pro-rata bonus for the year in which his

41




employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Holliday’s employment agreement, Mr. Holliday will receive outplacement benefits provided by a nationally-recognized outplacement firm of Mr. Holliday’s selection, for a period of up to two years following termination, subject to a maximum cost to us of $150,000, which equals 25% of his Average Annual Base Salary. Under Mr. Holliday’s employment agreement, Mr. Holliday will also continue to receive his medical and welfare benefits for 36 months, the cost of which to us is projected to total in aggregate approximately $51,215. Under Mr. Holliday’s employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest upon a Change-in-Control. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans and the Manager Interest and Class B Interest will fully vest upon a Change-in-Control and, as of December 31, 2006, the performance hurdles with respect to such awards would have been deemed to have been met, entitling Mr. Holliday to the full benefit of these awards. See “Equity Compensation Plan Information—Outperformance Plans and—Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $104,701,250. Under the employment agreement, in the event that any payment or benefit constitutes an excess “parachute payment” under Section 280G of the Internal Revenue Code subject to an excise tax, Mr. Holliday is entitled to receive a tax gross-up payment in an amount sufficient to put him in the same after-tax position (assuming the highest possible applicable tax rates applied) that he would have been in if such payment or benefit did not constitute an excess parachute payment. The amount of this excise tax gross-up would be $29,834,446.

·       Termination upon disability. Under Mr. Holliday’s employment agreement, Mr. Holliday will receive a cash severance payment of $10,458,800, which is equal to the sum of (i) his Average Annual Base Salary, plus (ii) his Average Annual Cash Bonus, plus (iii) a pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Holliday’s employment agreement, Mr. Holliday will also continue to receive his medical and welfare benefits for 36 months, the cost of which to us is projected to total in aggregate approximately $51,215. Mr. Holiday will also have 24 months of additional vesting for his outstanding restricted stock, LTIP Units and stock option awards other than those made under the Outperformance Plans, stock options granted under our Amended 1997 Stock Option and Incentive Plan or with respect to the Manager Interest or the Class B Interest. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. Further, the shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans will fully vest and, as of December 31, 2006, the performance hurdles with respect to the restricted stock and LTIP Unit awards under the Outperformance Plans would have been deemed to have been met and Mr. Holliday will get the full benefit of such awards. See “Equity Compensation Plan Information—Outperformance Plans.”  The stock options granted under our Amended 1997 Stock Option and Incentive Plan will also fully vest.  Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Holliday would have been deemed to have continued his employment with respect to two-thirds of these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. See “Equity Compensation Plan Information—Other Equity Incentive Plans.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $71,548,164. Mr. Holliday will only be entitled to the severance payments and the acceleration of vesting of equity awards described above upon Mr. Holliday’s execution of a mutual release agreement that releases us from all claims he may have against us.

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·       Termination upon death. Under Mr. Holliday’s employment agreement, Mr. Holliday’s estate will receive a cash severance equal to his pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus; provided that this amount is reduced dollar-for-dollar by the amount of proceeds received by Mr. Holliday’s beneficiaries pursuant to the life insurance we are required to maintain for him. Under Mr. Holliday’s employment agreement, Mr. Holiday will also have 24 months of additional vesting for his outstanding restricted stock, Class A Units, LTIP Units and stock option awards (other than those made under the Outperformance Plans, stock options granted under our Amended 1997 Stock Option and Incentive Plan or with respect to the Manager Interest or the Class B Interest) will vest. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. Further, the shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans will fully vest and, as of December 31, 2006, the performance hurdles with respect to the restricted stock and LTIP Unit awards under the Outperformance Plans would have been deemed to have been met and Mr. Holliday will get the full benefit of such awards. See “Equity Compensation Plan Information—Outperformance Plans.”  The stock options granted under our Amended 1997 Stock Option and Incentive Plan will also fully vest.  Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Holliday will  be deemed to have continued his employment with respect to two-thirds of these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. See “Equity Compensation Plan Information—Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $71,548,164.

As a result of our extraordinary and industry leading increase in share price through December 30, 2006 (223.5%) from the time we executed his Prior Agreement in 2004 and the fact that we have designed our retention policy, in part, through significant back-end vesting requirements to the executive’s equity-based awards, certain of these termination and Change-in-Control provisions result in significant payments in the event of certain termination events or a Change-in-Control. We have designed our equity-based awards to encourage retention and continued performance. As a result, the executive would suffer a material economic forfeiture should the executive leave our employment without Good Reason.

Gregory F. Hughes.   Gregory F. Hughes’ employment and non-competition agreement with us, dated as of February 3, 2004, was amended and restated on April 16, 2007. The agreement has a term of three years commencing on January 1, 2007, which will automatically renew for successive six-month periods unless either party serves the required notice under the agreement. The agreement provides for an annual salary of at least $500,000, which we agreed to review annually, and such discretionary annual bonuses as we, in our sole discretion, may deem appropriate to reward Mr. Hughes for job performance. The agreement also provides for an incentive cash bonus payment of either $0, $425,000 or $525,000 to be paid to Mr. Hughes in the event that GKK Manager LLC, or the Manager, our majority-owned subsidiary that serves as the external manager of Gramercy, is acquired. The amount of this bonus is based entirely on the purchase price received for the Manager in the acquisition and is only payable in connection with such an acquisition. Mr. Hughes will also receive, among other benefits, 37,000 shares of restricted stock or, at our option, Class A Units on June 1, 2007, 5,000 of which will immediately vest. The aggregate of the remaining shares or units vest as follows:  10,666 shares or units vest on January 1, 2008; 10,666 shares or units vest on January 1, 2009;  and the remaining 10,666 shares or units vest on January 1, 2010. However, the vesting of one-half of the shares or units is further conditioned upon the attainment of specified performance-based vesting criteria. The performance-based vesting each year is based on the achievement of either of the following financial performance goals during the prior year (or on a cumulative basis since 2007): (i) 7% or greater increase in funds from operations on a per-share basis and a 10% or greater total return to stockholders or (ii) total return to stockholders in the top one-third of a peer group of companies determined each year by our Compensation Committee. Mr. Hughes is also entitled to the Gross-Up

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Payment in respect of these shares or units and, prior to their issuance, payments representing the distributions that would have been received by Mr. Hughes if these shares or units had been issued on January 1, 2007. Additionally, with respect to the option to purchase 100,000 shares of Common Stock granted on February 1, 2004 with an exercise price of $43.25, 10,000 of the 30,000 shares otherwise scheduled to vest thereunder in 2009, became immediately vested upon execution of the agreement. Pursuant to the agreement, if Mr. Hughes is terminated for any reason (other than (A) non-renewal of the term of employment in the case of clause (i) below and (B) termination by us without Cause or by Mr. Hughes with Good Reason in connection with or within 18 months after a Change-in-Control in the case of clauses (i) and (ii) below), he will be subject to the following obligations: (i) noncompetition with our company for one year; (ii) nonsolicitation of our employees for two years; and (iii) nondisparagement of our company and non-interference with its business for one year. In connection with a Triggering Event, Mr. Hughes will be entitled to the following payments and benefits:

·       Change-in-Control without termination. Under Mr. Hughes’ employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest upon a Change-in-Control. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans and the Manager Interest and Class B Interest will fully vest upon a Change-in-Control and, as of December 31, 2006, the performance hurdles with respect to such awards would have been deemed to have been met, entitling Mr. Hughes to the full benefit of these awards. See “—Equity Compensation Plan Information—Outperformance Plans and —Other Equity Incentive Awards.” The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $26,851,213. Under the employment agreement, in the event that any payment or benefit constitutes an excess “parachute payment” under Section 280G of the Internal Revenue Code subject to an excise tax, Mr. Hughes is entitled to receive a tax gross-up payment in an amount sufficient to put him in the same after-tax position (assuming the highest possible applicable tax rates applied) that he would have been in if such payment or benefit did not constitute an excess parachute payment.  The amount of this excise tax gross-up would be $1,943,346.

·       Termination with Cause or without Good Reason. Mr. Hughes will receive no payments or benefits.

·       Termination without Cause or with Good Reason. Under Mr. Hughes’ employment agreement, Mr. Hughes will receive a cash severance payment of $4,445,000, which is equal to the sum of (i) his Average Annual Base Salary, plus (ii) his Average Annual Cash Bonus, plus (iii) a pro-rata bonus for the year in which Mr. Hughes’ employment was terminated (and the prior year if such bonus had not yet been determined) based on Mr. Hughes’ Average Annual Cash Bonus. Under Mr. Hughes’ employment agreement, Mr. Hughes will also continue to receive his medical and welfare benefits for 12 months, the cost of which to us is projected to total in aggregate approximately $17,072. Under Mr. Hughes’ employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest at termination. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $12,707,435. Under Mr. Hughes’ employment agreement and the Outperformance Plans, Mr. Hughes will also have 12 months of additional vesting for his awards under the Outperformance Plans. Under the award agreements with respect to the Manager Interest and the Class B Interest, Mr. Hughes will be deemed to have continued his employment with respect to these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. Mr. Hughes will only be entitled to the

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severance payments and the acceleration of vesting of equity awards described above upon Mr. Hughes’ execution of a mutual release agreement that releases us from all claims he may have against us; provided, however, such release shall not be required if there is a termination of the executive by us without Cause or by the executive with Good Reason within 18 months of a Change-in-Control.

·       Termination in connection with a Change-in-Control. Under Mr. Hughes’ employment agreement, if Mr. Hughes is terminated by us without Cause or by Mr. Hughes for any reason in connection with or within 18 months after a Change-in-Control, Mr. Hughes will receive a cash severance payment of $11,637,500, which is equal to the sum of (i) two and one-half times the sum of his Average Annual Base Salary and Average Annual Cash Bonus, plus (ii) a pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Hughes’ employment agreement, Mr. Hughes will receive outplacement benefits provided by a nationally-recognized outplacement firm of Mr. Hughes’ selection, for a period of up to two years following termination, subject to a maximum cost to us of $100,000, which equals 25% of his Average Annual Base Salary. Under Mr. Hughes’ employment agreement, Mr. Hughes will also continue to receive his medical and welfare benefits for 36 months, the cost of which to us is projected to total in aggregate approximately $51,215. Under Mr. Hughes’ employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest upon a Change-in-Control. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans and the Manager Interest and Class B Interest will fully vest upon a Change-in-Control and, as of December 31, 2006, the performance hurdles with respect to such awards would have been deemed to have been met, entitling Mr. Hughes to the full benefit of these awards. See “—Equity Compensation Plan Information—Outperformance Plans and —Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $26,851,213. Under the employment agreement, in the event that any payment or benefit constitutes an excess “parachute payment” under Section 280G of the Internal Revenue Code subject to an excise tax, Mr. Hughes is entitled to receive a tax gross-up payment in an amount sufficient to put him in the same after-tax position (assuming the highest possible applicable tax rates applied) that he would have been in if such payment or benefit did not constitute an excess parachute payment. The amount of this excise tax gross-up would be $8,135,961.

·       Termination upon disability. Under Mr. Hughes’ employment agreement, Mr. Hughes will receive a cash severance payment of $4,445,000, which is equal to the sum of (i) his Average Annual Base Salary, plus (ii) his Average Annual Cash Bonus, plus (iii) a pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Hughes’ employment agreement, Mr. Hughes will also continue to receive his medical and welfare benefits for 36 months, the cost of which to us is projected to total in aggregate approximately $51,215. Mr. Hughes will also have 12 months of additional vesting for his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans, stock options granted under our Amended 1997 Stock Option and Incentive Plan or with respect to the Manager Interest or the Class B Interest. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. Further, the shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans will fully vest and, as of December 31, 2006, the performance hurdles with respect to the restricted stock and LTIP Unit awards under the Outperformance Plans as described below would have been

45




deemed to have been met and Mr. Hughes will get the full benefit of such awards. See “—Equity Compensation Plan Information—Outperformance Plans.”  The stock options granted under our Amended 1997 Stock Option and Incentive Plan will also fully vest.  Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Hughes will  be deemed to have continued his employment with respect to two-thirds of these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. See “—Equity Compensation Plan Information—Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $19,104,138. Mr. Hughes will only be entitled to the severance payments and the acceleration of vesting of equity awards described above upon Mr. Hughes’ execution of a mutual release agreement that releases us from all claims he may have against us.

·       Termination upon death. Under Mr. Hughes’ employment agreement, Mr. Hughes’ estate will receive a cash severance payment which is equal to his pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Hughes’ employment agreement, Mr. Hughes will also have 12 months of additional vesting for outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans, stock options granted under our Amended 1997 Stock Option and Incentive Plan or with respect to the Manager Interest or the Class B Interest. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units.  Further, the shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans will fully vest and, as of December 31, 2006, the performance hurdles with respect to the restricted stock and LTIP Unit awards under the Outperformance Plans would have been deemed to have been met and Mr. Hughes will get the full benefit of such awards. See “—Equity Compensation Plan Information—Outperformance Plans.”   The stock options granted under our Amended 1997 Stock Option and Incentive Plan will also fully vest. Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Hughes will be deemed to have continued his employment with respect to two-thirds of these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. See “—Equity Compensation Plan Information—Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $19,104,138.

As a result of our extraordinary and industry leading increase in share price through December 31, 2006 (205.0%) from the time we executed his prior agreement in 2004 and the fact that we have designed our retention policy, in part, through significant back-end vesting requirements to the executive’s equity-based awards, certain of these termination and Change-in-Control provisions result in significant payments in the event of certain termination events or a Change-in-Control. We have designed our equity-based awards to encourage retention and continued performance. As a result, the executive would suffer a material economic forfeiture should the executive leave our employment without Good Reason.

Andrew Mathias.   Andrew Mathias’ employment and non-competition agreement with us, dated as of January 1, 2004, was amended and restated on April 16, 2007. The agreement has a term of four years commencing on January 1, 2007, which will automatically renew for successive six-month periods unless either party serves the required notice under the agreement. The original four year term is automatically reduced by six months if Marc Holliday does not remain employed as our Chief Executive Officer as of January 18, 2010. The agreement provides for an annual salary of at least $500,000 during the first three years of the employment term and at least $550,000 for each year thereafter, which we agreed to review annually, and such discretionary annual bonuses as we, in our sole discretion, may deem appropriate to reward Mr. Mathias for job performance. The agreement also provides for an incentive cash bonus payment of either $0, $650,000 or $800,000 to be paid to Mr. Mathias in the event that the Manager is acquired. The amount of this bonus is based entirely on the purchase price received for the Manager in the

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acquisition and is only payable in connection with such an acquisition. Mr. Mathias will also receive, among other benefits, 68,000 shares of restricted stock or, at our option, Class A Units on June 1, 2007, 10,000 of which will immediately vest. The aggregate of the remaining shares or units and the 14,000 shares of restricted common stock that were granted under Mr. Mathias’ prior employment agreement that remained outstanding at the time vest as follows:  14,000 shares vest on January 1, 2008; 21,666 shares or units vest on January 1, 2009; 16,666 shares or units vest on January 1, 2010; and the remaining 19,688 shares or units vest on January 1, 2011. However, the vesting of one-half of the shares or units and one-half of the restricted common stock is further conditioned upon the attainment of specified performance-based vesting criteria. The performance-based vesting each year is based on the achievement of either of the following financial performance goals during the prior year (or on a cumulative basis since 2004, with respect to the shares scheduled to vest on January 1, 2008, or since 2007, with respect to the other shares or units): (1) 7% or greater increase in funds from operations on a per-share basis and a 10% or greater total return to stockholders or (2) total return to stockholders in the top one-third of a peer group of companies determined each year by our Compensation Committee. Mr. Mathias is also entitled to the Gross-Up Payment in respect of these shares or units, Class A Units and shares of restricted common stock and, prior to their issuance, payments representing the distributions that would have been received by Mr. Mathias if these shares or units had been issued on January 1, 2007. Pursuant to the agreement, if Mr. Mathias is terminated for any reason (other than (A) non-renewal of the term of employment in the case of clause (i) below and (B) termination by us without Cause or by Mr. Mathias with Good Reason in connection with or within 18 months after a Change-in-Control in the case of clauses (i) and (ii) below), he will be subject to the following obligations: (i) noncompetition with our company for one year; (ii) nonsolicitation of our employees for two years; and (iii) nondisparagement of our company and non-interference with its business for one year. In connection with a Triggering Event, Mr. Mathias will be entitled to the following payments and benefits:

·       Change-in-Control without termination. Under Mr. Mathias’ employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units, and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest upon a Change-in-Control. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans and the Manager Interest and Class B Interest will fully vest upon a Change-in-Control and, as of December 31, 2006, the performance hurdles with respect to such awards would have been deemed to have been met, entitling Mr. Mathias to the full benefit of these awards. See “—Equity Compensation Plan Information—Outperformance Plans and —Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $50,527,976. Under the employment agreement, in the event that any payment or benefit constitutes an excess “parachute payment” under Section 280G of the Internal Revenue Code subject to an excise tax, Mr. Mathias is entitled to receive a tax gross-up payment in an amount sufficient to put him in the same after-tax position (assuming the highest possible applicable tax rates applied) that he would have been in if such payment or benefit did not constitute an excess parachute payment.  The amount of this excise tax gross-up would be $3,658,044.

·       Termination with Cause or without Good Reason. Mr. Mathias will receive no payments or benefits.

·       Termination without Cause or with Good Reason. Under Mr. Mathias’ employment agreement, Mr. Mathias will receive a cash severance payment of $7,555,000, which is equal to the sum of (i) his Average Annual Base Salary, plus (ii) his Average Annual Cash Bonus, plus (iii) a pro-rata bonus for the year in which Mr. Mathias’ employment was terminated (and the prior year if such bonus had not yet been determined) based on Mr. Mathias’ Average Annual Cash Bonus. Under Mr. Mathias’ employment agreement, Mr. Mathias will also continue to receive his medical and welfare benefits for 12 months, the cost of which to us is projected to total in aggregate

47




approximately $17,072. Under Mr. Mathias’ employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest at termination. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $25,605,649. Under Mr. Mathias’ employment agreement and the Outperformance Plans, Mr. Mathias will also have 12 months of additional vesting for his awards under the Outperformance Plans. Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Mathias will be deemed to have continued his employment with respect to these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. Mr. Mathias will only be entitled to the severance payments and the acceleration of vesting of equity awards described above upon Mr. Mathias’ execution of a mutual release agreement that releases us from all claims he may have against us; provided, however, such release shall not be required if there is a termination of the executive by us without Cause or by the executive with Good Reason within 18 months of a Change-in-Control.

·       Termination in connection with a Change-in-Control. Under Mr. Mathias’ employment agreement, if Mr. Mathias is terminated by us without Cause or by Mr. Mathias for any reason in connection with or within 18 months after a Change-in-Control, Mr. Mathias will receive a cash severance payment of $19,687,500, which is equal to the sum of (i) two and one-half times the sum of his Average Annual Base Salary and Average Annual Cash Bonus, plus (ii) a pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Mathias’ employment agreement, Mr. Mathias will receive outplacement benefits provided by a nationally-recognized outplacement firm of Mr. Mathias’ selection, for a period of up to two years following termination, subject to a maximum cost to us of $75,000, which equals 25% of his Average Annual Base Salary. Under Mr. Mathias’ employment agreement, Mr. Mathias will also continue to receive his medical and welfare benefits for 36 months, the cost of which to us is projected to total in aggregate approximately $51,215. Under Mr. Mathias’ employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest upon a Change-in-Control. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans and the Manager Interest and Class B Interest will fully vest upon a Change-in-Control and, as of December 31, 2006, the performance hurdles with respect to such awards would have been deemed to have been met, entitling Mr. Mathias to the full benefit of these awards.  See “—Equity Compensation Plan Information—Outperformance Plans and —Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $50,527,976. Under the employment agreement, in the event that any payment or benefit constitutes an excess “parachute payment” under Section 280G of the Internal Revenue Code subject to an excise tax, Mr. Mathias is entitled to receive a tax gross-up payment in an amount sufficient to put him in the same after-tax position (assuming the highest possible applicable tax rates applied) that he would have been in if such payment or benefit did not constitute an excess parachute payment. The amount of this excise tax gross-up would be $14,829,012.

·       Termination upon disability. Under Mr. Mathias’ employment agreement, Mr. Mathias will receive a cash severance payment of $7,555,000, which is equal to the sum of (i) his Average Annual Base Salary, plus (ii) his Average Annual Cash Bonus, plus (iii) a pro-rata bonus for the year in which his

48




employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Mathias’ employment agreement, Mr. Mathias will also continue to receive his medical and welfare benefits for 36 months, the cost of which to us is projected to total in aggregate approximately $51,215. Mr. Mathias will be also have 12 months of additional vesting for his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans, stock options granted under our Amended 1997 Stock Option and Incentive Plan or with respect to the Manager Interest or the Class B Interest. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. Further, the shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans will fully vest and, as of December 31, 2006, the performance hurdles with respect to the restricted stock and LTIP Unit awards under the Outperformance Plans will be deemed to have been met and Mr. Mathias will get the full benefit of such awards. See “—Equity Compensation Plan Information—Outperformance Plans.” The stock options granted under our Amended 1997 Stock Option and Incentive Plan will also fully vest. Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Mathias will  be deemed to have continued his employment with respect to two-thirds of these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. See “—Equity Compensation Plan Information—Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $37,989,865. Mr. Mathias will only be entitled to the severance payments and the acceleration of vesting of equity awards described above upon Mr. Mathias’ execution of a mutual release agreement that releases us from all claims he may have against us.

·       Termination upon death. Under Mr. Mathias’ employment agreement, Mr. Mathias’ estate will receive a cash severance payment which is equal to his pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Mathias’ employment agreement, Mr. Mathias will also have 12 months of additional vesting for his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans, stock options granted under our Amended 1997 Stock Option and Incentive Plan or with respect to the Manager Interest or the Class B Interest. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. Further, the shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans will fully vest and, as of December 31, 2006, the performance hurdles with respect to the restricted stock and LTIP Unit awards under the Outperformance Plans would have been deemed to have been met and Mr. Mathias will get the full benefit of such awards. See “—Equity Compensation Plan Information—Outperformance Plans.”  The stock options granted under our Amended 1997 Stock Option and Incentive Plan will also fully vest. Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Mathias will  be deemed to have continued his employment with respect to two-thirds of these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. See “—Equity Compensation Plan Information—Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $37,989,865.

·       Termination at end of employment term. Generally, Mr. Mathias is not entitled to any severance payments, continuation of benefits or acceleration of vesting of equity awards in the event that his employment is terminated as a result of the non-renewal of his employment term under his employment agreement. However, in the event that his employment term is reduced by six months because Mr. Holliday ceases to be employed as our Chief Executive Officer as of January 18, 2010 and Mr. Mathias’ employment is terminated for any reason at the end of his reduced employment

49




term, then Mr. Mathias will be entitled to pro rata time-based vesting for such six-month period under all of his outstanding restricted stock, Class a Units, LTIP Units and stock option and other equity awards to the extent to which such termination falls within the vesting periods applicable to such awards. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest.

As a result of our extraordinary and industry leading increase in share price through December 31, 2006 (223.5%) from the time we executed his prior agreement in 2004 and the fact that we have designed our retention policy, in part, through significant back-end vesting requirements to the executive’s equity-based awards, certain of these termination and Change-in-Control provisions result in significant payments in the event of certain termination events or a Change-in-Control. We have designed our equity-based awards to encourage retention and continued performance. As a result, the executive would suffer a material economic forfeiture should the executive leave our employment without Good Reason.

Andrew Levine.   Andrew Levine entered into an employment and non-competition agreement with us on April 16, 2007. The agreement has a term of three years commencing on January 1, 2007, which will automatically renew for successive six-month periods unless either party serves the required notice under the agreement. The agreement provides for an annual salary of at least $350,000, which we agreed to review annually, and such discretionary annual bonuses as we, in our sole discretion, may deem appropriate to reward Mr. Levine for job performance. The agreement also provides for an incentive cash bonus payment of either $0, $200,000 or $275,000 to be paid to Mr. Levine in the event that the Manager is acquired. The amount of this bonus is based entirely on the purchase price received for the Manager in the acquisition and is only payable in connection with such an acquisition. Mr. Levine will also receive, among other benefits, 14,000 shares of restricted stock or, at our option, Class A Units on June 1, 2007, 2,000 of which will immediately vest. The aggregate of the remaining shares or units vest as follows:  4,000 shares or units vest on January 1, 2008; 4,000 shares or units vest on January 1, 2009; and the remaining 4,000 shares or units vest on January 1, 2010. Mr. Levine is also entitled to the Gross-Up Payment in respect of these shares or units and, prior to their issuance, payments representing the distributions that would have been received by Mr. Levine if these shares or units had been issued on January 1, 2007. Pursuant to the agreement, if Mr. Levine is terminated for any reason (other than (A) non-renewal of the term of employment in the case of clause (i) below and (B) termination by us without Cause or by Mr. Levine with Good Reason in connection with or within 18 months after a Change-in-Control in the case of clauses (i) and (ii) below), he will be subject to the following obligations: (i) noncompetition with our company for one year; (ii) nonsolicitation of our employees for two years; and (iii) nondisparagement of our company and non-interference with its business for one year. In connection with a Triggering Event, Mr. Levine will be entitled to the following payments and benefits:

·       Change-in-Control without termination. Under Mr. Levine’s employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest upon a Change-in-Control. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans and the Manager Interest and Class B Interest will fully vest upon a Change-in-Control and, as of December 31, 2006, the performance hurdles with respect to such awards would have been deemed to have been met, entitling Mr. Levine to the full benefit of these awards. See “—Equity Compensation Plan Information—Outperformance Plans and —Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $9,978,153. Under the employment agreement, in the event that any payment or benefit constitutes an excess “parachute payment” under Section 280G of the Internal Revenue Code subject to an excise tax, Mr. Levine is entitled to receive a tax gross-up payment in

50




an amount sufficient to put him in the same after-tax position (assuming the highest possible applicable tax rates applied) that he would have been in if such payment or benefit did not constitute an excess parachute payment.

·       Termination with Cause or without Good Reason. Mr. Levine will receive no payments or benefits.

·       Termination without Cause or with Good Reason. Under Mr. Levine’s employment agreement, Mr. Levine will receive a cash severance payment of $1,470,000, which is equal to the sum of (i) his Average Annual Base Salary, plus (ii) his Average Annual Cash Bonus, plus (iii) a pro-rata bonus for the year in which Mr. Levine’s employment was terminated (and the prior year if such bonus had not yet been determined) based on Mr. Levine’s Average Annual Cash Bonus. Under Mr. Levine’s employment agreement, Mr. Levine will also continue to receive his medical and welfare benefits for 12 months, the cost of which to us is projected to total in aggregate approximately $17,072. Under Mr. Levine’s employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest at termination. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $3,764,639.  Under Mr. Levine’s employment agreement and the Outperformance Plans, Mr. Levine will also have 12 months of additional vesting for his awards under the Outperformance Plans.  Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Levine will be deemed to have continued his employment with respect to these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. Mr. Levine will only be entitled to the severance payments and the acceleration of vesting of equity awards described above upon Mr. Levine’s execution of a mutual release agreement that releases us from all claims he may have against us; provided, however, such release shall not be required if there is a termination of the executive by us without Cause or by the executive with Good Reason within 18 months of a Change-in-Control.

·       Termination in connection with a Change-in-Control. Under Mr. Levine’s employment agreement, if Mr. Levine is terminated by us without Cause or by Mr. Levine for any reason in connection with or within 18 months after a Change-in-Control, Mr. Levine will receive a cash severance payment of $3,215,000 which is equal to the sum of (i) two times the sum of his Average Annual Base Salary and Average Annual Cash Bonus, plus (ii) a pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on 75% of his Average Annual Cash Bonus. Under Mr. Levine’s employment agreement, Mr. Levine will receive outplacement benefits provided by a nationally-recognized outplacement firm of Mr. Levine’s selection, for a period of up to two years following termination, subject to a maximum cost to us of $75,000, which equals 25% of his Average Annual Base Salary. Under Mr. Levine’s employment agreement, Mr. Levine will also continue to receive his medical and welfare benefits for 36 months, the cost of which to us is projected to total in aggregate approximately $51,215. Under Mr. Levine’s employment agreement, all of his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans or with respect to the Manager Interest or the Class B Interest, will fully vest upon a Change-in-Control. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. The shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans and the Manager Interest and Class B Interest will fully vest upon a Change-in-Control and, as of December 31, 2006, the performance hurdles with respect to such awards would have been deemed to have been met, entitling Mr. Levine to the full benefit of these awards.  See “—Equity Compensation Plan Information—Outperformance Plans and —Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $9,978,153. Under the

51




employment agreement, in the event that any payment or benefit constitutes an excess “parachute payment” under Section 280G of the Internal Revenue Code subject to an excise tax, Mr. Levine is entitled to receive a tax gross-up payment in an amount sufficient to put him in the same after-tax position (assuming the highest possible applicable tax rates applied) that he would have been in if such payment or benefit did not constitute an excess parachute payment. The amount of this excise tax gross-up would be $2,292,600.

·       Termination upon disability. Under Mr. Levine’s employment agreement, Mr. Levine will receive a cash severance payment of $1,470,000, which is equal to the sum of (i) his Average Annual Base Salary, plus (ii) his Average Annual Cash Bonus, plus (iii) a pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Levine’s employment agreement, Mr. Levine will also continue to receive his medical and welfare benefits for 36 months, the cost of which to us is projected to total in aggregate approximately $51,215. Mr. Levine will also have six months of additional vesting for his outstanding restricted stock, Class A Units, LTIP Units and stock option awards, other than those made under the Outperformance Plans, stock options granted under our Amended 1997 Stock Option and Incentive Plan or with respect to the Manager Interest or the Class B Interest. In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. Further, the shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans will fully vest and, as of December 31, 2006, the performance hurdles with respect to the restricted stock and LTIP Unit awards under the Outperformance Plans will be deemed to have been met and Mr. Levine will get the full benefit of such awards. See “—Equity Compensation Plan Information—Outperformance Plans.” The stock options granted under our Amended 1997 Stock Option and Incentive Plan will also fully vest. Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Levine will  be deemed to have continued his employment with respect to two-thirds of these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to such awards. See “—Equity Compensation Plan Information—Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $7,013,915. Mr. Levine will only be entitled to the severance payments and the acceleration of vesting of equity awards described above upon Mr. Levine’s execution of a mutual release agreement that releases us from all claims he may have against us.

·       Termination upon death. Under Mr. Levine’s employment agreement, Mr. Levine’s estate will receive a cash severance payment which is equal to his pro-rata bonus for the year in which his employment was terminated (and the prior year if such bonus had not yet been determined) based on his Average Annual Cash Bonus. Under Mr. Levine’s employment agreement, Mr. Levine will also have six months of additional vesting for his outstanding restricted stock, Class A Units, LTIP Units, and stock option awards, other than those made under the Outperformance Plans, stock options granted under our Amended 1997 Stock Option and Incentive Plan or with respect to the Manager Interest or the Class B Interest.  In addition, he will receive, or become entitled to receive, the Gross-Up Payment in respect of the vesting of these shares of restricted stock, Class A Units and LTIP Units. Further, the shares of restricted stock and LTIP Units issued or issuable under the Outperformance Plans will fully vest and, as of December 31, 2006, the performance hurdles with respect to the restricted stock and LTIP Unit awards under the Outperformance Plans would have been deemed to have been met and Mr. Levine will get the full benefit of such awards. See “—Equity Compensation Plan Information—Outperformance Plans.” The stock options granted under our Amended 1997 Stock Option and Incentive Plan will also fully vest.  Under the award agreements with respect to the Manager Interest and Class B Interest, Mr. Levine will  be deemed to have continued his employment with respect to two-thirds of these awards but will recognize no value until a measurement date occurs and the performance hurdles have been met with respect to

52




such awards. See “—Equity Compensation Plan Information—Other Equity Incentive Awards.”  The combination of the accelerated vesting and the Gross-Up Payment results in total value to be received of $7,013,915.

As a result of our extraordinary and industry leading increase in share price through December 31, 2006 (379.5%) from the time we executed his Prior Agreement in 2000 and the fact that we have designed our retention policy, in part, through significant back-end vesting requirements to the executive’s equity-based awards, certain of these termination and Change-in-Control provisions result in significant payments in the event of certain termination events or a Change-in-Control. We have designed our equity-based awards to encourage retention and continued performance. As a result, the executive would suffer a material economic forfeiture should the executive leave our employment without Good Reason.

Equity Compensation Plan Information

The following table summarizes information, as of December 31, 2006, relating to our equity compensation plans pursuant to which shares of our common stock or other equity securities may be granted from time to time.

Plan category

 

 

 

Number of securities
to be issued upon
exercise of outstanding
options, warrants
and rights

 

Weighted average
exercise price of
outstanding options,
warrants and rights

 

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))

 

 

 

(a)

 

(b)

 

(c)

 

Equity compensation plans approved by security holders(1)

 

 

1,636,810

 

 

 

$

58.62

 

 

 

614,097

(3)

 

Equity compensation plans not approved by security holders(2)

 

 

1,333

 

 

 

$

18.44

 

 

 

0

 

 

Total

 

 

1,638,143

 

 

 

$

58.59

 

 

 

614,097

 

 


(1)          Includes information related to our 2005 Stock Option and Incentive Plan and Amended 1997 Stock Option and Incentive Plan, as amended.

(2)          Certain of our employees, most of whom were executive officers, were granted an aggregate of 435,000 options as part of their initial employment agreements entered into at the time the employees first joined our company. The options have a weighted average exercise price of $24.61. A substantial portion of the options were issued during or before calendar year 2000 and no option grants have been made outside of our Amended 1997 Stock Option and Incentive Plan, as amended, subsequent to February 2001, or outside of our 2005 Stock Option and Incentive Plan.

(3)          Balance is after reserving for shares to be issued under our 2003 Long-Term Outperformance Compensation Program.

As of the record date, the number of securities to be issued upon exercise of outstanding options, warrants and rights is equal to 1,670,222, the weighted average exercise price of outstanding options, warrants and rights is equal to $78.98, the weighted average term is equal to 8.05 years and the number of securities remaining available for future issuance is equal to 393,919. In addition, a total of 606,734 shares of restricted stock are outstanding, of which 262,030 shares of restricted stock are subject to performance-based vesting and 344,704 shares are of restricted stock are subject to time-based vesting. For purposes of the outstanding performance-based awards, the performance measures are (i) 7% FFO growth, (ii) 10% total return to stockholders or (iii) total return to stockholders in the top one-third of our “peer group.” For these purposes, “peer group” shall have the meaning set forth on Exhibit A to our Amended and Restated 2005 Stock Option and Incentive Plan, a copy of which is attached as Appendix A to this proxy statement. Such “peer group” may not change with respect to any particular award.

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2005 Stock Option and Incentive Plan

At the March 2005 meeting of our Board of Directors, our Board adopted, and our stockholders ratified, a long-term, ten-year compensation program for certain employees, directors, officers, advisors, consultants and other personnel, and any of our joint venture affiliates. Our Compensation Committee may provide that any of our joint venture affiliates and employees of the foregoing may be eligible to participate in the equity incentive plan. Our Compensation Committee has the authority to administer and interpret the equity incentive plan, to authorize the granting of awards, to determine the eligibility of an employee, director or consultant to receive and award, to determine the number of shares of common stock to be converted by each award, to determine the terms, provisions and conditions of each award, to prescribe the form of instruments evidencing awards and to take any other actions and make all other determinations that it deems necessary or appropriate. Our Compensation Committee, in its discretion, may delegate to our Chief Executive Officer all or part of the Committee’s authority and duties with respect to awards.

Subject to adjustments upon certain corporate transactions or events, up to a maximum of 3,500,000 shares (the “fungible pool limit”), may be subject to options, restricted stock, phantom shares, dividend equivalent rights and other equity-based awards under our equity incentive plan; however, the manner in which the fungible pool limit is finally determined can ultimately result in the issuance under our equity incentive plan of up to 4,375,000 shares (subject to adjustments upon certain corporate transactions or events). Any common stock withheld or surrendered by plan participants in connection with the payment of an option exercise price or in connection with tax withholding will not count towards the share limitation and will be available for issuance under the equity incentive plan. If an option or other award granted under the equity incentive plan expires or terminates, the common stock subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards. Unless the equity incentive plan is previously terminated by our Board of Directors, no new award may be granted under the equity incentive plan after the tenth anniversary of the date that such plan was initially approved by our board of directors. No award may be granted under our equity incentive plan to any person who, assuming exercise of all options and payment of all awards held by such person, would own or be deemed to own more than 9.8% of our outstanding common stock. In addition, subject to adjustment upon certain corporate transactions or events, a participant may not receive awards in any one year covering more than 700,000 shares (based on the fungible pool limit, depending on the type of grant involved, as many as 875,000 shares can be the subject of option grants to any one person in any year, and as many as 269,230 shares may be granted as restricted stock (or be the subject of other full-value grants)) to any one person in any year. At December 31, 2006, approximately 1,100,000 shares of our common stock, calculated on a weighted average basis, were available for issuance under our equity incentive plan, or 1,400,000 if all shares available under our equity incentive plan were issued as five-year options.

Outperformance Plans

2003 Long-Term Outperformance Compensation Program.   We have a long-term, seven-year compensation program, or our 2003 Outperformance Plan, for certain members of senior management. Our 2003 Outperformance Plan, which measures our performance over a 48-month period (unless terminated earlier) commencing April 1, 2003, provides that holders of our common equity are to achieve a 40% total return, or baseline return, during the measurement period over a base share price of $30.07 per share before any restricted stock awards are granted. Plan participants will receive an award of restricted stock in an amount between 8% and 10% of the excess total return over the baseline return. At the end of the four-year measurement period, 40% of the award will vest on the measurement date and 60% of the award will vest ratably over the subsequent three years based on continued employment. The total value of the award under our 2003 Outperformance Plan is capped at $25.5 million. Any restricted stock to be issued under our 2003 Outperformance Plan will be allocated under our Amended 1997 Stock

54




Option and Incentive Plan, as amended, which was previously approved through a stockholder vote in May 2002. Compensation expense of $0.65 million related to this plan was recorded during the year ended December 31, 2006.

In the event of a change in control of our company prior to March 31, 2007, the performance period will be shortened to end on a date immediately prior to such event and the common stockholder return benchmark will be adjusted on a pro rata basis. The performance pool will be formed as described above and if the adjusted benchmark target is achieved, fully vested awards will be issued. If a change in control occurs after the performance period has ended, all unvested awards issued under our 2003 Outperformance Plan will fully vest upon a change in control.

On April 6, 2007, our Compensation Committee determined that under the terms of our 2003 Outperformance Plan, the maximum performance pool of $22,825,000, taking into account forfeitures, was established. In connection with this event, approximately 166,312 shares of restricted stock (as adjusted for forfeitures) were allocated under our 2005 Stock Option and Incentive Plan.

2005 Long-Term Outperformance Compensation Plan.   In December 2005, our Compensation Committee approved a long-term incentive compensation program, our 2005 Outperformance Plan. Participants in our 2005 Outperformance Plan were to share in a “performance pool” if our total return to stockholders for the period from December 1, 2005 through November 30, 2008 exceeded a cumulative total return to stockholders of 30% during the measurement period over a base share price of $68.51 per share. The size of the pool was to be 10% of the outperformance amount in excess of the 30% benchmark, subject to a maximum dilution cap equal to the lesser of 3% of our outstanding shares and units of limited partnership interest as of December 1, 2005 or $50.0 million. In the event the potential performance pool reached this dilution cap before November 30, 2008 and remained at that level or higher for 30 consecutive days, the performance period was to end early and the pool was to be formed on the last day of such 30-day period. Each participant’s award under the 2005 Outperformance Plan would be designated as a specified percentage of the aggregate performance pool to be allocated to him or her. Individual awards would be made in the form of partnership units, or LTIP Units, that may ultimately become exchangeable for shares of our common stock or cash, at our election. LTIP Units would be granted prior to the determination of the performance pool; however, they were only to vest upon satisfaction of performance and other thresholds, and were not entitled to distributions until after the performance pool was established. Our 2005 Outperformance Plan provides that if the pool was established, each participant would also be entitled to the distributions that would have been paid on the number of LTIP Units earned, had they been issued at the beginning of the performance period. Those distributions were to be paid in the form of additional LTIP Units. After the performance pool was established, the earned LTIP Units are to receive regular quarterly distributions on a per unit basis equal to the dividends per share paid on our common stock, whether or not they are vested. Any LTIP Units not earned upon the establishment of the performance pool were to be automatically forfeited, and the LTIP Units that are earned are subject to time-based vesting, with one-third of the LTIP Units earned vesting on November 30, 2008 and each of the first two anniversaries thereafter based on continued employment.

If a change in control occurs after the performance period has ended, all LTIP Units that were earned under our 2005 Outperformance Plan will fully vest upon the change in control.

On June 14, 2006, our Compensation Committee determined that under the terms of our 2005 Outperformance Plan, as of June 8, 2006, the performance period had accelerated and the maximum performance pool of $49,250,000, taking into account forfeitures, was established. Individual awards under our 2005 Outperformance Plan are in the form of partnership units, or LTIP Units, in our operating partnership, that, subject to certain conditions, are convertible into shares of our common stock or cash, at our election. The total number of LTIP Units earned by all participants as a result of the establishment of the performance pool was 490,475 and are subject to time-based vesting. The cost of our 2005 Outperformance Plan (approximately $8.0 million, subject to adjustment for forfeitures) will continue to

55




be amortized into earnings through the final vesting period in accordance with SFAS 123R. We recorded approximately $2.0 million of compensation expense during the year ended December 31, 2006 in connection with our 2005 Outperformance Plan.

2006 Long-Term Outperformance Compensation Program.   On August 14, 2006, our Compensation Committee approved a long-term incentive compensation program, or our 2006 Outperformance Plan. Participants in our 2006 Outperformance Plan will share in a “performance pool” if our total return to stockholders for the period from August 1, 2006 through July 31, 2009 exceeds a cumulative total return to stockholders of 30% during the measurement period over a base share price of $106.39 per share. The size of the pool will be 10% of the outperformance amount in excess of the 30% benchmark, subject to a maximum award of $60.0 million. The maximum award will be reduced by the amount of any unallocated or forfeited awards. In the event the potential performance pool reaches the maximum award before July 31, 2009 and remains at that level or higher for 30 consecutive days, the performance period will end early and the pool will be formed on the last day of such 30 day period. Each participant’s award under our 2006 Outperformance Plan will be designated as a specified percentage of the aggregate performance pool. Assuming the 30% benchmark is achieved, the pool will be allocated among the participants in accordance with the percentage specified in each participant’s participation agreement. Individual awards will be made in the form of partnership units, or LTIP Units, that, subject to vesting and the satisfaction of other conditions, are exchangeable for a per unit value equal to the then trading price of one share of our common stock. This value is payable in cash or, at our election, in shares of common stock. LTIP Units are granted prior to the determination of the performance pool; however, they will only vest upon satisfaction of performance and time vesting thresholds under our 2006 Outperformance Plan, and will not be entitled to distributions until after the performance pool is established. Distributions on LTIP Units will equal the dividends paid on our common stock on a per unit basis. Our 2006 Outperformance Plan provides that if the pool is established, each participant will also be entitled to the distributions that would have been paid had the number of earned LTIP Units been issued at the beginning of the performance period. Those distributions will be paid in the form of additional LTIP Units. Thereafter, distributions will be paid currently with respect to all earned LTIP Units that are a part of the performance pool, whether vested or unvested. Although the amount of earned awards under our 2006 Outperformance Plan (i.e. the number of LTIP Units earned) will be determined when the performance pool is established, not all of the awards will vest at that time. Instead, one-third of the awards will vest on July 31, 2009 and each of the first two anniversaries thereafter based on continued employment.

In the event of a change in control of our company prior to August 1, 2007, the performance period will be shortened to end on a date immediately prior to such event and the cumulative stockholder return benchmark will be adjusted on a pro rata basis. In the event of a change in control of our company on or after August 1, 2007 but before July 31, 2009, the performance pool will be calculated assuming the performance period ended on July 31, 2009 and the total return continued at the same annualized rate from the date of the change in control to July 31, 2009 as was achieved from August 1, 2006 to the date of the change in control; provided that the performance pool may not exceed 200% of what it would have been if it was calculated using the total return from August 1, 2006 to the date of the change in control and a pro rated benchmark. In either case, the performance pool will be formed as described above if the adjusted benchmark target is achieved and all earned awards will be fully vested upon the change in control. If a change in control occurs after the performance period has ended, all unvested awards issued under our 2006 Outperformance Plan will become fully vested upon the change in control.

The cost of our 2006 Outperformance Plan (approximately $9.6 million, subject to adjustment for forfeitures) will be amortized into earnings through the final vesting period in accordance with SFAS 123R. We recorded approximately $1.1 million of compensation expense during the year ended December 31, 2006 in connection with our 2006 Outperformance Plan.

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Other Equity Incentive Awards.   In May 2005, our Compensation Committee approved long-term incentive performance awards pursuant to which certain of our officers and employees, including some of whom are our senior executive officers, were awarded a portion of the interests previously held by us in the Manager as well as in the Class B limited partner interests in Gramercy’s operating partnership. After giving effect to these awards, we own 65.83 units of the Class B limited partner interests and 65.83% of the Manager. The officers and employees who received these awards own 15.75 units of the Class B limited partner interests and 15.75% of the Manager. These awards provide for three-year cliff vesting based on continued employment and achievement of performance hurdles. The performance hurdle is measured over the period, or the restricted period, beginning May 19, 2005 and ending on the earlier of (i) May 18, 2008, (ii) a Change of Control or (iii) a “Sale Event” of Gramercy (as defined in the operating agreement of the Manager). The performance hurdle will be met if as a result of one of the three described triggering events, we achieve (i) a rate of return on our weighted average cash investment during the restricted period (inclusive of cash and stock dividends, stock appreciation, income of the Manager and all other income earned by us as a result of our investment in Gramercy) of 36%, as adjusted under certain circumstances; and (ii) we achieve either (a) a total return to stockholders equal to or greater than 30%, as adjusted under certain circumstances, (b) funds from operations growth equal to or greater than 21%, as adjusted under certain circumstances, and (iii) average total return to stockholders growth in the top 25% of an identified peer group. During the restricted period we will hold all cash or other distributions payable on these awards which will be released to the grantee upon vesting (without interest) or forfeited upon a forfeiture of the awards. If prior to a trigger event, a grantee’s employment with us is terminated (i) as a result of death or disability, a pro rata percentage of the award (based on each year or partial year of employment of grantee during the restricted period) will become time vested but will continue to be subject to the performance hurdles as if the grantee were still employed by us; or (ii) without Cause or for Good Reason, the award will become time vested but will continue to be subject to the performance hurdle as if the grantee were still employed by us. Except as provided above, upon a termination of a grantee’s employment, the awards will be forfeited. Upon achievement of the performance hurdle, the awards will be deemed vested.

Gramercy Capital Corp. Equity Awards.   Certain of our named executive officers are also executive officers of Gramercy. The Compensation Committee of the board of directors of Gramercy has granted equity awards, including restricted stock awards, stock options and performance awards, to these executive officers under Gramercy’s equity incentive plan and outperformance plan, as applicable. Our employment agreements with these named executive officers provide for accelerated vesting under certain circumstances if their employment with us is terminated or if we experience a change in control. For a discussion of these awards, please refer to Gramercy’s proxy statement in connection with its 2007 annual meeting of stockholders that is filed with the SEC.

Compensation Committee Interlocks and Insider Participation

There are no Compensation Committee interlocks and none of our employees participates on the Compensation Committee.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of common stock, as of March 20, 2007, for (1) each person known to us to be the beneficial owner of more than 5% of our company’s outstanding common stock, (2) each of our directors and nominees for director, (3) each of our named executive officers who is not a director and (4) our directors, nominees for director and executive officers as a group. Except as otherwise described in the notes below, the following beneficial owners have sole voting power and sole investment power with respect to all shares of common stock set forth opposite their respective names.

Name**

 

Amount And
Nature of
Beneficial
Ownership of
Common Stock(1)

 

Percent of
Total(2)

 

John H. Alschuler, Jr.

 

 

29,352

(3)

 

 

*

 

 

Edwin Thomas Burton, III

 

 

25,136

(4)

 

 

*

 

 

Stephen L. Green

 

 

1,893,252

(5)

 

 

3.1

%

 

Marc Holliday

 

 

465,000

(6)

 

 

*

 

 

John S. Levy

 

 

60,001

(7)

 

 

*

 

 

Andrew Mathias

 

 

115,750

 

 

 

*

 

 

Andrew S. Levine

 

 

25,000

(8)

 

 

*

 

 

Gregory F. Hughes

 

 

18,012

 

 

 

*

 

 

AMVESCAP PLC(9)

 

 

2,667,390

 

 

 

4.5

%

 

EARNEST Partners, LLC(10)

 

 

2,265,273

 

 

 

4.4

%

 

Stichting Pensioenfonds ABP(11)

 

 

2,012,533

 

 

 

3.4

%

 

Deutsche Bank AG (12)

 

 

2,894,650

 

 

 

4.9

%

 

The Vanguard Group, Inc. (13)

 

 

3,056,844

 

 

 

5.2

%

 

ING Groep N.V. (14)

 

 

3,419,294

 

 

 

5.8

%

 

All Directors and Executive Officers as a Group (8 Persons)

 

 

2,631,503

 

 

 

4.3

%

 


*                      Less than 1% of class.

**                 Unless otherwise indicated, the business address is 420 Lexington Avenue, New York, New York 10170.

             (1)  For purposes of this table, a person is deemed to have “beneficial ownership” of the number of shares of common stock that such person has the right to acquire pursuant to the exercise of stock options exercisable within 60 days or pursuant to the redemption of units of limited partnership interests, or units, in our operating partnership, SL Green Operating Partnership, L.P., a Delaware limited partnership, of which SL Green Realty Corp. is the general partner (assuming we elect to issue common stock rather than pay cash upon such redemption). Pursuant to the terms of the First Amended and Restated Agreement of Limited Partnership of our operating partnership, dated as of August 20, 1997, as amended, upon a notice of redemption from a unit holder, our operating partnership is obligated to redeem units for cash or, at our option, on a one-for-one basis for shares of common stock, subject to certain limitations.

             (2)  As of March 20, 2007, 59,180,818 shares of common stock were outstanding. For purposes of computing the percentage of outstanding shares of common stock held by each person, any share of common stock which such person has the right to acquire pursuant to the exercise of stock options exercisable within 60 days or pursuant to the redemption of units (assuming we elect to issue common stock rather than pay cash upon redemption) is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

             (3)  Includes 24,000 shares of common stock subject to options exercisable within 60 days after March 20, 2007 and 3,563 phantom units.

             (4)  Includes 6,000 shares of common stock subject to options exercisable within 60 days after March 20, 2007 and 5,347 phantom units.

             (5)  Includes 1,367,287 shares held directly or indirectly through certain partnerships and other similar entities and includes 383,000 shares of common stock subject to options exercisable within 60 days after March 20, 2007.

             (6)  Includes 52,000 shares of common stock subject to options exercisable within 60 days after March 20, 2007.

             (7)  Includes 54,000 shares of common stock subject to options exercisable within 60 days after March 20, 2007 and 5,174 phantom units.

             (8)  Includes 6,000 shares of common stock subject to options exercisable within 60 days after March 20, 2007.

             (9)  The business address for this stockholder is 11 Devonshire Square, London, England EC2M 4YR. Pursuant to a Schedule 13G filed with the SEC, as of February 14, 2007, this stockholder may have direct or indirect voting and/or investment discretion over these shares of common stock which

58




are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience.

        (10)  The business address for this stockholder is 75 Fourteenth Street, Suite 2300, Atlanta, Georgia 30309. Pursuant to a Schedule 13G filed with the SEC, as of September 11, 2006, this stockholder may have direct or indirect voting and/or investment discretion over these shares of common stock which are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience.

        (11)  The business address for this stockholder is Oude Lindestraat 70, Postbus 2889, 6401 DL Heerlen, The Kingdom of the Netherlands. Pursuant to a Schedule 13G filed with the SEC, as of February 13, 2007, this stockholder may have direct or indirect voting and/or investment discretion over these shares of common stock which are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience.

        (12)  The business address for this stockholder is Taunusanlage 12, D-60325 Frankfurt am Main, Federal Republic of Germany. Pursuant to a Schedule 13G filed with the SEC, as of February 9, 2007, this stockholder may have direct or indirect voting and/or investment discretion over these shares of common stock which are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience.

        (13)  The business address for this stockholder is 100 Vanguard Blvd., Malvern, PA 19355. Pursuant to a Schedule 13G filed with the SEC, as of February 14, 2007, this stockholder may have direct or indirect voting and/or investment discretion over these shares of common stock which are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience.

        (14)  The business address for this stockholder is Amstelveenseweg 500, 1081 KL Amsterdam, The Kingdom of the Netherlands. Pursuant to a Schedule 13G filed with the SEC, as of February 14, 2007, this stockholder may have direct or indirect voting and/or investment discretion over these shares of common stock which are held for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. This stockholder is reporting the combined holdings of the entities for the purpose of administrative convenience.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE. Officers, directors and persons who own more than 10% of a registered class of our equity securities are required by the SEC regulation to furnish us with copies of all Section 16(a) forms that they file. To our knowledge, based solely on review of the copies of such reports furnished to us, all Section 16(a) filing requirements applicable to our executive officers, directors and persons who own more than 10% of a registered class of our equity securities were satisfied except that each of Marc Holliday, our President and Chief Executive Officer, Edwin Thomas Burton, III, one of our directors, John H. Alschuler, Jr., one of our directors, and John S. Levy, one of our directors, did not timely file one Form 4 to report one transaction.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Policies and Procedures With Respect to Related Party Transactions

It is the policy of our Board of Directors that all related party transactions (generally, transactions involving amounts exceeding $120,000 in which a related party (directors and executive officers or their immediate family members, or stockholders owning 5% of more of our outstanding stock)) shall be subject to approval or ratification in accordance with the following procedures.

Our Nominating and Corporate Governance Committee shall review the material facts of all related party transactions that require its approval and either approve or disapprove of the entry into the related party transaction, subject to some exceptions. If advance approval of a related party transaction is not feasible, then the related party transaction shall be considered and, if the Nominating and Corporate Governance Committee determines it to be appropriate, ratified at the next regularly scheduled meeting of the Nominating and Corporate Governance Committee. In determining whether to approve or ratify a related party transaction, the Nominating and Corporate Governance Committee will take into account, among other factors it deems appropriate, whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction.

No director shall participate in any discussion or approval of a related party transaction for which he or she is a related party, except that the director shall provide all material information concerning the related party transaction to the Nominating and Corporate Governance Committee.

If a related party transaction will be ongoing, the Nominating and Corporate Governance Committee may establish guidelines for our management to follow in its ongoing dealings with the related party. Thereafter, the Nominating and Corporate Governance Committee, on at least an annual basis, shall review and assess ongoing relationships with the related party to see that they are in compliance with the Nominating and Corporate Governance Committee’s guidelines and that the related party transaction remains appropriate.

All related party transactions shall be disclosed in our applicable filings with the SEC as required under SEC rules.

Cleaning/Security/Messenger and Restoration Services

Through Alliance Building Services, or Alliance, First Quality Maintenance, L.P., or First Quality, provides cleaning, extermination and related services, Classic Security LLC provides security services, Bright Star Couriers LLC provides messenger services, and Onyx Restoration Works provides restoration services with respect to certain of the properties owned by us. Alliance is owned by Gary Green, a son of Stephen L. Green, the chairman of our Board of Directors. First Quality also provides additional services directly to tenants on a separately negotiated basis. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. In the first quarter of 2006, First Quality expanded its space leased to 26,800 square feet of space at 70 West 36th Street pursuant to a lease that expires on December 31, 2015 and provides for annual rental payments of approximately $629,000. We paid Alliance approximately $13.6 million in 2006, $11.0 million in 2005 and $8.9 million in 2004 for these services (excluding services provided directly to tenants).

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Leases

Nancy Peck and Company leases 2,013 square feet of space at 420 Lexington Avenue, New York, New York pursuant to a lease that expired on June 30, 2005 and provided for annual rental payments of approximately $66,000. This space is now leased on a month-to-month basis. Nancy Peck and Company is owned by Nancy Peck, the wife of Stephen L. Green. The rent due under the lease was offset against a consulting fee of $11,025 per month an affiliate pays to her under a consulting agreement which is cancelable upon 30-days notice. This agreement was cancelled in July 2006.

Management Fees

S.L.  Green Management Corp. receives property management fees from certain entities in which Stephen L. Green owns an interest. The aggregate amount of fees paid to S.L. Green Management Corp. from such entities was approximately $205,000 in 2006, $209,000 in 2005 and $258,000 in 2004.

Management Indebtedness

In January 2001, Mr. Marc Holliday, then our president, received a non-recourse loan from us in the principal amount of $1.0 million pursuant to his amended and restated employment and non-competition agreement he executed at the time. This loan bore in