GOODWIN 19 interloper submits a credible bid that the target board believes constitutes a superior proposal that would justify terminating the merger agreement. • Buyer Matching Right(s). Once a target takes the step of determining that a competing offer actually constitutes a superior proposal, most agreements trigger a “buyer matching right” that interposes a brief period (e.g., 3 business days) during which the buyer has the ability to match or better the competing offer and keep its negotiated deal on track. Some agreements strictly limit the number of times the buyer has the right to match competing offers, while other agreements provide the buyer with the right to match numerous times, often subject to specified minimum bid increments. All of the REIT M&A agreements we surveyed included some form of buyer matching rights, with the vast majority (approximately 90%) also providing the buyer with multiple match rights. The most typical formulation included for an initial notice/ matching period of 3, 4 or 5 days, followed by a shorter period for subsequent match rights. Most transactions measured days as business days (e.g., a 5 business day notice/matching period would mean at least a calendar week) but a small minority of the agreements surveyed employed calendar days or hours as a measurement (e.g., an initial notice/matching period of 72 hours, followed by subsequent periods of 48 hours). In over 50% of cases, subsequent notice/matching periods were limited to 2 business days or less. • Fiduciary Termination Right. When a competing offer is determined by the target board to constitute a “superior” proposal and the buyer declines to match it, by far the most common construct is that the target board may elect to pay a termination fee (which is ultimately borne by the topping bidder, see below under “Termination Fees”), terminate the merger agreement and accept the competing offer. The vast majority of the REIT deals we surveyed reflect this construct, which is consistent with the broader M&A market. A fiduciary termination right — even one subject to procedural hurdles such as matching rights — guarantees that the target board has the ability to pursue the transaction most favorable to its shareholders. In practice, however, the fiduciary termination right is rarely exercised, either because boards generally do a pretty good job ferreting out the highest available offer before signing a definitive agreement and/or due to the advantage secured by the initial buyer by virtue of being the first mover, including having matching rights and the right to receive a fee from the target upon termination. Indeed, none of the REIT M&A transactions we surveyed during the 2012-2017 period involved the exercise of a fiduciary termination right by a target board. • Force-the-Vote. A minority of buyers insist that the target board not have the contractual right to terminate the signed agreement upon receipt of a “superior” proposal. Rather, the target board would have only the right to inform shareholders of the competing proposal and to withdraw its recommendation that shareholders approve the original transaction. The buyer would then have the option to either (a) terminate the merger agreement and receive a termination fee, or (b) require that the target nevertheless hold an up-or- down shareholder vote on the original deal and let the shareholders decide whether to continue with the original buyer deal or not — i.e., buyer can “force the vote”. This construct is seldom used in public REIT M&A and appeared in only two of the deals surveyed. In all-cash transactions in particular, buyers would typically perceive little value in insisting on a force- the-vote construct because it is likely to be obvious to shareholders whether a competing offer is better or not. (continued from previous page) avoid getting to the point where a target board is compelled to make an “is it a superior proposal” determination. For example, a buyer might pre-emptively and voluntarily sweeten the deal or make other concessions that have the effect of making it less likely that target’s board will reasonably conclude that a competing offer is superior. Practice Note. Customary deal protections can do much towards reasonably safeguarding a hard-negotiated deal, but be careful not to overdo it! For example, if the target board has no fiduciary termination right, buyer has the right to “force the vote” and one or more significant target shareholders have signed voting agreements pursuant to which they have committed to vote in favor of the transaction, then the deal is likely “over protected”. As a result, the target board may be accused of having breached its fiduciary duties and chilling the market by signing up a deal that does not leave adequate room for the target to receive, consider and accept a competing superior offer. See the discussion below under “Post-Signing Litigation”.