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Related Party Transactions
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12 Months Ended |
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Jun. 30, 2012
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| Related Party Transactions [Abstract] | |
| Related Party Transactions |
Note 11 - Related Party Transactions
Transactions with Young Energy Prize S.A. ("YEP") and Related Entities
First Private Investment in a Public Entity ("First PIPE"). The Company entered into a Securities Purchase Agreement (the "First Purchase Agreement") to finalize the terms of the First PIPE, dated February 9, 2009, with its largest stockholder, YEP, under which the Company agreed to sell, and YEP agreed to purchase, 8,695,652 shares (the "Shares") of the Company's common stock, par value $0.01 per share (the "Common Stock") at a purchase price of $1.15 per share, or an aggregate of AUD $10.0 million. YEP is a Luxembourg corporation. Mr. Nikolay Bogachev, a director of the Company since July 2009, is the President and CEO of YEP as well as an equity owner of YEP.
The First Purchase Agreement was amended on April 3, 2009, and June 30, 2009. On July 9, 2009, the Company and YEP completed the issuance and sale of the Shares to YEP in accordance with the First PIPE. The Company received gross proceeds of AUD $10.0 million, which was used for acquisitions, general corporate, and working capital purposes. On July 9, 2009, the Company also executed and delivered to YEP a Warrant Agreement entitling YEP to purchase an additional 4,347,826 shares of the Company's Common Stock (the "Warrant Shares") at an exercise price of $1.20 per Warrant Share, subsequently reduced to $1.15 per share on July 30, 2009. The shares sold to YEP in the First PIPE and the Warrant Shares were not registered under the Securities Act or state securities laws and may not be resold in the United States in the absence of an effective registration statement filed with the U.S. Securities and Exchange Commission ("SEC") or an available exemption from the applicable federal and state registration requirements.
Initially, the Warrant Agreement contained anti-dilutive provisions that reduced the exercise price of the warrants based on certain trigger events such as the issuance of additional shares at a discount from the then current warrant exercise price. Since the provisions permitted the warrant holder to avoid bearing some of the risks and rewards normally associated with equity share ownership, the warrants were initially classified as liabilities and marked to market each reporting date with the change in value flowing through earnings. On March 11, 2010, YEP and the Company agreed to amend the Warrant Agreement to remove certain anti-dilution provisions. As a result, the Warrants were reclassified as equity and no revaluations were required subsequent to March 11, 2010. For the year ended June 30, 2010, non-cash charges of $4.3 million were recorded in the consolidated statement of income.
U.S. Federal Tax Withholdings. During the third quarter of fiscal year 2012, the Company identified a potential liability of approximately $2.0 million related to the Company's failure to make the required U.S. Federal tax withholding in the course of its initial acquisition of NP. In October 2009, Magellan acquired 83.5% of the membership interests in NP (the "Poplar Acquisition"), from the two majority owners of NP, White Bear LLC ("White Bear") and YEP I, SICAV-FES ("YEP I"). Both of these entities are affiliated with Mr. Bogachev, a Director of Magellan and a foreign national. Due to the status of YEP I as foreign entity and the members of White Bear being foreign nationals, Magellan was required to make U.S. Federal tax withholdings from the payments to or for the benefit of White Bear and YEP I. Of the $2.0 million liability, $1.3 million was estimated to relate to the interest sold by White Bear, $0.6 million to the interest sold by YEP I, and $0.1 million to Magellan's interest on late payment of the U.S. Federal tax withholdings.
Upon the filing of U.S. income tax returns in relation to the Poplar Acquisition and payment of corresponding income taxes by White Bear and YEP I, Magellan is deemed to be relieved of its liability for the U.S. Federal tax withholdings as well as related penalties and interest except for Magellan's interest on late payment of the U.S. Federal tax withholdings. With regards to White Bear, Magellan has confirmed that as of the date of this filing, Mr. Bogachev has filed his U.S. income tax return and paid taxes due on the Poplar Acquisition, which were estimated at $0.3 million. Magellan has agreed to pay Mr. Bogachev $0.3 million in additional compensation. Had Mr. Bogachev not filed and paid his tax return, Magellan's liability in relation to its U.S. Federal tax withholdings requirements was estimated at $1.3 million as of June 30, 2012. With regards to YEP I, Magellan continues to seek from YEP I or, because YEP I is a now defunct entity, from its successor entities, the filing of its U.S. income tax return.
As of June 30, 2012, we have recorded a total liability of $1.0 million under accrued and other liabilities in the consolidated balance sheets related to this matter. That amount is comprised of the $0.3 million payment to Mr. Bogachev, $0.6 million in withholdings, penalties, and interest related to YEP I, and $0.1 million related to Magellan's interest on late payment of the U.S. Federal tax withholdings. The effect on the consolidated statements of operations for the year ended June 30, 2012, is an expense of $0.9 million recorded under general and administrative expense and an interest expense of $0.1 million.
Based upon an evaluation of all relevant quantitative and qualitative factors, and after considering SEC Staff Accounting Bulletins Nos. 99 and 108, management believes that any amounts attributable to the years ending June 30, 2010, and 2011, and the impact of correcting such amounts in the year ending June 20, 2012, is not material to any of the Company's consolidated financial statements presented herein.
Second Private Investment in a Public Entity ("Second PIPE"). On August 5, 2010, the Company executed a Securities Purchase Agreement (the "Second Purchase Agreement"), an Investor's Agreement, and a Memorandum of Agreement to finalize the terms of its Second PIPE with YEP.
The Purchase Agreement involves the issuance and sale of up to 5.2 million new Shares to YEP and/or one or more of its affiliates in return for $3.00 per new share issued and sold for an aggregate purchase price of $15.6 million ("Investment Transaction"). Pursuant to the terms of the Second Purchase Agreement, the Company is required to use the proceeds from the Investment Transaction to close the Evans Shoal Transaction. Since the Amended Asset Sales Agreement has been terminated and MPAL has received back the additional $10.0 million deposit, the Investment Transaction has not closed. The Company and YEP subsequently terminated the Second Purchase Agreement.
Investment Agreement and Related Amendment. On February 11, 2011, the Company and YEP executed an Investment Agreement to document the terms of additional financing to be provided by YEP to the Company in order to facilitate the closing of the Evans Shoal Transaction. On February 17, 2011, the Company and YEP executed an amendment to the Investment Agreement in the form of a side letter ("Side Letter"). Under the Investment Agreement, YEP shall provide funding to the Company required for the completion of the Evans Shoal Transaction in the amount of approximately AUD $85.5 million, which shall include the proceeds of the $15.6 million provided by the Investment Transaction. The Investment Agreement states that the funding of the AUD $85.5 million by YEP is contingent upon the requirements and conditions of the Evans Shoal Agreement being satisfied or waived. The Company and YEP has terminated the Investment Agreement, as amended by the Side Letter.
Other Related Party Transactions
The Company leased its prior Denver office space from an entity owned, in part, by J. Thomas Wilson, President and CEO of the Company and a member of the Company's Board of Directors. The total lease expense paid under this arrangement was $72 thousand for the fiscal years ended June 30, 2012, and 2011, and $52 thousand for the fiscal year ended June 30, 2010. Following the relocation of the Company's headquarters to Denver, Colorado, a lease agreement for new office space was entered into with an unrelated party in August 2012. Consulting services of $59 thousand, $100 thousand, and $36 thousand for the fiscal years ended 2012, 2011, and 2010 was paid to Mr. Wilson.
J. Robinson West, the Chairman of the Board of Directors of the Company, is also Chairman, Founder, and CEO of PFC Energy ("PFC"). PFC has served as a consultant for the Company on various Australian projects. As of June 30, 2012, there were no consulting arrangements between the Company and PFC in place or planned. The total consulting fees paid to PFC during the fiscal year ended June 30, 2012, was $64 thousand for work performed primarily in fiscal year 2011. As of June 30, 2011, an amount of $49 thousand remained unpaid for consulting fees related to fiscal 2011, which has since been paid. PFC was paid $0.4 million in fiscal year 2011, of which $0.2 million was expensed in fiscal year 2010.
See Note 2 for information related to transactions the Company entered into with NT and ER, effective September 1, 2011.
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