NOTE 12. STOCK-BASED COMPENSATION

The Company previously had in place a 2006 Stock Plan which had been approved by the Company’s shareholders. The 2006 Stock Plan authorized the grant of stock options, stock appreciation rights, restricted stock, and stock bonuses of up to 9,615 shares of common stock. The 2006 Stock Plan expired on December 31, 2015. As a replacement for the 2006 Stock Plan, the Board of Directors adopted the Condor 2016 Stock Plan, which was approved by the Company’s shareholders at the annual shareholders meeting on June 15, 2016. The 2016 Stock Plan authorizes the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, deferred stock units, and other forms of stock-based compensation. The maximum number of shares of the Company’s common stock that may be issued under the 2016 Stock Plan is 461,538. As of June 30, 2017, there were 371,012 common shares available for issuance under the 2016 Stock Plan.

Equity-based compensation is measured at the fair value of the award on the date of grant and recognized as an expense on a straight-line basis over the requisite service period. Stock-based compensation awards that contain a performance condition are reviewed at least quarterly to assess the achievement of the performance condition. Compensation expense will be adjusted when a change in the assessment of achievement of the specific performance condition level is determined to be probable. The determination of fair value of these awards is subjective and involves significant estimates and assumptions including expected volatility of our stock, expected dividend yield, expected term, and assumptions of whether these awards will achieve performance thresholds. We believe that the assumptions and estimates utilized are appropriate based on the information available to management at the point of measurement. Compensation cost is recognized as additional paid-in capital for awards of the Company’s common stock and as noncontrolling interest for LTIP awards of CHLP partnership units. The Company has elected to account for forfeitures of stock-based compensation as they occur.

Service Condition Share Awards

On March 31, 2017, the Company granted awards of 13,656 restricted shares of common stock to two executive officers for incentive performance pursuant to their annual incentive objectives. On June 28, 2017, the Company granted an award of 73,385 restricted shares of common stock awards to one executive officer. All of the shares of restricted stock just described were issued under the 2016 Stock Plan and have five year ratable vesting periods based on continued employment. Dividends paid on these restricted shares during the vesting period are not forfeited in the event that the shares fail to vest. The following table presents a summary of the service condition unvested share activity for the six months ended June 30, 2017:


	Shares	Weighted-average grant date fair value
Unvested at December 31, 2016	-	$	-
Granted	87,041	$	10.60
Vested	-	$	-
Forfeited	-	$	-
Unvested at June 30, 2017	87,041	$	10.60

The fair value of the service condition unvested share awards was determined based on the closing price of the Company’s common stock on the grant date. The total unrecognized compensation cost related to service condition unvested share awards at June 30, 2017 was $960, which is expected to be recognized over weighted-average remaining service period of 4.9 years.

Market Based Awards

Pursuant to an amendment of an employment agreement on June 28, 2017, an executive officer may earn shares of common stock if certain market share prices of common stock are attained. Any such shares, if earned, will be issued under the 2016 Stock Plan or another shareholder approved plan. The executive officer will earn and be issued 36,692 common shares each time stock market price targets of $11.00 to $18.00 (in one dollar increments) per common share are first achieved prior to March 31, 2022 based on the weighted-average common stock price for 60 consecutive trading days.

The compensation cost related to awards that are contingent upon achieving a market based criteria is measured at the fair value of the award on the date of grant using the Monte Carlo simulation, including consideration of the market criteria, and amortized on a straight line basis over the derived performance period which is also estimated using this model. The grant date fair value of this award was determined using the following assumptions:


Volatility	25.0	%
Stock price	$ 10.60
Dividend yield	7.4	%
Risk free interest rate	0.89% - 1.81% based upon expected time of vesting

The total grant date fair value of this market based share award, all of which is unrecognized compensation cost at June 30, 2017, was $1,305, which is expected to be recognized over the weighted-average remaining derived service period of 1.3 years.

Performance Based Share Awards

Pursuant to an amendment of an employment agreement on June 28, 2017, an executive officer may earn shares of common stock if certain operating results of the Company are obtained. Any such shares, if earned, will be issued under the 2016 Stock Plan or another shareholder approved plan. For each of the Company’s fiscal years 2017 through 2021, if the Company achieves between 85% and 101% of budgeted Funds from Operations (“FFO”) as approved by the Board of Directors, the executive shall earn and be issued between 11,741 and 19,569 shares of common stock, determined on a straight-line basis based on the percentage of budgeted FFO achieved. In addition, for any fiscal year in which the Company achieves in excess of 101% of budgeted FFO, an additional 391 shares of common stock will be earned for each percentage actual FFO exceeds 101% of budgeted FFO, up to a total of 3,910 additional shares of common stock per year.

The fair value of the performance based share awards is based on the closing price of the Company’s common stock on the grant date, discounted for estimated common stock dividends to be declared prior to the shares being issued. The grant date occurs on an annual basis when budgeted FFO is approved by the Board of Directors. The total grant date fair value of the 2017 portion of this performance based share award, assuming that 100% of budgeted FFO is achieved, all of which is unrecognized compensation cost at June 30, 2017, was $191, which, after adjustment for the reassessment of the performance condition at each reporting date, is expected to be recognized over the remaining service period of 0.5 years.

Warrants

On March 2, 2015, the Company granted a warrant to an executive officer of the Company outside of the 2006 Stock Plan as an inducement material to the executive’s acceptance of employment. The Black-Scholes model was utilized at issuance for the determination of the fair value of the award. The warrant entitled the executive to purchase a total of 101,213 authorized but previously unissued shares of the Company’s common stock at a price of (i) $9.88 per share (the adjusted closing bid price of the common stock on Nasdaq on March 2, 2015) if at least one-third but not more than one-half of the shares were purchased on or prior to March 17, 2015, and (ii) $12.48 per share for shares purchased after that date. The warrant has a three-year term. The executive officer exercised the warrant in part to purchase 35,060 shares on March 11, 2015 at the price of $9.88 per share. The warrant remains exercisable for 66,153 shares at an exercise price of $12.48 per share. As of June 30, 2017, the total unrecognized compensation cost related to these warrants was $66, which is expected to be recognized over the remaining service period of 0.7 years.

Long-Term Incentive Plan Awards

On March 2, 2015, the Company granted an equity award of 5,263,152 LTIP units, representing profit interests in CHLP, to an executive officer of the Company. A Monte Carlo simulation was utilized at issuance for the determination of the fair value of the award. The LTIP units were to be earned in one-third increments upon the Company’s common stock achieving price per share milestones of $22.75, $29.25, and $35.75, respectively. Earned LTIP units were to vest in March 2018, or earlier upon a change in control of the Company, and upon vesting could be converted into CHLP partnership units which can be redeemed at the rate of one share of common stock for each 52 earned LTIP units for up to 101,213 common shares. These LTIP units were cancelled on June 28, 2017 pursuant to an amendment of the employment agreement with the executive officer.

Investment Committee Share Compensation

Independent directors serving as members of the Investment Committee of the Board of Directors receive their monthly Investment Committee fees in the form of shares of the Company’s common stock if issuance is available under a shareholder approved stock plan, priced as the average of the closing price of the stock for the first 20 trading days of the calendar year. A total of 409 and 1,123 shares, respectively, were issued to the independent directors of the Investment Committee during the three and six months ended June 30, 2017 under the 2016 Stock Plan. On July 15, 2016, the Company issued 1,837 shares of common stock under the 2016 Stock Plan to the independent directors of the Investment Committee for their service during the six months ended June 30, 2016.

Stock-Based Compensation Expense

The expense recognized in the consolidated financial statements for stock-based compensation, including LTIP units, related to employees and directors for the three months ended June 30, 2017 and 2016 was $80 and $70, respectively, and for the six months ended June 30, 2017 and 2016 was $157 and $139, respectively, all of which is included in general and administrative expense.