BNL

Business Context and Reporting Period

Company: Broadstone Net Lease, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: November 6, 2019 (Earliest event reported)
Event Date: November 11, 2019 (Agreement execution)
Context: The Company entered into a definitive Agreement and Plan of Merger to internalize its external management functions. This transaction involves the acquisition of Broadstone Real Estate, LLC (the "Manager") and its affiliates by the Company's operating company, Broadstone Net Lease, LLC ("BNL OP"). Upon closing, the Company will transition from externally managed to internally managed.

Key Financial Metrics and Transaction Value

Transaction Consideration:

• Immediate Value: Approximately $206 million in Company Shares, OP Units, and cash.
• Debt Assumption: Approximately $94 million of debt assumed by the Company.
• Pre-Closing Redemption: The Company agreed to repurchase outstanding shares held by the Manager at $85.00 per share.

Earnout Consideration:

• Total Potential: Up to $75 million payable in four tranches ($10M, $15M, $25M, $25M).
• Triggers: Based on achieving specific Volume-Weighted Average Price (VWAP) targets post-IPO or Adjusted Funds From Operations (AFFO) per share targets if no IPO occurs.

Liquidity and Share Value:

• Determined Share Value: $85.00 (remains constant through January 31, 2020).
• Private Offering: Monthly closing suspended for October 31, 2019; next closing scheduled for November 29, 2019.

Note: This filing does not provide standard periodic financial metrics such as total revenue, net profit, operating cash flow, or overall debt-to-equity ratios for the reporting period.

Material Changes and Transaction Structure

Management Internalization: The primary material change is the shift from external to internal management. The current management team and corporate staff, currently employed by the Manager, will become employees of an indirect subsidiary of BNL OP.
Merger Mechanics:

• Blocker Mergers: Subsidiaries of the Company will merge with Blocker Corps.
• OP Merger: The Manager will merge into BNL OP.
• Consideration Mix: Holders of Manager Units may elect to receive Company Shares, OP Units, or cash.

Board Changes: Thomas P. Lydon, Jr. resigned from the Board of Directors effective November 6, 2019, to avoid conflicts of interest related to his service on a special committee for Broadtree Residential, Inc.

Guidance, Outlook, and Risks

Outlook and IPO:

• The Company expects to undertake an Initial Public Offering (IPO) as soon as reasonably practicable following the Closing.
• An IPO is not a condition to closing the Mergers.
• If no IPO is completed by December 31, 2020, former Manager owners will be granted redemption rights between January 1, 2021, and December 31, 2021 (or earlier IPO closing).

Timeline:

• Target Closing: On or about January 2, 2020.
• Termination Date: The agreement may be terminated if Mergers do not occur by March 31, 2020.

Risks and Contingencies:

• Termination Fee: The Company may be required to pay a $75 million termination fee if it accepts a superior proposal from a third party.
• Conditions to Closing: Includes the absence of material adverse effects, completion of distribution of "Unrelated Businesses," and execution of ancillary agreements (Tax Protection, Restrictive Covenants, Registration Rights).
• Representations and Warranties: These will not survive closing; however, BNL OP will purchase a representations and warranties insurance policy.

Employment: Senior executives (Czarnecki, Albano, Moragne, Cutt) entered into new employment agreements effective at Closing.

Investor Verification Checklist

• Transaction Closing: Verify if the Mergers close on or about January 2, 2020, as targeted.
• IPO Status: Monitor for the filing of a Form S-11 or announcement of an IPO, which impacts earnout calculations and redemption rights.
• Earnout Milestones: Track the Company's VWAP (if IPO occurs) or AFFO per share (if no IPO) against the specific thresholds ($90.00-$100.00 VWAP or $5.85-$6.70 AFFO) to determine the $75 million earnout payout.
• Unrelated Businesses: Confirm the separation or sale of businesses unrelated to the Company's management prior to closing.
• Share Repurchases: Verify the execution of the pre-closing redemption of Manager-held shares at $85.00 per share.