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Item 1.01
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Entry into a Material Definitive Agreement.
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Purchase Agreement
On February 15, 2019, Innovative Industrial
Properties, Inc. (the "Company"), IIP Operating Partnership, LP, the operating partnership subsidiary of the Company
(the "Operating Partnership"), and each of the Operating Partnership's subsidiaries (the "Subsidiary Guarantors")
entered into a purchase agreement (the "Purchase Agreement") with BTIG, LLC, as representative of the initial purchasers
(collectively, the "Initial Purchasers"), pursuant to which the Operating Partnership agreed to sell, and the Initial
Purchasers severally agreed to purchase, $125.0 million aggregate principal amount of the Operating Partnership's 3.75% Exchangeable
Senior Notes due 2024 (the "Notes") in a private offering (the "Offering"). The Operating Partnership also
granted the Initial Purchasers a 30-day option to purchase up to an additional $18.75 million aggregate principal amount of the
Notes in the Offering. The Offering closed on February 21, 2019.
The sale of the Notes generated net proceeds
of approximately $120.3 million, after deducting the Initial Purchasers' discounts and estimated offering expenses payable by the
Operating Partnership. The Operating Partnership intends to use the net proceeds from the Offering to invest in specialized
industrial real estate assets that support the regulated medical-use cannabis cultivation and processing industry that are consistent
with its investment strategy, and for general corporate purposes.
Under the terms of the Purchase Agreement,
the Company and the Operating Partnership have agreed to jointly and severally indemnify the Initial Purchasers against certain
liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"), and other federal
or state statutory laws or regulations. The Purchase Agreement contains customary representations, warranties and covenants, the
terms and conditions for the sale of the Notes to the Initial Purchasers, contribution obligations and other terms and conditions
customary in agreements of this type. This description of the Purchase Agreement is qualified in its entirety by reference to the
text of the Purchase Agreement, which is filed as Exhibit 1.1 to this Current Report on Form 8-K and is incorporated herein by
reference.
The Notes, including the guarantees, and
the shares of the Company's common stock, $0.001 par value per share (the "Common Stock"), issuable upon exchange of
the Notes, have not been registered under the Securities Act and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements. The Operating Partnership offered and sold the Notes to the Initial
Purchasers in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. The Initial Purchasers
then sold the Notes to persons reasonably believed to be qualified institutional buyers (as defined in the Securities Act) pursuant
to the exemption from registration provided by Rule 144A under the Securities Act. This Current Report on Form 8-K does not constitute
an offer to sell, or a solicitation of an offer to buy, any security and shall not constitute an offer, solicitation or sale in
any jurisdiction in which such offer, solicitation or sale would be unlawful.
Indenture and the Notes
The Notes were issued pursuant to an indenture,
dated as of February 21, 2019 (the "Indenture"), by and among the Operating Partnership, as issuer, the Company and the
Subsidiary Guarantors, as guarantors, and GLAS Trust Company, LLC, as trustee (the "Trustee").
The Notes are the Operating Partnership's
senior unsecured obligations and rank senior in right of payment to any of the Operating Partnership's future indebtedness that
is expressly subordinated in right of payment to the Notes, equal in right of payment to the Operating Partnership's future senior
unsecured and unsubordinated indebtedness, effectively junior in right of payment to any of the Operating Partnership's secured
indebtedness to the extent of the value of the assets securing such indebtedness and structurally junior to any indebtedness and
other liabilities of subsidiaries of the Operating Partnership that are not subsidiary guarantors of the Operating Partnership,
if any. The Notes are fully and unconditionally guaranteed by the Company and the Subsidiary Guarantors.
The Notes bear interest at a rate of 3.75%
per annum, which is payable semi-annually in arrears on March 15 and September 15 of each year, beginning September 16, 2019, until
the maturity date of February 21, 2024.
The Notes are exchangeable at any time
prior to the close of business on the second scheduled trading day immediately preceding the maturity date for cash, shares of
Common Stock or a combination of cash and shares of Common Stock, at the election of the Operating Partnership, based on an initial
exchange rate of 14.37298 shares of Common Stock per $1,000 principal amount of Notes (equivalent to an initial exchange price
of approximately $69.575 per share of Common Stock), subject to adjustment of the exchange rate under certain circumstances. In
addition, following the occurrence of a make-whole fundamental change, as defined in the Indenture, the Operating Partnership will,
in certain circumstances, increase the exchange rate for a holder that elects to exchange Notes in connection with such make-whole
fundamental change.
Subject to certain exceptions, the Company's
charter restricts ownership of (i) more than 9.8% in value or in number of shares, whichever is more restrictive, of its outstanding
shares of Common Stock, or (ii) more than 9.8% in value of its outstanding capital stock, in order to protect its status as a real
estate investment trust for U.S. federal income tax purposes, among other purposes. Notwithstanding any other provision of the
Notes, no holder of Notes will be entitled to receive Common Stock following exchange of such Notes to the extent that receipt
of Common Stock would cause such holder (after application of certain constructive ownership rules) to exceed the ownership limits
contained in the Company's charter.
The Operating Partnership may not
redeem the Notes prior to maturity. No sinking fund will be provided for the Notes.
Upon the occurrence of a fundamental
change, as defined in the Indenture, subject to certain conditions, holders may require the Operating Partnership to
repurchase the Notes in whole or in part for cash at a fundamental change repurchase price equal to 100% of the principal amount
of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase
date.
Each of the following is an event of default
with respect to the Notes:
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(1)
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default in any payment of interest on any Note when due and payable, and the default continues for a period of 30 days;
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(2)
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default in the payment of principal of any Note (including the fundamental change repurchase price) when due and payable on
the maturity date, upon required repurchase, upon declaration of acceleration or otherwise;
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(3)
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failure by the Operating Partnership or the Company to comply with its obligation to exchange the Notes for cash, shares of
Common Stock or a combination of cash and shares of Common Stock, as the case may be, in accordance with the Indenture upon exercise
of a holder's exchange right, which failure continues for five business days;
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(4)
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failure by the Operating Partnership to comply with its obligations related to a merger, consolidation or sale of assets;
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(5)
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failure by the Operating Partnership to provide timely notice in connection with a fundamental change;
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(6)
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failure by the Operating Partnership for 60 days after written notice from the Trustee or the holders of at least 25% in principal
amount of the Notes then outstanding has been received by the Operating Partnership to comply with any of the Operating Partnership's
agreements contained in the Notes or the Indenture (other than a covenant or warranty a default in whose performance or whose breach
is elsewhere specifically provided for or which does not apply to the Notes), which notice shall state that it is a "Notice
of Default" under the Indenture;
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(7)
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failure by the Operating Partnership to pay beyond any applicable grace period, or resulting in the acceleration of, indebtedness
of the Operating Partnership or any of its subsidiaries where the aggregate principal amount with respect to which the default
has occurred is greater than $10 million (or its foreign currency equivalent at the time); or
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(8)
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certain events of bankruptcy, insolvency, or reorganization of the Company, the Operating Partnership or any significant subsidiary
(as defined in Article 1, Rule 1-02 of Regulation S-X) of the Company or the Operating Partnership.
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If an event of default other than an event
of default arising under clause (8) above occurs and is continuing, the Trustee by notice to the Operating Partnership, or the
holders of at least 25% in principal amount of then outstanding Notes by notice to the Operating Partnership and the Trustee, may,
and the Trustee at the request of such holders shall, declare 100% of the principal of, and accrued and unpaid interest, if any,
on, all then outstanding Notes to be due and payable. In addition, upon an event of default arising under clause (8) above with
respect to the Operating Partnership, 100% of the principal of and accrued and unpaid interest on the Notes will automatically
become due and payable. Upon any such acceleration, the principal of and accrued and unpaid interest, if any, on the Notes will
be due and payable immediately.
If, at any time during the six-month period
beginning on, and including, the date that is six months after the last date of original issuance of the Notes, the Company fails
to timely file any document or report that it is required to file pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or the Notes or any shares of Common Stock issuable upon exchange of the Notes
are not otherwise freely tradable pursuant to Rule 144 under the Securities Act ("Rule 144"), subject to certain limitations
regarding holders of the Notes who are the Operating Partnership's current or prior affiliates, the Operating Partnership will
pay additional interest on the Notes equal to 0.5% per annum of the principal amount of Notes outstanding. Further, if, and for
so long as, the restrictive legend on the Notes has not been removed, the Notes are assigned a restricted CUSIP number or the Notes
and any shares of Common Stock issuable upon exchange of the Notes are not otherwise freely tradable pursuant to Rule 144, subject
to certain limitations regarding holders of the Notes who are the Operating Partnership's current or prior affiliates, as of the
365th day after the last date of original issuance of the Notes, the Operating Partnership will pay additional interest on the
Notes equal to 0.5% per annum of the principal amount of Notes outstanding.
This description of the Indenture and the
Notes is qualified in its entirety by reference to the text of the Indenture and the form of Note, which is filed as Exhibit 4.1
to this Current Report on Form 8-K and is incorporated herein by reference.