Item 3.03.
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Material Modifications to Rights of Security Holders.
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On October 17, 2017, Innovative Industrial
Properties, Inc. (the "Company") filed Articles Supplementary (the "Articles Supplementary") with the State
Department of Assessments and Taxation of the State of Maryland (“SDAT”) to the Company’s Second Articles of
Amendment and Restatement, as amended and supplemented, classifying and designating 690,000 shares of the Company’s authorized
capital stock as shares of 9.00% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share (the "Series A
Preferred Stock"). As set forth in the Articles Supplementary, the Series A Preferred Stock ranks, with respect to dividend
rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding up, senior to all classes
or series of the Company’s common stock, par value $0.001 per share (the “Common Stock”). Holders of Series A
Preferred Stock, when, as and if authorized by the Company’s board of directors and declared by the Company out of funds
legally available for the payment of dividends, are entitled to cumulative cash dividends at the rate of 9.00% per annum of the
$25.00 liquidation preference per share, equivalent to a fixed annual amount of $2.25 per share. Dividends are payable quarterly
in arrears on or about the 15th day of January, April, July and October of each year, beginning on January 16, 2018. Dividends
will accrue and be cumulative from and including October 19, 2017, the first date on which shares of the Series A Preferred
Stock were issued.
If the Company is voluntarily or
involuntarily liquidated, dissolved or wound up, holders of shares of the Series A Preferred Stock will be entitled to receive
a liquidation preference of $25.00 per share, plus an amount per share equal to all accrued and unpaid dividends (whether or not
authorized or declared) to but not including the date of payment, before any distribution or payment is made to holders of the
Common Stock or any other class or series of the Company’s capital stock ranking junior to the Series A Preferred Stock as
to rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding up, none of which exist on the
date hereof. The rights of the holders of shares of the Series A Preferred Stock to receive their liquidation preference will be
subject to the proportionate rights of each other series or class of the Company’s capital stock ranking on parity with the
Series A Preferred Stock as to rights upon the Company’s liquidation, dissolution or winding up, none of which exist on the
date hereof.
Generally, the Company may not redeem the
Series A Preferred Stock prior to October 19, 2022, except in limited circumstances related to the Company’s ability to qualify
as a real estate investment trust and pursuant to the special optional redemption provision described below. However, upon the
occurrence of a Change of Control/Delisting (as defined below), holders of Series A Preferred Stock will have the right (unless,
prior to the Change of Control/Delisting Conversion Date (as defined below), the Company has provided or provides notice of its
election to redeem the Series A Preferred Stock) to convert some or all of the Series A Preferred Stock (the “Change of Control/Delisting
Conversion Right”), into a number of shares of Common Stock per share of Series A Preferred Stock to be converted equal to
the lesser of:
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the quotient obtained by dividing (i) the sum of (x) the liquidation
preference amount of $25.00 per share of Series A Preferred Stock, plus (y) the amount of any accrued and unpaid dividends (whether
or not declared) to, but not including, the Change of Control/Delisting Conversion Date (unless the Change of Control/Delisting
Conversion Date is after a record date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A
Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included
in this sum) by (ii) the Common Stock Price (as defined below); and
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2.617801 (the "Share Cap"), subject to certain adjustments;
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subject, in each case, to provisions for the receipt of alternative
consideration, as described in the Articles Supplementary.
The Share Cap is subject to pro rata adjustments
for any share splits (including those effected pursuant to a distribution of the Common Stock), subdivisions or combinations with
respect to the Common Stock as described in the Articles Supplementary.
If, prior to the Change of Control/Delisting
Conversion Date, the Company has provided or provides a redemption notice, whether pursuant to its special optional redemption
right in connection with a Change of Control/Delisting or its optional redemption right, holders of Series A Preferred Stock will
not have any right to convert the Series A Preferred Stock in connection with the Change of Control/Delisting Conversion Right
and any shares of Series A Preferred Stock selected for redemption that have been tendered for conversion will be redeemed on the
related date of redemption instead of converted on the Change of Control/Delisting Conversion Date.
A “Change of Control/Delisting”
is when, after the original issuance of the Series A Preferred Stock, the following have occurred and are continuing:
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the acquisition by any person, including any syndicate or group deemed
to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, of beneficial
ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers
or other acquisition transactions of the Company’s stock entitling that person to exercise more than 50% of the total voting
power of all of the Company’s stock entitled to vote generally in the election of directors (except that such person will
be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent condition); and
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following the closing of any transaction referred to in the bullet
point above, neither the Company nor the acquiring or surviving entity has a class of common securities (or American Depositary
Receipts representing such securities) listed on the New York Stock Exchange (“NYSE”), the NYSE American LLC (“NYSE
American”) or the NASDAQ Stock Market (“NASDAQ”), or listed or quoted on an exchange or quotation system that
is a successor to the NYSE, the NYSE American or NASDAQ.
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The “Change of Control/Delisting
Conversion Date” is the date the Series A Preferred Stock is to be converted, which will be a business day that is no fewer
than 20 days nor more than 35 days after the date on which the Company provides the required notice of the occurrence of a Change
of Control/Delisting to the holders of Series A Preferred Stock.
The “Common Stock Price” will
be (i) if the consideration to be received in the Change of Control/Delisting by the holders of the Common Stock is solely
cash, the amount of cash consideration per share of the Common Stock or (ii) if the consideration to be received in the Change
of Control/Delisting by holders of the Common Stock is other than solely cash, (x) the average of the closing sale prices
per share of the Common Stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more
than one in either case, the average of the average closing bid and the average closing ask prices) for the ten consecutive trading
days immediately preceding, but not including, the effective date of the Change of Control/Delisting as reported on the principal
U.S. securities exchange on which the Common Stock is then traded, or (y) if the Company's Common Stock is not then listed
for trading on a U.S. securities exchange, the average of the last quoted bid prices for the Common Stock in the over-the-counter
market as reported by OTC Markets Group, Inc. or similar organization for the ten consecutive trading days immediately preceding,
but not including, the effective date of the Change of Control/Delisting.
The
Series A Preferred Stock does not have a stated maturity date, is not subject to any sinking fund or mandatory redemption
provisions. Holders of Series A Preferred Stock generally have no voting rights, except for limited voting rights if dividends
are in arrears for six or more quarterly periods (whether or not consecutive) and in certain other circumstances.
The
foregoing description of the Articles Supplementary does not purport to be complete and is qualified in its
entirety
by
reference to the complete text of the Articles Supplementary, which is filed as an exhibit to this report and incorporated herein
by reference. A specimen certificate for the Series A Preferred Stock is also filed as an exhibit to this report and is incorporated
herein by reference.