Exhibit 10.1

   

EMPLOYMENT TRANSITION AGREEMENT

 

This Employment Transition Agreement (this “Agreement”), effective as of the
Effective Date (as defined below), is made and entered into by and among
Innovative Industrial Properties, Inc., a Maryland corporation (the “REIT”), IIP
Operating Partnership, LP, a Delaware limited partnership (the “Operating
Partnership,” and together with the REIT, the “Company”), and Robert Sistek
(“Executive”), and inures to the benefit of each of the Company’s current,
former and future parents, subsidiaries, related entities, employee benefit
plans and their fiduciaries, predecessors, successors, officers, directors,
shareholders, agents, employees and assigns (collectively, the “Parties”).

 

WHEREAS, Executive is currently employed by the Company, and is a party to that
certain Severance and Change of Control Agreement executed effective January 18,
2017 by and among the REIT, the Operating Partnership and Executive (the
“Severance Agreement”);

 

WHEREAS, both Executive and the Company have determined that it is in their
mutual best interests that Executive’s employment with the Company terminate,
and that their employment relationship be dissolved in the manner set forth in
this Agreement; and

 

WHEREAS, Executive and the Company desire to set forth the terms and conditions
of the foregoing arrangement.

NOW, THEREFORE, in consideration of the mutual promises herein contained, the
Parties agree as follows:

 

1.           Effective Date; Termination of Employment.

 

(a)          Effective Date. This Agreement shall become effective upon the
occurrence of both of the following events: (i) execution of the Agreement by
the Parties and the execution of the Release (as defined in Section 2(d) below)
by Executive; and (ii) expiration of the revocation period applicable under the
Release without Executive having given notice of revocation. The date of the
last to occur of the foregoing events shall be referred to in this Agreement as
the “Effective Date.” Until and unless both of the foregoing events occur, this
Agreement shall be null and void.

 

(b)          Termination of Employment Status. Executive’s employment by the
Company shall terminate effective as of June 30, 2017 (the “Termination Date”).
Executive hereby resigns from any position he holds at the Company (and any of
its affiliates and subsidiaries) effective as of the Termination Date. Executive
shall execute any additional documentation necessary to effectuate such
resignations.

 

 

 

 

2.            Compensation.

 

(a)          Compensation through Termination Date. On the Termination Date, the
Company shall issue Executive his final paycheck, reflecting (i) his earned but
unpaid base salary through June 30, 2017, and (ii) all accrued, unused PTO
(vacation and sick leave) due Executive through the Termination Date. Subject to
Section 2(b) below, Executive acknowledges and agrees that with his final check,
the payment of any outstanding expense reimbursements, and the payment of any
amounts payable under any of the employee benefit plans of the Company in
accordance with the terms of such plans, Executive will have received all
monies, bonuses, commissions, expense reimbursement, vacation pay, or other
compensation he earned or was due during his employment by the Company.

 

(b)          Compensation on Effective Date. On the Effective Date, in
consideration for the Release and his continued compliance with the terms of
this Agreement, the Executive shall be entitled to receive a severance of One
Hundred Thirteen Thousand Dollars ($113,000) less applicable withholding taxes,
which shall be payable within fourteen (14) days of the Effective Date.

 

(c)          Exclusive Remedy. Except as otherwise expressly required by law
(e.g., COBRA) or as specifically provided herein, all of Executive’s rights to
compensation, benefits, and other amounts hereunder (if any) accruing after the
termination of Executive’s employment by the Company shall cease upon such
termination. In the event of a termination of Executive’s employment by the
Company under this Agreement, Executive’s sole remedy shall be to receive the
payments and benefits described in this Section 2. In addition, Executive
acknowledges and agrees that he is not entitled to any reimbursement by the
Company for any taxes payable by Executive as a result of the payments and
benefits received by Executive pursuant to this Section 2, including, without
limitation, any excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the “Code”).

 

(d)          Release. Executive’s right to receive any payment pursuant to
Section 2(b) shall be contingent on Executive providing to the Company (and
failing to revoke) a full and complete general release in the form attached
hereto as Exhibit A (the “Release”).

 

3.            Certain Covenants. Executive hereby expressly reaffirms his
obligations under Section 16 of the Severance Agreement, a copy of which is
attached to this Agreement as Exhibit B and incorporated herein by reference,
and agrees that such obligations shall survive the Termination Date.

 

4.            Arbitration. The Parties agree that with the exception of disputes
and claims identified below, if any dispute arises concerning interpretation
and/or enforcement of the terms of this Agreement, said dispute shall be
resolved by binding arbitration before a single arbitrator conducted in San
Diego, California in accordance with the American Arbitration Association’s
National Rules for the Resolution of Employment Disputes then in effect (“AAA’s
National Rules”). In the event that such a dispute arises, counsel for both
parties will attempt to jointly select an arbitrator. If unable to do so, the
procedures outlined in the AAA’s National Rules shall govern.

 

Exceptions: If the Company claims that Executive has violated the
confidentiality provisions of this Agreement, the confidentiality provisions of
any other agreement referenced herein or any provision in Section 16 of the
Severance Agreement, the Company may, but is not required to, arbitrate said
dispute. Furthermore, neither party to this Agreement shall be prohibited from
seeking injunctive relief in a judicial proceeding.

 

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5.            Litigation Cooperation. Executive agrees to give reasonable
cooperation, at the Company’s request, in any pending or future litigation or
arbitration brought against the Company and in any investigation the Company may
conduct, including taking such requested actions as are reasonably necessary to
preserve the Company’s attorney-client privilege. The Company agrees to
reimburse Executive for his reasonable expenses incurred in connection with such
cooperation within forty-five (45) days after receipt of an invoice from
Executive setting forth in reasonable detail such expenses. Reasonable long
distance travel (transportation, lodging and meals) will be reimbursed
consistent with the Company’s past practices with respect to Executive, as
determined by the Company’s Chief Executive Officer or Chief Financial Officer,
in his or her reasonable discretion. Notwithstanding the foregoing, the Company
shall have no obligation by virtue of this Section 5 to pay Executive for time
spent by Executive in any pending or future litigation or arbitration where
Executive is a co-defendant or party to the arbitration or litigation.

 

6.            Miscellaneous.

 

(a)          Entire Agreement. This Agreement and the agreements referenced
herein set forth the entire agreement of the parties hereto in respect of the
subject matter contained herein and therein and supersede all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto, and any prior agreement of the parties hereto in respect of
the subject matter contained herein, including without limitation, the Severance
Agreement (other than Section 16 thereof, which is incorporated herein) and any
contrary or limiting provisions in any Company equity compensation plan. Any of
Executive’s rights hereunder shall be in addition to any rights Executive may
otherwise have under benefit plans or agreements of the Company (other than
severance plans or agreements) to which Executive is a party or in which
Executive is a participant, including, but not limited to, any Company sponsored
employee benefit plans. The provisions of this Agreement shall not in any way
abrogate Executive’s rights under such other plans and agreements. In addition,
this Agreement shall not limit in any way any obligation Executive may have
under any other agreement with or promise to the Company relating to
confidentiality, proprietary rights in technology or the assignment of interests
in any intellectual property.

 

(b)          Assignment; Assumption by Successor. The rights of the Company
under this Agreement may, upon prior written notice to (to the extent reasonably
practicable) and without the consent of Executive, be assigned by the Company,
in its sole and unfettered discretion, to any person, firm, corporation or other
business entity which at any time, whether by purchase, merger or otherwise,
directly or indirectly, acquires all or substantially all of the assets or
business of the Company. Unless expressly provided otherwise, “Company” as used
herein shall mean the Company as defined in this Agreement and any successor to
its business and/or assets as aforesaid.

 

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(c)          Survival. The covenants, agreements, representations and warranties
contained in or made in Sections 2, 3, 4, 5 and 6 of this Agreement shall
survive any termination of this Agreement.

 

(d)          Third-Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.

 

(e)          Waiver. The failure of either party hereto at any time to enforce
performance by the other party of any provision of this Agreement shall in no
way affect such party’s rights thereafter to enforce the same, nor shall the
waiver by either party of any breach of any provision hereof be deemed to be a
waiver by such party of any other breach of the same or any other provision
hereof.

 

(f)          Section Headings. The headings of the several sections in this
Agreement are inserted solely for the convenience of the parties and are not a
part of and are not intended to govern, limit or aid in the construction of any
term or provision hereof.

 

(g)          Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

 

If to Executive: at Executive’s most recent address on the records of the
Company.

 

If to the REIT or the Operating Partnership:

 

Innovative Industrial Properties, Inc.

IIP Operating Partnership, LP

17190 Bernardo Center Drive

San Diego, California 92128

Attention: General Counsel

 

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

 

(h)          Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

 

(i)          Governing Law and Venue. This Agreement is to be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed wholly within such State, and without regard
to the conflicts of laws principles thereof. Except as provided in Section 4
herein, any suit brought hereon shall be brought in the state or federal courts
sitting in San Diego, California, the parties hereto hereby waiving any claim or
defense that such forum is not convenient or proper. Each party hereby agrees
that any such court shall have in personam jurisdiction over it and consents to
service of process in any manner authorized by California law.

 

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(j)          Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

 

(k)          Construction. The language in all parts of this Agreement shall in
all cases be construed simply, according to its fair meaning, and not strictly
for or against any of the parties hereto. Without limitation, there shall be no
presumption against any party on the ground that such party was responsible for
drafting this Agreement or any part thereof.

 

(l)          Code Section 409A. This Agreement shall be interpreted, construed
and administered in a manner that satisfies the requirements of Section 409A of
the Code and the Treasury Regulations thereunder.

 

(m)          Amendment. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Executive and the Chief Executive Officer or Chief
Financial Officer of the Company.

 

(n)          Right to Advice of Counsel. EXECUTIVE acknowledgeS that HE HAS the
right, AND IS ENCOURAGED, to consult with HIS lawyer; by HIS signature below,
EXECUTIVE acknowledgeS that HE HAS consulted, or has elected not to consult,
with HIS lawyer concerning this Agreement.

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the dates set
forth below.

 

    /s/ Robert Sistek     Robert Sistek     Date: June 28, 2017        
INNOVATIVE INDUSTRIAL PROPERTIES, INC.         By: /s/ Paul Smithers     Name:
Paul Smithers     Title:   President and Chief Executive Officer     Date: June
30, 2017         IIP OPERATING PARTNERSHIP, LP           By: Innovative
Industrial Properties, Inc., its general partner         By: /s/ Paul Smithers  
  Name: Paul Smithers     Title: President and Chief Executive Officer     Date:
June 30, 2017

 

 

 

 

EXHIBIT A

RELEASE OF CLAIMS

 

For valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the undersigned for himself, his heirs, executors, administrators,
assigns and successors, fully and forever releases and discharges Innovative
Industrial Properties, Inc. (the “REIT”), IIP Operating Partnership, LP
(together with the REIT, the “Company”) and each of their current, former and
future parents, subsidiaries, related entities, employee benefit plans and their
fiduciaries, predecessors, successors, officers, directors, shareholders,
agents, employees and assigns (collectively, “Releasees”), with respect to any
and all claims, liabilities and causes of action, of every nature, kind and
description, in law, equity or otherwise, which have arisen, occurred or existed
at any time prior to the signing of this Release of Claims, including, without
limitation, any and all claims, liabilities and causes of action arising out of
or relating to the undersigned’s employment with the Company or the cessation of
that employment.

 

The undersigned understands and agrees that he is waiving any and all rights he
may have had, now has, or in the future may have, to pursue and/or recover
against any of the Releasees any and all remedies available to him under any
employment-related causes of action, including without limitation, claims of
wrongful discharge, breach of contract, breach of the covenant of good faith and
fair dealing, fraud, violation of public policy, defamation, discrimination,
personal injury, physical injury, emotional distress, claims under the United
States Constitution, the California Constitution, Title VII of the Civil Rights
Act of 1964, as amended, the Age Discrimination in Employment Act, the Americans
With Disabilities Act, the Federal Rehabilitation Act, the Family and Medical
Leave Act, the Equal Pay Act of 1963, the California Fair Employment and Housing
Act, the California Family Rights Act, the provisions of the California Labor
Code and the provisions of the California Business and Professions Code and any
other federal, state or local laws and regulations relating to employment,
conditions of employment (including wage and hour laws), perquisites of
employment (including but not limited to claims relating to stock and/or stock
options) and/or employment discrimination. Excluded from this release are any
claims which cannot be released by law. Nothing in this Release of Claims shall
affect the undersigned’s right to file a timely charge or participate in an
investigative proceeding with the Equal Employment Opportunity Commission, any
other state or local fair employment agency, or the National Labor Relations
Board. The undersigned, however, hereby releases and waives his right to any
individual monetary recovery in connection with any proceedings initiated by any
local, state or federal agency, or anyone on behalf of the undersigned, or
against any of Releasees.

 

 

 

 

The undersigned acknowledges that he is knowingly and voluntarily waiving and
releasing any rights he may have under the federal Age Discrimination in
Employment Act of 1967, as amended (“ADEA”). He also acknowledges that the
consideration given for this waiver and release is in addition to anything of
value to which he already was entitled. The undersigned further acknowledges
that he has been advised by this writing, as required by law, that: (a) his
waiver and release specified in this paragraph do not apply to any rights or
claims that may arise after the date he signs this Release of Claims; (b) he has
been advised hereby that he has the right to consult with an attorney of his
choosing prior to executing this Release of Claims; (c) he has twenty-one (21)
days to consider this Release of Claims (although he may choose to voluntarily
execute this Release of Claims earlier; and, the undersigned represents that if
he executes this Release of Claims before twenty-one (21) days have elapsed, he
does so voluntarily, upon the advice and with the approval of his legal counsel,
and that he voluntarily waives any remaining consideration period); (d) he has
seven (7) days following his execution of this Release of Claims to revoke the
Release of Claims (in writing, as provided below); and (e) this Release of
Claims will not be effective until the date upon which the revocation period has
expired, which will be the eighth (8th) day after this Release of Claims is
executed by the undersigned, provided that he has not revoked this Release of
Claims as provided below, and further provided that the Company has also
executed this Release of Claims and the Employment Transition Agreement by that
date. Any revocation of this Release of Claims must be made in writing and
received by the Company at 17190 Bernardo Center Drive, San Diego, CA 92128;
Attn: General Counsel, no later than noon on the eighth (8th) calendar day
following the undersigned’s execution of this Release of Claims.

 

The undersigned expressly waives any and all rights and benefits conferred upon
him by Section 1542 of the Civil Code of the State of California, which states
as follows:

 

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which
if known by him or her must have materially affected his or her settlement with
the debtor.”

 

The undersigned expressly agrees and understands that the release given by him
pursuant to this Release of Claims applies to all unknown, unsuspected and
unanticipated claims, liabilities and causes of action which he may have against
the Company or any of the other Releasees.

 

The undersigned agrees that if any provision of the release given by him under
this Release of Claims is found to be unenforceable, it will not affect the
enforceability of the remaining provisions and the courts may enforce all
remaining provisions to the extent permitted by law.

 

The undersigned represents and warrants that there has been no assignment or
other transfer of any interest in any claim which he may have against Releasees,
or any of them, and the undersigned agrees to indemnify and hold Releasees, and
each of them, harmless from any liability, claims, demands, damages, costs,
expenses and attorneys’ fees incurred by Releasees, or any of them, as the
result of any such assignment or transfer or any rights or claims under any such
assignment or transfer.  It is the intention of the parties that this indemnity
does not require payment as a condition precedent to recovery by the Releasees
against the undersigned under this indemnity.

 

 

 

 

The undersigned promises that he will never sue the Company or any of the other
Releasees with respect to any claim covered by the release provisions of this
Release of Claims, including but not limited to claims arising out of the
undersigned’s employment with the Company or the termination of that employment.
The undersigned agrees that if he hereafter commences any suit arising out of,
based upon, or relating to any of the claims released hereunder or in any manner
asserts against Releasees, or any of them, any of the claims released hereunder,
then the undersigned agrees to pay to Releasees, and each of them, in addition
to any other damages caused to Releasees thereby, all attorneys’ fees incurred
by Releasees in defending or otherwise responding to said suit or claim.
Notwithstanding this provision, the Company recognizes the rights and
responsibilities of the Equal Employment Opportunity Commission (“EEOC”) and the
Department of Fair Employment and Housing (“DFEH”) to enforce the statutes which
come under their jurisdiction and is not intending to prevent the undersigned
from participating in any investigation or proceeding conducted by the EEOC or
the DFEH; provided, however, that nothing in this paragraph limits or affects
the finality or scope of the releases provided in this Release of Claims.
Accordingly, the undersigned agrees to waive any and all rights to collect any
monetary recovery in connection with any actions by the EEOC or the DFEH.

 

The undersigned further understands and agrees that neither the payment of any
sum of money nor the execution of this Release shall constitute or be construed
as an admission of any liability whatsoever by the Releasees, or any of them,
who have consistently taken the position that they have no liability whatsoever
to the undersigned.

 

PLEASE READ CAREFULLY. THIS RELEASE OF CLAIMS CONTAINS A GENERAL RELEASE OF ALL
KNOWN AND UNKNOWN CLAIMS.

 

THE UNDERSIGNED ACKNOWLEDGES AND AGREES THAT HE HAS BEEN ADVISED THAT THIS
RELEASE OF CLAIMS IS A BINDING AND LEGAL DOCUMENT. THE UNDERSIGNED FURTHER
AGREES THAT HE HAS HAD AT LEAST TWENTY-ONE (21) DAYS TO REVIEW THE PROVISIONS OF
THIS RELEASE OF CLAIMS AND HAS BEEN ADVISED TO SEEK LEGAL ADVICE REGARDING ALL
ITS ASPECTS, AND THAT IN EXECUTING THIS RELEASE OF CLAIMS THE UNDERSIGNED HAS
ACTED VOLUNTARILY AND HAS NOT RELIED UPON ANY REPRESENTATION MADE BY THE COMPANY
OR ANY OF ITS EMPLOYEES OR REPRESENTATIVES REGARDING THIS RELEASE OF CLAIMS’
SUBJECT MATTER AND/OR EFFECT. THE UNDERSIGNED HAS READ AND FULLY UNDERSTANDS
THIS RELEASE OF CLAIMS AND VOLUNTARILY AGREES TO ITS TERMS.

 

IN WITNESS WHEREOF, the undersigned has executed this Release of Claims this ___
day of ________, 2017.

 

      Robert Sistek

 

 

 

 

EXHIBIT B

SEVERANCE AGREEMENT

 

SEVERANCE AND CHANGE OF CONTROL AGREEMENT

 

THIS AGREEMENT, effective as of the 18th day of January, 2017, is by and between
Innovative Industrial Properties, Inc., a Maryland corporation (the “Company”),
IIP Operating Partnership, LP, a Delaware limited partnership (the
“Partnership”), and Robert Sistek (the “Employee”).

 

WHEREAS, to induce the Employee to remain as an executive officer of the Company
and a key employee of the Partnership, the Company, the Partnership and the
Employee desire to enter into this Severance and Change Of Control Agreement
(the “Agreement”); and

 

WHEREAS, the parties agree that the restrictive covenants underlying certain of
the Employee’s obligations under this Agreement are necessary to protect the
goodwill or other business interests of the Innovative Industrial Entities (as
defined below) and that such restrictive covenants do not impose a greater
restraint than is necessary to protect such goodwill or other business
interests.

 

NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, including the Employee’s agreement to continue as an executive
officer of the Company and as an employee of the Partnership, the Employee’s
agreement to provide consulting services following termination of employment
pursuant to the terms hereof, and the restrictive covenants contained herein,
the Employee, the Company, and the Partnership agree as follows:

 

1.           Definitions. The following words, when capitalized in this
Agreement, shall have the meanings ascribed below and shall supersede the
meanings given to any such terms in any other award agreement or related plan
document in effect prior to the date of this Agreement, including but not
limited to the definitions of “Cause,” “Change of Control,” or “Good Reason”:

 

(a)          “Affiliate” shall have the meaning given to such term in Rule 12b-2
of the General Rules and Regulations of the Exchange Act.

 

(b)          “Average Annual Cash Bonus” means the average of the annual cash
bonus, if any, paid or payable to the Employee with respect to the three (3)
most recently completed calendar years prior to termination of employment (or
the period of the Employee’s employment, if shorter).

 

(c)          “Base Performance Share Value” means the fair market value as of
the date of the Change of Control of the number of unvested shares underlying
the Employee’s outstanding performance share awards that would have been earned
pursuant to the terms of the award if the performance period for each such award
ended immediately prior to the Change of Control. For such purposes, the level
of achievement of the performance goals established for each such award will be
determined on the date immediately prior to the Change of Control as follows:
(X) if the goal is a market-based goal, such as total stockholder return or
stock price, then the actual performance to date shall be used, and (Y) if the
goal is not a market-based goal, then the annualized forecasted number for such
goal as most recently prepared by the Company prior to the date of the Change of
Control shall be used and treated as if it were actual performance.

 

 

 

 

(d)           “Base Restricted Share Value” means the fair market value as of
the date of the Change of Control of the shares underlying all of the Employee’s
unvested time-vesting restricted stock awards, restricted stock units or stock
rights awards outstanding immediately prior to the Change of Control.

 

(e)           “Board” means the Board of Directors of the Company.

 

(f)           “Cause” means the termination of the Employee’s employment with
all Innovative Industrial Entities by action of the Board or its delegate for
one or more of the following reasons:

 

(i)          The Employee’s willful and continued failure substantially to
perform his duties with the Innovative Industrial Entities (other than any such
failure resulting from the Employee’s incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Employee by the Board, which demand specifically identifies the manner in which
the Board believes that the Employee has not substantially performed his duties;

 

(ii)         The Employee’s willful commission of an act of fraud or dishonesty
resulting in economic or financial damage to the Innovative Industrial Entities;

 

(iii)        The Employee’s conviction of, or entry by the Employee of a guilty
or no contest plea to, the commission of a felony or a crime involving moral
turpitude;

 

(iv)        A willful breach by the Employee of his fiduciary duty to the
Company which results in economic or other damage to the Innovative Industrial
Entities; or

 

(v)         The Employee’s willful and material breach of the Employee’s
covenants set forth in this Section 16 of this Agreement.

 

(g)           “Change of Control” means the occurrence of an event or series of
events which qualify as a change in control event for purposes of Code Section
409A and Treasury Regulation §1.409A-3(i)(5), including:

 

(i)           A change in the ownership of the Company, which shall occur on the
date that any one Person, or more than one Person Acting as a Group (as defined
below), other than Excluded Person(s) (as defined below), acquires ownership of
the stock of the Company that, together with the stock then held by such Person
or group, constitutes more than fifty percent (50%) of the total fair market
value of the stock of the Company. However, if any one Person or more than one
Person Acting as a Group is considered to own more than fifty (50%) of the total
fair market value of the stock of the Company, the acquisition of additional
stock by the same Person or Persons is not considered to cause a Change of
Control.

 

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(ii)          A change in the effective control of the Company, which shall
occur on the date that:

 

(1)         Any one Person, or more than one Person Acting as a Group, other
than Excluded Person(s), acquires (or has acquired during the twelve (12) month
period ending on the date of the most recent acquisition by such Person or
Persons) ownership of stock of the Company possessing thirty percent (30%) or
more of the total voting power of the stock of the Company. However, if any one
Person or more than one Person Acting as a Group is considered to own more than
thirty percent (30%) of the total voting power of the stock of the Company, the
acquisition of additional voting stock by the same Person or Persons is not
considered to cause a Change of Control; or

 

(2)         A majority of the members of the Board is replaced during any twelve
(12) month period by directors whose appointment or election is not endorsed by
a majority of the members of the Board prior to the date of the appointment or
election.

 

(iii)         A change in the ownership of a substantial portion of the
Company’s assets, which shall occur on the date that any one Person, or more
than one Person Acting as a Group, other than Excluded Person(s), acquires (or
has acquired during the twelve (12) month period ending on the date of the most
recent acquisition by such Person or Persons) assets from the Company that have
a total Gross Fair Market Value (as defined below) equal to more than fifty
percent (50%) of the total Gross Fair Market Value of all the assets of the
Company immediately prior to such acquisition or acquisitions, other than an
Excluded Transaction (as defined below).

 

For purposes of this Subsection (g):

 

“Gross Fair Market Value” means the value of the assets of the Company, or the
value of the assets being disposed of, as applicable, determined without regard
to any liabilities associated with such assets.

 

Persons will not be considered to be “Acting as a Group” solely because they
purchase or own stock of the Company at the same time, or as a result of the
same public offering, or solely because they purchase assets of the Company at
the same time, or as a result of the same public offering, as the case may be.
However, Persons will be considered to be Acting as a Group if they (i) are
owners of an entity that enters into a merger, consolidation, purchase or
acquisition of assets, or similar business transaction with the Company, or (ii)
do so within the meaning of Section 13(d) of the Exchange Act, including any
group acting for the purpose of acquiring, holding or disposing of securities
(within the meaning of Rule 13d-5(b)(1) under the Exchange Act).

 

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The term “Excluded Transaction” means any transaction in which assets are
transferred to: (A) a stockholder of the Company (determined immediately before
the asset transfer) in exchange for or with respect to its stock; (B) an entity,
fifty percent (50%) or more of the total value or voting power of which is
owned, directly or indirectly, by the Company (determined after the asset
transfer); (C) a Person, or more than one Person Acting as a Group, that owns,
directly or indirectly, fifty percent (50%) or more of the total value or voting
power of all the outstanding stock of the Company (determined after the asset
transfer); or (D) an entity at least fifty percent (50%) of the total value or
voting power of which is owned, directly or indirectly, by a Person described in
clause (C) (determined after the asset transfer).

 

The term “Excluded Person(s)” means (A) the Company or any Innovative Industrial
Entity; (B) a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any Innovative Industrial Entity; (C) an
underwriter temporarily holding securities pursuant to an offering of such
securities; or (D) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock in the Company.

 

The term “Change of Control” as defined above shall be construed in accordance
with Code Section 409A and the regulations promulgated thereunder. In no event
shall a transaction described above constitute a “Change of Control” for
purposes of this Agreement unless such transaction also satisfies the
requirement to be a change in the ownership or effective control of a
corporation, or a change in the ownership of a substantial portion of the assets
of a corporation, as each of those terms are defined under Code Section 409A and
the regulations promulgated thereunder.

 

(h)          “Code” means the Internal Revenue Code of 1986, as amended.

 

(i)           “Exchange Act” means the Securities Exchange Act of 1934, as
amended.

 

(j)           “General Release” means (i) a release of the Innovative Industrial
Entities, in such form as the Partnership may reasonably request, of all claims
against the Innovative Industrial Entities relating to the Employee’s employment
and termination thereof, and (ii) an agreement to continue to comply with, and
be bound by, the provisions of Section 16 hereof.

 

(k)          “Good Reason” means any one or more of the following conditions:

 

(i)          any material diminution of the Employee’s authority, duties or
responsibilities;

 

(ii)         a material diminution of the Employee’s annual base salary;

 

(iii)        a material change in the geographic location at which the Employee
must perform the Employee’s duties and responsibilities; or

 

(iv)       any other action or inaction by the Company or the Partnership that
constitutes a material breach of this Agreement or any other agreement pursuant
to which the Employee provides services to the Company or the Partnership.

 

 4 

 

 

A termination of the Employee’s employment for Good Reason shall be effective
only if (X) such condition was not consented to by the Employee in advance or
subsequently ratified by the Employee in writing, (Y) such condition remains in
effect thirty (30) days after the Employee gives written notice to the Board of
the Employee’s intention to terminate his employment for Good Reason, which
notice specifically identifies such condition, and (Z) the Employee gives the
notice referred to in (Y) above within ninety (90) days of the initial existence
of such condition. If the Company or the Partnership, as applicable, does not
cure the condition within the thirty (30) day cure period described in (Y)
above, then the Employee’s termination will occur on the day immediately
following the end of the cure period. If the Company or the Partnership, as
applicable, cures the condition within such thirty (30) day cure period, then
the Employee will be deemed to have withdrawn his notice of termination
effective as of the date the cure is effected.

 

(l)           “Innovative Industrial Entity” or “Innovative Industrial Entities”
means the Company, the Partnership, any of their Affiliates, and any other
entities that along with the Company or the Partnership is considered a single
employer pursuant to Code Section 414(b) or (c) and the Treasury regulations
promulgated thereunder, determined by applying the phrase “at least 50 percent”
in place of the phrase “at least 80 percent” each place it appears in such
Treasury regulations or Code Section 1563(a).

 

(m)          “Medical Benefits” shall mean the monthly fair market value of
benefits provided to the Employee and the Employee’s dependents under the major
medical, dental and vision benefit plans sponsored and maintained by the
Partnership, at the level of coverage in effect for such persons immediately
prior to the Employee’s termination of employment date. The “monthly fair market
value” of such benefits shall be equal to the monthly cost (including any
applicable administrative fee) to the Employee as if the Employee elected COBRA
continuation coverage at the level of coverage in effect at such time for the
Employee and the Employee’s dependents at their own expense.

 

(n)          “Person” means a “person” as used in Sections 3(a)(9) and 13(d) of
the Exchange Act or any group of Persons acting in concert that would be
considered “persons acting as a group” within the meaning of Treasury Regulation
§1.409A-3(i)(5).

 

(o)          “Prime Rate” means an annual rate, compounding annually, equal to
the prime rate, as reported in The Wall Street Journal on the date of the Change
of Control, or if not reported on that date, the last preceding date on which so
reported, which rate shall be adjusted on each January 1 to the prime rate then
in effect and shall remain in effect for the year.

 

(p)          “Qualifying Retirement” means the Employee’s voluntary termination
of employment after the Employee has (i) attained (X) age sixty-five (65), (Y)
age fifty-five (55) with ten (10) Years of Service as a full-time employee of
the Partnership or any of its Affiliates, or (Z) an age which, when added to
such Years of Service of the Employee equals at least seventy-five (75), and
(ii) previously delivered a written notice of retirement to the Partnership and
on the date of retirement the Employee has satisfied the minimum applicable
advance written notice requirement set forth below:

 

 5 

 

 

Age at

Voluntary Termination

 

Number of Years of

Advance Notice

     

58 or younger

59

60 or older

 

3 years

2 years

1 year

 

By way of illustration, and without limiting the foregoing, if (i) the Employee
is eligible to retire at age fifty-nine (59) after ten (10) Years of Service,
(ii) the Employee gives two (2) years notice at age fifty-eight (58) that the
Employee intends to retire at age sixty (60), and (iii) the Employee later
terminates employment at age fifty-nine (59), then the Employee’s retirement at
age fifty-nine (59) would not constitute a Qualifying Retirement. However, if
(i) the Employee is eligible to retire at age fifty-nine (59) after ten (10)
Years of Service, (ii) the Employee gives two (2) years notice at age
fifty-eight (58) that the Employee intends to retire at age sixty (60), and
(iii) the Employee terminates employment upon reaching age sixty (60), then the
Employee’s retirement at age sixty (60) would constitute a Qualifying
Retirement.

 

(q)          “Separation from Service” means the termination of the Employee’s
employment with all Innovative Industrial Entities, provided that,
notwithstanding such termination of the employment relationship between the
Employee and all Innovative Industrial Entities, the Employee shall not be
deemed to have had a Separation from Service where it is reasonably anticipated
that the level of bona fide services that the Employee will perform (whether as
an employee or independent contractor) following such termination from the
Partnership and all Innovative Industrial Entities would be twenty percent (20%)
or more of the average level of bona fide services performed by the Employee
(whether as an employee or independent contractor) for the Innovative Industrial
Entities over the immediately preceding thirty-six (36) month period (or such
lesser period of actual service). In such event, Separation from Service shall
mean the permanent reduction of the level of bona fide services to be performed
by the Employee (whether as an employee or independent contractor) to a level
that is less than twenty percent (20%) of the average level of bona fide
services performed by the Employee (whether as an employee or independent
contractor) during the thirty-six (36) month period (or such lesser period of
actual service) immediately prior to the termination of the Employee’s
employment relationship. A Separation from Service shall not be deemed to have
occurred if the Employee is absent from active employment due to military leave,
sick leave, or other bona fide leave of absence if the period of such leave does
not exceed the greater of (i) six (6) months or (ii) the period during which the
Employee’s right to reemployment by any Innovative Industrial Entity is provided
either by statute or contract.

 

(r)          “Specified Employee” means an employee of any Innovative Industrial
Entity who is a “specified employee” as defined in Code Section 409A(a)(2)(b)(i)
and Treasury Regulation §1.409A-1(i). If the Employee is a key employee as of
the applicable identification date, the Employee shall be treated as a Specified
Employee for the twelve (12) month period beginning on the first day of the
fourth month following such identification date. The applicable identification
date for purposes of this Agreement shall be September 30 of each year.

 

(s)          “Unvested Equity Award” has the meaning given to such term in
Section 6(a).

 

 6 

 

 

(t)          “Years of Service” means the Employee’s total complete years of
employment with an Innovative Industrial Entity, including years of employment
with an entity that is acquired by an Innovative Industrial Entity prior to such
acquisition. For this purpose, a “complete year of employment” shall begin on
the Employee’s date of hire and end on each subsequent anniversary of such date.

 

2.           Term of the Agreement. The term of this Agreement shall begin on
the date hereof and end at 11:59 p.m. on December 31, 2019 and thereafter shall
automatically renew for successive three (3) year terms unless either party
delivers written notice of non-renewal to the other party at least ninety (90)
days prior to the end of the then current term; provided, however, that if a
Change of Control has occurred during the original or any extended term
(including any extension resulting from a prior Change of Control), the term of
the Agreement shall end no earlier than twenty-four (24) calendar months after
the end of the calendar month in which the Change of Control occurs.

 

3.            No Change of Control – Severance. Except in circumstances in which
the Employee would be entitled to payments and benefits in connection with a
Change of Control as provided in Section 4 below, in the event that during the
term of this Agreement the Employee has a Separation from Service as a result of
the Innovative Industrial Entities terminating the Employee’s employment without
Cause or the Employee terminating the Employee’s employment for Good Reason,
subject to Sections 11, 15 and 16 below:

 

(a)          The Partnership shall pay to the Employee an amount equal to (i)
two (2) times the sum of (A) the Employee’s annual base salary in effect on the
date the Employee’s employment terminates, plus (B) the Employee’s Average
Annual Cash Bonus, plus (ii) eighteen (18) months of the Employee’s Medical
Benefits. Payment shall be made in a lump sum on the first business day after
sixty (60) days following the Employee’s Separation from Service;

 

(b)          All of the Employee’s outstanding unvested stock options,
restricted stock awards, restricted stock units and stock rights awards that
vest solely on the basis of time shall become vested on a pro-rated basis, based
on the portion of the vesting period that has elapsed as of the date of the
Employee’s Separation from Service; and

 

(c)          All of the Employee’s outstanding performance share awards shall be
earned as of the date of Separation from Service based on the level of
achievement of the performance goals established for such awards as of such
date, but then pro-rated based on the portion of the performance period that has
elapsed as of the date of the Employee’s Separation from Service. For purposes
hereof, the level of achievement of the performance goals established for each
such award will be determined on the date immediately prior to the Separation
from Service as follows: (i) if the goal is a market-based goal, such as total
stockholder return or stock price, then the actual performance to date shall be
used, and (ii) if the goal is not a market-based goal, then the level of
achievement of such goal shall be (X) based on the most recently reported
number(s) by the Company in its reports filed with the Securities and Exchange
Commission or (Y) if such numbers are not so filed, based on the numbers as
prepared internally by the Company for the quarter ending prior to the date of
the Separation from Service.

 

 7 

 

 

Any shares issuable under awards that vest or are earned pursuant to subsections
(b) and (c) shall be issued on the same date as the cash severance payment is
made pursuant to subsection (a).

 

Notwithstanding anything in this Agreement to the contrary, if a Separation of
Service that would otherwise entitle the Employee to benefits under Sections
3(a), (b) and (c) above occurs during a transition period through December 31,
2019, and solely as it applies to (x) payments of the amounts to the Employee
pursuant to Section 3(a) above (and not, for purposes of clarification, for
payments made pursuant to Section 4(a) below) and (y) the number of equity
awards that vest pursuant to Sections 3(b) and 3(c) above (and not, for purposes
of clarification, for equity awards that vest pursuant to Sections 4(b) and 4(c)
below), (i) the Partnership shall be obligated to pay to the Employee only a
percentage of the amount calculated pursuant to Section 3(a) and (ii) only a
percentage of the outstanding equity awards under Sections 3(b) and 3(c) shall
vest, based on the date of the Employee's Separation of Service, as follows:

 

Date of Separation of Service  Percentage Payout of Amount Calculated
Under Section 3(a) and Equity Vesting
Under Sections 3(b) and 3(c)  Before 3/31/17   0.0% From 4/1/17 through 6/30/17 
 8.3% From 7/1/17 through 9/30/17   16.7% From 10/1/17 through 12/31/17   25.0%
From 1/1/18 through 3/31/18   33.3% From 4/1/18 through 6/30/18   41.7% From
7/1/18 through 9/30/18   50.0% From 10/1/18 through 12/31/18   58.3% From 1/1/19
through 3/31/19   66.7% From 4/1/19 through 6/30/19   75.0% From 7/1/19 through
9/30/19   83.3% From 10/1/19 through 12/31/19   91.7% From 1/1/20   100.0%

 

For the avoidance of doubt, nothing in the preceding paragraph shall affect the
time of payment of any amount under this Agreement.

 

4.           Change of Control – Severance. In the event that during the term of
this Agreement the Innovative Industrial Entities terminate the Employee’s
employment without Cause or the Employee terminates the Employee’s employment
for Good Reason, in each case within two (2) years following a Change of
Control, the following provisions shall apply:

 

(a)          The Partnership shall pay to the Employee the amount set forth in
Section 3(a);

 

(b)          All outstanding unvested stock options, restricted stock,
restricted stock units, stock rights awards and performance share awards then
held by the Employee will vest (at the greater of actual performance to-date or
target, for any awards subject to performance goals), and all outstanding equity
awards that have not vested at the time of the Change of Control or been
converted to the right to receive a cash payment pursuant to Section 6(c) will
vest on the date the General Release in Section 15 becomes effective, and, if
applicable, will be paid on the tenth (10th) business day following such time.
Notwithstanding the foregoing, all such awards which are subject to Code Section
409A will be paid on the first (1st) business day after sixty (60) days
following the Employee’s Separation from Service, provided the General Release
in Section 15 has become effective; and

 

 8 

 

 

(c)          With respect to those Unvested Equity Awards that have been
exchanged pursuant to Sections 6(b) and 6(c) for the right to receive a
contingent cash payment, subject to Section 11 below, the Employee shall receive
a cash payment made in a lump sum on the first business day after sixty (60)
days following the Employee’s Separation from Service equal to any portion of
the unpaid Base Performance Share Value and Base Restricted Share Value that has
not been paid pursuant to Sections 6(b) and 6(c), together with accrued but
unpaid interest at the Prime Rate on such unpaid amount from the date of the
Change of Control to the date of payment.

 

5.           Entitlement to Severance.

 

(a)          If the Employee becomes entitled to receive any severance payments
or benefits described in Section 3 or Section 4 after the Employee has delivered
written notice of what would otherwise have been a Qualifying Retirement to the
Partnership had the Employee continued to be employed by the Partnership through
the date of retirement set forth in the notice, then the amount of such payments
and benefits shall be limited to (i) those that the Employee would have
otherwise received had such employment continued through such date of
retirement, and (ii) those provided by Section 9, if any.

 

(b)          If the Employee dies after receiving notice from the Company that
the Employee is being terminated without Cause, or after providing notice of
termination for Good Reason, but prior to the date the Employee receives the
payments and benefits described in Section 3 or Section 4, as the case may be,
then the Employee’s estate, heirs and beneficiaries shall be entitled to the
payments and benefits described in Section 3 or Section 4, as the case may be,
at the same time such payments and benefits would have been paid or provided to
the Employee had the Employee lived.

 

6.           Change of Control – Effect on Stock Rights.

 

(a)          Except as otherwise provided in Sections 6(b) and 6(c) below (or in
Sections 4(b) or 4(c), if applicable), the occurrence of a Change of Control
shall not impact any existing unvested stock options, restricted stock awards,
restricted stock units, stock rights awards or performance share awards
(collectively, “Unvested Equity Awards”) unless such rights are cashed out
pursuant to the terms of the applicable merger agreement or other agreement(s)
pursuant to which such Change of Control is effected.

 

(b)          With respect to Unvested Equity Awards that are performance share
awards (“Performance Awards”), notwithstanding anything to the contrary
contained in the related plan or award agreement, all of the Employee’s
outstanding unvested Performance Awards shall be cancelled and, in consideration
for the cancellation of such awards, the Employee shall receive a deferred
contingent cash payment with respect to each such cancelled award equal to (X)
the Base Performance Share Value determined for such cancelled award, plus (Y)
interest on such unpaid Base Performance Share Value from the date of the Change
of Control to the date of payment at the Prime Rate, such cash payment to be
made on the last day of the applicable performance period for such award,
provided that the Employee remains employed by the Partnership, an Affiliate, or
one of their successors through the last day of the applicable performance
period.

 

 9 

 

 

(c)          With respect to Unvested Equity Awards that are not Performance
Awards, if the stock underlying such awards is not readily tradable on an
established securities market immediately after the Change of Control (after
giving effect to any conversion, exchange or replacement pursuant to the
applicable plan or award agreement of the stock underlying Unvested Equity
Awards as a result of a reorganization, merger, consolidation, combination or
other similar corporate transaction or event), then notwithstanding anything to
the contrary contained in the related plan or award agreement, all of the
Employee’s outstanding Unvested Equity Awards shall be cancelled and, in
consideration for the cancellation of such awards, the Employee shall receive:

 

(i)          a cash payment equal to (X) the fair market value of the shares
underlying all of the Employee’s unvested stock options as of the date of the
Change of Control, less (Y) the aggregate exercise price of such stock options,
such cash payment to be made within thirty (30) days after the Change of
Control; and

 

(ii)         a deferred contingent cash payment equal to (X) the Base Restricted
Share Value, plus (Y) interest on the unpaid Base Restricted Share Value from
the date of the Change of Control to the date of payment at the Prime Rate, such
cash payment of the Base Restricted Share Value to be made in installments on
the applicable vesting dates with respect to the number of shares that would
have been issued on that vesting date, plus all accrued but unpaid interest on
the unpaid Base Restricted Share Value through such vesting date, provided that
the Employee remains employed by the Partnership, an Affiliate, or one of their
successors through the applicable date of vesting.

 

7.           Change of Control – Excise Tax.

 

(a)          If in the opinion of Tax Counsel (as defined in Section 7(b)) the
Employee will be subject to an excise tax under Code Section 4999 with respect
to all or any portion of the payments and benefits to be made by the Company or
any of its Affiliates to the Employee, whether upon a Change of Control or
following a termination of the Employee’s employment, under this Agreement or
otherwise (in the aggregate, “Total Payments”), then such parties agree that the
Total Payments shall either be (i) delivered in full, or (ii) reduced to two (2)
times the Employee’s “base amount” for purposes of Code Section 280G, less $1.00
(“Scaled Back Amount”), whichever of the foregoing results in the receipt by the
Employee of the greatest benefit on an after-tax basis (taking into account the
applicable federal, state and local income taxes and the excise tax). If the
Employee is entitled to the Scaled Back Amount, then such payments and benefits
shall be reduced or eliminated by applying the following principles, in order:
(1) the payment or benefit with the higher ratio of the parachute payment value
to present economic value (determined using reasonable actuarial assumptions)
shall be reduced or eliminated before a payment or benefit with a lower ratio;
(2) the payment or benefit with the later possible payment date shall be reduced
or eliminated before a payment or benefit with an earlier payment date; and (3)
cash payments shall be reduced prior to non-cash benefits; provided that if the
foregoing order of reduction or elimination would violate Code Section 409A,
then the reduction shall be made pro rata among the payments or benefits to be
received by the Employee (on the basis of the relative present value of the
parachute payments).

 

 10 

 

 

(b)          For purposes of this Section 7, within forty (40) days after
delivery of a written notice of termination by the Employee or by the Company
pursuant to this Agreement within two (2) years of a Change of Control with
respect to the Company (or, if an event other than termination of employment
results in payment of parachute payments under Code Section 280G and it is
reasonably possible that such parachute payments could result in an excise tax,
within forty (40) days after such other event), the Company shall obtain, at its
expense, the opinion (which need not be unqualified) of nationally recognized
tax counsel (“Tax Counsel”) selected by the Compensation Committee of the Board,
which sets forth (i) the “base amount” within the meaning of Code Section 280G;
(ii) the aggregate present value of the payments in the nature of compensation
to the Employee as prescribed in Code Section 280G(b)(2)(A)(ii); (iii) the
amount and present value of any “excess parachute payment” within the meaning of
Code Section 280G(b)(1); and (iv) as applicable, (X) the net after-tax proceeds
to the Employee, taking into account the tax imposed by Code Section 4999 if the
Total Payments were delivered in full, and (Y) the amount and nature of the
parachute payments to be reduced or forfeited according to Section 7(a) in order
for the total payments and benefits to equal the Scaled Back Amount. For
purposes of such opinion, the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company’s independent auditors in
accordance with the principles of Code Section 280G and regulations thereunder,
which determination shall be evidenced in a certificate of such auditors
addressed to the Company and the Employee. Such opinion shall be addressed to
the Company and the Employee and shall be binding upon the Company, its
Affiliates, and the Employee.

 

8.           Plan of Liquidation. If the stockholders of the Company approve a
complete plan of liquidation or dissolution of the Company (“Approved
Liquidation Plan”), all Unvested Equity Awards that are not Performance Awards
will fully vest on the date of such approval and all such awards that are
Performance Awards shall vest to the extent the performance goals established
under such awards have been achieved on such date (as if the Employee had
satisfied all employment conditions required to vest), with the corresponding
performance period for such award(s) deemed completed as of the date immediately
preceding the date of such approval. Shares of common stock that so vest will be
deemed outstanding as of the close of business on the date of such approval, and
certificates representing such shares shall be delivered to the Employee as
promptly as practicable thereafter. Any Performance Awards not vesting on the
date of such approval shall be immediately cancelled without consideration
therefor. In addition, unless the Approved Liquidation Plan shall have been
rescinded, if the Partnership terminates the Employee’s employment without Cause
or the Employee terminates the Employee’s employment for Good Reason in each
case following stockholder approval of the Approved Liquidation Plan, then the
Employee shall receive the benefits provided in Sections 4(a), 4(b) and 4(c), as
applicable.

 

 11 

 

 

9.           Retirement and Performance Shares. If the Employee’s termination of
employment constitutes a Qualifying Retirement, then the Employee’s unvested
stock options, restricted stock, restricted stock units and stock rights awards
(other than performance shares) will vest on the date of retirement set forth in
the notice thereof, and if the Qualifying Retirement occurs on or after a Change
of Control, then the provision of Section 4(c) shall also apply. Notwithstanding
anything to the contrary in any related plan or award agreement, the Employee
shall be entitled to exercise all vested stock options until the earlier of (a)
three (3) years after the date of Qualifying Retirement, and (b) the original
terms of the options. Unless an award agreement provides for more favorable
treatment, upon a Qualifying Retirement, the Employee shall continue to have the
right to earn unvested performance shares upon the achievement of the applicable
performance goals over any remaining performance period, as if the Employee’s
employment had not been terminated.

 

10.          Death and Disability. In no event shall a termination of the
Employee’s employment due to death or Disability constitute a termination by the
Partnership without Cause or a termination by the Employee for Good Reason;
however, upon termination of employment due to the Employee’s death or
Disability, the Employee’s estate or the Employee, as applicable, shall receive
the benefits provided in Section 4(b) or 4(c) with respect to unvested stock
options, restricted stock, restricted stock units and stock rights awards (other
than performance shares), and the Employee’s estate or the Employee, as
applicable, shall continue to have the right to earn unvested performance shares
upon the achievement of the applicable performance goals over any remaining
performance period, as if the Employee’s employment had not been terminated.
Notwithstanding anything to the contrary in any related plan or award agreement,
(a) the Employee’s estate shall be entitled to exercise all vested stock options
until the earlier of (i) three (3) years after termination of employment due to
death, and (ii) the original term of the option, and (b) the Employee shall be
entitled to exercise all vested stock options until the earlier of (i) one (1)
year after termination of employment due to Disability, and (ii) the original
term of the option. For purposes of this Agreement, “Disability” shall mean the
absence of the Employee from the Employee’s duties with the Innovative
Industrial Entities on a full-time basis for ninety (90) consecutive days or on
a total of one hundred eighty (180) days in any twelve (12) month period, in
either case as a result of incapacity due to mental or physical illness which is
determined to be total and permanent by a physician selected by the Company and
reasonably acceptable to the Employee or the Employee’s legal representative.

 

11.          Payments to Specified Employees. Notwithstanding any other Section
of this Agreement, if the Employee is a Specified Employee at the time of the
Employee’s Separation from Service, payments or distribution of property to the
Employee provided under this Agreement, to the extent considered amounts
deferred under a non-qualified deferred compensation plan (as defined in Code
Section 409A) shall be deferred until the six (6) month anniversary of such
Separation from Service to the extent required in order to comply with Code
Section 409A and Treasury Regulation 1.409A-3(i)(2).

 

12.          Reductions in Base Salary. For purposes of this Agreement, in the
event there is a reduction in the Employee’s base salary that would constitute
the basis for a termination for Good Reason, the base salary used for purposes
of calculating the severance payable pursuant to Sections 3 or 4(a), as the case
may be, shall be the amounts in effect immediately prior to such reduction.

 

 12 

 

 

13.          Other Payments and Benefits. On any termination of employment,
including, without limitation, termination due to the Employee’s death or
Disability (as defined in Section 10) or for Cause, the Employee shall receive
any accrued but unpaid salary, reimbursement of any business or other expenses
incurred prior to termination of employment but for which the Employee had not
received reimbursement (provided that such expenses have been previously
approved in writing or comply with the terms of any expense reimbursement policy
then in effect), and any other rights, compensation and/or benefits as may be
due the Employee in accordance with the terms and provisions of any agreements,
plans or programs of the Company or the Partnership (but in no event shall the
Employee be entitled to duplicative rights, compensation and/or benefits).

 

14.          Set Off; Mitigation. The obligation of the Company or the
Partnership to pay or provide the Employee the amounts or benefits under this
Agreement shall be subject to set-off, counterclaim or recoupment of amounts
owed by the Employee to the Company or the Partnership. In addition, except as
provided in Section 7 with respect to the Scaled Back Amount, if applicable, the
Employee shall not be required to mitigate the amount of any payments or
benefits provided to the Employee hereunder by securing other employment or
otherwise, nor will such payments and/or benefits be reduced by reason of the
Employee securing other employment or for any other reason.

 

15.          Release. Notwithstanding any provision herein to the contrary, none
of the Innovative Industrial Entities shall have any obligation to pay any
amount or provide any benefit (other than those amounts set forth in Section
13), as the case may be, under this Agreement, unless the Employee executes,
delivers to the Partnership, and does not revoke (to the extent the Employee is
allowed to do so as set forth in the General Release), a General Release within
sixty (60) days of the Employee’s termination of employment.

 

16.          Restrictive Covenants and Consulting Arrangement.

 

(a)          The Employee will hold in a fiduciary capacity all secret or
confidential information, knowledge or data relating to any Innovative
Industrial Entity, and each of their respective businesses (the “Confidential
Information”), except in furtherance of the business of the Innovative
Industrial Entities or except as may be required by law. Additionally, and
without limiting the foregoing, the Employee agrees not to participate in or
facilitate the dissemination to the media or any other third party (i) of the
Confidential Information, or (ii) of any damaging or defamatory information
concerning any Innovative Industrial Entity or the Employee’s experiences as an
employee of any Innovative Industrial Entity, without the Company’s prior
written consent, except as may be required by law. Notwithstanding the
foregoing, this Section 16(a) does not apply to information which is already in
the public domain other than pursuant to acts of the Employee or representatives
of the Employee in violation of this Agreement.

 

(b)          During the Employee’s employment and during the one (1) year period
after the date that the Employee ceases to be employed by any of the Innovative
Industrial Entities for any reason (the “Termination Date”), the Employee agrees
that the Employee shall not directly or knowingly and intentionally through
another party recruit, induce, solicit or assist any other Person in recruiting,
inducing or soliciting (A) any other employee of any Innovative Industrial
Entity to leave such employment or (B) any other Person with which any
Innovative Industrial Entity was actively conducting negotiations for employment
on the Termination Date.

 

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(c)          For a six (6) month period following any termination of employment,
the Employee agrees to make himself available and, upon and as requested by the
Company or the Partnership from time to time, to provide consulting services
with respect to any projects the Employee was involved in prior to such
termination and/or to provide such other consulting services as the Company or
the Partnership may reasonably request. The Employee will be reimbursed for
reasonable travel and miscellaneous expenses incurred in connection with the
provision of requested consulting services hereunder. The Company or the
Partnership will provide the Employee reasonable advance notice of any request
to provide consulting services, and will make all reasonable accommodations
necessary to prevent the Employee’s commitment hereunder from materially
interfering with the Employee’s employment obligations, if any. In no event will
the Employee be required to provide more than twenty (20) hours of consulting
services in any one month to the Company and the Partnership pursuant to this
provision.

 

(d)          The parties agree that any breach of this Section 16 will result in
irreparable harm to the non-breaching party which cannot be fully compensated by
monetary damages and accordingly, in the event of any breach or threatened
breach of this Section 16, the non-breaching party shall be entitled to
injunctive relief. Should any provision of this Section 16 be determined by a
court of law or equity to be unreasonable or unenforceable, the parties agree
that to the extent it is valid and enforceable, they shall be bound by the same,
the intention of the parties being that the parties be given the broadest
protection allowed by law or equity with respect to such provision.

 

17.          Survival. The provisions of Sections 3 through 22 shall survive the
termination of this Agreement to the extent necessary to enforce the rights and
obligations described therein.

 

18.          Compliance with Code Section 409A. For purposes of applying the
provisions of Code Section 409A to this Agreement, each separately identified
amount to which the Employee is entitled under this Agreement shall be treated
as a separate payment. In addition, to the extent permissible under Code Section
409A, any series of installment payments under this Agreement shall be treated
as a right to a series of separate payments. Whenever a payment under this
Agreement specifies a payment period with reference to a number of days, the
actual date of payment within the specified period shall be within the sole
discretion of the Company or the Partnership, as the case may be.

 

19.          Withholding. The Company or the Partnership shall be entitled to
withhold from all payments to the Employee hereunder all amounts required to be
withheld under applicable local, state or federal income and employment tax
laws.

 

20.          Clawbacks. All incentive-based compensation paid to the Employee
hereunder will be subject to the policies of the Company and the Partnership
regarding clawbacks of erroneously awarded incentive-based compensation
triggered by an accounting restatement, as required by law and approved by the
Board in the case of the Company.

 

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21.          Dispute Resolution. Any dispute, controversy or claim between the
Company or the Partnership and the Employee or other Person arising out of or
relating to this Agreement shall be settled by arbitration conducted in San
Diego, California, in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association then in force and
California law within thirty (30) days after written notice from one party to
the other requesting that the matter be submitted to arbitration; provided that
this Section 21 shall not apply to, and the Company and the Partnership shall be
free to seek, injunctive or other equitable relief with respect to any actual or
threatened violation by the Employee of his or her obligations under Section 16
hereof in any court of competent jurisdiction. The arbitration decision or award
shall be binding and final upon the parties. The arbitration award shall be in
writing and shall set forth the basis thereof. The parties hereto shall abide by
all awards rendered in such arbitration proceedings, and all such awards may be
enforced and executed upon in any court having jurisdiction over the party
against whom enforcement of such award is sought. Each party shall be
responsible for its own costs and expenses in any dispute or proceeding
regarding the enforcement of this Agreement.

 

22.          Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of California (exclusive of conflict of
law principles). In the event that any provision of this Agreement shall be
invalid, illegal or unenforceable, the remainder shall not be affected thereby.
This Agreement supersedes and terminates any prior employment agreement,
severance agreement, change of control agreement or non-competition agreement
between the Company or the Partnership and the Employee. It is intended that the
payments and benefits provided under this Agreement are in lieu of, and not in
addition to, termination, severance or change of control payments and benefits
provided under the other termination or severance plans, policies or agreements,
if any, of the Company or the Partnership. This Agreement shall be binding upon
and inure to the benefit of the Employee and the Employee’s heirs and personal
representatives, the Company and the Partnership, and their successors, assigns
and legal representatives. Headings herein are inserted for convenience and
shall not affect the interpretation of any provision of the Agreement.
References to sections of the Exchange Act or the Code, or rules or regulations
related thereto, shall be deemed to refer to any successor provisions, as
applicable. The Company and the Partnership will require any successors thereto
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to expressly assume and agree to perform under this Agreement in the same manner
and to the same extent that the Company and the Partnership would be required to
perform if no such succession had taken place. This Agreement may not be
terminated, amended, or modified except by a written agreement executed by the
parties hereto or their respective successors and legal representatives.

 

23.          Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.

 

(Signature pages to follow)

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.

 

  INNOVATIVE INDUSTRIAL PROPERTIES, INC.         By: /s/ Paul Smithers     Paul
Smithers     President and Chief Executive Officer       IIP OPERATING
PARTNERSHIP, LP         By: INNOVATIVE INDUSTRIAL PROPERTIES, INC.     Its
General Partner         By: /s/ Paul Smithers     Paul Smithers     President
and Chief Executive Officer       EMPLOYEE       /s/ Robert Sistek   Robert
Sistek