Invesque Inc. Announces Upsize of Previously Announced Private Placement and Receipt of Shareholder Approval by Way of Consents

TORONTO, ONTARIO, FEBRUARY 2, 2018 - Invesque Inc. (TSX: HLP-U) ("Invesque" or the "Company") today announced an upsize to its previously announced private placement (the "Private Placement") of class A convertible preferred shares to certain funds managed by Magnetar Financial LLC (collectively, "Magnetar"). The Company also announced that it has obtained consents from disinterested shareholders of the Company ("Shareholders") holding, in the aggregate, more than 50% of the Company's issued and outstanding common shares ("Common Shares") (excluding Common Shares held by Magnetar), approving the Private Placement.

Upsize of Private Placement

The Private Placement has been structured in multiple tranches.  The first tranche (the "Initial Private Placement"), which did not require shareholder approval, closed on December 22, 2017 (the "Series 1 Effective Date") and resulted in the issuance of 2,802,009 Class A Series 1 Convertible Preferred Shares (the "Series 1 Preferred Shares") to Magnetar at a price per share of US$9.4575, being a 3% discount to the initial liquidation preference of such shares of US$9.75, for aggregate gross proceeds of US$26,500,000.

The second tranche of the Private Placement (the "Second Private Placement") originally contemplated the issuance of 2,907,745 Class A Series 2 Convertible Preferred Shares (the "Series 2 Preferred Shares") to Magnetar at a price per share of US$9.4575, being a 3% discount to the initial liquidation preference of such shares of US$9.75, for aggregate proceeds of US$27,500,000.  Pursuant to waiver and amendments (collectively, the "Waiver and Amendment") between the Company and Magnetar dated February 1, 2018, the parties agreed to (among other things) increase the number of Series 2 Preferred Shares to be issued to Magnetar under the Second Private Placement from 2,907,745 to 3,172,086 (the "Upsized Preferred Shares") (resulting in an increase in the aggregate gross proceeds from the Second Private Placement from US$27,500,000 to approximately US$30,000,000).

In addition, pursuant to the Waiver and Amendment, Magnetar has agreed to subscribe for 1,586,042 Class A Series 3 Convertible Preferred Shares ("Series 3 Preferred Shares", and together with the Series 1 Preferred Shares and the Series 2 Preferred Shares, the "Preferred Shares") at a price per share of US$9.4575, being a 3% discount to the initial liquidation preference of such shares of US$9.75, for aggregate gross proceeds of approximately US$15,000,000, on substantially the same terms as the other tranches of the Private Placement (the "Third Private Placement"). The terms of the Series 3 Preferred Shares issuable in connection with the Third Private Placement will be substantially similar to the Series 1 Preferred Shares and Series 2 Preferred Shares.

Requirement for Minority Approval and Receipt of Shareholder Consents

As of December 21, 2017 (the day prior to the entering into of the Subscription Agreement (as defined below), to the knowledge of the Company, Magnetar held 13,190,383 Common Shares representing approximately 40.7% of the outstanding Common Shares on a non-diluted basis. Magnetar is therefore an "insider" of the Company as defined in the TSX Company Manual on the basis that it beneficially owns or controls securities of the Company carrying more than 10% of the voting rights attached to all of the Company's outstanding voting securities.

The issuance to insiders of the Company of securities convertible into Common Shares that represent more than 10% of the outstanding Common Shares of the Company on a non-diluted basis is subject to disinterested Shareholder approval pursuant to section 607(g)(ii) and section 604(a)(ii) of the TSX Company Manual.  In addition, (i) the number of Common Shares issuable on a conversion of the Preferred Shares may exceed 25% of the Common Shares outstanding on December 21, 2017, and (ii) the Series 2 Preferred Shares and Series 3 Preferred Shares may, at the time of issuance, be issued at a discount to the market price of the Common Shares that exceeds the maximum allowable discount.  Accordingly, the Series 1 Conversion (as defined below), the Second Private Placement and the Third Private Placement are subject to shareholder approval pursuant to section 607(g)(i) of the TSX Company Manual. The receipt of Shareholder approval in accordance with the requirements of the TSX is also a condition to closing of the Second Private Placement and the Third Private Placement under the Subscription Agreement (as amended by the Waiver and Amendment).

The Company has obtained consents from disinterested Shareholders holding, in the aggregate, more than 50% of the Company's Common Shares (excluding Common Shares held by Magnetar) approving the issuance of Common Shares in the event the whole or any part of the Series 1 Preferred Shares outstanding are proposed to be converted for Common Shares exceeding 3,234,678 Common Shares (being 10% of the total number of Common Shares outstanding as of December 21, 2017) (the "Series 1 Conversion"). The Company has also obtained Shareholder consents in respect of the issuance to Magnetar of the Upsized Preferred Shares, the Additional Preferred Shares and any Common Shares issuable on the exercise thereof. Notwithstanding the foregoing, the Company has agreed to undertake to the TSX not to effect a Mandatory Conversion (as defined herein) of the Series 1 Preferred Shares without the prior approval of the TSX if the market price of the Common Shares is less than US$6.00 (as equitably adjusted to reflect any stock split, stock dividend, consolidation, reorganization, reclassification or other similar event involving the Common Shares) at either the time notice of the proposed conversion is given, or at the time of the proposed conversion.

The Company has relied on the exemption in section 604(d) of the TSX Company Manual to obtain Shareholder approval by way of written consents from disinterested holders of more than 50% of the Company's Common Shares (excluding Common Shares held by Magnetar), rather than at a meeting of Shareholders.  In accordance with the TSX Company Manual, the Series 1 Conversion and the closing of the Second Private Placement and the Third Private Placement will be effected no earlier than five business days from today's date.

None of the Series 1 Conversion, the Second Private Placement or the Third Private Placement is expected to have a material effect on control of the Company as Magnetar already owns or controls greater than 20% of the outstanding Common Shares.

Principal Terms of the Preferred Shares

The Preferred Shares are non-voting, and are initially convertible into Common Shares on a one for one basis at the option of the holder based on an initial liquidation preference and conversion price of US$9.75 (a "Voluntary Conversion").  The Preferred Shares are being issued at a price per share of US$9.4575, a 3% discount to the initial liquidation preference of such shares and a premium of approximately 13% to the market price (as defined in the Toronto Stock Exchange ("TSX") Company Manual) of the Common Shares on December 21, 2017. 

Following issuance, the liquidation preference of the Preferred Shares accretes at a rate of 5.65% per annum, compounded quarterly (the "Liquidation Amount"), increasing the number of Common Shares into which each Preferred Share is convertible, and is subject to further adjustments in certain circumstances.  Holders of Preferred Shares will be entitled to dividends on the Preferred Shares if, as and when such dividends are expressly declared by the board of directors.  There are currently no dividends paid on the Preferred Shares and the Company does not currently intend to declare dividends on the Preferred Shares. From and after the occurrence of certain "trigger events" (e.g., a reorganization, merger, amalgamation, or sale of substantially of the assets of the Company) holders of Preferred Shares shall be entitled to participate in all dividends and other distributions that are declared and paid on Common Shares as if each Preferred Share had been mandatorily converted into Common Shares (as described below).

Upon the occurrence of a liquidation, dissolution or winding up of the Company (a "Liquidation Event"), each Preferred Share is entitled to an amount equal to the greater of (i) the Liquidation Amount, and (ii) the amount that would have been received if such Preferred Share had instead been mandatorily converted (as described below). Subject to certain conditions, the Company may redeem the Preferred Shares at any time following issuance for an amount equal to the Liquidation Amount and may also require the conversion of the Preferred Shares (a "Mandatory Conversion") at a price equal to the lesser of US$9.75 and the market price (as defined in the TSX Company Manual) of the Common Shares, provided that the Company will not be permitted to mandatorily convert the Preferred Shares unless (i) the market price of the Common Shares at such time is equal to or greater than US$10.50, or (ii) the holder of such Preferred Share consents in writing.  Pursuant to the Waiver and Amendment, the Company has agreed with Magnetar that it will not effect a Mandatory Conversion prior to the date that is two years following the issuance of the relevant Preferred Shares (unless otherwise agreed by Magnetar).

Notwithstanding the foregoing, the terms governing the Series 2 Preferred Shares and Series 3 Preferred Shares will provide that the Company not be permitted to mandatorily convert such Preferred Shares without prior TSX approval where the market price of the Common Shares is less than US$6.00 (as equitably adjusted to reflect any stock split, stock dividend, consolidation, reorganization, reclassification or other similar event) at the time of the notice of the proposed conversion is given, or at the time of the proposed conversion (the "Floor Price Condition").  As the Floor Price Condition was not reflected in the terms governing the Series 1 Preferred Shares, the Company has agreed to deliver an undertaking to the TSX agreeing not to effect a Mandatory Conversion of the Series 1 Preferred Shares without the prior approval of the TSX if the market price of the Common Shares is less than US$6.00 (as equitably adjusted to reflect any stock split, stock dividend, consolidation, reorganization, reclassification or other similar event) at the time notice of the proposed conversion is given or at the time of the proposed conversion.  A copy of the undertaking will be available under the Corporation's profile on SEDAR at www.sedar.com.

If the Preferred Shares are redeemed or mandatorily converted in the first year following issuance, or in the event of a Liquidation Event in the first year following issuance, the liquidation preference of such shares will include a 4% premium to the initial liquidation preference.  This premium will be reduced by 1% per year in respect of redemptions or mandatory conversions in the second, third or fourth years following issuance. 

The number of shares into which the Preferred Shares are convertible is subject to customary anti-dilution adjustments upon the occurrence of certain events including stock splits, stock dividends or distributions, the issuance of certain rights, options and warrants, or special dividends outside of the Company's dividend distribution policy to holders of substantially all holders of Common Shares. 

Additional Information Regarding the Private Placement

After giving effect to the issuance of the Series 2 Preferred Shares and the Series 3 Preferred Shares, Magnetar will hold a total of 7,560,137 Preferred Shares (including the Series 1 Preferred Shares issued under the Initial Private Placement), initially convertible at its option on a one-for-one basis into a maximum of 7,560,137 Common Shares. This represents approximately 23.37% of the 32,346,782 outstanding Common Shares as of December 21, 2017 on a non-diluted basis.

The number of Common Shares into which the Preferred Shares held by Magnetar are convertible will adjust over time as a result of increases to the Liquidation Amount and, to the extent that there are any increases in the dividends payable by the Corporation on the Common Shares, as a result of such increases (see "Principal Terms of the Preferred Shares"). The following table illustrates the effect of (i) such increases to the number of Common Shares issuable on a voluntary conversion or Mandatory Conversion of the Preferred Shares, and (ii) the percentage such Common Shares represent of the total number of Common Shares outstanding as of December 21, 2017.

Years After
Issuance

Annual
Dividend(1)

Liquidation
Amount

Common
Shares
Issuable on
Voluntary
Conversion

Percentage of
Common
Shares
Issuable on
Voluntary
Conversion
(Non-Diluted)

Common
Shares
Issuable on
Mandatory
Conversion(2)

Percentage of
Common
Shares Issuable
on Mandatory
Conversion
(Non-Diluted)

0 Years

US$0.740

US$9.75

7,560,137

23.37%

12,776,632

39.50%

1 Year

US$0.742

US$10.31

7,996,420

24.72%

13,362,740

41.31%

2 Years

US$0.744

US$10.91

8,459,151

26.15%

13,991,825

43.26%

3 Years

US$0.746

US$11.54

8,950,003

27.67%

14,666,607

45.34%

4 Years

US$0.748

US$12.21

9,470,759

29.28%

15,389,983

47.58%

5 Years

US$0.750

US$12.93

10,023,320

30.99%

16,287,895

50.35%

10 Years

US$0.760

US$17.20

13,339,013

41.24%

21,675,896

67.01%

(1) The dividend rates set out in the table are for illustrative purposes only.  The Corporation has no present intention of increasing the dividend paid on the Common Shares.

(2) Reflects the payment of the prepayment penalty in the case of a Mandatory Conversion in the first four years after issuance.

 

There is no term on the Preferred Shares and, consequently, the Preferred Shares may be converted after the period contemplated in the table above, in which case the Liquidation Amount and number and percentage of Common Shares issuable on conversion may increase further.

Based on the assumptions in the table above, in the event that the Preferred Shares issued are voluntarily converted on the date that is 10 years following issuance, the maximum number of Common Shares issuable on a voluntary conversion of the Preferred Shares is 13,339,013. Together with the 13,190,383 Common Shares held by Magnetar as of the Series 1 Effective Date, Magnetar would hold a total of 26,529,396 Common Shares.  This represents (i) approximately 58.1% of the Common Shares outstanding as of the Series 1 Effective Date, after giving effect to the voluntary conversion of the Preferred Shares, and (ii) approximately 42.6% of the outstanding Common Shares as of February 1, 2018, after giving effect to the voluntary conversion of the Preferred Shares.

Assuming a Mandatory Conversion of the Preferred Shares with Magnetar's consent at a conversion price of US$6.00, a total of 21,675,896 Common Shares would be issuable on a Mandatory Conversion of the Preferred Shares after 10 years, resulting in Magnetar holding a total of 34,866,279 Common Shares (when aggregated with the 13,190,383 Common Shares held by Magnetar as of the Series 1 Effective Date).  This represents (i) approximately 64.5% of the Common Shares outstanding as of the Series 1 Effective Date, after giving effect to the Mandatory Conversion of the Preferred Shares, and (ii) approximately 49.3% of the outstanding Common Shares as of February 1, 2018, after giving effect to the Mandatory Conversion of the Preferred Shares.

Subscription Agreement

The Private Placement is subject to the terms of the subscription agreements entered into between the Company and Magnetar on December 22, 2017 (collectively, the "Subscription Agreement"). The Subscription Agreement was negotiated at arm's length and contains customary representations and warranties of each of the Corporation and Magnetar, and is also subject to customary conditions to closing, including those described herein.  The Subscription Agreement may be terminated in the event that the Second Private Placement does not close by April 30, 2018 or the Third Private Placement does not close by May 31, 2018 (provided in each case that a breach of the Subscription Agreement by the terminating party has not been the cause of, or resulted in, the failure of the Second Private Placement to close by such date).

The full texts of the Subscription Agreement and the Waiver and Amendment have been filed and are available electronically under the Corporation's profile on SEDAR at www.sedar.com.

Registration Rights Agreement

As previously announced, in connection with the Private Placement, the Corporation and Magnetar have entered into a registration rights agreement (the "Registration Rights Agreement"), pursuant to which the Corporation has granted Magnetar certain customary demand and "piggy-back" registration rights in respect of Magnetar's Common Shares, including any Common Shares acquired by Magnetar upon a conversion of the Preferred Shares.

The full text of the Registration Rights Agreement has been filed and is available electronically under the Corporation's profile on SEDAR at www.sedar.com.

About Invesque

Invesque is a health care real estate company with a portfolio of high quality properties located in the United States and Canada and operated by the best-in-class senior living and care operators. Our mission is to create long-term shareholder value while providing an investment opportunity that matters. For more information visit www.invesque.com.

Forward-looking Information

This news release may contain forward-looking statements (within the meaning of applicable securities laws) relating to the business of the Company 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 Company's expectations, estimates, forecasts and projections and include, without limitation, statements regarding the completion of the Second Private Placement and Third Private Placement.  The forward-looking statements in this news release are based on certain assumptions, including that that all conditions to completion of the Second Private Placement and Third Private Placement will be satisfied or waived, and that the Second Private Placement and Third 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 Second Private Placement and Third Private Placement will not be satisfied or waived or that the Second Private Placement and Third Private Placement will otherwise not be completed, as well as the factors discussed under the heading "Risk Factors" in the Company'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 Company assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

SOURCE Invesque Inc.

 

For further information: Scott White, CEO, swhite@invesque.com, (201) 927-4758