Exhibit 10.3

 

THIRD AMENDMENT TO BUSINESS MANAGEMENT AGREEMENT

 

THIS THIRD AMENDMENT TO BUSINESS MANAGEMENT AGREEMENT, dated as of October 29,
2010 (the “Amendment”), by and between CommonWealth REIT, formerly known as HRPT
Properties Trust, a Maryland real estate investment trust (the “Company”), and
Reit Management & Research LLC, a Delaware limited liability company (the
“Manager”).

 

WHEREAS, the Company and the Manager are parties to a Business Management
Agreement, dated as of June 8, 2009 (as previously amended, the “Business
Management Agreement”); and

 

WHEREAS, the Company and the Manager wish to amend the Business Management
Agreement as further provided in this Amendment;

 

NOW, THEREFORE, in consideration of the mutual agreements herein set forth, the
parties hereto agree as follows:

 

1.                                      Section 10 of the Business Management
Agreement is hereby replaced in its entirety to read as provided below, and
commencing on the date that the Company completes its acquisition of
MacarthurCook Industrial Property Fund, the determination of all Fees (as
defined below in such Section 10) shall be made in accordance with such Section
10 of the Business Management Agreement as so amended hereby:

 

10.                               Compensation.

 

(a)                                 The Manager shall be paid, for the services
rendered by it to the Company pursuant to this Agreement, an annual management
fee (the “Management Fee”).  The Management Fee for each full fiscal year shall
equal the sum of (i) seven tenths of one percent (0.7%) of the Annual Average
Invested Capital (as defined below) up to $250,000,000, plus (ii) one half of
one percent (0.5%) of the Annual Average Invested Capital exceeding
$250,000,000, plus (iii) one percent (1.0%) of the Annual Average Foreign
Invested Capital.  The Management Fee shall be prorated for any partial fiscal
year of the Company during the term of this Agreement.

 

(b)                              In addition, the Manager shall be paid an
annual incentive fee (the “Incentive Fee”) for each fiscal year of the Company,
consisting of a number of shares of the Company’s common shares of beneficial
interest (“Common Shares”) with an aggregate value (determined as provided
below) equal to fifteen percent (15%) of the product of (i) the weighted average
Common Shares of the Company outstanding on a fully diluted basis during such
fiscal year and (ii) the excess if any of FFO Per Share (as defined below) for
such fiscal year over the FFO Per Share for the preceding fiscal year.  In no
event shall the aggregate value of the Incentive Fee (as determined pursuant to
the immediately preceding sentence) payable in respect of any fiscal year exceed
$.01 (the “Per Share Amount”) multiplied by the weighted average number of
Common Shares outstanding on

 

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a fully diluted basis during such fiscal year.  (The Management Fee and
Incentive Fee are hereinafter collectively referred to as the “Fees”.)

 

(c)               For purposes of this Agreement:  (i) “Annual Average Foreign
Invested Capital” of the Company shall mean the average of the aggregate
historical cost (calculated as provided below) of the Foreign Assets (as defined
below), all before reserves for depreciation, amortization, impairment charges
or bad debts or other similar noncash reserves, computed by taking the average
of such values at the end of each month during such period; (ii) “Annual Average
Invested Capital” of the Company shall mean the average of the aggregate
historical cost of the consolidated assets of the Company and its subsidiaries,
excluding the Foreign Assets, invested, directly or indirectly, in equity
interests in or loans secured by real estate and personal property owned in
connection with such real estate (including acquisition related costs and costs
which may be allocated to intangibles or are unallocated), all before reserves
for depreciation, amortization, impairment charges or bad debts or other similar
noncash reserves, computed by taking the average of such values at the end of
each month during such period, other than any such interest of the Company or
its subsidiaries as a result of its ownership of the securities of the Company’s
former subsidiary, Government Properties Income Trust (“GOV”); (iii) “FFO Per
Share” for any fiscal year shall mean (x) the Company’s consolidated net income,
computed in accordance with generally accepted accounting principles in the
United States, excluding gain or loss on sale of properties, acquisition costs
and extraordinary items, depreciation, amortization, impairment charges and
other non-cash items, including the Company’s pro rata share of the funds from
operations (determined in accordance with this clause) for such fiscal year of
(A) any unconsolidated subsidiary and (B) any entity for which the Company
accounts by the equity method of accounting but not including (C) any income,
loss or funds from operations attributable to (I) the Company’s or its
subsidiaries’ equity investment in GOV or (II) for the Company’s 2008 and 2009
fiscal years, the assets contributed to GOV or its subsidiaries by the Company
or its subsidiaries prior to completion of the initial public offering of common
shares of beneficial interest of GOV (the “GOV IPO”), with such resulting net
income amount reduced by, if applicable, the amount of any preferred shares
dividends declared or otherwise payable (without duplication) during such fiscal
year, determined for these purposes as of the date any such preferred shares
dividend amounts are accrued by the Company in accordance with generally
accepted accounting principles in the United States divided by (y) the weighted
average number of Common Shares outstanding on a fully diluted basis during such
fiscal year; and (iv) “Foreign Assets” shall mean the consolidated assets of the
Company and its subsidiaries invested, directly or indirectly, in equity
interests in or loans secured by real estate and personal property owned in
connection with such real estate (including acquisition related costs and costs
which may be allocated to intangibles or are unallocated) located outside the
United States, Puerto Rico and Canada.  It is agreed and understood that, for
purposes of this agreement, GOV and its subsidiaries shall not constitute a
subsidiary of the Company or its subsidiaries.

 

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(d)              For purposes of determining the Incentive Fee, if there shall
occur a share split, dividend, subdivision, combination, consolidation or
recapitalization with respect to the Common Shares during a fiscal year involved
in such determination, the number of Common Shares outstanding during the
relevant periods and the Per Share Amount shall be proportionally adjusted to
give effect to such share split, dividend, subdivision, combination,
consolidation or recapitalization as if it had occurred as of the first day of
the earliest of the applicable fiscal years.

 

With respect to Foreign Assets, the historical cost shall be determined in
United States dollars, such amounts to be calculated on the date of acquisition
or expenditure (with such date determined based on Eastern time) using the
applicable United States dollar exchange rate as published in the United States
edition of The Wall Street Journal on the date of such acquisition or
expenditure.

 

Unless the Company and the Manager otherwise agree, the Management Fee shall be
computed and payable monthly by the Company on a year to date basis, with
adjustments to account for previous payments, within thirty (30) days following
the end of each fiscal month, and the Incentive Fee shall be computed and
payable within thirty (30) days following the public availability of the
Company’s annual audited financial statements for each fiscal year.  Such
computations of the Management Fee shall be based upon the Company’s monthly or
quarterly financial statements, as the case may be, and such computations of the
Incentive Fee shall be based upon the Company’s annual audited financial
statements, and all such computations shall be in reasonable detail.  A copy of
such computations shall promptly be delivered to the Manager accompanied by
payment of the Fees shown thereon to be due and payable.

 

The payment of the aggregate annual Fees payable for any fiscal year shall be
subject to adjustment as of the end of each fiscal year. On or before the 30th
day after public availability of the Company’s annual audited financial
statements for each fiscal year, the Company shall deliver to the Manager an
officer’s certificate (a “Certificate”) reasonably acceptable to the Manager and
certified by an authorized officer of the Company setting forth (i) the Annual
Average Invested Capital, Annual Average Foreign Invested Capital, and FFO Per
Share for the Company’s fiscal year ended upon the immediately preceding
December 31, and (ii) the Company’s computation of the Fees payable for said
fiscal year.

 

If the aggregate annual Fees payable for said fiscal year as shown in such
Certificate exceed the aggregate amounts previously paid with respect thereto by
the Company, the Company shall include its check for such deficit and deliver
the same to the Manager with such Certificate.

 

If the aggregate annual Fees payable for said fiscal year as shown in such
Certificate are less than the aggregate amounts previously paid with respect
thereto by the Company, the Company shall specify in such Certificate whether
the Manager should (i) remit to the Company

 

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its check in an amount equal to such difference or (ii) grant the Company a
credit against the Fees next coming due in the amount of such difference until
such amount has been fully paid or otherwise discharged.

 

Payment of the Incentive Fee shall be made by issuance of Common Shares under
the Company’s 2003 Incentive Share Award Plan, as the same may be amended from
time to time.  The number of shares to be issued in payment of the Incentive Fee
shall be the whole number of shares (disregarding any fraction) equal to the
value of the Incentive Fee, as provided above, divided by the average closing
price of the Company’s Common Shares on the New York Stock Exchange (or such
other stock exchange upon which the Common Shares are principally listed for
trading) during the month of December in the year for which the computation is
made.

 

2.                                      Clause (i) of the second full paragraph
of Section 18 of the Business Management Agreement is hereby replaced in its
entirety to read as follows:

 

(i) the Annual Average Invested Capital, Annual Average Foreign Invested
Capital, and FFO Per Share for the Company’s fiscal year ended upon the
immediately preceding December 31, and

 

3.                                      This Amendment shall be effective as of
the day and year first above written.  Except as amended hereby, and as so
amended, the Business Management Agreement shall remain in full force and effect
and shall be otherwise unaffected hereby.

 

4.                                      The provisions of this Amendment shall
be governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts.

 

5.                                      This Amendment may be executed in
separate counterparts, each of such counterparts shall for all purposes be
deemed to be an original and all such counterparts shall together constitute but
one and the same instrument.

 

[Signature Page To Follow]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
Business Management Agreement to be executed by their duly authorized officers,
under seal, as of the day and year first above written.

 

 

COMMONWEALTH REIT

 

 

 

 

 

 

 

By:

John C. Popeo

 

 

Its: Treasurer

 

 

 

 

 

 

 

REIT MANAGEMENT & RESEARCH LLC

 

 

 

 

 

 

By:

David J. Hegarty

 

 

Its: Exec. V.P.

 

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