Document:

Exhibit 10.2

 

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT (this “Agreement”) dated as of March 12, 2012, executed and delivered by each of the undersigned parties identified as “Pledgors” on the signature pages hereto and the other Persons who may become Pledgors hereunder pursuant to the execution and delivery of a Pledge Agreement Supplement substantially in the form of Annex 1 hereto (each a “Pledgor” and collectively, the “Pledgors”) in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as Administrative Agent (the “Administrative Agent”) for the Lenders under that certain Credit Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Select Income REIT, a Maryland real estate investment trust (the “Borrower”), the financial institutions party thereto and their assignees under Section 12.6. thereof (collectively, the “Lenders”), the Administrative Agent, and the other parties thereto, for its benefit and the benefit of the Issuing Bank and the Lenders (the Administrative Agent, the Issuing Bank and the Lenders, each individually a “Secured Party” and collectively, the “Secured Parties”)

 

WHEREAS, pursuant to the Credit Agreement, the Administrative Agent, the Issuing Bank and the Lenders have agreed to make available to the Borrower certain financial accommodations on terms and conditions set forth in the Credit Agreement;

 

WHEREAS, the Borrower and each of the other Pledgors, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses as an integrated operation and have determined it to be in their mutual best interests to obtain financing from the Lenders;

 

WHEREAS, each Pledgor acknowledges that it will receive direct and indirect benefits from the Lenders and the Administrative Agent making such financial accommodations available to the Borrower under the Credit Agreement;

 

WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and to the Administrative Agent’s and the other Secured Parties’ making such financial accommodations available to the Borrower under the Credit Agreement that the Pledgors execute and deliver this Agreement, among other things, to grant to the Administrative Agent for the benefit of the Secured Parties a security interest in the Collateral as security for the Secured Obligations.

 

NOW, THEREFORE, in consideration of the mutual agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

Section 1.  Pledge.  As security for the prompt performance and payment in full of the Secured Obligations, each Pledgor hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto the Administrative Agent, for its own benefit and for the benefit of the other Secured Parties, and grants to the Administrative Agent, for its own benefit and for the benefit of the other Secured Parties, a security interest in, all of such Pledgor’s right, title and interest in, to and under the following (collectively, the “Pledged Collateral”):

 

 

(a)                                  the Pledged Interests;

 

(b)                                 all distributions, cash, securities, interest, dividends, rights and other property at any time and from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all thereof to which such Pledgor shall at any time be entitled in respect of the Pledged Interests;

 

(c)                                  all other payments due or to become due to such Pledgor in respect of any of the foregoing;

 

(d)                                 all of such Pledgor’s claims, rights, powers, privileges, authority, puts, calls, options, security interests, liens and remedies, if any, in respect of any of the foregoing;

 

(e)                                  all of such Pledgor’s rights to exercise and enforce any and every right, power, remedy, authority, option and privilege of such Pledgor relating to any of the foregoing including, without limitation, any power to (i) terminate, cancel or modify any agreement, (ii) execute any instruments and to take any and all other action on behalf of and in the name of such Pledgor in respect of any of the foregoing and the applicable Issuer thereof, (iii) exercise voting rights or make determinations, (iv) exercise any election (including, but not limited to, election of remedies), (v) exercise any “put”, right of first offer or first refusal, or other option, (vi) exercise any right of redemption or repurchase, (vii) give or receive any notice, consent, amendment, waiver or approval, (viii) demand, receive, enforce, collect or receipt for any of the foregoing, (ix) enforce or execute any checks, or other instruments or orders, (x) file any claims and to take any action in connection with any of the foregoing, or (xi) otherwise act as if such Pledgor were the absolute owner of such Pledged Interests and all rights associated therewith;

 

(f)                                    all certificates and instruments representing or evidencing any of the foregoing;

 

(g)                                 all other property hereafter delivered in substitution for or in addition to any of the foregoing;

 

(h)                                 all other rights, titles, interests, powers, privileges and preferences pertaining to any of the foregoing; and

 

(i)                                     all Proceeds of any of the foregoing.

 

Section 2.  Representations and Warranties.  Each Pledgor hereby represents and warrants to the Administrative Agent and the other Secured Parties as follows:

 

(a)                                  Title and Liens.  Such Pledgor is, and will at all times continue to be, the legal and beneficial owner of the Pledged Collateral of such Pledgor. None of the Pledged Collateral is subject to any adverse claim or other Lien (other than Permitted Liens of the types described in clauses (a) through (c) and (e) through (h) of the definition of the term “Permitted Liens”).  No Person has control (as provided in Article 8 of the UCC) of any of the Pledged Collateral other than the Administrative Agent.

 

(b)                                 Authorization.  Such Pledgor has the right and power, and has taken all necessary action to authorize it, to execute, deliver and perform this Agreement in accordance with its terms.  The execution, delivery and performance of this Agreement in accordance with its terms, including the granting of the security interest hereunder, do not and will not, by the passage of time, the giving of notice, or both: (i) require any governmental approval or violate any Applicable Law relating to such Pledgor; (ii) conflict with, result in a breach of or constitute a default under the organizational documents

 

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of such Pledgor, or any indenture, agreement or other instrument to which such Pledgor is a party or by which it or any of the Pledged Collateral of such Pledgor or its other property may be bound; or (iii) other than pursuant to this Agreement, result in or require the creation or imposition of any Lien upon or with respect to any of the Pledged Collateral of such Pledgor or such Pledgor’s other property whether now owned or hereafter acquired.

 

(c)                                  Validity and Perfection of Security Interest.  This Agreement is effective to create in favor of the Administrative Agent, for the benefit of the other Secured Parties, a legal, valid and enforceable security interest in the Pledged Collateral.  Such security interest will be perfected (i) with respect to any such Pledged Collateral that is a “security” (as such term is defined in the UCC) and is evidenced by a certificate, when such Pledged Collateral is delivered to the Administrative Agent with duly executed stock powers with respect thereto, (ii) with respect to any such Pledged Collateral that is a “security” (as such term is defined in the UCC) but is not evidenced by a certificate, when UCC financing statements in appropriate form are filed in the appropriate filing offices in the jurisdiction of organization of the Pledgors or when control is established by the Administrative Agent over such interests in accordance with the provision of Section 8-106 of the UCC, or any successor provision, and (iii) with respect to any such Pledged Collateral that is not a “security” (as such term is defined in the UCC) but is of a type of property as to which perfection may be obtained by filing a UCC financing statement, when UCC financing statements in appropriate form are filed in the appropriate filing offices in the jurisdiction of organization of the Pledgors.

 

(d)                                 Pledged Equity Interests.  The information set forth on Schedule 1 attached hereto with respect to the Pledged Interests of such Pledgor is true and correct.

 

(e)                                  Name, Organization, Etc.  Such Pledgor’s exact legal name, type of legal entity, jurisdiction of formation, organizational identification number and location of its chief executive office are as set forth on Schedule 1 attached hereto.  Except as set forth on such Schedule, since the date of such Pledgor’s formation, such Pledgor has not changed its name or merged with or otherwise combined its business with any other Person.

 

(f)                                    Validly Issued, etc.  All of the Pledged Interests have been duly authorized, are duly authorized, validly issued, fully paid and nonassessable and are not subject to preemptive rights of any Person.

 

(g)                                 Interests in Partnerships and LLCs.  None of the Pledged Interests consisting of an interest in a partnership or in a limited liability company (i) is dealt in or traded on a securities exchange or in securities markets, (ii) by its terms expressly provides that it is a security governed by Article 8 of the UCC, (iii) is an investment company security, or (iv) constitutes a financial asset.

 

Section 3.  Covenants.  Each Pledgor hereby unconditionally covenants and agrees as follows:

 

(a)                                  No Liens; No Sale of Pledged Collateral.  Such Pledgor will not create, assume, incur or permit or suffer to exist or to be created, assumed or incurred, any Lien (other than Permitted Liens of the types described in clauses (a) through (c) and (e) through (h) of the definition of “Permitted Liens”) on any of the Pledged Collateral (or any interest therein) or sell, lease, assign, transfer or otherwise dispose of all or any portion of the Pledged Collateral (or any interest therein) except as permitted under Section 9.4. of the Credit Agreement.

 

(b)                                 Change of Name, Etc.  Without giving the Administrative Agent at least 30-days’ prior written notice and to the extent such action is not otherwise prohibited by any of the Loan Documents,

 

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such Pledgor shall not: (i) change its name; (ii) reorganize or otherwise become formed under the laws of another jurisdiction or (iii) become bound by a security agreement of another Person under Section 9-203(d) of the UCC.

 

(c)                                  Defense of Title.  Such Pledgor will warrant and defend its title to and ownership of the Pledged Collateral of such Pledgor, at its sole cost and expense, against the claims of all Persons.

 

(d)                                 Delivery of Certificates, Etc.  If such Pledgor shall receive any certificate (including, without limitation, any certificate representing a stock and/or liquidating dividends, other distributions in property, return of capital or other distributions made on or in respect of the Pledged Collateral, whether resulting from a subdivision, combination or reclassification of outstanding Equity Interests or received in exchange for Pledged Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets or on the liquidation, whether voluntary or involuntary, or otherwise), instrument or document representing any Pledged Collateral, whether in addition to, in substitution of, as a conversion of, or in exchange for, any Pledged Collateral, or otherwise in respect thereof, such Pledgor shall hold the same in trust for the Administrative Agent and the other Secured Parties and promptly deliver the same to the Administrative Agent in the exact form received, duly indorsed by such Pledgor to the Administrative Agent, if required, together with an undated stock power covering such certificate (or other appropriate instrument of transfer) duly executed in blank by such Pledgor and with, if the Administrative Agent so requests, signature guaranteed, to be held by the Administrative Agent, subject to the terms of this Agreement, as Pledged Collateral.

 

(e)                                  Uncertificated Securities.  With respect to any Pledged Collateral of such Pledgor that constitutes a security and is not represented or evidenced by a certificate or instrument, such Pledgor shall cause the Issuer thereof either (i) to register the Administrative Agent as the registered owner of such security or (ii) to agree in writing with the Administrative Agent and such Pledgor that such Issuer will comply with the instructions with respect to such security originated by the Administrative Agent without further consent of such Pledgor.

 

(f)                                    Additional Shares.  Such Pledgor shall not permit any Issuer to issue any additional Equity Interests unless such Equity Interests are pledged hereunder as provided herein.  Further, such Pledgor shall not permit any Issuer to amend or modify its articles or certificate of incorporation, articles of organization, certificate of limited partnership, by-laws, operating agreement, partnership agreement or other comparable organizational instrument in a manner which would adversely affect the voting, liquidation, preference or other similar rights of any holder of the Equity Interests pledged hereunder.

 

(g)                                 Issuer Acknowledgment.  Such Pledgor shall, upon the Administrative Agent’s request therefor, cause each Issuer of its Pledged Collateral and which Issuer is not a Pledgor itself, to execute and deliver to the Administrative Agent an Acknowledgment and Consent substantially in the form of Schedule 2 attached hereto.

 

(h)                                 Investment Property.  Such Pledgor shall not, and shall not allow any Issuer of any Pledged Collateral, to the extent such Issuer is a limited liability company or a partnership to, elect that the Pledged Interests, except as directed or requested by the Administrative Agent, be securities governed by Article 8 of the Uniform Commercial Code.

 

Section 4.  Registration in Nominee Name, Denominations.  If an Event of Default exists, the Administrative Agent shall have the right (in its sole and absolute discretion) to hold any Equity Interests which are part of the Pledged Collateral in its own name as pledgee, the name of its nominee (as Administrative Agent or as sub-agent) or the name of the Pledgor thereof, endorsed or assigned in blank

 

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or in favor of the Administrative Agent.  Such Pledgor will promptly give to the Administrative Agent copies of any notices or other communications received by it with respect to any such Equity Interests constituting Pledged Collateral registered in the name of such Pledgor.

 

Section 5.  Voting Rights; Dividends, etc.

 

(a)                                  So long as no Event of Default exists:

 

(i)                                     each Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms and conditions of any of the Loan Documents or any agreement giving rise to or otherwise relating to any of the Secured Obligations; provided, however, that no Pledgor shall exercise, or refrain from exercising, any such right or power if any such action would have a material adverse effect on the value of such Pledged Collateral in the reasonable judgment of the Administrative Agent; and

 

(ii)                                  each Pledgor shall be entitled to retain and use, free of any Lien in favor of the Administrative Agent or any Secured Party, any and all cash distributions paid on the Pledged Collateral, but any and all distributions in property and distributions in the nature of a liquidating distribution or return of capital, whether resulting from a subdivision, combination or reclassification of outstanding Equity Interests which are pledged hereunder or received in exchange for Pledged Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets or on the liquidation, whether voluntary or involuntary, of any Issuer, or otherwise, shall be and become part of the Pledged Collateral pledged hereunder and, if received by such Pledgor, shall forthwith be delivered to the Administrative Agent to be held as collateral subject to the terms and conditions of this Agreement.

 

The Administrative Agent agrees promptly upon request to deliver to the applicable Pledgor all distributions paid on the Pledged Collateral received by it that such Pledgor is entitled to receive pursuant to clause (ii) above, and the Administrative Agent agrees to execute and deliver to each Pledgor, or cause to be executed and delivered to such Pledgor, as appropriate, at the sole cost and expense of such Pledgor, all such proxies, powers of attorney, dividend orders and other instruments as such Pledgor may reasonably request for the purpose of enabling such Pledgor to exercise the voting and/or consensual rights and powers which such Pledgor is entitled to exercise pursuant to clause (i) above and/or to receive the distributions and other amounts which such Pledgor is authorized to retain pursuant to clause (ii) above.

 

(b)                                 If an Event of Default exists, then upon written notice to the Pledgors, all rights of the Pledgors to exercise the voting and/or consensual rights and powers which the Pledgors are entitled to exercise pursuant to subsection (a)(i) above and/or to receive the distributions and other amounts which the Pledgors are authorized to receive and retain pursuant to subsection (a)(ii) above shall cease (other than in respect of distributions that are permitted to be paid following an Event of Default (as defined in the Credit Agreement) pursuant to Section 9.1.(i) of the Credit Agreement (such distributions, “Permitted Distributions”), and all such rights thereupon shall become immediately vested in the Administrative Agent, which shall have the sole and exclusive right and authority to exercise such voting and/or consensual rights and powers which the Pledgors shall otherwise be entitled to exercise pursuant to subsection (a)(i) above and/or to receive and retain the distributions and other amounts which the Pledgors shall otherwise be authorized to retain pursuant to subsection (a)(ii) above (other than Permitted Distributions, which shall continue to be permitted to be retained and then paid by the applicable Pledgor).  Any and all money and other property paid over to or received by the Administrative Agent

 

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pursuant to the provisions of this subsection (b) shall be retained by the Administrative Agent as additional collateral hereunder and shall be applied in accordance with the provisions of Section 8 of this Agreement.  If any Pledgor shall receive any distributions or other property which it is not entitled to receive under this Section, such Pledgor shall hold the same in trust for the Administrative Agent and the other Secured Parties, without commingling the same with other funds or property of or held by such Pledgor, and shall promptly deliver the same to the Administrative Agent in the identical form received, together with any necessary endorsements.

 

Section 6.  Event of Default Defined.  For purposes of this Agreement, “Event of Default” shall mean any of the following events, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any governmental or nongovernmental body: (i) the failure of any Pledgor to comply with any of the terms and provisions of this Agreement; (ii) the occurrence of an “Event of Default” as such term is defined in the Credit Agreement; or (iii) any action is taken by the Issuer of any Pledged Interests or the members, partners, shareholders, managers or trustees thereof to amend or modify the Organizational Documents in a manner that could reasonably be expected to be adverse to the interests of the Administrative Agent or the other Secured Parties in any material respect.

 

Section 7.  Remedies upon Default.

 

(a)                                  In addition to any right or remedy that the Administrative Agent or any of the other Secured Parties may have under the Credit Agreement or any other Loan Document or otherwise under Applicable Law, if an Event of Default shall exist, the Administrative Agent may exercise any and all the rights and remedies of a secured party under the Uniform Commercial Code as in effect in any applicable jurisdiction and may otherwise sell, assign, transfer, endorse and deliver the whole or, from time to time, any part of the Pledged Collateral at a public or private sale or on any securities exchange, for cash, upon credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as the Administrative Agent in its reasonable discretion shall deem appropriate.  The Administrative Agent shall be authorized at any sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Pledged Collateral for their own account in compliance with the Securities Act and upon consummation of any such sale the Administrative Agent shall have the right to assign, transfer, endorse and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold.  Each purchaser at any sale of Pledged Collateral shall take and hold the property sold absolutely free from any claim or right on the part of any Pledgor, and each Pledgor hereby waives (to the fullest extent permitted by Applicable Law) all rights of redemption, stay and/or appraisal which such Pledgor now has or may at any time in the future have under any Applicable Law now existing or hereafter enacted.  Each Pledgor agrees that, to the extent notice of sale shall be required by Applicable Law, at least 10 days’ prior written notice to such Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification, but notice given in any other reasonable manner or at any other reasonable time shall also constitute reasonable notification.  Such notice, in case of public sale, shall state the time and place for such sale, and, in the case of sale on a securities exchange, shall state the exchange on which such sale is to be made and the day on which the Pledged Collateral, or portion thereof, will first be offered for sale at such exchange.  Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Administrative Agent may fix and shall state in the notice or publication (if any) of such sale.  At any such sale, the Pledged Collateral, or portion thereof to be sold, may be sold in one lot as an entirety or in separate parcels, as the Administrative Agent may determine in its sole and absolute discretion.  Neither the Administrative Agent nor any of the other Secured Parties shall be obligated to make any sale of the Pledged Collateral if it shall determine not to do so regardless of the fact that notice of sale of the Pledged Collateral may

 

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have been given.  The Administrative Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.  In case the sale of all or any part of the Pledged Collateral is made on credit or for future delivery, the Pledged Collateral so sold may be retained by the Administrative Agent until the sale price is paid by the purchaser or purchasers thereof, but neither the Administrative Agent nor any of the other Secured Parties shall incur any liability to any Pledgor in case any such purchaser or purchasers shall fail to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may be sold again upon like notice.  At any public sale made pursuant to this Agreement, the Administrative Agent or any of the other Secured Parties and any other holder of any of the Secured Obligations, to the extent permitted by Applicable Law, may bid for or purchase, free from any right of redemption, stay and/or appraisal on the part of any Pledgor (all said rights being also hereby waived and released to the extent permitted by Applicable Law), any part of or all the Pledged Collateral offered for sale and may make payment on account thereof by using any claim then due and payable to the Administrative Agent or any of the other Secured Parties from any Pledgor as a credit against the purchase price, and the Administrative Agent and the Lenders may, upon compliance with the terms of sale and to the extent permitted by Applicable Law, hold, retain and dispose of such property without further accountability to any Pledgor therefor.  For purposes hereof, a written agreement to purchase all or any part of the Pledged Collateral shall be treated as a sale thereof; the Administrative Agent shall be free to carry out such sale pursuant to such agreement and no Pledgor shall be entitled to the return of any Pledged Collateral subject thereto, notwithstanding the fact that after the Administrative Agent shall have entered into such an agreement all Events of Default may have been remedied or the Secured Obligations may have been paid in full as herein provided.  Each Pledgor hereby waives any right to require any marshaling of assets and any similar right.

 

(b)                                 In addition to exercising the power of sale herein conferred upon it, the Administrative Agent shall also have the option to proceed by suit or suits at law or in equity to foreclose this Agreement and sell the Pledged Collateral or any portion thereof pursuant to judgment or decree of a court or courts having competent jurisdiction.

 

(c)                                  The rights and remedies of the Administrative Agent and the other Secured Parties under this Agreement are cumulative and not exclusive of any rights or remedies which they would otherwise have.

 

Section 8.  Application of Proceeds of Sale and Cash.  The proceeds of any sale of the whole or any part of the Pledged Collateral, together with any other moneys held by the Administrative Agent or any of the other Secured Parties under the provisions of this Agreement, shall be applied in accordance with Section 10.5. of the Credit Agreement.

 

Section 9.  Administrative Agent Appointed Attorney-in-Fact.  Each Pledgor hereby constitutes and appoints the Administrative Agent as the attorney-in-fact of such Pledgor with full power of substitution either in the Administrative Agent’s name or in the name of such Pledgor to do any of the following: (a) to perform on behalf of the Pledgor any obligation of such Pledgor to the Administrative Agent or the other Secured Parties hereunder ; (b) to ask for, demand, sue for, collect, receive, receipt and give acquittance for any and all moneys due or to become due under and by virtue of any Pledged Collateral; (c) to prepare, execute, file, record or deliver notices, assignments, financing statements, continuation statements, applications for registration or like papers to perfect, preserve or release the Administrative Agent’s security interest in the Pledged Collateral; (d) to verify facts concerning the Pledged Collateral in its own name or a fictitious name; (e) to endorse checks, drafts, orders and other instruments for the payment of money payable to such Pledgor, representing any interest or dividend or

 

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other distribution payable in respect of the Pledged Collateral or any part thereof or on account thereof and to give full discharge for the same; (f) to exercise all rights, powers and remedies which such Pledgor would have, but for this Agreement, under the Pledged Collateral; and (g) to carry out the provisions of this Agreement and to take any action and execute any instrument which the Administrative Agent may reasonably deem necessary or advisable to accomplish the purposes hereof, and to do all acts and things and execute all documents in the name of the Pledgor or otherwise, reasonably deemed by the Administrative Agent as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder; provided, however, that the Administrative Agent may exercise its rights under the immediately clauses (a), (e) (f) and (g) only if an Event of Default exists.  Nothing herein contained shall be construed as requiring or obligating the Administrative Agent or the other Secured Parties to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or notice, or to take any action with respect to the Pledged Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby, and no action taken by the Administrative Agent or of the other Secured Parties or omitted to be taken with respect to the Pledged Collateral or any part thereof shall give rise to any defense, counterclaim or offset in favor of any Pledgor or to any claim or action against the Administrative Agent or any of the other Secured Parties.  The power of attorney granted herein is irrevocable and coupled with an interest.

 

Section 10.  Administrative Agent’s Duty of Care.  Other than the exercise of reasonable care to ensure the safe custody of the Pledged Collateral while being held by the Administrative Agent hereunder, the Administrative Agent shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that each Pledgor shall be responsible for preservation of all rights of such Pledgor in the Pledged Collateral.  The Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which the Administrative Agent accords its own property, it being understood that the Administrative Agent shall not have responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not the Administrative Agent has or is deemed to have knowledge of such matters or (b) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral.

 

Section 11.  Reimbursement of Administrative Agent.  Each Pledgor agrees to pay upon demand to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees disbursements and other charges of its counsel and of any experts or agents, and its fully allocated internal costs, that the Administrative Agent may incur in connection with (a) the administration of this Agreement, (b) the custody or preservation of, or any sale of, collection from, or other realization upon, any of the Pledged Collateral, (c) the exercise or enforcement of any of the rights of the Administrative Agent or the other Secured Parties hereunder, or (d) the failure by such Pledgor to perform or observe any of the provisions hereof.  Any such amounts payable as provided hereunder shall be Secured Obligations.

 

Section 12.  Further Assurances.  Each Pledgor shall, at its sole cost and expense, take all action that may be necessary or desirable in the Administrative Agent’s reasonable discretion, so as at all times to maintain the validity, perfection, enforceability and priority of the Administrative Agent’s security interest in the Pledged Collateral, or to enable the Administrative Agent or the other Secured Parties to exercise or enforce their respective rights hereunder, including without limitation (a) delivering to the Administrative Agent, endorsed or accompanied by such instruments of assignment as the Administrative Agent may specify, any and all chattel paper, instruments, letters of credit and all other advices of guaranty and documents evidencing or forming a part of the Pledged Collateral and (b) executing and

 

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delivering pledges, designations, notices and assignments, in each case in form and substance satisfactory to the Administrative Agent, relating to the creation, validity, perfection, priority or continuation of the security interest granted hereunder.  Each Pledgor agrees to take, and authorizes the Administrative Agent to take on such Pledgor’s behalf, any or all of the following actions with respect to any Pledged Collateral as the Administrative Agent shall deem necessary to perfect the security interest and pledge created hereby or to enable the Administrative Agent to enforce their respective rights and remedies hereunder: (i) to register in the name of the Administrative Agent any Pledged Collateral in certificated or uncertificated form; (ii) to endorse in the name of the Administrative Agent any Pledged Collateral issued in certificated form; and (iii) by book entry or otherwise, identify as belonging to the Administrative Agent a quantity of securities or partnership interests that constitutes all or part of the Pledged Collateral registered in the name of the Administrative Agent.  Notwithstanding the foregoing, each Pledgor agrees that Pledged Collateral which is not in certificated form or is otherwise in book-entry form shall be held for the account of the Administrative Agent, subject to the terms and conditions of this Agreement.  Each Pledgor hereby authorizes the Administrative Agent to file in all necessary and appropriate jurisdictions (as determined by the Administrative Agent) one or more financing or continuation statements in the name of such Pledgor.  To the extent permitted by Applicable Law, a carbon, photographic, xerographic or other reproduction of this Agreement or any financing statement is sufficient as a financing statement.  Any property comprising part of the Pledged Collateral required to be delivered to the Administrative Agent pursuant to this Agreement shall be accompanied by proper instruments of assignment duly executed by the Pledgors and by such other instruments or documents as the Administrative Agent may reasonably request.

 

Section 13.  Securities Act.  In view of the position of any Pledgor in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act or any similar Applicable Law hereafter enacted analogous in purpose or effect (such Act and any such similar Applicable Law as from time to time in effect being called the “Federal Securities Laws”) with respect to any disposition of the Pledged Collateral permitted hereunder.  Each Pledgor understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Administrative Agent if the Administrative Agent were to attempt to dispose of all or any part of the Pledged Collateral in accordance with the terms hereof, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could dispose of the same.  Similarly, there may be other legal restrictions or limitations affecting the Administrative Agent in any attempt to dispose of all or part of the Pledged Collateral in accordance with the terms hereof under applicable Blue Sky or other state securities laws or similar Applicable Law analogous in purpose or effect.  Each Pledgor recognizes that in light of the foregoing restrictions and limitations the Administrative Agent may, with respect to any sale of the Pledged Collateral, limit the purchasers to those who will agree, among other things, to acquire such Pledged Collateral for their own account, for investment, and not with a view to the distribution or resale thereof.  Each Pledgor acknowledges and agrees that in light of the foregoing restrictions and limitations, the Administrative Agent, in its sole and absolute discretion, may, in accordance with Applicable Law, (a) proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws and (b) approach and negotiate with a single potential purchaser to effect such sale.  Each Pledgor acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions.  In the event of any such sale, neither the Administrative Agent nor any of the other Secured Parties shall incur any responsibility or liability for selling all or any part of the Pledged Collateral in accordance with the terms hereof at a price that the Administrative Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached.  The provisions of this Section will

 

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apply notwithstanding the existence of public or private market upon which the quotations or sales prices may exceed substantially the price at which the Administrative Agent sell.

 

Section 14.  Security Interest Absolute.  All rights of the Administrative Agent hereunder, the grant of a security interest in the Pledged Collateral and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of any Loan Document, any agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of the payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from any of the documents, instruments or agreements evidencing any of the Secured Obligations, (c) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guaranty, for all or any of the Secured Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Secured Obligations or in respect of this Agreement (other than the indefeasible payment in full of all the Secured Obligations).

 

Section 15.  Continuing Security Interest.  This Agreement constitutes an authenticated record shall create a continuing security interest in the Pledged Collateral and shall remain in full force and effect until it terminates in accordance with its terms.  The Pledgors and the Administrative Agent hereby agree that the security interest created by this Agreement in the Pledged Collateral shall not terminate and shall continue and remain in full force and effect notwithstanding the transfer by the Pledgors or any person designated by it of all or any portion of the Pledged Collateral.

 

Section 16.  No Waiver.  Neither the failure on the part of the Administrative Agent or any of the other Secured Parties to exercise, nor the delay on its part in exercising any right, power or remedy hereunder, nor any course of dealing between the Administrative Agent or any of the other Secured Parties and any Pledgor shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy hereunder preclude any other or the further exercise thereof or the exercise of any other right, power or remedy.

 

Section 17.  Notices.  All notices, requests and other communications hereunder shall be in writing (including facsimile transmission or similar writing) and shall be given (a) to a Pledgor at its address set forth below its signature hereto, (b) to the Administrative Agent at its address for notices provided in the Credit Agreement, or (c) as to each such party at such other address as such party shall designate in a written notice to the other parties.  All such notices and other communications shall be effective (i) if mailed, upon the first to occur of receipt or the expiration of three (3) days after the deposit in the United States Postal Service mail, postage prepaid and addressed to the address of the Pledgor or the Administrative Agent at the addresses specified; or (ii) if telecopied, when transmitted; (iii) if hand delivered or sent by overnight courier, when delivered.

 

SECTION 18.  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.

 

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Section 19.  WAIVER OF JURY TRIAL.

 

(a)                                  EACH PLEDGOR, AND EACH OF THE ADMINISTRATIVE AGENT AND THE OTHER SECURED PARTIES BY ACCEPTING THE BENEFITS HEREOF, ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY BETWEEN OR AMONG SUCH PLEDGOR, THE ADMINISTRATIVE AGENT OR ANY OF THE OTHER SECURED PARTIES WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES OF LAW AND FACT AND WOULD RESULT IN DELAY AND EXPENSE TO THE PARTIES.  ACCORDINGLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE ADMINISTRATIVE AGENT, EACH SECURED PARTY, AND EACH PLEDGOR HEREBY WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST ANY PARTY HERETO ARISING OUT OF THIS AGREEMENT OR BY REASON OF ANY OTHER SUIT, CAUSE OF ACTION OR DISPUTE WHATSOEVER BETWEEN OR AMONG THE PLEDGORS, THE ADMINISTRATIVE AGENT, OR ANY OF THE OTHER SECURED PARTIES OF ANY KIND OR NATURE RELATING TO ANY OF THE LOAN DOCUMENTS

 

(b)                                 EACH PLEDGOR IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST THE ADMINISTRATIVE AGENT, THE SECURED PARTIES, OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY, AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST EACH PLEDGOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.  EACH PARTY FURTHER WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT FORUM AND EACH AGREES NOT TO PLEAD OR CLAIM THE SAME.  THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE BRINGING OF ANY ACTION BY THE ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY OR THE ENFORCEMENT BY THE ADMINISTRATIVE AGENT OR ANY OTHER SECURED PARTY OF ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE JURISDICTION.

 

(c)                                  THE PROVISIONS OF THIS SECTION HAVE BEEN CONSIDERED BY EACH PARTY WITH THE ADVICE OF COUNSEL AND WITH A FULL UNDERSTANDING OF THE

 

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LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE THE PAYMENT OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER, UNDER THE CREDIT AGREEMENT, OR UNDER THE OTHER LOAN DOCUMENTS, THE TERMINATION OR EXPIRATION OF ALL LETTERS OF CREDIT, AND THE TERMINATION OF THIS AGREEMENT.

 

Section 20.                                      Amendments.  No amendment or waiver of any provision of this Agreement nor consent to any departure by any Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

Section 21.  Binding Agreement; Assignment.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that no Pledgor shall be permitted to assign this Agreement or any interest herein or in the Pledged Collateral, or any part thereof, or any cash or property held by the Administrative Agent or any of the other Secured Parties as collateral under this Agreement, and any such assignment by a Pledgor shall be null and void absent the prior written consent of the Administrative Agent.

 

Section 22.  Termination.  Upon indefeasible payment in full of all of the Secured Obligations, this Agreement shall terminate.  Upon termination of this Agreement in accordance with its terms the Administrative Agent agrees to take such actions as the Pledgors may reasonably request, and at the sole cost and expense of the Pledgors to evidence the termination of this Agreement.

 

Section 23.  Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under Applicable Law, but if any provision of this Agreement shall be prohibited by or invalid under Applicable Law, such provisions shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.

 

Section 24.  Headings.  Section headings used herein are for convenience only and are not to affect the construction of or be taken into consideration in interpreting this Agreement.

 

Section 25.  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute but one agreement.

 

Section 26.  Definitions.

 

(a)                                  As used herein, the following terms have the indicated meanings:

 

“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”, as amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditors’ rights.

 

“Event of Default” has the meaning set forth in Section 6 of this Agreement.

 

“Issuer” means a Person which issued any Equity Interest that constitutes any part of the Pledged Collateral.

 

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“Organizational Documents” means any declaration of trust, operating agreement, partnership agreement, by-laws, articles or certificate of incorporation, articles of organization, certificate of limited partnership, or other similar agreement or document.

 

“Pledged Interests” means, with respect to each Pledgor,  such Pledgor’s right, title and interest in the Equity Interests of the Issuers as described on Schedule 1 attached hereto, including, without limitation, all economic interests and rights to vote or otherwise control such Issues and all rights as a partner, shareholder, member or trustee thereof, whether now owned or hereafter acquired.

 

“Proceeds” means all proceeds (including proceeds of proceeds) of any of the Pledged Collateral including all: (a) rights, benefits, distributions, premiums, profits, dividends, interest, cash, instruments, documents of title, accounts, contract rights, inventory, equipment, general intangibles, payment intangibles, deposit accounts, chattel paper, and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for, or as a replacement of or a substitution for, any of the Pledged Collateral, or proceeds thereof (including any cash, Equity Interests, or other instruments issued after any recapitalization, readjustment, reclassification, merger or consolidation with respect to the Issuers and any security entitlements, as defined in Section 8-102(a)(17) of the UCC, with respect thereto); (b) “proceeds,” as such term is defined in Section 9-102(a)(64) of the UCC; (c) proceeds of any insurance, indemnity, warranty, or guaranty (including guaranties of delivery) payable from time to time with respect to any of the Pledged Collateral, or proceeds thereof; and (d) payments (in any form whatsoever) made or due and payable to a Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Pledged Collateral, or proceeds thereof.

 

“Secured Obligations” means, collectively, (a) with respect to the Borrower, (i) the unpaid principal of and interest on all Loans, all Reimbursement Obligations and all other Letter of Credit Liabilities, (ii) all other indebtedness, liabilities, obligations, covenants and duties of the Borrower owing to the Administrative Agent or any Lender of any kind, nature or description, under or in respect of the Credit Agreement or any other Loan Document to which the Borrower is a party, whether direct or indirect, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, and including all interest (including, to the extent permitted by Applicable Law, interest, Fees and other amounts that would accrue and become due after the filing of a case or other proceeding under the Bankruptcy Code or other similar Applicable Law but for the commencement of such case or proceeding, whether or not such amounts are allowed or allowable in whole or in part in such case or proceeding), (iii) any and all costs, fees (including attorneys’ fees), and expenses which the Borrower is required to pay pursuant to any of the foregoing, under Applicable Law, or otherwise, and (iv) all other Obligations of the Borrower and (b) with respect to any other Pledgor, (i) all indebtedness, liabilities, obligations, covenants and duties of such Pledgor owing to the Administrative Agent or any Lender of any kind, nature or description, under or in respect of the Guaranty or any other Loan Document to which such Pledgor is a party, whether direct or indirect, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, and including all interest (including, to the extent permitted by Applicable Law, interest, Fees and other amounts that would accrue and become due after the filing of a case or other proceeding under the Bankruptcy Code or other similar Applicable Law but for the commencement of such case or proceeding, whether or not such amounts are allowed or allowable in whole or in part in such case or proceeding), (ii) any and all costs, fees (including attorneys’ fees), and expenses which such Pledgor is required to pay or has guaranteed pursuant to any of the foregoing, under Applicable Law, or otherwise and (iii) all other Obligations of such Pledgor.

 

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(b)                                 Terms not otherwise defined herein are used herein with the respective meanings given to them in the Credit Agreement.  Terms which are defined in the UCC have the meanings given such terms therein.

 

[Signatures on Next Page]

 

14

 

IN WITNESS WHEREOF, each Pledgor has executed and delivered this Pledge Agreement under seal as of this the date first written above.

 

	
 
    	
 
    	
 
    
	
 
    	
PLEDGORS:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
SELECT INCOME REIT
    
	
 
    	
SIR REIT
    
	
 
    	
SIR PROPERTIES TRUST
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   John C. Popco
    
	
 
    	
 
    	
Name:
    	
John   C. Popco
    
	
 
    	
 
    	
Title:
    	
Treasurer   and Chief Financial Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Address   for Notices for all Pledgors:
    
	
 
    	
 
    
	
 
    	
c/o Select Income REIT
    
	
 
    	
Two   Newton Place
    
	
 
    	
255   Washington Street, Suite 300
    
	
 
    	
Newton,   Massachusetts 02458-2076
    
	
 
    	
Attention:   Chief Financial Officer
    
	
 
    	
Telecopier:   (617) 796-8335
    
	
 
    	
Telephone:   (617) 796-8303
    
					

 

 

Agreed to, accepted and acknowledged

as of the date first written above,

 

ADMINISTRATIVE AGENT:

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Administrative Agent

 

 

	
By:
    	
/s/   D. Bryan Gregory
    	
 
    
	
 
    	
Name:
    	
D.   Bryan Gregory
    	
 
    
	
 
    	
Its:
    	
Director
    	
 
    

 

 

ANNEX 1 TO PLEDGE AGREEMENT

 

FORM OF PLEDGE AGREEMENT SUPPLEMENT

 

THIS PLEDGE AGREEMENT SUPPLEMENT dated as of                       , 20     (this “Supplement”) executed and delivered by                                             , a                            (the “New Pledgor”) in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as Administrative Agent (the “Administrative Agent”).

 

WHEREAS, pursuant to that certain Credit Agreement dated as of March 12, 2012 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Select Income REIT, a real estate investment trust organized under the laws of the State of Maryland (the “Borrower”), the financial institutions party thereto and their assignees under Section 12.6. thereof (the “Lenders”), the Administrative Agent, and the other parties thereto, the Lenders and the Administrative Agent have agreed to make available to the Borrower certain financial accommodations on the terms and conditions set forth in the Credit Agreement;

 

WHEREAS, to secure obligations owning by certain parties under the Credit Agreement and the other Loan Documents, the Borrower and the other “Pledgors” thereunder have executed and delivered that certain Pledge Agreement dated as of March 12, 2012 (as amended, restated, supplemented or otherwise modified from time to time, the “Pledge Agreement”) in favor of the Administrative Agent;

 

WHEREAS, it is a condition precedent to the continued extension by the Lenders and the Administrative Agent of such financial accommodations that the New Pledgor execute this Supplement to become a party to the Pledge Agreement;

 

NOW, THEREFORE, in consideration of the above premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the New Pledgor, the New Pledgor hereby agrees as follows:

 

Section 1.  Accession to Pledge Agreement; Grant of Security Interest.  The New Pledgor agrees that it is a “Pledgor” under the Pledge Agreement and assumes all obligations of a “Pledgor” thereunder, all as if the New Pledgor had been an original signatory to the Pledge Agreement.  Without limiting the generality of the foregoing, the New Pledgor hereby:

 

(a)                                  pledges to the Administrative Agent for the benefit of the Secured Parties, and grants to the Administrative Agent for the benefit of the Secured Parties a security interest in, all of the New Pledgor’s right, title and interest in, to and under the Pledged Collateral, including the Equity Interests described on Exhibit I attached hereto, as security for the Secured Obligations;

 

(b)                                 makes to the Administrative Agent and the other Secured Parties, solely with respect to it and its Pledged Collateral, as of the date hereof each of the representations and warranties contained in Section 2 of the Pledge Agreement and agrees to be bound by each of the covenants contained in the Pledge Agreement, including without limitation, those contained in Section 3 thereof; and

 

(c)                                  consents and agrees to each other provision set forth in the Pledge Agreement.

 

SECTION 2.  GOVERNING LAW.  THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK

 

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APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.

 

Section 3.  Definitions.  Capitalized terms used herein and not otherwise defined herein shall have their respective defined meanings given them in the Pledge Agreement.

 

[Signatures on Next Page]

 

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IN WITNESS WHEREOF, the New Pledgor has caused this Pledge Agreement Supplement to be duly executed and delivered under seal by its duly authorized officers as of the date first written above.

 

	
 
    	
[NEW   PLEDGOR]
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Address   for Notices:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Attn:
    	
 
    
	
 
    	
 
    	
Telephone:
    	
 
    
	
 
    	
 
    	
Telecopy:
    	
 
    
					

 

Accepted:

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Administrative Agent

 

	
By:
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    

 

1-3

 

SCHEDULE 1 TO PLEDGE AGREEMENT

 

Pledged Equity Interests:

 

	
Pledgor
    	
 
    	
Issuer
    	
 
    	
Jurisdiction of
   Formation of
   Issuer
    	
 
    	
Class of
   Equity
   Interest
    	
 
    	
Certificate
   Number
   (if any)
    	
 
    	
Percentage of
   Ownership
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

Pledgor Information:

 

	
Pledgor
    	
 
    	
Jurisdiction of
   Formation
    	
 
    	
Organizational
   ID No.
    	
 
    	
Location of Chief Executive Office
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

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SCHEDULE 2 TO PLEDGE AGREEMENT

 

Form of Acknowledgement and Consent

 

The undersigned hereby acknowledges receipt of a copy of the Pledge Agreement dated as of March 12, 2012 (the “Pledge Agreement”), made by Select Income REIT and the other Pledgors party thereto in favor of Wells Fargo Bank, National Association, as Administrative Agent. Terms not otherwise defined herein have the respective meanings given them in the Pledge Agreement.

 

The undersigned agrees for the benefit of the Administrative Agent and the other Secured Parties as follows:

 

(a)                                  The undersigned will be bound by, and comply with, the terms of the Pledge Agreement applicable to the undersigned, including without limitation, Sections 3(e) and 3(f).

 

(b)                                 The undersigned will notify the Administrative Agent in writing promptly of the occurrence of any of the events described in Section 3(d) of the Pledge Agreement.

 

[(c)                         The undersigned will not permit any of the Equity Interests issued by it (i) to be dealt in or traded on a securities exchange or in securities markets; or (ii) to provide by its terms that it is a security governed by Article 8 of the UCC.](1)

 

IN WITNESS WHEREOF, the undersigned has executed and delivered this Acknowledgement and Consent under seal as of this the date first written above.

 

	
 
    	
[ISSUER]
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    

 

(1)  Include only if the Issuer is a partnership or limited liability company.

 

2-1Exhibit 10.3

 

BUSINESS MANAGEMENT AGREEMENT

 

THIS BUSINESS MANAGEMENT AGREEMENT (this “Agreement”) is entered into effective as of March 12, 2012, by and between Select Income REIT, a Maryland real estate investment trust (the “Company”), and Reit Management & Research LLC, a Delaware limited liability company (the “Manager”).

 

WHEREAS, the Company wishes to retain the Manager to undertake the duties and responsibilities hereinafter set forth; and

 

WHEREAS, the Manager is willing to render such services on the terms and conditions hereinafter set forth;

 

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

 

1.             Engagement.  Subject to the terms and conditions hereinafter set forth, the Company hereby engages the Manager to provide the management and real estate investment services contemplated by this Agreement with respect to the Company’s business and real estate investments and the Manager hereby accepts such engagement.

 

2.             General Duties of the Manager.  The Manager shall use its reasonable best efforts to present to the Company a continuing and suitable real estate investment program consistent with the real estate investment policies and objectives of the Company.  Subject to the management, direction and supervision of the Company’s Board of Trustees (the “Trustees”), the Manager shall:

 

(a)     provide research and economic and statistical data in connection with the Company’s real estate investments and recommend changes in the Company’s real estate investment policies when appropriate;

 

(b)     (i) investigate and evaluate investments in, or acquisitions or dispositions of, real estate and related interests, and financing and refinancing opportunities, (ii) make recommendations concerning specific investments to the Trustees, and (iii) evaluate and negotiate contracts with respect to the foregoing, in each case, on behalf of the Company and in the furtherance of the Company’s real estate financing objectives;

 

 

(c)     investigate, evaluate and negotiate the prosecution and negotiation of any claims of the Company in connection with its real estate investments;

 

(d)     administer bookkeeping and accounting functions as are required for the management and operation of the Company, contract for audits and prepare or cause to be prepared such reports and filings as may be required by any governmental authority in connection with the ordinary conduct of the Company’s business, and otherwise advise and assist the Company with its compliance with applicable legal and regulatory requirements, including without limitation, periodic reports, returns or statements required under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Internal Revenue Code of 1986, as amended (said Code, as in effect from time to time, together with any regulations and rulings thereunder, being hereinafter referred to as the “Internal Revenue Code”), the securities and tax statutes of any jurisdiction in which the Company is obligated to file such reports, or the rules and regulations promulgated under any of the foregoing;

 

(e)     advise and assist in the preparation and filing of all offering documents (public and private), and all registration statements, prospectuses or other documents filed with the Securities and Exchange Commission (the “SEC”) or any state (it being understood that the Company shall be responsible for the content of any and all of its offering documents and SEC filings (including without limitation those filings referred to in Section 2(d) hereof), and the Manager shall not be held liable for any costs or liabilities arising out of any misstatements or omissions in the Company’s offering documents or SEC filings, whether or not material, and the Company shall promptly indemnify the Manager from such costs and liabilities);

 

(f)      retain counsel, consultants and other third party professionals on behalf of the Company;

 

(g)     provide internal audit services as hereinafter provided;

 

(h)     advise and assist with the Company’s risk management and oversight function;

 

(i)      to the extent not covered above, advise and assist the Company in the review and negotiation of the Company’s contracts and agreements, coordination and supervision of all third party legal services and oversight of processing of claims by or against the Company;

 

(j)      advise and assist the Company with respect to the Company’s public relations, preparation of marketing materials, internet website and investor relations services;

 

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(k)     provide office space, office equipment and the use of accounting or computing equipment when required;

 

(l)      advise and assist with respect to: the design, operation and maintenance of network infrastructure, including telephone and data transmission lines, voice mail, facsimile machines, cellular phones, pager, etc.; and local area network and wide area network communications support; and

 

(m)    provide personnel necessary for the performance of the foregoing services.

 

In performing its services under this Agreement, the Manager may utilize facilities, personnel and support services of various of its affiliates.  The Manager shall be responsible for paying such affiliates for their personnel and support services and facilities out of its own funds unless otherwise approved by a majority vote of the Independent Trustees (the “Independent Trustees”), as defined in the Company’s Declaration of Trust and Bylaws, in each case, as in  effect from time to time (the “Declaration of Trust” and the “Bylaws”, respectively).  Notwithstanding the foregoing, fees, costs and expenses of any third party which is not an affiliate of the Manager retained as permitted hereunder are to be paid by the Company.  Without limiting the foregoing sentence, any such fees, cost or expenses referred to in the immediately preceding sentence which may be paid by the Manager shall be reimbursed to the Manager by the Company promptly following submission to the Company of a statement of any such fees, costs or expenses by the Manager.

 

Notwithstanding anything herein, it is understood and agreed that the duties of, and services to be provided by, the Manager pursuant to this Agreement shall not include any investment management or related services with respect to any assets of the Company as the Company may wish to allocate from time to time to investments in “securities” (as defined in the Investment Advisers Act of 1940, as amended).

 

In performing its services hereunder with respect to the Company, the Manager shall adhere to, and shall require its officers and employees in the course of providing such services to the Company to adhere to, the Company’s Code of Business Conduct and Ethics, as in effect from time to time.  In addition, the Manager shall make available to its officers and employees providing such services to the Company the procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters relating to the Company and for the confidential, anonymous submission by such officers and employees of concerns regarding questionable accounting or auditing matters relating to the Company, as set forth in the Company’s Procedures for Handling Concerns or Complaints about Accounting, Internal Accounting Controls or Auditing Matters, as in effect from time to time.

 

3.             Bank Accounts.  The Manager shall establish and maintain one or more bank accounts in its own name or, at the direction of the Trustees, in the name of the Company, and

 

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shall collect and deposit into such account or accounts and disburse therefrom any monies on behalf of the Company, provided that no funds in any such account shall be commingled with any funds of the Manager or any other person or entity.  The Manager shall from time to time, or at any time requested by the Trustees, render an appropriate accounting of such collections and payments to the Trustees and to the auditors of the Company.

 

4.             Records.  The Manager shall maintain appropriate books of account and records relating to this Agreement, which books of account and records shall be available for inspection by representatives of the Company upon reasonable notice during ordinary business hours.

 

5.             Information Furnished to Manager.  The Trustees shall at all times keep the Manager fully informed with regard to the real estate investment policies of the Company, the capitalization policy of the Company, and generally the Trustees’ then-current intentions as to the future of the Company.  In particular, the Trustees shall notify the Manager promptly of their intention to sell or otherwise dispose of any of the Company’s real estate investments or to make any new real estate investment.  The Company shall furnish the Manager with such information with regard to its affairs as the Manager may from time to time reasonably request.  The Company shall retain legal counsel and accountants to provide such legal and accounting advice and services as the Manager or the Trustees shall deem necessary or appropriate to adequately  perform the functions of the Company, and shall have such legal or accounting opinions and advice as the Manager shall reasonably request.

 

6.             REIT Qualification; Compliance with Law and Organizational Documents.  Anything else in this Agreement to the contrary notwithstanding, the Manager shall refrain from any action (including, without limitation, the furnishing or rendering of services to tenants of property or managing real property) which, in its good faith judgment, or in the judgment of the Trustees as transmitted to the Manager in writing, would (a) adversely affect the qualification of the Company as a real estate investment trust as defined and limited in the Internal Revenue Code or which would make the Company subject to the Investment Company Act of 1940, as amended (the “1940 Act”), (b) violate any law or rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company or over its securities, or (c) not be permitted by the Declaration of Trust or Bylaws, except if such action shall be approved by the Trustees, in which event the Manager shall promptly notify the Trustees of the Manager’s judgment that such action would adversely affect such qualification, make the Company subject to the 1940 Act or violate any such law, rule, regulation or policy, or the Declaration of Trust or Bylaws and shall refrain from taking such action pending further clarification or instructions from the Trustees.  In addition, the Manager shall take such affirmative steps which, in its judgment made in good faith, or in the judgment of the Trustees as transmitted to the Manager in writing, would prevent or cure any action described in (a), (b) or (c) above.

 

7.             Self-Dealing.  Neither the Manager nor any affiliate of the Manager shall sell any property or assets to the Company or purchase any property or assets from the Company, directly or indirectly, except as approved by a majority of the Independent Trustees (or otherwise pursuant to the Declaration of Trust or Bylaws).  In addition, except as otherwise provided in

 

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Sections 2, 10, 11 or 12 hereof, or except as approved by a majority of the Independent Trustees (or otherwise pursuant to the Declaration of Trust or Bylaws), neither the Manager nor any affiliate of the Manager shall receive any commission or other remuneration, directly or indirectly, in connection with the activities of the Company or any joint venture or partnership in which the Company is a party.  Except for compensation received by the Manager pursuant to Section 10 hereof, all commissions or other remuneration proposed to be received by the Manager or an affiliate of the Manager and not approved by the Independent Trustees (or otherwise pursuant to the Declaration of Trust or Bylaws) under Sections 2, 11 or 12 hereof or this Section 7 shall be promptly reported to the Company for consideration by the Independent Trustees.

 

8.             No Partnership or Joint Venture.  The Company and the Manager are not partners or joint venturers with each other and neither the terms of this Agreement nor the fact that the Company and the Manager have joint interests in any one or more investments, ownership or other interests in any one or more entities or may have common officers or employees or a tenancy relationship shall be construed so as to make them such partners or joint venturers or impose any liability as such on either of them.

 

9.             Fidelity Bond.  The Manager shall not be required to obtain or maintain a fidelity bond in connection with the performance of its services hereunder.

 

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 one-half of one percent (0.5%) of the Annual Average Invested Capital of the Transferred Assets (as defined below) computed as of the last day of the Company’s fiscal year, plus seven tenths of one percent (0.7%) of the Annual Average Invested Capital (as defined below) up to $250,000,000, plus one half of one percent (0.5%) of the Annual Average Invested Capital exceeding $250,000,000.  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, commencing with the Company’s fiscal year ending December 31, 2013, 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 Normalized FFO Per Share (as defined below) for such fiscal year over the Normalized 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 $.02 multiplied by the

 

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weighted average number of Common Shares outstanding on a fully diluted basis during such fiscal year.  For purposes of calculating any Incentive Fee for the fiscal year ending December 31, 2013, the Company’s 2012 Normalized FFO Per Share will equal (x) the annualized amount of the Company’s Normalized FFO (which, for these purposes, shall be computed in accordance with clause (x) of the definition of “Normalized FFO Per Share” provided below) for the period beginning on the completion of the Company’s initial public offering of its Common Shares and ending on December 31, 2012 divided by (y) the weighted average number of Common Shares outstanding on a fully diluted basis during such period.  (The Management Fee and Incentive Fee are hereinafter collectively referred to as the “Fees”.)

 

(c)     For purposes of this Agreement:  (i) “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 Transferred 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; provided, however, “Annual Average Invested Capital of the Transferred Assets” shall mean the average of the aggregate historical cost of the Transferred Assets on the books of the applicable RMR Managed Company (as defined in Section 13 below) immediately prior to the contribution, sale or other transfer of such property to the Company or its subsidiaries (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 month during such period,  and all subsequent adjustments shall be based on such historical cost; (ii) “Normalized 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 normalized 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, with such resulting net income amount reduced by, if applicable, the amount of any preferred share dividends declared or otherwise payable (without duplication) during such fiscal year, determined for these purposes as of the date any such preferred share 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 (iii) “Transferred 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 previously or hereafter acquired by the Company or its subsidiaries from a RMR Managed Company (including acquisition related costs and costs which may be allocated

 

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to intangibles or are unallocated and including assets contributed by a RMR Managed Company to the Company or its subsidiaries or purchased by the Company or its subsidiaries from a RMR Managed Company); it being understood that amounts invested in or with respect to any such Transferred Assets by the Company or its subsidiaries following the acquisition of such assets by the Company or its subsidiaries from a RMR Managed Company shall be included as part of the Transferred Assets to the extent such amounts otherwise satisfy the standards included in the definition of Transferred Assets.

 

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 of the Transferred Assets, Annual Average Invested Capital and Normalized FFO Per Share for the Company’s fiscal year ended upon the immediately preceding December 31 (and, for purposes of any Incentive Fee for the year ending December 31, 2013, setting forth the Company’s Normalized FFO for the applicable period in 2012, the annualized  amount of the Company’s Normalized FFO for 2012 and the Normalized FFO Per Share for such annualized 2012 Normalized FFO), 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 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.

 

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Payment of the Incentive Fee shall be made by issuance of Common Shares under the Company’s 2012 Equity Compensation 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.

 

11.           Internal Audit Services.  The Manager shall provide to the Company an internal audit function meeting applicable requirements of the New York Stock Exchange and the Securities and Exchange Commission and otherwise in scope approved by the Company’s Audit Committee.  In addition to the Fees, the Company agrees to reimburse the Manager, within 30 days of the receipt of the invoice therefor, the Company’s pro rata share (as reasonably agreed to by the Independent Trustees from time to time) of the following:

 

(a)     employment expenses of the Manager’s internal audit manager and other employees of the Manager actively engaged in providing internal audit services, including but not limited to salary, wages, payroll taxes and the cost of employee benefit plans; and

 

(b)     the reasonable travel and other out-of-pocket expenses of the Manager relating to the activities of the Manager’s internal audit manager and other of the Manager’s employees actively engaged in providing internal audit services and the reasonable third party expenses which the Manager incurs in connection with its provision of internal audit services.

 

12.           Additional Services.  If, and to the extent that, the Company shall request the Manager to render services on behalf of the Company other than those required to be rendered by the Manager in accordance with the terms of this Agreement, such additional services shall be compensated separately on terms to be agreed upon between the Manager and the Company from time to time.

 

13.           Right of First Offer.

 

(a)     Subject to the Company’s Declaration of Trust and Bylaws, the Company hereby agrees with the Manager that if the Company or any of its subsidiaries determines to offer, directly or indirectly, for sale or other disposition arrangement (each a “Sale”) any real property that, at such time, is of a type within a principal investment focus of another real estate investment trust to which the Manager at such time provides business management or property management services (such other company, a “RMR Managed Company”), then prior to offering such real property for Sale to any other person, the Company shall provide notice of such proposed Sale to such RMR Managed Company,

 

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describing such proposed Sale in sufficient detail (including expected pricing, payment or lease terms, closing date and other material terms) and offering such RMR Managed Company the right to purchase or lease such real property, and shall negotiate in good faith with such RMR Managed Company for such purchase or lease.  If within fifteen (15) days after the Company has provided to such RMR Managed Company the notice of an offer to effect a Sale of such real property, the Company and such RMR Managed Company have not reached agreement on the terms of such Sale, the Company (or its subsidiary, as applicable) will be free to sell such real property to any person upon the same or substantially similar terms as those contained in the written notice described above (but in any event for a purchase price that is not less than 90% of the expected price), free of the restrictions of this Section 13.

 

(b)     Notwithstanding the above, the following Sales shall be excluded from the right of first offer referred to herein:

 

(i)            A transfer of a real property to a governmental or quasi-governmental agency (an “Agency”) as part of a tax reduction or tax abatement program in which the Company or its subsidiary leases such real property back from such Agency; provided, however, a transfer or assignment of the Company’s or its subsidiary’s interest as tenant in the lease of the real property from such Agency shall be subject to the terms and conditions of this Agreement and the right of first offer granted herein;

 

(ii)           A transfer of a real property to an entity that is wholly owned, directly or indirectly, by the Company;

 

(iii)          A transfer of a real property to any tenant or other party having a right of first refusal or offer to purchase in effect on the date hereof (or in effect on the date such property is acquired by the Company or its subsidiary, as applicable) on the terms and conditions of such right of first refusal or offer to purchase or hereafter granted in a bona fide lease negotiation;

 

(iv)          A transfer of a real property to the appropriate condemning authority pursuant to eminent domain or under threat of eminent domain; and

 

(v)           Any financing, reorganization, recapitalization, reclassification, exchange of shares or spin-offs to the Company’s shareholders, in each case where there is no change of control.

 

14.           Expenses of the Manager.  Without regard to and without limiting the compensation received by the Manager from the Company pursuant to this Agreement and

 

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except to the extent provided by Sections  2, 11 or 12, the Manager shall bear the following expenses incurred in connection with the performance of its duties under this Agreement:

 

(a)     employment expenses of the personnel employed by the Manager, including but not limited to, salaries, wages, payroll taxes and the cost of employee benefit plans;

 

(b)     fees and travel and other expenses paid to directors, officers and employees of the Manager, except fees and travel and other expenses of such persons who are Trustees or officers of the Company incurred in their capacities as Trustees or officers of the Company;

 

(c)     rent, telephone, utilities, office furniture, equipment and machinery (including computers, to the extent utilized) and other office expenses of the Manager, except to the extent such expenses relate solely to an office maintained by the Company separate from the office of the Manager; and

 

(d)     miscellaneous administrative expenses relating to performance by the Manager of its obligations hereunder.

 

15.           Expenses of the Company.  Except as expressly otherwise provided in this Agreement, the Company shall pay all its expenses not payable by the Manager, and, without limiting the generality of the foregoing, it is specifically agreed that the following expenses of the Company shall be paid by the Company and shall not be paid by the Manager:

 

(a)     the cost of borrowed money;

 

(b)     taxes on income and taxes and assessments on real and personal property, if any, and all other taxes applicable to the Company;

 

(c)     legal, auditing, accounting, underwriting, brokerage, listing, reporting, registration and other fees, and printing, engraving and other expenses and taxes incurred in connection with the issuance, distribution, transfer, trading, registration and stock exchange listing of the Company’s securities, including transfer agent’s, registrar’s and indenture trustee’s fees and charges;

 

(d)     expenses of organizing, restructuring, reorganizing or terminating the Company, or of revising, amending, converting or modifying the Company’s organizational documents;

 

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(e)     fees and travel and other expenses paid to Trustees and officers of the Company in their capacities as such (but not in their capacities as officers or employees of the Manager) and fees and travel and other expenses paid to advisors, contractors, mortgage servicers, consultants, and other agents and independent contractors employed by or on behalf of the Company;

 

(f)      expenses directly connected with the investigation, acquisition, disposition or ownership of real estate interests or other property (including third party property diligence costs, appraisal reporting, the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, maintenance, repair, improvement and local management of property), other than expenses with respect thereto of employees of the Manager, to the extent that such expenses are to be borne by the Manager pursuant to Section 14 above;

 

(g)     all insurance costs incurred in connection with the Company (including officer and trustee liability insurance) or in connection with any officer and trustee indemnity agreement to which the Company is a party;

 

(h)     expenses connected with payments of dividends or interest or contributions in cash or any other form made or caused to be made by the Trustees to holders of securities of the Company;

 

(i)      all expenses connected with communications to holders of securities of the Company and other bookkeeping and clerical work necessary to maintaining relations with holders of securities, including the cost of preparing, printing, posting, distributing and mailing certificates for securities and proxy solicitation materials and reports to holders of the Company’s securities;

 

(j)      legal, accounting and auditing fees and expenses, other than those described in subsection (c) above;

 

(k)     filing and recording fees for regulatory or governmental filings, approvals and notices to the extent not otherwise covered by any of the foregoing items of this Section 15;

 

(l)      expenses relating to any office or office facilities maintained by the Company separate from the office of the Manager; and

 

(m)    the costs and expenses of all equity award or compensation plans or arrangements established by the Company, including the value of awards made by the Company to the Manager or its employees, if any.

 

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16.           Limits of Manager Responsibility; Indemnification; Company Remedies.  The Manager assumes no responsibility other than to render the services described herein in good faith and shall not be responsible for any action of the Trustees in following or declining to follow any advice or recommendation of the Manager.  The Manager, its shareholders, directors, officers, employees and affiliates will not be liable to the Company, its shareholders, or others, except by reason of willful bad faith or gross negligence in the performance of its obligations hereunder.  The Company shall reimburse, indemnify and hold harmless the Manager, its shareholders, directors, officers and employees and its affiliates for and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including without limitation all reasonable attorneys’, accountants’ and experts’ fees and expenses) in respect of or arising from any acts or omissions of the Manager with respect to the provision of services by it or performance of its obligations in connection with this Agreement or  performance of other matters pursuant to specific instruction by the Trustees, except to the extent such provision or performance was in willful bad faith or grossly negligent.  Without limiting the foregoing, the Company shall promptly advance expenses incurred by the indemnitees referred to in this section for matters referred to in this section, upon request for such advancement.

 

17.           Other Activities of Manager.  Nothing herein shall prevent the Manager from engaging in other activities or businesses or from acting as the Manager to any other person or entity (including other real estate investment trusts) even though such person or entity has investment policies and objectives similar to those of the Company.  The Manager shall notify the Company in writing in the event that it does so act as a manager to another business.  The Company acknowledges that the Manager manages real estate investment trusts and other entities (including, as of the date of this Agreement, CommonWealth REIT, Hospitality Properties Trust, Government Properties Income Trust, Senior Housing Properties Trust, Five Star Quality Care, Inc. and TravelCenters of America LLC) and that the Manager shall be free from any obligation to present to the Company any particular investment opportunity which comes to the Manager and the Manager is not required to present the Company with opportunities to invest in properties that are primarily of a type that are the investment focus of another person or entity now or in the future managed by the Manager.  In addition, nothing herein shall prevent any shareholder or affiliate of the Manager from engaging in any other business or from rendering services of any kind to any other person or entity (including competitive business activities).  The Company acknowledges and agrees that the Manager has certain interests that may be divergent from those of the Company.  The parties agree that these relationships and interests shall not affect either party’s rights and obligations under this Agreement; provided, however, the Company further acknowledges and agrees that whenever any conflicts of interest arise resulting from the relationships and interests described or referred to in this Section 17 or any such relationship or interest as may arise or be present in the future by and between the Company and the Manager or their respective affiliates or any entity with whom the Manager has a relationship or contract, the Manager will act on its own behalf and/or on behalf of any such entity and not on the Company’s behalf, and the Company shall make its own decisions and require and obtain the advice and assistance of independent third parties at its own cost, as it may deem necessary.  Without limiting the foregoing provisions, the Manager agrees, upon the request of any Trustee, to disclose certain real estate investment information concerning the Manager or certain of its affiliates; provided, however, that such disclosure shall

 

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be required only if it does not constitute a breach of any fiduciary duty or obligation of the Manager and the Company shall be required to keep such information confidential.

 

Directors, officers, employees and agents of the Manager or of its affiliates may serve as Trustees, officers, employees, agents, nominees or signatories of the Company.  When executing documents or otherwise acting in such capacities for the Company, such persons shall use their respective titles in the Company.  Such persons shall receive no compensation from the Company for their services to the Company in any such capacities, except that the Company may make awards to the employees of the Manager and others under the Company’s 2012 Equity Compensation Plan or any equity plan adopted by the Company from time to time.

 

18.           Term, Termination.  This Agreement shall continue in force and effect until December 31, 2013, and shall be automatically renewed for successive one year terms annually thereafter unless notice of non-renewal is given by the Company or the Manager before the end  of the term.  It is expected that the terms and conditions may be reviewed by the Independent Trustees of the Compensation Committee of the Board of Trustees of the Company at least annually.

 

Notwithstanding any other provision of this Agreement to the contrary, this Agreement, or any extension thereof, may be terminated (a) by either party hereto upon sixty (60) days’ written notice to the other party, which termination, if by the Company, must be approved by a majority vote of the Independent Trustees serving on the Compensation Committee of the Trustees, or if by the Manager, must be approved by a majority vote of the directors of the Manager; and (b) by the Manager upon five (5) business days written notice to the Company if there is a Change of Control.

 

For purposes of this Agreement, a “Change of Control” shall mean: (a) the acquisition by any person or entity, or two or more persons or entities acting in concert, of beneficial ownership (such term, for purposes of this Section 18, having the meaning provided such term in Rule 13d-3 under the Exchange Act) of 9.8% or more, or rights, options or warrants to acquire 9.8% or more, or any combination thereof, of the outstanding Common Shares or other voting interests of the Company, including voting proxies for such shares, or the power to direct the management and policies of the Company, directly or indirectly (excluding the Manager and its affiliates and persons or entities that beneficially own 9.8% or more of the Company’s outstanding Common Shares as of immediately prior to the execution and delivery of this Agreement by the parties hereto); (b) the merger or consolidation of the Company with or into any other entity (other than the merger or consolidation of any entity into the Company that does not result in a Change in Control of the Company under clauses (a), (c), or (d) of this definition); (c) any one or more sales or conveyances to any person or entity of all or any material portion of the assets (including capital stock or other equity interests) or business of the Company and its subsidiaries taken as a whole; provided, however, that, with respect to the Company, the acquisition of Transferred Assets by the Company or any of its subsidiaries shall not constitute a Change of Control pursuant to this clause (c); or (d) the cessation, for any reason, of the individuals who at the beginning of any 36 consecutive month period constituted the Trustees (together with any new

 

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Trustees whose election by the Trustees or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the Trustees then still in office who were either Trustees at the beginning of any such period or whose election or nomination for election was previously so approved) to constitute a majority of the Trustees then in office; provided, however, a Change of Control of the Company shall not include the acquisition by any person or entity, or two or more persons or entities acting in concert, of beneficial ownership of 9.8% or more of the Company’s outstanding Common Shares or other voting interests of the Company if such acquisition is approved by the Trustees in accordance with the Company’s organizational documents and if such acquisition is otherwise in compliance with applicable law.

 

Section 19 hereof shall govern the rights, liabilities and obligations of the parties upon termination of this Agreement; and, except as provided in Sections  16 and 19, such termination shall be without further liability of either party to the other, other than for breach or violation of this Agreement prior to termination.

 

19.           Action Upon Termination.  From and after the effective date of any termination of this Agreement pursuant to Section 18 hereof, the Manager shall be entitled to no  compensation for services rendered hereunder for the pro-rata remainder of the then-current term of this Agreement, but shall be paid, on a pro rata basis as set forth in this Section 19, all compensation due for services performed prior to the effective date of such termination, including without limitation, a pro-rata portion of the current year’s Incentive Fee. Upon such termination, the Manager shall as promptly as practicable:

 

(a)     pay over to the Company all monies collected and held for the account of the Company by it pursuant to this Agreement, after deducting therefrom any accrued Fees and reimbursements for its expenses to which it is then entitled;

 

(b)     deliver to the Trustees a full and complete accounting, including a statement showing all sums collected by it and a statement of all sums held by it for the period commencing with the date following the date of its last accounting to the Trustees; and

 

(c)     deliver to the Trustees all property and documents of the Company then in its custody or possession.

 

The amount of Fees paid to the Manager upon termination shall be subject to adjustment pursuant to the following mechanism.  On or before the 30th day after public availability of the Company’s annual audited financial statements for the fiscal year in which termination occurs, the Company shall deliver to the Manager a Certificate reasonably acceptable to the Manager and certified by an authorized officer of the Company setting forth (i) the Annual Average Invested Capital of the Transferred Assets, Annual Average Invested Capital, and Normalized 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 upon the date of termination.

 

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If the annual Fees owed upon termination as shown in such Certificate exceed the Fees paid by the Company upon termination, the Company shall include its check for such deficit and deliver the same to the Manager with such Certificate.  If the annual Fees owed upon termination as shown in such Certificate are less than the Fees paid by the Company upon termination, the Manager shall remit to the Company its check in an amount equal to such difference.

 

The Incentive Fee for any partial fiscal year will be determined by multiplying the Incentive Fee for such year (assuming this Agreement were in effect for the entire year) by a fraction, the numerator of which is the number of days in the portion of such year during which this Agreement was in effect, and the denominator of which shall be 365.

 

20.           Trustee Action.  Wherever action on the part of the Trustees is contemplated by this Agreement, action by a majority of the Trustees, including a majority of the Independent Trustees, shall constitute the action provided for herein.

 

21.           TRUSTEES AND SHAREHOLDERS NOT LIABLE.  THE DECLARATION OF TRUST OF THE COMPANY, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS, IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND PROVIDES THAT THE NAME SELECT INCOME REIT REFERS TO THE TRUSTEES COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY.  NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO  ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY.  ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

 

22.           Notices.  Any notice, report or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, upon confirmation of receipt when transmitted by facsimile transmission, on the next business day if transmitted by a nationally recognized overnight courier or on the third business day following mailing by first class mail, postage prepaid, in each case as follows (or at such other United States address or facsimile number for a party as shall be specified by like notice):

 

If to the Company:

 

Select Income REIT
 Two Newton Place

255 Washington Street, Suite 300
 Newton, Massachusetts 02458
 Attention:  Chief Financial Officer
 Facsimile No.:  (617) 796-8335

 

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If to the Manager:

 

Reit Management & Research LLC
 Two Newton Place

255 Washington Street, Suite 300
 Newton, Massachusetts 02458
 Attention:  President 
 Facsimile No.:  (617) 928-1305

 

23.           Amendments.  This Agreement shall not be amended, changed, modified, terminated, or discharged in whole or in part except by an instrument in writing signed by each of the parties hereto, or by their respective successors or assigns, or otherwise as provided herein.

 

24.           Assignment.  Neither party may assign this Agreement or its rights hereunder or delegate its duties hereunder without the written consent of the other party, except in the case of an assignment by the Manager to a corporation, partnership, limited liability company, association, trust, or other successor entity which may take over the property and carry on the affairs of the Manager.

 

25.           Successors and Assigns.  This Agreement shall be binding upon any successors or permitted assigns of the parties hereto as provided herein.

 

26.           No Third Party Beneficiary.  Except as otherwise provided in Section 28(i), no person or entity other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

 

27.           Governing Law.  The provisions of this Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts.

 

28.           Arbitration.

 

(a)     Any disputes, claims or controversies between the parties (i) arising out of or relating to this Agreement or the provision of services by the Manager pursuant to this Agreement, or (ii) brought by or on behalf of any shareholder of the Company (which, for purposes of this Section 28, shall mean any shareholder of record or any beneficial owner of shares of the Company, or any former shareholder of record or beneficial owner of shares of the Company), either on his, her or its own behalf, on behalf of the Company or on behalf of any series or class of shares of the Company or shareholders of the Company against the Company or any Trustee, officer, manager (including the Manager or its successor), agent or employee of the Company, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement, the Declaration of Trust or the Bylaws (all of which are referred to as “Disputes”), or relating in any way to

 

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such a Dispute or Disputes shall, on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 28.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against Trustees, officers or managers of the Company and class actions by a shareholder against those individuals or entities and the Company.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

 

(b)     There shall be three arbitrators.  If there are only two parties to the Dispute, each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party.  If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator.  Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the parties who have appointed the first arbitrator.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

 

(c)     The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

 

(d)     There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

 

(e)     In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of The Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

 

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(f)      Except to the extent expressly provided by this Agreement or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of the Company’s award to the claimant or the claimant’s attorneys.  Each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

 

(g)      An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

 

(h)      Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

 

(i)      This Section 28 is intended to benefit and be enforceable by the shareholders, directors, officers, managers (including the Manager or its successor), agents or employees of the Company and the Company and shall be binding on the shareholders of the Company and the Company, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

 

29.           Consent to Jurisdiction and Forum.  This Section 29 is subject to, and shall not in any way limit the application of, Section 28; in case of any conflict between this Section 29  and Section 28, Section 28 shall govern.  The exclusive jurisdiction and venue in any action brought by any party hereto pursuant to this Agreement shall lie in any federal or state court located in Boston, Massachusetts.  By execution and delivery of this Agreement, each party hereto irrevocably submits to the jurisdiction of such courts for itself and in respect of its property with respect to such action. The parties irrevocably agree that venue would be proper in such court, and hereby waive any objection that such court is an improper or inconvenient forum for the resolution of such action.  The parties further agree and consent to the service of any

 

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process required by any such court by delivery of a copy thereof in accordance with Section 22 and that any such delivery shall constitute valid and lawful service of process against it, without necessity for service by any other means provided by statute or rule of court.

 

30.           Captions.  The captions included herein have been inserted for ease of reference only and shall not be construed to affect the meaning, construction or effect of this Agreement.

 

31.           Entire Agreement.  This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes and cancel any pre-existing agreements with respect to such subject matter.

 

32.           Severability.         If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

 

33.           Survival.  The provisions of Sections  2 (limited to the obligation of the Company to indemnify the Manager for matters provided thereunder), 16, 17 (limited to the obligations of the Company to keep information provided to the Company by the Manager confidential as provided in the last proviso in such Section), 18 (limited to the last paragraph of such Section), 19, 21, 22, 26, 27, 28, 29, 32 and 33 of this Agreement shall survive the termination hereof.

 

34.           Other Agreements.  The parties hereto are also parties to a Property Management Agreement, dated as of the date hereof, as in effect from time to time (the “Property Management Agreement”).  The parties agree that this Agreement does not include or otherwise address the rights and obligations of the parties under the Property Management Agreement and that the Property Management Agreement provides for its own separate rights and obligations of the parties thereto, including without limitation separate compensation payable by the Company and the other Owners (as defined in the Property Management Agreement) to the Manager thereunder for services to be provided by the Manager pursuant to the Property Management Agreement.

 

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

 

	
 
    	
SELECT INCOME REIT
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   David M.   Blackman
    
	
 
    	
 
    	
Name: David M.   Blackman
    
	
 
    	
 
    	
Title: President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
REIT MANAGEMENT &   RESEARCH LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Adam D.   Portnoy
    
	
 
    	
 
    	
Name: Adam D.   Portnoy
    
	
 
    	
 
    	
Title: President
    

 

[Signature Page to Business Management Agreement]

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