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| Preferred Stock |
Note 10 - Preferred Stock
One Stone Exchange
On March 31, 2016, Magellan and One Stone entered into an Exchange Agreement, as described further in Note 2 - One Stone Exchange. As a result of the execution of and conditions to the Exchange Agreement, the Company analyzed the redemption features of its Series A Preferred Stock and determined that as part of the Exchange, redemption of the Series A Preferred Stock in the near term was probable.
The Company reviewed the recoverability of the carrying values of its assets and liabilities to be transferred to One Stone in the Exchange, and as a result of this review recorded an impairment of $11.3 million in discontinued operations for the three and nine months ended March 31, 2016, in order to adjust the carrying values of the exchanged assets and liabilities to their estimated fair values at March 31, 2016 (Note 3). The Company then determined that the resultant fair value of the net assets expected to be transferred to redeem the Series A Preferred Stock in the Exchange were less than the carrying value of the Series A Preferred Stock. The Company accordingly adjusted the carrying amount of the Series A Preferred Stock to its original issue value of $23.5 million, reflecting a reduction in value for the three and nine months ended March 31, 2016, up to the amount of previously recorded increases in value for accumulated dividends paid-in-kind, such dividends totaling $3.7 million in the aggregate. Upon closing of the Exchange, which is expected to occur during the second calendar quarter of 2016, the Company expects to record any further adjustments to the fair value of the Series A Preferred Stock resulting from its redemption as a contribution to equity.
Series A Convertible Preferred Stock Financing
On May 10, 2013, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement (the "Series A Purchase Agreement") with One Stone Holdings II LP ("One Stone"), an affiliate of One Stone Energy Partners, L.P. Pursuant to the terms of the Series A Purchase Agreement, on May 17, 2013 (the "Closing Date"), the Company issued to One Stone 19,239,734 shares of Series A Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), at a purchase price of approximately $1.22149381 per share (the "Purchase Price"), for aggregate proceeds of approximately $23.5 million. Subject to certain conditions, the shares of Series A Preferred Stock and any related unpaid accumulated dividends are convertible into shares of the Company's common stock, par value $0.01 per share, using a face amount per share of the Series A Preferred Stock based on the Purchase Price, and dividing by a conversion price of $9.77586545 per share, which conversion price has been adjusted to reflect the one share-for-eight shares reverse split of the Company's common stock effective July 10, 2015. Please refer to Note 10 - Preferred Stock of the Notes to the Consolidated Financial Statements in the Company's 2015 Form 10-K for further information regarding key terms and registration rights applicable to the Company's Series A Preferred Stock.
Preferred Stock Dividends
For the nine months ended March 31, 2016 and 2015, the Company recorded preferred stock dividends of $1.4 million and $1.3 million, respectively, related to the Series A Preferred Stock. The preferred stock dividends for the nine months ended March 31, 2016, were paid in kind. Accordingly, the value of these dividends of $1.4 million was recorded and added to the preferred stock balance on the Company's balance sheet at March 31, 2016, prior to the adjustment to redemption value as a result of the One Stone Exchange discussed above.
The activity related to the Series A Preferred Stock for the nine months ended March 31, 2016, and the fiscal year ended June 30, 2015, is as follows:
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