Annual report pursuant to Section 13 and 15(d)

Stock Based Compensation

v2.4.0.8
Stock Based Compensation
 12 Months Ended
Jun. 30, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Based Compensation
Note 9 - Stock Based Compensation
The 2012 Stock Incentive Plan
On January 16, 2013, the Company's shareholders approved the Magellan Petroleum Corporation 2012 Omnibus Incentive Compensation Plan (the "2012 Stock Incentive Plan"). The 2012 Stock Incentive Plan replaced the Company's 1998 Stock Incentive Plan (the "1998 Stock Plan"). The 2012 Stock Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock and/or restricted stock units, performance shares and/or performance units, incentive awards, cash awards, and other stock based awards to employees, including officers, directors, and consultants of the Company (or subsidiaries of the Company) who are selected to receive incentive compensation awards by the Compensation, Nominating and Governance Committee (the "CNG Committee") of the Board of Directors of the Company (the "Board"), which is the plan administrator for the 2012 Stock Incentive Plan. The stated maximum number of shares of the Company's common stock authorized for awards under the 2012 Stock Incentive Plan is 5,000,000 shares plus the remaining number of shares under the 1998 Stock Plan immediately before the effective date of the 2012 Stock Incentive Plan, which was 288,435 as of January 15, 2013. The maximum aggregate annual number of common shares or options that may be granted to one participant is 1,000,000, and the maximum annual number of performance shares, performance units, restricted stock, or restricted stock units that may be granted to any one participant is 500,000. The maximum term of the 2012 Stock Incentive Plan is ten years.

Stock Option Grants
Under the 2012 Stock Incentive Plan, stock option grants may contain time based, performance based, or market based vesting provisions. During the fiscal year ended June 30, 2014, the Company granted a total of 3,000,000 stock options under the 2012 Stock Incentive Plan, of which 1,500,000 were granted as PBOs, and 1,500,000 were granted with market based vesting provisions. Performance metrics used to measure the potential vesting of the PBOs consist of: (i) completing the drilling of the CO2-EOR pilot program at Poplar (weighted 10%); (ii) board approval of a full field CO2-EOR development project at Poplar (weighted 40%); (iii) sale of substantially all of the Amadeus Basin assets (weighted 20%); (iv) approval of a farmout agreement or the ability to participate in drilling one well in the Weald Basin with internally developed funding, including proceeds from a sale of assets (weighted 20%); and (v) approval and execution of a farmout agreement for drilling one well in the Bonaparte Basin (weighted 10%). Potential vesting of the market based stock options are subject to the Company maintaining a $2.35 per share closing price for 10 consecutive trading days and median stock price of $2.35 over a period of 90 days. As of June 30, 2014, performance metrics (i), (iii) and (iv) were met.
As of June 30, 2014, 2,175,000 stock options with market based vesting provisions or PBOs had not vested, and 365,107 shares, including forfeited shares, were available for future issuance. During the fiscal year ended June 30, 2014, zero options were issued outside of the 2012 Stock Incentive Plan. Options outstanding have expiration dates ranging from November 28, 2015, through October 15, 2023.
The following table summarizes the stock option activity for the fiscal years ended:
 
June 30,
 
2014
 
2013
 
Number of
Shares
 
WAEPS (1)
 
Number of
Shares
 
WAEPS (1)
Fiscal year beginning balance
7,888,957

 
$1.34
 
6,753,125

 
$1.44
Granted
3,000,000

 
$1.03
 
1,627,500

 
$1.23
Exercised
(275,000
)
 
$1.07
 
—

 
$0.00
Forfeited (2)
(121,666
)
 
$1.03
 
(491,668
)
 
$1.23
Options outstanding at end of fiscal year
10,492,291

 
$1.26
 
7,888,957

 
$1.34
Weighted average remaining contractual term of outstanding options
 
 
6.0 years
 
 
 
5.9 years
(1) Weighted average exercise price per share.
(2) Fiscal year 2013 includes the effect of 100,000 historically granted stock options forfeited erroneously.
The total fair value of stock options vesting during the fiscal years ended June 30, 2014, and 2013, was $1.2 million, and $0.8 million, respectively. During the fiscal year ended June 30, 2014, 275,000 stock options were exercised for a number of 231,015 common stock shares, net of shares withheld to satisfy employee tax obligations. During the fiscal year ended June 30, 2013, zero stock options were exercised. Cash received from the exercise of stock options for the fiscal years ended June 30, 2014, and 2013, respectively, was $201 thousand, and zero. The following table summarizes options outstanding and exercisable as of June 30, 2014:
 
 
 
 
Options outstanding
 
Options exercisable
Range of
exercise
prices
 
Number
of
shares
 
Weighted average remaining contractual life
 
WAEPS (1)
 
Number
of
shares
 
Weighted average remaining contractual life
 
WAEPS (1)
$0.79
-
$1.04
 
3,057,500

 
9.2 years
 
$1.02
 
827,500

 
9.1 years
 
$1.02
$1.05
-
$1.11
 
1,415,000

 
8.0 years
 
$1.08
 
1,004,998

 
7.6 years
 
$1.09
$1.12
-
$1.18
 
1,191,666

 
7.7 years
 
$1.13
 
624,999

 
7.2 years
 
$1.13
$1.19
-
$1.40
 
3,100,000

 
1.9 years
 
$1.20
 
3,100,000

 
1.9 years
 
$1.20
$1.41
-
$2.41
 
1,728,125

 
5.0 years
 
$2.03
 
1,728,125

 
5.0 years
 
$2.03
 
 
 
 
10,492,291

 
6.0 years
 
$1.26
 
7,285,622

 
4.7 years
 
$1.36
Aggregate intrinsic value
$
9,857,615

 

 
 
 
$
6,152,424

 
 
 
 

(1) Weighted average exercise price per share.
The fair value of shares issued under the 2012 Stock Incentive Plan were estimated using the following weighted-average assumptions for the fiscal years ended:
 
June 30,
 
2014
 
2013
 
PBOs (1)
 
Market Based (2)
 
Time based
and PBOs
Number of options
1,500,000
 
 
1,500,000
 
 
1,627,500
 
Weighted-average grant date fair value per share
$0.57
 
 
$0.69
 
 
$0.61
 
Expected dividend
$0.00
 
 
$0.00
 
 
$0.00
 
Forfeiture rate
0
 
 
0
 
 
0
 
Risk free interest rate
1.5
%
-
1.7%
 
 
 
2.8%
 
0.6
%
-
1.3%
Expected life (years)
0.4

-
1.6
 
 
 
2.6
 
5.1

-
6.0
Expected volatility (based on historical price)
61.7
%
-
61.9%
 
 
 
66.6%
 
60.3
%
-
63.5%

(1) The terms related to these PBOs were estimated using an average probabilistic weighted method.
(2) The Company assumed market based options will be voluntarily exercised at the midpoint of vesting, and the contractual term.
Stock Compensation Expense
The Company recorded $2.0 million and $0.8 million of stock compensation expense for the fiscal years ended June 30, 2014, and 2013, respectively. Stock based compensation is included under general and administrative expense in the consolidated statements of operations. At June 30, 2014, there was a total of $1.2 million in unrecognized stock compensation expense related to stock options granted. This cost is expected to be recognized over a weighted-average period of 1.7 years. The amount of unrecognized compensation expense noted above does not necessarily represent the amount that will ultimately be realized by the Company in its consolidated statement of operations. During the fiscal year ending June 30, 2015, it is expected that an additional 1,315,832 stock options will vest.
The Company's compensation policy is designed to provide the Company's non-employee directors with a portion of their annual base Board service compensation in the form of equity. Between July 1, 2013, and June 30, 2014, the Company issued a total of 266,664 shares of its common stock to non-employee directors pursuant to this policy.