In March 2012, Ironridge Global IV, Ltd. (“Ironridge”) filed a complaint against the Company for the payment of $1,388,407 in outstanding accounts payable, accrued compensation, accrued interest, and notes payable of the Company (the “Claim Amount”) that Ironridge had purchased from various creditors of the Company. The lawsuit was filed in the Superior Court of the State of California for the County of Los Angeles Central District, and the case is Ironridge Global IV, Ltd. v. Worthington Energy, Inc., Case No. BC 480184 . On March 22, 2012, the court approved an Order for Approval of Stipulation for Settlement of Claims (the "Order").
The Order provided for the immediate issuance by the Company of 10,150,000 shares of common stock (the “Initial Shares”) to Ironridge towards settlement of the Claim Amount. The Order also provides for an adjustment in the total number of shares which may be issuable to Ironridge based on a calculation period for the transaction, defined as that number of consecutive trading days following the date on which the Initial Shares were issued (the "Issuance Date") required for the aggregate trading volume of the common stock, as reported by Bloomberg LP, to exceed $4.2 million (the "Calculation Period"). Pursuant to the Order, Ironridge will retain 1,000,000 shares of the Company's common stock as a fee, plus that number of shares (the "Final Amount") with an aggregate value equal to (a) the sum of the Claim Amount plus reasonable attorney fees through the end of the Calculation Period, (b) divided by 70% of the following: the volume weighted average price ("VWAP") of the Common Stock over the length of the Calculation Period, as reported by Bloomberg, not to exceed the arithmetic average of the individual daily VWAPs of any five trading days during the Calculation Period.
Pursuant to the Order, for every 4.2 million shares of the Company's common stock that trade during the Calculation Period, or if at any time during the Calculation Period a daily VWAP is below 90% of the closing price on the day before the Issuance Date, the Company will immediately issue additional shares (each, an "Additional Issuance"), subject to the limitation in the paragraph below. At the end of the Calculation Period, (a) if the sum of the Initial Shares and any Additional Issuance is less than the Final Amount, the Company shall immediately issue additional shares to Ironridge, up to the Final Amount, and (b) if the sum of the Initial Shares and any Additional Issuance is greater than the Final Amount, Ironridge shall promptly return any remaining shares to the Company and its transfer agent for cancellation.
However, the Order provides that under no circumstances shall the Company issue to Ironridge a number of shares of common stock in connection with the settlement of claims which, when aggregated with all shares of common stock then owned or beneficially owned or controlled by Ironridge and its affiliates, at any one time exceed 9.99% of the total number of shares of common stock of the Company then issued and outstanding.
The initial issuance of 10,150,000 has been accounted for as 1) the issuance of 1,000,000 shares for fees in connection with the settlement transaction and 2) the issuance of 9,150,000 shares in settlement of liabilities acquired by Ironridge. The fee shares were valued at the closing price of the Company’s common stock of $0.04 per share on March 22, 2012, or $40,000, and recorded as share-based compensation for services. Based on the average VWAP for the period from the date of the Initial Issuance through March 31, 2012, this settlement transaction with Ironridge would require the ultimate issuance of an estimated 52,260,351 shares of common stock. However, as discussed above, the actual number of shares of common stock that will be issued will depend of the average VWAP for the entire Calculation Period. The Company has accounted for the issuance of 9,150,000 shares of common stock as settlement of a proportional amount of the Claim Amount, or an estimated $241,469 of liabilities. The remaining liability to Ironridge as of March 31, 2012 is recorded on the condensed consolidated balance sheet in the amount of $1,137,141.
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