exv10w1






Exhibit 10.1




Agreement and Plan of Merger




Between



NorthStar Real Estate Income Trust, Inc.



and



NorthStar Income Opportunity REIT I, Inc.



September 8, 2010



 









 





TABLE OF CONTENTS




	 	 	 	 	 

	AGREEMENT AND PLAN OF MERGER
	 	 	1	 
	 
	 	 	 	 
	BACKGROUND
	 	 	1	 
	 
	 	 	 	 
	ARTICLE I—DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II—THE MERGER; CLOSING
	 	 	5	 
	 
	 	 	 	 
	Section 2.1 The Merger
	 	 	5	 
	Section 2.2 The Closing
	 	 	5	 
	Section 2.3 Actions at the Closing
	 	 	5	 
	Section 2.4 Effect of Merger
	 	 	6	 
	Section 2.5 Conversion of Shares
	 	 	6	 
	Section 2.6 Election Procedure
	 	 	7	 
	Section 2.7 Rights of Objecting Stockholders
	 	 	8	 
	 
	 	 	 	 
	ARTICLE III—NIOR REPRESENTATIONS AND WARRANTIES
	 	 	9	 
	 
	 	 	 	 
	Section 3.1 Organization, Qualification, and Corporate Power
	 	 	9	 
	Section 3.2 Capitalization
	 	 	9	 
	Section 3.3 Authorization of Transaction
	 	 	9	 
	Section 3.4 Consents and Approvals; No Violations
	 	 	9	 
	Section 3.5 Undisclosed Liabilities
	 	 	10	 
	Section 3.6 Compliance with Applicable Laws
	 	 	10	 
	Section 3.7 Litigation
	 	 	10	 
	Section 3.8 Brokers’ Fees
	 	 	10	 
	 
	 	 	 	 
	ARTICLE IV—REPRESENTATIONS AND WARRANTIES OF NS REIT
	 	 	10	 
	 
	 	 	 	 
	Section 4.1 Organization, Qualification and Corporate Power
	 	 	10	 
	Section 4.2 Capitalization
	 	 	10	 
	Section 4.3 Authorization of Transaction
	 	 	11	 
	Section 4.4 Consents and Approvals; No Violations
	 	 	11	 
	Section 4.5 Brokers’ Fees
	 	 	11	 
	Section 4.6 Undisclosed Liabilities
	 	 	11	 
	Section 4.7 REIT Qualification
	 	 	11	 
	Section 4.8 SEC Filings; Financial Statements
	 	 	12	 
	 
	 	 	 	 
	ARTICLE V—COVENANTS
	 	 	12	 
	 
	 	 	 	 
	Section 5.1 General
	 	 	12	 
	Section 5.2 Notices and Consents
	 	 	12	 
	Section 5.3 Regulatory Matters and Approvals
	 	 	12	 
	 
	 	 	 	 
	ARTICLE VI—CONDITIONS TO CONSUMMATION OF THE MERGER
	 	 	14	 
	 
	 	 	 	 
	Section 6.1 Conditions to Each Party’s Obligation
	 	 	14	 
	Section 6.2 Conditions to NS REIT’s Obligation
	 	 	14	 
	Section 6.3 Conditions to NIOR’s Obligation
	 	 	15	 
	 
	 	 	 	 
	ARTICLE VII—TERMINATION
	 	 	16	 
	 
	 	 	 	 
	Section 7.1 Termination of Agreement
	 	 	16	 
	Section 7.2 Effect of Termination
	 	 	17	 
	 
	 	 	 	 






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	ARTICLE VIII—MISCELLANEOUS
	 	 	17	 
	 
	 	 	 	 
	Section 8.1 Press Releases and Public Announcements
	 	 	17	 
	Section 8.2 No Third-Party Beneficiaries
	 	 	17	 
	Section 8.3 Entire Agreement
	 	 	17	 
	Section 8.4 Succession and Assignment
	 	 	17	 
	Section 8.5 Counterparts
	 	 	17	 
	Section 8.6 Headings
	 	 	17	 
	Section 8.7 Notices
	 	 	17	 
	Section 8.8 Governing Law
	 	 	18	 
	Section 8.9 Amendments and Waivers
	 	 	18	 
	Section 8.10 Severability
	 	 	18	 
	Section 8.11 Expenses
	 	 	18	 
	Section 8.12 Construction
	 	 	18	 
	Section 8.13 Incorporation of Exhibits and Schedules
	 	 	19	 
	 
	 	 	 	 
	Exhibit A—Articles of Merger
	 	 	 	 
	Exhibit B—Certificate Articles of Merger
	 	 	 	 
	Exhibit C—Form of Opinion of Counsel to NIOR
	 	 	 	 
	Exhibit D—First Amendment to the Articles of Amendment and
Restatement of NorthStar Income Opportunity REIT I, Inc.
	 	 	 
	Exhibit E—Election Form
	 	 	 	 
	Annex I—List of NIOR Stockholders
	 	 	 	 
	Disclosure Schedules
	 	 	 	 






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AGREEMENT AND PLAN OF MERGER




     This Merger Agreement (this “Agreement”) is entered into as of September 8, 2010 by
and between NorthStar Real Estate Income Trust, Inc., a Maryland corporation (“NS REIT”),
and NorthStar Income Opportunity REIT I, Inc., a Maryland corporation (“NIOR”). NS REIT and
NIOR are referred to collectively herein as the “Parties.”



BACKGROUND




     WHEREAS, the Parties desire to enter into a merger on the terms and subject to the conditions
set forth in this Agreement.



     WHEREAS, the Parties intend that the merger qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.



     WHEREAS, the respective boards of directors of each of NIOR and NS REIT have determined that
the transactions contemplated hereby are in the best interests of the Parties and their respective
stockholders, and have approved this Agreement and declared advisable the Merger (as defined
below), substantially upon the terms and conditions set forth in this Agreement.



ARTICLE I—DEFINITIONS




     “Accredited Investor” has the meaning provided for under Rule 501 of the Securities
Act of 1933, as amended.



     “Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated
under the Securities Exchange Act.



     “Agreement” has the meaning set forth in the preamble.



     “Applicable Law” means, with respect to any Person, such Person’s articles or
certificate of incorporation, formation documents, bylaws, operating agreements, trust agreements,
or other governing or constitutive documents, if any, and any laws, statutes, ordinances,
regulations, rules, notice requirements, court decisions, and orders of any federal, state, local
or foreign government and any other governmental department or agency in effect on the date of this
Agreement or on the Closing Date or any court order to which, in each case, such Person or any of
such Person’s properties, operations, business or assets is bound or subject. Applicable Law
includes environmental laws, occupational safety and health regulations, health codes and laws with
respect to insurance, energy, public utilities, employment practices, employment documentation,
terms and conditions of employment and wages and hours and state and local zoning and building
laws.



     “Articles of Merger” has the meaning set forth in Section 2.3 below.



     “Cash Consideration” has the meaning set forth in Section 2.5 below.



     “Cash Election” has the meaning set forth in Section 2.5 below.



     “Cash Election Shares” has the meaning set forth in Section 2.5 below.



     “Certificate of Merger” has the meaning set forth in Section 2.3 below.



     “Closing” has the meaning set forth in Section 2.2 below.



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     “Closing Date” has the meaning set forth in Section 2.2 below.



     “Confidential Information” means any information concerning the business and affairs
of NIOR and its Subsidiaries that is not already generally available to the public.



     “Constituent Documents” means the applicable articles of incorporation, articles of
amendment and restatement, certificate of incorporation, articles of organization, certificate of
formation, certificate of limited partnership or other formation document of any Person, its
bylaws, operating agreement, partnership agreement or other governance documents, as applicable.



     “Conversion Ratio” has the meaning set forth in Section 2.5 below.



     “Definitive NIOR Proxy Materials” means the definitive proxy materials relating to the
Special NIOR Meeting.



     “Delaware Partnership Act” shall mean the Revised Uniform Limited Partnership Act of
Title 6 of the Delaware Uniform Commercial Code.



     “Delaware Secretary of State” shall mean the Secretary of State of the State of
Delaware.



     “Disclosure Schedule” has the meaning set forth in Article III below.



     “Effective Time” has the meaning set forth in Section 2.4 below.



     “Election Form” has the meaning set forth in Section 2.6 below.



     “Election Form Record Date” has the meaning set forth in Section 2.6 below.



     “Exchange Act” means the Securities Exchange Act of 1934, as amended.



     “GAAP” means United States generally accepted accounting principles as in effect from
time to time, consistently applied.



     “Governmental Entity” means any court, tribunal, arbitrator, authority, agency,
commission, official or other instrumentality of any government or governmental or regulatory body
thereof (whether federal, state, foreign, provincial, county, city, municipal or otherwise).



     “IRS” means the Internal Revenue Service.



     “Knowledge” means actual knowledge after reasonable investigation.



     “Lien” means any mortgage, pledge, lien, encumbrance, charge, or other security
interest, other than (a) liens for Taxes not yet due and payable or for taxes that the taxpayer is
contesting in good faith through appropriate proceedings, (b) purchase money liens and liens
securing rental payments under capital lease arrangements, and (c) other liens arising in the
Ordinary Course of Business and not incurred in connection with the borrowing of money.



     “Litigation” means any suit, action, administrative or other audit (other than regular
audits of financial statements by outside auditors) proceeding, arbitration, cause of action,
charge, claim, complaint, compliance review, criminal prosecution, grievance inquiry, hearing,
inspection, investigation (governmental or otherwise), written notice by any Person alleging
potential liability or requesting information.



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     “Mailing Date” has the meaning set forth in Section 2.6 below.



     “Maryland General Corporation Law” means the Maryland General Corporation Law of the
State of Maryland, as amended from time to time.



     “Material” or “material” for purposes of this Agreement shall be determined in
light of the facts and circumstances of the matter in question; provided that any specific
monetary amount stated in this Agreement shall determine materiality in that instance.



     “Material Adverse Effect” or “Material Adverse Change” means, as the context
requires, any effect or change that would be materially adverse to the business, assets, condition
(financial or otherwise), operating results, operations, or business prospects of any Party or its
Subsidiaries, taken as a whole, or to the ability of any Party to consummate timely the
transactions contemplated hereby.



     “Merger” has the meaning set forth in Section 2.1 below.



     “Merger Consideration” has the meaning set forth in Section 2.5 below.



     “Mixed Election” has the meaning set forth in Section 2.5 below.



     “NIOR” has the meaning set forth in the preface above.



     “NIOR Ancillary Agreements” means the (a) Amended and Restated Dealer Manager
Agreement between NIOR and NRF Capital Markets, LLC, (b) each of the Participating Dealer
Agreements between Welton Street Investments LLC and the signatories thereto, (c) the Advisory
Agreement among NIOR, NorthStar Real Estate Income Trust Operating Partnership, LP, NS Real Estate
Income Trust Advisor, LLC and NorthStar Realty Finance Corp. and (d) the Distribution Support
Agreement among NIOR, NS Real Estate Income Trust Advisor, LLC and NorthStar Realty Finance Corp.



     “NIOR Charter Amendment” means the First Amendment in the form attached hereto as
Exhibit D to the NorthStar Income Opportunity REIT I, Inc. Articles of Amendment and
Restatement filed with SDAT on August 18, 2009.



     “NIOR OP” means NorthStar Income Opportunity REIT Operating Partnership I, LP, a
Delaware limited partnership.



     “NIOR Merger” shall have the meaning set forth in Section 2.1 below.



     “NIOR Preferred Shares” means any share of the preferred stock, $0.01 par value per
share, of NIOR.



     “NIOR OP Merger” shall have the meaning set forth in Section 2.1 below.



     “NIOR Share” means any share of the common stock, $0.01 par value per share, of NIOR.



     “NIOR Stockholder” means any Person who or that holds any NIOR Shares.



     “Non-Accredited NIOR Stockholder” means a NIOR Stockholder that fails to represent,
pursuant to and as of the date of such NIOR Stockholder’s completion of the Election Form, that
such NIOR Stockholder meets the definition of Accredited Investor in such Election Form or such
NIOR Stockholders whose status cannot reasonably be confirmed by NS REIT to be an Accredited
Investor.



     “NS REIT” has the meaning set forth in the preface above.



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     “NS REIT OP” means NorthStar Real Estate Income Trust Operating Partnership, LP, a
Delaware limited partnership.



     “NS REIT Preferred Share” means any validly issued, fully paid and non-assessable
share of the preferred stock, $0.01 par value per share, of NS REIT.



     “NS REIT Public Offering” means the offering of NIOR Shares pursuant to the
Registration Statement on Form S-11 (File No. 333-157688) filed with the SEC under the Securities
Act for its initial public offering of up to $1,100,000,000 in NIOR Shares.



     “NS REIT SEC Documents” has the meaning set forth in Section 4.8.



     “NS REIT Share” means any share of the common stock, $0.01 par value per share, of NS
REIT.



     “Ordinary Course of Business” means the ordinary course of business consistent with
past custom and practice (including with respect to quantity and frequency).



     “Party” has the meaning set forth in the preface above.



     “Person” means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an unincorporated
organization, any other business entity, or a governmental entity (or any department, agency, or
political subdivision thereof).



     “Prospectus” means the final prospectus relating to the registration of NS REIT Shares
under the Securities Act.



     “Proxy Solicitation” means the NIOR disclosure document combining the NIOR Transmittal
Letter, NIOR Information Statement with respect to the Merger, the NS REIT Prospectus, the
Definitive NIOR Proxy Materials and the Election Form.



     “Remaining Cash Consideration” shall mean $10,000,000 less any and all cash amounts
paid as Merger Consideration to Non-Accredited NIOR Stockholders plus any cash payable to NIOR
Stockholders in lieu of fractional shares pursuant to Section 2.6(e).



     “Requisite NIOR Stockholder Approval” means the affirmative vote of the holders of
NIOR Shares entitled to cast a majority of all votes entitled to be cast in favor of the NIOR
Charter Amendment, this Agreement and the Merger.



     “Requisite NS REIT Stockholder Approval” means the affirmative vote of the holders of
NS REIT Shares entitled to cast a majority of all votes entitled to be cast in favor of this
Agreement and the Merger.



     “SDAT” has the meaning set forth in Section 2.3 below.



     “SEC” means the Securities and Exchange Commission.



     “Securities Act” means the Securities Act of 1933, as amended.



     “Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.



     “Special NIOR Meeting” has the meaning set forth in Section 5.3(a) below.



     “Stock Consideration” has the meaning set forth in Section 2.5(a) below.



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     “Stock Election” has the meaning set forth in Section 2.5 below.



     “Stockholder Representative” has the meaning set forth in Section 2.6 below.



     “Subsidiary” means, with respect to any Person, any corporation, limited liability
company, partnership, association, or other business entity of which (i) if a corporation, a
majority of the total voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers, or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company,
partnership, association, or other business entity (other than a corporation), a majority of the
partnership or other similar ownership interests thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination
thereof and for this purpose, a Person or Persons own a majority ownership interest in such a
business entity (other than a corporation) if such Person or Persons shall be allocated a majority
of such business entity’s gains or losses or shall be or control any managing director or general
partner of such business entity (other than a corporation). The term “Subsidiary” shall include all
Subsidiaries of such Subsidiary.



     “Surviving Corporation” has the meaning set forth in Section 2.1 below.



ARTICLE II—THE MERGER; CLOSING




     Section 2.1 The Merger. On and subject to the terms and conditions of this Agreement,
NIOR will merge with and into NS REIT (the “NIOR Merger”) at the Effective Time and in
accordance with Title 3 of the Maryland General Corporation Law, and NIOR OP will merge with and
into NS REIT OP (the “NIOR OP Merger”) at the Effective Time and in accordance with Section
17-211 of the Delaware Limited Partnership Act (the NIOR Merger and the NIOR OP Merger are
collectively referred to as the “Merger”). NS REIT shall be the corporation surviving the
NIOR Merger (the “Surviving Corporation”), and NS REIT OP shall be the limited partnership
surviving the NIOR OP Merger, and the separate existence of each of NIOR and NIOR OP shall cease.
The existence of NS REIT and NS REIT OP shall each continue unaffected and impaired by the Merger.



     Section 2.2 The Closing. The closing of the transactions contemplated by this
Agreement (the “Closing”) shall take place at the offices of Alston & Bird LLP, at 90 Park
Avenue, New York City, New York 10016, commencing at 10:00 a.m. local time on the second business
day following the satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as the Parties may mutually
determine (the “Closing Date”).



     Section 2.3 Actions at the Closing. At the Closing, (i) NIOR will deliver to NS REIT
the various certificates, instruments, and documents referred to in Section 6.2 below, (ii) NS REIT
will deliver to NIOR the various certificates, instruments, and documents referred to in Section
6.3 below, (iii) NS REIT and NIOR will file with the State Department of Assessments and Taxation
(“SDAT”) of the State of Maryland the Articles of Merger evidencing the merger of NIOR with
and into NS REIT pursuant to the provisions of Title 3, Subtitle 1 of the Maryland General
Corporation Law, in the form attached hereto as Exhibit A (the “Articles of
Merger”) and NIOR OP and NS REIT OP will file with the Delaware Secretary of State the
Certificate of Merger evidencing the merger of NIOR OP with and into NS REIT OP pursuant to the
provisions of Section 17-211 of the Delaware Limited Partnership Act, in the form attached as
Exhibit B (the “Certificate of Merger”).



5









 





     Section 2.4 Effect of Merger.




     (a) General. The Merger shall become effective at the time (the “Effective
Time”) NS REIT and NIOR file the Articles of Merger with SDAT and the Certificate of
Merger with the Delaware Secretary of State, or at such time (which shall be the same time
and date) as set forth in the Articles of Merger and the Certificate of Merger. The NIOR
Merger shall have the effect set forth in the Maryland General Corporation Law, and the NIOR
OP Merger shall have the effect set forth in the Delaware Limited Partnership Act. The
Surviving Corporation may, at any time after the Effective Time, take any action (including
executing and delivering any document) in the name and on behalf of either NS REIT or NIOR
in order to carry out and effectuate the transactions contemplated by this Agreement.




     (b) Articles of Amendment and Restatement. The charter of NS REIT as in effect
at and as of the Effective Time will remain the charter of Surviving Corporation without any
modification or amendment in the Merger.




     (c) Bylaws. The bylaws of NS REIT as in effect at and as of the Effective Time
will remain the bylaws of Surviving Corporation without any modification or amendment in the
Merger.




     (d) Directors and Officers. The directors and officers of NS REIT in office at
and as of the Effective Time will remain the directors and officers of Surviving Corporation
(retaining their respective positions and terms of office).



     Section 2.5 Conversion of Shares. At the Effective Time and by virtue of the Merger:




     (a) Subject to the provisions of this Section 2.5, and as subject to adjustment as
provided in Section 2.6(d) below, each NIOR Share issued and outstanding immediately prior
to the Effective Time will be converted into and constitute, in accordance with the terms
hereof, the following consideration (as so elected and adjusted, the “Merger
Consideration”):




     (i) for each NIOR Share with respect to which an election to receive cash
pursuant to Section 2.6 has been effectively made and not revoked (a “Cash
Election”), the right to receive cash, without interest, in an amount equal to
$9.22 (the “Cash Consideration”); or




     (ii) for each NIOR Share with respect to which an election to receive NS REIT
Shares pursuant to Section 2.6 has been effectively made and not revoked (a
“Stock Election”), and conditioned upon each so electing NIOR Stockholder
making certain representations and warranties with respect to their status as
Accredited Investors in the Election Form, 1.02444444 NS REIT Shares for every one
NIOR Share (such ratio of NS REIT Shares to one NIOR Share is referred to herein as
the “Conversion Ratio,” as such Conversion Ratio may be further equitably
adjusted in the event of any stock split, stock dividend, reverse stock split, or
other change in the number of NIOR Shares outstanding between the date of this
Agreement and the Closing Date) (the “Stock Consideration”).




     (b) With respect to those NIOR Stockholders owning multiple shares and which a Stock
Election has been made to receive the Stock Consideration for a certain number of such NIOR
Stockholder’s NIOR Shares and a Cash Election has been made for all other of such NIOR
Stockholder’s NIOR Shares (a “Mixed Election”): (A) the Conversion Ratio multiplied
by the number of NIOR Shares in respect of which a Stock Election is made to receive Stock



6









 







Consideration and (B) cash, without interest, in an amount equal to $9.22 per NIOR
Share for all remaining NIOR Shares of such electing NIOR Stockholder.




     (c) No Non-Accredited NIOR Stockholder and no holder of Non-Election Shares (as defined
below) shall be eligible to receive the Stock Consideration, and All Non-Accredited NIOR
Stockholders and holders of Non-Election Shares shall be required instead to receive only
the Cash Consideration in respect of the NIOR Shares held by them.




     (d) Each NS REIT Share issued and outstanding at and as of the Effective Time will
remain issued and outstanding and unaffected by the Merger.



     Section 2.6 Election Procedure.




     (a) Choice of Election. NIOR Stockholders shall make the Cash Election, Stock
Election or Mixed Election (in all cases without interest) in exchange for their NIOR Shares
in accordance with the procedures set forth in this Section 2.6. NIOR Shares as to which a
Cash Election (including those NIOR Shares to which Cash Consideration is elected to be
received pursuant to a Mixed Election) has been made are referred to herein as “Cash
Election Shares.” NIOR Shares as to which a Stock Election has been made (including,
pursuant to a Mixed Election) are referred to as “Stock Election Shares.” Shares of
NIOR as to which no election has been made (or as to which an Election Form is not returned
properly completed) are referred to herein as “Non-Election Shares.”




     (b) Election Form. An election form and other appropriate and customary
transmittal materials, in such form as NIOR and NS REIT shall mutually agree, in
substantially the form attached as Exhibit E (“Election Form”), shall be
mailed on such date as NIOR and NS REIT shall mutually agree, provided such other date is
not less than ten nor more than 90 days prior to the scheduled Special NIOR Meeting (the
“Mailing Date”) to each NIOR Stockholder of record as of September 8, 2010 (the
“Election Form Record Date”). Each Election Form shall permit such NIOR
Stockholder, subject to the allocation and election procedures set forth in this Section
2.6, (i) to elect to receive the Cash Consideration for all of such NIOR Shares held by such
electing NIOR Stockholder, in accordance with Section 2.5(a)(i), (ii) to elect to receive
the Stock Consideration for all of such NIOR Shares held by such electing NIOR Stockholder,
in accordance with Section 2.5(a)(ii), or (iii) to elect to receive both the Stock
Consideration and Cash Consideration pursuant to a Mixed Election, and shall direct that the
completed Election Forms be submitted to NIOR on or before the date specified therein. A
NIOR Stockholder of record who holds such shares as nominee, trustee or in another
representative capacity (a “Stockholder Representative”) may submit multiple
Election Forms, provided that each such Election Form covers all the NIOR Shares
held by such Stockholder Representative for a particular beneficial owner. Any NIOR Shares
with respect to which the holder thereof shall not, as of the Election Deadline, have made
an election by submission of an effective, properly completed Election Form shall be deemed
Non-Election Shares.




     (c) Effectiveness; Election Deadline. Upon receipt of completed Election Forms
from the NIOR Stockholders, NIOR will promptly, and in any event on or before 5:00 p.m., New
York City time, on October 5, 2010 (or such other time and date as NS REIT and NIOR may
mutually agree) (the “Election Deadline”) submit the same (or true and correct
copies thereof) to NS REIT; provided, however, that the Election Deadline
may not occur on or after the Closing Date. NIOR shall provide to NS REIT all information
reasonably requested by NS REIT subsequent to the submission by NIOR of the Election Forms
for NS REIT to perform as specified herein. Unless otherwise agreed to by NS REIT, an
election shall have been properly made only if NS REIT shall have actually received a
properly completed Election Form by the



7









 







Election Deadline. An Election Form shall be deemed properly completed only if
completed with respect to all NIOR Shares covered by such Election Form, together with duly
executed transmittal materials included with the Election Form. If a NIOR Stockholder
either (i) does not submit a properly completed Election Form in a timely fashion or (ii)
revokes its Election Form prior to the Election Deadline (without later submitting a
properly completed Election Form prior to the Election Deadline), the NIOR shares held by
such NIOR Stockholder shall be designated as Non-Election Shares. Any Election Form may be
revoked or changed by the person submitting such Election Form to NS REIT by written notice
to NS REIT only if such notice of revocation or change is actually received by NS REIT at or
prior to the Election Deadline. Subject to the terms of this Agreement and of the Election
Form, NS REIT shall have discretion to determine when any election, modification or
revocation is received and whether any such election, modification or revocation has been
properly made. All Elections (whether Cash, Stock or Mixed) shall be revoked automatically
if NS REIT or NIOR, upon exercise by either of its respective or their mutual rights to
terminate this Agreement to the extent provided under Article VIII, that this Agreement has
been terminated in accordance with Article VIII.




     (d) Proration of Cash Consideration. If the aggregate Cash Consideration
elected to be received by NIOR Stockholders or designated to be paid (with respect to
Non-Accredited NIOR Stockholders or with respect to Non-Election Shares) pursuant to timely
received Election Forms plus cash to be issued pursuant to Section 2.6(e) is equal to or
exceeds in the aggregate $10,000,000, then, except with respect to the Cash Consideration to
be paid (x) to Non-Accredited NIOR Stockholders or (ii) in respect of Non-Election Shares
plus (z) any cash payable to NIOR Stockholders in lieu of fractional shares pursuant to
Section 2.6(e) (which in the case of (x), (y) and (z), will not be reduced), the Cash
Consideration payable to all other NIOR Stockholders (or in respect of all other NIOR
Shares) shall be reduced to an amount equal to each such electing NIOR Stockholder’s pro
rata ownership of NIOR, multiplied by the Remaining Cash Consideration, with the remaining
Merger Consideration to be paid to such electing NIOR Stockholders in the form of Stock
Consideration. From and after the Mailing Date, NS REIT and NIOR agree to use reasonable
efforts to determine and confirm the Accredited Investor status of each NIOR Stockholder
based on Election Forms properly received and information which shall be a reasonable basis
upon which to confirm the Accredited Investor status of a NIOR Stockholder and to determine
the Merger Consideration payable to each NIOR Stockholder; provided,
however, that NS REIT shall be responsible for the ultimate determination and
confirmation of Accredited Investor status of each NIOR Stockholder based on Election Forms
properly submitted and other information available to it. NS REIT reserves the right to
make any reasonable determinations in connection with the confirmation of Accredited
Investor status of NIOR Stockholders based on facts and circumstances and information made
available to it from and after the Mailing Date until the Closing. Promptly after the
Election Deadline, NS REIT shall provide NIOR with a list of each NIOR Stockholder and the
Merger Consideration to be received at Closing, along with the calculation of the Merger
Consideration for each NIOR Stockholder and the methodology used thereby.




     (e) Fractional Shares. Notwithstanding any other provision hereof, no
fractional NS REIT Shares and no scrip therefor, or other evidence of ownership thereof,
will be issued in the Merger. Instead, NS REIT will pay to each NIOR Stockholder who would
otherwise be entitled to a fractional NS REIT Share an amount in cash (without interest)
determined by multiplying such fraction of NS REIT Share by $9.22.



     Section 2.7 Rights of Objecting Stockholders. Pursuant to Section 7.6 of the second
articles of amendment and restatement of the articles of incorporation of NIOR, NIOR Stockholders
shall not be entitled to exercise any rights of an objecting stockholder under Title 3, Subtitle 2
of the Maryland General Corporation Law in connection with either approval of the Merger and the
Merger Agreement



8









 




and the transactions contemplated thereby, or approval of the Charter Amendment.




ARTICLE III—NIOR REPRESENTATIONS AND WARRANTIES




     Except as otherwise disclosed to NS REIT in the disclosure schedule accompanying this
Agreement, or as otherwise known to NS REIT, NIOR represents and warrants to NS REIT as of the date
hereof (except for those representations and warranties made as of a specific date or time) as
follows:



     Section 3.1 Organization, Qualification, and Corporate Power. Each of NIOR and its
Subsidiaries is duly formed, validly existing, and in good standing under the laws of the
jurisdiction of its organization. Each of NIOR and its Subsidiaries is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such qualification is
required except where the lack of such qualification would not have a Material Adverse Effect. Each
of NIOR and its Subsidiaries has requisite corporate, limited liability company or partnership
power and authority to carry on the business in which it is engaged and to own and use the
properties owned and used by it.



     Section 3.2 Capitalization. The entire authorized capital stock of NIOR consists of
100,000,000 NIOR Shares and 50,000,000 NIOR Preferred Shares. All of the issued and outstanding
NIOR Shares and NIOR Preferred Shares owned by the NIOR Stockholders are as set forth on Annex
I. All of the issued and outstanding NIOR Shares have been duly authorized and are validly
issued, fully paid, and non-assessable. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require NIOR to issue, sell, or otherwise cause to become outstanding any of
its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to NIOR.



     Section 3.3 Authorization of Transaction. NIOR has the requisite power and authority
(including full corporate power and authority) to execute and deliver this Agreement and to perform
its obligations hereunder and has taken all action necessary to execute, deliver and perform this
Agreement and consummate the transactions contemplated hereby; provided, however,
that NIOR cannot consummate the NIOR Merger unless and until it receives the Requisite NIOR
Stockholder Approval and the NIOR Charter Amendment has been filed with SDAT and is effective.
This Agreement constitutes a legal, valid and binding obligation of NIOR, enforceable against NIOR
in accordance with its terms and conditions, except as such enforceability may be limited by
applicable bankruptcy, involuntary reorganization, moratorium or other laws affecting creditors’
rights generally and except insofar as the availability of equitable remedies may be limited by
applicable law.



     Section 3.4 Consents and Approvals; No Violations. Except for the filing and
recordation of the NIOR Charter Amendment and the Articles of Merger as required by the Maryland
General Corporation Law and the filing or recordation of the Certificate of Merger as required by
the Delaware Limited Partnership Act, and except where the failure to make any filing with, or to
obtain any permit, authorization, consent or approval of, any Governmental Entity would not (i)
prevent or delay the consummation of the Merger or the transactions contemplated by this Agreement,
or (ii) otherwise prevent NIOR from performing its obligations under this Agreement, or (iii) in
the aggregate have or be reasonably likely to result in a Material Adverse Effect, or (iv) have a
Material Adverse Effect on the ability of the Surviving Corporation, immediately following the
Effective Time, to conduct the business of NIOR as presently conducted, no filing with, and no
permit, authorization, consent or approval of, any Governmental Entity is necessary for the
execution, delivery and performance of this Agreement by NIOR and the consummation by NIOR of the
transactions contemplated hereby. Except for filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, state securities laws, or
the filing and recordation of the NIOR Charter Amendment and the Articles of Merger as required by
the Maryland General Corporation Law , and the filing or



9









 




recordation of the Certificate of Merger as required by the Delaware Limited Partnership Act,
no consent or approval of any other Person is required to be obtained by NIOR or its Subsidiaries
for the execution, delivery or performance of this Agreement or the performance by NIOR of the
transactions contemplated hereby. Neither the execution, delivery or performance of this Agreement
by NIOR, nor the consummation by NIOR of the transactions contemplated hereby, nor compliance by
NIOR with any of the provisions hereof, after giving effect to the Charter Amendment, will conflict
with or result in any breach of any provisions of NIOR’s Constituent Documents or result in a
violation or breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation, vesting, payment, exercise,
acceleration, suspension or revocation) under, any of the terms, conditions or provisions of any
material agreement to which NIOR is a party.




     Section 3.5 Undisclosed Liabilities. As of the Closing Date, NIOR will not have any
liabilities or obligations, whether absolute, accrued, contingent or otherwise and whether due or
to become due, except: (a) as set forth in Schedule 3.5 of the Disclosure Schedules; and
(b) for obligations of future performance under material agreements to which NIOR is a party and
under other agreements or arrangements entered into or existing in the Ordinary Course of Business
in accordance with this Agreement which are not required to be listed in the Disclosure Schedules.



     Section 3.6 Compliance with Applicable Laws. Each of NIOR and its Subsidiaries is in
compliance with all Applicable Laws, except where such failure to comply would not individually or
in the aggregate result in a Material Adverse Effect.



     Section 3.7 Litigation. There is no Litigation pending or, to the Knowledge of NIOR,
threatened against NIOR or any NIOR Subsidiary, or before or by any Governmental Entity. Neither
NIOR nor any NIOR Subsidiary is in default under any Court Order affecting NIOR or any NIOR
Subsidiary, its business or any of its Assets.



     Section 3.8 Brokers’ Fees. Neither NIOR nor any of its Subsidiaries has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.



ARTICLE IV—REPRESENTATIONS AND WARRANTIES OF NS REIT




     Except as otherwise disclosed to NIOR in the Disclosure Schedules accompanying this Agreement,
NS REIT represents and warrants to NIOR as of the date hereof (except for those representations and
warranties made as of a specific date or time) as follows:



     Section 4.1 Organization, Qualification and Corporate Power. Each of NS REIT and its
Subsidiaries is duly formed, validly existing, and in good standing under the laws of the
jurisdiction of its organization. Each of NS REIT and its Subsidiaries is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction where such
qualification is required except where the lack of such qualification would not have a Material
Adverse Effect. Each of NS REIT and its Subsidiaries has requisite corporate, limited liability
company or partnership power and authority to carry on the business in which it is engaged and to
own and use the properties owned and used by it.



     Section 4.2 Capitalization. The entire authorized capital stock of NS REIT consists
of 400,000,000 NS REIT Shares and 50,000,000 NS REIT Preferred Shares, of which 24,039 NS REIT
Shares and no NS REIT Preferred Shares are issued and outstanding. All of the issued and
outstanding NIOR Shares have been duly authorized and are validly issued, fully paid, and
non-assessable. Except with respect to the NS REIT Public Offering, there are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require NS REIT to issue, sell, or otherwise
cause to become outstanding any of its capital



10









 




stock. There are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to NS REIT. All of the NS REIT Shares to be issued
in the Merger have been duly authorized and, upon consummation of the Merger, will be validly
issued, fully paid, and non-assessable.




     Section 4.3 Authorization of Transaction. NS REIT has the requisite power and
authority (including full corporate power and authority) to execute and deliver this Agreement and
to perform its obligations hereunder and has taken all action necessary to execute, deliver and
perform this Agreement and consummate the transactions contemplated hereby; provided,
however, that NS REIT cannot consummate the Merger unless and until it receives the
Requisite NS REIT Stockholder Approval. This Agreement constitutes a legal, valid and binding
obligation of NS REIT, enforceable against NS REIT in accordance with its terms and conditions,
except as such enforceability may be limited by applicable bankruptcy, involuntary reorganization,
moratorium or other laws affecting creditors’ rights generally and except insofar as the
availability of equitable remedies may be limited by applicable law.



     Section 4.4 Consents and Approvals; No Violations. Except for the filing and
recordation of the Articles of Merger as required by the Maryland General Corporation Law and the
filing or recordation of the Certificate of Merger as required by the Delaware Limited Partnership
Act, and except where the failure to make any filing with, or to obtain any permit, authorization,
consent or approval of, any Governmental Entity would not (i) prevent or delay the consummation of
the Merger or the transactions contemplated by this Agreement, or (ii) otherwise prevent NS REIT
from performing its obligations under this Agreement, or (iii) in the aggregate have or be
reasonably likely to result in a Material Adverse Effect, or (iv) have a Material Adverse Effect on
the ability of the Surviving Corporation, immediately following the Effective Time, to conduct the
business of each of NIOR and NS REIT as presently conducted, no filing with, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for the execution,
delivery and performance of this Agreement by NS REIT and the consummation by NS REIT of the
transactions contemplated hereby. Except for filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, state securities laws, or
the filing and recordation of the Articles of Merger as required by the Maryland General
Corporation Law and the filing or recordation of the Certificate of Merger as required by the
Delaware Limited Partnership Act, no consent or approval of any other Person is required to be
obtained by NS REIT or its Subsidiaries for the execution, delivery or performance of this
Agreement or the performance by NS REIT of the transactions contemplated hereby. Neither the
execution, delivery or performance of this Agreement by NS REIT, nor the consummation by NS REIT of
the transactions contemplated hereby, nor compliance by NS REIT with any of the provisions hereof,
will conflict with or result in any breach of any provisions of NS REIT’s Constituent Documents or
result in a violation or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation, vesting, payment,
exercise, acceleration, suspension or revocation) under, any of the terms, conditions or provisions
of any material NS REIT agreement.



     Section 4.5 Brokers’ Fees. NS REIT does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which NIOR or any of its Subsidiaries could become liable or
obligated.



     Section 4.6 Undisclosed Liabilities. As of the Closing Date, NS REIT will not have
any liabilities or obligations, whether absolute, accrued, contingent or otherwise and whether due
or to become due, except for obligations of future performance under material agreements to which
NS REIT is a party and other obligations entered into in the Ordinary Course of Business .



     Section 4.7 REIT Qualification. To the Knowledge of NS REIT, there exist no facts or
circumstances, whether existing or anticipated (and including without limitation the consummation
of the Merger) which would preclude NS REIT from qualifying as a real estate investment trust under
the



11









 




Internal Revenue Code of 1986, as amended, for the fiscal year ended December 31, 2010, and NS
REIT intends to be so qualified and will take all steps reasonably necessary to do so.




     Section 4.8
SEC Filings; Financial Statements. NS REIT has filed with the SEC and has
heretofore made available to NIOR true and complete copies of, all forms, reports, schedules,
statements, exhibits and other documents required to be filed by it and its subsidiaries on or
since July 19, 2010 under the Securities Act and the Exchange Act (collectively, the “NS REIT
SEC Documents”), and will promptly make available to NIOR all such forms, reports, schedules,
statements, exhibits and other documents as are filed prior to the Closing. As of their respective
dates or, if amended prior to the date hereof, as of the date of the last such amendment, NS REIT
SEC Documents complied, and any forms, reports, schedules, statements, exhibits and other documents
NS REIT may file with the SEC subsequent to the date hereof until the Closing, including, without
limitation, any financial statements or schedules included therein, will comply in all material
respects with the applicable requirements of the Securities Act and the Exchange Act, and did not
and will not contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they were or will be made, not misleading. The financial statements of
NS REIT and its subsidiaries, including all related notes and schedules, contained in NS REIT SEC
Documents complied in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared in accordance with
GAAP applied on a consistent basis during the periods involved (except as may be indicated in the
notes thereto), and fairly present (on a consolidated basis, if applicable) (a) the financial
position of NS REIT, as of the dates thereof, and (b) its results of operations, cash flows and
changes in stockholders’ equity for the periods then ended (subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments). Since July 19, 2010, and except
with respect to the Merger and the transactions contemplated thereby, there has not been any
material change, or any application or request for any material change, by NS REIT or any of its
subsidiaries, in accounting principles, methods or policies for financial accounting or tax
purposes (subject, in the case of the unaudited interim financial statements, to normal year-end
adjustments). To the extent required, NS REIT has complied in all material respects with the
provisions of the Sarbanes — Oxley Act of 2002 to the extent it has been applicable to NS REIT
historically.



ARTICLE V—COVENANTS




     The Parties (including one or more or both as the context below suggests) agree as follows
with respect to the period from and after the execution of this Agreement:



     Section 5.1 General. Each of the Parties will use its reasonable efforts to take all
actions and to do all things necessary, proper, or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including satisfaction, but not waiver,
of the Closing conditions set forth in Article VI below).



     Section 5.2 Notices and Consents. Each of NIOR and NS REIT will give any notices (and
will cause each of their respective Subsidiaries to give any notices) to third parties, and will
use its reasonable efforts to obtain (and will cause each of their respective Subsidiaries to use
their respective reasonable efforts to obtain) any third-party consents referred to in Section 3.4
and Section 4.4 above.



     Section 5.3 Regulatory Matters and Approvals. Each of the Parties will (and NIOR will
cause each of their respective Subsidiaries to) give any notices to, make any filings with, and use
its reasonable efforts to obtain any authorizations, consents, and approvals of governments and
Governmental Entities in connection with the matters referred to in Section 3.4 and Section 4.6
above. Without limiting the generality of the foregoing:



12









 






     (a) Maryland General Corporation Law. NIOR will call a special meeting of the
NIOR Stockholders (the “Special NIOR Meeting”) to be held on October 8, 2010,
subject to adjournment or otherwise as soon as reasonably practicable in order that the NIOR
Stockholders may consider and vote upon the approval of the NIOR Charter Amendment and the
NIOR Merger substantially upon the terms and conditions set forth in this Agreement, in
accordance with the Maryland General Corporation Law. NIOR will mail the Proxy Solicitation
to the NIOR Stockholders as soon as reasonably practicable after the date of this Agreement.
The Proxy Solicitation will contain the affirmative recommendations of the NIOR board of
directors in favor of the adoption of this Agreement and the approval of the NIOR Charter
Amendment and the NIOR Merger. NS REIT will obtain the Requisite NS REIT Stockholder
Approval of the NIOR Merger and the Merger Agreement.




     (b) Operation of Business. Each of NS REIT and NIOR will not (and will not
cause or permit any of their respective Subsidiaries to) engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:




     (i) neither NIOR nor NS REIT, nor any of their respective Subsidiaries, will
authorize or effect any change in its Constituent Documents, except with respect to
obtaining the Requisite NIOR Stockholder Approval in favor of the Charter Amendment;




     (ii) neither NIOR nor NS REIT, nor any of their respective Subsidiaries, will
grant any options, warrants, or other rights to purchase or obtain any of its
capital stock or issue, sell, or otherwise dispose of any of its stock (except upon
the conversion or exercise of options, warrants, and other rights currently
outstanding);




     (iii) neither NIOR nor NS REIT, nor any of their respective Subsidiaries, will
declare, set aside, or pay any dividend or distribution with respect to its stock
(whether in cash or in kind), or redeem, repurchase, or otherwise acquire any of its
capital stock, in either case outside the Ordinary Course of Business, provided that
NIOR shall pay a cash dividend prior to the Merger in an amount reasonably expected
to meet any applicable tax requirement related to the qualification of NIOR as a
real estate investment trust, and to be at least sufficient to prevent the
imposition of U.S. federal income tax on the undistributed income of NIOR;




     (iv) neither NIOR nor NS REIT, nor any of their respective Subsidiaries, will
issue any note, bond, or other debt security or create, incur, assume, or guarantee
any indebtedness for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;




     (v) neither NIOR nor NS REIT, nor any of their respective Subsidiaries, will
impose any Lien upon any of its assets outside the Ordinary Course of Business;




     (vi) neither NIOR nor NS REIT, nor any of their respective Subsidiaries, will
make any capital investment in, make any loan to, or acquire the securities or
assets of any other Person outside the Ordinary Course of Business;




     (vii) neither NIOR nor NS REIT, nor any of their respective Subsidiaries, will
make any change in employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business; and




     (viii)
neither NIOR nor NS REIT, nor any of their respective Subsidiaries, will
commit to any of the foregoing.





13









 









     (c) Full Access. Each of NIOR and NS REIT will (and will cause each of its
Subsidiaries to) permit representatives of the other Party (including legal counsel and
accountants) to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the other Party and its Subsidiaries, to
all premises, properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to the other Party and each of its Subsidiaries. Each Party will
treat and hold as such any Confidential Information it receives from the other Party or any
of its Subsidiaries in the course of the reviews contemplated by this Section 5(c), will not
use any of the Confidential Information except in connection with this Agreement, and, if
this Agreement is terminated for any reason whatsoever, agrees to return to the other Party
all tangible embodiments (and all copies) thereof that are in its possession.




     (d) State Corporate and Securities Filings. NS REIT will make all filings,
notices and permits as may be required under, and under applicable requirements of, state
securities laws with respect to the issuance of the Stock Consideration. Subject to the
terms and conditions hereof, and as contemplated hereby, each of NIOR and NS REIT shall
garner all necessary approvals (including limited partner approvals insofar as required) and
file or cause to be filed the Certificate of Merger with the Delaware Secretary of State.




     (e) Notice of Developments. Each Party will give prompt written notice to the
other of any material adverse development causing a breach of any of its own representations
and warranties in Articles III and IV above. No disclosure by any Party pursuant to this
Section 5(d), however, shall be deemed to amend or supplement the Disclosure Schedules or to
prevent or cure any misrepresentation, breach of warranty, or breach of covenant.



ARTICLE VI—CONDITIONS TO CONSUMMATION OF THE MERGER




     Section 6.1 Conditions to Each Party’s Obligation. The respective obligations of each
party to effect, or cause to be effected, the Merger are subject to the satisfaction (or waiver in
writing by NS REIT and NIOR) at or prior to the Effective Time of the following conditions:




     (a) No statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restrains, enjoins or restricts the consummation of transactions contemplated by
this Agreement.




     (b) Each of NIOR and NS REIT shall have caused (or shall concurrently cause) NIOR OP to
merge with and into NS REIT OP, with NS REIT OP being the surviving entity pursuant to the
provisions of Section 17-211 of the Delaware Limited Partnership Act, and shall have filed
(or concurrently file) the Certificate of Merger with the Delaware Secretary of State.



     Section 6.2 Conditions to NS REIT’s Obligation. The obligation of NS REIT to
consummate the transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:




     (a) NIOR shall have received the Requisite NIOR Stockholder Approval;




     (b) the NIOR Charter Amendment shall have been duly filed with SDAT;




     (c) NIOR and its Subsidiaries shall have procured all of the third-party consents



14









 







applicable to NIOR and its Subsidiaries specified in Section 5.2 above;




     (d) the representations and warranties set forth in Article III above shall be true and
correct in all material respects at and as of the Closing Date, except to the extent that
such representations and warranties are qualified by the term “material,” or contain terms
such as “Material Adverse Effect” or “Material Adverse Change,” in which case such
representations and warranties (as so written, including the term “material” or “Material”)
shall be true and correct in all respects at and as of the Closing Date;




     (e) NIOR shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing, except to the extent that such covenants are
qualified by the term “material,” or contain terms such as “Material Adverse Effect” or
“Material Adverse Change,” in which case NIOR shall have performed and complied with all of
such covenants (as so written, including the term “material” or “Material”) in all respects
through the Closing;




     (f) No action, suit, or proceeding shall be pending or threatened before (or that could
come before) any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before (or that could come before) any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following consummation, (C)
materially and adversely affect the right of Surviving Corporation to own the former assets,
to operate the former business, and to control the former Subsidiaries of NIOR, or (D)
materially and adversely affect the right of any of the former Subsidiaries of NIOR to own
its assets and to operate its business (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);




     (g) NIOR shall cause the NIOR Ancillary Agreement to be duly terminated (or terminate
upon consummation of the Merger) pursuant to their respective terms.




     (h) NIOR shall have delivered to NS REIT a certificate to the effect that each of the
conditions specified above in Sections 6.2(a)-(g) is satisfied in all respects;




     (i) The aggregate Cash Consideration payable upon consummation of the NIOR Merger in
respect of all NIOR Shares held by Non-Accredited NIOR Stockholders, the Non-Election Shares
and fractional shares shall not exceed $10,000,000 in value, as determined by reference to
the Cash Consideration per NIOR Share described in Section 2.5(a)(i).




     (j) REIT shall have received from counsel to NIOR an opinion in form and substance
substantially as set forth in Exhibit C attached hereto, addressed to NS REIT, and
dated as of the Closing Date;




     (k) all actions to be taken by NIOR in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be reasonably satisfactory in
form and substance to NS REIT.



     Section 6.3 Conditions to NIOR’s Obligation. The obligation of NIOR to consummate the
transactions to be performed by it in connection with the Closing is subject to satisfaction of the
following conditions:




     (a) NS REIT shall have received the Requisite NS REIT Stockholder Approval;



15









 






     (b) NS REIT and its Subsidiaries shall have procured all of the third-party consents
applicable to NS REIT and its Subsidiaries specified in Section 5.2 above;




     (c) the representations and warranties set forth in Article IV above shall be true and
correct in all material respects at and as of the Closing Date, except to the extent that
such representations and warranties are qualified by the term “material,” or contain terms
such as “Material Adverse Effect” or “Material Adverse Change,” in which case such
representations and warranties (as so written, including the term “material” or “Material”)
shall be true and correct in all respects at and as of the Closing Date;




     (d) NS REIT shall have performed and complied with all of its covenants hereunder in
all material respects through the Closing, except to the extent that such covenants are
qualified by the term “material,” or contain terms such as “Material Adverse Effect” or
“Material Adverse Change,” in which case NS REIT shall have performed and complied with all
of such covenants (as so written, including the term “material” or “Material”) in all
respects through the Closing;




     (e) All actions to be taken by NS REIT in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to NIOR.




     (f) No action, suit, or proceeding shall be pending or threatened before (or that could
come before) any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before (or that could come before) any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following consummation, (C)
materially and adversely affect the right of Surviving Corporation to own the former assets,
to operate the former business, and to control the former Subsidiaries of NIOR, or (D)
materially and adversely affect the right of any of the former Subsidiaries of NIOR to own
its assets and to operate its business (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect).



ARTICLE VII—TERMINATION




     Section 7.1 Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before or after
applicable stockholder approval) as provided below:




     (a) the Parties may terminate this Agreement by mutual written consent at any time
prior to the Effective Time;




     (b) NS REIT may terminate this Agreement by giving written notice to NIOR at any time
prior to the Effective Time (i) in the event NIOR has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect, NS REIT has
notified NIOR of the breach, and the breach has continued without cure for a period of 30
days after the notice of breach, (ii) after the Special NIOR Meeting in the event that NIOR
shall fail to receive the Requisite NIOR Stockholder Approval or (iii) if the Closing shall
not have occurred on or before December 31, 2010, by reason of the failure of any condition
precedent under Section 6.2 hereof (unless the failure results primarily from NS REIT
breaching any representation, warranty, or covenant contained in this Agreement);




     (c) NIOR may terminate this Agreement by giving written notice to NS REIT at any



16









 







time prior to the Effective Time (i) in the event NS REIT has breached any material
representation, warranty, or covenant contained in this Agreement in any material respect,
NIOR has notified NS REIT of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach, (ii) in the event NS REIT fails to obtain the
Requisite NS REIT Stockholder Approval on or before the Special NIOR Meeting or (iii) if the
Closing shall not have occurred on or before December 31, 2010, by reason of the failure of
any condition precedent under Section 6.3 hereof (unless the failure results primarily from
NIOR breaching any representation, warranty, or covenant contained in this Agreement);



     Section 7.2 Effect of Termination. If any Party terminates this Agreement pursuant to
Section 7.1 above, all rights and obligations of the Parties hereunder shall terminate without any
liability of any Party to any other Party (except for any liability of any Party then in breach);
provided, however, that the confidentiality provisions contained in Article V above
shall survive any such termination.



ARTICLE VIII—MISCELLANEOUS




     Section 8.1 Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this Agreement without
the prior written approval of the other Party; provided, however, that any Party may make any
public disclosure it believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly traded securities (in which case the disclosing Party will use
its reasonable efforts to advise the other Party prior to making the disclosure).



     Section 8.2 No Third-Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any Person other than the Parties and their respective successors and permitted
assigns; provided, however, that the provisions in Article II above concerning
issuance of the NS REIT Shares are intended for the benefit of NIOR Stockholders.



     Section 8.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any prior
understandings, agreements, or representations by or between the Parties, written or oral, to the
extent they relate in any way to the subject matter hereof.



     Section 8.4 Succession and Assignment. This Agreement shall be binding upon and inure
to the benefit of the Parties named herein and their respective successors and permitted assigns.
No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other Party.



     Section 8.5 Counterparts. This Agreement may be executed in one or more counterparts
(including by means of facsimile), each of which shall be deemed an original but all of which
together will constitute one and the same instrument.



     Section 8.6 Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or interpretation of this
Agreement.



     Section 8.7 Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder
shall be deemed duly given (i) when delivered personally to the recipient, (ii) 1 business day
after being sent to the recipient by reputable overnight courier service (charges prepaid), (iii) 1
business day after being sent to the recipient by facsimile transmission or electronic mail, or
(iv) 4 business days after being mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid, and addressed to the intended recipient as set forth below:



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			If to NIOR:

	 	Copy to:
			NorthStar Income Opportunity REIT I, Inc.

	 	Ballard Spahr LLP
			399 Park Avenue

	 	300 East Lombard Street
			18th Floor

	 	18th Floor
			New York, New York 10022

	 	Baltimore, Maryland 21202
			 

	 	Attention: Douglas Fox
			 
	 	 
			If to NS REIT:

	 	Copy to:
			NorthStar Real Estate Income Trust, Inc.

	 	Alston & Bird LLP
			399 Park Avenue

	 	1201 West Peachtree Street
			18th Floor

	 	Atlanta, Georgia 30309
			New York, New York 10022

	 	Attention: Rosemarie Thurston






     Any Party may send any notice, request, demand, claim, or other communication hereunder to the
intended recipient at the address set forth above using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended recipient. Any Party may
change the address to which notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other Party notice in the manner herein set forth.



     Section 8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Maryland without giving effect to any choice or
conflict of law provision or rule (whether of the State of Maryland or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State of Maryland.



     Section 8.9 Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior authorization of their
respective boards of directors; provided, however, that any amendment effected subsequent to
applicable stockholder approval will be subject to the restrictions contained in the Maryland
General Corporation Law. No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by both of the Parties. No waiver by any Party of any provision
of this Agreement or any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be valid unless the same shall be in writing and signed by the
Party making such waiver nor shall such waiver be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such default, misrepresentation, or breach of
warranty or covenant.



     Section 8.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other jurisdiction.



     Section 8.11 Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.



     Section 8.12 Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption
or burden of proof



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shall arise favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the
context otherwise requires. The word “including” shall mean including without limitation.




     Section 8.13 Incorporation of Exhibits and Schedules. The Exhibits, Annexes and
Disclosure Schedules identified in this Agreement are incorporated herein by reference and made a
part hereof.



* * * * *




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     IN WITNESS WHEREOF, the Parties hereto have executed this Merger Agreement as of the date
first above written.



	 	 	 	 	 
	 	NIOR:




NorthStar Income Opportunity REIT I, Inc.

 	 
	 	By:  	/s/ David Hamamoto
 	 
	 	 	Name:  	David Hamamoto  	 
	 	 	Title:  	Chairman and Chief Executive Officer 	 
	 
	 	NS REIT:



NorthStar Real Estate Income Trust, Inc.

 	 
	 	By:  	/s/ Andrew Richardson
 	 
	 	 	Name:  	Andrew Richardson  	 
	 	 	Title:  	President, Chief Financial Officer and Treasurer 	 
	 




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Schedule 3.05




Undisclosed Liabilities


The face value of the GECMC 2005-C4 A4 bond is held as collateral against a TALF loan, which
we would assume, in the amount of $11,639,040, with a fixed interest rate of 3.7285% per annum
through January 28, 2015. Any prepayment of the loan will not be subject to a prepayment penalty.
The balance due at maturity, assuming no payment has been made on its principal in advance of its
due date, is $11,639,040.



The face value of the COMM 2006-C7 A4 bond is held as collateral against a TALF loan, which we
would assume, in the amount of $12,450,000, with a fixed interest rate of 3.6865% per annum through
February 25, 2015. Any prepayment of the loan will not be subject to a prepayment penalty. The
balance due at maturity, assuming no payment has been made on its principal in advance of its due
date, is $12,450,000.





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