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| Preferred Stock |
Note 12 - Preferred Stock
Series B Convertible Preferred Stock
On November 22, 2016, the board of directors of Magellan, subject to the closing of the Merger, authorized the issuance of Series B Preferred Stock. On November 23, 2016, Tellurian issued to GE 5,467,851 shares of Tellurian Preferred Stock (the "Tellurian Preferred Stock") for an aggregate purchase price of $25 million. On the same day, Tellurian, Magellan, and Merger Sub entered into an amendment to the merger agreement in order to, among other things, permit Tellurian to issue the Tellurian Preferred Stock. 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, which will have terms substantially similar to those of the Tellurian Preferred Stock as summarized below (the Magellan Series B Preferred Stock and the Tellurian Preferred Stock being referred to below collectively as the “Preferred Stock”):
In connection with the issuance of the Tellurian Preferred Stock, Tellurian and Magellan agreed (i) to provide holders of the Preferred Stock with certain registration rights relating to the Magellan common stock such holders may receive upon conversion of the Preferred Stock and (ii) that Tellurian or Magellan, as applicable, will consider purchasing certain equipment from GE for use in the development of Tellurian’s Driftwood LNG terminal.
Cancellation of Series A Preferred Stock
After closing of the Exchange with One Stone, the Company, having reacquired all of its outstanding shares of Series A Preferred Stock, filed a Certificate of Elimination with the Delaware Secretary of State to remove the Certificate of Designations relating to the Series A Preferred Stock from the Company’s Certificate of Incorporation, thereby eliminating the Company's Series A Preferred Stock.
One Stone Exchange
On March 31, 2016, Magellan and One Stone entered into the Exchange Agreement, as described further in Note 3 - 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 year ended June 30, 2016, in order to adjust the carrying values of the exchanged assets and liabilities to their estimated fair values. 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 was 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 year ended June 30, 2016, up to the amount of previously recorded increases in value for accumulated dividends paid-in-kind, such dividends totaling $4.2 million in the aggregate at June 30, 2016. For the period from July 1, 2016 through the closing of the Exchange on August 1, 2016, the Company again recorded a reduction in value in the carrying amount of the Series A Preferred Stock for recorded increases during that same period for accumulated dividends paid in kind of $162 thousand.
On August 1, 2016, the Exchange closed, resulting in the transfer of the CO2 Business to One Stone in exchange for the redemption of the Company's Series A Preferred Stock. The excess of the carrying value of the Series A Preferred Stock plus the cash received and loan forgiven in the Exchange over the fair value of the assets and liabilities of the CO2 Business transferred amounted to $9.9 million and was recorded as a contribution to capital in excess of par value from the preferred stockholder.
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. Pursuant to the terms of the Series A Purchase Agreement, on May 17, 2013, the Company issued to One Stone 19,239,734 shares of Series A Preferred Stock, par value $0.01 per share, 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 were 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 12 - Preferred Stock of the Notes to the Consolidated Financial Statements in the Company's 2016 Form 10-K for further information regarding key terms and registration rights that were applicable to the Company's Series A Preferred Stock.
Preferred Stock Dividends
For the period from July 1, 2016 through the closing of the Exchange on August 1, 2016, the Company recorded preferred stock dividends of $162 thousand related to the Series A Preferred Stock, which dividends were payable in kind to One Stone. Accordingly, the value of these dividends of $162 thousand was recorded and added to the preferred stock balance on the Company's balance sheet at August 1, 2016, prior to the adjustment to redemption value as a result of the One Stone Exchange and the redemption discussed above. For the six months ended December 31, 2015, the Company recorded preferred stock dividends of $913 thousand related to the Series A Preferred Stock. The preferred stock dividends for the six months ended December 31, 2015, were also paid in kind.
The activity related to the Series A Preferred Stock for the six months ended December 31, 2016, and the fiscal year ended June 30, 2016, is as follows:
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