Document:

Exhibit 10.30

 

FIFTEENTH AMENDMENT AND MODIFICATION TO

LOAN AND SECURITY AGREEMENT

 

THIS FIFTEENTH AMENDMENT AND MODIFICATION TO LOAN AND SECURITY
AGREEMENT (the “Amendment”) is
dated October 8, 2004 by and among SHERWOOD BRANDS OF
VIRGINIA, LLC (“VA”), SHERWOOD BRANDS, LLC (“MD”), SHERWOOD BRANDS OF RI, INC. (“RI”),
ASHER CANDY, INC. (formerly known as Asher Candy
Acquisition Corporation) (“Asher”), SHERWOOD BRANDS, INC. (“Guarantor”)
and WACHOVIA BANK, NATIONAL ASSOCIATION,
formerly known as First Union National Bank (the “Lender”).  VA, MD, RI and Asher are referred to
collectively as “Borrowers” or each as a “Borrower”.

 

BACKGROUND

 

A.                                   Borrowers, Guarantor and Lender entered into that
certain Loan and Security Agreement dated June 12, 2001 (as amended by
that certain First Amendment and Modification to Loan and Security Agreement
dated April 30, 2002, that certain Second Amendment and Modification to
Loan and Security Agreement dated September 5, 2002, that certain Third
Amendment and Modification to Loan and Security Agreement dated April 7,
2003, that certain Fourth Amendment and Modification to Loan and Security
Agreement dated May 30, 2003, that certain Fifth Amendment and Modification to
Loan and Security Agreement dated July 30, 2003 (the “Fifth Amendment”),
that certain Sixth Amendment and Modification to Loan and Security Agreement
dated November 24, 2003, that certain Seventh Amendment and Modification
to Loan and Security Agreement dated February 13, 2004, that certain
Eighth Amendment and Modification to Loan and Security Agreement dated April 8,
2004, that certain Ninth Amendment and Modification to Loan and Security
Agreement dated June 11, 2004, that certain Tenth Amendment and
Modification to Loan and Security Agreement dated July 31, 2004, that
certain Eleventh Amendment and Modification to Loan and Security Agreement
dated August 20, 2004, that certain Twelfth Amendment and Modification to
Loan and Security Agreement dated August 31, 2004, that certain Thirteenth
Amendment and Modification to Loan and Security Agreement dated September 13,
2004, that certain Fourteenth Amendment and Modification to Loan and Security
Agreement dated September 30, 2004 and as the same may be further amended
from time to time, the “Loan Agreement”).

 

B.                                     Borrowers and Guarantors have requested that
Lender extend the Term and further amend the Loan Agreement in accordance with
the terms and conditions set forth herein.

 

NOW, THEREFORE, intending to be legally bound
hereby, the parties hereto agree as follows:

 

1.                                       Confirmation of Background.  Borrowers and Guarantor ratify, confirm and
acknowledge that the statements contained in the foregoing Background are true,
accurate and complete in all respects.

 

2.                                       Permitted Subsidiary.

 

 

(a)                                  Borrowers
and Guarantor have informed Lender that Guarantor has formed a wholly-owned
subsidiary known as Sherwood Brands Zip, LLC, a Maryland limited liability
company (“Sub-Transaction”).

 

(b)                                 Lender
consents to the Sub-Transaction and, solely for the purpose of avoiding the
occurrence of a default or an Event of Default, which could be caused by the
Sub-Transaction, waives Borrowers’ and Guarantor’s compliance with those
provisions of the Loan Agreement and the other Loan Documents which would
prohibit the Sub-Transaction, including, without limitation, the provisions of Section 6.15 of the Loan
Agreement.

 

(c)                                  The
foregoing consent and waiver is given solely in connection with the
Sub-Transaction and shall not be deemed to be an agreement, obligation or
commitment by Lender to consent to any other transaction which would be
prohibited by the terms and conditions of the Loan Agreement or any of the
other Loan Documents.

 

(d)                                 Borrowers
and Guarantor hereby acknowledge and agree that, except with the prior written
consent of Lender, which consent may be withheld by Lender in its sole
discretion, no Borrower or Guarantor will make any loans, advances, capital
contributions or other extensions of credit to Sherwood Brands Zip, LLC.

 

3.                                       Permitted Out-of Formula Amount.

 

(a)                                  During
the period commencing October 8, 2004 through and including November 21,
2004 only, in addition to the sums otherwise available to Borrowers as
Revolving Loans supported by the Borrowing Base, Borrowers may borrow for each
period listed in Column A below, an amount up to the amount listed in Column B
below for such period (the “Permitted Out-of-Formula
Amount”):

 

	
  Column A

  	
   

  	
  Column B

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Commencing October 8,
  2004 through and including October 31, 2004

  	
   

  	
  $

  	
  1,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Commencing November 1,
  2004 through and including November 14, 2004

  	
   

  	
  $

  	
  500,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Commencing November 15,
  2004 through and including November 21, 2004

  	
   

  	
  $

  	
  250,000.00

  	
   

  

 

(b)                                 Commencing
on November 22, 2004 and at all times thereafter, no Permitted
Out-of-Formula Amount shall be available to Borrowers.

 

(c)                                  Notwithstanding
anything in this Amendment to the contrary, in no event will the sum of the
(i) Revolving Loans and Letters of Credit supported by the Borrowing Base,
plus (ii) Revolving Loans and Letters of Credit supported by the Permitted
Out-of-Formula Amount, exceed the Maximum Revolving Credit, less any Reserves.

 

4.                                       Unused Line Fee.  Commencing September 1, 2004, Section 3.3 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:

 

2

 

“3.3                           Unused Line Fee.  Borrowers shall pay Lenders, monthly, on the
first day of each month, in arrears, an Unused Line Fee for each month during
the Term equal to .375% per annum of the amount, if any, by which the Maximum
Revolving Credit exceeds the average outstanding daily principal balance during
the preceding month of all Revolving Loans and any Letters of Credit.”

 

5.                                       Reporting Requirements.

 

(a)                                  Section 6.10(b)(i) of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:

 

“(i)                               Intentionally Deleted.”

 

(b)                                 Section 6.10 of the Loan
Agreement is hereby amended by adding the following as subsection (h)
thereto:

 

“(h)                           Borrowers shall, at their
expense and within thirty (30) days following the end of each calendar month,
deliver to Lender a compliance certificate duly completed and certified by
Borrowers’ chief executive officer or chief financial officer, demonstrating
Borrowers’ compliance with the financial covenants set forth in Section 6.19 for the
immediately preceding calendar month and showing the calculations therefor in
reasonable detail.”

 

6.                                       Financial Covenants.

 

(a)                                  Lender
hereby waives any default or Event of Default that exists or may arise under
the Loan Agreement as a result of Borrowers’ failure to comply with (i) the
Tangible Net Worth requirement set forth in Section 6.19(a)
of the Loan Agreement and (ii) the Fixed Charge Coverage Ratio set forth in Section 6.19(b) of the Loan
Agreement for the periods ended April 30, 2004 and July 31, 2004.

 

(b)                                 The
foregoing waivers apply solely to Borrowers’ failure to comply with (i) such
Tangible Net Worth  requirement and (ii)
such Fixed Charge Coverage Ratio for the periods ended April 30, 2004 and July 31,
2004 only and do not apply to or constitute a waiver of any other default,
failure or Event of Default that exists or may exist under the Loan Agreement.

 

(c)                                  Section 6.19 of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:

 

“6.19                     Financial
Covenants.  Borrowers and
Guarantor, as applicable, shall at all times comply with the following:

 

“(a)                            Borrowers shall have EBITDA
as of the end of each period listed in Column A below of the amount listed in
Column B below for such period:

 

3

 

	
  Column A

  	
   

  	
  Column B

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The three
  month period ending October 31, 2004

  	
   

  	
  at least
  $1,282,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The two
  month period ending November 30, 2004

  	
   

  	
  at least
  $2,838,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The four
  month period ending December 31, 2004

  	
   

  	
  at least
  $3,789,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The five
  month period ending January 31, 2005

  	
   

  	
  at least
  $4,012,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The six
  month period ending February 28, 2005

  	
   

  	
  at least
  $4,300,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The seven
  month period ending March 31, 2005

  	
   

  	
  at least
  $4,723,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The eight
  month period ending April 30, 2005

  	
   

  	
  at least
  $4,340,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The nine
  month period ending May 31, 2005

  	
   

  	
  at least
  $3,965,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The ten
  month period ending June 30, 2005

  	
   

  	
  at least
  $3,628,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The eleven
  month period ending July 31, 2005

  	
   

  	
  at least
  $3,303,000.00

  	
   

  

 

(b)                                 Borrower shall have
Net Excess Availability as of the date listed in Column A below of at least the
amount listed in Column B below for such date: 

 

	
  Column A

  	
   

  	
  Column B

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  October 30,
  2004

  	
   

  	
  $

  	
  not less
  than negative
 565,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  November 27,
  2004

  	
   

  	
  $

  	
  1,930,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  December 25,
  2004

  	
   

  	
  $

  	
  1,870,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  January 1,
  2005

  	
   

  	
  $

  	
  1,290,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  February 26,
  2005

  	
   

  	
  $

  	
  1,780,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  March 26,
  2005

  	
   

  	
  $

  	
  2,460,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  April 30,
  2005

  	
   

  	
  $

  	
  1,420,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  May 28, 2005

  	
   

  	
  $

  	
  1,200,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  June 25,
  2005

  	
   

  	
  $

  	
  1,090,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  July 30,
  2005

  	
   

  	
  $

  	
  590,000.00

  	
   

  

 

4

 

(c)                                  Borrowers and
Guarantor shall not, directly or indirectly, expend or commit to expend, for
fixed or capital assets (including capital lease obligations) (collectively “Capital Expenditures”) an aggregate amount in excess of One
Hundred Thousand Dollars ($100,000.00) in the fiscal year ending July 31,
2005.

 

(d)                                 As used in this
Agreement, the following terms shall have the following meanings:

 

(i) “EBITDA” means, for the applicable period, the sum of net
income of Guarantor, Borrowers and their subsidiaries (exclusive of (A)
extraordinary items of income or loss and (B) other income or expenses not
resulting directly from the core business operations of Guarantor, Borrowers or
their subsidiaries), plus amounts which, in the determination of such
net income, have been deducted for interest expense, total federal, state,
local and foreign income, value added and similar taxes, and depreciation and
amortization; all as determined in accordance with GAAP and on a consolidated
basis.

 

(ii)  “Net Excess Availability”
means, at a particular date,  undrawn
availability under the Revolving Loans after deducting all sums due and owing
to Borrowers’ trade creditors which are more than thirty (30) days past due
(unless Borrowers shall have provided evidence satisfactory to Lender that the
party due such payables has agreed to other terms), less all Reserves
established by Lender.”

 

7.                                       Inventory Sublimit.  Section 10.1(c)(i)
of the Loan Agreement is hereby deleted in its entirety and replaced with the
following:

 

“(i)                               Total Eligible Inventory                                                                  $7,500,000.00”

 

8.                                       Letter of Credit Charge.  Commencing September 1, 2004, Section 10.2(a) of the Loan
Agreement is hereby deleted in its entirety and replaced with the following:

 

	
  “(a)

  	
  Commercial
  Letters of Credit Charge

  	
  3.0% per
  annum on daily outstanding balance”

  

 

5

 

9.                                       Term.  Section 10.4
of the Loan Agreement is deleted in its entirety and replaced with the
following:

 

“10.4  Term.                              Terminating
on August 1, 2005.”

 

10.                                 Inventory.  Notwithstanding anything in the Loan
Agreement to the contrary, Out-of-Season Inventory which otherwise satisfies
all other requirements for Eligible Inventory may be included in the
calculation of the Borrowing Base; provided, however, the maximum amount of
such Out-of-Season Inventory included in the calculation of the Borrowing Base
shall not exceed Five Hundred Thousand Dollars ($500,000.00).  As used herein, “Out-of-Season
Inventory” shall mean inventory purchased or manufactured by
Borrowers for a particular holiday season, during the applicable period shown
on Exhibit “A” attached hereto.  By way of example only, inventory purchased
or manufactured by Borrowers and consisting of Christmas Canes would be
Out-of-Season Inventory for the period from December 26 through and
including March 1.

 

11.                                 Cash Collateral.

 

(a)                                  Pursuant
to the terms of that certain Amended and Restated Reimbursement Agreement,
dated as of May 1, 1997 among VA, MD, Guarantor and Lender (as amended by that
certain First Amendment to Amended and Restated Reimbursement Agreement dated February 26,
1998, that certain Second Amendment to Amended and Restated Reimbursement
Agreement dated April 11, 2000, that certain Third Amendment to Amended
and Restated Reimbursement Agreement dated July 30, 2003, that certain
Fourth Amendment to Amended and Restated Reimbursement Agreement dated of even
date herewith (the “Fourth Amendment”)
and as the same may be further amended, restated or supplemented from time to
time, the “Reimbursement Agreement”), VA agreed
to establish the LC Collateral Account (as defined in the Reimbursement
Agreement) and to maintain certain account balances in such account.  VA hereby grants to Lender a security
interest in the LC Collateral Account. 
Such funds will be held by Lender as cash collateral to secure the
payment and performance of all of the Borrowers’ Obligations.  Lender will have sole dominion and control
over all funds in the LC Collateral Account and such funds may be withdrawn
only by Lender.  Lender will have the
right to apply all or any part of such funds towards payment of any of the
Obligations.

 

(b)                                 Borrowers
hereby authorize and direct Lender, from time to time, to disburse Revolving
Loans into the LC Collateral Account to satisfy Borrower’s obligations under Section 4 of the Fourth
Amendment without further authorization from Borrowers.  Such authorization shall in no way relieve VA
of its obligation comply with Section 4
of the Fourth Amendment.

 

12.                                 Repayment of Term Loan B.  Notwithstanding any of the terms and
conditions set forth in the Loan Agreement or any of the other Loan Documents,
Borrowers shall pay to Lender the unpaid principal balance of Term Loan B, plus
all accrued and unpaid interest thereon and all fees, costs and expenses due in
connection therewith on or before March 31, 2005.

 

13.                                 Use of Non-Ordinary Income.  In addition to all other obligations of
Borrowers with respect to proceeds of Collateral, any and all cash received by
any Borrower, including, without limitation, insurance proceeds, dividends, tax
refunds, the proceeds of any asset sale (provided Lender has consented to such
sale in writing), and the proceeds of the settlement of any lawsuit shall be
delivered to Lender.  Lender may apply
any funds received under this section to payment of any of the
Obligations, whether or not due, in any order or manner as Lender determines.

 

6

 

14.                                 Subordinated Debt.

 

(a)                                  Existing
Indebtedness.  Borrowers
and Guarantors acknowledge and agree that, as of the date hereof, the
outstanding principal balance of the indebtedness of Borrowers and/or Guarantor
(i) to Lana, LLC is Three Million Five Hundred One Thousand Nine Hundred
Eighty-Six and 78/100 Dollars ($3,501,986.78) and (ii) to Ilana Frydman is Four
Hundred Sixty-Seven Thousand Eight Hundred Dollars ($467,800.00).

 

(b)                                 Obligations
to Lana, LLC

 

(i)                                     In
addition to all of the other conditions set forth in that certain Subordination
Agreement among Borrowers, Lana, LLC and Lender dated July 30, 2003 (as
amended, the “Subordination Agreement”), no
Borrowers will make, and Lana, LLC will not demand or accept, either directly
or indirectly, payment (of any kind or character) of all or any part of the
Subordinated Debt (as defined in the Subordination Agreement) until all of the
Obligations have been paid in full and Lender shall no longer have any
obligation, agreement or commitment to advance any sums to any Borrower.

 

(ii)                                  Contemporaneously
with the execution of this Amendment, Borrowers shall cause Lana, LLC to
execute and deliver to Lender an amendment to the Subordination Agreement in
form and content satisfactory to the Lender, pursuant to which Lana, LLC shall
acknowledge and agree that Lana, LLC shall not receive payment (of any kind or
character) of all or any part of the Subordinated Debt (as defined in the
Subordination Agreement) until all of the Obligations have been paid in full
and Lender shall no longer have any obligation, agreement or commitment to
advance any sums to any Borrower.

 

(c)                                  Obligations
to Ilana Frydman.

 

(i)                                     Borrowers
have received, or in the future will receive, cash proceeds of a loan or loans
from Ilana Frydman in an aggregate amount not to exceed Five Hundred Thousand
Dollars ($500,000.00) (the “Frydman Subordinated Debt”).

 

(ii)                                  Contemporaneously
with the execution of this Amendment, Borrowers shall cause Ilana Frydman to
execute and deliver to Lender a subordination agreement in form and content
satisfactory to the Lender, pursuant to which Ilana Frydman shall acknowledge
and agree that they shall not receive payment (of any kind or character) of all
or any part of the Frydman Subordinated Debt except as provided for in such
subordination agreement.

 

(d)                                 Borrowers
and Guarantor hereby acknowledge and agree that, pursuant to Section 6.25 of the Loan
Agreement, no Borrower or Guarantor shall, nor shall any of them permit their
subsidiaries to, incur or create any liability or indebtedness, including
capitalized leases, other than as provided for in Section 6.25
of the Loan Agreement.  Any previous
waivers and/or consents by Lender in connection with any indebtedness incurred
by any Borrower or Guarantor have been given solely as an accommodation to
Borrowers and Guarantor, on Borrowers’ and Guarantor’s request, and shall not
be deemed to be an agreement, obligation or commitment by Lender to waiver
and/or consent to any other indebtedness to be incurred by any Borrower or
Guarantor which would be prohibited by the terms and conditions of the Loan
Agreement or any of the other Loan Documents.

 

7

 

15.                                 Additional Reporting Requirements.  In addition to all other information required
to be delivered under the Loan Agreement:

 

(a)                                  On
or before October 31, 2004, Borrowers shall deliver to Lender a schedule,
which shall be in form satisfactory to Lender, detailing the (i) fixed assets
of Borrowers sold or moved to a location outside of the United States since July 31,
2003, (ii) fixed assets of Borrowers scheduled to be sold or moved to a
location outside of the United States, (iii) estimated sale price or appraised
value of such fixed assets and (iv) date or estimated timing of such sale or
move.  Any such sale or movement of fixed
assets shall be further subject to the terms and conditions of Section 8 of the Fifth
Amendment.

 

(b)                                 One
time every fourteen (14) days, Borrowers shall deliver to Lender a report
including (i) projections, including without limitation projected Net Excess
Availability, and cash flows on a week-by-week basis for the next succeeding
thirteen (13) week period and (ii) a cash flow statement for the immediately
preceding two (2) week period, in each case prepared by the chief financial
officer of Borrowers.  Such report shall
include an explanation of any variances between the projections previously
delivered to Lender and the actual results of operations.

 

16.                                 Amendment Fee.

 

(a)                                  Borrowers
shall pay to Lender an amendment fee in the amount of $95,000.00 (the “Amendment Fee”), which has been fully earned by Lender as
of the date hereof.

 

(b)                                 The
Amendment Fee shall be paid as follows:

 

(i)                                     $5,000.00
on the date of execution of this Amendment; and

 

(ii)                                  $90,000.00
on the earlier of (A) January 3, 2005, (B) the occurrence of an Event of
Default and demand by Lender for payment in full of the Obligations or (C)
termination of the Loan Agreement for any reason.

 

17.                                 Further Agreements and Representations.
Each Borrower and Guarantor does hereby:

 

(a)                                  ratify,
confirm and acknowledge that, as amended hereby, the Loan Agreement and the
other Loan Documents are valid, binding and in full force and effect;

 

(b)                                 covenant
and agree to perform all of such Borrower’s and Guarantor’s obligations under
the Loan Agreement and the other Loan Documents, as amended;

 

(c)                                  acknowledge
and agree that as of the date hereof, neither any Borrower nor Guarantor has
any defense, set-off, counterclaim or challenge against the payment of any sums
owing under any of the Obligations, as amended, or the enforcement of any of
the terms of the Loan Agreement or of the other Loan Documents, as amended;

 

(d)                                 acknowledge
and agree that except as heretofore disclosed to Lender by Borrowers in
writing, all representations and warranties of Borrowers and Guarantor
contained in the Loan Agreement and/or the other Loan Documents, as amended,
are true, accurate and correct on and as of the date hereof as if made on and
as of the date hereof;

 

8

 

(e)                                  represent
and warrant that, no Event of Default or event which with the delivery of
notice, passage of time or both would constitute an Event of Default exists or
will exist; and

 

(f)                                    covenant
and agree that Borrowers’ or Guarantor’s failure to comply with the terms of
this Amendment or any of the other Loan Documents shall constitute an Event of
Default under the Loan Agreement.

 

18.                                 Additional Documents; Further Assurances.  Borrowers and Guarantor covenant and agrees
to execute and deliver to Lender, or to cause to be executed and delivered to
Lender contemporaneously herewith, at the sole cost and expense of Borrowers,
all documents, agreements, statements, resolutions, certificates, consents and
information as Lender may require in connection with the matters or actions
described herein.  Borrowers and
Guarantor further covenant and agree to execute and deliver to Lender or to
cause to be executed and delivered at the sole cost and expense of Borrowers,
from time to time, any and all other documents, agreements, statements,
certificates and information as Lender shall reasonably request to evidence or
effect the terms hereof, the Loan Agreement, as amended, or any of the other
Loan Documents, or to enforce or to protect Lender’s interest in the
Collateral.  All such documents,
agreements, statements, etc., shall be in form and content acceptable to Lender
in its reasonable sole discretion.

 

19.                                 Release.  Borrowers and Guarantor acknowledge and agree
that they have no claims, suits or causes of action against Lender and hereby
remise, release and forever discharge Lender and its officers, directors,
shareholders, employees, agents, successors and assigns from any claims, suits
or causes of action whatsoever, in law or equity, which any Borrower or
Guarantor has or may have arising from any act, omission or otherwise, at any
time up to and including the date of this Amendment.

 

20.                                 Certain Fees, Costs, Expenses And Expenditures.  Borrowers will pay all of the Lender’s
expenses in connection with the review, preparation, negotiation, documentation
and closing of this Amendment and the consummation of the transactions
contemplated hereunder, including without limitation, fees, disbursements,
expenses, appraisal costs and fees and expenses of counsel retained by Lender
and all fees related to filings, recording of documents and searches, whether
or not the transactions contemplated hereunder are consummated.  Nothing contained herein shall limit in any
manner whatsoever Lender’s right to reimbursement under any of the Loan
Documents.

 

21.                                 No Further Amendment; No Course of Dealing.  Nothing contained herein constitutes an
agreement or obligation by Lender to grant any further amendments with respect
to any of the Loan Documents.  Any waiver
or implied waiver by Lender of any obligations or covenants of Borrowers,
Guarantor or any of them, under the Loan Documents is expressly terminated and
rescinded and Borrowers shall strictly perform and comply with all obligations
and covenants under the Loan Documents.

 

22.                                 Inconsistencies. To the extent of
any inconsistencies between the terms and conditions of this Amendment and the
terms and conditions of the Loan Agreement, the terms and conditions of this
Amendment shall prevail. All terms and conditions of the Loan Agreement not
inconsistent herewith shall remain in full force and effect and are hereby
ratified and confirmed by Borrowers.

 

9

 

23.                                 Construction.  Any capitalized terms used in this Amendment
not otherwise defined shall have the meaning as set forth in the Loan
Agreement.

 

24.                                 Binding Effect.  This Amendment, upon due execution hereof,
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.

 

25.                                 Governing Law.  This Amendment shall be governed and
construed in accordance with the laws of the Commonwealth of Pennsylvania.

 

26.                                 Severability.  The provisions of this Amendment and all
other Loan Documents are deemed to be severable, and the invalidity or
unenforceability of any provision shall not affect or impair the remaining
provisions which shall continue in full force and effect.

 

27.                                 No Third Party Beneficiaries.  The rights and benefits of this Amendment and
the Loan Documents shall not inure to the benefit of any third party.

 

28.                                 Headings.  The headings of the Articles, Sections,
paragraphs and clauses of this Amendment are inserted for convenience only and
shall not be deemed to constitute a part of this Amendment.

 

29.                                 Counterparts.  This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Amendment by signing
any such counterpart.

 

[SIGNATURES ON FOLLOWING PAGE]

 

10

 

IN WITNESS WHEREOF, the parties hereto,
intending to be legally bound hereby, have caused this Amendment to be executed
the day and year first above written.

 

	
  LENDER:

  	
  BORROWERS:

  
	
   

  	
   

  	
   

  
	
  WACHOVIA BANK,

  NATIONAL ASSOCIATION

  	
  SHERWOOD BRANDS OF VIRGINIA,

  LLC

  
	
   

  	
  a Virginia limited liability company

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/  George C. Kyvernitis

  	
   

  	
  By:

  	
  SHERWOOD BRANDS, INC.,

  
	
   

  	
  Georgios C. Kyvernitis, Director

  	
   

  	
  Sole Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/  Amir Frydman

  	
   

  
	
   

  	
   

  	
   

  	
  Amir Frydman

  
	
   

  	
   

  	
   

  
	
   

  	
  SHERWOOD BRANDS, LLC,

  
	
   

  	
  a Maryland limited liability company

  
	
   

  	
   

  
	
   

  	
  By:

  	
  SHERWOOD BRANDS, INC.,

  
	
   

  	
   

  	
  Sole Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Amir Frydman

  	
   

  
	
   

  	
   

  	
   

  	
  Amir Frydman

  
	
   

  	
   

  	
   

  	
  Executive Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SHERWOOD BRANDS OF RI, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Amir Frydman

  	
   

  
	
   

  	
   

  	
  Amir Frydman

  
	
   

  	
   

  	
  Executive Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ASHER CANDY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Amir Frydman

  	
   

  
	
   

  	
   

  	
  Amir Frydman

  
	
   

  	
   

  	
  Executive Vice President

  
															

 

(SIGNATURES
CONTINUED ON FOLLOWING PAGE)

 

11

 

(SIGNATURES CONTINUED FROM PREVIOUS PAGE)

 

	
   

  	
  GUARANTOR:

  
	
   

  	
   

  
	
   

  	
  SHERWOOD BRANDS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Amir Frydman

  	
   

  
	
   

  	
   

  	
  Amir Frydman

  
	
   

  	
   

  	
  Executive
  Vice President

  

 

12

 

EXHIBIT “A”

 

Out-of-Season
Inventory

 

	
  Type of Inventory

  	
   

  	
  Period included in
  Out-of-Season Inventory

  
	
   

  	
   

  	
   

  
	
  Christmas Canes

  	
   

  	
  December 26 through and including March 1

  
	
   

  	
   

  	
   

  
	
  Christmas Gift items

  	
   

  	
  December 26 through and including April 30

  
	
   

  	
   

  	
   

  
	
  All other Christmas Categories

  	
   

  	
  December 26 through and including June 30

  
	
   

  	
   

  	
   

  
	
  Valentines items

  	
   

  	
  February 15 through and including May
  31

  
	
   

  	
   

  	
   

  
	
  Easter items consisting of finished goods

  	
   

  	
  Day after Easter through and including September 30

  
	
   

  	
   

  	
   

  
	
  Halloween items

  	
   

  	
  October 31 through and including March 31

  

 

13Exhibit 10.1

WARRANT

 

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR
APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE SECURITIES ACT
UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

 

GMH COMMUNITIES, LP

GMH COMMUNITIES TRUST
WARRANT

 

	
  No. 1

  	
  July 27, 2004,

  
	
   

  	
  as amended

  

 

THIS CERTIFIES
THAT, for $1,000,000 received, the receipt and sufficiency of which is hereby
acknowledged, Vornado Realty L.P., a Delaware limited partnership (“Vornado”),
with its principal office at 888 Seventh Avenue, New York, New York 10019,
and/or its designated affiliates and permitted transferees and assigns
(individually or collectively, the “Holder”), is entitled to purchase from time
to time (1) at the LP Exercise Price (as defined below) from GMH Communities,
LP, a Delaware limited partnership, with its principal office at 10 Campus
Boulevard, Newtown Square, Pennsylvania 19073 (the “Company”), an LP Fixed
Percentage Number (as defined below) of Limited Partnership Units or (2) at the
option of the Holder and at the Trust Exercise Price (as defined below), from
GMH Communities Trust, a Maryland real estate investment trust, with its
principal office at 10 Campus Boulevard, Newtown Square, Pennsylvania 19073
(the “Trust”), a Trust Fixed Percentage Number (as defined below) of fully paid
and nonassessable Common Shares, or such combination of the LP Fixed Percentage
Number and the Trust Fixed Percentage Number as determined by the Holder, in
each case as provided herein, subject to adjustment pursuant to the terms
hereof, including but not limited to, adjustment pursuant to Section 5 hereof,
and is entitled to exercise the other appurtenant rights, powers and privileges
hereinafter described.

 

1.                                       DEFINITIONS. As used herein, the following terms shall have
the following respective meanings:

 

“Additional Common
Equity Securities” has the meaning set forth in Section 5.4(c) hereof.

 

“Affiliate” shall
mean, as to any specified Person, any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specified Person. For the purposes of this definition, “control,” when
used with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise and the terms “affiliated,” “controlling”
and “controlled” have meanings correlative to the foregoing.

 

 

“Applicable Price”
shall mean:

(i)                                     for
purposes of any issuance of Additional Common Equity Securities under Section
5.4, the greater of (A) the Fair Market Value of a unit or share of Common
Equity Securities being issued (or, if being issued in an underwritten
offering, the Market Price on the day that such offering is being priced), and
(B) the then effective Exercise Price; and

 

(ii)                                  for
purposes of any issuance under Section 5.1(b), the greater of (A) the Market
Price on the date of such issuance, and (B) the then effective Exercise Price; provided,
however, that in no event shall the Fair Market Value or the Market Price
for purposes of determining the Applicable Price be less than $2,444.580 per
Common Share or $2,444.580 per Limited Partnership Unit.

 

“Board” shall mean
the Board of Trustees, or its equivalent, of the Trust.

 

“Business Day”
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday that is not a
day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.

 

“Class A Limited
Partnership Interest” shall mean the Class A limited partnership interest
in the Company and any successor common interest in the Company held directly
or indirectly by Gary M. Holloway.

 

“Class B Limited
Partnership Interest” shall mean the Class B limited partnership interest in
the Company.

 

“Code” shall mean
the Internal Revenue Code of 1986, as amended.

 

“Common Equity
Security” shall mean (1) a Limited Partnership Unit, in the case of an exercise
of the Warrant to purchase Limited Partnership Units or (2) a Common Share, in
the case of an exercise of the Warrant to purchase Common Shares.

 

“Common Shares”
shall mean common shares of beneficial interest, par value $0.001 per share, of
the Trust, and all other stock of any class or classes (however designated
after the date hereof) of the Trust from time to time outstanding, the holders
of which have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends or liquidating distributions after
the payment of dividends and distributions on any shares entitled to
preference.

 

“Company” has the
meaning set forth in the preamble hereto.

 

“Company
Restricted Period” has the meaning set forth in Section 26 hereof.

 

“Conversion Right”
has the meaning set forth in Section 2.2 hereof.

 

“Convertible
Securities” has the meaning set forth in Section 5.4(b) hereof.

 

2

 

“Declaration of
Trust” shall mean the Trust’s Declaration of Trust, as may be amended from time
to time.

 

 “Effective Price” has the meaning set forth in
Section 5.4(c) hereof.

 

“Exchange Act”
shall mean the United States Securities Exchange Act of 1934, as amended.

 

“Excluded
Securities” has the meaning set forth in Section 26(a) hereof.

 

“Excluded Services”
has the meaning set forth in Section 26(d) hereof.

 

“Exercise Period”
shall mean the time period commencing with the date hereof and ending at the
earlier of (i) in the event of an Initial Public Offering that results in
mandatory exercise of a portion of this Warrant pursuant to Section 2.1(b)
hereof, 5:00 p.m., New York City time, on the date that is eighteen months from
the closing of such offering and (ii) 5:00 p.m., New York City time, on
the date that is three (3) years from the date hereof.

 

“Exercise Price”
shall mean (1) the LP Exercise Price, in the case of an exercise of the Warrant
to purchase Limited Partnership Units or (2) the Trust Exercise Price, in the
case of an exercise of the Warrant to purchase Common Shares.

 

“Exercise Shares”
shall mean the units or shares, as applicable, of the Common Equity Securities
issuable upon exercise of this Warrant, subject to adjustment pursuant to the
terms herein, including, but not limited to, adjustment pursuant to Section 5
hereof, and shall also mean any other shares, securities, assets or property otherwise
issuable or that may be acquired upon exercise of this Warrant. The number of
Exercise Shares shall equal (1) the LP Fixed Percentage Number, in the case of
an exercise of the Warrant to purchase Limited Partnership Units or (2) the
Trust Fixed Percentage Number, in the case of an exercise of the Warrant to
purchase Common Shares, in each case subject to adjustment pursuant to the
terms herein, including, but not limited to, adjustment pursuant to Section 5
hereof.

 

“Fair Market Value”
shall mean:

 

(i)                                     with
respect to a Common Equity Security, or any other security of the Trust, the
Company or any other issuer:

 

(a)                                  the
average daily Market Price during the period of the most recent twenty (20)
Trading Days, ending on the last Trading Day before the date of determination
of Fair Market Value, if such class of Common Equity Securities or other
security is (i) traded on a national securities exchange or admitted to
unlisted trading privileges on such an exchange or (ii) is quoted on the
National Market System of the Nasdaq Stock Market (the “National Market System”)
or the Nasdaq Small Cap Market (the “Small Cap Market”); or

 

3

 

(b)                                 if
such class of Common Equity Securities or other security is not then so listed,
admitted to trading or quoted, or if then so listed, admitted to trading or
quoted for less than twenty (20) Trading Days, the Fair Market Value shall be
determined in accordance with the Valuation Procedure; or

 

(ii)                                  with
respect to any assets or property other than cash or Common Equity Securities
or other securities, the fair market value as determined in accordance with the
Valuation Procedure.

 

“First Dilutive
Issuance” has the meaning set forth in Section 5.4(d) hereof.

 

“GMH GP” has the
meaning set forth in Section 3.2 hereof.

 

“Holder” has the
meaning set forth in the preamble hereto.

 

“Initial Public
Offering” shall mean an initial public offering by the Trust of its Common
Shares as a result of which the Trust obtains an UPREIT Interest.

 

“IPO Date” shall
mean the date on which an Initial Public Offering is consummated.

 

“Issuer” shall
mean (1) the Company, in the case of an exercise of the Warrant to purchase
Limited Partnership Units or (2) the Trust, in the case of an exercise of the
Warrant to purchase Common Shares.

 

“Lien” has the
meaning set forth in Section 5.11 hereof.

 

“Limited
Partnership Units” shall mean units representing the Class A Limited
Partnership Interest, and all other interests of any class or classes (however
designated after the date hereof) of the Company from time to time outstanding,
the holders of which have the right, without limitation as to amount, either to
all or to a share of the balance of current distributions or liquidating
distributions after the payment of distributions on any interests in the
Company entitled to preference.

 

“LP Exercise Price”
shall mean (i) with respect to each of the first 22,420.500 Limited Partnership
Units issuable upon exercise of the Warrant, $2,230.102 per Limited Partnership
Unit and (ii) with respect to each of the next 18,486.329 Limited Partnership
Units issuable upon exercise of the Warrant following the issuance of the first
22,420.500 Limited Partnership Units referred to in clause (i), $2,704.701 per
Limited Partnership Unit, in each case subject to adjustment pursuant to the
terms herein, including, but not limited to, adjustment pursuant to Section 5
hereof.  The parties hereto acknowledge
and agree that the LP Exercise Price set forth herein is based on 66,000
Limited Partnership Units being the only Limited Partnership Units issued and
outstanding as of the date first set forth above.

 

“LP Fixed
Percentage Number” shall mean, subject to adjustment pursuant to the terms
herein, including, but not limited to, adjustment pursuant to Section 5 hereof,
the number of Limited Partnership Units representing a 38.264% economic
interest in the Company (after taking into

 

4

 

consideration the
number of Limited Partnership Units issuable upon exercise of the Warrant), as
determined by the Holder prior to and without regard to the occurrence of an
Initial Public Offering; provided that if such an offering does occur,
the percentage interest in the Company to be received upon exercise of the
Warrant shall be adjusted as if the Warrant had been exercised in full
immediately prior to the consummation of such offering and shall be subject to
adjustment pursuant to the terms herein, including, but not limited to,
adjustment pursuant to Section 5 hereof, following such offering.  As an illustration, assuming a total of
1,000,000 Limited Partnership Units outstanding immediately prior to the
consummation of an Initial Public Offering, the LP Fixed Percentage Number
immediately prior to the consummation of an Initial Public Offering would equal
1,000,000 x 0.38264 / (1 - 0.38264) = 619,800.440; assuming further that (i)
the Trust consummates an Initial Public Offering where it acquires, with the
proceeds from such offering, additional 200,000 Limited Partnership Units and
(ii) immediately prior to the exercise of the Warrant, there are no further
transactions in equity securities of the Company or transactions that require
adjustment pursuant to Section 5 hereof; then, upon exercise of the Warrant in
full for Limited Partnership Units, the LP Fixed Percentage Number is
619,800.440, and the percentage interest in the Company to be received by the
Holder upon exercise of the Warrant in full would be 619,800.440 / (1,000,000 +
619,800.440 + 200,000) = 34.058%.

 

“Management Shift”
has the meaning set forth in the Partnership Agreement.

 

“Market Price”
shall be, as of any specified date with respect to any share of any class of
Common Equity Securities or any other security of the Trust, the Company or any
other issuer, if such class of Common Equity Securities or other security is
traded on a national securities exchange or admitted to unlisted trading
privileges on such an exchange, or is quoted on the National Market System or
the Small Cap Market, the weighted average sale price of such class of Common
Equity Securities or other security on such exchange or on the National Market
System or the Small Cap Market on such date or if no such sale is made on such
day, the mean of the closing bid and ask prices for such day on such exchange
or on the National Market System or the Small Cap Market; provided that
if such class of Common Equity Securities or other security is not so listed or
admitted to unlisted trading privileges or quoted, the Market Price as of a
specified date shall be the mean of the last bid and ask prices reported on
such date (x) by the Nasdaq or (y) if reports are unavailable under clause (x)
above by the National Quotation Bureau Incorporated.

 

“National Market
System” has the meaning set forth in the definition of Fair Market Value.

 

“Notice of
Exercise” means the notice attached hereto as Annex A-1 or A-2, as the
case may be.

 

“Partnership
Agreement” shall mean the Amended and Restated Limited Partnership Agreement of
the Company, dated as of July 20, 2004, as amended, by and among GMH GP, GMH LP
LLC, a Delaware limited liability company, or any successor general partner,
Vornado Community GP LLC, a Delaware limited liability company, and Vornado
Community LP LLC, a Delaware limited liability company.

 

5

 

“Person” shall
mean any individual, corporation, limited liability company, partnership, joint
venture, association, joint-stock company, trust, estate, unincorporated
organization or government or any agency or political subdivision thereof, or
any entity whatsoever.

 

“Qualifying
Dilutive Issuance” has the meaning set forth in Section 5.4(a) hereof.

 

“Record Date”
shall mean, with respect to any dividend, other distribution or issuance, the
record date for the determination of stockholders entitled to receive such
dividend, distribution or issuance, or if no such record date exists, the date
of such dividend, distribution or issuance.

 

“Registration
Rights Agreement” has the meaning set forth in Section 7 hereof.

 

“SEC” has the
meaning set forth in Section 3.1(d) hereof.

 

“Securities Act”
shall mean the United States Securities Act of 1933, as amended.

 

“Significant
Subsidiary” has the meaning set forth in Rule 1-02(w) of Regulation S-X under
the Securities Act or any successor rule.

 

“Small Cap Market”
has the meaning set forth in the definition of Fair Market Value.

 

“Subsequent
Dilutive Issuance” has the meaning set forth in Section 5.4(d) hereof.

 

“Trading Day”
shall mean, with respect to any class of Common Equity Securities or any other
security of the Trust, the Company or any other issuer, a day (i) on which the
securities exchange or other trading platform applicable for purposes of
determining the Market Price of a share or unit of such class of Common Equity
Securities or other security shall be open for business or (ii) for which
quotations from such securities exchange or other trading platform of the
character specified for purposes of determining such Market Price shall be
reported.

 

“Trust” has the
meaning set forth in the preamble hereto and shall include any entity that
becomes general partner of the Company in connection with the establishment of
an “UPREIT” structure.

 

“Trust Exercise
Price” shall mean (i) with respect to each Common Share that constitutes the
first 20.972/38.264 of the Trust Fixed Percentage Number (as then in effect) of
Common Shares issuable upon exercise of the Warrant, $2,384,131.222 (i.e., $50,000,000 divided by 20.972 or the cost of each one
(1) percent of the first 20.972% of the Common Shares deliverable hereunder)
divided by 1/38.264 of the Trust Fixed Percentage Number (as then in effect)
and (ii) with respect to each Common Share that constitutes the next
17.292/38.264 of the Trust Fixed Percentage Number (as then in effect) of
Common Shares issuable upon exercise of the Warrant following the issuance of
the first 20.972/38.264 of the Trust Fixed Percentage Number of Common Shares
referred to in clause (i), $2,790,178.571 (i.e.,
$50,000,000 divided by 17.292 or the cost of each one (1) percent of the next
17.292% of the Common Shares deliverable hereunder) divided by 1/38.264 of the
Trust Fixed Percentage Number (as then in effect), in each case subject to
adjustment pursuant to the terms herein, including, but not limited to,
adjustment

 

6

 

pursuant to
Section 5 hereof.  As an illustration,
assuming that the Trust Fixed Percentage Number is 619,800.440 as set forth in
the illustration included in the definition of Trust Fixed Percentage Number
below, the Trust Exercise Price is $2,384,131.222/(619,800.440/38.264) or
$147.187 for each Common Share constituting the first 20.972/38.264 of the
619,800.440 shares (i.e., the first
339,704.548 shares) acquired.

 

“Trust Fixed
Percentage Number” shall mean, subject to adjustment pursuant to the terms
herein, including, but not limited to, adjustment pursuant to Section 5 hereof,
the number of Common Shares representing a 38.264% economic interest in the
Company (after taking into consideration the number of Common Shares issuable
upon exercise of the Warrant), as determined by the Holder prior to and without
regard to the occurrence of an Initial Public Offering; provided that if
such an offering does occur, the percentage interest in the Company to be
received upon exercise of the Warrant shall be adjusted downward as if the
Warrant had been exercised in full immediately prior to the consummation of
such offering and any subsequent offering and shall be subject to adjustment
pursuant to the terms herein, including, but not limited to, adjustment
pursuant to Section 5 hereof, following such offering. As an illustration,
assuming (i) a total of 1,000,000 Common Shares
outstanding, immediately prior to the exercise of the Warrant, as a result
of an Initial Public Offering by the Trust that did not require any adjustments
pursuant to Section 5 hereof; (ii) that the Trust purchased 1,000,000 Limited
Partnership Units with the proceeds from the issuance of such shares; (iii)
that such purchase resulted in the Trust having a 50% UPREIT Interest (with the
Company having a total of 1,000,000/0.50 or 2,000,000 aggregate number of
Limited Partnership Units outstanding immediately prior to the exercise of the
Warrant) and (iv) immediately prior to the exercise of the Warrant there
have been no other transactions in equity securities of the Trust or the
Company; then, upon exercise of the Warrant in full for Common Shares, the
Trust Fixed Percentage Number is (1,000,000/0.61736) – 1,000,000 or
619,800.440, assuming further that each Common Share may purchase one Limited
Partnership Unit with the proceeds from the Warrant exercise.

 

“Trust Restricted
Period” has the meaning set forth in Section 26 hereof.

 

“UPREIT Interest”
shall mean, subsequent to the establishment of an “UPREIT” structure where the
Trust holds, either directly or through one or more intermediaries, the sole
general and certain limited partnership interests in the Company, the
percentage economic interest in the Company as represented by the aggregate of
such general and limited partnership interests held by the Trust.

 

“Valuation
Procedure” shall mean a determination made in good faith by (1) the Board that
is set forth in resolutions of the Board that are certified by the Secretary of
the Trust or (2) prior to an Initial Public Offering of the Trust, the general
partners of the Company that is set forth in resolutions of such general
partners that are certified by their respective Secretary, which certified
resolutions (i) set forth the basis of the Board’s or general partners’ (as the
case may be) determination which, in the case of a valuation in excess of $10
million, shall include the Board’s or general partners’ (as the case may be)
reliance on the valuation of a nationally recognized investment banking or
appraisal firm selected by the Holder and (ii) are delivered to the Holder
within ten (10) Business Days following such determination. A Valuation
Procedure with respect to the value of any capital stock shall be based on the
price that would be paid for all

 

7

 

of the capital
stock of the issuer in an arm’s-length transaction between a willing buyer and
a willing seller (neither acting under compulsion) without any discount or
provision for a minority interest, lack of liquidity or similar discount.

 

“Warrant” shall
mean this warrant to purchase Limited Partnership Units or Common Shares, as
the case may be.

 

“Withdrawal Period”
has the meaning set forth in Section 2.3 hereof.

 

2.                                       EXERCISE OF WARRANT.

 

2.1                                 EXERCISE. (a)  This Warrant may be exercised by
the Holder in whole or in part at any time during the Exercise Period, by
delivery of the following to the Issuer at its address listed on the signature
page hereof (or at such other address as the Issuer may designate by ten (10)
days’ advance written notice to the Holder):

 

(i)                                     an
executed Notice of Exercise;

 

(ii)                                  the
Exercise Price (A) in cash or by check, or (B) pursuant to Section 2.2 hereof,
(C) surrender of the Holder’s Class B Limited Partnership Interest or
(D) any combination of (A), (B) or (C) above; and

 

(iii)                               this
Warrant.

 

In the event the
Holder determines to pay the Exercise Price with the surrender of a portion of
the Holder’s Class B Limited Partnership Interest, the portion of Class B
Limited Partnership Interest surrendered shall be valued at $1,000 for each
$1,000 cash amount of Class B Limited Partnership Interest invested, reduced by
the amount of cash capital returned on such Class B Limited Partnership
Interests.

 

This Warrant may
not be exercised for amounts that would require the payment of less than $10
million of aggregate Exercise Price (i.e., the
aggregate amount derived by multiplying the then applicable Exercise Price by
the number of Exercise Shares deliverable pursuant to such exercise) or, if the
Holder owns a Warrant that if exercised in full would require the payment of
less than $10 million of aggregate Exercise Price, for less than the entire
Warrant.

 

An executed Notice
of Exercise must be delivered not later than 10 Business Days before the date
on which such exercise is to occur, which date will be set forth by the Holder
in the Notice of Exercise; provided, however, that in the event
the Trust intends to print and distribute to potential investors in connection
with its Initial Public Offering a preliminary prospectus, the Trust will give
the Holder not less than 15 Business Days prior written notice of its intention
to file such preliminary prospectus with the SEC together with a copy of such
preliminary prospectus, in which case the Holder will have five (5) Business
Days from its receipt of such notice and prospectus to notify the Issuer of its
intention to exercise all or a part of this Warrant in connection with such
Initial Public Offering.  In the event a
Notice of Exercise is not so delivered within such period, the Holder may not
deliver a Notice of Exercise until the earlier of

 

8

 

(i) 60 days
from the date that written notice of such filing is delivered to the Holder;
(ii) the consummation of such Initial Public Offering and (iii) the
date the preliminary prospectus is amended or modified for any reason other
than the inclusion of final pricing information that is within the range of
prices on the cover of such preliminary prospectus.  Any Notice of Exercise delivered by the
Holder in connection with an Initial Public Offering may be withdrawn or
amended in the event of an amendment or modification of the preliminary
prospectus delivered to the Holder hereunder for any reason other than the
inclusion of final pricing information that is within the range of prices on
the cover of such preliminary prospectus.

 

In no event shall
the maximum amount payable under this Warrant exceed $100 million.

 

(b)                                 In
the event of an Initial Public Offering, this Warrant shall be automatically
exercised at the closing for such offering for the Trust Fixed Percentage
Number of Common Shares or, at the option of the Holder, an LP Fixed Percentage
Number of Limited Partnership Units representing, in each case, a 20.972%
economic interest in the Company, subject to adjustment as provided in this
Warrant, including Section 5 hereof, if and only if the sale of such number of
Common Shares representing such 20.972% interest at the price per share set
forth on the cover page of the final prospectus for the Initial Public Offering
would result in an aggregate offering price for such Common Shares of at least
$80 million.  If the aggregate offering
price utilizing the price to the public set forth on the cover page of the
final prospectus for such offering in respect of such number of Common Shares
would not result in at least $80 million, then the Warrant shall not be
automatically exercised.

 

Payment of the Exercise
Price in the event of mandatory exercise pursuant to this Section 2.1(b) shall
be by surrender of $50 million of Class B Limited Partnership Interest.  Upon the surrender of $50 million of Class B
Limited Partnership Interest as payment of the Exercise Price as provided
herein, such amount of Class B Limited Partnership Interest shall be cancelled.

 

(c)                                  Upon
the exercise of this Warrant, a certificate or certificates for the Exercise
Shares so purchased, registered in the name of the Holder or such other Person
as may be designated by the Holder (to the extent such transfer is not
restricted and upon payment of any transfer taxes that are required to be paid
by the Holder in connection with any such transfer), shall be issued and
delivered to the Holder or such other Person as promptly as practicable (and in
any event within five (5) Business Days) after receipt of the Notice of
Exercise. If this Warrant shall not have been exercised in full, a new Warrant
exercisable for the number of Exercise Shares remaining shall be executed by
the Trust, the Company, GMH GP and Gary M. Holloway and delivered at the
same time as the certificate (or certificates) for the Exercise Shares that are
being issued.

 

The Person in
whose name any certificate or certificates for the Exercise Shares are to be
issued upon exercise of this Warrant shall be deemed to have become the holder
of record of such shares on the date on which this Warrant was surrendered and
payment of the Exercise Price was made, irrespective of the date of delivery of
such certificate or certificates, except that, if the date of such surrender
and payment is a date when the stock transfer books of the Issuer are closed,
such Person shall be deemed to have become the holder of such shares at the
close of business on

 

9

 

the next
succeeding date on which the stock transfer books are open (whether before or
after the end of the Exercise Period).

 

2.2                                 NET EXERCISE.

 

(a)                                  Notwithstanding
any provision herein to the contrary, if the Fair Market Value of one Exercise
Share is greater than the Exercise Price (at the date of calculation as set
forth below), then in lieu of exercising this Warrant by payment of cash, check
or surrendered Class B Limited Partnership Interest, the Holder may elect
(the “Conversion Right”) to receive Exercise Shares equal to the value (as
determined below) of this Warrant (or the portion thereof being exercised) by
surrender of this Warrant at the principal office of the Issuer together with
the properly endorsed Notice of Exercise in which event the Issuer shall issue
to the Holder a number of Exercise Shares computed using the following formula:

 

X = Y * (A-B)/A

 

Where:

 

X = the number of Exercise Shares to be issued.

 

Y = the number of Exercise Shares purchasable under this Warrant or, if
only a portion of this Warrant is being exercised, the portion of this Warrant
being exercised (at the date of such calculation).

 

A = the Fair Market Value of one Exercise Share (at the date of such
calculation).

 

B = the Exercise Price (as adjusted pursuant to Section 5 hereof to the
date of such calculation).

 

The Company shall pay all reasonable administrative costs incurred by
the Holder in connection with the exercise of the Conversion Right by the Holder
pursuant to this Section 2.2.

 

(b)                                 Unless
indicated otherwise in writing by the Holder, this Warrant shall automatically
be exercised on the last day of the Exercise Period by the Holder hereof
pursuant to Section 2.2(a) hereof for Common Shares if the Fair Market Value of
one Exercise Share is greater than the Exercise Price per share on such date.
The Issuer shall take all actions and execute and deliver all documents
necessary to effect the foregoing, and the Holder shall be entitled to receive Exercise
Shares as if such Holder had exercised this Warrant pursuant to Section 2.2(a)
hereof for the full number of Exercise Shares purchasable under this Warrant on
such date.

 

(c)                                  This
Warrant may not be exercised pursuant to this Section 2.2 for amounts that
would result in an aggregate Exercise Price (i.e.,
the product of Y and B as denoted in the formula set forth under Section 2.2(a)
hereof) of less than $10 million or, if the Holder owns a Warrant that if
exercised in full would result in an aggregate Exercise Price of less than $10
million, for less than the entire Warrant; provided, however, that the
preceding sentence in this

 

10

 

Section 2.2(c) shall not apply
to an automatic exercise of this Warrant pursuant to Section 2.2(b) hereof.

 

2.3                                 RESTRICTION ON EXERCISE.

 

Except as set forth in the proviso below, in no event may the Warrant
be exercised at any time to the extent that the issuance of the Exercise Shares
in connection with such exercise would cause the Trust to be “closely held”
within the meaning of Section 856(h) of the Code or any successor provision; provided,
however, that to the extent an exercise of the Warrant is restricted by
this Section 2.3 with respect to some or all of the Exercise Shares, the Trust
or the Company shall within five (5) Business Days after the Holder delivers a
Notice of Exercise give written notice to the Holder of such restriction, and
the Holder shall have five (5) Business Days from the date it receives such notice
to withdraw its Notice of Exercise (the “Withdrawal Period”).  If the Holder does not withdraw such notice
then the Warrant shall be exercisable and deemed to have been exercised for
Limited Partnership Units but the obligation to deliver such Units may, at the
option of either the Trust or the Company, be satisfied by the payment of cash
equal to the Fair Market Value of such unexercised portion of the Warrant not
later than three (3) Business Days after the last day of the Withdrawal Period
(such value determined at the date of delivery of the Notice of Exercise).

 

3                                          COVENANTS AND REPRESENTATIONS OF THE TRUST AND THE COMPANY; SECURITIES
MATTERS.

 

3.1                                 COVENANTS AS TO EXERCISE SHARES.

 

(a)                                  Each
of the Trust and the Company covenants and agrees that all Exercise Shares that
may be issued upon the exercise of this Warrant will, upon issuance, be duly
authorized, validly issued and outstanding, fully paid and nonassessable in the
case of Common Shares, free of preemptive rights and free from all taxes, liens,
charges and security interests with respect to the issuance thereof. If the
class of the Common Equity Securities or the class of securities of any other
Exercise Shares is then listed or quoted on a national securities exchange, the
National Market System or the Small Cap Market, all such Exercise Shares upon
issuance shall also be so listed or quoted. Each of the Trust and the Company
further covenants and agrees that it will, at all times during the Exercise
Period, have authorized and reserved solely for purposes of the exercise of
this Warrant, free from preemptive rights, a sufficient number of units or
shares of its Common Equity Securities or the class of securities of any other
Exercise Shares to provide for the exercise in full of this Warrant (without
taking into account any possible exercise pursuant to Section 2.2 hereof). If
at any time during the Exercise Period, the number of authorized but unissued
units or shares of Common Equity Securities or the class of securities of any
other Exercise Shares shall not be sufficient to permit exercise in full of
this Warrant (without taking into account any possible exercise pursuant to
Section 2.2 hereof), the Trust or the Company, as the case may be, will
promptly take such corporate or limited partnership action as shall be
necessary to increase its authorized but unissued units or shares of Common
Equity Securities or the class of securities of any other Exercise Shares to
such number of shares as shall be sufficient for such purposes. Each of the Trust
and the Company covenants and agrees that if any units or shares of Common
Equity Securities or any other class of capital stock to be reserved for the

 

11

 

purpose of the issuance of such
units or shares upon the exercise of this Warrant require registration with or
approval of any governmental authority under any Federal or state law before
such units or shares may be validly issued or delivered upon exercise, then the
Trust or the Company, as the case may be, will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be.

 

(b)                                 In
the event that at any time, including as a result of any provision of Section
5, the Exercise Shares shall include any shares or other securities other than
units or shares of Common Equity Securities, or any other property or assets,
the terms of this Warrant shall be modified or supplemented (in the absence of
express written documentation thereof, shall be deemed to be so modified or
supplemented), and each of the Trust and the Company shall take all actions as
may be necessary to preserve, in a manner and on terms as nearly equivalent as
practicable to the provisions of this Warrant as they apply to the Common
Equity Securities, the rights of the Holder hereunder (including, without
limitation, the provisions of Section 5 hereof), including any equitable
replacements of the term “Common Equity Securities” with the term “Exercise
Shares” and adjustments of any formula included herein.

 

(c)                                  To
the extent that the Trust and/or the Company are subject to the reporting
requirements of the Exchange Act at any time during the Exercise Period, the
Trust’s and/or the Company’s filings under the Exchange Act will comply, during
the Exercise Period, in all material respects as to form with the Exchange Act
and the rules and regulations thereunder. If required pursuant to Regulation D
under the Securities Act or any successor regulation thereto, the Trust or the
Company, as the case may be, shall timely file a Form D in respect of the
issuance of this Warrant and the issuance of the Exercise Shares.

 

(d)                                 Until
the later of (i) the date as of which a Holder may sell all of the Exercise
Shares without restriction pursuant to Rule 144(k) under the Securities Act, or
any successor rule, and (ii) the last date on which any of the Warrants remain
outstanding, to the extent that the Trust and/or the Company are subject to the
reporting requirements of the Exchange Act prior to such date, the Trust and/or
the Company shall timely file all reports required to be filed with the
Securities and Exchange Commission (the “SEC”) pursuant to the Exchange Act,
and the Trust and/or the Company shall not terminate its status as an issuer
required to file reports under the Exchange Act other than as a result of a
merger or consolidation of the Trust and/or the Company where the Trust or the
Company is not the surviving entity.

 

3.2                                 NO IMPAIRMENT. Except and to the extent as waived or
consented to in writing by the Holder, none of the Trust, the Company and GMH
Communities GP, LLC, a Delaware limited liability company and a general partner
of the Company (together with its successors, including GMH Communities GP
Trust, “GMH GP”) will, by amendment of its declaration of trust, limited
partnership agreement or limited liability company agreement, as the case may
be, or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Trust, the Company or GMH GP, but will
at all times in good faith assist in the carrying out of all the provisions of
this Warrant and in the taking of all such action as may be necessary or
appropriate in order to protect the exercise rights of the Holder against
impairment consistent with the intent and

 

12

 

principles expressed in Section 5.8 below. The foregoing shall be subject to the right of the Trust, the
Company and GMH GP to amend the Declaration of Trust to (i) create a special
ownership limit of 8.5% for the Steven Roth Group (defined to include Steven Roth and each person (other the Trust
and any person that is a Vornado Holder (as defined below)) to whom shares
actually owned by Steven Roth would be attributed under the constructive
ownership rules of either Section 544 of the Code, as modified by Section
856(h) of the Code, or Section 318(a) of the Code, as modified by Section
856(d)(5) of the Code) and (ii) exempt the Holder and its subsidiaries (except where the Holder or such a subsidiary is
treated as an “individual” for purposes of Section 542(a)(2) of the Code or any
successor provision) from the application of the ownership limits set
forth in the Declaration of Trust, except to the extent that (a) their
ownership of Shares, directly, indirectly or under applicable constructive
ownership rules, would cause the Trust to be treated as “closely held” within
the meaning of Section 856(h) of the Code, (b) any person (other than the
Steven Roth Group, the Holloway Group (defined
to include Gary M. Holloway and each person (other than the Trust) to whom
shares actually owned by Gary M. Holloway would be attributed under the
constructive ownership rules of either Section 544 of the Code, as modified by
Section 856(h) of the Code, or Section 318(a) of the Code, as modified by
Section 856(d)(5) of the Code), or the Vornado Holder (defined to include each of (i) Vornado, (ii) Vornado Realty
Trust, a Maryland real estate investment trust, (iii) any affiliate of Vornado
designated pursuant to this Warrant, (iv) any permitted transfer or assignee of
Vornado for purposes of this Warrant and (v) any entity in which a person
described in any of clauses (i), (ii), (iii) or (iv) holds a direct or indirect
interest; provided, however, that no person shall be treated as a Vornado
Holder at any time that such person is treated as an “individual” for purposes
of Section 542(a)(2) of the Code or any successor provision)) holding a
direct or indirect interest (including through the application of applicable
constructive ownership rules) in the Holder or such a subsidiary would own
directly or indirectly (including through the application of applicable
constructive ownership rules) shares in the Trust in excess of the ownership
limitations (not to be less than, with respect to the Common Shares, 7.1% of
the outstanding Common Shares (by number or value, whichever is more
restrictive) and, if the Trust has more than one class of shares outstanding,
7.1% of the Trust’s outstanding shares, by value) set forth at any time in the
Declaration of Trust, (c) a member of the
Steven Roth Group holding a direct or indirect interest (including through the
application of applicable constructive ownership rules) in the Holder or such a
subsidiary would own directly or indirectly (including through the application
of applicable constructive ownership rules) shares in the Trust such that the
members of the Steven Roth Group, in the aggregate, would own directly or
indirectly (including through the application of applicable constructive
ownership rules) shares in the Trust in excess of the ownership limitations
(not to be less than, with respect to the Common Shares, 8.5% of the
outstanding Common Shares (by number or value, whichever is more restrictive)
and, if the Trust has more than one class of shares outstanding, 8.5% of the
Trust’s outstanding shares (by value) set forth in the Declaration of Trust at
any time for the Steven Roth Group, (d) a member of the Holloway Group holding
a direct or indirect interest (including through the application of applicable
constructive ownership rules) in the Holder or such a subsidiary would own
directly or indirectly (including through the application of applicable
constructive ownership rules) shares in the Trust such that the members of the
Holloway Group, in the aggregate, would own directly or indirectly (including
through the application of applicable constructive ownership rules) shares in
the Trust in excess of the ownership limitations (not to be less than, with
respect to the Common Shares, 20% of the outstanding Common Shares (by number
or value, whichever

 

13

 

is more restrictive) and, if the Trust has
more than one class of shares outstanding, 20% of the Trust’s outstanding
shares (by value) set forth at any time in the Declaration of Trust at any time
for the Holloway Group (provided, in the case of this clause (d), that the
Declaration of Trust at such time provides that in circumstances where clause
(d) applies, Equity Shares not Beneficially or Constructively Owned by Vornado
Holders will be transferred to a charitable trust (where such transfers would
help to reduce such excess ownership by members of the Holloway Group) before
Equity Shares Beneficially or Constructively Owned by Vornado Holders are so
transferred to eliminate such excess ownership by members of the Holloway Group)
and (e) during any period on or after the date of the first closing of an
issuance of Common Shares pursuant to an underwritten offering and during which
it is not the case that either (i) each class of the Trust’s shares qualifies
as a class of “publicly-offered securities” (within the meaning of Section
2510.3-101(b)(2) of the regulations of the Department of Labor) or (ii) the
Trust qualifies for another exception to Section 2510.3-101 of the regulations
of the Department of Labor (other than the exception that provides that the
assets of an ERISA Investor (defined to mean (I) an employee benefit plan as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”), whether or not subject to ERISA, or a plan described in
Section 4975 of the Code (including, without limitation, foreign plans and
governmental plans) (each a “Plan”), (II) an entity whose underlying assets
include the assets of a Plan by reason of the Plan’s direct or indirect
investment in such entity or (III) an entity that otherwise constitutes a
benefit plan investor within the meaning of Section 2510.3-101 of the
regulations of the Department of Labor) will not include any of the underlying
assets of an entity in which it invests if at all times less than 25% of the
value of each class of equity interests in the entity is held by ERISA
Investors), the direct or indirect ownership of shares in the Trust (including
through the application of applicable constructive ownership rules) by the
Holder or such a subsidiary would result in any person owning, directly or
indirectly (including through the application of applicable constructive
ownership rules), shares in the Trust such that 25% or more of any class of
shares in the Trust would be owned, directly or indirectly (including through
the application of applicable constructive ownership rules), by one or more
ERISA Investors (provided, in the case of this clause (e), that the Declaration
of Trust at such time provides that in circumstances where clause (e) applies,
Equity Shares not Beneficially Owned by Vornado Holders will be transferred to
a charitable trust (where such transfers would help to reduce such excess
ownership by ERISA Investors) before Equity Shares Beneficially Owned by
Vornado Holders are so transferred to eliminate such excess ownership by ERISA
Investors). For these purposes, “applicable constructive ownership rules” shall
mean the rules set forth in or under Section 318(a) of the Code, as modified by
Section 856(d)(5) of the Code, and the rules set forth in or under Section 544
of the Code, as modified by Section 856(h)(1)(B) of the Code. The
Trust and Gary M. Holloway, as the sole shareholder of the Trust, covenant
and agree that the Trust’s declaration of trust (i) does not, as of the date
hereof, contain any limitation on ownership that would prevent the Holder from
exercising this Warrant in full at any time and holding all or any of the
Common Shares or Limited Partnership Units deliverable hereunder, other than those restrictions permitted by the
second preceding sentence, and (ii) will not contain any limitation
on ownership that would prevent the Holder from exercising this Warrant in full
at any time and holding all or any of the Common Shares or Limited Partnership
Units deliverable hereunder, other than those
limitations described in the second preceding sentence; except, in the case of
both (i) or (ii), in circumstances where the Holder is treated as “individual”
for purposes of Section 542(a)(2) of the Code (in which circumstances the
Holder shall be subject to the same

 

14

 

ownership restrictions that apply under the
Declaration of Trust to persons that are (i) members of the Steven Roth Group,
if the Holder is a member of the Steven Roth Group, (ii) members of the
Holloway Group, if the Holder is a member of the Holloway Group and (iii) to
persons that are not members of the Steven Roth Group or the Holloway Group and
who have not obtained an exemption from the ownership limitations from the
Trust’s board of trustees, if the Holder is not a member of the Steven Roth
Group or the Holloway Group). The parties hereto acknowledge and
agree that the Trust is issuing and the Holder purchasing this Warrant with the
expectation that the Trust will become, through a 100% owned subsidiary, the
sole general partner of the Company for purposes of completing an Initial
Public Offering and that none of the Trust, the Company, GMH GP or Gary M.
Holloway shall take any action to cause or that results in another Person
becoming general partner of the Company, by merger, consolidation or otherwise,
without causing such entity to expressly assume all of the covenants,
agreements, representations and warranties of the Trust hereunder. In the event
that GMH GP effects an initial public offering as general partner of the
Company, then GMH GP shall execute an instrument assuming all of the covenants,
agreements, representations and warranties of the Trust hereunder.

 

3.3                                 NOTICES OF RECORD DATE. In the event (i) the Trust or the
Company takes a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, (ii) the Trust or the Company authorizes the
granting to the holders of Common Equity Securities (or holders of the class of
securities of any other Exercise Shares) of rights to subscribe to or purchase
any shares of capital stock of any class or securities convertible into any
shares of capital stock or of any other right, (iii) the Trust or the Company
authorizes any reclassification of, or any recapitalization involving, any
class of Common Equity Securities or any consolidation or merger to which the
Trust or the Company is a party and for which approval of the stockholders of
the Trust or the limited partners of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Trust or the Company,
(iv) the Trust or the Company authorizes or consents to or otherwise commences
the voluntary or involuntary dissolution, liquidation or winding up of the
Trust or the Company, or (v) the Trust or the Company authorizes or takes any
other action that would trigger an adjustment in the Exercise Price or the
number or amount of units or shares of Common Equity Securities or other
Exercise Shares subject to this Warrant (other than a stock split or
combination), the Trust or the Company shall mail to the Holder, at least
twenty (20) days prior to the earlier of the record date for any such action or
stockholder vote and the date of such action, a notice specifying (a) which
action is to be taken and the date on which any such record is to be taken for
the purpose of any such action, (b) the date that any such action is to take
place, and (c) the amount and character of any stock, other securities or
property and amounts, or rights or options with respect thereto, proposed to be
issued, granted or delivered to each holder of Common Equity Securities (or
holders of the class of securities of any other Exercise Shares).

 

3.4                                 APPROVAL BY SHAREHOLDER AND GENERAL PARTNER AND LIMITED PARTNERS.
The Trust represents and warrants to the Holder that this Warrant, its terms
and its issuance and sale have been approved by a vote the sole shareholder of
the Trust and its Board of Trustees.  The
Company represents and warrants to the Holder that this Warrant, its terms and
its

 

15

 

issuance and sale have been approved by a vote of the general and
limited partners of the Company.

 

4                                          REPRESENTATIONS AND AGREEMENTS OF HOLDER.

 

4.1                                 REPRESENTATIONS OF HOLDER. The Holder hereby represents and
warrants to the Trust and the Company, as of the date hereof, that:

 

(a)                                  ACQUISITION
PURSUANT TO EXEMPTION; ACCREDITED INVESTOR; ACQUISITION OF WARRANT FOR PERSONAL
ACCOUNT. The Holder is an “accredited investor” within the meaning of Rule 501
under Regulation D promulgated under the Securities Act. The Holder represents
and warrants that it is acquiring this Warrant and, to the extent this Warrant
is exercised, the Exercise Shares solely for its account for investment
purposes only and not with a view to or for sale or distribution of said
Warrant or Exercise Shares or any part thereof, other than potential transfers
between Affiliates or transfers pursuant to an effective registration statement
under, or an exemption from the registration requirements of, the Securities
Act.

 

(b)                                 SECURITIES
ARE NOT REGISTERED.

 

i.                  The
Holder understands that this Warrant and the Exercise Shares have not been
registered under the Securities Act, on the basis that no distribution or
public offering is being effected. The Holder realizes that the basis for the
exemption set forth above may not be present if, notwithstanding its
representations, the Holder has a present intention of acquiring the securities
for a fixed or determinable period in the future, selling (in connection with a
distribution or otherwise), granting any participation in, or otherwise
distributing the securities. The Holder has no such present intention, except
that, subject to Section 4.2, the Holder may, in the future, transfer between
Affiliates or transfer pursuant to an effective registration statement under,
or an exemption from the registration requirements of, the Securities Act.

 

ii.               The
Holder has had full access to all information it considers necessary or
appropriate to make an informed investment decision with respect to this
Warrant and has been given the opportunity to ask questions of the Trust and
the Company and its representatives concerning this transaction and has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Trust and the Company
and can bear the economic risk of its investment in this Warrant.

 

4.2                                 DISPOSITION OF WARRANT AND EXERCISE SHARES.

 

(a)                                  The
Holder agrees not to make any disposition of all or any part of the Exercise
Shares in any event unless:

 

16

 

(i)                                     the
Trust or the Company, as the case may be, shall have received a letter secured
by the Holder from the staff of the SEC stating that no action will be
recommended to the SEC with respect to the proposed disposition;

 

(ii)                                  there
is then in effect a registration statement under the Securities Act covering
such proposed disposition and such disposition is made in accordance with said
registration statement;

 

(iii)                               the
Holder shall have furnished the Trust or the Company, as the case may be, with
an opinion of counsel for the Holder, reasonably satisfactory to the Trust or
the Company, as the case may be, to the effect that such disposition may be
made in compliance with Rule 144 under the Securities Act; or

 

(iv)                              the
Holder shall have notified the Trust or the Company, as the case may be, of the
proposed disposition and shall have furnished it with a statement of the
circumstances surrounding the proposed disposition and, if reasonably requested
by the Trust or the Company, as the case may be, the Holder shall have
furnished it with an opinion of counsel for the Holder, reasonably satisfactory
to the Trust or the Company, as the case may be, to the effect that such
disposition will not require registration of such Exercise Shares under the
Securities Act or any applicable state securities laws.

 

(b)                                 The
Holder further agrees not to make any disposition of all or any part of this
Warrant in any event unless (A) the Holder shall have notified the Trust and
the Company of the proposed disposition not less than five (5) Business Days
prior to such proposed disposition and shall have furnished the Trust and the
Company with a statement of the circumstances surrounding the proposed
disposition and, if reasonably requested by the Trust and the Company, the
Holder shall have furnished the Trust and the Company with an opinion of
counsel for the Holder, reasonably satisfactory to the Trust and the Company,
to the effect that such disposition will not require registration of such
Warrant under the Securities Act or any applicable state securities laws, and
(B) such transferee has executed and delivered to the Trust and the Company an
agreement whereby such transferee agrees to become a party hereto and to be
bound by all the provisions hereof and thereof.

 

(c)                                  The
Holder is aware that the Exercise Shares may not be sold pursuant to Rule 144
under the Securities Act unless the applicable conditions thereof are met,
including, among other things, the required holding period set forth in Rule
144 under the Securities Act and the number of shares being sold during any
three-month period not exceeding specified limitations.

 

(d)                                 The
Holder understands and agrees that all certificates evidencing the Exercise
Shares may bear the following legend (unless such shares have been disposed of
in accordance with Section 4.2(a)(ii) or (iii) or such legend is no longer
required to comply with applicable securities laws):

 

“THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED

 

17

 

IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO SUCH SECURITIES UNDER THE SECURITIES ACT UNLESS AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE.”

 

Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to an effective registration
statement under the Securities Act) shall also bear such legend unless such
legend is no longer required to comply with applicable securities laws.

 

(e)                                  Notwithstanding
the foregoing or any provision of the Limited Partnership Agreement, in the
event that an Initial Public Offering is not completed within six months from
the date hereof and the Holder exercises this Warrant to acquire Limited
Partnership Units, then the Limited Partnership Units so acquired may be
transferred by the Holder subject to compliance only with applicable securities
laws.

 

5.                                       ADJUSTMENT OF EXERCISE PRICE, UNITS OR SHARES OF COMMON EQUITY
SECURITIES PURCHASABLE AND NUMBER OF WARRANTS.

 

5.1                                 ADJUSTMENT OF EXERCISE PRICE. The Exercise Price, as defined
in Section 1, shall be subject to adjustment from time to time as follows:

 

(a)                                  If
an Issuer after the date hereof shall (i) pay a dividend or make a distribution
to all holders of any class of Common Equity Securities with respect to such
holders’ Common Equity Securities and in units or shares of Common Equity
Securities, (ii) split or otherwise subdivide the outstanding units or shares
of Common Equity Securities, or (iii) combine the outstanding units or shares
of Common Equity Securities into a smaller number of units or shares, then in
any such case the Exercise Price in effect immediately prior thereto shall be
adjusted to a price obtained by multiplying such Exercise Price by a fraction
of which the numerator shall be the number of units or shares of Common Equity
Securities outstanding prior to such action and the denominator shall be the
number of units or shares of Common Equity Securities outstanding after giving
effect to such action. An adjustment made pursuant to clause (i) of this
subsection (a) shall become effective retroactive to the date immediately after
the Record Date for such dividend or distribution, and an adjustment made
pursuant to clause (ii) or (iii) of this subsection (a) shall become effective
immediately after the effective date of such subdivision or combination.

 

(b)                                 If
an Issuer after the date hereof shall issue rights, options or warrants to all
holders of any class of Common Equity Securities with respect to such holders’
Common Equity Securities to subscribe for or purchase units or shares of Common
Equity Securities or securities convertible into or exchangeable or redeemable
for Common Equity Securities at a price per share less than the Applicable
Price per share or unit on the issuance date thereof, the Exercise Price in
effect immediately prior thereto shall be adjusted to a price obtained by
multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the number of units or shares of Common Equity Securities outstanding on the
date of issuance of such rights, options or warrants plus the number of units
or shares of the class of Common Equity Securities subject to such rights,
options or warrants which the aggregate consideration for the total number of
units

 

18

 

or shares so to be offered
would purchase at the Applicable Price of a unit or share of the class of
Common Equity Securities subject to such rights, options or warrants, and (ii)
the denominator shall be the number of units or shares of Common Equity
Securities outstanding on the date of issuance of such rights, options or
warrants plus the number of additional units or shares of Common Equity
Securities to be offered for subscription or purchase; provided, however,
that no adjustment shall be made if an Issuer issues or distributes to the
Holder the rights, options or warrants which the Holder would have been
entitled to receive had this Warrant been exercised prior to the Record Date
(and, if applicable, had this Warrant been exercisable for the class of Common
Equity Securities receiving such issuance or distribution). Any such
adjustments shall be made whenever such rights, options or warrants are issued
to all holders of any class of Common Equity Securities with respect to such
holders’ Common Equity Securities and shall become effective retroactive to the
date immediately after the Record Date for the determination of limited
partners or stockholders, as the case may be, entitled to receive such rights,
options or warrants unless such rights, options or warrants are not immediately
exercisable, in which case, any such adjustments shall be made at such time
such rights, options or warrants become exercisable. Upon expiration of the
period during which any such rights, options or warrants may be exercised, any
adjustment previously made pursuant to the foregoing provisions shall be
recalculated to take into consideration only those rights, options or warrants
actually exercised during the applicable period for exercise and notice of any
such further adjustment to the Exercise Price shall be given to the Holder as
herein provided.

 

(c)                                  If
an Issuer after the date hereof shall issue or distribute to all holders of any
class of Common Equity Securities (or any class of capital stock or common
units that is convertible into or exchangeable or redeemable for Common Equity
Securities) with respect to such holders’ Common Equity Securities (or such
other capital stock or common units) evidences of its indebtedness, cash, or
other assets, shares of capital stock or common units of any class or any other
securities (other than the Common Equity Securities) or rights to subscribe
therefor (excluding those referred to in subsection (b) above), in each such
case the Exercise Price in effect immediately prior thereto shall be adjusted
to a price obtained by multiplying such Exercise Price by a fraction of which
(i) the numerator shall be the difference between (x) the amount, for each
class of Common Equity Securities then outstanding, of the Fair Market Value
per unit or share of such class of Common Equity Securities, multiplied by the
number of outstanding units or shares of such class of Common Equity
Securities, in each case on the Record Date, and (y) the Fair Market Value of
the assets, cash or evidences of indebtedness so distributed, or shares of
capital stock or other securities or rights to subscribe therefor so issued,
and (ii) the denominator shall be product of the amount, for each class of
Common Equity Securities then outstanding, of the Fair Market Value per unit or
share of such class of Common Equity Securities, multiplied by the number of
outstanding units or shares of such class of Common Equity Securities, in each
case on the Record Date; provided, however, that no adjustment shall be
made if the Issuer issues or distributes to the Holder the evidence of indebtedness,
cash, other assets, capital stock or other securities or subscription rights
referred to above in this subsection (c) that the Holder would have been
entitled to receive had this Warrant been exercised in full prior to the Record
Date (and, if applicable, had this Warrant been exercisable for the class of
Common Equity Securities or such other class of capital stock that is
convertible into or exchangeable or redeemable for Common Equity Securities
receiving such issuance or distribution). The Issuer shall provide the Holder,
upon receipt of a written request

 

19

 

therefor, with any indenture or
other instrument defining the rights of the holders of any indebtedness,
assets, capital stock or other securities or subscription rights referred to in
this Section 5.1(c). Any such adjustment shall be made whenever any such
distribution is made, and shall become effective retroactive to the date
immediately after the Record Date. Upon expiration of the period during which
any subscription rights granted pursuant to this subsection (c) may be
exercised, any adjustment previously made pursuant to the foregoing provisions
shall be recalculated to take into consideration only those subscription rights
actually exercised during the applicable period for exercise and notice of any
such further adjustment to the Exercise Price shall be given to the Holder as
herein provided.  For the avoidance of
doubt, distributions of income or returns on capital with respect to the Class
B Limited Partnership Interest shall not result in an adjustment to the
Exercise Price pursuant to this Section 5.1(c).

 

(d)                                 For
purposes of Sections 5.1(a), 5.1(b) and 5.1(c), any dividend or distribution to
which Section 5.1(c) is applicable that also includes units or shares of Common
Equity Securities, a subdivision of Common Equity Securities or a combination
of Common Equity Securities to which Section 5.1(a) applies, or rights or
warrants to subscribe for or purchase units or shares of Common Equity
Securities to which Section 5.1(b) applies (or any combination thereof), shall
be deemed instead to be:

 

(i)                                     a
dividend or distribution of the evidences of indebtedness, cash, other assets,
shares of capital stock, other securities or subscription rights, other than
such units or shares of Common Equity Securities, such subdivision or
combination or such rights, options or warrants to which Sections 5.1(a) and
5.1(b) apply, respectively (and any Exercise Price reduction required by
Section 5.1(c) with respect to such dividend or distribution shall then be
made), immediately followed by

 

(ii)                                  a
dividend or distribution of such units or shares of Common Equity Securities,
such subdivision or combination or such rights, options or warrants to which
Sections 5.1(a) and 5.1(b) apply (and any further Exercise Price reduction
required by Sections 5.1(a) and 5.1(b) with respect to such actions shall then
be made).

 

(e)                                  In
case a tender or exchange offer (other than an odd lot offer) by an Issuer for
any Common Equity Securities, or other repurchase of any Common Equity
Securities by an Issuer, is consummated at a price in excess of the Market
Price of the Common Equity Securities subject to such tender or exchange offer
or repurchase, at the expiration of such tender or exchange offer or at the
time of such repurchase (as the case may be), the Exercise Price in effect
immediately prior thereto shall be adjusted to a price obtained by multiplying
such Exercise Price by a fraction of which (i) the numerator shall be such
Market Price, less the amount of the excess of the value of the tender or
exchange offer price or repurchase price over the Market Price, and (ii) the
denominator shall be the Market Price, such adjustment to become effective
immediately prior to the opening of business on the day following such date of
expiration or date of repurchase (as the case may be).

 

20

 

(f)                                    In
the event of an adjustment to the Trust Exercise Price as a result of any
adjustment pursuant to this Agreement, the LP Exercise Price shall be adjusted,
if an adjustment is not already required by another provision of this
Agreement, in order to maintain the intended relationship between the Limited
Partnership Units and the Common Shares and the right of a holder of one
Limited Partnership Unit to receive, upon redemption or exchange of such Unit,
one Common Share.

 

5.2                                 ADJUSTMENT OF NUMBER OF EXERCISE SHARES PURCHASABLE UPON EXERCISE OF
WARRANTS. Upon each adjustment of the Exercise Price pursuant to
Section 5.1 or 5.4 hereof, the number of Exercise Shares purchasable upon
exercise of this Warrant shall be adjusted to the number of Exercise Shares,
rounded up or down, as the case may be, to the nearest full unit or share,
obtained by (i) multiplying the number of Exercise Shares purchasable
immediately prior to such adjustment by the Exercise Price in effect prior to
such adjustment, and (ii) dividing the product so obtained by the Exercise
Price in effect after such adjustment of the Exercise Price.

 

5.3                                 RIGHTS UPON CONSOLIDATION, MERGER, SALE, TRANSFER, RECLASSIFICATION OR
RECAPITALIZATION.

 

(a)                                  In
case an Issuer after the date hereof (a) shall consolidate with or merge into
any other Person and shall not be the continuing or surviving corporation or
limited partnership of such consolidation or merger, (b) shall permit any other
Person to consolidate with or merge into such Issuer and such Issuer shall be
the continuing or surviving Person but, in connection with such consolidation
or merger, the Common Equity Securities or other securities or property
otherwise issuable upon exercise of this Warrant shall be changed into or
exchanged for stock or other securities of any other Person or cash or any
other property, (c) shall transfer (by sale, lease or otherwise) all or
substantially all of its properties or assets or the properties or assets of
its Significant Subsidiaries to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Equity Securities or other
securities or property otherwise issuable upon exercise of this Warrant (other
than a capital reorganization or reclassification resulting in the issuance of
additional units or shares of Common Equity Securities for which adjustment in
the Exercise Price is provided in Section 5.1 or 5.4 unless such adjustment
pursuant to Section 5.1 or 5.4 fails to take into account all steps in a
multi-step transaction), then, and in the case of each such transaction, proper
provision shall be made so that, upon the basis and the terms and in the manner
provided in this Warrant, the Holder, upon the exercise hereof at any time
after the consummation of such transaction (until the end of the Exercise
Period), shall be entitled to receive (at the aggregate Exercise Price in
effect at the time of such consummation for all Common Equity Securities or
other securities or property otherwise issuable upon such exercise immediately
prior to such consummation), in lieu of the Common Equity Securities or other
securities or property otherwise issuable upon such exercise prior to such
consummation, the kind and amount of shares, other securities, property, assets
or cash that the Holder would have been entitled to receive upon the
consummation of such transaction had the Holder exercised this Warrant
immediately prior to the consummation of such transaction, subject to
adjustments (subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in this Section 5.  In addition, upon the exercise hereof at any
time after the consummation of such transaction, the Holder may elect to
receive, in lieu of such shares or

 

21

 

other securities, property or
assets that the Holder would have been entitled to receive upon the
consummation of such transaction, the cash equivalent thereof (with the cash
value determined by reference to the Fair Market Value of such shares or other
securities, property or assets that the Holder would have received).  If the Holder elects to receive such cash
equivalent, the Company or the surviving Person shall bear any costs and
expenses incurred in connection with any sale or disposition of such shares or
other securities, property or assets, and shall promptly deliver the cash
proceeds to the Holder (in any event within five (5) Business Days after
receipt of such cash proceeds by the Issuer). 
In no event shall an Issuer undertake any such transaction unless
appropriate provision is made by such Issuer or the surviving Person as part of
any such transaction for the obligations provided hereunder.

 

(b)                                 An
Issuer shall not consummate any transaction that effects or permits any such
event or occurrence unless each Person whose shares of stock, securities or
assets will be issued, delivered or paid to the holders of the Common Equity
Securities (including such Issuer with respect to clause (ii) below), prior to
or simultaneously with the consummation of the transaction, (i) is, in the case
of the Trust, a Maryland corporation or trust, or, in the case of the Company,
a limited partnership organized and existing under the laws of the United
States of America or any State or the District of Columbia, and (ii) expressly
assumes, or in the case of such Issuer, acknowledges, by a Warrant supplement
or other document in a form substantially similar hereto and to the
satisfaction of the Holder, executed and delivered to the Holder, the
obligation to deliver to such Holder such shares of stock, securities or
assets, including cash, as, in accordance with the foregoing provisions of this
Section 5.3, such Holder is entitled to purchase, and all other obligations and
liabilities under this Warrant, including obligations and liabilities in
respect of subsequent adjustments that are required under this Warrant.

 

(c)                                  The
above provisions of this Section 5.3 shall similarly apply to successive
reclassifications and changes of Exercise Shares and to successive
consolidations, mergers, leases, sales or conveyances.

 

5.4                                 SALE OF SHARES BELOW APPLICABLE PRICE.

 

(a)                                  If
at any time or from time to time after the date hereof, an Issuer issues or
sells, or is deemed by the express provisions of this Section 5.4 to have
issued or sold, Additional Common Equity Securities (as defined below), other
than as provided in Section 5.1, 5.2 or 5.3 above, including as part of an
Initial Public Offering, for an Effective Price (as defined below) less than
the Applicable Price (such issue, a “Qualifying Dilutive Issuance”), then and
in each such case, the then effective Exercise Price shall be reduced,
effective as of the opening of business on the date of such issue or sale (or
if earlier, the date on which a binding agreement providing for such issue or
sale was entered into), to a price determined by multiplying the Exercise Price
in effect immediately prior to such issuance or sale by a fraction:

 

(i)                                     the
numerator of which shall be (A) the number of units or shares of Common Equity
Securities outstanding immediately prior to such issue or sale, plus (B) the
number of units or shares of Common Equity Securities being issued or sold or
deemed to be issued or sold which the aggregate consideration received by such
Issuer for the total number of

 

22

 

Additional Common Equity Securities
so issued or deemed to be so issued would purchase at the Applicable Price, and

 

(ii)                                  the
denominator of which shall be the number of units or shares of Common Equity
Securities outstanding immediately prior to such issue or sale plus the total number
of Additional Common Equity Securities so issued or deemed to be so issued.

 

Notwithstanding
the foregoing, no adjustment shall be made pursuant to this Section 5.4 for
awards of restricted Common Shares from the Trust’s Equity Incentive
Compensation Plan made to Trustees of the Trust that are not also employees of
the Trust and to employees of the Trust so long as all such awards are approved
by the Trust’s Board of Trustees or a committee of the Board of Trustees of the
Trust comprised solely of “non-employee” trustees, within the meaning of Rule
16b-3 under the Exchange Act, which committee may include the Compensation
Committee of such Board if such committee is so comprised, and the aggregate
number of Common Shares so awarded during the first 18 months following the IPO
Date does not exceed 750,000 Common Shares, subject to adjustment pursuant to
Section 5 hereof.

 

(b)                                 For
the purpose of the adjustment required under this Section 5.4, if an Issuer
issues or sells (x) stock or other securities convertible into or exchangeable
or redeemable for units or shares of Common Equity Securities (such
convertible, exchangeable or redeemable stock or securities being herein
referred to as “Convertible Securities”) or (y) rights, options or warrants for
the purchase of units or shares of Common Equity Securities or Convertible
Securities and if the Effective Price of such units or shares of Common Equity
Securities is less than the Applicable Price, in each case such Issuer shall be
deemed to have issued at the time of the issuance of such rights, options or
warrants or Convertible Securities the maximum number of Additional Common
Equity Securities issuable upon exercise, conversion, exchange or redemption
thereof and to have received as aggregate consideration for the issuance of
such shares an amount equal to the total amount of the consideration, if any,
received by such Issuer for the issuance or sale of such rights, options or
warrants or Convertible Securities plus the minimum amounts of consideration, if
any, payable to such Issuer upon the exercise, conversion, exchange or
redemption of such rights, options or warrants or Convertible Securities (other
than by cancellation of liabilities or obligations evidenced by such
Convertible Securities); provided that:

 

(i)                                     subject
to paragraph (d) below, if the minimum amounts of such consideration cannot be
ascertained, but are a function of anti-dilution or similar protective clauses,
such Issuer shall be deemed to have received the minimum amounts of consideration
without reference to such clauses; and

 

(ii)                                  if
the minimum amount of consideration payable to such Issuer upon the exercise,
conversion, exchange or redemption of such rights, options, warrants or
Convertible Securities is reduced over time or on the occurrence or
non-occurrence of specified events other than by reason of anti-dilution
adjustments, the Effective Price shall be recalculated using the figure to
which such minimum amount of consideration is reduced; provided further,
that if the minimum amount of consideration payable to such Issuer upon the
exercise, conversion, exchange or redemption of such rights, options, warrants
or Convertible Securities is subsequently increased,

 

23

 

the Effective
Price shall be again recalculated using the increased minimum amount of
consideration payable to such Issuer but only upon the exercise, conversion,
exchange or redemption of such rights, options, warrants or Convertible
Securities.

 

No further
adjustment of the Exercise Price, as adjusted upon the issuance of such rights,
options, warrants or Convertible Securities, shall be made as a result of the
actual issuance of Additional Common Equity Securities upon the exercise of any
such rights, options or warrants or the conversion, exchange or redemption of
any such Convertible Securities. If any such rights, options or warrants or the
conversion, exchange or redemption privilege represented by any such
Convertible Securities shall expire without having been exercised, the Exercise
Price as adjusted upon the issuance of such rights, options, or warrants or
Convertible Securities shall be readjusted to the Exercise Price which would
have been in effect had an adjustment been made on the basis of only the
Additional Common Equity Securities, if any, actually issued or sold on the
exercise, conversion, exchange or redemption of such rights, options, warrants
or Convertible Securities, and on the basis that such Additional Common Equity
Securities, if any, were issued or sold for the consideration actually received
by such Issuer upon such exercise, conversion, exchange or redemption (other
than by cancellation of liabilities or obligations evidenced by such
Convertible Securities), plus the consideration, if any, actually received by
such Issuer for the issue or sale of all such rights, options, warrants and
Convertible Securities, whether or not exercised, provided that such
readjustment shall not apply to prior exercises of this Warrant.

 

(c)                                  For
the purpose of making any adjustment to the Exercise Price of the Exercise
Shares required under this Section 5.4, “Additional Common Equity Securities”
shall mean all units or shares of Common Equity Securities issued by an Issuer
or deemed to be issued pursuant to this Section 5.4 (including units or shares
of Common Equity Securities subsequently reacquired or retired by an Issuer).

 

The “Effective
Price” of Additional Common Equity Securities shall mean the quotient
determined by dividing (x) the aggregate consideration received, or deemed to
have been received by an Issuer for such issue under this Section 5.4, for such
Additional Common Equity Securities, by (y) the total number of Additional
Common Equity Securities issued or sold, or deemed to have been issued or sold
by the Issuer under this Section 5.4.

 

(d)                                 In
the event that an Issuer issues or sells, or is deemed to have issued or sold,
Additional Common Equity Securities in a Qualifying Dilutive Issuance (the “First
Dilutive Issuance”), then in the event that the Issuer issues or sells, or is
deemed to have issued or sold, Additional Shares of Common Equity Securities in
a Qualifying Dilutive Issuance other than the First Dilutive Issuance (a “Subsequent
Dilutive Issuance”) pursuant to the same instruments as the First Dilutive
Issuance, then, and in each such case upon a Subsequent Dilutive Issuance, the
Exercise Price shall be reduced to the Exercise Price that would have been in
effect had the First Dilutive Issuance and each Subsequent Dilutive Issuance
all occurred on the closing date of the First Dilutive Issuance.

 

5.5                                 DE MINIMIS ADJUSTMENTS. The adjustments required by this
Section 5 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that no adjustment pursuant to Section 5.1,
5.3 or 5.4 hereof shall be required unless such

 

24

 

adjustment would require an increase or decrease of at least $0.01 in
the Exercise Price then subject to adjustment; provided, however, that
any adjustments that are not made by reason of this Section 5.5 shall be
carried forward and (i) made as soon as such adjustment, together with other
adjustments required by this Section 5 and not previously made, would result in
an increase or decrease of at least $0.01 in the Exercise Price as of the date
of exercise, or (ii) made upon the date of exercise, in whole or in part, of
the Warrant. In case an Issuer shall at any time issue Common Equity Securities
by way of dividend on any stock or other securities of an Issuer or split or
otherwise subdivide or combine the outstanding units or shares of Common Equity
Securities, said amount of $0.01 specified in the preceding sentence (as
theretofore increased or decreased, if said amount shall have been adjusted in
accordance with the provisions of this Section 5.5) shall forthwith be
proportionately increased in the case of such a combination or decreased in the
case of such a subdivision or stock dividend so as appropriately to reflect the
same. All calculations under this Section 5 shall be made to the nearest
hundredth of a cent.

 

5.6                                 CONDITION PRECEDENT TO REDUCTION OF EXERCISE PRICE BELOW PAR VALUE OF
SHARES OF COMMON EQUITY SECURITIES OR INCREASE IN PAR VALUE TO ABOVE EXERCISE
PRICE.

 

To the extent that any of Common Equity Securities have a par value,

 

(a)                                  before
taking any action that would require an adjustment reducing the Exercise Price
to below the then par value of any of the shares of Common Equity Securities
issuable upon exercise of this Warrant, an Issuer shall take any action that
may, in the opinion of its counsel, be necessary in order that such Issuer may
validly and legally issue fully paid and non-assessable shares (in the case of
the Trust) of such Common Equity Securities at such adjusted Exercise Price;
and

 

(b)                                 before
taking any action that would increase, or would result in an increase in, the
par value, if any, of the Common Equity Securities issuable upon exercise of
this Warrant to an amount that is greater than the then effective Exercise
Price, such Issuer shall take such action that is necessary in order that such
Issuer may validly and legally issue fully paid and non-assessable shares (in
the case of the Trust) of such Common Equity Securities at such then effective
Exercise Price.

 

5.7                                 CERTIFICATE
OF ADJUSTMENT. In each case of an adjustment or readjustment of the
Exercise Price, an Issuer, at its sole expense, shall compute such adjustment
or readjustment in accordance with the provisions hereof and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to the Holder at the Holder’s
address, as provided in Section 14 hereof, no later than five (5) Business Days
following the effective date of such adjustment or readjustment. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (i) the number of Additional Common Equity Securities issued or
sold or deemed to have been issued or sold; (ii) the consideration received or
deemed to be received by the Issuer for any Additional Common Equity Securities
issued or sold or deemed to have been issued or sold; (iii) the Exercise Price
at the time in effect; and (iv) the

 

25

type and amount, if any, of other property which would be received upon
exercise of this Warrant.

 

5.8                                 OTHER DILUTIVE EVENTS. If any event or occurrence shall
occur as to which the provisions of this Section 5 are not strictly applicable
but as to which the failure to make any adjustment to the Exercise Price and/or
the number of shares or other assets or property subject to this Warrant would
adversely affect the purchase rights or value represented by this Warrant in
accordance with the essential intent and principles of this Warrant, including
this Section 5, then, in each such case, each Issuer shall determine the
adjustment, if any, on a basis consistent with the essential intent and
principles established in this Warrant, including this Section 5, necessary to
preserve, without dilution, the purchase rights represented by this Warrant. If
such determination involves or is based on a determination of the Fair Market
Value of any securities or other assets or property, such determination shall
be made in accordance with the Valuation Procedure.

 

5.9                                 GENERAL ADJUSTMENT PROVISIONS.

 

(a)                                  In
any case in which this Section 5 shall require that an adjustment be made
retroactive to the date immediately following a Record Date, an Issuer may
elect to defer (but only until five (5) Business Days following the mailing by
such Issuer to the Holder of the certificate as required by Section 5.7)
issuing to the Holder, in the event of any exercise of this Warrant after such
Record Date, the units or shares of Common Equity Securities issuable upon such
exercise in excess of the units or shares of Common Equity Securities issuable
upon such exercise prior to such adjustment, if any.

 

(b)                                 The
provisions and adjustments provided for in this Section 5 shall apply to
successive events or occurrences of the types described in this Section 5.

 

(c)                                  For
the purpose of making any adjustment required under this Section 5 that
requires a determination of the aggregate consideration received by an Issuer
for any sale, issue or distribution of securities, the aggregate consideration
received by such Issuer shall equal the sum of: (i) to the extent it consists
of cash, the net amount of cash received by the Issuer after deduction of any
underwriting or similar commissions, compensation or concessions paid or
allowed by such Issuer in connection with such issue or sale but without
deduction of any expenses payable by such Issuer, and (ii) to the extent it
consists of property or assets other than cash, the Fair Market Value of the
property or assets.

 

5.10                           SIGNIFICANT SUBSIDIARIES. If any Significant Subsidiary of
an Issuer issues or grants (i) any capital stock or equity ownership interest;
(ii) any rights, options, warrants or convertible securities that are
exercisable for or convertible into any capital stock or other equity ownership
interest; or (iii) any stock appreciation rights, phantom stock rights, or any
other profit participation rights, or any rights or options to acquire any such
rights, in each case of clauses (i), (ii) and (iii) above, to any Person other
than such Issuer or its wholly-owned subsidiaries, such Issuer shall determine
an anti-dilution adjustment, if any, on a basis consistent with the essential
intent and principles established herein, including but not limited to this
Section 5, necessary to preserve, without dilution, the purchase rights
represented by this Warrant. If such determination

 

26

 

involves or is based on a determination of the Fair Market Value of any
securities or other assets or property, such determination shall be made in
accordance with the Valuation Procedure.

 

5.11                           ADJUSTMENT
FOR MILITARY PROPERTIES. In the event that a military housing project
listed below is not acquired by the Company by the date set forth below
corresponding to such project or, a property or properties, in replacement of
such project, are not contributed by such date to the Company by Gary M.
Holloway for no additional interest in the Company or the Trust that is projected
to provide cash flow to the Company that will at least equal the cash flow
projected to be contributed by such project to the Company, then the percentage
economic interest included in the definition of LP Fixed Percentage Number and
Trust Fixed Percentage Number shall be increased, by proportionate increase of
the 20.972% and 17.292% comprising the 38.264% in such definitions (as such may
have been adjusted pursuant to this Section 5), by the LP Fixed Percentage set
forth below corresponding to the property not acquired, but the Limited
Partnership Units necessary to satisfy such increase upon exercise of this
Warrant shall be satisfied entirely by transfer of Limited Partnership Units
representing the LP Fixed Percentage Number indicated below, subject to
adjustment as provided in this Warrant, including, but not limited to the other
sections of this Section 5, by Gary M. Holloway to the Holder free and clear of
any mortgage, deed of trust, lien (statutory or other), pledge, hypothecation,
assignment, preference, priority, security interest, or any other encumbrance
or charge (including, without limitation, any conditional sale or other title
retention agreement, any sale-leaseback, any financing lease having
substantially the same economic effect as any of the foregoing, the filing of
any financing statement or similar instrument under the Uniform Commercial Code
or comparable law of any jurisdiction, domestic or foreign, and mechanics’,
materialmen’s and other similar liens and encumbrances) (each, a “Lien”). The
amount of cash flow projected for a military housing project and replacement
property or properties hereunder shall be determined in accordance with the
Valuation Procedure, assuming all projects and properties involve at least $10
million of value.  In the event that none
of the three military housing projects is acquired and no replacement
properties are contributed, the maximum amount of increase in the percentage
economic interest in the Company included in the definition of LP Fixed
Percentage Number as a result of such failure shall be 14.999%.  If the projected cash flow from a replacement
property or properties replaces some but not all of the projected cash flow
from a military project not acquired, then the amount of increase in the
percentage economic interest of the Company included in the definition of LP
Fixed Percentage Number shall be proportionately adjusted.  In no event shall such increase result in any
increase in the Exercise Price.  If this
Warrant has been exercised in full prior to the applicable date set forth
below, then any such Limited Partnership Units corresponding to a project not
acquired shall be released from the escrow and transferred to the Holder
immediately following the applicable date. 
Prior to the applicable date set forth below, such Limited Partnership
Units shall be owned by Gary M. Holloway free and clear of any Lien and shall
be held by the Holder in escrow during such period.  In the event that a project is acquired by
the Company or a replacement property is contributed to the Company prior to
the applicable date set forth below, then the corresponding LP Fixed Percentage
Number of Limited Partnership Units shall be released to Gary M. Holloway upon
completion of such acquisition.

 

27

 

	
  Military Housing Project

  	
   

  	
  Date

  	
   

  	
  LP Fixed

  Percentage Number

  	
   

  	
  LP Fixed

  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Eustis/Story

  	
   

  	
  9 months
  from date hereof

  	
   

  	
  1,440

  	
   

  	
  1.440

  	
  %

  
	
  Fort Bliss/White Sands

  	
   

  	
  June 30,
  2005

  	
   

  	
  1,830

  	
   

  	
  1.830

  	
  %

  
	
  Navy North East

  	
   

  	
  9 months
  from date hereof

  	
   

  	
  13,270

  	
   

  	
  13.270

  	
  %

  

 

As an illustration, if the Navy North East project is not acquired by
the Company within nine months from the date hereof and a suitable replacement
property is not contributed by such date, then the LP Fixed Percentage Number
will increase from the number of Limited Partnership Units representing 38.264%
to the number of Limited Partnership Units representing a 54.804% economic
interest in the Company, with the first 20.292% becoming 20.972/38.264 of 54.804%
(i.e., 30.037%) and the 17.292% becoming
17.292/38.264 of 54.804% (i.e., 24.763%),
with appropriate downward adjustments to the LP Exercise Price.  Any additional Limited Partnership Units
necessary to satisfy the increase in percentage shall be Limited Partnership
Units transferred by Gary M. Holloway and will not be newly issued Units.  As a further illustration, if the Navy North
East project is not acquired by the Company within nine months from the date
hereof and a suitable replacement property is not contributed by such date and
as of such date the Warrant had been exercised to acquire all of the Limited
Partnership Units representing a 20.972% economic interest in the Company, then
the LP Fixed Percentage Number shall be increased from the number of Limited
Partnership Units representing a 17.292% economic interest in the Company to
the number of Limited Partnership Units representing a 30.562% economic
interest in the Company with the result that upon exercise of the remaining
portion of the Warrant, Limited Partnership Units representing a 17.292%
economic interest in the Company will be a new issuance of Units by the Company
and Limited Partnership Units representing a 13.270% economic interest in the
Company will be Limited Partnership Units transferred to the Holder by Gary M.
Holloway.

 

6.                                       FRACTIONAL UNITS OR SHARES. Each Issuer may, but shall not
be required to, issue fractions of Exercise Shares upon exercise of the Warrant
or distribute certificates which evidence fractional Exercise Shares. As to any
fractional Exercise Share which the Holder would otherwise be entitled to
purchase from an Issuer upon such exercise, such Issuer may purchase from the
Holder such unissued fractional unit or share at a price equal to an amount
calculated by multiplying such fractional unit or share (calculated to the
nearest 1/100th of a unit or share) by the then Fair Market Value of one
Exercise Share determined in accordance with the terms hereof. Payment of such
amount shall be made in cash or by check payable to the order of the Holder at
the time of delivery of any certificate or certificates arising upon such
exercise.

 

7.                                       REGISTRATION RIGHTS. The Holder shall have the registration
rights with respect to the Common Equity Securities and the Warrant as set forth
in that certain Registration Rights Agreement, dated as of July 27, 2004, as
amended through the date hereof (the “Registration Rights Agreement”) among the
Trust, the Company, GMH GP and the Holder. To the extent that this Warrant
becomes exercisable for Exercise Shares other than the Common Equity
Securities, each of the Trust and the Company agrees to grant, or cause to be
granted, to the Holder hereof the same registration rights with respect to such
Exercise Shares as are currently granted to the

 

28

 

Holder in respect of the Common Equity Securities pursuant to the
Registration Rights Agreement.

 

8.                                       NO LIMITED PARTNER OR STOCKHOLDER RIGHTS OR LIABILITIES.
This Warrant in and of itself shall not entitle the Holder to any voting rights
or other rights as a stockholder of the Trust or a limited partner of the
Company (subject to the provisions of Section 5 above). No provision of this
Warrant, in the absence of affirmative action by the Holder to exercise this
Warrant in exchange for units or shares of Common Equity Securities or any
other equity securities issuable upon exercise of this Warrant, and no mere
enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of the Holder for the Exercise Price or as a stockholder of
the Trust or a limited partner of the Company, whether such liability is
asserted by the Trust or the Company or by creditors of the Trust or the
Company.

 

9.                                       TRANSFER OF WARRANT. Subject to the restriction on transfers
set forth in the legend on the first page of this Warrant and in Section 4.2
and applicable laws, this Warrant and all rights hereunder, in whole or in
part, are transferable, by the Holder in person or by duly authorized attorney,
upon delivery of this Warrant and the form of assignment attached hereto as
Annex B-1 or Annex B-2, as applicable, to any transferee designated by Holder.

 

10.                                 PAYMENT OF TAXES ON STOCK CERTIFICATE ISSUES UPON EXERCISE.
The initial issuance of certificates of Exercise Shares upon any exercise of
this Warrant shall be made without charge to the exercising Holder for any
transfer, stamp or similar tax or for any other governmental charges that may
be imposed in respect of the issuance of such stock certificates, and such
stock certificates shall be issued in the respective names of, or in such names
as may be directed by, the Holder; provided, however, that neither the
Trust nor the Company, as the case may be, shall be required to pay any tax or
such other charges that may be payable in respect of any transfer involved in
the issuance and delivery of any such stock certificate, any new Warrants or
other securities in a name other than that of the Holder upon exercise of this
Warrant (other than to an Affiliate), and neither the Trust nor the Company
shall be required to issue or deliver such certificates or other securities
unless and until the Person or Persons requesting the issuance thereof shall
have paid to the Trust or the Company, as applicable, the amount of such tax or
shall have established to the reasonable satisfaction of the Trust or the
Company, as applicable, that such tax has been paid.

 

11.                                 LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. Upon receipt
of evidence reasonably satisfactory to the Trust and the Company of the loss,
theft, destruction or mutilation of this Warrant and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Trust and the Company or, in the case of any such mutilation,
upon surrender and cancellation of this Warrant, the Trust and the Company
shall issue a new Warrant, in lieu of the Warrant so lost, stolen, destroyed or
mutilated, of like denomination and tenor as this Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Trust and the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time
enforceable by anyone.

 

29

 

 

12.                                 EXCHANGE OF WARRANT; DIVISIBILITY OF WARRANT. Subject to
compliance with Section 4.2 hereof, this Warrant is exchangeable, without
charge to any Holder, upon the surrender hereof by the Holder at the office or
agency of the Trust or the Company, as the case may be, for one or more new
Warrants of the tenor representing in the aggregate the right to subscribe for
and purchase the number of Exercise Shares which may be subscribed for and
purchased hereunder, each of such new Warrants to represent the right to
subscribe for and purchase such number of shares as shall be designated by said
Holder at the time of such surrender.

 

13.                                 CLOSING OF BOOKS. Neither the Trust nor the Company will at
any time close its transfer books against the transfer of any Warrant or of any
Exercise Shares issued or issuable upon the exercise or conversion of any
Warrant in any manner which interferes with the timely exercise or conversion
of this Warrant.

 

14.                                 NOTICES, ETC. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient or, if not,
then on the next Business Day, (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (d)
one (1) Business Day after deposit with a nationally recognized overnight
courier, specifying next Business Day delivery, with written verification of
receipt. All notices and other communications shall be sent to the Trust, the
Company or the Holder, respectively, at the address listed on the signature
page hereof or at such other address as the Trust, the Company or the Holder,
respectively, may designate by ten (10) days’ advance written notice to the
other parties hereto.

 

15.                                 ACCEPTANCE. Receipt of this Warrant by the Holder shall
constitute acceptance of and agreement to all of the terms and conditions
contained herein.

 

16.                                 JOINT AND SEVERAL LIABILITIES. The Trust and the Company
shall be jointly and severally liable for all of their obligations under this
Warrant and for all of their obligations relating to the Exercise Shares
issuable upon the exercise or conversion of this Warrant.

 

17.                                 BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding
upon any Person succeeding the Trust, the Company or GMH GP, as the case may
be, by merger, consolidation or acquisition of all or substantially all of the
Trust’s, the Company’s or GMH GP’s, as the case may be, assets (to the extent
provided in Section 5), and all of the obligations of the Trust and the Company
relating to the Exercise Shares issuable upon the exercise or conversion of
this Warrant shall survive the exercise, conversion and termination of this
Warrant and all of the covenants and agreements of the Trust, the Company and
GMH GP shall inure to the benefit of the successors and assigns of the Holder.

 

18.                                 SURVIVAL. The representations, warranties, covenants and
conditions of the respective parties contained herein or made pursuant to this
Warrant shall survive the execution, delivery and exercise of this Warrant and
the delivery of Exercise Shares.

 

30

 

19.                                 SEVERABILITY. In case any one or more of the provisions
contained in this Warrant shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

 

20.                                 SECTION HEADINGS; ILLUSTRATIONS. The section headings used
herein are for convenience of reference only, are not part of this Warrant and
are not to affect the construction of or be taken into consideration in
interpreting this Warrant.  The
illustrations included herein are intended as examples of the potential
outcomes hereunder and not as a limitation of the intended effect of the
provisions hereof.

 

21.                                 NONWAIVER. No course of dealing or any delay or failure to
exercise any right hereunder on the part of the Holder shall operate as a
waiver of such right or otherwise prejudice the Holder’s rights, powers or
remedies.

 

22.                                 GOVERNING LAW. This Warrant and all rights, obligations and
liabilities hereunder shall be governed and construed in accordance with the
law of the State of New York applicable to contracts made and to be performed
in the State of New York without regard to principles of conflicts of law.

 

23.                                 VENUE, CONSENT TO JURISDICTION, SERVICE OF PROCESS AND WAIVER OF JURY
TRIAL. EACH OF THE TRUST AND THE COMPANY CONSENTS TO THE
NON-EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT LOCATED IN
NEW YORK COUNTY, NEW YORK FOR ANY MATTER OR DISPUTE INVOLVING THIS WARRANT OR
OTHERWISE ARISING OUT OF THIS AGREEMENT, WAIVES ANY REQUIREMENT THAT SERVICE OF
PROCESS BE MADE UPON IT IN PERSON, AGREES THAT SERVICE OF PROCESS MAY BE MADE
AGAINST IT BY REGISTERED MAIL DIRECTED TO IT AT THE ADDRESS LISTED ON THE
SIGNATURE PAGE HEREOF OR AT SUCH OTHER ADDRESS AS IT MAY DESIGNATE BY TEN (10)
DAYS’ ADVANCE WRITTEN NOTICE TO THE OTHER PARTIES HERETO, AND AGREES THAT ANY
SERVICE SO MADE WILL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT
THEREOF.  EACH OF THE TRUST AND THE
COMPANY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN CONNECTION WITH ANY
DISPUTE INVOLVING THIS WARRANT OR OTHERWISE ARISING OUT OF THIS AGREEMENT AND
WAIVES ANY OBJECTION IT MIGHT HAVE TO VENUE OF ANY ACTION INSTITUTED IN
ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 23.

 

24.                                 AMENDMENTS. Each of the Trust and the Company may from time
to time supplement, amend or otherwise modify this Warrant without the Holder’s
approval to cure any ambiguity or to correct or supplement any provision
contained herein that is inconsistent with any other provision herein or is
otherwise defective, or to include any other provision regarding matters or
questions arising hereunder that the Trust and the Company deem necessary or
desirable and that in each case do not, in the opinion of the Holder, adversely
affect the rights or

 

31

 

interests of the Holder.  Except
as set forth in the preceding sentence, no amendment, supplement, restatement
or termination of any provision of this Warrant is binding unless it is in
writing and signed by authorized representatives of each party hereto at the
time of such amendment, supplement, restatement or termination.  Any such amendment or waiver shall be binding
upon each future Holder and upon the Trust and the Company. In the event of a waiver
or amendment and upon the request of the Trust and the Company, the Holder
hereof shall submit this Warrant to the Trust and the Company so that this
Warrant be marked to indicate such amendment or waiver and any Warrant issued
thereafter shall bear a similar notation referring to any such amendment or
continuing waiver.  Any amendment of this
Warrant shall be expressly approved in advance of the effectiveness of such
amendment by either the Board of Trustees of the Trust or a committee of the
Board of Trustees of the Trust comprised solely of “non-employee” Trustees of
the Trust as such term is defined in Rule 16b-3 under the Exchange Act.,
which committee may include the Compensation Committee of such Board if it is
so comprised.

 

25.                                 SPECIFIC PERFORMANCE. Each Holder of this Warrant and
Exercise Shares, in addition to being entitled to exercise all rights granted
by law, including recovery of damages, will be entitled to specific performance
of its rights under this Warrant. Each of the Trust and the Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law would
be adequate.

 

26.                                 REIT PROTECTION COVENANTS OF THE TRUST AND THE COMPANY.

 

From and after November 15, 2004 and until the earlier of (i) the
occurrence of a Management Shift and (ii) except with respect to Section 26(d)
hereof, the date on which (A) the Holder has no direct or indirect interest in
the Company (other than by or through a taxable REIT subsidiary), (B) the
Holder owns no warrant or other right to acquire any interest in the Company
and (C) the Holder’s aggregate ownership of interests in the Company and the
Trust represents less than 5% of the value of the Company (in all such cases,
taking into account any options or other rights to acquire such interests) (the
“Company Restricted Period”), GMH GP shall operate and manage the Company in compliance
with all requirements of Part II of Subchapter M of Chapter 1 of Subtitle A of
the Code (or any successor or similar provisions thereto) such that, if at any
time after November 15, 2004, the Company were treated as a corporation for
federal income tax purposes and were to elect REIT status under Section 856(c)
of the Code, the Company would qualify as a REIT within the meaning of Section
856 of the Code (determined by (i) assuming that the first taxable year of the
Company and its subsidiaries commences on November 15, 2004 and that their
final taxable year ends on the date of the expiration of the Company Restricted
Period (unless actions taken by the Company prior to such date would, without
regard to actions taken following such date, have prevented the Company from
qualifying as a REIT for the taxable year which includes such date (but
assuming that such taxable year begins no earlier than November 15, 2004)),
(ii) treating each entity that is treated as a corporation for federal income
tax purposes in which the Company has a direct or indirect interest as a having
made a joint TRS election under Section 856(l) of the Code with respect to the
Company to the extent necessary to avoid a REIT qualification issue, so long as
the provisions of clause (e) have been complied with and (iii) assuming that
the Company satisfies

 

32

 

the requirements of Section 856(a)(5) and Section 856(a)(6) of the
Code. From and after the IPO Date and until the earlier of (i) the occurrence
of a Management Shift and (ii) the date on which (A) the Holder has no direct
or indirect interest in the Company (other than by or through a taxable REIT
subsidiary), (B) the Holder owns no warrant or other right to acquire any
interest in the Company and (C) the Holder’s aggregate ownership of interests
in the Company and the Trust represents less than 5% by value of the value of
the Company (in all such cases, taking into account any options or other rights
to acquire such interests) (the “Trust Restricted Period”), the Trust shall be
operated and managed in compliance with all requirements of Part II of
Subchapter M of Chapter 1 of Subtitle A of the Code (or any successor or
similar provisions thereto) such that the Trust will qualify as a REIT within
the meaning of Section 856 of the Code; except as may result from any actions
taken following the Company Restricted Period. Without limiting the generality
of the foregoing two sentences, each of the Trust and the Company and GMH GP
agrees, for the benefit of the Holder, that during the Company Restricted
Period (in the case of the Company and GMH GP) and during the Trust Restricted
Period (in the case of the Trust), neither the Trust, the Company nor GMH GP
shall act, directly or indirectly, in any manner that would result in violation
of any of clauses (a) through (h) below without the prior written consent of
the Holder. Except as specifically provided otherwise in clause (b), for
purposes of clauses (a) through (h) below, references to the Company shall
include any corporation, partnership, limited liability company or other entity
in which the Company has a direct or indirect interest.

 

Except as may be otherwise agreed to in writing by the
Tax Director of Vornado:

 

(a)                                  Neither
the Trust nor the Company shall own, directly or indirectly, any securities
(including, without limitation, stock, partnership or membership interests or
indebtedness of a corporation, partnership or limited liability company) other
than Excluded Securities. Excluded Securities shall mean (i) (A) an equity
interest in a partnership or limited liability company that is treated as a
partnership or disregarded entity for federal income tax purposes (other than
an interest in a partnership or limited liability company listed on such
schedules as may be provided by the Holder to the Trust or the Company from
time to time by written notice (provided, however, that it shall
not be a violation of this clause (a) where the Trust or the Company owns,
directly or indirectly, an interest in a partnership or limited liability
company listed on such schedules where such interest was owned, directly or
indirectly, by the Trust or the Company (as the case may be) prior to the time
at which the Trust or the Company (as the case may be) received written notice
adding such entity to such schedules, so long as the Trust or the Company (as
the case may be) disposes of its interest in such entity within thirty (30)
days after receiving such notice), or (B) an interest in an entity that is treated
as a corporation for federal income tax purposes and (1) as to which the
Company intends that the Trust will make “taxable REIT subsidiary” election
under Section 856(l) of the Code after the IPO Date, so long as the provisions
of clause (e) have been complied with or (2) with respect to which the Trust
has made such an election after the IPO Date (and such election is valid), so
long as the provisions of clause (e) have been complied with, (ii) stock in an
entity that is a real estate investment trust for federal income tax purposes,
(iii) a mortgage loan that is secured by real property with a value, as of the
date of acquisition, in excess of the amount of such loan and (iv) assets
constituting real estate assets, cash, cash items or government securities for
purposes of Section 856(c)(4)(A) of the Code.

 

33

 

(b)                                 Neither
the Trust nor the Company shall hold, directly or indirectly (other than solely
through an interest in an entity that is treated as a corporation for U.S.
federal income tax purposes), any (i) stock in trade or other property of a
kind that would properly be includable in inventory at hand at the close of a
taxable year or (ii) property held primarily for sale to customers in the ordinary
course of a trade or business. For purposes of this clause (b), the term “Company”
shall not include any entity that is treated as a corporation for federal
income tax purposes.

 

(c)                                  Neither
the Trust nor the Company shall hold, directly or indirectly, any REMIC
residual interests.

 

(d)                                 Neither
the Trust nor the Company shall provide services to tenants of the properties
in which the Trust or the Company owns a direct or indirect interest other than
(i) services (other than Excluded Services) that are customarily furnished by
landlords in the same geographical area to tenants of or with respect to
properties of similar type and class in connection with the rental of space for
occupancy only, (ii) through (A) an “independent contractor” (as defined below)
or (B) an entity that is treated as a corporation for federal income tax
purposes and (1) as to which the Company intends that the Trust will make a “taxable
REIT subsidiary” election under Section 856(l) of the Code after the IPO Date,
so long as the provisions of clause (e) have been complied with or (2) with
respect to which the Trust has made such an election after the IPO Date (and
such election is valid), so long as the provisions of clause (e) have been
complied with, or (iii) through any entity listed on such schedules as may be
provided by the Holder to the Trust or the Company from time to time by written
notice. An entity or individual shall be treated as an independent contractor
if it (i) is not owned directly or indirectly by the Trust or the Company and
from which neither the Trust nor the Company derives any income and (ii) is
listed on a schedule provided by the Trust or the Company within ten (10)
Business Days after the date hereof by written notice (or from time to time
thereafter) to the Tax Director of Vornado (or such other person identified by
Vornado), provided that the Tax Director of Vornado (or such other person) does
not object to such person with ten (10) Business Days after receiving such
notice. Excluded Services shall mean (i) cleaning services (other than in
common areas), (ii) “power space” services, (iii) conference room services,
(iv) catering services, (v) telecommunications services or (vi) any other
services provided within a tenant’s premises (other than maintenance services
provided for the Trust or the Company’s benefit, services such as the provision
of lighting, heat, air conditioning, internet hook-ups and similar services (in
each case, to the extent customarily provided to tenants by owners of rental
properties of a similar class and located in the same geographic areas)).

 

(e)                                  For
so long as a member of the Holder holds any direct or indirect interest in the
Company, the Company shall not hold an ownership interest in any entity that is
a corporation for U.S. federal income tax purposes without providing the Holder
with the opportunity to make a taxable REIT subsidiary election under Section
856(1) with respect to such entity (and if the Holder so elects, the Company
shall cause such entity to join in such election) by providing notice to the
Tax Director of Vornado (or such other person identified by Vornado) within 10
business days of acquiring an interest in such entity and allowing the members
of the Holder at least 30 business days to choose to make such an election.

 

34

 

(f)                                    No
taxable REIT subsidiary of the Trust or the Company shall operate property as a
lodging facility (within the meaning of Section 856(d)(9)(D)(ii) of the Code)
or a health care facility (within the meaning of Section 856(e)(6)(D)(ii)), provided,
however, that if the Internal Revenue Service issues a private ruling to
the Trust concluding that the management of student housing properties that
offer short-term summer leasing arrangements would not constitute the operation
of a lodging facility (within the meaning of Section 856(d)(9)(D)(ii) of the
Code) and such ruling is applicable to any partner in the Company that
qualifies as a REIT, a taxable REIT subsidiary of the Trust or the Company shall
be permitted to operate or manage such properties.  Neither the Trust nor the Company shall
(i)  rent property for an amount based on
income or profits of the tenant except to the extent that gross income (as
determined under the provisions of the Internal Revenue Code relating to the
REIT gross income tests) from such rent, together with all other income not
qualifying under Section 856(c)(2) of the Code, does not exceed 5% of the gross
income of the Company or the Trust for any taxable year, and (ii) enter into
any arrangement whereby the Trust or the Company will derive income from a
person listed on such schedules as may be provided by the Holder to the Trust
or the Company from time to time by written notice (provided that it shall not
be a violation of this clause (f) where the Trust or the Company (as the case
may be) derives income from a person listed on such schedules as a result of
arrangements in place prior to the time at which the Trust or the Company (as
the case may be) received written notice identifying such person on such
schedules, so long as the Trust or the Company (as the case may be) ceases to
derive income from such person within thirty (30) days after receiving such
notice.

 

(g)                                 During
the Company Restricted Period, the Company shall, and during the Trust
Restricted Period, the Trust shall, deliver to the Holder, at such times as may
reasonably be requested by the Holder (at least on a quarterly basis), a
certificate or certificates signed by GMH GP (in the case of the Company) or an
appropriate officer of the Trust (in the case of the Trust) to the effect that
the Trust or the Company (as the case may be) has complied with the agreements
set forth in this Section 26. In addition, the Trust, GMH GP and the Company
shall cooperate with the Holder, including, without limitation, by providing
information and documents within their respective control relating to the
income and assets of the Trust and the Company, even if the Holder at such time
no longer holds an interest in the Trust or the Company, in addressing issues
raised by any taxing authority in any audit or similar proceeding relating to
the Holder that relates to or arises out of the Holder’s investment in the
Company.

 

(h)                                 The
Trust and the Company will, upon the request of the Holder, enter into a Trust
Agreement substantially in the form attached as Exhibit A to the Partnership
Agreement, as may be modified by the Holder from time to time to the extent the
Holder determines reasonably necessary to comply with any guidance issued by
the Internal Revenue Service.

 

(i)                                     Notwithstanding
the other provisions of this Section 26, neither the GMH GP nor the Company
will be responsible for any failure to comply with such provisions resulting
from (A) the deemed treatment of rents as described in Section 856(d)(2)(B) of
the Code where such rents would not be treated as rents described in Section
856(d)(2)(B) of the Code with respect to the Trust or (B) the ownership, either
directly or under the attribution rules of Section 856(d)(5) of the Code, by
the Holder of a direct or indirect interest in any entity identified to the Tax
Director of Vornado (or such other person identified by Vornado) in a written
notice provided by

 

35

 

the Company, where such Tax Director (or such other
person) did not reasonably object in writing within ten (10) Business Days of
receipt of written notice from the Company to the entering into by the Company
or any of its Affiliates of a lease or similar arrangement with respect to such
entity or the use of such entity by the Company or any of its Affiliates as an “independent
contractor” (determined as though the Company were a REIT) within the meaning
of Section 856(d)(3) of the Code.

 

(j)                                     If
either the Trust or the Company during the Trust Restricted Period and the
Company Restricted Period, respectively, or GMH GP fails to satisfy its
obligations under this Section 26 and, as a result of such failure, the
Holder (1) fails to maintain its qualification as a REIT or (2) otherwise
incurs any liability for any tax, penalty or similar charges), the Trust and
the Company shall indemnify the Holder for all losses, damages, liabilities,
costs and expenses (including, without limitation, the loss of any deduction or
other tax benefit) attributable to such failure, including without limitation,
the loss of REIT status (whether or not such any such losses, damages,
liabilities costs or other expenses arise during or after the Trust Restricted
Period or the Company Restricted Period).

 

The provisions of this Section 26 shall not be interpreted to permit
the amount of any losses, damages, liabilities, costs and expenses recovered
under this Section 26 to be recovered under the comparable provisions of the
Partnership Agreement.

 

27.                                 GENERAL PARTNER APPOINTMENT. If at any time the Class A
Limited Partnership Interest has been redeemed and an Initial Public Offering
has not been consummated and the Holder holds Limited Partnership Units
acquired pursuant to the exercise of this Warrant or the right to acquire such
Limited Partnership Units, then the Holder will have the right to appoint a
general partner of the Company that will share equally in the management
decisions of the Company with the existing general partner(s) of the Company and
the general and limited partners of the Company shall prepare and execute an
amendment to the Company’s limited partnership agreement to effectuate such
appointment.

 

28.                                 APPOINTMENT OF TRUSTEE. 
At the option of the Holder or, in the event of more than one Holder, at
the option of Vornado, in the event the Holder has exercised this Warrant and
holds Common Shares or Limited Partnership Units acquired at an aggregate price
of not less than $10 million, then the Holder shall have the right, but not the
obligation, to appoint Michael D. Fascitelli or such other executive officer of
Vornado that is reasonably acceptable to the Trust, to the board of trustees of
the Trust.  In the event the Holder has
exercised this right of appointment, the Trust and Gary M. Holloway agree to
take such actions as are necessary to cause the person so appointed to be
elected and re-elected by the shareholders of the Trust, including, but not
limited to, naming such person in any proxy statement and causing such person
to be nominated by the nominating committee of the board for election and
re-election to the Trust’s board of trustees for so long as (i) such person
desires to serve and (ii) the Holder holds Common Shares or Limited Partnership
Units acquired at an aggregate price of not less than $10 million.

 

29.                                 OPT-OUTS FROM MARYLAND BUSINESS COMBINATION ACT AND MARYLAND CONTROL
SHARE ACQUISITION ACT. The Trust and Gary M. Holloway,

 

36

 

as the sole shareholder of the Trust, covenant and agree that upon the
Trust becoming the general partner of the Company, the Trust shall, by adopting
a resolution of its board of trustees or by amending its bylaws, as
appropriate, ensure that (1) the acquisition by Vornado, any of its affiliates
or any of its transferees and assigns of this Warrant, or Common Shares or
Limited Partnership Units pursuant to the exercise of this Warrant, is exempted
from the provisions of Section 3-602 of the Maryland General Corporation Law,
as applicable to a Maryland real estate investment trust, pursuant to Section
3-603(c) of the Maryland General Corporation Law and (2) Title 3, Subtitle 7 of
the Maryland General Corporation Law, or any successor statute, as applicable
to a Maryland real estate investment trust, shall not apply to any acquisition
of Common Shares or Limited Partnership Units by Vornado, any of its affiliates
or any of its transferees and assigns.

 

37

 

IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be
executed by their respective duly authorized officers as of October 28, 2004.

 

	
   

  	
  GMH COMMUNITIES, LP

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  GMH COMMUNITIES GP, LLC

  
	
   

  	
   

  	
  as sole general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary M. Holloway

  	
   

  
	
   

  	
  Name: Gary M. Holloway

  
	
   

  	
  Title: 

  
	
   

  	
   

  	
   

  
	
   

  	
  Address: 10 Campus Boulevard

  
	
   

  	
  Newtown Square, Pennsylvania 19073

  
	
   

  	
  Facsimile No.: (610) 355-8001

  
	
   

  	
  (With a copy to Joseph M.
  Macchione, Facsimile

  No.: (610) 325-2046)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GMH COMMUNITIES TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Gary M. Holloway

  	
   

  
	
   

  	
  Name: Gary M. Holloway

  
	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Address: 10 Campus Boulevard

  
	
   

  	
  Newtown Square, Pennsylvania 19073

  
	
   

  	
  Facsimile No.: (610) 355-8001

  
	
   

  	
  (With a copy to Joseph M.
  Macchione, Facsimile

  No.: (610) 325-2046)

  
	
   

  	
   

  	
   

  
	
   

  	
  GMH COMMUNITIES GP TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Gary M. Holloway

  	
   

  
	
   

  	
  Name: Gary M. Holloway

  
	
   

  	
  Title: Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
  Address: 10 Campus Boulevard

  
	
   

  	
  Newtown Square, Pennsylvania 19073

  
	
   

  	
  Facsimile No.: (610) 355-8001

  
	
   

  	
  (With a copy to Joseph M.
  Macchione, Facsimile

  No.: (610) 325-2046)

  

 

38

 

	
   

  	
  GMH COMMUNITIES GP, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gary M. Holloway

  	
   

  
	
   

  	
  Name: Gary M. Holloway

  
	
   

  	
  Title 

  
	
   

  	
   

  	
   

  
	
   

  	
  Address: 10 Campus Boulevard

  
	
   

  	
  Newtown Square, Pennsylvania 19073

  
	
   

  	
  Facsimile No.: (610) 355-8001

  
	
   

  	
  (With a copy to Joseph M.
  Macchione, Facsimile

  No.: (610) 325-2046)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Gary M. Holloway

  	
   

  
	
   

  	
  Gary M. Holloway

  
	
   

  	
  Individually and as sole shareholder of GMH

  
	
   

  	
  Communities Trust and sole member of GMH

  
	
   

  	
  Communities GP, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  Address: 10 Campus Boulevard

  
	
   

  	
  Newtown Square, Pennsylvania 19073

  
	
   

  	
  Facsimile No.: (610) 355-8001

  
	
   

  	
  (With a copy to Joseph M.
  Macchione, Facsimile

  No.: (610) 325-2046)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WARRANT HOLDER:

  
	
   

  	
   

  	
   

  
	
   

  	
  VORNADO REALTY L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  VORNADO REALTY TRUST

  
	
   

  	
   

  	
  as sole general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph Macnow

  	
   

  
	
   

  	
  Name: Joseph Macnow

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  Address: 888 Seventh Avenue

  
	
   

  	
  New York, New York 10019

  
	
   

  	
  Facsimile No.: (212) 894-7035

  
	
   

  	
  ATTN: Dan Guglielmone

  

 

39

 

Annex A-1

 

NOTICE OF EXERCISE

 

TO:  GMH COMMUNITIES, LP

 

(1) The undersigned hereby elects to purchase on [insert exercise date]
                       
Class A common units of limited partnership of GMH Communities, LP pursuant to
the terms of the attached Warrant and tenders herewith or is delivering by wire
transfer to account number                    
at                                  
(bank) payment of the exercise price in full; and

 

(2) Please issue a certificate or certificates representing said common
units of limited partnership in the name of the undersigned or in such other
name as is specified below:

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Name)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Address)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (Date)

  	
   

  	
   

  	
  (Signature)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Print Name)

  	
   

  

 

 

Annex A-2

 

NOTICE OF EXERCISE

 

TO:  GMH COMMUNITIES TRUST

 

(1) The undersigned hereby elects to purchase on [insert exercise date]
                       
common shares of beneficial interest of GMH Communities Trust pursuant to the
terms of the attached Warrant and tenders herewith or is delivering by wire
transfer to account number                    
at                                  
(bank) payment of the exercise price in full; and/or

 

(2) Please issue a certificate or certificates representing said common
shares of beneficial interest in the name of the undersigned or in such other
name as is specified below:

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Name)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Address)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (Date)

  	
   

  	
   

  	
  (Signature)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Print Name)

  	
   

  

 

 

Annex B-1

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute
this form

and supply required information. Do not use
this form

to purchase shares.)

 

FOR VALUE RECEIVED, the right to purchase                
Class A common units of limited partnership of GMH Communities, LP pursuant to
the foregoing Warrant and all other rights evidenced thereby are hereby assigned
to:

 

	
  Name:

  	
   

  	
   

  
	
   

  	
  (Please Print)

  
	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
  (Please Print)

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  
	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
   

  
	
  Holder’s Address:

  	
   

  	
   

  
						

 

NOTE: The signature to this Assignment Form must correspond with the
name as it appears on the face of this Warrant, without alteration or
enlargement or any change whatever. Officers of corporations and those acting
in a fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant.

 

 

Annex B-2

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute
this form

and supply required information. Do not use this form

to purchase shares.)

 

FOR VALUE RECEIVED, the right to purchase                
common shares of beneficial interest of GMH Communities Trust pursuant to the
foregoing Warrant and all other rights evidenced thereby are hereby assigned
to:

 

	
  Name:

  	
   

  	
   

  
	
   

  	
  (Please Print)

  
	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
  (Please Print)

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  
	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
   

  
	
  Holder’s Address:

  	
   

  	
   

  
						

 

NOTE: The signature to this Assignment Form must correspond with the
name as it appears on the face of this Warrant, without alteration or
enlargement or any change whatever. Officers of corporations and those acting
in a fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00073-of-00352.parquet"}]]