GOODWIN 13 of outstanding company shares could elect cash), payable pro rata to holders who elected cash when the elections exceeded the threshold; • Four of the transactions involving a stock component included provisions for adjusting the exchange ratio at closing to account for changes in the value of the buyer’s stock, subject to a collar. Collars such as these are uncommon in typical REIT public-to-public transactions since buyer and target stock prices will generally begin trading in unison after announcement of a deal so the collar provides little to no practical protection. We note that in each of the four surveyed transactions with a collar, the target was a non-traded REIT and, thus, did not have publicly traded stock that could trade in a tracking pattern to the buyer’s stock. • One transaction, an all-cash deal, provided for additional cash to be added to the merger consideration if buyer delayed the closing more than six months from announcement in order to effect a sale of the target’s management business. This was a unique situation and is not indicative of a trend towards this sort of provision. • Another unique transaction provided for a level of price protection by providing target a termination right if either the cash portion of the consideration exceeded 40%, or if the 20-day average price of the buyer’s stock declined by 15% or more of the RMZ. • Two deals (one mix cash/stock, one cash) were structured as asset deals followed by a liquidation of the target, and a third deal (all-cash) involved the establishment of a liquidating trust that sold a portfolio of undesired assets over time and distributed the proceeds to the target stockholders. In these cases, the proceeds to target shareholders were estimated and the ultimate amount paid depended upon the level of winding-up expenses incurred by the target. • Two of the mortgage REIT transactions provided for adjustments to the consideration depending on changes in book value between signing and closing. • A cash NTR deal mimicked a private acquisition construct through providing for closing adjustments and a contingent value right under certain circumstances. 2. PREMIUMS. Of the deals surveyed in which the target was a listed company (i.e., excluding non-traded REITs)2 , the average premium to the unaffected share price was 16.4% and the median premium to unaffected share price was 13.3%3 , as follows: As evident in the table above, premiums logically tend to decrease when stock is included as a component of the merger consideration, with the highest premiums coming in all-cash go-private transactions and the lowest premiums coming in all stock so-called “merger of equal” transactions. When shareholders are exchanging their shares for all cash in a “no tomorrow” transaction, buyers will pay as robust a premium as the market will bear in exchange for capturing all future upside in the target business. Conversely, when shareholders are receiving shares in the combined company, which will almost always be a larger and more diverse company, buyers have less of a compelling reason to provide target shareholders with a robust up-front premium because they will receive the future economic benefits of the combined enterprise. The table below sets forth the average and median premiums by sector during the surveyed period: Premiums by Form of Consideration 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% All-Cash Mix Cash/Stock All-Stock Average Median 2 Non-traded REITs do not, by definition, have a daily trading price that can be used to calculate whether a premium has been paid, although they are periodically required to disclose per share valuations. 3 For purposes of these calculations, the value of the consideration at public announcement was compared to the closing price of the target stock on the day immediately preceding announcement, unless the parties disclosed a specific, earlier, unaffected price date, for example, in the event of public rumors of a deal that caused the stock prices to change. Average Premium By Sector 30% 25% 20% 15% 10% 5% 0% Residential Retail Healthcare Office Other Average Median