XRN

Business Context and Reporting Period

Company: Global Medical REIT Inc. (GMRE)

Filing Type: Form 8-K (Current Report)

Date of Report: July 9, 2020

Primary Event: The Company completed the "Internalization Transaction," acquiring Inter-American Group Holdings Inc. (IAGH), the parent company of its external manager, Inter-American Management LLC (IAM). This transaction internalized the management functions previously performed by the external manager.

Key Financial Metrics and Transaction Details

Transaction Value: Aggregate purchase price of $18.1 million, subject to working capital adjustments.

Payment Structure:

• Cash at Closing: Approximately $17.6 million paid to sellers (Zensun Enterprises Limited and Mr. Jeffrey Busch).
• Holdback Amount: $1.8 million in Company common stock and long-term incentive plan (LTIP) units pledged by sellers to satisfy potential future indemnification obligations.

Executive Compensation (New Employment Agreements):

• Jeffrey Busch (CEO, President, Chairman): $600,000 annual base salary; Target bonus of 100% of base.
• Robert Kiernan (CFO, Treasurer): $335,000 annual base salary; Target bonus of 100% of base.
• Alfonzo Leon (CIO): $310,000 annual base salary; Target bonus of 100% of base.
• Jamie Barber (General Counsel): $250,000 annual base salary.
• Allen Webb (SVP): $245,783 annual base salary (existing agreement assumed).

Equity Grants (Internalization Units):

Financial Metrics: The filing text does not provide revenue, profit, cash flow, margins, debt, or liquidity figures for the reporting period.

Material Changes Versus Prior Period

• Management Structure: Transitioned from an externally managed REIT to an internally managed structure by acquiring the manager's parent company.
• Agreements: The Amended and Restated Management Agreement was amended to reflect an inter-company relationship between IAM and the Company.
• Executive Tenure: New four-year employment agreements with automatic one-year renewals were executed for key executives (Busch, Kiernan, Leon).
• Severance Plan: Adoption of a new Executive Severance Plan covering "Level One" and "Level Two" participants with specific payouts for involuntary termination and change in control scenarios.

Guidance, Outlook, Risks, and Contingencies

Management Commentary: A Special Committee of independent directors determined the transaction was fair and in the best interests of the Company and its stockholders. Stockholder approval was not required.

Risks and Contingencies:

• Indemnification: A $1.8 million holdback of stock and LTIP units is pledged by sellers to cover potential indemnification obligations.
• Representations Survival: Seller representations survive for 18 months generally, 10 years for fundamental representations, and 60 days after the statute of limitations for tax-related representations.
• Severance Obligations: Significant potential cash outflows exist if executives are terminated without "cause" or for "good reason," including multi-year salary multiples and accelerated equity vesting.
• Restrictive Covenants: Executives are subject to non-competition and non-solicitation restrictions for 12 to 18 months post-termination.

Guidance: The filing text does not provide specific financial guidance or outlook projections.

Key Facts for Investor Verification

• Verify the impact of the $18.1 million cash outlay on the Company's current liquidity and debt covenants.
• Confirm the total annualized cost of the new executive compensation packages, including base salaries, target bonuses, and the amortization of the $3.85 million in LTIP grants.
• Review the specific definitions of "Cause" and "Good Reason" in the new employment agreements to assess the risk of severance payouts.
• Monitor the vesting schedule of the Internalization Units, which begins July 9, 2021, and vests over four years.
• Assess the strategic rationale for internalization versus the ongoing costs of the new management structure.