SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Data of Report (Date of earliest event reported) October 16, 2002
----------------
Commission file number 0-16079
--------
AIR METHODS CORPORATION
-----------------------
(Exact name of Registrant as Specified in Its Charter)
Delaware 84-0915893
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7301 South Peoria, Englewood, Colorado 80112
- ------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (303) 792-7400
--------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report: N/A
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Acquisition of Rocky Mountain Holdings, L.L.C.
- ----------------------------------------------
On October 16, 2002, Air Methods Corporation (the "Company") acquired 100% of
the membership interest of Rocky Mountain Holdings, L.L.C. ("RMH"), a Delaware
limited liability company, from Rocky Mountain Holdings, Inc. and AMC
Helicopters, Inc. The $28 million cash purchase price for RMH was increased to
$33.6 million to reflect increases in net equity since December 31, 2001, which
also decreased RMH's indebtedness at closing. RMH's long-term debt and
outstanding balances on RMH's line of credit totaled $36.2 million as of
September 30, 2002. Except for approximately $1.6 million of RMH debt that was
repaid in connection with the acquisition, the long-term debt remains
outstanding, either as debt of RMH or as debt assumed or replaced by the
Company. The $5 million outstanding balance on the RMH line of credit was rolled
into the new revolving credit facility described below. The purchase price is
subject to changes in net equity from September 30, 2002, until the date of
closing, to be determined by independent audit within 60 days of the closing
date.
The purchase price was negotiated by the Company and the sellers, and includes
an earn-out provision under which the sellers may receive up to $2.6 million of
additional consideration over the next nine years based on actual collections
against certain receivables. The Company incurred costs and fees of
approximately $1 million in connection with the acquisition, including legal
fees of Company counsel and a fee of $750,000 paid to Americas Partners for its
services in connection with the acquisition. Ralph Bernstein and Morad Tahbaz,
directors of the Company, are partners of Americas Partners. In addition, the
Company incurred debt origination fees and expenses of approximately $2.6
million, including fees paid to CIBC World Markets Corp. for investment banking
services in arranging the financing for the acquisition and legal fees paid to
counsel for the lenders.
RMH pioneered the first hospital-based air medical service program over thirty
years ago and currently provides air medical transport services throughout the
United States under both the community-based and hospital-based service delivery
models utilizing a fleet of over 80 helicopters and fixed-wing aircraft. RMH
also maintains a national dispatch and communications center in Omaha, Nebraska,
and aircraft maintenance and overhaul operations at its Provo, Utah headquarters
and in Greenville, South Carolina. The Company plans to continue all of RMH's
operations and to retain the RMH bases, equipment and air medical transport
service personnel. Certain of the RMH administrative functions are planned to be
combined with those of the Company. For 2001, RMH had revenues and net income
of $87.9 million and $2.6 million, respectively, and for the nine months ended
September 30, 2002, RMH had revenues and net income of $76.2 million and $5.5
million, respectively. RMH's assets at September 30, 2002 were $80.4 million.
Financing the Acquisition
- -------------------------
Subordinated Notes. The purchase price was financed in part through the issuance
- ------------------
of $23 million in subordinated notes (the "Notes") to Prudential Capital
Partners, L.P. and an affiliate of PCP ("PCP"). Each of the Company and its
subsidiaries, RMH, Arch Air Medical Services and Mercy Air Service, is a direct
obligor on the Notes and is fully responsible for their payment. The Notes are
unsecured and provide for quarterly payment of interest only at 12% per annum,
with all principal due October 16, 2007.
Except as set forth below, the Notes may not be prepaid until July 1, 2004, and
prepayments after July 1, 2004 will be at a declining premium. Up to 25% of the
Notes outstanding at closing may be prepaid at any time without premium with the
proceeds of an underwritten public equity offering providing net proceeds to the
Company of at least $10 million or, if PCP has transferred at least 50% of its
Warrants (described below), a private placement of Company equity securities. In
addition, the Company may prepay the Notes held by PCP at par upon the
occurrence of a Liquidity Event (generally, a sale of all of the Company's
equity or assets) if PCP's "cash on cash" return has exceeded 2:1.
The purchase agreement entered into in connection with the Note issuance (the
"SPA") contains various covenants that limit, among other things, the Company's
ability to:
1
* create liens;
* prepay indebtedness (except in connection with refinancing of Aircraft
Indebtedness);
* make certain loans;
* engage in transactions with affiliates on other than arms' length terms;
* make any material change to the nature of the Company's business;
* sell or discount receivables;
* lease real property in excess of specified expenditure levels;
* enter into a merger or consolidation;
* sell assets; or
* pay dividends.
With certain exceptions, the Company may not permit the aggregate of (i) new
indebtedness, plus (ii) the net present value of future lease payments under
newly originated operating leases, plus (iii) Unfinanced Capital Expenditures
(as defined) (collectively (i), (ii) and (iii) being referred to as "Capital
Debt") to exceed $33 million per year in 2003 and 2004 and $38.5 million per
year in 2005 and thereafter. The Company is also subject to a limitation on the
amount it may expend in acquisitions without prior consent of the majority of
the noteholders ($12.5 million in 2003, $20 million in 2004 and $30 million per
year thereafter), which amount may be increased during 2004 and 2005 with 50% of
the proceeds of a public equity offering by the Company.
The SPA also contains covenants requiring the Company to maintain:
* a Fixed Charge Coverage Ratio (as defined) of not less than 1:1 for 2003
(increasing thereafter);
* a total debt to EBITDA ratio of not more than 4.05:1.00 (increasing after
3/31/04);
* a minimum net worth;
* a senior debt to EBITDA ratio of 3.05:1.00 (decreasing after 3/31/04); and
* a minimum EBITDA of $26.6 million (increasing after 1/1/04).
Payment obligations under the Notes accelerate upon the occurrence of defined
events of default, including the following: failure to pay principal or
interest or to perform covenants included in the SPA, the senior credit facility
or other indebtedness; events of insolvency or bankruptcy, judgments of $500,000
that are not paid or discharged timely; failure to file and keep effective a
registration statement relating to the Warrants issued to PCP; and a Change of
Control. A Change of Control occurs when (i) any person becomes the beneficial
owner of 40% or more of the Company's stock, (ii) directors of the Company at
October 16, 2002, or directors approved by them, cease to comprise a majority of
the Company's board of directors, (iii) foreign persons in the aggregate own or
control 20% or more of the Company's voting stock, or (iv) the Company or any
subsidiary that holds an air carrier certificate ceases to be a citizen of the
United States. If the Notes are prepaid prior to final maturity, a Yield
Maintenance Payment is required that is designed to provide the holders with
approximately the same amount of interest they would have received had the Notes
been paid at maturity.
The Company also issued transferable warrants ("Warrants") to PCP to purchase
443,224 shares of Air Methods Common Stock with an exercise price of at $.06 per
share, exercisable through October 2008, and entered into a Stockholders'
Agreement with PCP. Under the Stockholders' Agreement, the Company is required
to file a registration statement by December 30, 2002 registering the common
stock underlying the Warrants, to have such registration statement declared
effective within 90 days after filing, and to maintain the effectiveness of the
registration statement continuously thereafter. Failure to satisfy any of these
obligations will result in monetary penalties (beginning at $38,333 per month,
increasing monthly) and can constitute an event of default under the SPA.
2
One representative of PCP is permitted to participate in all Company board
meetings as an observer. If the Company issues equity securities in the future
(other than in a public offering), any holder of unexercised Warrants is
entitled to pre-emptive rights to participate in that offering to maintain the
percentage ownership represented by the unexercised Warrants.
Senior Credit Facility. To finance the remainder of the purchase price and
- ------------------------
related closing costs and to provide working capital and letter of credit
availability for the combined entities, Air Methods entered into a $35 million
revolving credit facility with certain lenders, with PNC Bank, National
Association (PNC) acting as agent. Borrowings under the credit facility are
secured by substantially all of the Company's non-aircraft assets, including
accounts receivable, inventory, equipment and general intangibles. Indebtedness
under the credit facility will have a first priority claim to the assets pledged
to secure it. The Company and its three subsidiaries are each a direct obligor
on the credit facility. The facility matures October 16, 2006 but can be prepaid
at any time, subject to payment of an early termination fee ranging from .25% to
2% if the termination occurs prior to October 16, 2004.
Indebtedness under the credit facility will bear interest, at the Company's
option, at either (i) the higher of the federal funds rate plus 0.50% or the
prime rate as announced by PNC plus an applicable margin ranging from 0 to 0.75%
or (ii) at a rate equal to LIBOR plus an applicable margin ranging from 1.75% to
3.00%. The applicable margin in each case is based upon the ratio of senior debt
(as defined in the credit facility) to EBITDA (as defined in the credit
facility) for the four most recently completed fiscal quarters.
The amount of borrowing permitted under the credit facility is based on a
borrowing base comprised of (i) 75% of accounts receivable from Medicare,
Medicaid, insurance companies and community-based payors and 85% of other
accounts receivable, and (ii) the lesser of (A) 60% of inventory valued at the
lower of cost or market, (B) 85% of inventory valued at liquidation value, or
(C) $15 million. Based on assets at the time of the closing, approximately $33.6
million was available under the credit facility, and borrowings under the credit
facility at closing were approximately $16 million, leaving approximately $17.6
million of unused borrowing availability.
The credit facility contains various covenants that limit, among other things,
the Company's ability to:
* create liens;
* declare dividends;
* make loans and investments;
* enter into real property leases exceeding specified expenditure levels;
* make any material change to the nature of the Company's business;
* enter into any transaction with affiliates other than on arms' length
terms;
* prepay indebtedness, except in connection with refinancing Aircraft
Indebtedness or, with respect to the Notes issued to PCP, with proceeds of
equity issuances;
* enter into a merger or consolidation; or
* sell assets.
The credit agreement also contains covenants requiring the Company to maintain:
* a fixed charge coverage ratio of not less than 1.1:1.00 (increasing after
1/1/04); and
* a minimum net worth.
With certain exceptions the Company may not permit its Capital Debt to exceed
$30 million per year in 2003 and 2004 and $35 million per year in 2005 and 2006.
Under the credit facility the Company may not expend more than $10 million per
year for acquisitions without prior consent of the majority of the member banks,
and debt incurred in any acquisition must be less than twice the cash purchase
price. No acquisition may occur without prior consent unless there is $10
million of undrawn availability under the credit facility.
3
Payment obligations under the credit facility accelerate upon the occurrence of
defined events of default, including the following: failure to pay principal or
interest, or to perform covenants, under the credit facility, the Notes or other
indebtedness; events of insolvency or bankruptcy; judgments of $250,000 are not
paid or discharged timely; failure to maintain the first priority status of
liens under the credit facility; levy against a material portion of the
Company's assets; default under the Notes; suspension of material governmental
permits; interruption of operations at any Company facility that has a material
adverse effect; and a Change of Control (which has the same definition in the
credit facility as in the SPA).
The descriptions of the Subordinated Notes and the Senior Credit Facility are
summaries, and do not contain all of the exceptions and qualifications that may
apply. Reference is made to the copies of such documents filed as exhibits to
this Form 8-K.
4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The financial statements and pro forma financial information related to this
transaction will be filed within 60 days of the filing of this report. The
following exhibits are filed as part of this report:
2.1 Membership Interest Purchase Agreement, dated June 6, 2002, among Air
Methods Corporation; Rocky Mountain Holdings, LLC; Rocky Mountain
Holdings, Inc.; and AMC Helicopters, Inc.
4.1 Common Stock Purchase Warrant, dated October 16, 2002, between Air
Methods Corporation and Prudential Capital Partners Management Fund,
L.P.
4.2 Common Stock Purchase Warrant, dated October 16, 2002, between Air
Methods Corporation and Prudential Capital Partners, L.P.
10.1 Revolving Credit and Security Agreement, dated October 16, 2002, among
Air Methods Corporation; Rocky Mountain Holdings, LLC; Mercy Air
Service, Inc.; ARCH Air Medical Service, Inc.; and PNC Bank N.A.
10.2 Securities Purchase Agreement, dated October 16, 2002, between Air
Methods Corporation; Rocky Mountain Holdings, LLC; Mercy Air Service,
Inc.; ARCH Air Medical Service, Inc.; Prudential Capital Partners,
L.P.; and Prudential Capital Partners Management Fund, L.P.
10.3 Stockholders' Agreement by and between Air Methods Corporation,
Prudential Capital Partners, L.P.; and Prudential Capital Partners
Management Fund, L.P.
10.4 Senior Subordinated Note, dated October 16, 2002, between Air Methods
Corporation; Rocky Mountain Holdings, LLC; Mercy Air Service, Inc.;
ARCH Air Medical Service, Inc.; and Prudential Capital Partners, L.P.
10.5 Senior Subordinated Note, dated October 16, 2002, between Air Methods
Corporation; Rocky Mountain Holdings, LLC; Mercy Air Service, Inc.;
ARCH Air Medical Service, Inc.; and Prudential Capital Partners
Management Fund, L.P.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AIR METHODS CORPORATION
Date: October 31, 2002 By \s\ Aaron D. Todd
------------------------------------------
On behalf of the Company, and as Principal
Financial and Accounting Officer
6