Document:

exv10w3

Exhibit 10.3

COMMONWEALTH OF PENNSYLVANIA

DEPARTMENT OF BANKING

	 	 	 	 	 
	 
	 
	 	:	 	 
	Commonwealth of Pennsylvania,
	 	:	 	Docket No.: 09____(ENF-ORD)
	Department of Banking, Bureau of
	 	:	 	 
	Commercial Institutions,
	 	:	 	 
	 
	 	:	 	 
	v.
	 	:	 	 
	 
	 	:	 	 
	Royal Bank America.
	 	:	 	 
	 
	 	:	 	 
	 

CEASE AND DESIST ORDER

     WHEREAS, Royal Bank America, Narberth, Pennsylvania (the “Bank”), is a Pennsylvania
state-chartered bank and subject to regulation by the Commonwealth of Pennsylvania Department of
Banking (the “Department”) and the Federal Deposit Insurance Corporation (“FDIC”);

     WHEREAS, the Bureau of Commercial Institutions (the “Bureau”) is primarily responsible within
the Department for the regulation and supervision of the Bank;

     WHEREAS, the Bank was the subject of a Joint Report of Examination of the Bank by the Bureau
and the FDIC as of December 31, 2008 (the “Report of Examination”); and,

     WHEREAS, the Report of Examination gave the Bureau and the FDIC the reason to believe that the
Bank had engaged in unsafe or unsound banking practices and had committed violations of law and
regulation.

     IT IS HEREBY ORDERED, pursuant to Section 501.A of the Department of Banking Code, 71 P.S. §
733-501.A, that the Bank, its directors, officers, employees, agents, and other
“institution-affiliated parties,” as that term is defined in Section 3(u) of the FDIA, 12 U.S.C. §
1813(u), and its successors and assigns, shall CEASE AND DESIST from engaging in the following
unsafe or unsound banking practices and violations of law and regulation:

 

 

     1. Operating the Bank with inadequate management policies and practices that are detrimental
to the Bank.

     2. Operating the Bank without adequate supervision and direction by the Bank’s board of
directors over the management of the Bank to prevent unsafe or unsound banking practices.

     3. Operating the Bank with an excessive level of adversely classified loans or assets.

     4. Operating the Bank with an excessive level of delinquent loans.

     5. Operating the Bank with an excessive level of nonaccrual loans.

     6. Engaging in unsatisfactory lending and collection practices, including, but not limited to:

          (a) Insufficient monitoring and controls over receivable-based loans.

          (b) Excessive out-of-territory lending.

          (c) Over-reliance on real estate liquidation as a loan repayment source and over-reliance on
guarantors’ real estate net worth.

          (d) Operating with inadequate underwriting, loan-grading system and loan administration
practices.

     7. Operating the Bank with an inadequate level of capital protection for the kind and quality
of assets held by the Bank.

     8. Operating the Bank with inadequate earnings to fund growth and augment capital.

     9. Operating the Bank with inadequate net interest margins.

     10. Operating the Bank without adequate liquidity and funds management policies and
procedures.

     11. Operating with an inadequate investment policy.

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     12. Operating the Bank with a heavy reliance on non-core funding sources.

     13. Operating the Bank with inadequate internal routines and controls.

     IT IS FURTHER ORDERED, pursuant to Section 501.A of the Department of Banking Code, 71 P.S. §
733-501.A, that the Bank, its directors, officers, employees, agents, and other
“institution-affiliated parties,” as that term is defined in Section 3(u) of the FDIA, 12 U.S.C. §
1813(u), and its successors and assigns, shall take AFFIRMATIVE ACTION, as follows:

     1. Management.

          (a) The Bank shall have and retain qualified management. Each member of management shall
possess qualifications and experience commensurate with his or her duties and responsibilities at
the Bank. The qualifications of management personnel shall be evaluated on their ability to:

	 	(i)	 	comply with the requirements of this Order;
	 
	 	(ii)	 	operate the Bank in a safe and sound manner;
	 
	 	(iii)	 	comply with applicable laws and regulations;
and
	 
	 	(iv)	 	restore all aspects of the Bank to a safe and
sound condition, including improving the Bank’s asset quality, capital
adequacy, earnings, management effectiveness, and liquidity.

          (b) While this Order is in effect, the Bank shall notify the Department in writing of any
changes of any member of the Bank’s board of directors (“Board”) or senior management officer
within 15 days of the event. Any notification required by this subparagraph shall include a
description of the background(s) and experience of any proposed replacement personnel and must be
received at least 30 days prior to the individual(s) assuming the new position(s). The Bank shall
also establish procedures to ensure compliance with

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section 32 of the Act, 12 U.S.C. § 1831i, and Subpart F of Part 303 of the FDIC Rules and Regulations, 12 C.F.R.
Part 303.

     2. Management — Board Supervision. Within 30 days after the effective date of this
Order, the Board shall increase its participation in the affairs of the Bank by assuming full
responsibility for the approval of the Bank’s policies and objectives and for the supervision of
the Bank’s management, including all the Bank’s activities. The Board’s participation shall
include, at a minimum, monthly meetings in which the following areas shall be reviewed and approved
by the Board: reports of income and expenses; new, overdue, renewed, insider, charged-off,
delinquent, noncurrent, and recovered loans; investment activities; liquidity and funds management;
operating policies; and individual committee actions. The Board minutes shall document these
reviews and approvals, including the names of any dissenting directors.

     3. Classified Assets — Charge-Off and Plan For Reduction.

          (a) Within 30 days after the effective date of this Order, the Bank shall, to the extent that
it has not previously done so, eliminate from its books, by charge-off or collection, all assets or
portions of assets classified “Loss” by the FDIC and the Department in the Joint Report of
Examination as of December 31, 2008 (“Report of Examination”). Elimination or reduction of these
assets through proceeds of loans made by the Bank shall not be considered “collection” for the
purpose of this paragraph.

          (b) Within 60 days after the effective date of this Order, the Bank shall formulate and submit
a detailed written plan to the Bureau to reduce the remaining assets classified “Doubtful” and
“Substandard” in the Report of Examination. The plan shall address each asset so classified with a
balance of $1,000,000 or greater and provide the following:

	 	(i)	 	the name under which the asset is carried on
the Bank’s books;
	 
	 	(ii)	 	type of asset;
	 
	 	(iii)	 	actions to be taken in order to reduce the classified asset;
	 
	 	(iv)	 	timeframes for accomplishing the proposed actions;

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	 	(v)	 	The plan shall also include, at a minimum:
	 
	 	 	 	(1) a review of the financial position of each such borrower,
including the source of repayment, repayment ability, and alternate
repayment sources; and
	 
	 	 	 	(2) an evaluation of the available collateral for each such credit,
including possible actions to improve the Bank’s collateral position;

	 	(vi)	 	a schedule detailing the projected reduction of
total classified assets on a quarterly basis; and,
	 
	 	(vii)	 	a provision requiring the submission of
monthly progress reports to the Board and a provision mandating a
review by the Board.

          (c) The Bank shall submit the plan to the Bureau for review and comment. Within 30 days after
the Bureau has responded to the plan, the Board shall adopt the plan as amended or modified by the
Bureau, which approval shall be recorded in the minutes of the Board meeting. The Bank shall then
immediately initiate measures detailed in the plan to the extent such measures have not been
initiated.

          (d) For purposes of the plan, the reduction of adversely classified assets shall be detailed
using quarterly targets expressed as a percentage of the Bank’s Tier 1 capital plus the Bank’s
Allowance for Loan and Lease Losses and may be accomplished by charge-off, collection; sufficient
improvement in the quality of adversely classified assets so as to warrant removing any adverse
classification, as determined by the Bureau; or an increase in the Bank’s Tier 1 capital.

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          (e) While this Order is in effect, the Bank shall eliminate from its books, by charge-off or
collection, all assets or portions of assets classified “Loss” as determined at any future
examination.

     4. Reduction of Delinquencies.

          (a) Within 60 days after the effective-date of this Order, the Bank shall formulate and submit
to the Bureau for review and comment a detailed written plan for the reduction and collection of
delinquent loans, such plan shall include, but not be limited to, provisions which:

	 	(i)	 	prohibit the extension of credit for the
payment of interest, unless the Board adopts prior to such extension of
credit a detailed written statement giving reasons why such extension
of credit is in the best interests of the Bank and how it improves the
position of the Bank. Copies of the statement approved by the Board
shall be made a part of the Board minutes and placed in the appropriate
loan file and submitted to the Bureau with the quarterly progress
reports required pursuant to paragraph 16 of this Order;
	 
	 	(ii)	 	delineate areas of responsibility for
implementing and monitoring the Bank’s collection policies;
	 
	 	(iii)	 	establish specific collection procedures to be
instituted at various stages of a borrower’s delinquency;
	 
	 	(iv)	 	establish dollar levels to which the Bank shall
reduce delinquencies within 6 and 12 months from the effective date of
this Order; and,

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	 	(v)	 	provide for the submission of monthly written
progress reports to the Board for review and notation in the Board
minutes.

          (b) For purposes of the plan, “reduce” means to charge-off or collect.

          (c) Within 30 days after the Bureau has responded to the plan, the Board shall adopt the plan
as amended or modified by the Bureau. The plan shall be implemented immediately to the extent that
the provisions of the plan are not already in effect at the Bank.

     5. Restriction of Advances to Classified Borrowers.

          (a) While this Order is in effect, the Bank shall not extend, directly or indirectly, any
additional credit to or for the benefit of any borrower whose existing credit has been classified
“Loss” in the Report of Examination, either in whole or in part, and is uncollected, or to any
borrower who is already obligated in any manner to the Bank on any extension of credit, including
any portion thereof, that has been charged off the books of the Bank and remains uncollected. The
requirements of this paragraph shall not prohibit the Bank from renewing (after full collection, in
cash, of interest due from the borrower) any credit already extended to the borrower.

          (b) While this Order is in effect, the Bank shall not extend, directly or indirectly, any
additional credit to or for the benefit of any borrower whose extension of credit is classified
“Doubtful” and/or “Substandard” in the Report of Examination, either in whole or in part, and is
uncollected, unless the Board has signed a detailed written statement giving reasons why failure to
extend such credit would be detrimental to the best interests of the Bank. The statement shall be
placed in the appropriate loan file and included in the minutes of the applicable meeting of the
Board.

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     6. Reduction of Commercial Real Estate Concentrations.

          (a) Within 45 days from the effective date of this Order, the Bank shall develop and submit a
written plan, acceptable to the Bureau, for systematically reducing and monitoring the Bank’s
commercial real estate (“CRE”) loan concentration of credit identified in the Report of Examination
to an amount which is commensurate with the Bank’s business strategy, management expertise, size,
and location. Such plan shall prohibit any advances that would increase the concentration unless
the advance is pursuant to an existing loan agreement and shall include, but not be limited to:

	 	(i)	 	dollar levels and percent of capital to which
the Bank shall reduce the concentration; and,
	 
	 	(ii)	 	timeframes for achieving the reduction in
dollar levels in response to (i) above;
	 
	 	(iii)	 	compliance with the Interagency Guidance on
Concentrations in Commercial Real Estate Lending, Sound Risk Management
Practices (FIL-104-2006, issued December 12, 2006) and Managing
Commercial Real Estate Concentrations in a Challenging Environment
(FIL-22-2008, issued March 17, 2008);
	 
	 	(iv)	 	provisions for controlling and monitoring of
CRE, including plans to address the rationale for CRE levels as they
relate to growth and capital targets, segmentation and testing of the
CRE portfolio to detect and limit concentrations with similar risk
characteristics; and

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	 	(v)	 	provisions for the submission of monthly
written progress reports to the Board for review and notation in
minutes of the Board meetings.

          (b) For purposes of the plan, “reduce” means to charge-off or collect or increase Tier 1
capital.

          (c) The Bank shall submit the Plan to the Bureau for review and comment. Within 30 days after
the Bureau has responded to the plan, the Board shall adopt the plan as amended or modified by the
Bureau, which approval shall be recorded in the minutes of the Board meeting. The plan shall be
implemented immediately to the extent that the provisions of the plan are not already in effect at
the Bank.

     7. Capital Maintenance.

          (a) Within 30 days after the effective date of this Order, and at all times thereafter while
this Order is in effect, the Bank, after establishing an adequate Allowance for Loan and Lease
Losses, shall increase and maintain its ratio of Tier 1 capital to total assets (“leverage ratio”)
equal to or greater than 8 percent and its ratio of qualifying total capital to risk-weighted
assets (“total risk-based capital ratio”) equal to or greater than 12 percent.

          (b) If said capital ratios are less than required by this Order, as determined as of the date
of any Report of Condition and Income or at any future examination, the Bank shall, within 30 days
after notice of its capital deficiency, submit to the Bureau a plan to increase its capital or to
take such other measures to bring its leverage and total risk-based capital ratio to the percentage
required by this Order. After the Bureau responds to the plan, the Board shall adopt the plan,
including any modifications or amendments requested by the Bureau.

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          (c) In addition, the Bank shall comply with the FDIC’s Statement of Policy on Risk-Based
Capital found in Appendix A to Part 325 of the FDIC Rules and Regulations, 12 C.F.R. Part 325, App.
A.

          (d) For purposes of this Order, all terms relating to capital shall have the meanings ascribed
to them and shall be calculated according to the methodology set forth in Part 325 of the FDIC
Rules and Regulations, 12 C.F.R. Part 325.

     8. Budget and Profit Plan.

          (a) Within 60 days after the effective date of this Order, the Bank shall submit to the Bureau
for review and comment a written profit plan and a realistic, comprehensive budget for all
categories of income and expense for the remainder of the year 2009. The plan required by this
paragraph shall contain formal goals and strategies, be consistent with sound banking practices,
reduce discretionary expenses, improve the Bank’s overall earnings and net interest income, and
shall contain a description of the operating assumptions that form the basis for major projected
income and expense components.

          (b) Within 45 days after the end of each calendar quarter following completion of the profit
plan and budget required by this paragraph, the Board shall evaluate the Bank’s actual performance
in relation to the written profit plan and budget, record the results of the evaluation, and note
any actions taken by the Bank in the Board minutes when such evaluation is undertaken.

          (c) A written profit plan and budget shall be prepared for each calendar year for which this
Order is in effect and shall be submitted to the Bureau for review and comment within 30 days after
the end of each year. Within 30 days after receipt of all such comments from the Bureau and after
adoption of any recommended changes, the Bank shall approve the

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written profit plan and budget, which approval shall be recorded in the Board minutes.
Thereafter, the Bank shall implement and follow the plan.

     9. Strategic Plan.

          (a) Within 90 days after the effective date of this Order, the Bank shall develop and submit
to the Bureau for review and comment a comprehensive business/strategic plan (“Strategic Plan”)
covering at least an operating period of three years. The Strategic Plan shall contain an
assessment of the Bank’s current financial condition and market area, and a description of the
operating assumptions that form the basis for major projected income and expense components.

          (b) The Strategic Plan shall address, at a minimum:

               (1) strategies for pricing policies and asset/liability management;

               (2) specific plans for the maintenance of capital that may in no event be less than the
requirement of the provisions of paragraph 7 of this Order and shall detail the actions to be taken
to maintain the required capital ratio, including but not limited to, the sale of new securities,
the direct contribution of cash by the directors or parent holding company, or the merger with or
acquisition by another federally insured institution or holding company thereof;

               (3) plans for sustaining adequate liquidity, including back-up lines of credit to meet any
unanticipated deposit withdrawals;

               (4) goals for reducing problem loans;

               (5) financial goals, including pro forma statements for asset growth, capital adequacy, and
earnings;

               (6) formulation of a mission statement and the development of a strategy to carry out that
mission.

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          (c) The Bank shall submit the Strategic Plan to the Bureau for review and comment. Within 30
days after the Bureau has responded to the plan, the Board shall adopt the plan as amended or
modified by the Bureau, which approval shall be recorded in the minutes of the meeting of the
Board. Thereafter, the Bank shall implement and follow the Strategic Plan.

          (d) Within 45 days after the end of each calendar quarter following the effective date of this
Order, the Board shall evaluate the Bank’s performance in relation to the Strategic Plan and record
the results of the evaluation, and any actions taken by the Bank, in the minutes of the meeting of
the Board at which such evaluation is undertaken. A copy of the evaluation shall be submitted to
the Bureau.

          (e) The Strategic Plan required by this Order shall be revised and submitted to the Bureau for
review and comment 45 days after the end of each calendar year for which this Order is in effect.
Within 30 days after the Bureau has responded to the plan, the Board shall adopt the plan as
amended or modified by the Bureau, which approval shall be recorded in the minutes of the meeting
of the Board. Thereafter, the Bank shall implement the Strategic Plan.

     10. Liquidity and Funds Management.

          (a) Within 60 days after the effective date of this Order, the Bank shall revise its liquidity
and funds management policy and submit it to the Bureau for review and comment. Annually
thereafter, while this Order is in effect, the Bank shall review its policy for adequacy and, based
upon such review, shall make necessary revisions to the policy to strengthen funds management
procedures and maintain adequate provisions to meet the Bank’s liquidity needs. The initial plan
shall include, at a minimum, provisions:

	 	(i)	 	establishing a reasonable range for its net
non-core funding ratio as computed in the Uniform Bank Performance
Report and shall

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	 	 	 	address the means by which the Bank will seek to reduce its reliance
on non-core funding and high cost rate-sensitive deposits;
	 
	 	(ii)	 	identifying the source and use of borrowed
and/or volatile funds;
	 
	 	(iii)	 	establishing sufficient back-up lines of
credit that would allow the Bank to borrow funds to meet depositor
demands if the Bank’s other provisions for liquidity proved to be
inadequate;
	 
	 	(iv)	 	requiring the retention of securities and/or
other identified categories of investments that can be liquidated
within one day in amounts sufficient (as a percentage of the Bank’s
total assets) to ensure the maintenance of the Bank’s liquidity posture
at a level consistent with short and long term liquidity objectives;
	 
	 	(v)	 	establishing a minimum liquidity ratio and
defining how the ratio is to be calculated;
	 
	 	(vi)	 	establishing contingency plans by identifying
alternative courses of action designed to meet the Bank’s liquidity
needs; and,
	 
	 	(vii)	 	addressing the use of borrowings (i.e.,
seasonal credit needs, match funding mortgage loans, etc.) and
providing for reasonable maturities commensurate with the use of the
borrowed funds; addressing concentration of funding sources; and,
addressing pricing and collateral requirements with specific allowable
funding channels (i.e., brokered deposits, internet deposits, Fed funds
purchased and other correspondent borrowings).

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          (b) Within 30 days after the Bureau has responded to the plan, the Board shall adopt the plan
as amended or modified by the Bureau. The plan shall be implemented immediately to the extent that
the provisions of the plan are not already in effect at the Bank.

     11. Brokered Deposits.

          (a) Beginning with the effective date of this Order, and so long as this Order is in effect,
the Bank shall not solicit, accept, renew, or roll over any brokered deposits unless it has applied
for and been granted a waiver by the Regional Director if the FDIC’s New York Regional Office in
accordance with the provisions of section 337.6 of the FDIC Rules and Regulations.

          (b) Within 60 days from the effective date of this Order, the Board shall develop a plan to
reduce the Bank’s reliance on non-core deposits and wholesale funding sources to a level acceptable
to the Bureau.

     12. Dividend Restriction. As of the effective date of this Order, the Bank shall not
declare or pay any cash dividend without the prior written consent of the Bureau.

     13. Holding Company — Restriction on Payments.

          (a) As of the effective date of this Order, the Bank shall not make any payment, directly or
indirectly, to or for the benefit of the Bank’s holding company or any other Bank affiliate,
without the prior written consent of the Bureau.

          (b) The Bank shall not enter into any contract with its holding company or any other Bank
affiliate or increase payment under any existing contract without submitting the new contract or
information concerning the increase in any existing contract to the Bureau for review and comment.

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     14. Correction and Prevention. Beginning on the effective date of this Order, the
Bank shall take steps necessary, consistent with other provisions of this Order and sound banking
practices, to correct and prevent the unsafe or unsound banking practices that were identified in
the Report of Examination.

     15. Compliance Committee. Within 30 days after the effective date of this Order, the
Board shall establish a compliance committee of the Board with the responsibility of ensuring that
the Bank complies with the provisions of this Order. The compliance committee shall report monthly
to the entire Board, and a copy of the report and any discussion related to the report or this
Order shall be included in the minutes of the Board meeting. Nothing contained herein shall
diminish the responsibility of the entire Board to ensure compliance with the provisions of this
Order.

     16. Progress Reports. Within 45 days after the end of each calendar quarter following
the effective date of this Order, the Bank shall furnish to the Bureau written progress reports
detailing the form and manner of any actions taken to secure compliance with this Order and the
results thereof. Such reports may be discontinued when the corrections required by this Order have
been accomplished and the Bureau has released, in writing, the Bank from making further reports.

     17. Fidelity Bond.

          (a) Within thirty (30) days of the effective date of this Order, the Bank shall provide to the
Bureau a full and complete copy of the bond required by 7 P.S. § 1410 (the “Bond”).

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          (b) The Bank shall immediately notify the Bureau of any notifications or information from the
Bank’s bond insurance carrier, its agents and/or representatives that the Bond is not going to be
renewed or will be terminated.

     18. Section 403 Reports to the Bureau. All reports required to be submitted to the
Bureau under this Order are special reports being required under Section 403 of the Department of
Banking Code, 71 P.S. § 733-403, and shall be submitted to the Bureau in accordance with Section
403.B of the Department of Banking Code, 71 P.S. § 733-403.B.

     19. Confidentiality. This Order and all reports and communications relating to this
Order shall be confidential and shall not be released or divulged to any person or entity not
officially connected to the Bank as a director, officer, attorney or employee without the express
written permission of the Department. Notwithstanding the foregoing, the Bank may disclose the
existence and contents of this Order under the provisions of 71 P.S. § 733-404.A, relating to
disclosures required by federal and state securities laws.

     20. Other Actions.

          (a) If at any time the Department shall deem it appropriate in fulfilling the responsibilities
placed upon the Department under applicable law to undertake any further action affecting the Bank,
nothing in this Order shall in any way inhibit, estop, bar or otherwise prevent the Department from
doing so.

          (b) Nothing herein shall preclude any proceedings brought by the Department to enforce the
terms of this Order, and that nothing herein constitutes, nor shall the Bank contend that it
constitutes, a waiver of any right, power or authority of any other representatives of the United
States, departments or agencies thereof, Department of Justice, or any other

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representatives of the Commonwealth of Pennsylvania or any other departments or agencies
thereof, including any prosecutorial agency, to bring other actions deemed appropriate.

     21. Communications. All communications regarding this Order shall be sent to:

Raymond C. Harper, Director

Bureau of Commercial Institutions

Commonwealth of Pennsylvania

Department of Banking

17 North Second Street, Suite 1300

Harrisburg, Pennsylvania 17101

     22. Binding Nature. The provisions of this Order including the recital paragraphs
shall be binding upon the Bank and all of their institution-affiliated parties, in their capacities
as such, and their successors and assigns.

     23. Effective Date. The effective date of this Order shall be the date upon which
this Order has been executed by the Bureau. Each provision of this Order shall remain effective
and enforceable, jointly and severally, until stayed, modified, terminated or suspended by the
Bureau.

     24. Titles. The titles used to identify the paragraphs of this document are for the
convenience of reference only and do not control the interpretation of this document.

	 	 	 	 	 	 
	 	SO ORDERED

 	 	 	 	 
	 	7/16/2009
 	
 	 
	 	Date	Raymond C.  Harper, Director 	 
	 	 	Bureau of Commercial Institutions
Commonwealth of Pennsylvania
Department of Banking
17 North Second Street, Suite 1300
Harrisburg, PA  17101 	 
	 

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COMMONWEALTH OF PENNSYLVANIA

DEPARTMENT OF BANKING

	 	 	 	 	 
	 
	 
	 	:	 	 
	Commonwealth of Pennsylvania,
	 	:	 	Docket No.: 09____(ENF-ORD)
	Department of Banking, Bureau of
	 	:	 	 
	Commercial Institutions,
	 	:	 	 
	 
	 	:	 	 
	v.
	 	:	 	 
	 
	 	:	 	 
	Royal Bank America
	 	:	 	 
	 
	 	:	 	 
	 

STIPULATION AND CONSENT TO

ENTRY OF ORDER

     WHEREAS, Royal Bank America, Narberth, Pennsylvania (the “Bank”), is a Pennsylvania
state-chartered bank and subject to regulation by the Commonwealth of Pennsylvania Department of
Banking (the “Department”) and the Federal Deposit Insurance Corporation (“FDIC”);

     WHEREAS, the Bureau of Commercial Institutions (the “Bureau”) is primarily responsible within
the Department for the regulation and supervision of the Bank;

     WHEREAS, the Bank was the subject of a Joint Report of Examination of the Bank by the Bureau
and the FDIC as of December 31, 2008 (the “Report of Examination”);

     WHEREAS, the Report of Examination gave the Bureau and the FDIC the reason to believe that the
Bank had engaged in unsafe or unsound banking practices and had committed violations of law and
regulation;

     WHEREAS, as a result of the Report of Examination, the Department is of the opinion that
grounds exist for the entry of the attached Order (the “Order”) against the Bank pursuant to
Section 501.A of the Department of Banking Code, 71 P.S. § 733-501.A; and,

     WHEREAS, the Bank in the interest of compliance and cooperation, without admitting wrongdoing
and in order to avoid administrative proceedings or other litigation, stipulates and agrees to the
following terms and conditions in consideration of the Department’s forbearance from further
litigation and such other administrative proceedings based upon the forgoing recitals and the
matters contained in the Order.

     NOW, THEREFORE, IT IS AGREED BETWEEN THE DEPARTMENT AND THE BANK AS FOLLOWS:

     1. Jurisdiction. The Bank is a “bank” within the meaning of Section 102(f) of the
Banking Code of 1965, 7 P.S. § 102(f).

 

 

     2. Consent. The Bank consents to the issuance by the Department of the Order and
further agrees to comply with the remedial action set forth in the Order upon its date of
effectiveness as set forth in paragraph 5.

     3. Finality and Waiver. The Bank agrees that the Order is properly issued pursuant to
the Department’s authority under Section 501.A of the Department of Banking Code, 71 P.S. §
733-501.A, and complies with all requirements of law, and upon issuance, shall become final and
unappealable. The Bank waives any rights they may have to seek administrative or judicial review
of the issuance of the Order or the remedial actions and requirements set forth in the Order.

     4. Enforceability. The Bank acknowledges that the Department has the power to enforce
the attached Order pursuant to Section 502 of the Department of Banking Code, 71 P.S. § 733-502.

     5. Effectiveness. The Bank stipulates and agrees that the Order will become effective
on the date that it is executed by the Department.

     6. Confidentiality. The Bank acknowledges that this Stipulation and Consent to Entry
of Order (“Stipulation and Consent”) and the Order are for the confidential information of each
member of the Board of Directors of the Bank, Bank committee persons and any of the Bank officers,
employees or Bank attorneys at law who may be authorized by the Board of Directors of the Bank to
review it. This Stipulation and Consent, the Order, any information contained therein and any
reports or communication relating to the Stipulation and Consent and the Order may not be
distributed to any party other than those identified in this paragraph without the prior approval
of the Department, except as provided in Section 404.A of the Department of Banking Code, 71 P.S. §
733-404.A.

     7. Required Reports. The Bank acknowledges that the reports required to be submitted
to the Department under the Order are special reports being required under Section 403 of the
Department of Banking Code, 71 P.S. § 733-403, and that, pursuant to Section 403.E.(1), 71 P.S. §
733-403.E.(1), the Department may, in addition to such other relief the Department is authorized to
take under the applicable statutes, impose a monetary penalty of One Hundred Dollars ($100.00) a
day for each day after the time fixed by the Order that the Bank fails to submit a required report.

     8. Other Actions.

          (a) It is expressly and clearly understood that if at any time the Department shall deem it
appropriate in fulfilling the responsibilities placed upon the Department under applicable law to
undertake any further action affecting the Bank, nothing in this Order shall in any way inhibit,
estop, bar or otherwise prevent the Department from doing so.

          (b) It is expressly and clearly understood that nothing herein shall preclude any proceedings
brought by the Department to enforce the terms of this Order, and that nothing herein constitutes,
nor shall the Bank contend that it constitutes, a waiver of any right, power or authority of any
other representatives of the United States, departments or agencies thereof,

2

 

Department of Justice, or any other representatives of the Commonwealth of Pennsylvania or any
other departments or agencies thereof, including any prosecutorial agency, to bring other actions
deemed appropriate.

     9. Counsel. This Stipulation and Consent is entered into by the parties upon full
opportunity for legal advice from legal counsel.

     10. Titles. The titles used to identify the paragraphs of this document are for the
convenience of reference only and do not control the interpretation of this document.

     WHEREFORE, in consideration of the foregoing, including the recital paragraphs, the Department
and the Bank, both intending to be legally bound, do hereby execute this Stipulation and Consent
this 15th day of July, 2009.

	 	 	 	 	 
	     (seal) 	

 	 
	 	/s/ Raymond C. Harper
 	 
	 	Raymond C. Harper, Director 	 
	 	Bureau of Commercial Institutions
Commonwealth of Pennsylvania
Department of Banking
17 North Second Street, Suite 1300
Harrisburg, PA  17101 	 
	 

Section 501.B Notice. Pursuant to Section 501.B. of the Department of Banking Code, 71
P.S. § 733-501.B, the undersigned Directors of Royal Bank America are hereby given notice and
warned that the Bank’s failure to comply in full with the terms of the Order may result in an order
being issued by the Bureau directing one or more members of the Board of Directors to appear and
show cause why he or she should not be removed from his or her office or position within the Bank.

Acknowledgement. The undersigned Directors of Royal Bank America, each acknowledge that he
or she has read the foregoing Stipulation and Consent and, acting solely in his or her capacity as
a Director, approves of the consent thereto by Royal Bank America.

	 	 	 	 	 
	 
	 	 	 	 
	/s/ Edward F. Bradley

	 	/s/ Robert A. Richards, Jr.	 	 
	 

Edward F. Bradley, Director

	 	 

Robert A. Richards, Jr., Director
	 	 
	 
	 	 	 	 
	/s/ Carl M. Cousins

	 	/s/ Murray Stempel, III	 	 
	 

Carl M. Cousins, DVM, Director

	 	 

Murray Stempel, III, Director
	 	 

[Signatures continued on next page]

3

 

[Signatures continued from previous page]

	 	 	 	 	 
	 
	 	 	 	 
	/s/ Samuel Goldstein

	 	/s/ Evelyn R. Tabas	 	 
	 

Samuel Goldstein, Director

	 	 

Evelyn R. Tabas, Director
	 	 
	 
	 	 	 	 
	/s/ James J. McSwiggan

	 	/s/ Robert R. Tabas	 	 
	 

James J. McSwiggan, Director

	 	 

Robert R. Tabas, Director
	 	 
	 
	 	 	 	 
	/s/ Anthony J. Micale

	 	/s/ Linda Tabas Stempel	 	 
	 

Anthony J. Micale, Director

	 	 

Linda Tabas Stempel, Director
	 	 
	 
	 	 	 	 
	/s/ Albert Ominsky

	 	/s/ Edward B. Tepper	 	 
	 

Albert Ominsky, Esq., Director

	 	 

Edward B. Tepper, Director
	 	 
	 
	 	 	 	 
	/s/ Gregory T. Reardon

	 	/s/ Howard J. Wurzak	 	 
	 

Gregory T. Reardon, Director

	 	 

Howard J. Wurzak, Director
	 	 

4EX-10.2 FORM OF ADVISORY AGREEMENT

EXHIBIT 10.2

FORM
OF

ADVISORY AGREEMENT

AMONG

NORTHSTAR REAL ESTATE INCOME TRUST, INC.,

NORTHSTAR REAL ESTATE INCOME TRUST OPERATING PARTNERSHIP, LP,

NS REAL ESTATE INCOME TRUST ADVISOR, LLC

AND

NORTHSTAR REALTY FINANCE CORP.

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	ARTICLE 1 - DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	ARTICLE 2 - APPOINTMENT
	 	 	6	 
	 
	 	 	 	 
	ARTICLE 3 - DUTIES OF THE ADVISOR
	 	 	6	 
	 
	 	 	 	 
	3.01 Offering Services
	 	 	6	 
	3.02 Acquisition Services
	 	 	7	 
	3.03 Asset Management Services
	 	 	7	 
	3.04 Accounting and Other Administrative Services
	 	 	8	 
	3.05 Stockholder Services
	 	 	9	 
	3.06 Financing Services
	 	 	9	 
	3.07 Disposition Services
	 	 	9	 
	 
	 	 	 	 
	ARTICLE 4 - AUTHORITY OF ADVISOR
	 	 	10	 
	 
	 	 	 	 
	4.01 Powers of the Advisor
	 	 	10	 
	4.02 Approval by the Board
	 	 	10	 
	4.03 Modification or Revocation of Authority of Advisor
	 	 	10	 
	 
	 	 	 	 
	ARTICLE 5 - BANK ACCOUNTS
	 	 	10	 
	 
	 	 	 	 
	ARTICLE 6 - RECORDS AND ACCESS
	 	 	11	 
	 
	 	 	 	 
	ARTICLE 7 - LIMITATION ON ACTIVITIES
	 	 	11	 
	 
	 	 	 	 
	ARTICLE 8 - FEES
	 	 	11	 
	 
	 	 	 	 
	8.01 Acquisition Fees
	 	 	11	 
	8.02 Asset Management Fees
	 	 	12	 
	8.03 Disposition Fees
	 	 	12	 
	8.04 Operating Partnership Interests
	 	 	12	 
	8.05 Changes to Fee Structure
	 	 	12	 
	 
	 	 	 	 
	ARTICLE 9 - EXPENSES
	 	 	13	 
	 
	 	 	 	 
	9.01 General
	 	 	13	 
	9.02 Timing of and Additional Limitations on Reimbursements
	 	 	14	 
	 
	 	 	 	 
	ARTICLE 10 - OTHER SERVICES
	 	 	15	 
	 
	 	 	 	 
	ARTICLE 11 - VOTING AGREEMENT
	 	 	15	 
	 
	 	 	 	 
	ARTICLE 12 - RELATIONSHIP OF ADVISOR AND COMPANY; OTHER ACTIVITIES OF THE ADVISOR
	 	 	15	 
	 
	 	 	 	 
	12.01 Relationship
	 	 	15	 
	12.02 Time Commitment
	 	 	15	 
	12.03 Investment Opportunities and Allocation
	 	 	15	 
	 
	 	 	 	 
	ARTICLE 13 —THE NORTHSTAR NAME
	 	 	16	 

i

 

	 	 	 	 	 
	ARTICLE 14 - TERM AND TERMINATION OF THE AGREEMENT
	 	 	17	 
	 
	 	 	 	 
	14.01 Term
	 	 	17	 
	14.02 Termination by the Parties
	 	 	17	 
	14.03 Payments on Termination and Survival of Certain Rights and Obligations
	 	 	17	 
	 
	 	 	 	 
	ARTICLE 15 - ASSIGNMENT
	 	 	18	 
	 
	 	 	 	 
	ARTICLE 16 - INDEMNIFICATION AND LIMITATION OF LIABILITY
	 	 	18	 
	 
	 	 	 	 
	16.01 Indemnification
	 	 	18	 
	16.02 Limitation on Indemnification
	 	 	18	 
	16.03 Limitation on Payment of Expenses
	 	 	19	 
	16.04 Indemnification by Advisor
	 	 	19	 
	 
	 	 	 	 
	ARTICLE 17 - NON-SOLICITATION
	 	 	19	 
	 
	 	 	 	 
	ARTICLE 18 - MISCELLANEOUS
	 	 	20	 
	 
	 	 	 	 
	18.01 Notices
	 	 	20	 
	18.02 Modification
	 	 	20	 
	18.03 Severability
	 	 	20	 
	18.04 Construction
	 	 	20	 
	18.05 Entire Agreement
	 	 	20	 
	18.06 Waiver
	 	 	20	 
	18.07 Gender
	 	 	20	 
	18.08 Titles Not to Affect Interpretation
	 	 	21	 
	18.09 Counterparts
	 	 	21	 

ii

 

FORM
OF ADVISORY AGREEMENT

          THIS ADVISORY AGREEMENT (this “Agreement”), dated as of the                      day of                                         ,
2009, and effective as of the date that the Registration Statement (as defined below) is declared
effective by the Securities and Exchange Commission (the “Effective Date”), is entered into
by and among NorthStar Real Estate Income Trust, Inc., a Maryland corporation (the
“Company”), NorthStar Real Estate Income Trust Operating Partnership, LP, a Delaware
limited partnership (the “Operating Partnership”), NS Real Estate Income Trust Advisor,
LLC, a Delaware limited liability company (the “Advisor”) and, solely in connection with the obligations set forth in Section 12.03, NorthStar Realty Finance Corp.,
a Maryland corporation (“NorthStar”). Capitalized terms used herein
shall have the meanings ascribed to them in Section 1 below.

W I T N E S S E T H

     WHEREAS, the Company intends to qualify as a REIT, and to invest its funds in investments
permitted by the terms of Sections 856 through 860 of the Code;

     WHEREAS, the Company is the general partner of the Operating Partnership and intends to
conduct all of its business and make all or substantially all Investments through the Operating
Partnership;

     WHEREAS, the Company and the Operating Partnership desire to avail themselves of the
knowledge, experience, sources of information, advice, assistance and certain facilities available
to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set
forth, on behalf of, and subject to the supervision of, the Board of the Company, all as provided
herein; and

     WHEREAS, the Advisor is willing to undertake to render such services, subject to the
supervision of the Board, on the terms and conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

     As used in this Agreement, the following terms shall have the meanings specified below:

     Acquisition Expenses means any and all expenses, excluding Acquisition Fees incurred
by the Company, the Operating Partnership, the Advisor or any of their Affiliates in connection
with the selection, evaluation, acquisition, origination or development of any Investments, whether
or not acquired or originated, as applicable, including, without limitation, legal fees and
expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments on
properties or other investments not acquired, accounting fees and expenses, title insurance
premiums and the costs of performing due diligence.

     Acquisition Fees means the fee payable to the Advisor pursuant to Section 8.01 plus
all other fees and commissions, excluding Acquisition Expenses, paid by any Person to any Person in
connection with making or investing in any Investments or the purchase, development or construction
of any Property by the Company. Included in the computation of such fees or commissions shall be
any real estate commission, selection fee, development fee, construction fee, nonrecurring
management fee, loan fees or points or any fee of a similar nature, however designated. Excluded
shall be development fees and construction fees paid to Persons not Affiliated with the Advisor in
connection with the actual development and construction of a Property.

1

 

     Advisor means (i) NS Real Estate Income Trust Advisor, LLC, a Delaware limited
liability company, or (ii) any successor advisor to the Company.

     Affiliate or Affiliated means, with respect to any Person, (i) any Person directly or
indirectly controlling, controlled by, or under common control with such other Person; (ii) any
Person directly or indirectly owning, controlling, or holding with the power to vote 10.0% or more
of the outstanding voting securities of such other Person; (iii) any legal entity for which such
Person acts as an executive officer, director, trustee, or general partner; (iv) any Person 10.0%
or more of whose outstanding voting securities are directly or indirectly owned, controlled, or
held, with power to vote, by such other Person; and (v) any executive officer, director, trustee,
or general partner of such other Person. An entity shall not be deemed to control or be under
common control with a program sponsored by the sponsor of the Company unless (A) the entity owns
10.0% or more of the voting equity interests of such program or (B) a majority of the Board (or
equivalent governing body) of such program is composed of Affiliates of the entity.

     Asset Management Fee means the fees payable to the Advisor pursuant to Section 8.02.

     Average Invested Assets means, for a specified period, the average of the aggregate
book value of the assets of the Company invested, directly or indirectly, in Investments before
reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the
average of such values at the end of each month during such period.

     Board means the board of directors of the Company, as of any particular time.

     Bylaws means the bylaws of the Company, as amended from time to time.

     Cause means with respect to the termination of this Agreement, fraud, criminal
conduct, misconduct, negligence or breach of fiduciary duty by the Advisor, or a
material breach of this Agreement by the Advisor.

     Charter means the articles of incorporation of the Company, as amended from time to
time.

     Code means the Internal Revenue Code of 1986, as amended from time to time, or any
successor statute thereto. Reference to any provision of the Code shall mean such provision as in
effect from time to time, as the same may be amended, and any successor provision thereto, as
interpreted by any applicable regulations as in effect from time to time.

     Company means NorthStar Real Estate Income Trust, Inc., a corporation organized under
the laws of the State of Maryland.

     Contract Sales Price means the total consideration received by the Company for the
sale of an Investment.

     Cost of Investments means the sum of (i) with respect to the acquisition or
origination of a Property, Loan or other Permitted Investment to be wholly owned, directly or
indirectly, by the Company, the amount actually paid or allocated to fund the acquisition,
origination, development, construction or improvement of the Property, Loan or other Permitted
Investment, inclusive of expenses associated with such Property, Loan or other Permitted Investment
and the amount of any debt associated with, or used to fund the investment in, such Property, Loan
or other Permitted Investment and (ii) with respect to the acquisition or origination of a
Property, Loan or other Permitted Investment through any Joint Venture, the portion of the amount
actually paid or allocated to fund the acquisition, origination, development, construction or
improvement of the Property, Loan or other Permitted Investment, inclusive of expenses associated
with such Property, Loan or other Permitted Investment and expenses of the Joint Venture, plus the
amount of any debt associated with, or used to fund the investment in, such Property, Loan or other
Permitted Investment that is attributable to the Company’s investment in such Joint Venture.

2

 

     Dealer Manager means NRF Capital Markets, LLC, a Delaware limited liability company, or
such other Person or entity selected by the Board to act as dealer manager for the Offering.

     Disposition Fee means the fees payable to the Advisor pursuant to Section 8.03.

     Distribution means any distributions of money or other property by the Company to
Stockholders, including distributions that may constitute a return of capital for federal income
tax purposes.

     Excess Amount has the meaning set forth in Section 9.02.

     Expense Year has the meaning set forth in Section 9.02.

     FINRA means the Financial Industry Regulatory Authority, Inc.

     GAAP means generally accepted accounting principles as in effect in the United States
of America from time to time.

     Good Reason means either (i) any failure by the Company or the Operating Partnership
to obtain a satisfactory agreement from any successor to the Company or the Operating Partnership
to assume and agree to perform the Company’s or the Operating Partnership’s obligations under this
Agreement; or (ii) any material breach of this Agreement of any nature whatsoever by the Company or
the Operating Partnership.

     Gross Proceeds means the aggregate purchase price of all Shares sold for the account
of the Company through an Offering, without deduction for Organization and Offering Expenses, and
not including Shares sold pursuant to the Company’s distribution reimbursement plan.

     Independent Directors has the meaning set forth in the Articles of Incorporation.

     Initial Public Offering means the initial public offering of Shares registered on
Registration Statement No. 333-[                    ] on 

Form S-11.

     Investments means any investments by the Company or the Operating Partnership in
Properties, Loans and all other investments in which the Company or the Operating Partnership may
acquire an interest, either directly or indirectly, including through ownership interests in a
Joint Venture, pursuant to its Charter, Bylaws and the investment objectives and policies adopted
by the Board from time to time, other than short-term investments acquired for purposes of cash
management.

     Joint Venture means any joint venture, limited liability company, partnership or other
entity pursuant to which the Company is a co-venturer or partner with respect to the ownership of
any Investments.

     Listing means the listing of the Shares on a national securities exchange. Upon such
Listing, the Shares shall be deemed “Listed.”

     Loans means mortgage loans and other types of debt financing investments made by the
Company or the Operating Partnership, either directly or indirectly, including through ownership
interests in a Joint Venture, including, without limitation, mezzanine loans, B-notes, bridge
loans, convertible debt, wraparound mortgage loans, construction mortgage loans, loans on leasehold
interests, and participations in such loans.

     NASAA REIT Guidelines means the Statement of Policy Regarding Real Estate Investment
Trusts published by the North American Securities Administrators Association as in effect on the
Effective Date.

3

 

     Net Income means, for any period, the Company’s total revenues applicable to such
period, less the total expenses applicable to such period excluding additions to reserves for
depreciation, bad debts or other similar non-cash reserves; provided, however, Net Income for
purposes of calculating total allowable Operating Expenses (as defined herein) shall exclude the
gain from the sale of the Company’s assets.

     Offering means any offering of Shares that is registered with the SEC, excluding
Shares offered under any employee benefit plan.

     Operating Expenses means all costs and expenses paid or incurred by the Company, as
determined under GAAP, that in any way are related to the operation of the Company or its business,
including fees paid to the Advisor, but excluding (i) the expenses of raising capital such as
Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing,
registration, and other fees, printing and other such expenses and taxes incurred in connection
with the issuance, distribution, transfer, registration and Listing, (ii) interest payments, (iii)
taxes, (iv) non-cash expenditures such as depreciation, amortization and bad debt reserves, (v)
incentive fees paid in compliance with the NASAA REIT Guidelines, (vi) Acquisition Fees,
origination fees, Acquisition Expenses, real estate commissions on the resale of real property and
other fees and expenses connected with the acquisition, financing, disposition, management and
ownership of real estate interests, loans or other property (other than commissions on the sale of
assets other than real property), including the costs of foreclosure, insurance premiums, legal
services, maintenance, repair, and improvement of property. The definition of “Operating Expenses”
set forth above is intended to encompass only those expenses which are required to be treated as
“Total Operating Expenses” under the NASAA REIT Guidelines. As a result, and notwithstanding the
definition set forth above, any expense of the Company which is not part of Total Operating
Expenses under the NASAA REIT Guidelines shall not be treated as part of “Operating Expenses” for
purposes hereof.

     Operating Partnership means NorthStar Real Estate Income Trust Operating Partnership,
LP, a Delaware limited partnership formed to own and operate Investments on behalf of the Company.

     Operating Partnership Agreement means the agreement among the Company, the Advisor and
NorthStar OP Holdings, LLC.

     OP Units means the units of limited partnership interest in the Operating Partnership.

     Organization and Offering Expenses means any and all costs and expenses incurred by or
on behalf of the Company and to be paid from the Assets in connection with the formation of the
Company and the qualification and registration of an Offering, and the marketing and distribution
of Shares, including, without limitation, total underwriting and brokerage discounts and
commissions (including fees of the underwriters’ attorneys), expenses for printing, engraving and
amending registration statements or supplementing prospectuses, mailing and distributing costs,
salaries of employees while engaged in sales activity, telephone and other telecommunications
costs, all advertising and marketing expenses, charges of transfer agents, registrars, trustees,
escrow holders, depositories and experts and fees, expenses and taxes related to the filing,
registration and qualification of the sale of the Shares under federal and state laws, including
taxes and fees and accountants’ and attorneys’ fees.

     Person means an individual, corporation, partnership, estate, trust (including a trust
qualified under Section 401(a) or 501(c) (17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the Code, joint stock
company or other entity, or any government or any agency or political subdivision thereof, and also
includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended.

4

 

     Property means any real property or properties transferred or conveyed to the Company
or the Operating Partnership, either directly or indirectly, including through ownership interests
in a Joint Venture.

     Property Manager means an entity that has been retained to perform and carry out
property management services at one or more of the Properties, excluding persons, entities or
independent contractors retained or hired to perform facility management or other services or tasks
at a particular Property, the costs for which are passed through to and ultimately paid by the
tenant at such Property.

     Registration Statement means the registration statement filed by the Company with the
SEC on Form S-11 (Reg. No. 333-[                    ]), as amended from time to time, in connection with
the Initial Public Offering.

     REIT means a “real estate investment trust” under Sections 856 through 860 of the
Code.

     Sale means (i) any transaction or series of transactions whereby: (A) the Company or
the Operating Partnership sells, grants, transfers, conveys, or relinquishes its ownership of any
Investment or portion thereof, including the transfer of any Property that is the subject of a
ground lease, including any event with respect to any Investment that gives rise to a significant
amount of insurance proceeds or condemnation awards, and including the issuance by one of the
Company’s subsidiaries of any asset-backed securities or collateralized debt obligations as part of
a securitization transaction; (B) the Company or the Operating Partnership sells, grants,
transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of
the Company or the Operating Partnership in any Joint Venture in which it is a partner; or (C) any
Joint Venture in which the Company or the Operating Partnership is a co-venturer or partner, sells,
grants, transfers, conveys, or relinquishes its ownership of any Investment or portion thereof,
including any event with respect to any Investment that gives rise to insurance claims or
condemnation awards, and including the issuance by such Joint Venture or one of its subsidiaries of
any asset-backed securities or collateralized debt obligations as part of a securitization
transaction.

     SEC means the United States Securities and Exchange Commission.

     Securities means any Shares, any other stock, shares or other evidences of equity or
beneficial or other interests, voting trust certificates, bonds, debentures, notes or other
evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in
general any instruments commonly known as “securities” or any certificates of interest, shares or
participations in, temporary or interim certificates for, receipts for, guarantees of, or warrants,
options or rights to subscribe to, purchase or acquire, any of the foregoing.

     Shares means shares of common stock of the Company, par value $.01 per share.

     Special OP Units means the separate series of limited partnership interests to be
issued in accordance with Section 8.04.

     Stockholders means the registered holders of the Shares.

     Termination Date means the date of termination of the Agreement determined in
accordance with Article 15 hereof.

     Termination Event means the termination or nonrenewal of this Agreement (i) in
connection with a merger, sale of assets or transaction involving the Company pursuant to which a
majority of the Board then in office are replaced or removed, (ii) by the Advisor for Good Reason
or (iii) by the Company and the Operating Partnership other than for Cause.

5

 

     2%/25% Guidelines means the requirement pursuant to the NASAA REIT Guidelines that, in
any period of four consecutive fiscal quarters, total Operating Expenses not exceed the greater of
2.0% of the Company’s Average Invested Assets during such 12-month period or 25.0% of the Company’s
Net Income over the same 12-month period.

ARTICLE 2

APPOINTMENT

     The Company and the Operating Partnership hereby appoint the Advisor to serve as their advisor
and asset manager on the terms and conditions set forth in this Agreement, and the Advisor hereby
accepts such appointment.

ARTICLE 3

DUTIES OF THE ADVISOR

     The Advisor is responsible for managing, operating, directing and supervising the operations
and administration of the Company and its assets.  The Advisor undertakes to use its commercially
reasonable efforts to present to the Company and the Operating Partnership potential investment
opportunities, to make investment decisions on behalf of the Company subject to the limitations in
the Company’s Charter, the direction and oversight of the Board and Section 4.03 hereof, and to
provide the Company with a continuing and suitable investment program consistent with the
investment objectives and policies of the Company as determined and adopted from time to time by
the Board.  Subject to the limitations set forth in this Agreement, including Article 4 hereof, and
the continuing and exclusive authority of the Board over the management of the Company, the Advisor
shall, either directly or by engaging an Affiliate or third party, perform the following duties:

     3.01 Offering Services. The Advisor shall manage and supervise:

          (i) Development of the Initial Public Offering and any subsequent Offering approved by
the Board, including the determination of the specific terms of the securities to be offered
by the Company, preparation of all offering and related documents, and obtaining all required
regulatory approvals of such documents;

          (ii) Along with the Dealer Manager, approval of the participating broker-dealers and
negotiation of the related selling agreements;

          (iii) Coordination of the due diligence process relating to participating broker-dealers
and their review of the Registration Statement and other Offering and Company documents;

          (iv) Preparation and approval of all marketing materials contemplated to be used by the
Dealer Manager or others relating to the Offering;

          (v) Along with the Dealer Manager, negotiation and coordination with the transfer agent
for the receipt, collection, processing and acceptance of subscription agreements,
commissions, and other administrative support functions;

          (vi) Creation and implementation of various technology and electronic communications
related to the Offering; and

6

 

          (vii) All other services related to the Offering, other than services that (a) are to be
performed by the Dealer Manager, (b) the Company elects to perform directly or (c) would
require the Advisor to register as a broker-dealer with the SEC, FINRA or any state.

     3.02 Acquisition Services.

          The Advisor shall:

          (i) Serve as the Company’s investment and financial advisor and obtain certain market
research and economic and statistical data in connection with the Company’s Investments and
investment objectives and policies;

          (ii) Subject to Article 4 hereof and the investment objectives and policies of the
Company: (a) locate, analyze and select potential Investments; (b) structure and negotiate the
terms and conditions of transactions pursuant to which the Investments will be made; and
(c) acquire Investments on behalf of the Company;

          (iii) Oversee the due diligence process related to prospective Investments;

          (iv) Prepare reports regarding prospective investments which include recommendations and
supporting documentation necessary for the Board to evaluate the prospective investments;

          (v) Obtain reports (which may be prepared by the Advisor or its Affiliates), where
appropriate, concerning the value of prospective Investments of the Company; and

          (vi) Negotiate and execute approved Investments and other transactions.

     3.03 Asset Management Services.

          The Advisor shall:

          (i) Investigate, select, and, on behalf of the Company, engage and conduct business with
such Persons as the Advisor deems necessary to the proper performance of its obligations
hereunder, including but not limited to consultants, accountants, lenders, technical advisors,
attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries,
custodians, agents for collection, insurers, insurance agents, developers, construction
companies, Property Managers and any and all Persons acting in any other capacity deemed by
the Advisor necessary or desirable for the performance of any of the foregoing services;

          (ii) Monitor applicable markets and obtain reports (which may be prepared by the Advisor
or its Affiliates) where appropriate, concerning the value of Investments of the Company;

          (iii) Monitor and evaluate the performance of Investments of the Company, provide daily
management services to the Company and perform and supervise the various management and
operational functions related to the Company’s Investments;

          (iv) Formulate and oversee the implementation of strategies for the administration,
promotion, management, operation, maintenance, improvement, financing and refinancing,
marketing, leasing and disposition of Investments on an overall portfolio basis;

7

 

          (v) Oversee the performance by the Property Managers of their duties, including
collection and proper deposits of rental payments and payment of Property expenses and
maintenance;

          (vi) Conduct periodic on-site property visits to some or all (as the Advisor deems
reasonably necessary) of the Properties to inspect the physical condition of the Properties
and to evaluate the performance of the Property Managers;

          (vii) Review, analyze and comment upon the operating budgets, capital budgets and leasing
plans prepared and submitted by each Property Manager and aggregate these property budgets
into the Company’s overall budget;

          (viii) Coordinate and manage relationships between the Company and any Joint Venture
partners; and

          (ix) Provide financial and operational planning services and investment portfolio
management functions.

     3.04 Accounting and Other Administrative Services.

          The Advisor shall:

          (i) Manage and perform the various administrative functions necessary for the management
of the day-to-day operations of the Company;

          (ii) From time-to-time, or at any time reasonably requested by the Board, make reports to
the Board on the Advisor’s performance of services to the Company under this Agreement;

          (iii) Coordinate with the Company’s independent accountants and auditors to prepare and
deliver to the Company’s audit committee an annual report covering the Advisor’s compliance
with certain material aspects of this Agreement;

          (iv) Provide or arrange for administrative services and items, legal and other services,
office space, office furnishings, personnel and other overhead items necessary and incidental
to the Company’s business and operations;

          (v) Provide financial and operational planning services and portfolio management
functions;

          (vi) Maintain accounting data and any other information concerning the activities of the
Company as shall be needed to prepare and file all periodic financial reports and returns
required to be filed with the SEC and any other regulatory agency, including annual financial
statements;

          (vii) Maintain all appropriate books and records of the Company;

          (viii) Oversee tax and compliance services and risk management services and coordinate
with appropriate third parties, including independent accountants and other consultants, on
related tax matters;

          (ix) Supervise the performance of such ministerial and administrative functions as may be
necessary in connection with the daily operations of the Company;

8

 

          (x) Provide the Company with all necessary cash management services;

          (xi) Manage and coordinate with the transfer agent the distribution process and payments
to Stockholders;

          (xii) Consult with the officers of the Company and the Board and assist in evaluating and
obtaining adequate insurance coverage based upon risk management determinations;

          (xiii) Provide the officers of the Company and the Board with timely updates related to
the overall regulatory environment affecting the Company, as well as managing compliance with
such matters;

          (xiv) Consult with the officers of the Company and the Board relating to the corporate
governance structure and appropriate policies and procedures related thereto; and

          (xv) Oversee all reporting, record keeping, internal controls and similar matters in a
manner to allow the Company to comply with applicable law including the Sarbanes-Oxley Act of
2002.

     3.05 Stockholder Services.

          The Advisor shall:

          (i) Manage communications with Stockholders, including answering phone calls, preparing
and sending written and electronic reports and other communications; and

          (ii) Establish technology infrastructure to assist in providing Stockholder support and
service.

     3.06 Financing Services.

          The Advisor shall:

          (i) Identify and evaluate potential financing and refinancing sources, engaging a
third-party broker if necessary;

          (ii) Negotiate terms, arrange and execute financing agreements;

          (iii) Manage relationships between the Company and its lenders; and

          (iv) Monitor and oversee the service of the Company’s debt facilities and other
financings.

     3.07 Disposition Services.

          The Advisor shall:

          (i) Consult with the Board and provide assistance with the evaluation and approval of
potential asset dispositions, sales or other liquidity events; and

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          (ii) Structure and negotiate the terms and conditions of transactions pursuant to which
Investments may be sold.

ARTICLE 4

AUTHORITY OF ADVISOR

     4.01 Powers of the Advisor.  Subject to the express limitations set forth in this Agreement
and the continuing and exclusive authority of the Board over the management of the Company, the
power to direct the management, operation and policies of the Company, including making, financing
and disposing of Investments, and the performance of those services described in Article 3 hereof,
shall be vested in the Advisor, which shall have the power by itself and shall be authorized and
empowered on behalf and in the name of the Company to carry out any and all of the objectives and
purposes of the Company and to perform all acts and enter into and perform all contracts and other
undertakings that it may in its sole discretion deem necessary, advisable or incidental thereto to
perform its obligations under this Agreement. The Advisor shall have the power to delegate all or
any part of its rights and powers to manage and control the business and affairs of the Company to
such officers, employees, Affiliates, agents and representatives of the Advisor or the Company as
it may deem appropriate. Any authority delegated by the Advisor to any other Person shall be
subject to the limitations on the rights and powers of the Advisor specifically set forth in this
Agreement or the Charter.

     4.02 Approval by the Board.  Notwithstanding the foregoing, the Advisor may not take any
action on behalf of the Company without the prior approval of the Board or duly authorized
committees thereof if the Charter or Maryland General Corporation Law require the prior approval of
the Board.  If the Board or a committee of the Board must approve a proposed investment, financing
or disposition or chooses to do so, the Advisor will deliver to the Board or committee, as
applicable, all documents required by it to evaluate such investment, financing or disposition.

     4.03 Modification or Revocation of Authority of Advisor.  The Board may, at any time upon the
giving of notice to the Advisor, modify or revoke the authority or approvals set forth in Article 3
and this Article 4 hereof; provided, however, that such modification or revocation shall be
effective upon receipt by the Advisor and shall not be applicable to investment transactions to
which the Advisor has committed the Company prior to the date of receipt by the Advisor of such
notification.

ARTICLE 5

BANK ACCOUNTS

     The Advisor may establish and maintain one or more bank accounts in its own name for the
account of the Company or the Operating Partnership or in the name of the Company and the Operating
Partnership and may collect and deposit into any such account or accounts, and disburse from any
such account or accounts, any money on behalf of the Company or the Operating Partnership, under
such terms and conditions as the Board may approve, provided that no funds shall be commingled with
the funds of the Advisor.  The Advisor shall from time to time render appropriate accountings of
such collections and payments to the Board and the independent auditors of the Company.

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ARTICLE 6

RECORDS AND ACCESS

     The Advisor, in the conduct of its responsibilities to the Company, shall maintain adequate
and separate books and records for the Company’s operations in accordance with GAAP, which shall be
supported by sufficient documentation to ascertain that such books and records are properly and
accurately recorded. Such books and records shall be the property of the Company and shall be
available for inspection by the Board and by counsel, auditors and other authorized agents of the
Company, at any time or from time to time during normal business hours. The Advisor shall at all
reasonable times have access to the books and records of the Company and the Operating Partnership.

ARTICLE 7

LIMITATION ON ACTIVITIES

     Notwithstanding any provision in this Agreement to the contrary, the Advisor shall not take
any action that, in its sole judgment made in good faith, would (i) adversely affect the ability of
the Company to qualify or continue to qualify as a REIT under the Code unless the Board has
determined that the Company will not seek or maintain REIT qualification for the Company,
(ii) subject the Company to regulation under the Investment Company Act of 1940, as amended,
(iii) violate any law, rule, regulation or statement of policy of any governmental body or agency
having jurisdiction over the Company, its Shares or its other securities, (iv) require the Advisor
to register as a broker-dealer with the SEC or any state, or (v) violate the Charter or Bylaws. In
the event an action that would violate (i) through (v) of the preceding sentence but such action
has been ordered by the Board, the Advisor shall notify the Board of the Advisor’s judgment of the
potential impact of such action and shall refrain from taking such action until it receives further
clarification or instructions from the Board. In such event, the Advisor shall have no liability
for acting in accordance with the specific instructions of the Board so given.

ARTICLE 8

FEES

     8.01 Acquisition Fees.  As compensation for the investigation, selection, sourcing and
acquisition or origination (by purchase, investment or exchange) of Investments, the Company shall
pay an Acquisition Fee to the Advisor for each such investment (whether an acquisition or
origination).  With respect to the acquisition or origination of an Investment to be wholly owned,
directly or indirectly, by the Company, the Acquisition Fee payable to the Advisor shall equal 1.0%
of the sum of the amount actually paid or allocated to fund the acquisition, origination,
development, construction or improvement of the Investment, inclusive of the Acquisition Expenses
associated with such Investment and the amount of any debt associated with, or used to fund the
investment in, such Investment.  With respect to the acquisition or origination of an Investment
through any Joint Venture in which the Company or the Partnership is, directly or indirectly, a
partner, the Acquisition Fee payable to the Advisor shall equal 1.0% of the portion of the amount
actually paid or allocated to fund the acquisition, origination, development, construction or
improvement of the Investment, inclusive of the Acquisition Expenses associated with such
Investment, plus the amount of any debt associated with, or used to fund the investment in, such
Investment that is attributable to the Company’s investment in such Joint Venture.  Notwithstanding
anything herein to the contrary, the payment of Acquisition Fees by the Company shall be subject to
the limitations on acquisition fees contained in (and defined in) the Company’s Charter. The
Advisor shall submit an invoice to the Company following the closing or closings of each
acquisition or origination, accompanied by a computation of the Acquisition Fee. Generally, the
Acquisition Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt
of the invoice by the Company; provided, however, that

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such Acquisition Fee shall be paid to an Affiliate of the Advisor that is registered as a
FINRA member broker-dealer if applicable laws or regulations prohibit such payment to be made to a
Person that is not a FINRA member broker-dealer.  However, payment of the Acquisition Fee may be
deferred, in whole or in part, as to any transaction in the sole discretion of the Advisor.  Any
such deferred Acquisition Fees shall be paid to the Advisor without interest at such subsequent
date as the Advisor shall request.

     8.02 Asset Management Fees.  The Company shall pay the Advisor as compensation for the
services described in Section 3.03 hereof a monthly fee (the “Asset Management Fee”) in an
amount equal to one-twelfth of 1.25% of the sum of the Cost of Investments, less any principal
repaid by borrowers on Loans or other debt securities (or the Company’s proportionate share thereof
in the case of an Investment made through a Joint Venture), as of the end of the preceding
month.  The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of
the Asset Management Fee for the applicable period. Generally, the Asset Management Fee payable to
the Advisor shall be paid on the last day of such month, or the first business day following the
last day of such month.  However, payment of the Asset Management Fee may be deferred, in whole or
in part, as to any transaction in the sole discretion of the Advisor.  Any such deferred Asset
Management Fees shall be paid to the Advisor without interest at such subsequent date as the
Advisor shall request.

     8.03 Disposition Fees.  If the Advisor or any of its Affiliates provide a substantial amount
of services (as determined by the Independent Directors) in connection with a Sale (except for the
Sale of any Securities that are traded on a national securities exchange), the Advisor or such
Affiliate shall receive a Disposition Fee of 1.0% of the Contract Sales Price of each Loan,
Security or Property sold. The Advisor shall
also receive a Disposition Fee upon the maturity, prepayment, workout, modification or extension of
a Loan or other debt-related investment if there is a corresponding fee paid by the borrower to the
Company, in which event the Advisor shall receive the lesser of
(i) 1.0% of the principal amount of the loan or debt-related
investment prior to such transaction or (ii) the
amount of the fee paid by the borrower to the Company in connection with such transaction. The
payment of any Disposition Fees by the Company shall be subject to the limitations contained in the
Company’s Charter.   The Advisor shall submit an invoice to the Company following the closing or
closings of each disposition, accompanied by a computation of the Disposition Fee. Generally, the
Disposition Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt
of the invoice by the Company; provided, however, that such Disposition Fee shall be paid to an
Affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable laws or
regulations prohibit such payment to be made to a Person that is not a FINRA member
broker-dealer.   However, payment of the Disposition Fee may be deferred, in whole or in part, as
to any transaction in the sole discretion of the Advisor.  Any such deferred Disposition Fees shall
be paid to the Advisor without interest at such subsequent date as the Advisor shall request.

     8.04 Operating Partnership Interests. The Advisor has made a capital contribution of $1,000
to the Operating Partnership in exchange for OP Units. In addition, an Affiliate of the Advisor
has made a capital contribution of $1,000 to the Operating Partnership in exchange for Special OP
Units. The Special OP Units shall be entitled to the distributions provided for, and shall be
subject to redemption by the Operating Partnership, in accordance with the terms of the Operating
Partnership Agreement. To the extent distributions to the Special OP
Units are not paid from net sales proceeds, such amounts will count
against the limit on Operating Expenses.

     8.05 Changes to Fee Structure.  In the event of Listing, the Company and the Advisor shall
negotiate in good faith to establish a fee structure appropriate for a perpetual-life entity.

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ARTICLE 9

EXPENSES

     9.01 General.  In addition to the compensation paid to the Advisor pursuant to Article 8
hereof, the Company shall pay directly or reimburse the Advisor for all of the expenses paid or
incurred by the Advisor or its Affiliates on behalf of the Company or in connection with the
services provided to the Company pursuant to this Agreement, including, but not limited to:

          (i)  All Organization and Offering Expenses; provided, however, that the Company shall
not reimburse the Advisor to the extent such reimbursement would cause the total amount spent
by the Company on Organization and Offering Expenses to exceed 15.0% of the Gross Proceeds
raised as of the date of the reimbursement and provided further that within 60 days after the
end of the month in which an Offering terminates, the Advisor shall reimburse the Company to
the extent the Company incurred Organization and Offering Expenses exceeding 15.0% of the
Gross Proceeds raised in the completed Offering; the Company shall not reimburse the Advisor
for any Organization and Offering Expenses that the Independent Directors determine are not
fair and commercially reasonable to the Company;

          (ii)  Acquisition Fees and Acquisition Expenses incurred in connection with the selection
and acquisition of Investments, including such expenses incurred related to assets pursued or
considered but not ultimately acquired by the Company, provided that, notwithstanding anything
herein to the contrary, the payment of Acquisition Fees and Acquisition Expenses by the
Company shall be subject to the limitations contained in the Company’s Charter;

          (iii)  The actual out-of-pocket cost of goods and services used by the Company and
obtained from entities not Affiliated with the Advisor;

          (iv)  Interest and other costs for borrowed money or securitization transactions,
including discounts, points and other similar fees;

          (v)  Taxes and assessments on income or Properties, taxes as an expense of doing business
and any other taxes otherwise imposed on the Company and its business, assets or income;

          (vi)  Out-of-pocket costs associated with insurance required in connection with the
business of the Company or by its officers and Board;

          (vii)  Expenses of managing, improving, developing, operating and selling Investments
owned, directly or indirectly, by the Company, as well as expenses of other transactions
relating to such Investments, including but not limited to prepayments, maturities, workouts
and other settlements of Loans and other Investments;

          (viii)  All out-of-pocket expenses in connection with payments to the Board and meetings
of the Board and Stockholders;

          (ix)  Personnel and related employment costs incurred by the Advisor or its Affiliates in
performing the services described in Article 3 hereof, including but not limited to reasonable
salaries and wages, benefits and overhead of all employees directly involved in the
performance of such services, provided that no reimbursement shall be made for costs of such
employees of the Advisor or its Affiliates to the extent that such employees (A) perform
services for which the Advisor receives Acquisition Fees or Disposition Fees or (B) serve as
executive officers of the Company;

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          (x)  Out-of-pocket expenses of providing services for and maintaining communications with
Stockholders, including the cost of preparation, printing, and mailing annual reports and
other Stockholder reports, proxy statements and other reports required by governmental
entities;

          (xi)  Audit, accounting and legal fees, and other fees for professional services relating
to the operations of the Company and all such fees incurred at the request, or on behalf of,
the Board or any other committee of the Board;

          (xii)  Out-of-pocket costs for the Company to comply with all applicable laws,
regulations and ordinances;

          (xiii)  Expenses connected with payments of Distributions made or caused to be made by
the Company to the Stockholders;

          (xiv)  Expenses of organizing, redomesticating, merging, liquidating or dissolving the
Company or of amending the Charter or the Bylaws; and

          (xv)  All other out-of-pocket costs incurred by the Advisor in performing its duties
hereunder.

     9.02 Timing of and Additional Limitations on Reimbursements.

          (i)  Expenses incurred by the Advisor on behalf of the Company and reimbursable pursuant
to this Article 9 shall be reimbursed no less than monthly to the Advisor. The Advisor shall
prepare a statement documenting the expenses of the Company during each quarter and shall
deliver such statement to the Company within 45 days after the end of each quarter.

          (ii)  Notwithstanding anything else in this Article 9 to the contrary, the expenses
enumerated in this Article 9 shall not become reimbursable to the Advisor unless and until the
Company has raised $2 million in the Initial Public Offering.

          (iii)  Commencing upon the fourth fiscal quarter after the commencement of the Initial
Public Offering, the following limitation on Operating Expenses shall apply:   The Company
shall not reimburse the Advisor at the end of any fiscal quarter for Operating Expenses that
in the four consecutive fiscal quarters then ended (the “Expense Year”) exceed (the
“Excess Amount”) the greater of 2% of Average Invested Assets or 25% of Net Income
(the “2%/25% Guidelines”) for such year unless the Board determines that such excess
was justified, based on unusual and nonrecurring factors that the Board deems sufficient. If
the Board does not approve such excess as being so justified, any Excess Amount paid to the
Advisor during a fiscal quarter shall be repaid to the Company. If the Board determines such
excess was justified, then, within 60 days after the end of any fiscal quarter of the Company
for which total reimbursed Operating Expenses for the Expense Year exceed the 2%/25%
Guidelines, the Advisor, at the direction of the Board, shall cause such fact to be disclosed
to the Stockholders in writing (or the Company shall disclose such fact to the Stockholders in
the next quarterly report of the Company or by filing a Current Report on Form 8-K with the
SEC within 60 days of such quarter end), together with an explanation of the factors the Board
considered in determining that such excess expenses were justified. The Company will ensure
that such determination will be reflected in the minutes of the meetings of the Board. All
figures used in the foregoing computation shall be determined in accordance with GAAP applied
on a consistent basis.

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ARTICLE 10

OTHER SERVICES

          Should (i) the Operating Partnership request that the Advisor or any manager, officer or
employee thereof render services for the Company other than as set forth in this Agreement or
(ii) there are changes to the regulatory environment in which the Advisor or Company operates that
would increase significantly the level of services performed such that the costs and expenses borne
by the Advisor for which the Advisor is not entitled to separate reimbursement for personnel and
related employment direct costs and overhead under Article 9 of this Agreement would increase
significantly, such services shall be separately compensated at such rates and in such amounts as
are agreed by the Advisor and the Independent Directors, subject to the limitations contained in
the Articles of Incorporation, and shall not be deemed to be services pursuant to the terms of this
Agreement.

ARTICLE 11

VOTING AGREEMENT

     NS Real Estate Income Trust Advisor, LLC agrees that, with respect to any Shares now or
hereinafter owned by it, it will not vote or consent on matters submitted to the Stockholders of
the Company regarding (i) the removal of NS Real Estate Income Trust Advisor, LLC or any of its
Affiliates as the Advisor or (ii) any transaction between the Company and NS Real Estate Income
Trust Advisor, LLC or any of its Affiliates.  This voting restriction shall survive until such time
that NS Real Estate Income Trust Advisor, LLC or any of its Affiliates is no longer serving as the
Advisor.

ARTICLE 12

RELATIONSHIP OF ADVISOR AND COMPANY;

OTHER ACTIVITIES OF THE ADVISOR

     12.01 Relationship.  The Company and the Advisor are not partners or joint venturers with each
other, and nothing in this Agreement shall be construed to make them such partners or joint
venturers. Nothing herein contained shall prevent the Advisor from engaging in other activities,
including, without limitation, the rendering of advice to other Persons (including other REITs) and
the management of other programs advised, sponsored or organized by the Advisor or its Affiliates.
Nor shall this Agreement limit or restrict the right of any manager, director, officer, employee or
equityholder of the Advisor or its Affiliates to engage in any other business or to render services
of any kind to any other Person. The Advisor may, with respect to any investment in which the
Company is a participant, also render advice and service to each and every other participant
therein. The Advisor shall promptly disclose to the Board the existence of any condition or
circumstance, existing or anticipated, of which it has knowledge, that creates or could create a
conflict of interest between the Advisor’s obligations to the Company and its obligations to or its
interest in any other Person.

     12.02 Time Commitment.  The Advisor shall, and shall cause its Affiliates and their respective
employees, officers and agents to, devote to the Company such time as shall be reasonably necessary
to conduct the business and affairs of the Company in an appropriate manner consistent with the
terms of this Agreement. The Company acknowledges that the Advisor and its Affiliates and their
respective employees, officers and agents may also engage in activities unrelated to the Company
and may provide services to Persons other than the Company or any of its Affiliates.

     12.03 Investment
Opportunities and Allocation.  The Advisor shall be required to use commercially
reasonable efforts to present a continuing and suitable investment program to the Company that
is consistent with the investment policies and objectives of the Company, but neither the
Advisor nor any Affiliate of the Advisor shall be obligated generally to present any
particular Investment opportunity to the Company even if the opportunity is of character
that, if presented to the Company, could be taken by the Company.  In conducting the
allocation procedure, the Advisor will consider (i) the investment objectives and criteria
of other entities managed by the Advisor or its Affiliates; (ii) the cash requirements
of other entities managed by the Advisor or its Affiliates; (iii) the effect of the
investment on diversification of the other entities managed by the Advisor or its Affiliates
by type of investment and risk of investment; (iv) the policy on leverage of the other entities
managed by the Advisor or its Affiliates; (v) the anticipated cash flow of the asset to be
acquired; (vi) the federal income tax effects of the purchase on the other entities
managed by the Advisor or its Affiliates, (vi) the size of the investment program and (vii)
the amount of funds available to the other entities managed by the Advisor or its
Affiliates and the length of time such funds have been available for investment.
NorthStar shall not grant rights to NorthStar Affiliates that are superior to the
Company’s rights with respect to the allocation of investment opportunities
until such time as 85% of the Gross Proceeds raised in an Offering have been
invested in Investments; provided, however, that NorthStar may grant priority
investment allocation rights associated with reinvestment of proceeds generated by the
repayment or sale of loans or securities held in certain term investment vehicles or
collateralized debt obligations previously created by NorthStar to NorthStar Affiliates.

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ARTICLE 13

THE NORTHSTAR NAME

     The Advisor and its Affiliates have a proprietary interest in the name “NorthStar.”  The
Advisor hereby grants to the Company a non-transferable, non-assignable, non-exclusive royalty-free
right and license to use the name “NorthStar” during the term of this Agreement. Accordingly, and
in recognition of this right, if at any time the Company ceases to retain the Advisor or one of its
Affiliates to perform advisory services for the Company, the Company will, promptly after receipt
of written request from the Advisor, cease to conduct business under or use the name “NorthStar” or
any derivative thereof and the Company shall change its name and the names of any of its
subsidiaries to a name that does not contain the name “NorthStar” or any other word or words that
might, in the reasonable discretion of the Advisor, be susceptible of indication of some form of
relationship between the Company and the Advisor or any its Affiliates.  At such time, the Company
will also make any changes to any trademarks, servicemarks or other marks necessary to remove any
references to the word “NorthStar.” Consistent with the foregoing, it is specifically recognized
that the Advisor or one or more of its Affiliates has in the past and may in the future organize,
sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment
in real estate loans, real estate-related debt securities and other real estate assets) and
financial and service organizations having “NorthStar” as a part of their name, all without the
need for any consent (and without the right to object thereto) by the Company.

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ARTICLE 14

TERM AND TERMINATION OF THE AGREEMENT

     14.01 Term.  This Agreement shall have an initial term of one year from the Effective Date and
may be renewed for an unlimited number of successive one-year terms upon mutual consent of the
parties. The Company (acting through the Independent Directors) will evaluate the performance of
the Advisor annually before renewing this Agreement, and each such renewal shall be for a term of
no more than one year.  Any such renewal must be approved by the Independent Directors.

     14.02 Termination by the Parties.  This Agreement may be terminated:

          (i) immediately by the Company or the Operating Partnership for Cause or upon the
bankruptcy of the Advisor;

          (ii) upon 60 days written notice without Cause and without penalty by a majority of the
Independent Directors of the Company; or

          (iii) upon 60 days written notice with Good Reason by the Advisor.

          The provisions of Article 13, Section 14.03 and Articles 16 through 18 of this Agreement shall
survive termination of this Agreement.

     14.03 Payments on Termination and Survival of Certain Rights and Obligations.   Payments to
the Advisor pursuant to this Section 15.03 shall be subject to the 2%/25% Guidelines to the extent
applicable.

          (i)  After the Termination Date, the Advisor shall not be entitled to compensation for
further services hereunder except it shall be entitled to receive from the Company or the
Operating Partnership within 30 days after the effective date of such termination all unpaid
reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to
termination of this Agreement, subject to the 2%/25% Guidelines to the extent applicable.

          (ii)  The Advisor shall promptly upon termination:

     (a)  pay over to the Company and the Operating Partnership all money collected
and held for the account of the Company and the Operating Partnership pursuant to this
Agreement, if any, after deducting any accrued compensation and reimbursement for its
expenses to which it is then entitled;

     (b)  deliver to the Board a full accounting, including a statement showing all
payments collected by it and a statement of all money held by it, covering the period
following the date of the last accounting furnished to the Board;

     (c)  deliver to the Board all assets and documents of the Company then in the
custody of the Advisor; and

     (d)  cooperate with the Company to provide an orderly transition of advisory
functions.

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ARTICLE 15

ASSIGNMENT

     This Agreement may be assigned by the Advisor to an Affiliate with the approval of a majority
of the Board (including a majority of the Independent Directors). The Advisor may assign any rights
to receive fees or other payments under this Agreement without obtaining the approval of the Board.
This Agreement shall not be assigned by the Company or the Operating Partnership without the
consent of the Advisor, except in the case of an assignment by the Company or the Operating
Partnership to a corporation or other organization that is a successor to all of the assets, rights
and obligations of the Company or the Operating Partnership, in which case such successor
organization shall be bound hereunder and by the terms of said assignment in the same manner as the
Company and the Operating Partnership are bound by this Agreement. Nothing herein shall be deemed
to prohibit or otherwise restrict any transfers or additional issuances of equity interests in the
Advisor nor shall any such transfer or issuance be deemed an assignment for purposes of this
Article 15.

ARTICLE 16

INDEMNIFICATION AND LIMITATION OF LIABILITY

     16.01 Indemnification.  Except as prohibited by the restrictions provided in this
Section 16.01, Section 16.02 and Section 16.03, the Company and the Operating Partnership shall
indemnify, defend and hold harmless the Advisor and its Affiliates, including their respective
officers, directors, equity holders, partners and employees, from all liability, claims, damages or
losses arising in the performance of their duties hereunder, and related expenses, including
reasonable attorneys’ fees, to the extent such liability, claims, damages or losses and related
expenses are not fully reimbursed by insurance. Any indemnification of the Advisor may be made only
out of the net assets of the Company and not from Stockholders.

     Notwithstanding the foregoing, the Company shall not indemnify the Advisors or its Affiliates
for any loss, liability or expense arising from or out of an alleged violation of federal or state
securities laws by such party unless one or more of the following conditions are met: (i) there has
been a successful adjudication on the merits of each count involving alleged material securities
law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice
on the merits by a court of competent jurisdiction as to the particular indemnitee; or (iii) a
court of competent jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and the related costs should be made, and the
court considering the request for indemnification has been advised of the position of the SEC and
of the published position of any state securities regulatory authority in which securities of the
Company were offered or sold as to indemnification for violations of securities laws.

     16.02 Limitation on Indemnification.  Notwithstanding the foregoing, the Company and Operating
Partnership shall not provide for indemnification of the Advisor or its Affiliates for any
liability or loss suffered by any of them, nor shall any of them be held harmless for any loss or
liability suffered by the Company, unless all of the following conditions are met:

          (i) The Advisor or its Affiliates have determined, in good faith, that the course of
conduct that caused the loss or liability was in the best interests of the Company and the
Operating Partnership.

          (ii) The Advisor or its Affiliates were acting on behalf of or performing services for
the Company or the Operating Partnership.

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          (iii) Such liability or loss was not the result of negligence or misconduct by the
Advisor or its Affiliates.

          (iv) Such indemnification or agreement to hold harmless is recoverable only out of the
Company’s net assets and not from the Stockholders.

     16.03 Limitation on Payment of Expenses.  The Company shall pay or reimburse reasonable legal
expenses and other costs incurred by the Advisors or its Affiliates in advance of the final
disposition of a proceeding only if (in addition to the procedures required by the Maryland General
Corporation Law, as amended from time to time) all of the following are satisfied: (a) the
proceeding relates to acts or omissions with respect to the performance of duties or services on
behalf of the Company or the Operating Partnership, (b) the legal proceeding was initiated by a
third party who is not a Stockholder or, if by a Stockholder acting in his or her capacity as such,
a court of competent jurisdiction approves such advancement and (c)  the Advisor or its Affiliates
undertake to repay the amount paid or reimbursed by the Company Operating Partnership, together
with the applicable legal rate of interest thereon, if it is ultimately determined that the
particular indemnitee is not entitled to indemnification.

          16.04 Indemnification by Advisor. The Advisor shall indemnify and hold harmless the Company
and the Operating Partnership from contract or other liability, claims, damages, taxes or losses
and related expenses including attorneys’ fees, to the extent that such liability, claims, damages,
taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by
reason of the Advisor’s bad faith, fraud, misfeasance, intentional misconduct, negligence or
reckless disregard of its duties; provided, however, that the Advisor shall not be held responsible
for any action of the Board in following or declining to follow any advice or recommendation given
by the Advisor.

ARTICLE 17

NON-SOLICITATION

     During the period commencing on the Effective Date and ending one year following the
Termination Date, the Company shall not, without the Advisor’s prior written consent, directly or
indirectly, (i) solicit or encourage any person to leave the employment or other service of the
Advisor or its Affiliates, or (ii) hire, on behalf of the Company or any other person or entity,
any person who has left the employment within the one year period following the termination of that
person’s employment with the Advisor or its Affiliates. During the period commencing on the date
hereof through and ending one year following the Termination Date, the Company will not, whether
for its own account or for the account of any other Person, intentionally interfere with the
relationship of the Advisor or its Affiliates with, or endeavor to entice away from the Advisor or
its Affiliates, any person who during the term of the Agreement is, or during the preceding
one-year period, was a tenant, co-investor, co-developer, joint venturer or other customer of the
Advisor or its Affiliates.

19

 

ARTICLE 18

MISCELLANEOUS

     18.01 Notices.  Any notice, report or other communication required or permitted to be given
hereunder shall be in writing unless some other method of giving such notice, report or other
communication is required by the Charter, the Bylaws or is accepted by the party to whom it is
given, and shall be given by being delivered by hand or by overnight mail or other overnight
delivery service to the addresses set forth herein:

	 	 	 
	To the Board, the Company or the
Operating Partnership:

	 	NorthStar Real Estate Income Trust,
Inc. 

399 Park Avenue 

18th Floor 

New York, New York 10022
	 
	 	 
	To the Advisor:

	 	NS Real Estate Income Trust Advisor, LLC

399 Park Avenue

18th Floor

New York, New York 10022

     Either party may at any time give notice in writing to the other party of a change in its
address for the purposes of this Section 18.01.

     18.02 Modification.  This Agreement shall not be changed, modified, terminated or discharged,
in whole or in part, except by an instrument in writing signed by both parties hereto, or their
respective successors or permitted assigns.

     18.03 Severability.  The provisions of this Agreement are independent of and severable from
each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of
the fact that for any reason any other or others of them may be invalid or unenforceable in whole
or in part.

     18.04 Construction.  The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York.

     18.05 Entire Agreement.  This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or
written, of any nature whatsoever with respect to the subject matter hereof. The express terms
hereof control and supersede any course of performance and/or usage of the trade inconsistent with
any of the terms hereof. This Agreement may not be modified or amended other than by an agreement
in writing.

     18.06 Waiver.  Neither the failure nor any delay on the part of a party to exercise any right,
remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any
right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such
right, remedy, power or privilege with respect to any other occurrence. No waiver shall be
effective unless it is in writing and is signed by the party asserted to have granted such waiver.

     18.07 Gender.  Words used herein regardless of the number and gender specifically used, shall
be deemed and construed to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context requires.

20

 

     18.08 Titles Not to Affect Interpretation.  The titles of Articles and Sections contained in
this Agreement are for convenience only, and they neither form a part of this Agreement nor are
they to be used in the construction or interpretation hereof.

     18.09 Counterparts.  This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original as against any party whose signature appears thereon, and
all of which shall together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.

[The remainder of this page is intentionally left blank.

Signature page follows.]

21

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year
first above written.
 

	 	 	 	 	 	 	 
	 	 	NorthStar Real Estate Income Trust, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 	 	 	 	 
	 	 	NorthStar Real Estate Income Trust Operating Partnership, LP	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	NorthStar Real Estate Income Trust, Inc., 

its General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	Name:
	 	 

	 	 
	 

	 	 	 	Title:
	 	 

	 	 
	 

	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	NS Real Estate Income Trust Advisor, LLC	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	NorthStar Real Estate Income Trust Operating

Partnership, LP, its sole member	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	Name:
	 	 

	 	 
	 

	 	 	 	Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00160-of-00352.parquet"}]]