Related Party Transactions | 12 Months Ended |
Dec. 31, 2013 |
Related Party Transactions [Abstract] | ' |
Related Party Transactions | ' |
Related Party Transactions |
Juneau Exploration L.P. |
In April 2012, the Company announced that Mr. Brad Juneau, the sole manager of the general partner of JEX, had joined the Company’s board of directors and that the Company had entered into an advisory agreement with JEX (the "Advisory Agreement"), whereby in addition to generating and evaluating offshore and onshore exploration prospects for the Company, JEX would direct Contango’s staff on operational matters including drilling, completions and production. Pursuant to the Advisory Agreement, JEX was to be paid an annual fee of $2.0 million. |
In August 2012, the Company's founder, Chairman and Chief Executive Officer, Mr. Kenneth R. Peak, took a medical leave of absence and the board of directors of the Company appointed Mr. Juneau as President and Acting Chief Executive Officer of the Company, which he held until December 2012. |
Effective January 1, 2013, the Advisory Agreement was terminated, and the Company and JEX entered into a First Right of Refusal Agreement (the "First Right Agreement"). Under the First Right Agreement, JEX granted a first right of refusal to Contango to purchase any exploration prospects generated and recommended by JEX. Prospects were presented along with terms and conditions for purchasing each prospect and Contango had the first right of refusal to purchase the prospect from JEX, subject to mutually acceptable terms. Pursuant to the First Right Agreement, JEX was to be paid an annual fee of $0.5 million, which approximates the costs incurred by JEX for its support to the Company in the areas of operations, engineering, and land functions. JEX and its employees continued to be eligible to receive overriding royalty interests, carried interests and certain back-in rights. The First Right Agreement was terminated effective as of March 31, 2013. |
Effective January 1, 2013, Contaro Company, a wholly-owned subsidiary of the Company, entered into an advisory agreement with JEX (the "Contaro Advisory Agreement"). Under the Contaro Advisory Agreement, JEX will provide advisory services to Contaro in connection with Contaro's investment in Exaro, and Mr. Juneau will serve on the Board of Managers of Exaro and perform such duties as described in the limited liability company operating agreement of Exaro. Pursuant to the Contaro Advisory Agreement, JEX will be paid a monthly fee of $10,000 and shall be entitled to receive a one percent (1%) fee of the cash profit earned by Contaro. Cash profit is defined as the amount of cash received by Contango as a result of its investment in Contaro, less the cash invested by the Company as a result of its investment in Contaro. |
On March 19, 2014, Mr. Juneau resigned from the board of directors. |
Olympic Energy Partners |
In December 2012, Mr. Joseph J. Romano was elected President and Chief Executive Officer of the Company. Mr. Peak passed away on April 19, 2013 and Mr. Romano was named Chairman of the Company. Upon the Merger with Crimson on October 1, 2013, Mr. Romano resigned as President and Chief Executive Officer, but remains Chairman. Mr. Romano is also the President and Chief Executive Officer of Olympic Energy Partners LLC ("Olympic"). |
JEX, affiliates of JEX, and Olympic have historically participated with the Company in the drilling and development of certain prospects through participation agreements and joint operating agreements, which specify each participant’s working interest ("WI"), net revenue interest ("NRI"), and describe when such interests are earned, as well as allocate an overriding royalty interest ("ORRI") of up to 3.33% to benefit the employees of JEX, excluding Mr. Juneau, except where otherwise noted. Olympic last participated with the Company in the drilling of wells in March 2010, and its ownership in Company-operated wells is limited to our Dutch and Mary Rose wells. |
Republic Exploration LLC |
In his capacity as sole manager of the general partner of JEX, Mr. Juneau also controls the activities of Republic Exploration LLC ("REX"), an entity owned 34.4% by JEX, 32.3% by Contango, and 33.3% by a third party which contributed other assets to REX. REX generates and evaluates offshore exploration prospects and has historically participated with the Company in the drilling and development of certain prospects through participation agreements and joint operating agreements, which specify each participant’s working interest, net revenue interest, and describe when such interests are earned, as well as allocate an overriding royalty interest of up to 3.33% to benefit the employees of JEX. The Company proportionately consolidates the results of REX in its consolidated financial statements. |
As of December 31, 2013, Contango, Olympic, JEX, REX and JEX employees owned the following interests in the Company's offshore wells. |
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| Contango | | Olympic | | JEX | | REX | | JEX Employees | | | | | | | | |
| WI | NRI | | WI | NRI | | WI | NRI | | WI | NRI | | ORRI | | | | | | | | |
Dutch #1 - #5 | 54.89 | % | 44.65 | % | | 3.53 | % | 2.84 | % | | 1.88 | % | 1.51 | % | | — | % | — | % | | 2.02% | | | | | | | | |
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Mary Rose #1 | 53.21 | % | 40.44 | % | | 3.61 | % | 2.7 | % | | 2.01 | % | 1.51 | % | | — | % | — | % | | 2.79% | | | | | | | | |
Mary Rose #2 - #3 | 53.21 | % | 38.67 | % | | 3.61 | % | 2.58 | % | | 2.01 | % | 1.44 | % | | — | % | — | % | | 2.79% | | | | | | | | |
Mary Rose #4 | 34.58 | % | 25.49 | % | | 2.34 | % | 1.7 | % | | 1.31 | % | 0.95 | % | | — | % | — | % | | 1.82% | | | | | | | | |
Mary Rose #5 | 37.8 | % | 27.88 | % | | 2.56 | % | 1.87 | % | | 1.43 | % | 1.04 | % | | — | % | — | % | | 1.54% | | | | | | | | |
Ship Shoal 263 | 100 | % | 80 | % | | — | % | — | % | | — | % | — | % | | — | % | — | % | | 3.33% | | | | | | | | |
Vermilion 170 | 83.2 | % | 64.83 | % | | — | % | — | % | | 4.3 | % | 3.35 | % | | 12.5 | % | 9.74 | % | | 3.33% | | | | | | | | |
Prior to December 2013, Contango, Olympic, and JEX had the following lower WI and NRI in Dutch #1-#5, as a result of exercising a preferential right in December 2013: |
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| Contango | | Olympic | | JEX | | | | | | | | | | | | | | | | | | |
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| WI | NRI | | WI | NRI | | WI | NRI | | | | | | | | | | | | | | | | | | |
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Dutch #1 - #5 | 47.05% | 38.12 | % | | 3.02 | % | 2.42 | % | | 1.61% | 1.29% | | | | | | | | | | | | | | | | | | |
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During the year ended December 31, 2013, Mr. Romano earned $26,000 and Mr. Juneau earned $97,500 in cash, and each received 1,622 shares of restricted stock, which vest 100% on the one-year anniversary of the date of grant, as part of their board of director compensation. Below is a summary of transactions between the Company, Olympic, JEX, and REX during the years ended December 31, 2013, 2012 and 2011. |
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• | In March 2010 the Company spud the Eloise South well. All owners paid for their proportionate share of drilling and completion costs based on their ownership percentage. The Company had a 23.8% working interest in this well, Olympic had a 3.33% working interest, and REX had a 9.6% working interest. Once production began, JEX employees received an ORRI of 1.33%. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In June 2010 the Company spud its Rexer #1 well. Under the terms of the applicable participation agreement, the Company had a 100% working interest through payout of all costs. In May 2011, the Company sold Rexer #1 (See Note 18 - "Discontinued Operations") prior to reaching payout. Once payout is reached with the new operator, JEX will have an option to back-in for a 10% working interest (7.25% net revenue interest). Other third-parties own the remaining working interests. JEX employees maintained a 2.5% ORRI in this well. The Company paid JEX a prospect fee of $250,000 for generating this prospect. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Prior to its dissolution, Contango Offshore Exploration LLC owed the Company $5.9 million in principal and interest under a promissory note (the “COE Note”) payable on demand. In connection with the dissolution, the Company assumed its 65.63% share of the obligation under the COE Note, while JEX assumed the remaining 34.37%, or approximately $2 million. This $2 million was paid to the Company in October 2010. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In February 2011 the Company spud Vermilion 170 which was owned 100% by the Company. Under the terms of the applicable participation agreement, Contango had a 100% working interest through casing point. Once casing point was reached, JEX and REX each exercised their option to back-in for a 2.6% and 7.5% working interest, respectively. Once production began, JEX and REX each received their carried working interest of 1.7% and 5.0%, respectively, resulting in JEX having a final working interest of 4.3% and REX having a final working interest of 12.5%. The Company owns the remaining working interests in this well. The Company paid JEX a prospect fee of $250,000 for generating this prospect. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In May 2011 the Company spud its Rexer-Tusa #2 well. Under the terms of the applicable participation agreement, the Company had a 25% working interest through payout of all costs. In October 2011, the Company completed selling Rexer-Tusa #2 (See Note 18 - "Discontinued Operations") prior to reaching payout. Once payout is reached with the new operator, JEX will have an option to back-in for a 10% working interest (7.36% net revenue interest). Other third-parties own the remaining working interests. JEX employees maintained a 2.92% ORRI in this well. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In July 2011, the Company recompleted its Eloise South well uphole in the Cib-Op sands as our Dutch #5 well. Under the terms of the applicable joint operating agreement, all Dutch #5 well owners were required to purchase the Eloise South well bore from the Eloise South owners (the "Dutch Well Cost Adjustment"). All Eloise South and Dutch #5 well owners paid and/or received their proportionate share of the Dutch Well Cost Adjustment based on their ownership percentage in each well. At the time of the Dutch Well Cost Adjustment, JEX had a 1.6% working interest in Dutch #5; Olympic had a 3.02% working interest in Dutch #5 and a 3.33% working interest in Eloise South; REX had a 9.6% working interest in Eloise South; and Contango had a 47.05% working interest in Dutch #5 and a 23.8% working interest in Eloise South. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In December 2011, the Company purchased an additional working interest in Mary Rose #5 (see below) from an existing partner. The Company then sold to Olympic and JEX its proportionate share of the existing partner's interest, based on Olympic and JEX's ownership percentage in the well. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In January 2012, the Company recompleted its Eloise North well uphole in the Cib-Op sands as our Mary Rose #5 well. Under the terms of the applicable joint operating agreement, all Mary Rose #5 well owners were required to purchase the Eloise North well bore from the Eloise North owners. (the "Mary Rose Well Cost Adjustment"). All Eloise North and Mary Rose #5 well owners paid and/or received their proportionate share of the Mary Rose Well Cost Adjustment based on their ownership percentage in each well. JEX had a 1.4% working interest in Mary Rose #5 and a 0.1% working interest in Eloise North; Olympic had a 2.56% working interest in Mary Rose #5 and a 4.79% working interest in Eloise North; REX had a 13.2% working interest in Eloise North; and the Company had a 37.8% working interest in Mary Rose #5 and a 35.8% working interest in Eloise North. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In July 2012 the Company spud the Ship Shoal 134 prospect which was owned 100% by the Company. The Company paid 100% of the costs to drill, plug and abandon this well. The Company paid JEX a prospect fee of $250,000 for generating this prospect. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In July 2012 the Company spud the South Timbalier 75 prospect which was farmed-in 100% by the Company and REX. Under the terms of the applicable participation agreement, the Company paid 100% of the costs to drill, plug and abandon this well. The Company paid JEX a prospect fee of $250,000 for generating this prospect. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | For the five REX-generated lease blocks that the Company purchased at the June 20, 2012 lease sale, the Company will have a 100% working interest through first production. At first production (if successful), REX will receive a carried working interest of 10%. Once payout of post casing point costs has been reached, REX will have an option to back-in for up to 12.5% working interest, resulting in REX having a final working interest of up to 22.5% (17.5% net revenue interest) and the Company owning the remaining working interests. JEX employees will receive an ORRI of 3.33% in these prospects. The Company will pay JEX a prospect fee of $250,000 for each prospect the Company drills. Should the Company not drill these prospects within 48 months of the effective date of each lease, the Company shall assign such lease to REX. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | For the one JEX-generated lease block that the Company purchased at the June 20, 2012 lease sale, the Company will carry JEX for 10% through first production and JEX employees will receive an ORRI of 3.33%. The Company paid JEX a prospect fee of $250,000 in December 2013 upon spudding this prospect. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | For the three REX-generated lease blocks that the Company purchased at the March 20, 2013 lease sale, the Company will have a 100% working interest through first production. At first production (if successful), REX will receive a carried working interest of 10%. Once payout of post casing point costs has been reached, REX will have an option to back-in for up to 12.5% working interest, resulting in REX having a final working interest of up to 22.5% (17.5% net revenue interest) and the Company owning the remaining working interests. JEX employees will receive an ORRI of 3.33% in these prospects. The Company paid JEX two prospect fees of $250,000 each, for evaluating these two prospects located on three leases. Should the Company not drill these prospects within 48 months of the effective date of each lease, the Company shall assign such lease to REX. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In June 2013, the Company purchased South Timbalier 17 from an independent oil and gas company. Under the terms of the applicable participation agreement, the Company will have a 75% working interest in this well, with several other owners owning the remainder, until payout of all costs is reached. Once payout of all costs has been reached, REX will have an option to back-in for up to a 9.4% working interest, (6.7% net revenue interest), resulting in the Company owning a 56.3% working interests (39.9% net revenue interest). The Company paid JEX a prospect fee of $250,000 for evaluating this prospect. There are no JEX employee ORRIs on this prospect. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | In the Tuscaloosa Marine Shale ("TMS"), a shale play in central Louisiana and Mississippi, the Company has a 100% working interest through first production. Beginning with production from the fourth well on the existing acreage (if successful), JEX will receive a carried working interest of 10% and JEX employees will receive an ORRI of 2%, of which Mr. Juneau receives 0.75%, to reimburse Mr. Juneau for out-of-pocket costs incurred in order for Contango to participate in the prospect. An additional 2% was granted to the geologist who generated the TMS prospect for us. The geologist has subsequently been employed by Contango. Should the Company not drill on its TMS acreage within six months of the leases expiring, the Company shall assign such leases to JEX. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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• | Effective January 1, 2014, the Company subleased to JEX a portion of its previous office space at 3700 Buffalo Speedway, Houston, Texas for approximately $0.1 million per year, which approximates our rental liability for that space. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Below is a summary of payments received from (paid to) Olympic, JEX, and REX in the ordinary course of business in our capacity as operator of the wells and platforms for the periods indicated. The Company made and received similar types of payments with other well owners (in thousands): |
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| Year ended December 31, |
| 2013 | | 2012 | | 2011 |
| Olympic | JEX | REX | | Olympic | JEX | REX | | Olympic | JEX | REX |
Revenue payments as well owners | $ | (6,859 | ) | $ | (4,628 | ) | $ | (1,932 | ) | | $ | (6,888 | ) | $ | (5,230 | ) | $ | (4,308 | ) | | $ | (9,669 | ) | $ | (5,393 | ) | $ | (816 | ) |
Joint interest billing receipts | 945 | | 1,201 | | 2,090 | | | 1,081 | | 724 | | 885 | | | 1,867 | | 1,069 | | 3,229 | |
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Dutch well cost adjustment | — | | — | | — | | | — | | — | | — | | | (389 | ) | 161 | | (957 | ) |
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Mary Rose well cost adjustment | — | | — | | — | | | (201 | ) | 118 | | (1,185 | ) | | — | | — | | — | |
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Below is a summary of payments received from (paid to) Olympic, JEX and REX as a result of specific transactions between the Company, Olympic, JEX and REX. While these payments are in the ordinary course of business, the Company did not have similar transactions with other well owners (in thousands): |
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| Year ended December 31, |
| 2013 | | 2012 | | 2011 |
| Olympic | JEX | REX | | Olympic | JEX | REX | | Olympic | JEX | REX |
Sale of interest in Mary Rose #5 | $ | — | | $ | — | | $ | — | | | $ | — | | $ | — | | $ | — | | | $ | — | | $ | 8 | | $ | — | |
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Reimbursement of certain costs | — | | (115 | ) | (4 | ) | | — | | (496 | ) | (9 | ) | | — | | (185 | ) | (149 | ) |
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Prospect fees | — | | (1,000 | ) | — | | | — | | — | | — | | | — | | (250 | ) | — | |
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Advisory Agreements | — | | (361 | ) | — | | | — | | (1,530 | ) | — | | | — | | — | | — | |
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REX distribution to members | — | | — | | (197 | ) | | — | | — | | 1,469 | | | — | | — | | — | |
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As of December 31, 2013 and 2012, the Company's consolidated balance sheets reflected the following balances (in thousands): |
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| 31-Dec-13 | | 31-Dec-12 | | | | | | | | | | |
| Olympic | JEX | REX | | Olympic | JEX | REX | | | | | | | | | | |
Accounts receivable: | | | | | | | | | | | | | | | | | |
Trade receivable | $ | — | | $ | — | | $ | — | | | $ | 2 | | $ | 1 | | $ | 1 | | | | | | | | | | | |
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Joint interest billing | 34 | | 87 | | 116 | | | 79 | | 85 | | 78 | | | | | | | | | | | |
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Accounts payable: | | | | | | | | | | | | | | | | | |
Royalties and revenue payable | (1,293 | ) | (877 | ) | (466 | ) | | (1,133 | ) | (842 | ) | (642 | ) | | | | | | | | | | |
Joint interest billings | — | | — | | — | | | — | | (101 | ) | — | | | | | | | | | | | |
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Oaktree Capital Management L.P. |
Oaktree Capital Management L.P. ("Oaktree"), through various funds, owns approximately 6.7% of the Company's stock. On October 1, 2013 following the closing of the Merger, Mr. James Ford, a Manging Director and Portfolio Manager within Oaktree, was elected to the Company's board of directors. Mr. Ford was previously a member of Crimson's board of directors from February 2005 until the closing of the Merger. |
As part of Mr. Ford's director compensation, all cash and equity awards payable to Mr. Ford, are instead granted to an affiliate of Oaktree. During the year ended December 31, 2013, an affiliate of Oaktree earned $17,000 in cash and 1,622 shares of restricted common stock as a result of Mr. Ford's board participation. These shares vest one year from the date of grant. |
Prior to the Merger, Crimson maintained a second lien credit agreement with Barclays Bank Plc, as agent, and other parties, including an affiliate of Oaktree, which was Crimson's largest stockholder at the time (the “Second Lien Credit Agreement”). The Second Lien Credit Agreement provided for a term loan, made to Crimson in a single draw, in an aggregate principal amount of $175.0 million. In connection with the Merger, the Company assumed and immediately repaid Crimson’s $175.0 million loan under the Second Lien Credit Agreement, plus $1.8 million in interest and prepayment premiums. |
Contango ORE, Inc. |
Contango Mining Company (“Contango Mining”), a wholly owned subsidiary of the Company, was formed in October 2009 for the purpose of engaging in exploration on properties in the state of Alaska for (i) gold ore and associated minerals and (ii) rare earth elements. Contango Mining initially acquired a 50% interest in these properties in Alaska from JEX in exchange for $1 million and a 1% ORRI in the properties under a Joint Exploration Agreement (the “Joint Exploration Agreement”). We believe JEX expended approximately $1 million on exploratory activities and related work on the properties prior to selling the initial 50% interest to Contango Mining. |
In September 2010, Contango Mining acquired the remaining 50% interest in the properties by increasing the ORRI in the properties granted to JEX to 3% pursuant to an Amended and Restated Conveyance of Overriding Royalty Interest (the “Amended ORRI Agreement”). Contango Mining assumed control of the exploration activities and JEX and Contango Mining terminated the Joint Exploration Agreement. |
Contango ORE, Inc. ("CORE") was formed on September 1, 2010 as a wholly-owned subsidiary of the Company and in November 2010, Contango Mining assigned the properties and certain other assets and liabilities to Contango. Contango contributed the properties and $3.5 million of cash to CORE, pursuant to the terms of a Contribution Agreement (the “Contribution Agreement”), in exchange for approximately 1.6 million shares of CORE's common stock. The transactions took place between companies under common control. Contango distributed all of CORE's common stock to Contango’s stockholders of record as of October 15, 2010, promptly after the effective date of CORE's Registration Statement Form 10 on the basis of one share of common stock for each ten (10) shares of Contango’s common stock then outstanding. |
In November 2011, the Company executed a $1.0 million Revolving Line of Credit Promissory Note to lend money to CORE (the “CORE Note”). The Company and CORE shared executive officers at that time. The CORE Note contained covenants limiting CORE’s ability to enter into additional indebtedness and prohibiting liens on any of its assets or properties. Borrowings under the CORE Note bore interest at 10% per annum. On March 30, 2012 the Company received repayment of the $500,000 it had advanced under the CORE Note, plus accrued interest of approximately $15,000. The CORE Note was terminated on December 31, 2012. |
Equity Compensation |
In February 2012, the Company net-settled 45,000 stock options from two employees for a total of approximately $465,000. All settlements were approved by the Company’s board of directors and were completed at the closing price of the Company’s common stock on the date of settlement. |