GOODWIN 21 • Window Shopping. Another variation involves so- called “window shop” deals, in which the traditional prohibition on target actively soliciting competing offers is retained but the terms of the agreement are otherwise calibrated to make it somewhat easier for unsolicited competing bids to be made and entertained. In this vein, as discussed further below under “Termination Fees; Expenses”, a small minority of recent REIT M&A transactions employed a “two-tier” termination fee structure in which the target termination fee was set substantially lower during a fixed initial period (e.g. 30-45 days similar to a go-shop period) but increases thereafter. This construct can be viewed as something of a hybrid between the common no-shop framework and a go-shop, with interlopers more incentivized to bid during the initial period.7 7. CONDITIONS TO CLOSING. Once a deal is signed (and any go-shop period has expired), proceeding to closing timely and efficiently becomes the parties’ primary focus. On one hand, the target will seek to ensure that closing conditions beyond its control do not introduce obstacles to closing, which could delay getting the consideration into the hands of shareholders, or worse, jeopardize the deal entirely. On the other hand, the buyer needs to ensure that the company it agreed to buy at signing is the one it actually acquires at closing, complete with all necessary consents, the satisfaction of bargained-for covenants and the bring-down of the target’s representations and warranties. To that end, pretty much every REIT business combination transaction provides for the following basic conditions to closing: For transactions in highly regulated sectors, a condition tied to receipt of all necessary regulatory approvals would also generally be standard.8 There are situations, however, in REIT M&A transactions when a party may be unwilling to sign the definitive agreement unless additional conditions to its obligation to close are added. The most common non-standard condition is one tied to receipt of lender or other third- party consents, including joint venture partners and ground lessors. Sellers are loath to have success of the deal hinge on the consent of a third party, while buyers are unwilling to close over the risk of not having material consents in hand at closing. This can simply be a risk allocation issue. In high profile REIT M&A transactions, private equity purchasers and other buyers have been known to take on the consent risk, anticipating that, based on their experience or otherwise, they will ultimately be able work something out with any third parties whose consents to closing may be required. Buyers willing to take on such risk may thus be at a competitive advantage relative to other potential purchasers in a competitive process scenario. 7 As a practical matter, a variation on the “two-tiered” termination fee structure ended up playing out in Blackstone’s 2007 acquisition of Equity Office Properties Trust (“EOP”). The termination fee payable by EOP was initially set at a low 1.0% of the equity value but was incrementally ratcheted up by amendment to the agreement each time Blackstone agreed to increase the price it would pay in response to competing offers. 8 While REIT M&A transactions are subject to the general antirust rules, the FTC’s Premerger Notification Office currently applies the “ordinary course of business” exemption under Section 18(a)(c)(1) of the Hart-Scott-Rodino Act to qualifying acquisitions by REITs acting in conformity with applicable IRS rules. Basic Conditions to Closing • there has been no injunction or other court or regulatory order restricting the closing • the requisite shareholder vote has been obtained, including that of shareholders of the acquiring company in a stock deal, where necessary Basic Conditions to Closing (continued) • the mutual representations of the parties remain accurate subject to a high “material adverse effect” standard and the parties have complied with their respective covenants in all material respect • nothing that has a material adverse effect has occurred with respect to the company to be acquired (or the buyer in many stock-for-stock deals) • when consideration is payable in stock, that the shares have been duly listed on the relevant securities exchange • target tax counsel delivers an opinion to the effect that target qualifies as a REIT; in stock-for-stock deals, buyer tax counsel’s delivery of a REIT qualification opinion covering buyer’s REIT status is also uniformly required • in a transaction involving a significant stock component, tax counsel delivers an opinion that the stock transaction will qualify as a tax-free reorganization Practice Note. While the definitive agreement will typically call for delivery of buyer’s REIT qualification opinion and any tax-free reorganization opinion at closing, the SEC Staff will often insist on having one or both of these opinions attached as exhibits to the Form S-4 registration statement filed in connection with the transaction, as a condition to its effectiveness. Deal participants must thus be prepared for delivery of these opinions many weeks ahead of closing.