NOTE 10. PREFERRED STOCK

Series D Preferred Stock

On March 16, 2016, the Company and SREP III Flight-Investco, L.P. (“SREP”), an affiliate of StepStone Group LP, entered into a Stock Purchase Agreement pursuant to which Condor issued and sold 3,000,000 shares of Series D Preferred Stock to SREP for an aggregate purchase price of $30,000. Simultaneously, the Company entered into an Exchange Agreement with RES pursuant to which all 3,000,000 outstanding shares of 6.25% Series C Cumulative Convertible Preferred Stock (“Series C Preferred Stock”) were exchanged for 3,000,000 shares of Series D Preferred Stock with an additional 245,156 shares of Series D Preferred Stock issued to RES in lieu of a portion of the accrued and unpaid dividends due on the Series C Preferred Stock. The Note (see Note 7) and cash of $1,484 were also issued to RES as part of this exchange transaction.

On February 28, 2017, the holders of the 6,245,156 outstanding shares of Series D Preferred Stock voluntarily converted their shares into 6,004,957 shares of common stock at $10.40 per share pursuant to the terms of the preferred stock. The terms of the Series D Preferred Stock provided for automatic conversion following certain future common stock offerings, and also provided for potential additional payments to the holders depending on the sales price of common stock in the offerings. As a result of the voluntary conversion, the holders are no longer entitled to the potential payments. To induce the holders of the Series D Preferred Stock to voluntarily convert their shares, the Company issued the holders 925,000 shares of a new series of preferred stock, the Series E Preferred Stock.

The fair value of the Series D Preferred Stock was determined to be equal to its face value on the date of issuance.

Series E Redeemable Convertible Preferred Stock

Following the voluntary conversion of the Series D Preferred Stock on February 28, 2017, the only shares of preferred stock outstanding are 925,000 shares of Series E Preferred Stock.

The Series E Preferred Stock ranks senior to the Company’s common stock and any other preferred stock issuances and receives preferential cumulative cash dividends at a rate of 6.25% per annum, payable quarterly of the $10.00 face value per share. If the Company fails to pay a dividend then during the period that dividends are not paid, the dividend rate increases to 9.50% per annum. Dividends on the Series E Preferred Stock accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared, and whether or not such dividends are prohibited by agreement.

Each share of Series E Preferred Stock is convertible, at the option of the holder, at any time on or after February 28, 2019, into a number of shares of common stock determined by dividing the conversion price of $13.845 into an amount equal to the $10.00 face value per share plus accrued and unpaid dividends, if any. Upon liquidation, each share of Series E Preferred Stock is entitled to $10.00 per share and accrued and unpaid dividends. The conversion price is subject to anti-dilution adjustments upon the occurrence of stock splits and stock dividends. Following a specific equity offering or offerings, from time to time a number of shares of Series E Preferred Stock automatically converts into common stock if the common stock trades at 120% of the conversion price for 60 trading days, and the number of shares converted will be determined by certain trading volumes measures.

The Company has rights to redeem up to 490,250 shares of the Series E Preferred Stock at prices from 110% to 130% of its liquidation value. The holders have put rights commencing March 16, 2021 to put the Series E Preferred Stock to the Company at 130% of its liquidation preference, which the Company can satisfy with cash or common stock. The Series E Preferred Stock votes as a class on matters generally affecting the Series E Preferred Stock, and as long as 434,750 shares of Series E Preferred Stock (47% of the originally issued shares of Series E Preferred Stock) remain outstanding, then 75% approval of the Series E Preferred Stock will be required to approve merger, consolidation, liquidation or winding up of Condor, related party transactions exceeding $120, payment of dividends on common stock except from funds from operations or to maintain REIT status, the grant of exemptions from Condor’s charter limitation on ownership of 9.9% of any class or series of its securities (exclusive of persons currently holding exemptions), issuance of preferred stock or commitment or agreement to do any of the foregoing.

The Series E Preferred Stock was determined to have a fair value of $9,900 on the date of issuance as measured using a trinomial lattice-based model. From this value, the embedded redemption option (see Note 8), which was determined to be an asset with a fair value on the date of issuance of $150 using the same model, was bifurcated and will be accounted for at fair value at each period end. These are considered Level 3 fair value measurements. The issuance of the Series E Preferred Stock is considered an inducement to convert the Series D Preferred Stock to common stock and as such, its fair value at issuance, plus related expenses totaling $127 and $1,130 in the three and six months ended June 30, 2017, are reflected as a reduction of retained earnings and an increase in dividends declared and in kind dividends deemed on preferred stock.

Impact of Preferred Stock on Net Earnings (Loss) Attributable to Common Shareholders

The components of dividends declared and in kind dividends deemed on preferred stock are as follows:


	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Preferred D dividends accrued at stated rate	$	-	$	-	$	-	$	650
Preferred D inducement to convert		-		127		-		11,030
Preferred E dividends accrued at stated rate		145		144		289		194
Dividends declared and in kind dividends deemed on preferred stock	$	145	$	271	$	289	$	11,874