Operating partnership units. Substantially all of our business is conducted through Pillarstone OP, and we are the sole general partner. We own an 18.6% interest in Pillarstone OP. At any time, limited partners in Pillarstone OP holding OP Units have the right to convert their OP Units for cash, or at our option, common shares of Pillarstone. As of September 30, 2022, there were 16,688,167 OP Units outstanding.

Pillarstone equity. We have authority to issue up to 450,000,000 shares of beneficial interest, $0.01 par value per share, of which 400,000,000 are classified as common shares of beneficial interest, $0.01 par value per share and 50,000,000 are classified as preferred shares of beneficial interest, $0.01 par value per share. Of the 50,000,000 preferred shares of beneficial interest, 1,518,000 shares are designated as Class A Cumulative Preferred Shares ("Class A Preferred Shares") and 300,000 shares are designated as Preferred Class C Convertible Preferred shares ("Class C Preferred Shares").

On December 26, 2021, the board authorized a dividend of one preferred share purchase right (a “Right”) for each outstanding common share of the Company, payable on December 27, 2021. The description and terms of the Rights are set forth in a rights agreement, dated as of December 27, 2021 (as the same may be amended from time to time, the “Rights Agreement”), between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agent”).

Each Right entitles the registered holder to purchase from the Company one one-thousandth (a “Unit”) of a Series D Preferred Share, par value $0.01 per share, of the Company at a purchase price (“Purchase Price”) of $7.00 per Unit, subject to adjustment. The Rights initially trade with the common shares and will generally only become exercisable on the 10th business day after a person or entity has become the owner of 5% or more of the common shares (20% or more with respect to certain passive institutional investors) or the commencement of a tender or exchange offer which would result in any person becoming an owner of 5% or more of the common shares, except in certain situations specified in the Rights Agreement (such person an “Acquiring Person”), with proper provision (i) to provide each holder of certain units of Pillarstone OP with the number of Rights as would be issued to the applicable holder as if the holder had exercised its applicable redemption rights relating to such units immediately prior to the distribution date under the Rights Agreement, and the Company had elected to satisfy the redemption rights by paying the holder in shares in accordance with Pillarstone OP’s partnership agreement, and (ii) to provide each holder (other than the Company) of Class C Convertible Preferred Shares of beneficial interest, $0.01 par value per share, of the Company with the number of Rights, evidenced by Rights Certificates, as would be issued to such holder as if such holder had converted all of its Class C Preferred Shares into common shares immediately prior to the distribution date.

If any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right (other than Rights beneficially owned by an Acquiring Person, affiliates and associates of an Acquiring Person and certain transferees thereof, which Rights will thereupon become null and void) will thereafter have the right to receive upon exercise of a Right that number of common shares having a market value of two times the Purchase Price. If, after any person or group of affiliated or associated persons has become an Acquiring Person, the Company is acquired in a merger, consolidation or combination or 50% or more of its consolidated assets, cash flow or earning power are transferred, proper provisions will be made so that each holder of a Right (other than Rights beneficially owned by an Acquiring Person, affiliates and associates of an Acquiring Person and certain transferees thereof, which Rights will have become null and void) will thereafter have the right to receive upon the exercise of a Right that number of common shares of the person (or its parent) with whom the Company has engaged in the foregoing transaction having a market value of two times the Purchase Price. At any time after any person or group of affiliated or associated persons becomes an Acquiring Person and prior to the earlier of one of the events described in the previous paragraph or the acquisition by an Acquiring Person of 50% or more of the outstanding common shares, the Board may exchange the Rights (other than Rights owned by an Acquiring Person, affiliates and associates of an Acquiring Person and certain transferees thereof, which Rights will have become null and void), in whole or in part, for common shares at an exchange ratio of one common share per Right.

The Rights will expire on the earliest of (i) the close of business on December 27, 2024, (ii) the time at which the Rights are redeemed pursuant to the Rights Agreement, (iii) the closing of any merger or other acquisition transaction involving the Company that has been approved by the Board, at which time the Rights are terminated, (iv) the business day immediately following the Company’s 2022 annual meeting of shareholders (including any adjournment thereof) if the Rights Agreement shall not have been approved, on or before such date, by the affirmative vote of the holders of a majority of the voting power present, in person or by proxy, and entitled to vote at a meeting of the Company’s shareholders duly held in accordance with the Articles of Amendment and Restatement of the Declaration of Trust of the Company, the Company’s bylaws and Maryland law, and (v) the time at which the Rights are exchanged pursuant to the Rights Agreement. The Rights are in all respects subject to and governed by the provisions of the Rights Agreement.

Preferred shares. The Company has outstanding 256,636 Class A Preferred Shares of which 95,226 Class A Preferred Shares were issued to the public. The Class A Preferred Shares bear a liquidation value of $10.00 per share. We have the right to redeem the Class A Preferred Shares.

Effective June 30, 2003, we issued 696,078 Class A Preferred Shares valued at approximately $2.4 million to James C. Mastandrea, our Chairman and previous Chief Executive Officer and President, and John J. Dee, our previous Chief Financial Officer and Senior Vice President, pursuant to separate restricted share agreements. Under each restricted share agreement, the restricted shares vest upon the later of the following dates:

None of the restricted shares have vested. While the Company's gross assets exceed $50 million, when considering its 18.6% ownership of Pillarstone OP, its effective ownership of gross assets is less than $50 million.

In conjunction with a one-time incentive exchange offer for Class A Preferred shareholders, Messrs. Mastandrea and Dee exchanged 534,668 of these restricted Class A Preferred Shares into 163,116 restricted common shares. The restrictions described above are also applicable to their common shares. The 161,410 restricted Class A Preferred Shares continuing to be held by Messrs. Mastandrea and Dee can each be converted into 0.305 restricted common shares.

Holders of the remaining 95,226 Class A Preferred Shares did not participate in the one-time exchange offer above and, as a result, these Class A Preferred Shares are convertible into 0.046 common shares, subject to certain formulas.

Effective September 29, 2006, Pillarstone filed articles supplementary to its Declaration of Trust, as amended, restated and supplemented with the State Department of Assessment and Taxation of Maryland designating 300,000 Class C Preferred Shares. The Class C Preferred Shares have voting rights equal to the number of common shares into which they are convertible. Each Class C Preferred Share is convertible into common shares by dividing the sum of $10.00 and any accrued but unpaid dividends on the Class C Preferred Shares by the conversion price of $1.00. The Class C Preferred Shares have a liquidation preference of $10.00 per share, plus any accrued but unpaid dividends, and can be redeemed by the board of trustees at any time, with notice, at the same price per share.

Restricted Common Shares. The following table summarizes the activity of our unvested restricted common shares:

In the above table, 163,116 restricted shares vest upon meeting performance goals as discussed under “Preferred Shares.” Since the grant date, we have determined that meeting these performance goals is not probable, and no compensation expense has been recognized related to this grant. The grant date fair value of $1.8 million would be recognized at the point we deem it probable that we would meet the performance goals. The balance of 5,333 restricted shares had grant date fair values totaling $79 thousand, which was recognized in prior periods though the restrictions remain on the shares.

During the quarter ended September 30, 2021, the Company acquired common shares held by an employee who tendered owned common shares to satisfy the tax withholding on the lapse of certain restrictions on restricted shares.