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11 . SHAREHOLDERS' EQUITY (DEFICIT)
 12 Months Ended
Dec. 31, 2016
Historical Cost  
SHAREHOLDERS' EQUITY (DEFICIT)

PREFERRED STOCK

 

At December 31, 2016, the Company was authorized to issue 100,000,000 shares of its preferred stock with a par value of $0.001 per share, of which 25,000,000 shares have been designated “Series A” preferred stock.

 

On February 23, 2015, the Company issued 66,625 Series A Preferred shares to GGE as part of the consideration paid for the GGE Assets. The fair value of the Series A Preferred stock was $28,402,000 based on a calculation using a binomial lattice option pricing model. See Note 14 below.

 

The 66,625 shares of Series A Preferred stock issued to GGE were originally contingently redeemable in 4 tranches as follows: (i) 15,000 shares in Tranche One; (ii) 15,000 shares in Tranche Two; (iii) 11,625 shares in Tranche Three; and (iv) 25,000 shares in Tranche Four.

 

In addition, upon the original issuance of the 66,625 shares of Series A Preferred stock issued to GGE, the Series A preferred stock had the following features:

 

● a liquidation preference senior to all of the Company’s common stock equal to $400 per share;
● a dividend, payable annually, of 10% of the liquidation preference;

● voting rights on all matters, with each share having 1 vote; and
● a conversion feature at GGE’s option which would allow the Series A Preferred stock to be converted into shares of the Company’s common stock on a 1,000:1 basis.

 

However, following the October 7, 2015 approval of the Company shareholders of the issuance of shares of common stock upon the conversion of the Series A Preferred stock, the Series A Preferred features have been modified as follows:

 

● the Series A Preferred stock ceased accruing dividends and all accrued and unpaid dividends have been automatically forfeited and forgiven; and
● the liquidation preference of the Series A Preferred stock has been reduced to $0.001 per share from $400 per share.

 

GGE was also subject to a lock-up provision that prohibited it from selling the shares of common stock through the public markets for less than $1 per share (on an as-converted to common stock basis) until February 23, 2016, and subject a provision which prohibits GGE from converting shares of Series A Preferred stock if upon such conversion it would beneficially own more than 9.99% of our outstanding common stock or voting stock, subject to waiver by the Company.

 

On November 23, 2015, the Company lost the right to redeem any of the Series A Preferred and the holder also lost the right to force any redemption because, pursuant to the Series A Certificate of Designations, the Company did not repurchase any shares within nine months of the initial Series A issuance. Accordingly, the Series A Preferred is no longer redeemable.

 

As of December 31, 2016 and December 31, 2015, there were 66,625 shares of the Company’s Series A Preferred outstanding, 10,000 shares of which are now subject to cancellation and forfeiture as described further in Note 9 above due to RJC’s failure to meet its RJC Funding obligations under the Amended NPA.

 

COMMON STOCK

 

At December 31, 2016, the Company was authorized to issue 200,000,000 shares of its common stock with a par value of $0.001 per share. 

 

 During the year ended December 31, 2015, the Company issued shares of common stock or restricted common stock as follows:

 

● On January 7, 2015, the Company granted 965,000 shares of its restricted common stock with a fair value of $357,000, based on the market price on the date of grant, to certain of its employees, including 370,000 shares to Chairman and then Chief Executive Officer, Frank C. Ingriselli, 325,000 shares to President and then Chief Financial Officer, Michael L. Peterson, and 270,000 shares to Executive Vice President and General Counsel, Clark R. Moore, all pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan and in connection with the Company’s 2014 annual equity incentive compensation review process. 40% of the shares vest on the nine month anniversary of the grant date, 20% vest on the twelve month anniversary of the grant date, 20% vest on the eighteen month anniversary of the grant date and 20% vest on the twenty-four month anniversary of the grant date, all contingent upon the recipient’s continued service with the Company. The vesting of the securities granted to Messrs. Ingriselli, Peterson and Moore is subject to the terms of certain Vesting Agreements.
● On January 27, 2015, a holder of Bridge Notes converted an aggregate of $83,000 (principal and accrued interest amounts) due under the Bridge Notes into an aggregate of 165,431 shares of common stock of the Company.

● On February 6, 2015, the Company granted 193,550 shares of its restricted common stock with a fair value of $120,000, based on the market price on the date of grant, to certain members of its board of directors, pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan, of which $29,000 was expensed as of March 31, 2015. 100% of the shares vested on September 10, 2015, contingent upon the recipient being a Director of, or employee of or consultant to, the Company on such vesting date.
● On February 23, 2015, the Company issued 3,375,000 restricted common shares to GGE valued at $0.81 per share, based on the market price on the date of grant, as part of the consideration paid for the assets acquired from GGE.

● On March 6, 2015, the Company granted 15,000 fully-vested shares of its restricted common stock with a fair value of $10,000, based on the market price on the date of grant, to a consultant pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan.
● On April 16, 2015, the Company issued 19,445 shares of common stock to a former employee in connection with the exercise of 19,445 options on a cashless basis.

● On May 13, 2015, the Company announced the pricing of an underwritten public offering of an aggregate of 5,600,000 shares of common stock at price of $0.50 per share to the public (the “May 2015 Offering”). The underwriter in the offering was granted an option to purchase up to 840,000 shares of common stock to cover overallotments. On May 18, 2015, the Company closed this underwritten offering of an aggregate of 5,600,000 shares of common stock, and on May 19, 2015 the underwriter exercised a portion of its overallotment option and purchased 766,197 shares of common stock. With the exercise of a portion of the overallotment option, the Company sold 6,366,197 total shares of common stock in the May 2015 Offering for net proceeds of approximately $2.78 million. The Company received gross proceeds of $3,183,000 before deducting underwriting discounts and offering expenses as a result of the offering.
● On September 10, 2015, the Company issued 390,000 shares of common stock to a financial and professional relations advisor valued at $0.35 per share, based on the fair value of the stock on the date granted, in connection with the Company’s entry into a consulting services agreement in the amount of $137,000.

● On October 7, 2015, the Company issued 214,286 shares of restricted common stock under the Company’s 2012 Amended and Restated Equity Incentive Plan to each of Mr. David C. Crikelair, Ms. Elizabeth P. Smith, and Mr. David Z. Steinberg, Company’s then independent directors, as annual equity compensation grants made in accordance with the Company’s Board of Director’s Compensation Plan. 100% of the shares issued to Mr. Crikelair and Ms. Smith will become vested and non-forfeitable on September 10, 2016, and 100% of the shares issued to Mr. Steinberg were to become vested and non-forfeitable on July 15, 2016 (which vesting date Mr. Steinberg subsequently delayed to July 15, 2017), for so long as the holder remains a director, employee of, or consultant to the Company, with a stock price on the grant date of $0.28 per share, and a total grant date fair value of $180,000.

 

During the year ended December 31, 2016, the Company issued shares of common stock or restricted common stock as follows:

 

● On January 7, 2016, the Company issued 1,750,000 shares of its restricted common stock with a fair value of $385,000, based on the market price on the date of issuance, to certain of its employees, including 600,000 shares to its Chairman and then Chief Executive Officer, Frank C. Ingriselli, 600,000 shares to its President and then Chief Financial Officer, Michael L. Peterson, and 550,000 shares to its Executive Vice President and General Counsel, Clark R. Moore, all pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan and in connection with the Company’s 2015 annual equity incentive compensation review process. 50% of the shares vest on the six month anniversary of the grant date, 30% vest on the twelve month anniversary of the grant date and 20% vest on the eighteen month anniversary of the grant date, all contingent upon the recipient’s continued service with the Company.
● On April 5, 2016, the Company issued 700,000 shares of Company common stock to the Company’s Houston office landlord in connection with the termination of the Company’s Houston office lease, valued at $161,000, based on the market price on the date of grant.

● On April 15, 2016, there were 45,000 shares of unvested restricted common stock forfeited in connection with the termination of an employee.
● On April 28, 2016, there were 323,490 total shares of common stock repurchased and retired by the Company from two employees at $0.23 per share.

● On May 12, 2016, the Company and Liberty entered into a settlement agreement, pursuant to which the Company paid to Liberty $750,000 and issued 2,450,000 fully-vested shares of the Company’s restricted common stock, valued at $588,000, based on the market price on the grant date, as full settlement of all amounts due for the services previously rendered, for which the Company owed approximately $2.6 million. As of December 31, 2015 and March 31, 2016, the Company had accrued $2,620,000 in accounts payable. As a result of the settlement, the Company recognized a gain on settlement of payables of $1,282,000 during the year ended December 31, 2016.
● On July 5, 2016, the Company issued 81,290 shares of the Company’s common stock to Mr. Frank C. Ingriselli, the Company’s Chairman, member of the Board of Directors, and then Chief Executive Officer, in connection with the cashless net exercise of stock options by Mr. Ingriselli.
● On December 28, 2016, the Company issued 4,881,820 shares of its restricted common stock with a fair value of $537,000, based on the market price on the date of issuance, to certain of its employees and four Directors, including 1,650,000 shares to its Chief Executive Officer and President, Michael L. Peterson, and 1,050,000 shares to its Executive Vice President and General Counsel, Clark R. Moore, all pursuant to the Company’s 2012 Amended and Restated Equity Incentive Plan and in connection with the Company’s 2015 annual equity incentive compensation review process. For the employee shares, 50% of the shares vest on the six month anniversary of the grant date, 30% vest on the twelve month anniversary of the grant date and 20% vest on the eighteen month anniversary of the grant date, all contingent upon the recipient’s continued service with the Company.
●

On December 28, 2016, the Company issued 200,000 shares of common stock to a financial advisor valued at $0.11 per share, based on the fair value of the stock on the date granted, for consulting services.

 Stock­based compensation expense recorded related to restricted stock during the year ended December 31, 2016 was $995,000. The remaining amount of unamortized stock­based compensation expense related to restricted stock at December 31, 2016 was $600,000.