Merger with Tellurian |
6 Months Ended |
|---|---|
Dec. 31, 2016 | |
| Business Combinations [Abstract] | |
| Merger with Tellurian |
Note 2 - Merger with Tellurian
On August 2, 2016, Magellan, Tellurian, and Merger Sub entered into the Merger Agreement. Pursuant to the Merger Agreement, each outstanding share of common stock, par value $0.001 per share, of Tellurian will be exchanged for 1.300 shares of common stock, par value $0.01 per share, of Magellan, and Merger Sub will merge with and into Tellurian, with Tellurian continuing as the surviving corporation, a direct wholly owned subsidiary of Magellan, and the accounting acquirer. The Merger is expected to close in the first quarter of calendar year 2017.
The Merger Agreement and the Merger have been approved by the board of directors of each of Magellan and Tellurian. Stockholders of Magellan will be asked to vote on the approval of the transactions contemplated by the Merger Agreement at a special meeting that is expected to be held during the first quarter of calendar year 2017. The closing of the Merger is subject to customary closing conditions, including i) the receipt of Magellan and Tellurian stockholder approval; ii) all directors and officers of Magellan shall have resigned, except for any person(s) that might be designated by Tellurian; iii) a registration statement on Form S-4 to register the Magellan shares to be issued in the Merger shall have been declared effective by the SEC; and iv) shares of Magellan common stock to be issued in the Merger shall have been approved for listing on the NASDAQ.
The Merger Agreement also contains a non-solicitation provision pursuant to which Magellan may not, directly or indirectly, take certain actions to negotiate or otherwise facilitate an “Alternative Proposal,” a term generally defined as an inquiry, proposal or offer relating to a business combination with or acquisition of the assets of Magellan by a person or entity other than Tellurian. Magellan’s non-solicitation obligations are qualified by “fiduciary out” provisions which provide that Magellan may take certain otherwise prohibited actions with respect to an unsolicited Alternative Proposal if the Board of Directors determines that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties and certain other requirements are satisfied.
The Merger Agreement may be terminated under certain circumstances, including in specified circumstances in connection with receipt of a "Superior Proposal," as such term is defined in the Merger Agreement. In connection with a termination of the Merger Agreement in the event of a Superior Proposal, a breach by Magellan of the non-solicitation provision noted above, or following a change by the Board of Directors of its recommendation to stockholders, Magellan will be required to pay to Tellurian a termination fee for any and all third-party transaction fees and expenses incurred by Tellurian with the drafting, negotiation, execution and delivery of the Merger Agreement and related documents (including fees and expenses for attorneys, accountants and other advisors), subject to a maximum of $1 million in the aggregate. A termination fee may also be payable in some circumstances in which an Alternative Proposal is made, the transaction fails to close and Magellan subsequently agrees to an Alternative Proposal. If the Merger Agreement is terminated by either party as a result of the failure to obtain the requisite approval by Tellurian stockholders, or by Magellan because Tellurian does not use commercially reasonable efforts to secure the approval for listing the Magellan shares of common stock to be issued in the Merger, then Tellurian will be required to pay to Magellan a reverse termination fee of $1 million.
On November 23, 2016, Tellurian, Magellan and Merger Sub entered into an amendment to the merger agreement in order to, among other things, permit Tellurian to issue 5,467,851 shares of Tellurian Preferred Stock to GE Oil and Gas Inc. ("GE") for an aggregate purchase price of $25 million. If the merger is completed, the Tellurian Preferred Stock will remain outstanding as preferred stock of the surviving corporation in the merger that will be a subsidiary of Magellan. However, in that case, each share of Tellurian Preferred Stock will become convertible or exchangeable at any time into either (i) one share of Magellan common stock or (ii) one share of Magellan Series B Preferred Stock. See Note 12 - Preferred Stock. Also on November 23, 2016, Magellan and GE entered into a Guaranty and Support Agreement pursuant to which Magellan will, contingent on the closing of the Merger, guarantee to GE the performance of all of the obligations of Tellurian in connection with the Preferred Stock Purchase Agreement (the “Preferred SPA”) between GE and Tellurian.
On December 19, 2016, Tellurian entered into a common stock purchase agreement (the “SPA”) with TOTAL Delaware, Inc. (“TOTAL”), a Delaware corporation and subsidiary of TOTAL S.A., pursuant to which TOTAL will purchase, and Tellurian will sell and issue to TOTAL, 35,384,615 shares of Tellurian common stock (the “Tellurian Shares”) for an aggregate purchase price of $207 million. The transactions contemplated by the SPA closed on January 3, 2017. In connection with the SPA, Tellurian, Magellan and Merger Sub entered into a second amendment to the Merger agreement (the “Second Merger Agreement Amendment”). Among other things, the Second Merger Agreement Amendment (i) permits Tellurian to enter into the SPA and issue the Tellurian Shares to TOTAL, (ii) increases the maximum number of shares of Tellurian common stock (or its equivalent) issuable to current and prospective employees of Tellurian under the Tellurian 2016 Omnibus Incentive Plan between August 2, 2016 and the closing of the Merger from 10 million to 13 million, (iii) requires Magellan to appoint one board designee of TOTAL to the board of directors of Magellan effective upon the closing of the Merger, and (iv) extends the “Outside Date” (as defined in the Merger Agreement) from January 31, 2017 to February 28, 2017. Also on January 3, 2017, Magellan and TOTAL entered into a Guaranty and Support Agreement, pursuant to which Magellan will, contingent on the closing of the Merger, guarantee to TOTAL the performance of all of the obligations of Tellurian in connection with the SPA.
In connection with and following the consummation of the Merger, certain contingent items of Magellan will become due and payable by the combined company, including (i) transaction fees to Petrie, payable in shares of Magellan common stock; (ii) compensation to members of the Special Committee, payable in a combination of cash and Magellan common stock; (iii) transaction incentive compensation to Magellan's Chief Executive Officer, payable in cash and common stock, in exchange for a release of prior transaction incentive compensation; (iv) employee cash bonuses payable under the employee retention cash bonus plan; and (v) the release of Magellan's contingent production obligations related to the Poplar field, in exchange for the issuance of shares of Magellan common stock to the beneficiaries of such contingent obligations. In addition, the accelerated vesting provisions of the Company's remaining unvested stock options and unvested restricted stock are expected to be triggered, and these options and restricted stock are expected to become fully vested. Furthermore, upon the closing of the Merger, which constitutes a change in control, there is a risk that most of the Company's tax attributes may not be available to the Company to reduce the Company's potential US federal and state income taxes. For further information on these contingent items, refer to Note 17 - Commitments and Contingencies, Note 19 - Employee Retention and Severance Costs and Note 10 - Income Taxes.
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