Document:

EX-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	 

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	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	 

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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.

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     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.

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     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.

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     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

9

 

          (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;

13

 

          (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.

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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.

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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:	 	NRFC Sub-REIT Corp., 

its sole member	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	Name:
	 	 

	 	 
	 

	 	 	 	Title:exv4w1

Exhibit 4.1

DIGITAL ANGEL CORPORATION

2003 FLEXIBLE STOCK PLAN

(as Amended and Restated through September 25, 2009)

ii

 

DIGITAL ANGEL CORPORATION

2003 FLEXIBLE STOCK PLAN

(as Amended and Restated through September 25, 2009)

TABLE OF CONTENTS

	 	 	 	 	 
	1.
	 	NAME AND PURPOSE	 	1
	1.1
	 	Name	 	1
	1.2
	 	Purpose	 	1
	 
	 	 	 	 
	2.
	 	DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION	 	1
	2.1
	 	General Definitions	 	1
	2.1.1
	 	Affiliate	 	1
	2.1.2
	 	Agreement	 	1
	2.1.3
	 	Benefit	 	1
	2.1.4
	 	Board	 	1
	2.1.5
	 	Cash Award	 	1
	2.1.6
	 	Change of Control	 	2
	2.1.7
	 	Code	 	3
	2.1.8
	 	Company	 	3
	2.1.9
	 	Committee	 	3
	2.1.10
	 	Common Stock	 	3
	2.1.11
	 	Effective Date	 	3
	2.1.12
	 	Employee	 	3
	2.1.13
	 	Employer	 	3
	2.1.14
	 	Exchange Act	 	3
	2.1.15
	 	Fair Market Value	 	4
	2.1.16
	 	Fiscal Year	 	4
	2.1.17
	 	ISO	 	4
	2.1.18
	 	NQSO	 	4
	2.1.19
	 	Option	 	4
	2.1.20
	 	Other Stock Based Award	 	4
	2.1.21
	 	Parent	 	4
	2.1.22
	 	Participant	 	4
	2.1.23
	 	Performance Based Compensation	 	4
	2.1.24
	 	Performance Share	 	4
	2.1.25
	 	Plan	 	5
	2.1.26
	 	Reload Option	 	5

iii

 

	 	 	 	 	 
	2.1.27
	 	Restricted Stock	 	5
	2.1.28
	 	Rule 16b-3	 	5
	2.1.29
	 	SEC	 	5
	2.1.30
	 	Share	 	5
	2.1.31
	 	SAR	 	5
	2.1.32
	 	Subsidiary	 	5
	2.2
	 	Other Definitions	 	5
	2.3
	 	Conflicts	 	5
	 
	 	 	 	 
	3.
	 	COMMON STOCK	 	6
	3.1
	 	Number of Shares	 	6
	3.2
	 	Reusage	 	6
	3.3
	 	Adjustments	 	6
	 
	 	 	 	 
	4.
	 	ELIGIBILITY	 	6
	4.1
	 	Determined By Committee	 	6
	 
	 	 	 	 
	5.
	 	ADMINISTRATION	 	6
	5.1
	 	Committee	 	6
	5.2
	 	Authority	 	7
	5.3
	 	Delegation	 	7
	5.4
	 	Determination	 	7
	 
	 	 	 	 
	6.
	 	AMENDMENT	 	8
	6.1
	 	Power of Board	 	8
	6.2
	 	Limitation	 	8
	 
	 	 	 	 
	7.
	 	TERM AND TERMINATION	 	8
	7.1
	 	Term	 	8
	7.2
	 	Termination	 	8
	 
	 	 	 	 
	8.
	 	MODIFICATION OR TERMINATION OF BENEFITS	 	8
	8.1
	 	General	 	8
	8.2
	 	Committee’s Right	 	8
	8.3
	 	Compliance with Applicable Laws	 	8
	 
	 	 	 	 
	9.
	 	CHANGE OF CONTROL	 	9

iv

 

	 	 	 	 	 
	9.1
	 	Vesting and Payment	 	9
	9.2
	 	Other Action	 	9
	 
	 	 	 	 
	10.
	 	AGREEMENTS AND CERTAIN BENEFITS	 	9
	10.1
	 	Grant Evidenced by Agreement	 	9
	10.2
	 	Provisions of Agreement	 	9
	10.3
	 	Transferability	 	10
	 
	 	 	 	 
	11.
	 	REPLACEMENT AND TANDEM AWARDS	 	10
	11.1
	 	Replacement	 	10
	11.2
	 	Tandem Awards	 	10
	 
	 	 	 	 
	12.
	 	PAYMENT, DIVIDENDS AND WITHHOLDING	 	10
	12.1
	 	Payment	 	10
	12.2
	 	Dividend Equivalents	 	10
	12.3
	 	Withholding	 	11
	 
	 	 	 	 
	13.
	 	OPTIONS	 	11
	13.1
	 	Types of Options	 	11
	13.2
	 	Grant of ISOs and Option Price	 	11
	13.3
	 	Other Requirements for ISOs	 	11
	13.4
	 	NQSOs	 	11
	13.5
	 	Determination by Committee	 	11
	 
	 	 	 	 
	14.
	 	SARS	 	11
	14.1
	 	Grant and Payment	 	11
	14.2
	 	Grant of Tandem Award	 	11
	14.3
	 	ISO Tandem Award	 	12
	14.4
	 	Payment of Award	 	12
	 
	 	 	 	 
	15.
	 	ANNUAL LIMITATIONS	 	12
	15.1
	 	Limitation on Options and SARs	 	12
	15.2
	 	Limitation on Performance Shares	 	12
	15.3
	 	Computations	 	12
	 
	 	 	 	 
	16.
	 	RESTRICTED STOCK AND PERFORMANCE SHARES	 	12
	16.1
	 	Restricted Stock	 	12

v

 

	 	 	 	 	 
	16.2
	 	Cost of Restricted Stock	 	12
	16.3
	 	Non-Transferability	 	13
	16.4
	 	Performance Shares	 	13
	16.5
	 	Grant	 	13
	 
	 	 	 	 
	17.
	 	CASH AWARDS	 	13
	17.1
	 	Grant	 	13
	17.2
	 	Annual Limits	 	13
	17.3
	 	Restrictions	 	13
	 
	 	 	 	 
	18.
	 	OTHER STOCK BASED AWARDS AND OTHER BENEFITS	 	14
	18.1
	 	Other Stock Based Awards	 	14
	18.2
	 	Other Benefits	 	14
	 
	 	 	 	 
	19.
	 	MISCELLANEOUS PROVISIONS	 	14
	19.1
	 	Underscored References	 	14
	19.2
	 	Number and Gender	 	14
	19.3
	 	Unfunded Status of Plan	 	14
	19.4
	 	Termination of Employment	 	14
	19.5
	 	Designation of Beneficiary	 	14
	19.6
	 	Governing Law	 	15
	19.7
	 	Purchase for Investment	 	15
	19.8
	 	No Employment Contract	 	15
	19.9
	 	No Effect on Other Benefits	 	15

vi

 

DIGITAL ANGEL CORPORATION

2003 FLEXIBLE STOCK PLAN

(as Amended and Restated through September 25, 2009)

1. NAME AND PURPOSE

1.1 Name.

The name of this Plan is the “Digital Angel Corporation 2003 Flexible Stock Plan.”

1.2 Purpose.

The Company has established this Plan to attract, retain, motivate and reward Employees and other
individuals, to encourage ownership of the Company’s common stock by Employees and other
individuals, and to promote and further the best interests of the Company by granting cash and
other awards. The Company also intends in appropriate circumstances to grant awards of its common
stock in lieu of cash compensation pursuant to the mutual agreement of the Participant and the
Company.

2. DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION

2.1 General Definitions.

The following words and phrases, when used in the Plan, unless otherwise specifically defined or
unless the context clearly otherwise requires, shall have the following respective meanings:

2.1.1 Affiliate.

A Parent or Subsidiary of the Company.

2.1.2 Agreement.

The document which evidences the grant of any Benefit under the Plan and which sets forth the
Benefit and the terms, conditions and provisions of, and restrictions relating to, such Benefit.

2.1.3 Benefit.

Any benefit granted to a Participant under the Plan.

2.1.4 Board.

The Board of Directors of the Company.

2.1.5 Cash Award.

A Benefit payable in the form of cash.

1

 

2.1.6 Change of Control.

The occurrence of any of the following:

	 	A.	 	An acquisition of any common stock or other voting securities of the
Company entitled to vote generally for the election of directors (the “Voting
Securities”) by any “Person” or “Group” (as each such term is used for purposes of
Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person or
Group, as the case may be, has “Beneficial Ownership” (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than 20% of the then outstanding shares of common stock or the combined voting power of the Company’s then
outstanding Voting Securities; provided, however, that in determining whether a
Change of Control has occurred, shares of common stock or Voting Securities that
are acquired in a Non-Control Acquisition (as defined below) shall not constitute
an acquisition which would cause a Change of Control. A “Non-Control Acquisition”
shall mean an acquisition by (i) the Company, (ii) any Subsidiary or (ii) any
employee benefit plan maintained by the Company or any Subsidiary, including a
trust forming part of any such plan (an “Employee Benefit Plan”);
	 
	 	B.	 	When, during any 2-year period, individuals who, at the beginning of
the 2-year period, constitute the Board (the “Incumbent Board”), cease for any
reason to constitute at least 50% of the members of the Board; provided, however,
that (i) if the election or nomination for election by the Company’s shareholders
of any new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes hereof, be deemed to be a member of
the Incumbent Board; and (ii) no individual shall be deemed to be a member of the
Incumbent Board if such individual initially assumed office as a result of either
an actual or threatened “Election Contest” (as described in Rule 14a-11 promulgated
under the Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person or Group other than the Board (a “Proxy
Contest”) including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest;
	 
	 	C.	 	The consummation of:

	 	i.	 	a merger, consolidation or reorganization involving
the Company or any Subsidiary, unless the merger, consolidation or
reorganization is a Non-Control Transaction. A “Non-Control Transaction”
shall mean a merger, consolidation or reorganization of the Company or
any Subsidiary where:

	 	(a)	 	the shareholders of the Company immediately prior to the merger,
consolidation or reorganization own, directly or indirectly,
immediately following such merger, consolidation or reorganization, at
least 50% of the combined voting power of the outstanding voting
securities of the corporation resulting from such merger,
consolidation or reorganization (the “Surviving Corporation”) in
substantially the same proportion as their ownership of the common
stock or Voting Securities, as the case may be, immediately prior to
the merger, consolidation or reorganization,
	 
	 	(b)	 	the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for the merger,
consolidation or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving Corporation, or a
corporation beneficially owning, directly or indirectly, a majority of
the voting securities of the Surviving Corporation, and
	 
	 	(c)	 	no Person or Group, other than (1) the Company, (2) any Subsidiary,
(3) any Employee Benefit Plan or (4) any other Person or Group who,
immediately prior to the merger, consolidation or reorganization, had
Beneficial Ownership of not less than 20% of the then outstanding
Voting Securities or common stock, has Beneficial Ownership of 20% or
more of the combined voting power of the Surviving Corporation’s then
outstanding voting securities or common stock;
	 
	 	(d)	 	A complete liquidation or dissolution of the Company; or

2

 

	 	(e)	 	The sale or other disposition of all or substantially all of the
assets of the Company to any Person (other than a transfer to a
Subsidiary).

Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred solely
because any Person or Group (the “Subject Person”) acquired Beneficial Ownership of more than the
permitted amount of the then outstanding Voting Securities or common stock of the Company as a
result of an acquisition of Voting Securities or common stock by the Company which, by reducing the
number of shares of Voting Securities or common stock then outstanding, increases the proportional
number of shares beneficially owned by the Subject Person; provided, however, that if a Change of
Control would have occurred (but for the operation of this sentence) as a result of the acquisition
of Voting Securities or common stock by the Company, and after such acquisition by the Company, the
Subject Person becomes the beneficial owner of any additional shares of Voting Securities or common
stock, which increases the percentage of the then outstanding shares of Voting Securities or common
stock beneficially owned by the Subject Person, then a Change of Control shall be deemed to have
occurred.

2.1.7 Code.

The Internal Revenue Code of 1986, as amended. Any reference to the Code includes the regulations
promulgated pursuant to the Code.

2.1.8 Company.

Digital Angel Corporation

2.1.9 Committee.

The Committee described in Section 5.1.

2.1.10 Common Stock.

The Company’s common stock, which presently has a par value of $.01 per Share.

2.1.11 Effective Date.

The date that the amended and restated Plan is approved by the shareholders of the Company which
must occur within one year before or after approval by the Board. Any grants of Benefits prior to
the approval by the shareholders of the Company shall be void if such approval is not obtained.

2.1.12 Employee.

Any person employed by the Employer.

2.1.13 Employer.

The Company and all Affiliates.

2.1.14 Exchange Act.

The Securities Exchange Act of 1934, as amended.

3

 

2.1.15 Fair Market Value.

The closing price of Shares on the Nasdaq National Market on a given date, or, in the absence of
sales on a given date, the closing price on the Nasdaq National Market on the last day on which a
sale occurred prior to such date.

2.1.16 Fiscal Year.

The taxable year of the Company which is the calendar year.

2.1.17 ISO.

An Incentive Stock Option as defined in Section 422 of the Code.

2.1.18 NQSO.

A non-qualified stock Option, which is an Option that does not qualify as an ISO.

2.1.19 Option.

An option to purchase Shares granted under the Plan.

2.1.20 Other Stock Based Award.

An award under Section 3.1 that is valued in whole or in part by reference to, or otherwise based
on, common stock.

2.1.21 Parent.

Any corporation (other than the Company or a Subsidiary) in an unbroken chain of corporations
ending with the Company, if, at the time of the grant of an Option or other Benefit, each of the
corporations (other than the Company) owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such chain.

2.1.22 Participant.

An individual who is granted a Benefit under the Plan. Benefits may be granted only to Employees,
members of the Board, (including former Employees and former members of the Board if in connection
with their separation from the Company), employees and owners of entities which are not Affiliates
but which have a direct or indirect ownership interest in an Employer or in which an Employer has a
direct or indirect ownership interest, individuals who, and employees and owners of entities which,
are customers and suppliers of an Employer, individuals who, and employees and owners of entities
which, render services to an Employer, and individuals who, and employees and owners of entities,
which have ownership or business affiliations with any individual or entity previously described.

2.1.23 Performance Based Compensation.

Compensation which meets the requirements of Section 162(m)(4)(C) of the Code.

2.1.24 Performance Share.

A Share awarded to a Participant under Section 16.4 of the Plan.

4

 

2.1.25 Plan.

The Digital Angel Corporation 2003 Flexible Stock Plan and all amendments and supplements to it.

2.1.26 Reload Option.

An Option to purchase the number of Shares used by a Participant to exercise an Option and to
satisfy any withholding requirement incident to the exercise of such Option.

2.1.27 Restricted Stock.

Shares issued under Section 16.1 of the Plan.

2.1.28 Rule 16b-3.

Rule 16b-3 promulgated by the SEC, as amended, or any successor rule in effect from time to time.

2.1.29 SEC.

The Securities and Exchange Commission.

2.1.30 Share.

A share of common stock.

2.1.31 SAR.

A stock appreciation right, which is the right to receive an amount equal to the appreciation, if
any, in the Fair Market Value of a Share from the date of the grant of the right to the date of its
payment.

2.1.32 Subsidiary.

Any corporation, other than the Company, in an unbroken chain of corporations beginning with the
Company if, at the time of grant of an Option or other Benefit, each of the corporations, other
than the last corporation in the unbroken chain, owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations in such chain.

2.2 Other Definitions.

In addition to the above definitions, certain words and phrases used in the Plan and any Agreement
may be defined in other portions of the Plan or in such Agreement.

2.3 Conflicts.

In the case of any conflict in the terms of the Plan relating to a Benefit, the provisions in the
section of the Plan which specifically grants such Benefit shall control those in a different
section. In the case of any conflict between the terms of the Plan relating to a Benefit and the
terms of an Agreement relating to a Benefit, the terms of the Plan shall control.

5

 

3. COMMON STOCK

3.1 Number of Shares.

The number of Shares which may be issued or sold or for which Options, SARs or Performance Shares
may be granted under the Plan shall be 2,875,000 Shares. Such Shares may be authorized but unissued
Shares, Shares held in the treasury, or both. The full number of Shares available may be used for
any type of Option or other Benefit; provided, however, that the number of Shares that may be
issued under ISOs shall not exceed 162,500.

3.2 Reusage.

If an Option or SAR expires or is terminated, surrendered, or canceled without having been fully
exercised, if Restricted Shares or Performance Shares are forfeited, or if any other grant results
in any Shares not being issued, the Shares covered by such Option or SAR, grant of Restricted
Shares, Performance Shares or other grant, as the case may be, shall again be available for use
under the Plan. Any Shares which are used as full or partial payment to the Company upon exercise
of an Option or for any other Benefit that requires a payment to the Company shall be available for
purposes of the Plan.

3.3 Adjustments.

If there is any change in the common stock of the Company by reason of any stock dividend,
spin-off, split-up, spin-out, recapitalization, merger, consolidation, reorganization, combination
or exchange of shares, or otherwise, the number of SARs and number and class of shares available
for Options and grants of Restricted Stock, Performance Shares and Other Stock Based Awards and the
number of Shares subject to outstanding Options, SARs, grants of Restricted Stock which are not
vested, grants of Performance Shares which are not vested, and Other Stock Based Awards, and the
price thereof, as applicable, may be appropriately adjusted by the Committee.

4. ELIGIBILITY

4.1 Determined By Committee.

The Participants and the Benefits they receive under the Plan shall be determined solely by the
Committee. In making its determinations, the Committee shall consider past, present and expected
future contributions of Participants and potential Participants to the Employer, including, without
limitation, the performance of, or the refraining from the performance of, services. Unless
specifically provided otherwise herein, all determinations of the Committee in connection with the
Plan or an Agreement shall be made in its sole discretion.

5. ADMINISTRATION

5.1 Committee.

The Plan shall be administered by the Committee. The Committee shall consist of the “outside
directors” of the Board, unless the Board appoints a Committee of two or more but less than all of
the Board all of whom are “outside directors” as defined in Section 162(m) of the Code. The
Committee shall use its best efforts to grant Options, SARs, Restricted Stock, Performance Shares,
Cash Awards and Other Stock Based Awards under this Plan to an Employee which will qualify as
“performance-based compensation” for purposes of Section 162(m) of the Code, except where the
Committee deems that the Company’s interests when viewed broadly will be better served by a grant
which is free of the conditions required to so qualify any such grant for purposes of Section
162(m) of the Code.

If the Committee does not include the entire outside directors of the Board, it shall serve at the
pleasure of the outside directors of the Board, which may from time to time appoint members in
substitution for members previously appointed and fill vacancies, however caused, in the Committee.
The Committee may select one of its

6

 

members as its Chairman and shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of the Committee made at a
meeting at which a quorum is present shall be made by a majority of its members present at the
meeting. Any decision or determination reduced to writing and signed by a majority of the members
shall be fully as effective as if it had been made by a majority vote at a meeting duly called and
held.

5.2 Authority.

Subject to the terms of the Plan, the Committee shall have discretionary authority to:

	 	(a)	 	determine the individuals to whom Benefits are granted, the type and amounts of
Benefits to be granted and the date of issuance and duration of all such grants;
	 
	 	(b)	 	determine the terms, conditions and provisions of, and restrictions relating to,
each Benefit granted;
	 
	 	(c)	 	interpret and construe the Plan and all Agreements;
	 
	 	(d)	 	prescribe, amend and rescind rules and regulations relating to the Plan;
	 
	 	(e)	 	determine the content and form of all Agreements;
	 
	 	(f)	 	determine all questions relating to Benefits under the Plan;
	 
	 	(g)	 	maintain accounts, records and ledgers relating to Benefits;
	 
	 	(h)	 	maintain records concerning its decisions and proceedings;
	 
	 	(i)	 	employ agents, attorneys, accountants or other persons for such purposes as the
Committee considers necessary or desirable;
	 
	 	(j)	 	take, at any time, any action described in Section 9.1 or permitted by Section
9.2(a), irrespective of whether any Change of Control has occurred or is imminent;
	 
	 	(k)	 	determine, except to the extent otherwise provided in the Plan, whether and the
extent to which Benefits under the Plan will be structured to conform to the requirements
applicable to Performance-Based Compensation, and to take such action, establish such
procedures, and impose such restrictions at the time such Benefits are granted as the
Committee determines to be necessary or appropriate to conform to such requirements; and
	 
	 	(l)	 	do and perform all acts which it may deem necessary or appropriate for the
administration of the Plan and carry out the purposes of the Plan.

5.3 Delegation.

Except as required by Rule 16b-3 with respect to grants of Options, Stock Appreciation Awards,
Performance Shares, Other Stock Based Awards, or other Benefits to individuals who are subject to
Section 16b-3 of the Exchange Act or as otherwise required for compliance with Rule 16b-3 or other
applicable law, the Committee may delegate all or any part of its authority under the Plan to any
Employee, Employees or committee.

5.4 Determination.

All determinations of the Committee shall be final and binding on all persons.

7

 

6. AMENDMENT

6.1 Power of Board.

Except as hereinafter provided, the Board shall have the sole right and power to amend the Plan at
any time and from time to time.

6.2 Limitation.

The Board may not amend the Plan, without approval of the shareholders of the Company:

	 	(a)	 	in a manner which would cause Options which are intended to qualify as
ISOs to fail to qualify;
	 
	 	(b)	 	in a manner which would cause the Plan to fail to meet the requirements of Rule 16b-3; or
	 
	 	(c)	 	in a manner which would violate applicable law.

7. TERM AND TERMINATION

7.1 Term.

The Plan shall commence as of the Effective Date and, subject to the terms of the Plan, including
those requiring approval by the shareholders of the Company and those limiting the period over
which ISOs or any other Benefits may be granted, shall continue in full force and effect until
terminated.

7.2 Termination.

The Plan may be terminated at any time by the Board.

8. MODIFICATION OR TERMINATION OF BENEFITS

8.1 General.

Subject to the provisions of Section 8.2, the amendment or termination of the Plan shall not
adversely affect a Participant’s right to any Benefit granted prior to such amendment or
termination.

8.2 Committee’s Right.

Any Benefit granted may be converted, modified, forfeited or canceled, in whole or in part, by the
Committee if and to the extent permitted in the Plan or applicable Agreement or with the consent of
the Participant to whom such Benefit was granted. Except as may be provided in an Agreement, the
Committee may, in its sole discretion, in whole or in part, waive any restrictions or conditions
applicable to, or accelerate the vesting of, any Benefit.

8.3 Compliance with Applicable Laws.

The Plan shall be administered and interpreted in accordance with applicable federal tax laws,
including Section 409A of the Code, and the regulations promulgated thereunder.

8

 

9. CHANGE OF CONTROL

9.1 Vesting and Payment.

In the event of a Change of Control:

	 	(a)	 	provide for the purchase of any Benefit for an amount of cash equal to
the amount which could have been attained upon the exercise or realization of such
Benefit;
	 
	 	(b)	 	all outstanding SARs shall become immediately payable, except to the
extent that the right to exercise the SAR is subject to restrictions established in
connection with an Option that is issued in tandem with the SAR;
	 
	 	(c)	 	all Shares of Restricted Stock shall become fully vested;
	 
	 	(d)	 	all Performance Shares shall be deemed to be fully earned and shall be
paid out in such manner as determined by the Committee; and
	 
	 	(e)	 	all Cash Awards, Other Stock Based Awards and other Benefits shall become
fully vested and/or earned and paid out in such manner as determined by the
Committee.

9.2 Other Action.

In the event of a Change of Control, the Committee, in its sole discretion, may, in addition to the
provisions of Section 9.1 above and to the extent not inconsistent therewith:

	 	(a)	 	provide for the purchase of any Benefit for an amount of cash equal to
the amount which could have been attained upon the exercise or realization of such
Benefit;
	 
	 	(b)	 	make such adjustment to the Benefits then outstanding as the Committee
deems appropriate to reflect such transaction or change; and/or
	 
	 	(c)	 	cause the Benefits then outstanding to be assumed, or new Benefits
substituted therefor, by the surviving corporation in such change.

10. AGREEMENTS AND CERTAIN BENEFITS

10.1 Grant Evidenced by Agreement.

The grant of any Benefit under the Plan may be evidenced by an Agreement which shall describe the
specific Benefit granted and the terms and conditions of the Benefit. The granting of any Benefit
shall be subject to, and conditioned upon, the recipient’s execution of any Agreement required by
the Committee. Except as otherwise provided in an Agreement, all capitalized terms used in the
Agreement shall have the same meaning as in the Plan, and the Agreement shall be subject to all of
the terms of the Plan.

10.2 Provisions of Agreement.

Each Agreement shall contain such provisions that the Committee shall determine to be necessary,
desirable and appropriate for the Benefit granted which may include, but not necessarily be limited
to, the following with respect to any Benefit: description of the type of Benefit; the Benefit’s
duration; its transferability; if an Option, the exercise price, the exercise period and the person
or persons who may exercise the Option; the effect upon such Benefit of the Participant’s death,
disability, changes of duties or termination of employment; the Benefit’s conditions; when, if, and
how any Benefit may be forfeited, converted into another Benefit, modified, exchanged for another
Benefit, or replaced; and the restrictions on any Shares purchased or granted under the Plan.

10.3 Transferability.

Unless otherwise specified in an Agreement or permitted by the Committee, each Benefit granted
shall be not transferable other than by will or the laws of descent and distribution and shall be
exercisable during a Participant’s lifetime only by him.

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11. REPLACEMENT AND TANDEM AWARDS

11.1 Replacement.

The Committee may permit a Participant to elect to surrender a Benefit in exchange for a new
Benefit.

11.2 Tandem Awards.

Awards may be granted by the Committee in tandem. However, no Benefit may be granted in tandem with
an ISO except SARs.

12. PAYMENT, DIVIDENDS AND WITHHOLDING

12.1 Payment.

Upon the exercise of an Option or in the case of any other Benefit that requires a payment by a
Participant to the Company, the amount due the Company is to be paid:

	 	(a)	 	in cash;
	 
	 	(b)	 	by the surrender of all or part of a Benefit (including the Benefit
being exercised) including by means of a so-called “cashless exercise” of an option;
	 
	 	(c)	 	by the tender to the Company of Shares owned by the optionee and
registered in his name having a Fair Market Value equal to the amount due to the
Company;
	 
	 	(d)	 	in other property, rights and credits deemed acceptable by the
Committee, including the Participant’s promissory note;
	 
	 	(e)	 	by any combination of the payment methods specified in (a), (b), (c) and
(d) above.

Notwithstanding, the foregoing, any method of payment other than (a) may be used only with the
consent of the Committee or if and to the extent so provided in an Agreement. The proceeds of the
sale of Shares purchased pursuant to an Option and any payment to the Company for other Benefits
shall be added to the general funds of the Company or to the Shares held in treasury, as the case
may be, and used for the corporate purposes of the Company as the Board shall determine.

12.2 Dividend Equivalents.

Grants of Benefits in Shares or Share equivalents may include dividend equivalent payments or
dividend credit rights.

12.3 Withholding.

The Company may, at the time any distribution is made under the Plan, whether in cash or in Shares,
or at the time any Option is exercised, withhold from such distribution or Shares issuable upon the
exercise of an Option, any amount necessary to satisfy federal, state and local income and/or other
tax withholding
requirements with respect to

10

 

such distribution or exercise of such Options. The Committee or the
Company may require a participant to tender to the Company cash and/or Shares in the amount
necessary to comply with any such withholding requirements.

13. OPTIONS

13.1 Types of Options.

It is intended that both ISOs and NQSOs, which may be Reload Options, may be granted by the
Committee under the Plan.

13.2 Grant of ISOs and Option Price.

Each ISO must be granted to an Employee and granted within ten years from the earlier of the date
of adoption by the Board or the Effective Date. The purchase price for Shares under any ISO shall
be no less than the Fair Market Value of the Shares at the time the Option is granted.

13.3 Other Requirements for ISOs.

The terms of each Option which is intended to qualify as an ISO shall meet all requirements of
Section 422 of the Code.

13.4 NQSOs.

The terms of each NQSO shall provide that such Option will not be treated as an ISO. The purchase
price for Shares under any NQSO shall be no less than 100% of the Fair Market Value of the Shares
at the time the Option is granted.

13.5 Determination by Committee.

Except as otherwise provided in Section 13.1 through Section 13.4, the terms of all Options shall
be determined by the Committee.

14. SARS

14.1 Grant and Payment.

The Committee may grant SARs. Upon electing to receive payment of a SAR, a Participant shall
receive payment in Shares.

14.2 Grant of Tandem Award.

The Committee may grant SARs in tandem with an Option, in which case: the exercise of the Option
shall cause a correlative reduction in SARs standing to a Participant’s credit which were granted
in tandem with the Option; and the payment of SARs shall cause a correlative reduction of the
Shares under such Option.

14.3 ISO Tandem Award.

When SARs are granted in tandem with an ISO, the SARs shall have such terms and conditions as shall
be required for the ISO to qualify as an ISO.

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14.4 Payment of Award.

SARs shall be paid by the Company to a Participant, to the extent payment is elected by the
Participant (and is otherwise due and payable), as soon as practicable after the date on which such
election is made.

15. ANNUAL LIMITATIONS

15.1 Limitation on Options and SARs.

The number of (a) Shares covered by Options where the purchase price is no less than the Fair
Market Value of the Shares on the date of grant plus (b) SARs which may be granted to any
Participant in any Fiscal Year shall not exceed 125,000.

15.2 Limitation on Performance Shares

The number of Shares covered by Performance Shares in any Fiscal Year shall not exceed 62,500.

15.3 Computations.

For purposes of Section 15.1: Shares covered by an Option that is canceled shall count against the
maximum, and, if the exercise price under an Option is reduced, the transaction shall be treated as
a cancellation of the Option and a grant of a new Option; and SARs covered by a grant of SARs that
is canceled shall count against the maximum, and, if the Fair Market Value of a Share on which the
appreciation under a grant of SARs will be calculated is reduced, the transaction will be treated
as a cancellation of the SARs and the grant of a new grant of SARs.

16. RESTRICTED STOCK AND PERFORMANCE SHARES

16.1 Restricted Stock.

The Committee may grant Benefits in Shares available under Section 3.1 of the Plan as Restricted
Stock. Shares of Restricted Stock shall be issued and delivered at the time of the grant or as
otherwise determined by the Committee, but shall be subject to forfeiture until provided otherwise
in the applicable Agreement or the Plan. Each certificate representing Shares of Restricted Stock
shall bear a legend referring to the Plan and the risk of forfeiture of the Shares and stating that
such Shares are nontransferable until all restrictions have been satisfied and the legend has been
removed. At the discretion of the Committee, the grantee may or may not be entitled to full voting
and dividend rights with respect to all shares of Restricted Stock from the date of grant.

16.2 Cost of Restricted Stock.

Unless otherwise determined by the Committee, grants of Shares of Restricted Stock shall be made at
a per Share cost to the Participant equal to par value.

16.3 Non-Transferability.

Shares of Restricted Stock shall not be transferable until after the removal of the legend with
respect to such Shares.

12

 

16.4 Performance Shares.

Performance Shares are the right of an individual to whom a grant of such Shares is made to receive
Shares or cash equal to the Fair Market Value of such Shares at a future date in accordance with
the terms and conditions of such grant. The terms and conditions shall be determined by the
Committee, in its sole discretion, but generally are expected to be based substantially upon the
attainment of targeted profit and/or performance objectives. The Committee shall determine the
performance targets which will be applied with respect to each grant of Performance Shares at the
time of grant, but in no event later than 90 days after the beginning of the period of service to
which the performance targets relate. The performance criteria applicable to Performance Shares
will be one or more of the following: (1) stock price; (2) average annual growth in earnings per
share; (3) increase in shareholder value; (4) earnings per share; (5) net income; (6) return on
assets; (7) return on shareholders’ equity; (8) increase in cash flow; (9) operating profit or
operating margins; (10) revenue growth of the Company; and (11) operating expenses. Each
performance target applicable to a Performance Share award and the deadline for satisfying each
such target shall be stated in the Agreement between the Company and the Employee. The Committee
must certify in writing that each such target has been satisfied before the Performance Shares
award becomes effective.

16.5 Grant.

The Committee may grant an award of Performance Shares. The number of Performance Shares and the
terms and conditions of the grant shall be set forth in the applicable Agreement.

17. CASH AWARDS

17.1 Grant.

The Committee may grant Cash Awards at such times and (subject to Section 17.2) in such amounts as
it deems appropriate.

17.2 Annual Limits.

The amount of any Cash Award in any Fiscal Year to any Participant shall not exceed the greater of
$100,000 or 100% of his cash compensation (excluding any Cash Award under this Section 17.2) for
such Fiscal Year.

17.3 Restrictions.

Cash Awards may be subject or not subject to conditions (such as an investment requirement),
restricted or nonrestricted, vested or subject to forfeiture and may be payable currently or in the
future or both. The Committee may make grants of Cash Awards that are intended to be Performance
Based Compensation and grants of Cash Awards that are not intended to be Performance Based
Compensation.

The Committee shall determine the performance targets which will be applied with respect to each
grant of Cash Awards that are intended to be Performance Based Compensation at the time of grant,
but in no event later than 90 days after the beginning of the period of service to which the
performance targets relate. The performance criteria applicable to Performance Based Compensation
awards will be one or more of the following: (1) stock price; (2) average annual growth in earnings
per share; (3) increase in shareholder value; (4) earnings per share; (5) net income; (6) return on
assets; (7) return on shareholders’ equity; (8) increase in cash flow; (9) operating profit or
operating margins; (10) revenue growth of the Company; and (11) operating expenses. Each
performance target applicable to a Cash Award intended to be Performance Based Compensation and the
deadline for satisfying each such target shall be stated in the Agreement between the Company and
the Employee. The Committee must certify in writing that each such target has been satisfied before
the Performance Based Compensation award is paid.

18. OTHER STOCK BASED AWARDS AND OTHER BENEFITS

18.1 Other Stock Based Awards.

The Committee shall have the right to grant Other Stock Based Awards which may include, without
limitation, the

13

 

grant of Shares based on certain conditions, the payment of cash based on the performance of the
common stock, the grant of securities convertible into Shares, and the grant of Shares in lieu of
the payment of cash compensation pursuant to the mutual agreement of the Participant and the
Company.

18.2 Other Benefits.

The Committee shall have the right to provide types of Benefits under the Plan in addition to those
specifically listed, if the Committee believes that such Benefits would further the purposes for
which the Plan was established.

19. MISCELLANEOUS PROVISIONS

19.1 Underscored References.

The underscored references contained in the Plan are included only for convenience, and they shall
not be construed as a part of the Plan or in any respect affecting or modifying its provisions.

19.2 Number and Gender.

The masculine and neuter, wherever used in the Plan, shall refer to either the masculine, neuter or
feminine; and, unless the context otherwise requires, the singular shall include the plural and the
plural the singular.

19.3 Unfunded Status of Plan.

The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With
respect to any payments or deliveries of Shares not yet made to a Participant by the Company,
nothing contained herein shall give any rights that are greater than those of a general creditor of
the Company. The Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Shares or payments hereunder consistent with the
foregoing.

19.4 Termination of Employment.

If the employment of a Participant by the Company terminates for any reason, except as otherwise
provided in an Agreement, all unexercised, deferred, and unpaid Benefits may be exercisable or paid
only in accordance with rules established by the Committee. These rules may provide, as the
Committee may deem appropriate, for the expiration, forfeiture, continuation, or acceleration of
the vesting of all or part of the Benefits.

19.5 Designation of Beneficiary.

A Participant may file with the Committee a written designation of a beneficiary or beneficiaries
(subject to such limitations as to the classes and number of beneficiaries and contingent
beneficiaries as the Committee may from time to time prescribe) to exercise, in the event of the
death of the Participant, an Option, or to receive, in such event, any Benefits. The Committee
reserves the right to review and approve beneficiary designations. A Participant may from time to
time revoke or change any such designation of beneficiary and any designation of beneficiary under
the Plan shall be controlling over any other disposition, testamentary or otherwise; provided,
however, that if the Committee shall be in doubt as to the right of any such beneficiary to
exercise any Option or to receive any Benefit, the Committee may determine to recognize only an
exercise by the legal representative of the recipient, in which case the Company, the Committee and
the members thereof shall not be under any further liability to anyone.

19.6 Governing Law.

This Plan shall be construed and administered in accordance with the laws of the State of Delaware

14

 

19.7 Purchase for Investment.

The Committee may require each person purchasing Shares pursuant to an Option or other award under
the Plan to represent to and agree with the Company in writing that such person is acquiring the
Shares for investment and without a view to distribution or resale. The certificates for such
Shares may include any legend which the Committee deems appropriate to reflect any restrictions on
transfer. All certificates for Shares delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable under all
applicable laws, rules and regulations, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate references to such restrictions.

19.8 No Employment Contract.

Neither the adoption of the Plan nor any Benefit granted hereunder shall confer upon any Employee
any right to continued employment nor shall the Plan or any Benefit interfere in any way with the
right of the Employer to terminate the employment of any of its Employees at any time.

19.9 No Effect on Other Benefits.

The receipt of Benefits under the Plan shall have no effect on any benefits to which a Participant
may be entitled from the Employer, under another plan or otherwise, or preclude a Participant from
receiving any such benefits.

15

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