REALTY INCOME CORP 10-Q

Item 1A. Risk Factors You should carefully consider the risks described below and those risks described in "Item 1A, Risk Factors" in Part I of our Annual Report on Form 10-K for the year ended December 31, 2020, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein and herein. Risks Related to the Proposed Mergers The announcement and pendency of the Mergers may have an adverse effect on our business, operating results and price of our common stock. We are subject to risks in connection with the announcement and pendency of the Mergers, including, but not limited to, the following: • Market reaction to the announcement and pendency of the Mergers; • Changes in our business, operating results, market price of our common stock and prospects generally; • Market assessments of the likelihood that the Mergers will be consummated; • The amount of consideration offered per share is based on a fixed exchange ratio, and will not be adjusted to account for changes in our or VEREIT’s respective business, assets, liabilities, prospects, outlook, financial condition or results of operations, or any other changes, during the pendency of the Mergers, including any change in the market price of, analyst estimates of, or projections relating to, our common stock or VEREIT’s common stock; • Potential adverse effects on our relationships with our current customers, suppliers and other business partners, or those with which we are seeking to establish business relationships, due to uncertainties about the Mergers; • We have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the Mergers, including with respect to the potential spin-off transaction, and many of these fees and costs are payable by us regardless of whether the Mergers are consummated; • We may incur unexpected costs, liabilities or delays in connection with or with respect to the Mergers; • Potential adverse effects to our ability to raise capital during the pendency of the Mergers, or the impact of the Mergers on our or VEREIT’s existing or future indebtedness; • Potential adverse effects on our ability to attract, recruit, retain and motivate current and prospective employees who may be uncertain about their future roles and relationships with us following the completion of the Mergers, and the possibility that our employees could lose productivity as a result of uncertainty regarding their employment following the Mergers; -54- Table of Contents • The pendency and outcome of any legal proceedings that may be instituted against us, our directors, executive officers and others relating to the transactions contemplated by the Merger Agreement; • The inherent risks, costs and uncertainties associated with integrating the businesses successfully and risks of not achieving all or any of the anticipated benefits of the Mergers, or the risk that the anticipated benefits of the Mergers may not be fully realized or take longer to realize than expected; • Competitive pressures in the markets in which we and VEREIT operate; • Potential restrictions on the conduct of our business prior to the completion of the Mergers pursuant to the terms of the Merger Agreement; • The inability for us to consummate the proposed spin-off transaction on the anticipated terms or within the anticipated timing, if at all, and our ability or the ability of our stockholders to realize the anticipated benefits of the Mergers; • The occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; and • The possibility of disruption to our business, including increased costs and diversion of management time and resources that could otherwise have been devoted to other opportunities that may have been beneficial to us. The failure to complete the Mergers may adversely affect our business and the price of our common stock. The closing of the Mergers is subject to certain conditions, including: (1) adoption and approval by VEREIT’s stockholders of the Merger Agreement and approval by our shareholders of the issuance of shares of our common stock pursuant to the Merger Agreement; (2) the effectiveness of the registration statement on Form S-4 to be filed with the SEC by us in connection with the transactions contemplated by the Merger Agreement; (3) approval for listing on the New York Stock Exchange of the shares of our common stock to be issued in the Mergers or reserved for issuance in connection therewith; (4) no injunction or law prohibiting the Mergers; (5) accuracy of each party’s representations, subject in most cases to materiality or material adverse effect qualifications; (6) material compliance with each party’s covenants; (7) receipt by each of VEREIT and us of an opinion to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code, and (8) receipt by each of VEREIT and us of an opinion that the other party qualifies as a REIT under the Code. In addition, we will not be obligated to consummate the Mergers before January 29, 2022 unless the Spin-Off is ready, in all respects, to be consummated contemporaneously with the closing of the Mergers. If this condition is not satisfied or waived by us by January 29, 2022, and all other conditions to closing have been satisfied, the parties will be obligated to close the Mergers, regardless of whether the Spin-Off is ready to be consummated. The Merger Agreement also contains certain customary termination rights for both parties, including under certain circumstances, we will be required to pay a termination fee to VEREIT of the lesser of $838.0 million or the maximum amount that could be paid to VEREIT without causing it to fail to meet the REIT requirements for such year. The Merger Agreement also provides that, if the Merger Agreement is terminated because our stockholders or the stockholders of VEREIT fail to approve the transactions contemplated by the Merger Agreement, the party whose stockholders did not approve the transaction must pay the other party an expense reimbursement of the lesser of $25.0 million or the maximum amount that can be paid to the other party without causing it to fail to meet the REIT requirements for such year. There can be no assurance that the conditions to the completion of the Mergers will be satisfied, that the Merger Agreement will not be terminated, or that the Mergers will be completed on the proposed terms, within the expected timeframe or at all. If the Mergers are not completed, we may be subject to negative publicity or be negatively perceived by the investment or business communities, we may be obligated to pay a termination fee or reimburse expenses to VEREIT, and the price of our common stock could fall to the extent that price reflects an assumption that the Mergers will be completed. In addition, we may be required to consummate the Mergers before the Spin-Off is ready to be consummated, which may adversely impact the anticipated benefits of the transactions. Furthermore, if the Mergers are not completed, we may suffer other consequences that could adversely affect our business and results of our operations, including potential reputational harm, litigation, or other adverse impacts. -55- Table of Contents Potential litigation instituted against us, VEREIT or our respective directors challenging the proposed Mergers may prevent the Mergers from becoming effective within the expected timeframe or at all. Potential litigation related to the Mergers may result in injunctive or other relief prohibiting, delaying or otherwise adversely affecting the parties’ ability to complete the Mergers. Such relief may prevent the Mergers from becoming effective within the expected timeframe or at all. In addition, defending against such claims may be expensive and divert management’s attention and resources, which could adversely affect the respective businesses of us and VEREIT.