NOTE 6. MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

Preferred Stock

We are authorized to issue 1.0 million shares of preferred stock with a par value of $0.0001 per share with such designations, rights and preferences as may be determined by our Board of Directors.

Series A

In January 2018, we issued 0.03 million shares of Series A preferred stock as an element of the Exchange (see Note 2). The Series A preferred stock has an 8.0% dividend payable quarterly in arrears and accumulates whether or not earned or declared beginning April 1, 2018. We may pay dividends on the shares of Series A preferred stock in either cash or additional shares of Series A preferred stock dependent upon us achieving certain financial metrics. The Series A preferred stock is senior to our common stock in the event of any liquidation.

The Series A preferred stock is convertible into 3,271.4653 shares of common stock per one share of Series A preferred stock, at any time after January 2021. The conversion is subject to certain exceptions including a limitation on the ability of certain holders to convert if it would cause such holder to beneficially own in excess of 9.99% of our outstanding common stock.

The shares of Series A preferred stock are redeemable by us at the election of the holders only upon the monetization of the Tax Credit certificates in excess of the amount to repay the credit facility, the senior loan facility, and an additional $2.0 million, on a pro rata basis. We can redeem the Series A preferred stock for cash at any time at the liquidation value of $1.0 thousand per share. As the Series A preferred stock holders have an option to redeem the Series A preferred stock at a future date, the Series A preferred stock is presented in temporary, or “mezzanine,” equity in our unaudited condensed consolidated financial statements.

The Series A preferred stock was recorded at $62.0 million, less stock issuance costs of $3.6 million, based on an allocation of the Exchange consideration to the various share classes and securities based on their relative fair values. We evaluated the nondetachable conversion option embedded in the Series A preferred stock to determine whether a beneficial conversion feature (“BCF”) existed as of the closing date of the Exchange that would be recognized separately from the Series A preferred stock in our unaudited condensed consolidated financial statements. The conversion option is considered beneficial if, at the commitment closing date, the effective conversion price for the Series A preferred stock is less than the fair value of the common stock into which it is convertible.

As a result of the evaluation, we determined that a BCF did exist; however, as the intrinsic value of the BCF exceeded the value allotted to the Series A preferred stock, we separately recognized a discount of $62.0 million as a reduction to the value of the Series A preferred stock. As the Series A preferred stock is considered probable of becoming redeemable, this discount will be remeasured each reporting period by accreting this discount amortized using the effective interest method over the three year period from when the Series A preferred stock was issued until it is estimated to be redeemable at the election of the Series A preferred stock holders. The accretion is presented as a deemed dividend and recorded as a charge to additional paid in capital (since there is a deficit in retained earnings). We recorded deemed dividends of $22.2 million and $56.6 million in the three months and six months ended June 30, 2018, respectively.

As it is probable that the Series A preferred stock will become redeemable, we have elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the Series A preferred stock to equal the redemption value at the end of each reporting period. These adjustments are recorded as an adjustment to additional paid in capital. We recorded $22.7 million and $21.4 million of adjustments in the three months and six months ended June 30, 2018, respectively, to record the Series A preferred stock at its redemption value as of June 30, 2018.

On March 14, 2018, the board of directors declared a dividend in kind in the amount of 0.01378 shares per one share of issued and outstanding Series A preferred stock to all holders of record as of March 15, 2018. An additional 456 shares of Series A preferred stock were issued on April 2, 2018 as a result of this dividend.

On June 15, 2018, the board of directors declared a dividend in kind in the amount of 0.02 shares per one share of issued and outstanding Series A preferred stock to all holders of record as of June 15, 2018. An additional 663 shares of Series A preferred stock were issued on July 1, 2018 as a result of this dividend.

Series B

In January 2018, we issued 0.9 million shares of Series B preferred stock as an element of the Exchange (see Note 2). The Series B preferred stock had no stated dividend and dividends were at the discretion of our Board of Directors. Each outstanding share of Series B preferred stock was convertible into 21.7378 shares of common stock or, if an election is made by an eligible holder, into warrants representing the right to receive 21.7378 shares of common stock. The Series B preferred stock was senior to our common stock and junior to the Series A preferred stock in the event of our liquidation. The Series B preferred stock was recorded at $10.8 million based on an allocation of the Exchange consideration to the various share classes and securities based on their relative fair values. Similar to the Series A preferred stock, we determined that a BCF existed for the Series B preferred stock, which exceeded the value allocated to the Series B preferred stock.

In March 2018, all of the shares of the Series B preferred stock were converted into 4.5 million shares of common stock and 14.1 million Series D warrants with an exercise price of $0.0001. Upon conversion, the Series B preferred stock was derecognized, and we fully recognized the value of the BCF as a deemed dividend. As of June 30, 2018, there were no issued or outstanding shares of Series B preferred stock.

Common Stock

As an element of the Exchange, we amended our certificate of incorporation to increase the authorized number of shares of our common stock from 55.0 million to 200.0 million. Our common stock has a par value of $0.0001 per share.

The following table presents the changes in the number of shares outstanding:

	2018
Shares issued:
Balance as of January 1		9,462
Issue of shares upon vesting of restricted stock units		208
Issue of shares on exercises of stock options		311
Issue of shares in the Exchange		812
Issue of shares on the conversion of the Series B preferred stock		4,492
Issue of shares on exercises of Series C warrants		310
Balance as of June 30		15,595

Shares held as treasury stock:
Balance as of January 1		38
Purchase of treasury stock		325
Balance as of June 30		363

Shares outstanding as of June 30		15,232

Warrants

Series A and Series B

As of June 30, 2018, we have 0.2 million Series A warrants and 0.2 million Series B warrants outstanding, both with an expiration date of July 27, 2021. The Series A warrants and Series B warrants have exercise prices of $10.30 and $12.88, respectively, and become exercisable 30 days in advance of their expiration date.

Series C

In January 2018, we issued 8.3 million Series C warrants as an element of the Exchange (see Note 2). Each Series C warrant entitles the holder to purchase one share of our common stock, has an exercise price of $0.0001 and has no expiration date. The Series C warrants are immediately exercisable by the holder and are exercisable by us in connection with a full redemption of the Series A preferred stock and Series B preferred stock provided that it does not result in a holder owning 10% or more of our outstanding shares of common stock, or upon a change in control. The Series C warrants were recorded at $4.8 million based on an allocation of the Exchange consideration to the various share classes and securities based on their relative fair values.

In the three months ended June 30, 2018, 0.3 million of the Series C warrants were exercised. As of June 30, 2018, there are 8.0 million Series C warrants outstanding.

Series D

In March 2018, we issued 14.1 million Series D warrants in connection with the conversion of the Series B preferred stock. Each warrant entitles the holder to purchase one share of our common stock, has an exercise price of $0.0001 and has no expiration date. The Series D warrants are immediately exercisable by the holders and are exercisable us in connection with a full redemption of the Series A preferred stock and Series B preferred stock, provided that it does not result in a holder owning 10% or more of our outstanding shares of common stock, or upon a change in control. The Series D warrants were recorded at their fair value of $23.0 million, which was based on the price of our common stock as of the date of the conversion as the Series D warrants have a nominal strike price, no expiration date and no other relevant restrictions.