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


 

















 


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.


 


2

















 


(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 


 


3

















 


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]


 


4

















 


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.

  



 


5