Invesque Inc. Announces Receipt of Shareholder Approval by Way of Consents and Private Placement of Preferred Shares

TORONTO, ONTARIO, JULY 23, 2019 – Invesque Inc. (TSX: IVQ-U) (“Invesque” or the “Corporation”) today announced that it that it has obtained consents from shareholders of the Corporation (“Shareholders”) holding, in the aggregate, more than 50% of the Corporation’s issued and outstanding common shares (“Shares”), approving the issuance of securities to the sellers in connection with the previously announced acquisition of Commonwealth Senior Living and 20 of its communities and in connection with the Private Placement (as defined below). The Corporation also announced that it has entered into subscription agreements (collectively, the “Subscription Agreement”) with certain funds managed by Magnetar Financial LLC (collectively, “Magnetar”) in respect of the issuance to Magnetar of Class A Series 4 convertible preferred shares of the Corporation (the “Preferred Shares”) for aggregate proceeds of US$14,550,000 (the “Private Placement”).

The Commonwealth Transaction

As previous disclosed, a wholly-owned, indirect subsidiary of the Corporation, entered into a definitive agreement (the “Purchase Agreement”) dated May 21, 2019 to acquire the Commonwealth Senior Living portfolio (the “Transaction”). The purchase price to be paid under the Transaction is approximately US$340.4 million (the “Purchase Price”), which will be satisfied in part through the issuance of approximately US$67.2 million of preferred limited liability company units (“Preferred Units”) of an indirect subsidiary of the Corporation (“Foxhound LLC”). The Preferred Units are exchangeable for Shares on and subject to the terms of the limited liability company operating agreement of Foxhound LLC (the “LLC Agreement”) and an exchange agreement to be entered into by the parties.  The remainder of the consideration under the Transaction will consist of the assumption or repayment of existing indebtedness and cash, a portion of which may be raised through the Private Placement. The Purchase Price is subject to certain adjustments relating to the amount of working capital and indebtedness on closing. Under the terms of the Transaction, the sellers may also become entitled to one or more earnout payments (each, an “Earnout Payment”) in certain circumstances, which will be payable in a combination of cash and Preferred Units. The Commonwealth Senior Living portfolio will be acquired in two tranches, with the first tranche expected to close in August 2019 (the “Initial Closing”) and the second tranche expected to close in October 2019.

Any Preferred Units issued to the sellers on the closing of the Transaction or on account of any working capital adjustment or Earnout Payment will initially be exchangeable for Shares at a price of US$9.75 (representing an approximately 46% premium to the closing price of the Shares on the TSX on May 17, 2019, the trading day prior to the entering into of the Purchase Agreement).

Principal Terms of the Preferred Units

A holder of Preferred Units will have the right in certain circumstances to exchange all or any portion of the Preferred Units then held by such holder for Shares in an amount in respect of each Preferred Unit equal to (i) the sum of (A) an accrued and unpaid preferred return of 6.5%, which amount shall increase annually to a maximum of 10% (and, in certain circumstances depending on the number Preferred Units redeemed prior to certain dates, in excess of such 10% amount) (the “Accrued Preferred Return”) in respect of such Preferred Unit, plus (B) the unreturned initial capital contribution in respect of such Preferred Unit (such sum, the “Cash Amount”), divided by (ii) US$9.75 (which amount shall be adjusted based on customary anti-dilution adjustments).

Foxhound LLC may under certain circumstances redeem Preferred Units of one or more holders of Preferred Units for an amount specified in the LLC Agreement. Upon the occurrence of certain events (including, without limitation, if Invesque has an insolvency event or there is a change of control of Invesque) a majority of the holders of Preferred Units have the right to require the Foxhound LLC to redeem all, but not less than all, of the outstanding Preferred Units for an amount specified in the LLC Agreement.

Any distributions by Foxhound LLC are payable (i) first, to holders of Preferred Units, pro rata, until the holders have received distributions equal to the Accrued Preferred Return on the Preferred Units, (ii) second, to holders of Preferred Units, pro rata, until the holders have received distributions equal in amount to the Earnout Payment (if applicable) to the extent not otherwise paid, (iii) third, to the holders of Preferred Units towards any elected or required redemption of Preferred Units pursuant to certain provisions of the LLC Agreement and (iv) thereafter, to a subsidiary of Invesque, as holder of the common units of Foxhound LLC. Holders of Preferred Units will not have the right to receive any dividends that are declared only with respect to the Shares, and the terms of the LLC Agreement do not in any way restrict the declaration and payment of any dividends on the Shares.

Upon the occurrence of a Dissolution Event (as such term is defined in the LLC Agreement), after determining that all known debts and liabilities of Foxhound LLC in the process of winding-up, including any debts and liabilities to members who are creditors of Foxhound LLC, have been paid or adequately provided for, Foxhound LLC shall distribute the remaining assets to the members as follows: (i) first, to each holder of Preferred Units, pro rata in respect of such holder’s Preferred Units, until such holder has received distributions equal to the Accrued Preferred Return on such holder’s Preferred Units; (ii) second, as a return of capital contributions, to each holder of Preferred Units pro rata in respect of such holder’s Preferred Units, in an aggregate amount equal to such holder’s unreturned capital contributions with respect to such Preferred Units;  (iii) third, to each holder of Preferred Units, pro rata in respect of such holder’s Preferred Units, until such holder has received distributions equal to its proportionate interest in any unpaid Earnout Payment; and  (iv) thereafter, to a subsidiary of Invesque, as the holder of common units of Foxhound LLC.

The Preferred Units do not carry voting rights in respect of the Corporation.  Holders of Shares (received on an exchange of the Preferred Units) are entitled to one vote per Share at meetings of Shareholders of the Corporation.

Private Placement

The Corporation has entered into subscription agreements (collectively, the “Subscription Agreement”) with Magnetar in respect of a private placement to Magnetar of 1,538,461 Preferred Shares at a price per share of US$9.4575 (the “Issue Price”). Magnetar is an insider of the Corporation, as funds managed by Magnetar Financial LLC hold 13,566,920 Shares as of June 30, 2019, representing approximately 25.10% of the outstanding Shares as of June 30, 2019. The Preferred Shares will be convertible into Shares at a conversion price of US$9.75. The other terms of the Preferred Shares will be substantially similar to the terms of the Corporation’s Class A Convertible Preferred Shares that are currently outstanding and are described in the Corporation’s Annual Information Form filed on SEDAR at www.sedar.com, except that (i) the liquidation preference of the Preferred Shares will accrue at a rate of 9.80% for the first 24 months following the issuance of the Preferred Shares and 12.25% thereafter, (ii) the prepayment penalty on liquidation, mandatory conversion and redemption will be 1% if the applicable event occurs within the first six months after issuance of the Preferred Shares and 0.5% if the applicable event occurs between 6 months and one year following the issuance of the Preferred Shares,  and (iii) the Preferred Shares will contain a limitation on converting the Preferred Shares, without prior approval of the Toronto Stock Exchange (“TSX”), if such conversion would result in the issuance of Shares equal to or exceeding 10% of the Shares outstanding on the date the Preferred Shares are issued.  Accordingly, as of the time of closing of the Private Placement, a maximum of 5,411,373 Shares, representing 10% of the Shares outstanding as of June 30, 2019, will be issuable upon conversion of the Preferred Shares. The proceeds of the Private Placement will be used to fund a portion of the Purchase Price (defined above) in connection with the Transaction and for general corporate purposes. The Private Placement will be subject to customary closing conditions.

Dilution As a Result of the Transaction

The Corporation expects that Preferred Units having a total value of up to US$73,200,000 (the “Estimated Preferred Units”) may be issued to the sellers in connection with the Transaction, being comprised of (A) Preferred Units having a value of up to US$67,200,000 to be issued to the sellers, (B) Preferred Units having a value of up to an additional US$1,000,000 that may be issued to the sellers on account of working capital adjustments, and (C) Preferred Units having a value of up to an additional US$5,000,000 that may be issued to the sellers on account of the Earnout Payments.  Assuming the exchange of all such Estimated Preferred Units into Shares, the Sellers would receive 7,507,692 Shares.

The number of Shares into which the Preferred Units are exchangeable will adjust over time in accordance with the terms of the LLC Agreement based on the Accrued Preferred Return on the Preferred Units. The following table illustrates the effect of the accreting preferred return on the number of Shares issuable on an exchange of the Estimated Preferred Units over time, and (ii) the percentage such Shares represent of the outstanding Shares as of May 17, 2019, calculated on a non-diluted basis.

Years After Issuance(1) Accrued Preferred Return(2)
(US$)
Shares Issuable on Exchange(3) Percentage of Outstanding Shares
(as of June 30, 2019)(4)
0 $0 7,507,692 14.10%
1 $1,258,531 8,007,716 14.80%
2 $1,342,351 8,541,043 15.78%
3 $1,431,754 9,109,890 16.83%
4 $1,527,111 9,716,622 17.96%
5 $1,826,807 10,440,462 19.29%
10 $4,932,577 17,231,943 31.84%
(1) Assumes that Preferred Units having a value of US$73,200,000 are issued in connection with the Transaction. This figure includes (i)Preferred Units having a value of US$67,200,000 currently expected to be issued on the Closings, plus (ii) Preferred Units having a value of up to US$1,000,000 currently expected to be issued on account of working capital adjustments, and (iii) Preferred Units having a value of up to US$5,000,000 currently expected to be issued on account of the Earnout Payments (assuming such Preferred Units are issued on the Initial Closing).
(2) Assumes no amounts are returned to holders of Preferred Units on account of such holders’ initial capital contributions.
(3) Assumes an Adjustment Factor equal to 1.0.
(4) Based on 54,113,731 Shares outstanding as of June 30, 2019.
(5) The Corporation believes that it is unlikely that the Preferred Units will remain outstanding for more than 10 years. Given the nature of the security and the Sellers, the Corporation believes that the Preferred Units will be converted, redeemed or otherwise terminated within 10 years following the date of the LLC Agreement.

The term of the LLC Agreement is indefinite and, consequently, the Preferred Units may be exchanged after the period contemplated in the table above, in which case the Accrued Preferred Return and number and percentage of Shares issuable on exchange may increase further.

Based on the assumptions in the table above, in the event that the Estimated Preferred Units are exchanged on the date that is 10 years following issuance, the maximum number of Shares issuable on an exchange of the Preferred Units is 17,231,943, comprising approximately 31.84% of the Corporation’s outstanding Shares, calculated on a non-diluted basis, as of June 30, 2019 and 24.15% of the Corporation’s outstanding Shares after giving effect to the Transaction and the exchange of all such Preferred Units.

In addition, after taking into account an additional 5,411,373  Shares, being the maximum number of Shares issuable upon conversion of the Preferred Shares (issued as part of the Private Placement), the maximum number of Shares issuable in connection with the Transaction is 22,643,316, comprising approximately 41.84% of the Corporation’s outstanding Shares, calculated on a non-diluted basis, as of June 30, 2019 and 29.50% of the Corporation’s outstanding Shares after giving effect to the Transaction and the exchange of all Preferred Units and the conversion of all of the Preferred Shares.

Upon the completion of the Transaction, to the knowledge of the Corporation, the only Shareholders of the Corporation that would hold in excess of 10% of the then-outstanding Shares are (i) certain affiliates of Tiptree Inc. that collectively hold 16,632,670 Shares (representing approximately 26.28% of the outstanding Shares on a post-Transaction basis (calculated on a non-diluted basis, but assuming the exchange of the Estimated Preferred Units on the date of the Initial Closing and the conversion of the Preferred Shares on the date of the Initial Closing)), and (ii) certain funds managed by Magnetar that collectively hold 13,566,920 Shares and 7,560,137 convertible preferred shares convertible into  8,183,308 Shares as of June 30, 2019 and 1,538,461 Preferred Shares convertible into 1,538,461 Shares on the date of the Initial Closing (representing, in the aggregate, approximately 32.59% of the outstanding Shares on a post-Transaction basis following the Transaction (calculated on a non-diluted basis, but assuming the exchange of the Estimated Preferred Units on the date of the Initial Closing and the conversion of the Preferred Shares on the date of the Initial Closing and after giving effect to the conversion of Magnetar’s convertible preferred shares)).

Requirement for TSX Approval

As a result of the accreting nature of the preferred return, the number of Shares into which the Preferred Units are exchangeable will adjust over time in accordance with the terms of the LLC Agreement.  Consequently, the exchange of the Preferred Units may in the future result in the issuance of greater than 25% of the outstanding Shares as of May 17, 2019 (the trading day prior to the entering into of the Purchase Agreement), calculated on a non-diluted basis, and therefore be subject to Shareholder approval pursuant to section 611(c) of the TSX Corporation Manual. In addition, for the purposes of determining the number of Shares issuable in connection with the Transaction, any Shares that may be issued upon conversion of the Preferred Shares (issued as part of the Private Placement) must be included in the number of Shares required to be approved by Shareholders under the applicable TSX rules.  The Corporation has obtained such approvals through the solicitation of written consents as permitted under section 604(d) of the TSX Corporation Manual from beneficial Shareholders owning, in the aggregate, more than 50% of the outstanding Shares.

The Transaction has been negotiated at arm’s length, and is subject to certain customary conditions to closing including the approval of the TSX.  To the knowledge of the Corporation (i) the seller’s are arm’s-length to the Corporation, (ii) the subscriber of the Private Placement, being Magnetar, is an insider of the Corporation, (iii) there are no voting trust or similar agreements in respect of the Shares to be entered into in connection with the Transaction, and (iv) the Transaction will not materially affect control of the Corporation.

About Invesque

Invesque is a health care real estate company with an investment thesis centered around the opportunity created by the global aging demographic trend. Invesque currently capitalizes on this opportunity by investing in a highly diversified portfolio of income generating health care properties located across the United States and Canada through long-term absolute net leases, joint ventures, and development capital. For more information, visit www.invesqueinc.flywheelstaging.com.

For further information

Vineet Bedi
SVP – Head of Capital Markets and Corporate Strategy
(317) 643-6778

Forward-looking Information

This news release may contain forward-looking statements (within the meaning of applicable securities laws) relating to the business of the Corporation and the environment in which it operates. Forward-looking statements are identified by words such as “believe”, “anticipate”, “project”, “expect”, “intend”, “plan”, “will”, “may” “estimate”, “pro forma” and other similar expressions. These statements are based on the Corporation’s expectations, estimates, forecasts and projections and include, without limitation, statements regarding the completion of the Transaction and Private Placement.  The forward-looking statements in this news release are based on certain assumptions, including that that all conditions to completion of the Transaction and Private Placement will be satisfied or waived, and that the Transaction and Private Placement will be completed. They are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the conditions to the completion of the Transaction or Private Placement will not be satisfied or waived or that the Transaction or Private Placement will otherwise not be completed, as well as the factors discussed under the heading “Risk Factors” in the Corporation’s annual information form available at www.sedar.com. There can be no assurance that forward-looking statements will prove to be accurate as actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, the Corporation assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.