Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v2.4.1.9
Stock-Based Compensation
 6 Months Ended
Dec. 31, 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 selected employees, including officers, directors, and consultants of the Company (or subsidiaries of the Company). 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 number of aggregate shares available for issuance will be reduced by 1.0 share for each share granted in the form of a stock option or stock appreciation right and 2.0 shares for each share granted in the form of any award that is not a stock option or stock appreciation right that is settled in stock. The maximum aggregate annual number of options or stock appreciation rights 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. In October 2014, the Company repurchased 1,512,500 options from a former executive, which options were previously granted under the Company's 1998 Stock Plan. Pursuant to the terms of the 2012 Stock Incentive Plan, the unissued shares underlying these unexercised options were added to the shares available for issuance under the 2012 Stock Incentive Plan.
Stock Option Grants
Under the 2012 Stock Incentive Plan, stock option grants may contain time based vesting provisions, performance based vesting provisions ("PBOs"), or market based vesting provisions ("MBOs"). During the six months ended December 31, 2014, the Company granted 1,250,000 PBOs and 400,000 MBOs to executives. During the six months ended December 31, 2013, the Company granted 1,500,000 PBOs and 1,500,000 MBOs to executives and employees.
Performance targets that trigger the vesting of the 1,250,000 PBOs granted in October 2014 include: (i) procuring a commercially viable commitment for the supply of CO2 to a full-field CO2-EOR development at Poplar at or below a certain price threshold (weighted 20%); (ii) preparing Poplar for a commercially viable CO2-EOR development (weighted 40%); progressing the Company's UK operations by participation in a well in the Weald Basin (weighted 20%); and (iv) moving forward with the Farnham Dome project by both exercising one of the options related to the purchase of CO2 at Farnham Dome and identifying an applicable oil project to utilize CO2 from Farnham Dome (weighted 20%). The determination of whether any of these performance targets has been met is subject to a determination of the Board. As of December 31, 2014, no performance targets had been met.
The 400,000 MBOs granted in October 2014 will vest and become exercisable, subject to certain provisions related to ongoing employment and a three-year vesting period, if, at the end of any period of 90 trading days (a “Window”), (A) the closing price of the common stock as reported by NASDAQ (the “Closing Price”) on each of the first 10 trading days of a Window equals or exceeds $5.00 per share; and (B) the median of the Closing Prices for the common stock during such Window equals or exceeds $5.00 per share.
Performance metrics used to measure the potential vesting of the PBOs granted in October 2013 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%). As of December 31, 2014, performance metrics (i), (iii) and (iv) had been met met.
Vesting of the market based stock options granted in October 2013 is subject to the Company maintaining a $2.35 per share closing price for 10 consecutive trading days and a median stock price of $2.35 over a period of 90 days.
During the six months ended December 31, 2014, 494,791 stock options were exercised, resulting in the issuance of 272,898 shares of common stock, which number is net of shares withheld to satisfy certain employee tax and exercise price obligations. During the prior year period, no stock options were exercised.
During the six months ended December 31, 2014, 2,882,085 stock options were forfeited or canceled, including 1,512,500 options repurchased from a former executive (see Note 11). During the prior year period, no stock options were canceled or forfeited.
During the six months ended December 31, 2014, 12,500 stock options expired without exercise. During the prior year period, no stock options expired.
As of December 31, 2014, 3,131,250 stock options with market based vesting provisions or PBOs had not vested, and 781,198 options, including forfeited or canceled options, remained available for future issuance under the 2012 Stock Incentive Plan. Stock options outstanding have expiration dates ranging from March 31, 2015, to October 31, 2024. On January 12, 2015, the Company issued a total of 135,000 stock options to two employees with time-based vesting criteria and an exercise price of $0.86 per share.
The following table summarizes the stock option activity for the six months ended December 31, 2014:
 
Number of
Shares
 
WAEPS (1)
Fiscal year opening balance
10,492,291

 
$1.26
Granted
1,650,000

 
$1.80
Exercised
(494,791
)
 
$1.09
Forfeited/canceled
(2,882,085
)
 
$1.14
Expired
(12,500
)
 
$1.03
Balance at December 31, 2014
8,752,915

 
$1.41
Weighted average remaining contractual term
6.15

years
(1) Weighted average exercise price per share.
    
The fair value of stock options granted under the 2012 Stock Incentive Plan was estimated using the following weighted-average assumptions for the six months ended:

 
December 31,
 
2014
 
2013
 
PBOs (1)
 
Market
Based(2)
 
PBOs (1)
 
Market
Based(2)
Number of options
1,250,000
 
400,000
 
1,500,000
 
1,500,000
Weighted-average grant date fair value per share
$0.88
 
$1.17
 
$0.57
 
$0.69
Expected dividend yield
—%
 
—%
 
—%
 
—%
Forfeiture rate
15.0%
 
15.0%
 
—%
 
—%
Risk free interest rate
1.7%
 
2.4%
 
1.5%
-
1.7%
 
2.8%
Expected life (years)
5.3
-
5.4
 
3.2
-
3.9
 
0.4
-
1.6
 
2.6
Expected volatility (based on historical price)
53.6%
-
54.1%
 
64.4%
 
61.7%
-
61.9%
 
66.6%
(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 between vesting and the contractual term.

Cancellations
On October 10, 2014, Magellan entered into an Options and Stock Purchase Agreement (the "Agreement") with William H. Hastings, a former executive officer and director of the Company and a beneficial owner of more than five percent of the Company’s Common Stock as of October 10, 2014. The Agreement provided for the repurchase by the Company from Mr. Hastings of 250,000 shares of the Company’s Common Stock and options to acquire 1,512,500 shares of the Company’s Common Stock. The gross proceeds that were paid to Mr. Hastings on October 17, 2014, pursuant to the Agreement totaled $1.4 million (the "Proceeds") and were subject to applicable tax withholdings. Of the Proceeds, $983 thousand related to the repurchase of the options, which amount was subject to applicable withholding tax withheld from and remitted on behalf of the former executive in the amount of $318 thousand, as well as tax remitted on behalf of the Company in the amount of $14 thousand. The Company canceled the 1,512,500 repurchased options and, pursuant to the terms of the 2012 Stock Incentive Plan, added the unissued shares underlying these unexercised options to the shares available for issuance under the 2012 Stock Incentive Plan.
Of the Proceeds, the remaining $462 thousand related to the repurchase of the shares of Common Stock. See Note 11 for further detail.

Stock Compensation Expense
The Company recorded $427 thousand of related stock compensation expense for the six months ended December 31, 2014, and $1.1 million of related stock compensation expense for the six months ended December 31, 2013. Stock compensation expense is included in general and administrative expense in the unaudited condensed consolidated statements of operations. The $427 thousand of stock compensation expense for the six months ended December 31, 2014 consisted of expense amortization related to prior period awards of $356 thousand, expense amortization related to current period option grants of $274 thousand, and stock awards and forfeitures as described below. As of December 31, 2014, and 2013, the unrecorded expected future compensation expense related to stock option awards was $1.8 million and $1.9 million, respectively.

Stock Awards
In connection with certain executive promotions effective on October 31, 2014, the Board’s Compensation, Nominating and Governance Committee (the “CNG Committee”) established a new 2015 incentive compensation program that included grants of 100,000 shares of restricted stock in aggregate under the 2012 Stock Incentive Plan to the Company's three senior executives and 50,000 shares of restricted stock to the Chairman of the Board. Total compensation expense from the issuance of restricted stock to executives for the six months ended December 31, 2014, was $22 thousand.

The Company's director 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. On July 1, 2014, the Company issued a total of 96,330 shares of its Common Stock to non-employee directors and one board-observer pursuant to this policy and the 2012 Stock Incentive Plan. Pursuant to the compensation policy, one director elected to apply his annual compensation to the exercise of a portion of his previously awarded and vested options in lieu of receiving a share award, resulting in the issuance of an additional 21,875 shares upon exercise. Total compensation expense from the issuance of non-employee director compensation for the six months ended December 31, 2014, was $249 thousand.

Forfeitures
During the six months ended December 31, 2014, 1,369,585 unvested stock options and 100,000 unvested shares of restricted stock that were previously granted were forfeited. The forfeiture of unvested options and unvested restricted stock resulted in the reversal of previously recorded compensation expense of $430 thousand and $44 thousand, respectively, which was recorded as an offset to general and administrative expense during the six months ended December 31, 2014 in the accompanying unaudited condensed consolidated statement of operations.