VORNADO REALTY TRUST 32 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Related Parties LOAN AND COMPENSATION AGREEMENTS At December 31, 2003, the loan due from Mr. Roth, in accordance with his employment arrangement, was $13,123,000 ($4,704,500 of which is shown as a reduction in shareholders’ equity). The loan bears interest at 4.49% per annum (based on the applicable Federal rate) and matures in January 2006. The Company also provided Mr. Roth with the right to draw up to $15,000,000 of additional loans on a revolving basis. Each additional loan will bear interest, payable quarterly, at the applicable Federal rate on the date the loan is made and will matur on the sixth anniversary of the loan. On May 29, 2002, Mr. Roth replaced common shares of the Company securing the Company’ outstanding loan to Mr. Roth with options to purchase common shares of the Company with a value of not less than two times the loan amount. In 2002, as a result of the decline  in the value of the options, Mr Roth supplemented the collateral with cash and marketable securities. Effective January 1, 2002, the Company extended its employment agr eement with Mr. Fascitelli for a five-year period through December 31, 2006. Pursuant to the extended employment agreement, Mr . Fascitelli is entitled to receive a deferred payment  on December 31, 2006 of 626,566 Vornado common shares which ar e valued for compensation purposes at $27,500,000 (the value of the shares on March 8, 2002, the date the extended employment agreement was executed). The shares are held  in a rabbi trust for the benefit of Mr Fascitelli and vested 100% on December 31, 2002. The extended employment agreement does not permit diversification, allows settlement of the deferred compensation obligation by delivery of these shares only,  and permits the deferred delivery of these shares. The value of these shares was amortized ratably over the one-year vesting  period as compensation expense. Pursuant to the Company’s annual compensation review in February 2002 with Joseph Macnow, the Company’s Chief Financial Officer, the Compensation Committee approved a $2,000,000 loan to Mr. Macnow, bearing interest at the applicable federal rate of 4.65% per annum and due January 1, 2006. The loan, which was funded on July 23, 2002, was made in  Pursuant to Mr. Fascitelli’s 1996 employment agreement, Mr Fascitelli became entitled to a deferred payment consisting of  $5 million in cash and a convertible obligation payable November 30, 2001, at the Company’s option, in either 919,540 common shares or the cash equivalent of their appreciated value, so long as such appreciated value is not less than $20 million. The Company delivered 919,540 shares to a rabbi trust upon execution of the 1996 employment agreement. The Company accounted for the stock compensation as a variable arrangement in accordance with Plan B of EITF No. 97-14 “Accounting for Deferred Compensation Arrangements Where Amounts Earned Ar Held in a Rabbi Trust and Invested” as the agreement permitted  settlement in either cash or common shares. Following the guidance in EITF 97-14, the Company recorded changes in the fair value of its compensation obligation with a corresponding increase in the liability “Officer’s Deferred Compensation.” Effective  as of June 7, 2001, the payment date was deferred until November 30, 2004. Effective as of December 14, 2001, the payment to Mr Fascitelli was converted into an obligation to deliver a fixed number of shares (919,540 shares), establishing a measurement date for the Company’s stock compensation obligation, accordingly the Company ceased accounting for the Rabbi Trust under Plan B of the EITF and began Plan A accounting. Under Plan A, the accumulated liability representing the value of the shares on December 14, 2001, was reclassified as a component of Shareholders’ Equity as “Deferred compensation shares earned but not yet delivered.” In addition, effective December 14, 2001 future changes in the value of the shares are no longer recognized as additional compensation expense. The fair value of this obligation was $50,345,000 at December 31, 2003. The Company has reflected this liability as Deferred Compensation Shares Not Yet Delivered in the Shareholders’ Equity section of the balance sheet. For the year ended December 31, 2001, the Company recognized approximately $4,744,000  of compensation expense of which $2,612,000 represented the appr eciation in value of the shares and $2,132,000 represented dividends paid on the shares. At December 31, 2003, loans due from Mr. Fascitelli, in accordance with his employment agreement, aggregated $8,600,000. The loans mature in December 2006 and bear interest, payable quarterly at a weighted average interest rate of 3.97% (based on the applicable Federal rate).