-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V7SiBsAc+9v9c1DC3ew1yX94Nl3fSDoq3fUp6CzVNe+EqqGZFGJW5D+TQRW/QjlE 20c/HsiRkhkIPNEVzLw8Sw== 0000932384-97-000075.txt : 19970320 0000932384-97-000075.hdr.sgml : 19970320 ACCESSION NUMBER: 0000932384-97-000075 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970319 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIR METHODS CORP CENTRAL INDEX KEY: 0000816159 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, NONSCHEDULED [4522] IRS NUMBER: 840915893 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16079 FILM NUMBER: 97559242 BUSINESS ADDRESS: STREET 1: 7301 S PEORIA STREET 2: P O BOX 4114 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037927400 MAIL ADDRESS: STREET 1: 7301 S PEORIA CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: CELL TECHNOLOGY INC /DE/ DATE OF NAME CHANGE: 19911128 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to --------------- ------------------- 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 no.) 7301 SOUTH PEORIA, ENGLEWOOD, COLORADO 80112 - ----------------------------------------- --------------------------- (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (303) 792-7400 ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Not Applicable SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.06 PAR VALUE PER SHARE (the "Common Stock") - ---------------------------------------------------------------------- (Title of Class) NASDAQ STOCK MARKET - ----------------------------------------------------------------- (Name of each exchange on which registered) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 10, 1997 was approximately $14,696,000./1/ The number of outstanding shares of Common Stock as of March 10, 1997, was 8,115,730. DOCUMENTS INCORPORATED BY REFERENCE: The Company's proxy statement for its Annual Meeting of Stockholders to be held June 12, 1997, is hereby incorporated by reference into Part III of this Report. - ----------------- /1/ Excludes 1,397,593 shares of Common Stock held by directors, officers, and shareholders whose ownership exceeds five percent of the shares outstanding at March 10, 1997. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management of policies of the Registrant, or that such person is controlled by or under common control with the Registrant. TABLE OF CONTENTS TO FORM 10-K Page ---- PART I ITEM 1. BUSINESS ............................................. 1 General .............................................. 1 Competition .......................................... 2 Marketing Strategy ................................... 2 Backlog .............................................. 3 Employees ............................................ 3 Government Regulation ................................ 3 ITEM 2. PROPERTIES ........................................... 3 Facilities ........................................... 3 Equipment and Parts .................................. 3 ITEM 3. LEGAL PROCEEDINGS .................................... 5 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .................................. 6 ITEM 6. SELECTED FINANCIAL DATA .............................. 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................. 8 Results of Operations ................................ 8 Liquidity and Capital Resources ...................... 11 Outlook for 1997 ..................................... 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......... 13 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .................. 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ... 14 ITEM 11. EXECUTIVE COMPENSATION ............................... 14 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........................................... 14 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....... 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K .......................................... IV-1 SIGNATURES ..................................................... IV-4 i PART I ITEM 1. BUSINESS GENERAL Air Methods Corporation, a Delaware corporation ("Air Methods" or "the Company"), was established in Colorado in 1982 and now serves as one of the largest providers of aeromedical emergency transport services and systems throughout North America. As of December 31, 1996, the Company provided aeromedical transportation services to hospitals located in 14 states under 19 operating agreements with terms ranging from one to eight years and had transported over 115,000 patients. In addition the Company's Products Division designs, manufactures, and installs medical aircraft interiors and other aerospace products. The Company's Flight Services Division provides its hospital clients with dedicated helicopters and airplanes equipped with medical interiors approved by the Federal Aviation Administration (FAA) to transport persons requiring intensive medical care from either the scene of an accident or general care hospitals to highly skilled trauma centers or tertiary care centers. In general, the Company's hospital customers qualify as regional care centers because of location and scope of service. The Company conducts its operations using exclusively Instrument Flight Rules ("IFR")-certified aircraft and IFR-rated pilots, permitting a high degree of operational flexibility, flight safety, and navigational accuracy. Maintenance and operation of the aircraft in accordance with Federal Aviation Regulations (FAR) Part 135 standards is the Company's responsibility. The hospital clients are responsible for providing the medical personnel and all medical care. Operating agreements with the hospitals typically provide that the Company receives approximately 70% of its revenue from a fixed monthly fee and 30% from an hourly flight fee from the hospital, regardless of when, or if, the hospital is reimbursed for these services by its patients, their insurers, or the federal government. The fees are generally subject to annual increases based on changes in the consumer price index and in the Company's hull and liability insurance premiums. Because the majority of the Company's flight revenue is generated from fixed monthly fees, seasonal fluctuations in flight hours do not significantly impact the Company's monthly revenue in total. Although the loss of any one of the Company's 19 customers would have an adverse impact on gross revenue, the net impact on the Company's profitability would be less significant because the related flight center, aircraft operating, and aircraft ownership costs would also be eliminated. Internationally, the Company relies on developing business relationships with strategic players in the medical industry within other countries to expand its aeromedical transportation business. The Company's first international franchise was established in 1995 in Brazil with Unimed Air de Sao Paulo ("Unimed Air"), a member of Brazil's largest healthcare cooperative, and commenced air medical operations in January 1996. The Company has assisted the franchise with aircraft selection and acquisition, medical interior and avionics installations, communications center consultation, and pilot and medical personnel training. The franchise agreement currently in effect provides for an initial acquisition price payable over 10 years plus annual royalties based upon a percentage of the venture's gross annual revenues. Revenue for the franchise is based on the number of subscribers to the service rather than on the volume of medical missions flown by the cooperative. Agreements to provide other services such as the manufacture and installation of medical interiors or the procurement of aircraft on behalf of the franchise are each negotiated and priced independently of the franchise agreement. Subscriber membership in the air medical transportation system has grown rapidly in 1996 as the cooperative has expanded the air transportation coverage throughout Brazil. The Company performs non-destructive dynamic component testing, engine repair, and component overhaul at its headquarters in the Denver metropolitan area. The Company is designated a Service Center for Bell Helicopter, Inc. and an FAA-certified Repair Station authorized to perform airframe, avionics, and limited engine repair. In-house repair, maintenance, and testing capabilities provide cost savings and decrease aircraft down time by avoiding the expense and delay of having this work performed by nonaffiliated vendors. The Company operates its domestic contracts as well as its international franchise under the service mark AIR LIFE(R) and has successfully defended the service mark against infringement actions in Colorado and California. The service mark is identified in the aeromedical transportation industry with the Company's exclusive use of IFR-equipment and pilots and the high quality of its customer support. 1 The Company's Product Division has recently developed three main product lines: modular, multi-functional interiors primarily for commercial customers; multi-mission interiors primarily for governmental customers; and medical suites for fixed wing aircraft. The key features of the multi-functional and multi-mission interiors are the flexibility of the configuration which can be easily converted for other transport needs and the simplicity of installation and maintenance. Although medical interiors ranging from basic life support systems to intensive care units have comprised the majority of the Products Division's business, the combination of its engineering, manufacturing, and certification capabilities has also allowed the Company to perform systems integration for other aerospace products, such as aircraft navigation systems, environmental control systems, and structural and electrical systems. Manufacturing capabilities include equipment fabrication, composites, machine and welding shops, upholstery, and avionics engineering licensed and approved by the FAA. To optimize the efficiency of the design phase, the engineering department uses computer-aided design work stations and finite element analysis software. The Company also offers quality assurance and certification services pursuant to Parts Manufacturer Approvals ("PMA's"). The Products Division markets its services and products both domestically and internationally to customers in the emergency medical transport, search and rescue, and law enforcement fields through an extensive network of marketing representatives. Historically, each interior or other project has been custom designed in accordance with specific customer contract requirements; however, with the development of the modular, multi-functional interior, components can now be marketed individually for a variety of airframes. The Company maintains patents covering certain products and has patents pending for the multi-functional floor, the articulating patient loading system, and the aft equipment frame, all of which were developed as part of the modular interior. The raw materials used in the manufacture of the interiors and other products are generally widely available from several different vendors. Air Methods Corporation is located at 7301 South Peoria, Englewood, Colorado 80112; the telephone number is (303) 792-7400. COMPETITION The Company believes that its competition in the aeromedical transportation industry comes primarily from four national operators: Corporate Jets, Inc.; OmniFlight, Inc.; Petroleum Helicopters, Inc.; and Rocky Mountain Helicopters, Inc. The industry also includes numerous smaller regional carriers. Operators generally compete on the basis of price, safety record, accident prevention and training, and the medical capability of the aircraft offered. Price is becoming a more significant element of competition as many healthcare organizations move toward consolidation with other entities and toward strict cost containment, reflecting the uncertainty concerning the future structure of healthcare providers. The Company's competition in the medical interior design and manufacturing industry comes primarily from two companies based in the United States and one European company. Competition is based mainly on product features and performance, price, and weight of the product. The Company believes that the Products Division competes favorably with other companies within this industry. MARKETING STRATEGY The Company believes that demand for comprehensive medical transportation will continue to increase with the closing and consolidation of rural hospitals. Growth in the Company's traditional business as an aeromedical transportation operator will be pursued through responses to selected Requests for Proposal (RFP's) received from healthcare centers; through business combinations such as joint ventures, mergers and acquisitions; and through the development of additional international programs. RFP's will be evaluated based upon the program's expected contribution to the Company's profitability objectives as well as on the potential increase in market share. The Company believes that consolidation within the aeromedical transportation industry is necessary to realize economies of scale and to spread the costs and risks of operation over a larger customer base. Cost pressures and other changes within the healthcare industry recently have led to the development of additional innovative approaches to aeromedical transportation, including the turn key or independent provider (IP) model. Under the IP model, the operator provides the medical care, communications center, and medical billing resources as well as the flight and maintenance capabilities. Over time, the Company expects to offer IP services to its customers and the healthcare community. The Company also intends to aggressively market its three aircraft interior product lines through its domestic and foreign marketing representatives to original equipment manufacturers as well as to aeromedical operators. In 1996 the Company was awarded a contract to provide medical interior systems for two U.S. Army UH-60Q medical evacuation helicopters. Because the agreement also includes an option exercisable by the U.S. Army 2 for 89 other interiors over six years, the Company intends to actively pursue the award of additional units in 1997. The government aeromedical industry continues to be a market of primary importance, both domestically and internationally. The Company believes that demand for medical aircraft interiors will focus on products which are easy to install, maintain, and operate and which can be rapidly converted to other uses. BACKLOG As of December 31, 1996, the Company was completing the production of two UH-60Q units for the U.S. Army and the installation of a helicopter interior for Unimed Air. These projects are scheduled for delivery in the first quarter of 1997, and remaining revenue is estimated at $570,000. In the first quarter of 1997 the Company also received the authorization to produce an additional two UH-60Q units in 1997. As of December 31, 1995, the Company's backlog for medical interiors and other products was $1.3 million. EMPLOYEES As of December 31, 1996, the Company retained 244 full time and 15 part time employees, comprised of 109 pilots; 112 aviation machinists, A&P engineers and other manufacturing/maintenance positions; and 38 business and administrative personnel. All of the Company's pilots are IFR-rated and have completed an extensive ground school and flight training program at the commencement of their employment with the Company, as well as local area orientation and annual training provided by the Company. All of the Company's operating aircraft mechanics must possess FAA airframe and powerplant licenses. The Company's employees are not covered by any collective bargaining agreements and management believes that its relations with employees are satisfactory. The Company believes that the compensation arrangements offered to its employees are competitive with those of other providers of aviation services based on the individual qualifications of employees and are sufficient to attract and keep qualified personnel. GOVERNMENT REGULATION The Company is subject to the Federal Aviation Act of 1958, as amended. All flight and maintenance operations of the Company are regulated and actively supervised by the U.S. Department of Transportation through the FAA; in addition, the medical interiors and other aerospace products developed by the Company are subject to FAA certification. The Company holds a Part 135 Air Carrier Certificate and Part 145 Repair Station (Maintenance and Avionics) Certificates from the FAA. The Company cannot predict the impact of new or changed laws or regulations on the demand for aeromedical services in the future or the costs of complying with such laws and regulations. ITEM 2. PROPERTIES FACILITIES The Company leases its headquarters, consisting of approximately 60,000 square feet of office and hangar space in metropolitan Denver, Colorado at the Centennial Airport. The Company's lease for the hangar space expires in December 1997 and in February 1998 for the office space. The approximate annual rent is $373,000. The Company has an option to extend these leases for an additional ten years upon six months' advance written notice and believes that these facilities are in good condition and suitable for the Company's present requirements. EQUIPMENT AND PARTS As of December 31, 1996, the Company managed a fleet of 32 aircraft, consisting of 29 helicopters and 3 airplanes. Of these aircraft, the Company owns 21 helicopters and 1 airplane and leases 4 helicopters. The Company operates 4 helicopters and 2 airplanes owned by client hospitals and other third parties in connection with existing aeromedical contracts. Three helicopters owned by the Company have not yet been placed in service pending completion of the medical interior and avionics installations. The composition of the Company's helicopter and airplane fleets as of December 31, 1996, is as follows: 3
COMPANY OWNED AIRCRAFT (Dollar amounts in thousands) ----------------------------- Net Book Type Number Cost Value ---- ------ ---- -------- Helicopters: Bell 206 L-1 1 $ 663 $ 480 Bell 206 L-3 5 4,347 3,364 Bell 222A 1 1,883 1,318 Bell 222UT 9 14,931 12,630 Bell 407 2 3,076 3,076 Bell 412 2 5,209 3,709 BK 117 1 5,882 4,723 -- ------ ------ 21 35,991 29,300 Airplanes: Cessna 421B 1 251 145 -- ------ ------ TOTALS: 22 $ 36,242 $ 29,445 == ====== ====== COMPANY LEASED AIRCRAFT (Dollar amounts in thousands) ----------------------------- Remaining Total Rents Remaining Type Number Term in YearsOver Lease Life Payments -------- ------ ---------------------------------------- Helicopters: Bell 206 L-3 1 1 $ 1,611 $ 52 Bell 412 2 5 9,759 5,112 Sikorsky S-76 1 2 2,100 350 -- ------ ----- TOTALS 4 $ 13,470 $ 5,514 == ====== ===== - --------------------- Includes aircraft acquired under capital leases.
The Company generally pays all insurance, taxes, and maintenance expense for each aircraft in its fleet. Because helicopters are insured at replacement cost which usually exceeds book value, the Company believes that helicopter accidents covered by insurance will generally result in full reimbursement of any damages sustained. In the ordinary course of business, the Company may from time to time purchase and sell helicopters in order to best meet the specific needs of its contracts. The Company has experienced no significant difficulties in obtaining required parts for its helicopters. Repair and replacement components are purchased primarily through Bell Helicopter Textron, Inc. ("Bell"), since Bell aircraft make up the majority of the Company's fleet. Bell is a major helicopter manufacturer with extensive links to the defense industry, and the Company does not anticipate any interruption in Bell's manufacturing of replacement parts and components in the near future. Any termination of production by Bell would require the Company to obtain spare parts from other suppliers, which are not currently in place. 4 ITEM 3. LEGAL PROCEEDINGS In November 1992, a former employee brought a lawsuit against the Company in the United States District Court for the District of Minnesota alleging that the Company had wrongfully discharged him. The District Court issued a directed verdict in favor of the Company in September 1995. The Eighth Circuit of the U.S. Court of Appeals in July 1996 upheld the lower court's ruling. The time for the plaintiff to further appeal the case has expired. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31, 1996. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the NASDAQ Stock Market under the trading symbol "AIRM." The following table shows, for the periods indicated, the high and low closing prices for the Company's common stock. The quotations for the common stock represent prices between dealers and do not reflect adjustments for retail mark-ups, mark-downs or commissions, and may not represent actual transactions. YEAR ENDED DECEMBER 31, 1996 ---------------------------- Common Stock High Low ------------------------------------------------------------ First Quarter ................ $ 4 1/16 $ 3 Second Quarter ............... 4 5/8 3 Third Quarter ................ 4 3/4 2 7/8 Fourth Quarter ............... 3 1/4 1 15/16 YEAR ENDED DECEMBER 31, 1995 ---------------------------- Common Stock High Low ------------------------------------------------------------ First Quarter ................ $ 4 1/8 $ 1 1/2 Second Quarter ............... 3 1/4 2 1/4 Third Quarter ................ 5 3/4 2 5/16 Fourth Quarter ............... 5 3/8 2 7/8 As of March 10, 1997 there were approximately 468 holders of record of the Company's common stock. The Company has not paid any cash dividends since its inception and intends to retain any future earnings to finance the growth of the Company's business rather than to pay dividends. Neither the declaration nor the payment of future cash dividends is restricted by the Company's credit or financing arrangements. 6 ITEM 6. SELECTED FINANCIAL DATA The following tables present selected financial information of the Company and subsidiary which has been derived from the Company's audited consolidated financial statements. This selected financial data should be read in conjunction with the financial statements of the Company and notes thereto appearing in Item 8 of this report. SELECTED FINANCIAL DATA OF THE COMPANY (Amounts in thousands except share and per share amounts)
Six Months Year Ended December 31,Ended Year Ended June 30, -----------------------December 31,------------------- 1996 1995 1994 1994 1993 1992 -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: Revenue $ 30,257 30,122 13,871 27,898 25,340 12,747 Operating expenses: Operating 25,052 24,248 12,678 25,314 20,319 12,066 General and administrative 3,845 3,873 2,176 5,761 4,479 3,984 Restructuring and other non-recurring -- -- -- 3,010 -- -- Other income (expense), net (1,052) (1,042) (872) (888) (976) 704 Extraordinary gain (loss) -- -- -- (182) 173 -- -------------------------------------------------------------------------------- Net income (loss) $ 308 959 (1,855) (7,257) (261) (2,599) ================================================================================ Income (loss) per common share $ .04 .12 (.23) (1.03) (.08) (1.42) ================================================================================ Weighted average number of shares of Common Stock outstanding 8,100,545 8,071,010 8,023,225 7,056,445 3,453,111 1,829,456 ================================================================================ As of December 31, As of June 30, ----------------- -------------- 1996 1995 1994 1994 1993 ----------------------------------------------------------------------- BALANCE SHEET DATA: Total assets $ 45,389 42,586 48,134 51,900 43,312 Long-term liabilities 19,354 16,329 18,375 18,688 23,279 Stockholders' equity 19,428 19,062 18,031 19,818 14,181 - -------------------- Includes results of the aeromedical operations for only the eight-month period from the completion of the acquisition of Air Methods Corporation, a Colorado corporation, by the Company on November 1, 1991, through June 30, 1992.
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Year ended December 31, 1996 compared to 1995 The Company reported net income of $308,000 for the year ended December 31, 1996, compared to $959,000 for the year ended December 31, 1995. The decrease in net income is primarily attributable to the Company's investment in the development of a new modular medical interior and in the design and qualification of a medical interior system for the UH-60Q helicopter for the U.S. Army. Flight revenue increased $296,000 or 1.1% from $26,221,000 for the year ended December 31, 1995, to $26,517,000 for the year ended December 31, 1996. Flight revenue in 1995 included $654,000 from the lease of two helicopters, both of which were purchased by the lessees in the second quarter of 1995. Revenue from continuing contracts increased $951,000 primarily because of annual price increases for the majority of the Company's contracts based on changes in the Consumer Price Index. Flight hours remained relatively constant at 12,600 and 12,800 for the years ended December 31, 1996 and 1995, respectively. Sales of medical interiors and products decreased by $323,000 or 8.5% from $3,801,000 for the year ended December 31, 1995, to $3,478,000 for the year ended December 31, 1996. In 1996 the Company recognized revenue of $1,036,000 from the design of a medical interior for a Lockheed L-1011 aircraft, $812,000 from the sale of a Bell 412 medical interior, and $721,000 from the design of medical interior systems for the U.S. Army UH-60Q helicopter. Other projects in 1996 included the design and installation of modular, multi-functional interiors in two MD-900 Explorer helicopters and the manufacture of a Bell 206 interior for Unimed Air. In 1995 the Company recognized revenue of $1,469,000 from the design of the Lockheed L-1011 medical interior and $723,000 from the sale of passenger oxygen systems. The Company also earned revenue from the sales of a Bell 206 and a Bell 412 medical interior. The cost of medical interiors increased by 29.9% for the year ended December 31, 1996, as compared to the previous year, reflecting the Company's investment of $1.2 million in the development of the modular, multi-functional medical interior and in the design of medical interior systems for the UH-60Q helicopter. The cost of this investment is expected to be recovered against future units of production. Without the effect of these two investments, the cost of medical interiors would have decreased 9.1% from 1995 to 1996, reflecting the decrease in sales of medical interiors. The Company recognized revenue of $262,000 from its Brazilian franchise during 1996, compared to $100,000 in 1995. Under the exclusive franchise agreement, the Brazilian company purchased the right to use the trademarks and expertise of the Company in providing air medical services in Brazil, in exchange for an acquisition price of $2,250,000 payable over 10 years plus annual royalties based on gross revenues. The franchise commenced air operations in January 1996 and generated $112,000 in royalties from operations in addition to the second installment of the initial acquisition price. Flight center costs, consisting primarily of pilot and mechanics salaries and fringe benefits, decreased 1.7% in 1996 compared to 1995. Health insurance and workers compensation insurance premiums decreased $299,000 due to changes enacted in 1996 encouraging the use of other health plans and higher deductibles and to lower workers compensation claims. This decrease was offset by increases in pilot and mechanic salaries for merit pay raises. Flight center costs generally vary with the number of operating agreements served by the Company; the Company did not add any new bases in 1996. Aircraft operating expenses also remained basically unchanged for the year ended December 31, 1996, in comparison to the same period in 1995. The addition of one Bell 222 helicopter to the Company's fleet in late 1996 was offset by a reduction in hull and liability insurance premiums effective July 1, 1996. Aircraft operating expenses consist of fuel, insurance, and maintenance costs and generally are a function of the size of the fleet, the type of aircraft flown, and the number of hours flown. Aircraft rental expense decreased by 11.9% for the year ended December 31, 1996, as compared to 1995, primarily because of the sale of a previously leased aircraft to one of the Company's hospital customers. Lease expense recorded in 1995 for this helicopter totaled $122,000. Depreciation and amortization expense increased by 15.1% for the year ended December 31, 1996. The increase is due to the addition of one Bell 222 helicopter and two new medical interiors to the fleet in 1996 and to revisions in the amortization periods for certain aircraft under capital lease. The helicopter was placed in service to upgrade a hospital client to a larger aircraft, while the two medical interiors replaced fully depreciated interiors on existing aircraft. 8 Interest expense decreased 7.1% in 1996 compared to 1995. In 1995 interest expense included $92,000 on a note which was retired when the helicopter underlying the debt was sold in March 1995. Other expenses for the year ended December 31, 1996, included an unrealized loss of $115,000 on the Company's investment in the stock of a privately held corporation based on the stock's valuation in recent transactions. The corporation holds a licensing agreement to develop a biologic response modifier introduced by the Company when doing business as a biotechnology research and development company. The remaining balance of the Company's investment in this stock is $50,000. Year ended December 31, 1995 compared to 1994 In March 1995, the Company announced a change in its fiscal year end from June 30 to December 31. The following table presents operating results for the twelve months ended December 31, 1994 to facilitate Management's Discussion and Analysis. All references to the year ended December 31, 1994, in this section of Management's Discussion and Analysis are to the balances shown in this schedule. (Amounts in thousands) Revenue: Flight revenue ................................ $ 26,107 Sales of medical interiors and products ....... 1,264 International franchise revenue ............... 0 Operating expenses: Flight centers ................................ 9,003 Aircraft operations ........................... 8,608 Aircraft rental ............................... 2,536 Cost of medical interiors and products sold ... 2,356 Depreciation and amortization ................. 2,486 General and administrative .................... 5,091 Loss on disposition of assets ................. 1,949 Restructuring and other nonrecurring charges .. 3,010 Other income (expense): Interest expense .............................. (1,355) Interest income ............................... 305 Other, net .................................... (312) Net loss (9,030) The Company reported net income of $959,000 for the year ended December 31, 1995, compared to a net loss of $9,030,000 for the year ended December 31, 1994. The year ended December 31, 1994 included restructuring charges of $3,010,000 and net losses on the disposition of assets and other non-recurring charges of $2,602,000, as well as merger termination costs of $305,000. Without the restructuring charges and other non-recurring items, the loss for the period would have been $3,113,000. The improvement in operating results is primarily the result of higher profits recognized in the Company's Products Division and reductions in aircraft rental costs and general and administrative expenses. Flight revenue increased $114,000 or 0.4% from $26,107,000 for the year ended December 31, 1994, to $26,221,000 for the year ended December 31, 1995. The increase was primarily attributable to $460,000 earned from the short-term lease of one of the Company's aircraft; in addition, one contract added in May 1994 contributed $340,000 more in revenue in 1995 than in 1994. These increases were partially offset by the discontinuation of the Company's air charter operations and three fixed wing contracts during the year ended December 31, 1994; revenue for these activities totaled $1,149,000 in 1994. The remainder of the increase in revenue is due to annual increases for the majority of the Company's contracts based on changes in the Consumer Price Index (CPI). Flight hours were 12,800 and 13,500 for the years ended December 31, 1995 and 1994, respectively; the decrease is due mainly to the discontinuation of the contracts as noted above. The elimination of the fixed wing contracts and charter operations also contributed to the 8.6% decrease in flight center costs for the year ended December 31, 1995. Sales of medical interiors increased by $2,537,000 or 200.7% from $1,264,000 for the year ended December 31, 1994, to $3,801,000 for the year ended December 31, 1995. In 1995 the Company recognized revenue of $1,469,000 from the design of a medical interior for a Lockheed L-1011 aircraft and $723,000 from the sale of passenger oxygen systems. The Company also earned revenue from the sale of a medical interior for a Bell 206 helicopter to a Brazilian customer, the sale of a medical interior for a Bell 412 helicopter, the installation of an advanced navigational and weather detection system, and the refurbishment of an interior for a hospital customer. In the previous year the Company recognized revenue of $234,000 from the manufacture of a medical interior for 9 a South American customer and $450,000 from the sale of a medical interior to one of the Company's client hospitals. In addition, the year ended December 31, 1994, included revenue from the manufacture and installation of five medical interiors for Bell Helicopter, Inc. The cost of medical interiors also increased by 32.1% for the year ended December 31, 1995 as compared to the previous year, reflecting the increase in the number of interiors and other products sold. The increase in the cost of sales is less than the increase in sales primarily because of higher margins earned on the work performed in 1995 compared to 1994. Cost of sales also includes Products Division overhead costs, including facilities rent and management salaries, which do not vary with the volume of products completed. In addition, the cost of medical interiors for the year ended December 31, 1994, included $653,000 of payments for work on a medical interior that the Company had subcontracted to an outside vendor. The work done by the subcontractor was subsequently determined to be unsatisfactory and was reperformed by the Company. The Company recognized $100,000 of international franchise revenue during 1995 which represented the first installment of a ten-year franchise agreement signed in February 1995 with a Brazilian company. Aircraft operating expenses remained basically unchanged for the year ended December 31, 1995, in comparison to the same period in 1994. The effect of a 17% increase in hull and liability insurance rates and the addition of 3 aircraft to the Company's fleet in May and June of 1994 was offset by the elimination of operating expenses for 4 airplanes which were removed from the Company's fleet when the associated contracts were discontinued. Aircraft rental expense decreased by 34.4% for the year ended December 31, 1995, as compared to 1994. The Company has eliminated seven leased aircraft from its fleet which had been in operation during all or part of the year ended December 31, 1994. An eighth previously leased aircraft was purchased by one of the Company's hospital customers during 1995, and is still operated by the Company. Lease expense recognized on these aircraft in the year ended December 31, 1994, totaled $1,137,000. This decrease was offset in part by $217,000 incurred to rent a backup helicopter during the refurbishment of one of the Company's aircraft. Depreciation and amortization expense increased by 6.8% for the year ended December 31, 1995. The Company has increased its depreciable asset base by $1.3 million, or 3.7%, since December 31, 1994, as a result of the acquisition of rotable and other shop equipment. These types of equipment are generally depreciated over a five- to seven-year estimated useful life. The 23.9% decrease in general and administrative expenses for the year ended December 31, 1995, reflects the effects of the Company's restructuring plan which was implemented in the quarters ended March 31 and June 30, 1994. The restructuring plan included a reduction in the administrative work force and a decreased reliance on outside professional services, resulting in a decline in administrative expense of approximately $482,000 and $97,000, respectively, in the year ended December 31, 1995. The Company's Board of Directors has met quarterly in the current year as compared to monthly during the restructuring, causing a decrease of $160,000 in costs for the year ended December 31, 1995. In addition, in the year ended December 31, 1994, the Company incurred expenses of almost $296,000 associated with the development of a proposed joint venture to provide air medical services in Mexico and the pursuit of other manufacturing and service contracts. Costs for similar activities in 1995 totaled $60,000. Operating expenses for the year ended December 31, 1994, included $1,949,000 of valuation allowances and losses on the disposition of aircraft and $3,010,000 of restructuring expenses. The Company did not incur any similar costs in the year ended December 31, 1995. The increase of 3.0% in interest expense for the year ended December 31, 1995 is due to interest incurred on a note to finance the acquisition of an aircraft which was placed into service late in May 1994. This increase was almost entirely offset by the elimination of interest on notes which were retired when the two airplanes which were financed under these notes were sold in September and December 1994. Other expenses for the year ended December 31, 1994, included $305,000 for merger termination expenses. These expenses represent primarily legal and professional fees incurred in the due diligence process conducted to determine the feasibility of a business combination between the Company and Rocky Mountain Helicopters, Inc. (RMHI). The Company ultimately declined to submit a final bid for the assets of RMHI. 10 LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of $2,058,000 and working capital of $502,000 as of December 31, 1996, as compared to cash and cash equivalents of $2,699,000 and a working capital deficit of $638,000 at December 31, 1995. The decrease in cash and cash equivalents is due in part to a 25% increase in inventories and an increase in costs and estimated earnings in excess of billings on uncompleted contracts, both related almost entirely to the UH-60Q project. The decrease in cash and cash equivalents also reflects the Company's investment of $5.4 million in capital equipment, most of which was funded by new debt financing. The change from billings in excess of costs in 1995 to costs in excess of billings on uncompleted contracts in 1996 contributed to the improvement in the working capital position. For the projects in process at the end of 1995 the Company had received funding advances; for the projects in process at December 31, 1996, including the UH-60Q project, the Company issued progress billings. The Company expects to collect the balance of costs and estimated earnings in excess of billings during 1997. In the years ended December 31, 1996 and 1995, operations generated positive cash flows of $1,464,000 and $4,626,000, respectively. The decrease in cash generated from operations results partly from the Company's investment in the development of the multi-functional interior and in the design of the medical interior system for the UH-60Q helicopter, as well as from the costs incurred in excess of billings on projects in process at year end and from the increases in inventories. In October 1996 the Company entered into an agreement with a financial institution establishing a $2 million line of credit with a two-year term and an interest rate of prime plus .25% to supplement cash flow from operations if necessary. The agreement requires the Company to maintain a zero balance on the line for 30 days during each year and to pay an annual commitment fee. The line has various covenants which limit the Company's ability to dispose of assets, merge with another entity, and pledge trade receivables and inventories as collateral. The Company is also required to maintain certain financial ratios as defined in the agreement; as of December 31, 1996, the Company was in compliance with all covenants and had drawn $300,000 against the line. In January 1997 the draw against the line was paid in full. In December 1996 the Company refinanced $3.8 million in debt with one lender to reduce the interest rate by approximately 80 basis points and to release one aircraft from the lien. The transaction provided an additional $937,000 in working capital. As of December 31, 1996, the Company holds unencumbered notes receivable of $966,000 and aircraft with a net book value of $1.6 million which could be utilized as collateral for borrowing funds as an additional source of working capital if necessary. The Company believes that these borrowing resources coupled with continued favorable results of operations will allow the Company to meet its obligations in the coming year. Repayment of debt and capital lease obligations as well as operating lease agreements constitute the Company's long-term commitments to use cash. A balloon payment of $1.8 million on long-term debt is due in 2001. OUTLOOK FOR 1997 The statements contained in this Outlook are based on current expectations. These statements are forward looking, and actual results may differ materially. Operating agreements with four hospital clients are due for renewal in 1997. The Company has historically negotiated renewals with its existing customers under favorable terms. One agreement renewed in the first quarter of 1997 provided for an upgrade in the type of aircraft servicing the contract; however, there can be no assurance that the Company will renew the remaining contracts. The Company expects 1997 flight activity at current hospital customers to remain consistent with 1996 levels. In addition, the Company intends to actively pursue appropriate strategic merger or acquisition opportunities within the air medical transportation industry. As of December 31, 1996, the Company was completing the production of two UH-60Q units for the U.S. Army and the installation of a helicopter interior for Unimed Air. In the first quarter of 1997 the Company also received the authorization to produce an additional two UH-60Q units and was selected by McDonnell Douglas Helicopter Systems ("MDHS") in a competitive bid process to design and manufacture a demonstration interior for the new MD902 helicopter for use by MDHS in its international marketing effort. Revenue from all of these projects is expected to total approximately $1.8 million in 1997. No further developmental costs are expected to be incurred on the two additional UH-60Q units approved for production in 1997 or on any subsequent units. The 1997 Department of Defense budget includes $6.8 million directed funding for four additional UH-60Q helicopter upgrades; the Company expects authorization to produce and deliver these four units in the second half of 1997. Final orders for these units have not yet been received, however, and there is no assurance that the work will be performed or units delivered in 1997 or in future periods. During 1997 the Products Division also expects to complete modular medical interiors for three Bell 407 helicopters for use by two of the Flight Services Division's 11 current hospital customers. The Products Division will also continue to pursue an aggressive marketing strategy both domestically and internationally for its three main product lines. The Company expects continued growth in Unimed Air, its Brazilian franchisee, over its current base of more than 1,300,000 members and corresponding growth in operating royalties generated by the franchise in 1997. There can be no assurance that the Company will successfully renew the operating agreements expiring in 1997 or will generate new profitable contracts for the Products Division. However, based on the anticipated level of flight activity for its hospital customers, the backlog of projects for the Products Division, and the expected growth in the Brazilian franchise, the Company expects to continue profitable operations in 1997. 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Consolidated Financial Statements attached hereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference from the Company's Proxy Statement to be filed on or prior to April 30, 1997, for the Annual Meeting of Stockholders to be held June 12, 1997. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the Company's Proxy Statement to be filed on or prior to April 30, 1997, for the Annual Meeting of Stockholders to be held June 12, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the Company's Proxy Statement to be filed on or prior to April 30, 1997, for the Annual Meeting of Stockholders to be held June 12, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the Company's Proxy Statement to be filed on or prior to April 30, 1997, for the Annual Meeting of Stockholders to be held June 12, 1997. 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) Documents filed as part of the report: 1. Financial Statements included in Item 8 of this report: Independent Auditors' Report. Consolidated Balance Sheets, December 31, 1996 and 1995. Consolidated Statements of Operations for the years ended December 31, 1996 and 1995, the six months ended December 31, 1994 and year ended June 30, 1994. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996 and 1995, the six months ended December 31, 1994 and year ended June 30, 1994. Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995, the six months ended December 31, 1994 and year ended June 30, 1994. Notes to Consolidated Financial Statements. 2. Financial Statement Schedules included in Item 8 of this report: All supporting schedules have been omitted because the information required is included in the financial statements or notes thereto or have been omitted as not applicable or not required. 3. Exhibits: EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 3.1 Certificate of Incorporation/1/ 3.2 Amendments to Certificate of Incorporation/2/ 3.3 By-Laws as Amended/8/ 4.1 Specimen Stock Certificate/2/ 4.2 Warrant Agreement, and First and Second Amendment to Warrant Agreement, and form of Warrant Certificate/3/ 4.3 Third Amendment to Warrant Agreement/6/ 4.4 Warrant Agreement, dated February 2, 1993, between the Company and Sands Brothers & Co., Ltd. ("Sands Brothers") covering Warrants issued to Sands Brothers/3/ 4.5 Form of Sands Brothers Warrant/3/ 4.6 Warrant Agreement, dated April 6, 1993, between the Company and C.C.R.I. Corporation/6/ 4.7 Warrant Agreement dated February 14, 1994, between the Company and CCRI Corporation/7/ 4.8 Form of Reissued Warrant Agreement, dated May 3, 1995 between the Company and Americas Partners, concerning warrants originally issued December 28, 1993/9/ 4.9 Form of Reissued Warrant Agreement, dated May 3, 1995 between the Company and Americas Partners, concerning warrants originally issued February 21, 1994/9/ 10.1 1995 Air Methods Corporation Employee Stock Option Plan 10.2 Nonemployee Director Stock Option Plan, as amended/6/ IV-1 10.3 Restricted Stock Bonus Plan, as amended/6/ 10.4 Equity Compensation Plan for Nonemployee Directors, adopted March 12, 1993/4/ 10.5 Form of Option Agreement between the Company and Alfred Bjorseth/6/ 10.6 Form of Option Agreement between the Company and Marlis E. Smith/6/ 10.7 Warrant Agreements, dated April 29, 1993, between the Company and Bart Gutekunst/6/ 10.8 Warrant Agreement, dated April 28, 1993, between the Company and Gerald Grayson/6/ 10.9 Form of Consulting Agreement, dated November 30, 1994, between the Company and Roy L. Morgan/9/ 10.10 Employment Agreement, dated November 12, 1991, between the Company and Maurice L. Martin, Jr./2/ 10.11 Employment Agreement, dated June 1, 1994, between the Company and George Belsey/8/ 10.12 Employment Agreement, dated November 30, 1993, between the Company and Michael Prieto/8/ 10.13 Research, Clinical Development and Option Agreement, dated February 12, 1992, between the Company and Oncotech, Inc./2/ 10.14 Research and Licensing Agreement, dated December 6, 1993, between the Company and Phylomed/8/ 10.15 Equipment Leases, and Warrant Agreements, dated July 25, 1992, between the Company and Ventana Leasing, Inc. or Praktikerfinans AB/2/ 10.16 Employment Agreement dated July 10, 1995 between the Company and Aaron D. Todd/10/ 23 Consent of KPMG Peat Marwick, LLP (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1996. - -------------------- 1 Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-15007), as declared effective on August 27, 1987, and incorporated herein by reference. 2 Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1992, and incorporated herein by reference. 3 Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 33-59690), as declared effective on April 23, 1993, and incorporated herein by reference. 4 Filed as an exhibit to the Company's Registration Statement on Form S-8 (Registration No. 33-65370), filed with the Commission on July 1, 1993, and incorporated herein by reference. 5 Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-27883), as declared effective on June 13, 1989, and incorporated herein by reference. 6 Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, and incorporated herein by reference. IV-2 7 Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 33-75744) filed with the Commission on February 25, 1994 and incorporated herein by reference. 8 Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, and incorporated herein by reference. 9 Filed as an exhibit to the Company's Annual Report on Form 10-K for the transitional fiscal year ended December 31, 1994 and incorporated herein by reference. 10 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference. IV-3 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: March 19, 1997 By: George W. Belsey -------------------- ------------------------------------- George W. Belsey Chairman of the Board, Chief Executive Officer and Director Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. George W. Belsey Chairman of the Board March 19, 1997 - ----------------------- Chief Executive Officer George W. Belsey Joseph E. Bernstein Director March 19, 1997 - ----------------------- Joseph E. Bernstein Ralph J. Bernstein Director March 19, 1997 - ----------------------- Ralph J. Bernstein Liam F. Dalton Director March 19, 1997 - ----------------------- Liam F. Dalton Samuel H. Gray Director March 19, 1997 - ----------------------- Samuel H. Gray Carl H. McNair, Jr. Director March 19, 1997 - ----------------------- Carl H. McNair, Jr. Lowell D. Miller, Ph.D. Director March 19, 1997 - ----------------------- Lowell D. Miller, Ph.D. Roy L. Morgan Director March 19, 1997 - ----------------------- Roy L. Morgan Donald R. Segner Vice-Chairman of the Board March 19, 1997 - ----------------------- Donald R. Segner Morad Tahbaz Director March 19, 1997 - ----------------------- Morad Tahbaz IV-4 AIR METHODS CORPORATION AND SUBSIDIARY TABLE OF CONTENTS - ---------------------------------------------------------------------- Independent Auditors' Report ................................... F-1 Consolidated Financial Statements - --------------------------------- CONSOLIDATED BALANCE SHEETS, December 31, 1996 and 1995 ................................ F-2 CONSOLIDATED STATEMENTS OF OPERATIONS, Years Ended December 31, 1996 and 1995, Six Months Ended December 31, 1994 and Year Ended June 30, 1994 ....... F-4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, Years Ended December 31, 1996 and 1995, Six Months Ended December 31, 1994 and Year Ended June 30, 1994 ....... F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS, Years Ended December 31, 1996 and 1995, Six Months Ended December 31, 1994 and Year Ended June 30, 1994 ....... F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, December 31, 1996 and 1995 ................................ F-8 All supporting schedules are omitted because they are inapplicable, not required, or the information is presented in the consolidated financial statements or notes thereto. IV-5 Independent Auditors' Report ---------------------------- BOARD OF DIRECTORS AND STOCKHOLDERS AIR METHODS CORPORATION We have audited the accompanying consolidated financial statements of Air Methods Corporation and subsidiary as listed in the accompanying table of contents. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Air Methods Corporation and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years ended December 31, 1996 and 1995, the six months ended December 31, 1994 and the year ended June 30, 1994, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Denver, Colorado February 7, 1997 F-1 AIR METHODS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) - ----------------------------------------------------------------------
1996 1995 ---- ---- ASSETS - ------ Current assets: Cash and cash equivalents $ 2,058 2,699 Current installments of notes receivable 392 356 Receivables, net: Trade (note 5) 1,165 881 Insurance proceeds 270 249 Other 213 367 ------ ------ 1,648 1,497 Inventories (note 5) 1,583 1,263 Work-in-process on medical interior and products contracts192131 Costs and estimated earnings in excess of billings on uncompleted contracts (note 4) 682 -- Prepaid insurance 228 236 Other prepaid expenses 326 375 ------ ------ Total current assets 7,109 6,557 ------ ------ Equipment and leasehold improvements (notes 5 and 6): Flight and ground support equipment 42,448 37,228 Furniture and office equipment 1,494 1,326 ------ ------ 43,942 38,554 ------ ------ Less accumulated depreciation and amortization(10,013) (7,138) ------ ------ Net equipment and leasehold improvements 33,929 31,416 ------ ------ Excess of cost over the fair value of net assets acquired, net of accumulated amortization of $502 and $405 at December 31, 1996 and 1995, respectively 1,925 2,022 Notes receivable, less current installments (note 5)1,454 1,843 Patent application costs and other assets, net of accumulated amortization of $588 and $510 at December 31, 1996 and 1995, respectively972748 ------ ------ Total assets $45,389 42,586 ====== ====== (Continued)
F-2 AIR METHODS CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS, CONTINUED (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) - ----------------------------------------------------------------------
1996 1995 ---- ---- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Notes payable (note 5) $ 352 693 Current installments of long-term debt (note 5)1,780 1,435 Current installments of obligations under capital leases (note 6)819751 Accounts payable 614 974 Accrued overhaul and parts replacement costs 1,582 1,407 Deferred revenue 629 724 Billings in excess of costs and estimated earnings on uncompleted contracts (note 4) -- 328 Other accrued liabilities 831 883 ------ ------ Total current liabilities 6,607 7,195 Long-term debt, less current installments (note 5)10,642 6,671 Obligations under capital leases, less current installments (note 6)3,7324,552 Accrued overhaul and parts replacement costs 4,157 4,329 Other liabilities 823 777 ------ ------ Total liabilities 25,961 23,524 ------ ------ Stockholders' equity (notes 2 and 7): Preferred stock, $1 par value. Authorized 5,000,000 shares, none issued -- -- Common stock, $.06 par value. Authorized 16,000,000 shares; issued 8,135,836 and 8,103,502 shares at December 31, 1996 and 1995, respectively 488 486 Additional paid-in capital 49,696 49,640 Accumulated deficit (30,755) (31,063) Treasury stock, 25,606 shares (1) (1) ------ ------ Total stockholders' equity 19,428 19,062 ------ ------ Commitments and contingencies (note 6) Total liabilities and stockholders' equity$45,389 42,586 ====== ====== See accompanying notes to consolidated financial statements.
F-3 AIR METHODS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) - ----------------------------------------------------------------------
Six Months Year Ended Ended Year Ended December 31, December 31, June 30, 1996 1995 1994 1994 ---- ---- ---- ---- Revenue: Flight revenue (note 8) $ 26,517 26,221 13,081 25,346 Sales of medical interiors and products 3,478 3,801 790 2,552 International franchise revenue 262 100 -- -- --------- --------- --------- --------- 30,257 30,122 13,871 27,898 --------- --------- --------- --------- Operating expenses: Flight centers 8,086 8,227 4,427 8,626 Aircraft operations 8,383 8,503 4,445 8,188 Aircraft rental (note 6) 1,465 1,663 994 2,915 Cost of medical interiors and products sold 4,045 3,113 1,303 2,599 Depreciation and amortization 3,056 2,656 1,272 2,196 General and administrative 3,845 3,873 2,176 5,761 Loss on disposition of assets (notes 2 and 3) 17 86 237 790 Restructuring and other non-recurring expenses (note 3) -- -- -- 3,010 --------- --------- --------- --------- 28,897 28,121 14,854 34,085 --------- --------- --------- --------- Operating income (loss) 1,360 2,001 (983) (6,187) Other income (expense): Interest expense (1,297) (1,396) (717) (1,246) Interest and dividend income 357 289 163 188 Merger termination expense (note 11) -- -- (305) -- Other, net (112) 65 (13) 170 --------- --------- --------- --------- Income (loss) before extraordinary item 308 959 (1,855) (7,075) Extraordinary item-loss on early extinguishment of debt (note 6) -- -- -- (182) --------- --------- --------- --------- Net income (loss) $ 308 959 (1,855) (7,257) ========= ========= ========= ========= Income (loss) per common share before extraordinary item $ .04 .12 (.23) (1.00) Loss on early extinguishment of debt per common share -- -- -- (.03) --------- --------- --------- --------- Income (loss) per common share $ .04 .12 (.23) (1.03) ========= ========= ========= ========= Weighted average number of common shares outstanding 8,100,545 8,071,010 8,023,225 7,056,445 ========= ========= ========= ========= See accompanying notes to consolidated financial statements.
F-4 AIR METHODS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996 AND 1995, SIX MONTHS ENDED DECEMBER 31, 1994 AND YEAR ENDED JUNE 30, 1994 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS) - ----------------------------------------------------------------------
Common Stock Treasury Stock Additional Total Stock- ------------ -------------- Paid-in Accumulated holders' Shares Amount Shares Amount Capital Deficit Equity ------ ------ ------ ------ ------- ------- ----- BALANCES AT JULY 1, 1993 5,262,130 $ 316 93,843 $ (6) 36,781 (22,910) 14,181 Issuance of common shares for options exercised and services rendered 533,798 18 -- -- 1,306 -- 1,324 Issuance of common shares for warrants exercised, net of solicitation costs of $429 (note 7) 1,272,626 90 -- -- 5,411 -- 5,501 Issuance of common shares in private offering (note 7) 1,011,190 61 -- -- 5,669 -- 5,730 Issuance of common shares in acquisition (note 2) 55,617 3 -- -- 437 -- 440 Amortization of deferred compensation expense (note 7) -- -- -- -- 218 -- 218 Retirement of unvested shares and options forfeited under the Restricted Stock Plan (note 7) -- -- -- -- (8) -- (8) In-kind tax withholding elected by employees under the Restricted Stock Plan (note 7) -- -- 25,606 (1) (310) -- (311) Cancellation of treasury shares (93,843) (6) (93,843) 6 -- -- -- Net loss -- -- -- -- -- (7,257) (7,257) ---------------------------------------------------------------------------- BALANCES AT JUNE 30, 1994 8,041,518 482 25,606 (1) 49,504 (30,167) 19,818 Issuance of common shares for options exercised and services rendered 10,247 -- -- -- 60 -- 60 Amortization of deferred compensation expense (note 7) -- -- -- -- 10 -- 10 Retirement of unvested shares and options forfeited under the Restricted Stock Plan (note 7) -- -- -- -- (2) -- (2) Net loss -- -- -- -- -- (1,855) (1,855) ---------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1994 8,051,765 482 25,606 (1) 49,572 (32,022) 18,031 Issuance of common shares for options exercised and services rendered 51,737 4 -- -- 72 -- 76 Amortization of deferred compensation expense (note 7) -- -- -- -- 6 -- 6 Retirement of unvested shares and options forfeited under the Restricted Stock Plan (note 7) -- -- -- -- (10) -- (10) Net income -- -- -- -- -- 959 959 ---------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1995 8,103,502 486 25,606 (1) 49,640 (31,063) 19,062 Issuance of common shares for options exercised and services rendered 37,834 2 -- -- 69 -- 71 Retirement of common shares (note 7) (5,500) -- -- -- (13) -- (13) Net income -- -- -- -- -- 308 308 ---------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1996 8,135,836 $ 488 25,606 $ (1) 49,696 (30,755) 19,428 ============================================================================= See accompanying notes to consolidated financial statements.
F-5 AIR METHODS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) - ----------------------------------------------------------------------
Six Months Year Ended Ended Year Ended December 31, December 31, December 31, 1996 1995 1994 1994 -------- -------- -------- -------- Cash flows from operating activities: Net income (loss) $ 308 959 (1,855) (7,257) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Provision for restructuring and other non-recurring expenses -- -- -- 2,218 Depreciation and amortization expense 3,056 2,656 1,272 2,196 Common stock and options issued for services and in connection with employee stock compensation agreements, net of forfeitures 26 72 69 (94) Loss on disposition of assets 17 86 237 790 Loss on early extinguishment of debt -- -- -- 182 Changes in operating assets and liabilities, net of acquisitions: Decrease (increase) in receivables (151) (438) 36 2,043 Decrease (increase) in inventories (320) 260 (193) (53) Decrease (increase) in prepaid expenses and other current assets 57 900 844 (180) Decrease (increase) in work-in-process on medical interior and products contracts and costs in excess of billings (743) 71 274 (153) Decrease in accounts payable and other accrued liabilities (412) (1,187) (716) (189) Increase in accrued overhaul and parts replacement costs 3 373 404 860 Increase (decrease) in deferred revenue, billings in excess of costs, and other liabilities (377) 874 (1,001) 676 -------- -------- -------- -------- Net cash provided (used) by operating activities 1,464 4,626 (629) 1,039 -------- -------- -------- -------- Cash flows from investing activities: Net cash used in acquisition of Golden Eagle Aviation, Inc. -- -- -- (451) Acquisition of equipment and leasehold improvements (5,414) (1,169) (981) (16,101) Proceeds from retirement and sale of equipment and assets held for sale 3 4,430 790 618 Decrease (increase) in notes receivable, patent application costs, and other assets 51 755 425 (307) Proceeds from sale or maturity of short-term investments -- -- 21 504 -------- -------- -------- -------- Net cash provided (used) by investing activities (5,360) 4,016 255 (15,737) -------- -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock 45 -- -- 12,898 Payments for retirement of common stock (13) -- -- -- Payments for syndication and solicitation costs -- -- -- (1,252) Net repayments under short-term notes payable (341) (1,585) (856) (117) Proceeds from long-term debt 9,746 582 -- 7,851 Payments of long-term debt (5,430) (4,915) (1,141) (4,007) Payments of capital lease obligations (752) (721) (354) (1,882) -------- -------- -------- -------- Net cash provided (used) by financing activities 3,255 (6,639) (2,351) 13,491 -------- -------- -------- -------- Increase (decrease) in cash and cash equivalents (641) 2,003 (2,725) (1,207) Cash and cash equivalents at beginning of period 2,699 696 3,421 4,628 -------- -------- -------- -------- Cash and cash equivalents at end of period $ 2,058 2,699 696 3,421 ======== ======== ======== ======== Interest paid in cash during the period $ 1,322 1,395 718 1,243 ======== ======== ======== ======== (Continued)
F-6 AIR METHODS CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED - ---------------------------------------------------------------------- Noncash investing and financing transactions: Capital lease obligations of $19,000 were assumed to acquire equipment during the year ended June 30, 1994. Notes receivable of $2,790,000 were received as partial consideration for the sale of two aircraft during the year ended June 30, 1994. Notes payable of $2,347,000 were issued to finance the Company's annual hull and liability, workers' compensation, and directors' and officers' insurance policies during the six months ended December 31, 1994. See accompanying notes to consolidated financial statements. F-7 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ---------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Financial Statement Presentation and Business Air Methods Corporation, a Delaware corporation ("Air Methods" or "the Company") serves as one of the largest providers of aeromedical emergency transport services and systems throughout North and South America. The Company also designs, manufactures, and installs medical aircraft interiors and other aerospace products for domestic and international customers. As discussed more fully in note 3, in September 1994 the Company sold all of the outstanding shares of common stock of Golden Eagle Charters, Inc. ("Golden Eagle"), formerly a wholly owned subsidiary of the Company. All significant intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. Cash equivalents of $1,724,000 and $2,062,000 at December 31, 1996 and 1995, respectively, consist of short-term money market funds. Inventories Inventories are comprised primarily of expendable aircraft parts which are recorded at the lower of cost (average cost) or market. Work-in-Process on Medical Interior and Products Contracts Work-in-process on medical interior and products contracts represents costs of the installation of medical equipment and modification of aircraft for third parties. Certain medical interior contracts provide for reimbursement of all costs plus an incremental amount. Revenue on these contracts is recorded as costs are incurred. In addition, when the total cost to complete a medical interior under a fixed fee contract can be reasonably estimated, revenue is recorded as costs are incurred using the percentage of completion method of accounting. If the total cost to complete a medical interior cannot be reasonably estimated, revenue relating to fixed fee contracts is recognized using the completed contract method of accounting. A contract is considered complete when all costs except insignificant items have been incurred and the installation is operating according to specification. F-8 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Equipment and Leasehold Improvements Hangar, equipment, and leasehold improvements are recorded at cost. Maintenance and repairs are expensed when incurred. Major modifications and costs incurred to place aircraft in service are capitalized. Improvements to helicopters and airplanes leased under operating leases are included in flight and ground support equipment in the accompanying financial statements. Depreciation is computed using the straight-line method over the useful lives of the equipment or the lease term, as follows:
Description Lives Residual value ----------- ----- -------------- Hangar 40 years 10% Helicopters, including medical equipment8 - 25 years10 - 25% Airplanes, including medical equipment8 - 20 years0 - 10% Ground support equipment and rotables5 - 10 years0 - 10% Furniture and office equipment3 - 10 years --
Leasehold improvements to hangar and office space are amortized using the straight-line method over the terms of the leases. Excess of Cost Over the Fair Value of Net Assets Acquired Excess of cost over the fair value of net assets acquired, or goodwill, is being amortized using the straight-line method over 25 years. Patent Application Costs and Supplemental Type Certificates The Company capitalizes legal costs associated with new patent applications and the defense of existing patents. At such time as patents are granted, these costs will be amortized over the estimated useful economic life of the patents. Costs relating to unsuccessful patent applications are charged to operations. The Company also capitalizes incremental direct costs related to the application for multiple Supplemental Type Certificates (STC's). STC's are issued by the Federal Aviation Administration (FAA) and represent the FAA's approval and certification of the airworthiness of an aircraft modification, such as a medical interior. A multiple STC allows the modification to be made to more than one aircraft without additional certification. STC costs are amortized using the straight-line method over the estimated useful economic life of the STC. For the year ended December 31, 1996, the Company capitalized $213,000 in STC costs related to a new modular, multi-functional medical interior system. F-9 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Engine and Airframe Overhaul Costs The Company uses the accrual method of accounting for major engine and airframe overhauls whereby the cost of the next overhaul is estimated and accrued based on usage of the aircraft over the period between overhauls. Long-lived Assets In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable intangible assets to be held, including goodwill, and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company adopted SFAS 121 in 1996 and the adoption did not have an effect on the Company's consolidated financial statements. Revenue Recognition and Uncollectible Receivables Fixed fee revenue under the Company's operating agreements with hospitals is recognized monthly over the term of the agreements. Revenue relating to emergency flights is recognized upon completion of the services. International franchise revenue is recognized as royalties and fees are generated by the franchisee's operations. Uncollectible trade receivables are charged to operations using the allowance method. The allowance for uncollectible receivables was not significant at December 31, 1996 and 1995. Stock-based Compensation The Company accounts for its employee stock compensation plans as prescribed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Pro forma disclosures of net income and earnings per share required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation ("SFAS No. 123"), are included in Note 7 to the consolidated financial statements. F-10 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Income Taxes The Company accounts for income taxes using the asset and liability method of Statement of Financial Accounting Standard No. 109, Accounting for Income Taxes (Statement 109). Deferred tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in rates is recognized in income in the period that includes the enactment date. Income (Loss) Per Share Income (loss) per common share is calculated using the weighted average number of common shares outstanding for each period. Outstanding common stock options and common stock purchase warrants have not been included in the calculations since the effect would be antidilutive. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents, accounts receivable, notes payable, and accounts payable: The carrying amounts approximate fair value because of the short maturity of these instruments. Notes receivable and long-term debt: The carrying amounts approximate fair value since the interest rates on these instruments reflect current market rates. (2) ACQUISITION AND SALE OF SUBSIDIARY On September 10, 1993, the Company entered into an Exchange Agreement (the "Agreement") with Golden Eagle and Golden Eagle's shareholders (the "Shareholders") whereby the Company issued an aggregate of 25,908 shares of its common stock valued at approximately $188,000 to the Shareholders in exchange for all of the issued and outstanding shares of Golden Eagle. On the same date, in a related transaction contemplated by the Agreement, the Company issued an aggregate of 29,709 shares of its restricted common stock, valued at approximately $252,000 to the Shareholders and related parties of Golden Eagle, in exchange for the transfer to the Company of an interest in a jet airplane. In connection with the Agreement, the Company assumed approximately $2,781,000 in debt and other liabilities of Golden Eagle and the Shareholders for an aggregate consideration of $3,221,000. F-11 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (2) ACQUISITION AND SALE OF SUBSIDIARY, CONTINUED As discussed more fully in note 3, in the third quarter of fiscal 1994, the Company discontinued substantially all of the unprofitable airplane charter operations of Golden Eagle and wrote off the balance of goodwill related to the purchase of Golden Eagle as part of the restructuring. Losses from Golden Eagle's charter operations from the date of acquisition through June 30, 1994 totaled $677,000. On September 21, 1994, the Company sold all of the outstanding shares of common stock of Golden Eagle to a company in exchange for $10,000 and the assumption of certain liabilities of Golden Eagle. The Company recorded a gain of $126,000 on the sale. (3) BUSINESS RESTRUCTURING During fiscal 1994, the Company implemented a restructuring plan for the Company's continuing air medical flight and manufacturing operations designed to reduce costs and improve operating efficiencies. The restructuring plan included the discontinuation of substantially all of the airplane charter operations of Golden Eagle, a reduction in the Company's work force, and the disposal of selected assets. Also included in the restructuring was the cancellation of a proposed debt refinancing and public preferred stock offering in the third quarter of 1994. With the exception of severance pay related to the reduction in the work force and certain placement fees for the proposed preferred stock offering, the restructuring expenses consisted of non-cash charges including the write-off of previously recorded assets. Valuation allowances established for assets designated for disposal are included in loss on the disposition of assets in the accompanying financial statements. The restructuring and other non-recurring charges for the year ended June 30, 1994, consist of the following (amounts in thousands): Write-off of costs associated with proposed debt refinancing$ 335 Write-off of costs associated with proposed public preferred stock offering 571 Write-off of goodwill related to the acquisition of Golden Eagle1,459 Severance pay 614 Other 31 ----- $3,010 =====
F-12 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (4) COSTS IN EXCESS OF BILLINGS AND BILLINGS IN EXCESS OF COSTS As of December 31, 1996, the estimated period to complete contracts in process ranges from one to three months, and the Company expects to collect all related accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts within one year. The following summarizes contracts in process at December 31 (amounts in thousands):
1996 1995 ---- ---- Costs incurred on uncompleted contracts$ 933 620 Estimated earnings 15 912 -------- -------- 948 1,532 Less billings to date (266) (1,860) -------- -------- Costs in excess of billings (billings in excess of costs) $ 682 (328) ======== ========
(5) NOTES PAYABLE AND LONG-TERM DEBT Notes payable consist of the following at December 31, 1996 and 1995 (amounts in thousands):
1996 1995 ---- ---- Borrowings under a $2 million line of credit with interest at prime plus .25% (8.5% at December 31, 1996), collateralized by flight equipment $ 300 -- Borrowings under a $2 million line of credit with interest at prime rate. Paid in full in 1996.--500 Borrowings under an unsecured note with a company with interest at 6.58%. Paid in full in 1996.--104 Other 52 89 ---- ---- $ 352 693 ==== ====
The Company's line of credit agreement expires in October 1998 and requires the Company to maintain a zero balance on the line for 30 days during each year. The line has various covenants which limit the Company's ability to dispose of assets, merge with another entity, and pledge trade receivables and inventories as collateral. The Company is also required to maintain certain financial ratios as defined in the agreement. F-13 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (5) NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED Long-term debt consists of the following at December 31, 1996 and 1995 (amounts in thousands):
1996 1995 ---- ---- Notes payable to one lender with interest at 9.12%, due in monthly installments of principal and interest through November 2001 with all remaining principal due in December 2001, collateralized by flight equipment$ 4,832-- Notes payable to one lender with interest at 9.94%. Paid in full in 1996. -- 4,348 Notes payable to one lender with interest at 8.5%, due in monthly payments of principal and interest through September 2000, collateralized by flight equipment1,7402,139 Note payable to a company with interest at 9.25%, due in monthly payments of principal and interest through December 2001, collateralized by a hangar 198 227 Notes payable to a lender with interest at 8.47%, due in monthly installments of principal and interest through March 2002, collateralized by flight equipment 2,252 -- Note payable to a lender with interest payable monthly at 9.84% through August 1997. Principal and interest due monthly beginning September 1997 through August 2006, collateralized by flight equipment 1,040 -- Notes payable to a lender with interest payable monthly at 9.02% through December 1997. Principal and interest due monthly beginning January 1998 through December 2006, collateralized by flight equipment 1,374 -- Note payable to a company with interest at 11%, due in monthly payments of principal and interest through February 2002, collateralized by equipment 472 536 Note payable to a company with interest at 10%, due in monthly payments of principal and interest through May 2000, collateralized by flight equipment 231 285 Note payable to a company with interest at 6.25%, due in monthly payments of principal and interest through October 1997, collateralized by a note receivable (net of discount of $14,000 based on imputed interest rate of 9.5%)255 537 Other 28 34 -------- -------- 12,422 8,106 Less current installments (1,780) (1,435) -------- -------- $ 10,642 6,671 ======== ========
F-14 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (5) NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED Aggregate maturities of long-term debt are as follows (amounts in thousands): Year ending December 31: 1997 $ 1,780 1998 1,791 1999 1,959 2000 1,843 2001 3,369 Thereafter 1,680 ------- $ 12,422 ======= (6) LEASES The Company leases hangar and office space under noncancelable operating leases and leases certain equipment and aircraft under noncancelable operating and capital leases. As of December 31, 1996, future minimum lease payments under capital and operating leases are as follows (amounts in thousands):
Capital Operating leases leases ------- --------- Year ending December 31: 1997 $ 1,139 1,812 1998 1,139 1,330 1999 735 1,073 2000 553 1,037 2001 553 590 Thereafter 1,622 376 ----- ----- Total minimum lease payments 5,741 $ 6,218 ======= Less amounts representing interest (1,190) ----- Present value of minimum capital lease payments4,551 Less current installments (819) ----- $ 3,732 ======
Rent expense relating to operating leases totaled $1,888,000, $2,061,000, $1,234,000 and $3,434,000 for the years ended December 31, 1996 and 1995, the six months ended December 31, 1994, and the year ended June 30, 1994. F-15 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (6) LEASES, CONTINUED On July 25, 1992, the Company entered into two equipment leases with Ventana Leasing, Inc. ("Ventana") for the lease of two helicopters. A former director of the Company is a 50% owner of Ventana. In December 1993 the Company retired one of the Ventana capital lease obligations for a total of $1,167,000 and recorded a loss of $182,000 on the early extinguishment of this obligation. The remaining capital lease with Ventana is for a term of seven years at an annual cost to the Company of approximately $301,000. The lease provides that the Company will pay Ventana $337,500 upon termination of the lease to purchase the aircraft. At December 31, 1996 and 1995, leased property held under capital leases included in equipment, net of accumulated depreciation, totaled $8,596,000 and $9,509,000, respectively. (7) STOCKHOLDERS' EQUITY (a) WARRANTS In connection with various offerings of common stock and other transactions by the Company, the following warrants to purchase the Company's common stock were issued at or above market value and are outstanding as of December 31, 1996:
Number of warrants Exercise price per share Expiration date ------------------ ------------------------ --------------- 67,938 $ 5.10 Various, 1997 4,000 3.00 February 2, 1998 126,592 4.00 February 2, 1998 20,000 4.13 March 12, 1998 75,000 4.50 April 6, 1998 50,000 3.00 December 29, 1998 150,000 6.88 February 14, 1999 150,000 3.00 February 21, 1999 ------- 643,530 =======
F-16 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (7) STOCKHOLDERS' EQUITY, CONTINUED (b) STOCK OPTION PLANS At December 31, 1996, the Company had two stock-based compensation plans which are described below. The Company applies APB Opinion 25 and related interpretations in accounting for its plans. Accordingly, because the Company grants its options at or above market value, no compensation cost has been recognized relating to the plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the provisions of FASB Statement 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (amounts in thousands, except per share amounts): 1996 1995 ---- ---- Net income: As reported $ 308 959 Pro forma (8) 921 Earnings per share: As reported $ .04 .12 Pro forma -- .11 Pro forma net income reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of 5 years and compensation cost for options granted prior to January 1, 1995, is not considered. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 0% for both years; expected volatility of 64% for both years; risk-free interest rates of 7.3% and 5.5%; and expected lives of 3 years and 4 years. The weighted average fair value of options granted during the years ended December 31, 1996 and 1995, was $1.73 and $1.78, respectively. The Company has a Stock Option Plan and a predecessor plan (together "the Plan") which provides for the granting of incentive stock options (ISOs) and nonqualified stock options (non-ISOs), stock appreciation rights, and supplemental stock bonuses. Under the Plan, 2,500,000 shares of common stock are reserved for options. The Company also grants non-ISOs outside of the Plan. Generally, the options granted under the Plan have an exercise price equal to the fair market value on the date of grant, become exercisable in three equal installments beginning one year from the date of grant, and expire five years from the date of grant. F-17 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (7) STOCKHOLDERS' EQUITY, CONTINUED The Nonemployee Director Stock Option Plan authorizes the grant of nonstatutory stock options to purchase an aggregate of 300,000 shares of common stock to nonemployee directors of the Company. Each nonemployee director completing one fiscal year of service will receive a five-year option to purchase 5,000 shares, exercisable at the then current fair market value of the Company's common stock. At December 31, 1996, options issued to a consulting group to purchase 6,667 shares of common stock at an exercise price of $6.25 per share were outstanding. A director of the Company is the chief executive officer and a 50% owner of the consulting group. The following is a summary of option activity, including options granted and outstanding outside of the Plan, during the years ended December 31, 1996 and 1995, the six months ended December 31, 1994, and the year ended June 30, 1994:
Shares ------ Outstanding at July 1, 1993 934,043 Granted 942,015 Canceled (517,560) Exercised (64,363) --------- Outstanding at June 30, 1994 1,294,135 Granted 408,630 Canceled (515,691) Exercised (4,389) --------- Outstanding at December 31, 1994 1,182,685 Granted 574,729 Canceled (52,727) Exercised (2,560) --------- Outstanding at December 31, 1995 1,702,127 Granted 516,675 Canceled (467,408) Exercised (25,410) --------- Outstanding at December 31, 1996 1,725,984 =========
As of December 31, 1996 and 1995, exercisable options totaled 1,104,876 and 739,538, respectively. Exercise prices of all options granted in the periods above range from $1.75 to $13.13. The weighted average exercise price of options outstanding at December 31, 1996 was $3.92. F-18 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (7) Stockholders' Equity, continued The following table summarizes information about fixed stock options outstanding at December 31, 1996:
Weighted- Weighted-Average Weighted- Average Range of Number Remaining Average Number Exercise Exercise Price Outstanding Life (Years) Exercise Price Exercisable Price -------------- ----------- ------------ -------------- ----------- ----- $ 1.75 to 3.00 590,924 2.8 $ 2.56 435,002 $ 2.60 3.13 to 5.88 1,033,968 3.0 4.13 569,278 4.64 6.13 to 13.13 101,092 1.5 9.17 100,596 9.18 ---------- ---------- 1,725,984 1,104,876 ========== ==========
(c) RESTRICTED STOCK PLAN Effective December 3, 1992, the Company established a restricted stock plan authorizing the issuance of up to 300,000 shares of common stock to employees. Under this plan, participating employees elected to reduce their compensation by 2% to 20% for the period from January 9, 1993 to January 8, 1994. For each $3 by which employees reduced their compensation, the Company issued one share of stock and one option to purchase one share of stock for $3. The Company issued 101,137 shares under this plan to employees and recorded deferred compensation for the value of the options issued and for the excess of the market value of the shares issued on the effective date over the face value of $3 per share. The shares issued under the plan vested over one year; the associated options vested over three years. The Company recorded $6,500, $10,000 and $218,000 of compensation expense under the plan for the year ended December 31, 1995, the six months ended December 31, 1994 and the year ended June 30, 1994, respectively. In January 1994 employees who received shares under this compensation plan were allowed to elect to have the Company retain sufficient shares to provide for the payment of their withholding taxes. The Company withheld a number of shares equivalent in value to the taxes owed from the shares issued to employees and placed these shares in treasury stock. (d) NONEMPLOYEE DIRECTOR COMPENSATION PLAN In February 1993, the Board of Directors adopted the Air Methods Corporation Equity Compensation Plan for Nonemployee Directors which was subsequently approved by the Company's stockholders on March 12, 1993. Under this compensation plan, 150,000 shares of common stock are reserved for issuance to non-employee directors. As of December 31, 1996, the Company had issued 49,320 shares under this plan. F-19 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (7) STOCKHOLDERS' EQUITY, CONTINUED (e) PRIVATE PLACEMENT In the year ended June 30, 1994, 1,176,086 of the warrants issued in tandem with shares of common stock in a private offering were exercised to purchase 1,272,626 shares of common stock. In February 1994, the Company completed a private placement of 1,011,190 shares of common stock at $5.66 per share with institutions outside of the United States. (f) STOCK REPURCHASE PLAN On August 5, 1994, the Board of Directors approved a stock repurchase plan authorizing the repurchase of up to 10% of the outstanding shares of the Company's common stock to be retired. Repurchases may be made from time to time in the open market or in privately negotiated transactions. The plan authorizes, but does not require, the Company to repurchase shares. Actual repurchases in any period are subject to approval by the Finance Committee of the Board of Directors and will depend on market conditions and other factors. As of December 31, 1996, 5,500 shares had been repurchased and retired under this plan. (g) PROFIT SHARING PLAN In 1995 the Board of Directors approved a profit sharing plan which provides for the distribution of 5% of the Company's net income to its employees beginning in 1996. The amount distributed to employees in the year ended December 31, 1996, totaled $31,000. The continuation of the profit sharing plan is at the discretion of the Board of Directors. (8) REVENUE The Company has operating agreements and leases with various hospitals and hospital systems to provide services and aircraft for periods ranging from 1 to 8 years. The agreements provide for revenue from monthly fixed fees and flight fees based upon the utilization of aircraft in providing emergency medical services. The fixed-fee portions of the agreements and leases provide for the following revenue for years subsequent to December 31, 1996 (amounts in thousands): Year ending December 31: 1997 $ 17,793 1998 13,565 1999 12,295 2000 10,416 2001 6,209 Thereafter 13,490 ------- $ 73,768 ======= F-20 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (9) INCOME TAXES For income tax purposes, the Company has net operating loss carryforwards at December 31, 1996 of approximately $33,520,000 which will expire in varying amounts through the year 2011. Alternative minimum tax (AMT) loss carryforwards available to offset future AMT taxable income approximate net operating loss carryforwards for regular federal income tax purposes. In 1991, the Company acquired all of the outstanding common shares of Air Methods Corporation, a Colorado corporation ("AMC"). As a result of the acquisition of AMC and other issuances of stock, the utilization of a portion of the aforementioned net operating loss carryforwards will be limited annually by the provisions of Section 382 of the Internal Revenue Code. Any future tax benefits recognized through utilization of AMC's net operating loss carryforwards as of the acquisition date will be applied to reduce the excess of cost over the fair value of net assets acquired.The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are as follows (amounts in thousands):
1996 1995 ---- ---- Deferred tax assets: Overhaul and parts replacement cost, principally due to the accrual method $ 2,009 2,007 Accrued restructuring expenses and valuation allowances 36 49 Net operating loss carryforwards 11,732 12,111 Other 199 175 ------- ------ Total gross deferred tax assets 13,976 14,342 Less valuation allowance (8,685) (9,292) ------- ------ Net deferred tax assets 5,291 5,050 ------- ------ Deferred tax liabilities: Equipment and leasehold improvements, principally due to differences in bases and depreciation methods (5,195) (4,966) Other (96) (84) ------- ------ Total deferred tax liabilities (5,291) (5,050) ------- ------ Net deferred tax liability $ -- -- ======= ======
Income tax expense calculated at the federal statutory tax rate was offset entirely in the years ended December 31, 1996 and 1995, by the decrease in the valuation allowance for deferred tax assets. No tax benefit was recorded for the six months ended December 31, 1994, or the year ended June 30, 1994, due to the uncertainty of realizing the deferred tax asset relating to the Company's net operating loss carryforwards. F-21 AIR METHODS CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED - ---------------------------------------------------------------------- (10) RETIREMENT PLAN The Company has a defined contribution retirement plan whereby employees who have completed one year of employment may contribute up to 12% of their annual salaries. The Company contributes an amount equal to 1% of the employees' annual salary and will match 20% of the employees' contributions up to 6% of their annual salaries. Company contributions totaled approximately $154,000, $150,000, $70,000 and $156,000 for the years ended December 31, 1996 and 1995, the six months ended December 31, 1994, and the year ended June 30, 1994, respectively. (11) PROPOSED BUSINESS COMBINATION During the six months ended December 31, 1994, the Company discussed the feasibility of a business combination of the emergency air medical transport business of the Company with Rocky Mountain Helicopters, Inc. ("RMHI"). In November 1994, the cash portion of the Company's bid for the aeromedical assets of RMHI was exceeded in a bid placed by another party and the Company declined to submit a final bid. The expenses incurred as part of the due diligence process consisted primarily of legal and professional fees and comprise the balance of the $305,000 merger termination expense recognized in the six months ended December 31, 1994. (12) RELATED PARTY TRANSACTIONS During the year ended June 30, 1994, the Company issued five-year warrants to purchase 50,000 shares of common stock to Americas Partners in connection with the guarantee of a $2,500,000 note. The general partners of Americas Partners are directors of the Company. The note was paid in full in the third quarter of 1994. In February 1994 warrants to purchase an additional 150,000 shares were issued to Americas Partners in connection with a commitment from Americas Partners to fund start-up costs for a joint venture in Mexico. The commitment was paid to the Company in full subsequent to June 30, 1994. The exercise price of all of the Americas Partners warrants is $3 per share. F-22 EX-10.1 2 1995-STOCK-OPTION-PLAN EXHIBIT 10.1 AIR METHODS CORPORATION 1995 STOCK OPTION PLAN EFFECTIVE AUGUST 15, 1995 APPROVED BY STOCKHOLDERS MAY 23, 1996 I. PURPOSE ------- This Air Methods Corporation 1995 Stock Option Plan (the "Plan") provides for the grant of Stock Options, Stock Appreciation Rights and Supplemental Bonuses to Employees and Consultants of Air Methods Corporation (the "Company"), and such of its subsidiaries (as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"), as the Board of Directors of the Company (the "Board") shall from time to time designate ("Participating Subsidiaries"), in order to advance the interests of the Company and its Participating Subsidiaries through the motivation, attraction and retention of their Employees and Consultants. II. INCENTIVE STOCK OPTIONS AND NON-INCENTIVE STOCK OPTIONS ------------------------------------------------------- The Stock Options granted under the Plan may be either: (a) Incentive Stock Options ("ISOs") which are intended to be "Incentive Stock Options" as that term is defined in Section 422 of the Code; or (b) Non-Incentive Stock Options ("Non-ISOs") which are intended to be options that do not qualify as "Incentive Stock Options" under Section 422 of the Code. All Stock Options granted to Participants other than Consultants shall be ISOs unless the Option Agreement clearly designates the Stock Options granted thereunder, or a specified portion thereof, as Non- ISOs. Subject to the other provisions of the Plan, a non-Consultant Participant may receive ISOs and Non-ISOs at the same time, provided that the ISOs and Non-ISOs are clearly designated as such. All Stock Options granted to Consultants shall be Non-ISOs. Except as otherwise expressly provided herein, all of the provisions and requirements of the Plan relating to Stock Options shall apply to ISOs and Non-ISOs. III. ADMINISTRATION -------------- 3.1 Committee. With respect to grants of Stock --------- Options, Stock Appreciation Rights and Supplemental Bonuses to Employees and Consultants other than officers and directors of the Company, the Plan shall be administered by a committee (the "Committee") composed of at least two members of the Board. With respect to grants of Stock Options, Stock Appreciation Rights and Supplemental Bonuses to officers and directors, the Plan shall be administered by the Board, if each director is a Disinterested Person, or by a committee of two or more directors, all of whom are Disinterested Persons. Such committee may be the Committee if all of the members thereof are Disinterested Persons, or a special committee appointed by the Board composed of at least two Disinterested Persons. The Committee or the Board, as the case may be, shall have full authority to administer the Plan, including authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of the Code, in order that Stock Options that are intended to be ISOs will be classified as incentive stock options under the Code, or in order to conform to any regulation or to any change in any law or regulation applicable thereto. The Committee or the Board may delegate any of its responsibilities under the Plan, other than its responsibility to grant Stock Options, to determine whether the Stock Appreciation Rights or Supplemental Bonuses, if any, payable to a Participant shall be paid in cash, in shares of Common Stock or a combination thereof, or to interpret and construe the Plan. If the Board is composed entirely of Disinterested Persons, the Board may reserve to itself any of the authority granted to the Committee as set forth herein, and it may perform and discharge all of the functions and responsibilities of the Committee at any time that a duly constituted Committee is not appointed and serving. All references in the Plan to the "Committee" shall be deemed to refer to the Board whenever the Board is discharging the powers and responsibilities of the Committee, and to any special committee appointed by the Board to administer particular aspects of the Plan. 3.2 Actions of Committee. All actions taken and all -------------------- interpretations and determinations made by the Committee in good faith (including determinations of Fair Market Value) shall be final and binding upon all Participants, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, and all members of the Committee shall, in addition to their rights as directors, be fully protected by the Company with respect to any such action, determination or interpretation. IV. DEFINITIONS ----------- 4.1 "Stock Option". A Stock Option is the right -------------- granted under the Plan to an Employee or Consultant to purchase, at such time or times, and at such price or prices ("Option Price"), as are determined by the Committee. 4.2 "Stock Appreciation Right". A Stock Appreciation -------------------------- Right is the right to receive payment, in shares of Common Stock, cash, or a combination of shares of Common Stock and cash, of the Redemption Value of a specified number of shares of Common Stock then purchasable under a Stock Option. 4.3 "Redemption Value". The Redemption Value of ------------------ shares of Common Stock purchasable under a Stock Option shall be the amount, if any, by which the Fair Market Value of one share of Common Stock on the date on which the Stock Option is exercised exceeds the Option Price for such share. -2- 4.4 "Common Stock". A share of Common Stock means a -------------- share of authorized but unissued or reacquired Common Stock (par value $.01 per share) of the Company. 4.5 "Fair Market Value". For the purpose of this ------------------- Plan, the Fair Market Value of a share of Common Stock on any date shall be the average of the representative closing bid and asked prices, as quoted by the National Association of Securities Dealers through NASDAQ (its automated system for reporting quotes), for the date in question or, if the Common Stock is listed on the NASDAQ National Market System or is listed on a national stock exchange, the officially-quoted closing price on such exchange on the date in question. In the event the Common Stock is not traded publicly, the Fair Market Value of a share of Common Stock on any date shall be determined, in good faith, by the Committee after such consultation with outside legal, accounting and other experts as the Committee may deem advisable, and the Committee shall maintain a written record of its method of determining such value. 4.6 "Employee". An Employee is an employee of the ---------- Company or any Participating Subsidiary. 4.7 "Consultant". A Consultant is a bona fide ------------ consultant, or a nonemployee director, of the Company or any Participating Subsidiary. 4.8 "Participant". A Participant is an Employee or ------------- Consultant to whom a Stock Option is granted. 4.9 "Disinterested Person". A Disinterested Person is ---------------------- a director of the Company who is not, during the one year prior to service as an administrator of the Plan, granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any of its affiliates except as may be permitted by Rule 16b-3(c)(2) under the Securities Exchange Act of 1934 or any successor to such rule. 4.10 "Supplemental Bonus". A Supplemental Bonus is the -------------------- right to receive payment, in shares of Common Stock, cash, or a combination of shares of Common Stock and cash, of an amount determined under Section 7.5. V. ELIGIBILITY AND PARTICIPATION ----------------------------- Grants of Stock Options, Stock Appreciation Rights and Supplemental Bonuses may be made to Employees or Consultants of the Company or any Participating Subsidiary, including directors of the Company who are also Employees. The Committee shall from time to time determine the Employees or Consultants to whom Stock Options shall be granted, the number of shares of Common Stock subject to each Stock Option to be granted to each such Employee or Consultant, the Option Price of such Stock Options, and the terms and provisions of such Stock Options, all as provided in this Plan. The Option Price of any ISO shall be not less than the Fair Market Value of a share of Common Stock on the date on which the Stock Option is granted, but the Option Price of a Non-ISO may be less than the Fair Market Value on -3- the date the Non-ISO is granted if the Committee so determines. If an ISO is granted to an Employee who then owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company, the Option Price of such ISO shall be at least 110% of the Fair Market Value of the Common Stock subject to the ISO at the time such ISO is granted, and such ISO shall not be exercisable after 5 years after the date on which it was granted. Each Stock Option shall be evidenced by a written agreement ("Option Agreement") containing such terms and provisions as the Committee may determine, subject to the provisions of the Plan. VI. SHARES OF COMMON STOCK SUBJECT TO THE PLAN ------------------------------------------ 6.1 Maximum Number. The maximum aggregate number of -------------- shares of Common Stock that may be made subject to Stock Options granted under the Plan and under the 1987 Plan (as defined in Section 17.2) together shall be 2,500,000. With respect to ISOs, the aggregate Fair Market Value (determined as of the time the ISO is granted) of the Common Stock as to which all ISOs granted to an Employee may first become exercisable in a particular calendar year may not exceed $100,000. If any shares of Common Stock subject to Stock Options are not purchased or otherwise paid for before such Stock Options expire, such shares may again be made subject to Stock Options. 6.2 Capital Changes. In the event any changes are --------------- made to the shares of Common Stock (whether by reason of merger, consolidation, reorganization, recapitalization, stock dividend in excess of ten percent (10%) at any single time, stock split, combination of shares, exchange of shares, change in corporate structure or otherwise), appropriate adjustments shall be made in: (i) the number of shares of Common Stock theretofore made subject to Stock Options, and in the purchase price of said shares; and (ii) the aggregate number of shares which may be made subject to Stock Options. If any of the foregoing adjustments shall result in a fractional share, the fraction shall be disregarded, and the Company shall have no obligation to make any cash or other payment with respect to such a fractional share. VII. EXERCISE OF STOCK OPTIONS ------------------------- 7.1 Time of Exercise. Subject to the provisions of ---------------- the Plan, including without limitation Section 7.3, the Committee, in its discretion, shall determine the time when a Stock Option, or a portion of a Stock Option, shall become exercisable, and the time when a Stock Option, or a portion of a Stock Option, shall expire. Such time or times shall be set forth in the Option Agreement evidencing such Stock Option. An ISO shall expire, to the extent not exercised, no later than the tenth anniversary of the date on which it was granted, and a Non-ISO shall expire, to the extent not exercised, no later than ten years and one month after the date on which it was granted. 7.2 Exchange of Outstanding Stock. The Committee, in ----------------------------- its sole discretion, may permit a Participant to surrender to the Company shares of the Common Stock previously -4- acquired by the Participant as part or full payment for the exercise of a Stock Option. Such surrendered shares shall be valued at their Fair Market Value on the date of exercise. 7.3 Termination of Employment Before Exercise. With ----------------------------------------- respect to Participants who are employees of the Company or any Participating Subsidiary, if a Participant's employment with the Company or a Participating Subsidiary shall terminate for any reason other than the Participant's death or disability, any Stock Option then held by the Participant, to the extent then exercisable under the applicable Option Agreement(s) and unless otherwise determined by the Committee and set forth in a Participant's applicable Option Agreement(s), shall remain exercisable after the termination of his employment for a period of three months (but, in the case of an ISO, in no event beyond ten years from the date of grant of the ISO). If the Participant's employment is terminated because the Participant is disabled within the meaning of Section 22(e)(3) of the Code, any Stock Option then held by the Participant, to the extent then exercisable under the applicable Option Agreement(s) and unless otherwise determined by the Committee and set forth in a Participant's applicable Option Agreement(s) shall remain exercisable after the termination of his employment for a period of twelve months (but, in the case of an ISO, in no event beyond ten years from the date of grant of the ISO). In the event of a Participant's death, any Stock Option then held by the Participant, to the extent then exercisable under the applicable Option Agreement(s), shall remain exercisable after such termination of employment until the expiration of the stated term of the Stock Option as set forth in the applicable Option Agreement(s) (but, in the case of an ISO, in no event beyond ten years from the date of grant of the ISO. The termination of a Stock Option granted to a Consultant shall be as determined by the Committee, and set forth in the Consultant's applicable Option Agreement(s). If the Stock Option is not exercised during the applicable period, it shall be deemed to have been forfeited and of no further force or effect. 7.4 Disposition of Forfeited Stock Options. Any -------------------------------------- shares of Common Stock subject to Stock Options forfeited by a Participant shall not thereafter be eligible for purchase by the Participant but may be made subject to Stock Options granted to other Participants. 7.5 Grant of Supplemental Bonuses. The Committee, ----------------------------- either at the time of grant or at any time prior to exercise of any Non-ISO or Stock Appreciation Right, may provide for a Supplemental Bonus from the Company or Participating Subsidiary in connection with a specified number of shares of Common Stock then purchasable, or which may become purchasable, under a Stock Option, or a specified number of Stock Appreciation Rights which may be or become exercisable. Such Supplemental Bonus shall be payable upon the exercise of the Non-ISO or Stock Appreciation Right with regard to which such Supplemental Bonus was granted. A Supplemental Bonus shall not exceed the amount necessary to reimburse the Participant for the income tax liability incurred by him upon the exercise of the Non-ISO or upon the exercise of such Stock Appreciation Right, calculated using the maximum combined Federal and Colorado income tax rates then in effect and taking into account the tax liability arising from the Participant's receipt of the Supplemental Bonus. The Committee may, in its discretion, elect to pay any part or all of the Supplemental Bonus in: (i) cash; (ii) shares of Common Stock; or (iii) any combination of cash and shares of Common Stock. The provisions of Section 8.3 shall -6- apply to the giving of notice, the determination of the number of shares to be delivered, and the time for delivering shares. In applying Section 8.3, the Supplemental Bonus shall be treated as if it were a Stock Appreciation Right that the Participant exercised on the day the Supplemental Bonus became payable. Shares of Common Stock issued pursuant to this Section 7.5 shall not be deemed to have been issued upon the exercise of a Stock Option for purposes of the limitations imposed by Section 6.1 of the Plan. VIII. STOCK APPRECIATION RIGHTS ------------------------- 8.1 Grant of Stock Appreciation Rights. The Committee ---------------------------------- may, from time to time, grant Stock Appreciation Rights to a Participant with respect to not more than the number of shares of Common Stock which are, or may become, purchasable under any Stock Option held by the Participant. The Committee may, in its sole discretion, specify the terms and conditions of such rights, including without limitation the date or dates upon which such rights shall expire and become void and unexercisable; provided, however, that in no event shall such rights expire and become void and unexercisable later than the time when the related Stock Option is exercised, expires or terminates. Each Participant to whom Stock Appreciation Rights are granted shall be given written notice advising him of the grant of such rights and specifying the terms and conditions of the rights, which shall be subject to all the provisions of this Plan. 8.2 Exercise of Stock Appreciation Rights. Subject to ------------------------------------- Section 8.3, and in lieu of purchasing shares of Common Stock upon the exercise of a Stock Option held by him, a Participant may elect to exercise the Stock Appreciation Rights, if any, he has been granted and receive payment of the Redemption Value of all, or any portion, of the number of shares of Common Stock subject to such Stock Option with respect to which he has been granted Stock Appreciation Rights; provided, however, that the Stock Appreciation Rights may be exercised only when the Fair Market Value of the Common Stock subject to such Stock Option exceeds the exercise price of the Stock Option. A Participant shall exercise his Stock Appreciation Rights by delivering a written notice to the Committee specifying the number of shares with respect to which he exercises Stock Appreciation Rights and agreeing to surrender the right to purchase an equivalent number of shares of Common Stock subject to his Stock Option. If a Participant exercises Stock Appreciation Rights, payment of his Stock Appreciation Rights shall be made in accordance with Section 8.3 on or before the 90th day after the date of exercise of the Stock Appreciation Rights. 8.3 Form of Payment. If a Participant elects to --------------- exercise Stock Appreciation Rights as provided in Section 8.2, the Committee may, in its absolute discretion, elect to pay any part or all of the Redemption Value of the shares with respect to which the Participant has exercised Stock Appreciation Rights in: (i) cash; (ii) shares of Common Stock; or (iii) any combination of cash and shares of Common Stock. The Committee s election pursuant to this Section 8.3 shall be made by giving written notice to the Participant within said 90-day period, which notice shall specify the portion which the Committee elects to pay in cash, shares of Common Stock or a combination thereof. In the event any portion is to be paid in shares of Common Stock, the number of shares to be delivered shall be determined by dividing the amount -6- which the Committee elects to pay in shares of Common Stock by the Fair Market Value of one share of Common Stock on the date of exercise of the Stock Appreciation Rights. Any fractional share resulting from any such calculation shall be disregarded. Said shares, together with any cash payable to the Participant, shall be delivered within said 90-day period. IX. NO CONTRACT OF EMPLOYMENT ------------------------- Nothing in this Plan shall confer upon the Participant the right to maintain its relationship with the Company or any Participating Subsidiary, whether as an Employee, Consultant or otherwise, nor shall it interfere in any way with any right of the Company, or any such Participating Subsidiary, to terminate its relationship with the Participant at any time for any reason whatsoever, with or without cause. X. NO RIGHTS AS A STOCKHOLDER -------------------------- A Participant shall have no rights as a stockholder with respect to any shares of Common Stock subject to a Stock Option. Except as provided in Section 6.2, no adjustment shall be made in the number of shares of Common Stock issued to a Participant, or in any other rights of the Participant upon exercise of a Stock Option by reason of any dividend, distribution or other right granted to stockholders for which the record date is prior to the date of exercise of the Participant's Stock Option. XI. ASSIGNABILITY ------------- No Stock Option, Stock Appreciation Right or Supplemental Bonus right granted under this Plan, nor any other rights acquired by a Participant under this Plan, shall be assignable or transferable by a Participant, other than by will or the laws of descent and distribution or, in the case of a Non-ISO, pursuant to a qualified domestic relations order as defined by the Code, Title I of the Employee Retirement Income Security Act ("ERISA"), or the rules thereunder. Notwithstanding the preceding sentence, the Committee may, in its sole discretion, permit an assignment or transfer of a Non-ISO by a Participant and the exercise thereof by a person other than such Participant, on such terms and conditions as the Committee in its sole discretion may determine. In the event of his death, the Stock Option or any Stock Appreciation Right or Supplemental Bonus right may be exercised by the Personal Representative of the Participant's estate or, if no Personal Representative has been appointed, by the successor or successors in interest determined under the Participant's will or under the applicable laws of descent and distribution. XII. MERGER OR LIQUIDATION OF THE COMPANY ------------------------------------ If the Company or its stockholders enter into an agreement to dispose of all, or substantially all, of the assets or outstanding capital stock of the Company by means of a sale or liquidation, or a merger or reorganization in which the Company is not the surviving corporation, all Stock Options outstanding under the Plan as of the day before the consummation of such sale, -7- liquidation, merger or reorganization, to the extent not exercised, shall for all purposes under this Plan become exercisable in full as of such date even though the dates of exercise established pursuant to Section 7.1 have not yet occurred. XIII. AMENDMENT --------- The Board may from time to time alter, amend, suspend or discontinue the Plan, including, where applicable, any modifications or amendments as it shall deem advisable in order that ISOs will be classified as incentive stock options under the Code, or in order to conform to any regulation or to any change in any law or regulation applicable thereto; provided, however, that no such action shall adversely affect the rights and obligations with respect to Stock Options at any time outstanding under the Plan; and provided further that no such action shall, without the approval of the stockholders of the Company, (i) increase the maximum number of shares of Common Stock that may be made subject to Stock Options (unless necessary to effect the adjustments required by Section 6.2), (ii) materially increase the benefits accruing to Participants under the Plan or (iii) materially modify the requirements as to eligibility for participation in the Plan. XIV. REGISTRATION OF OPTIONED SHARES ------------------------------- The Stock Options shall not be exercisable unless the purchase of such optioned shares is pursuant to an applicable effective registration statement under the Securities Act of 1933, as amended, or unless in the opinion of counsel to the Company, the proposed purchase of such optioned shares would be exempt from the registration requirements of the Securities Act of 1933, as amended, and from the qualification requirements of any state securities law. XV. WITHHOLDING TAXES ----------------- The Company, or Participating Subsidiary, may take such steps as it may deem necessary or appropriate for the withholding of any taxes which the Company, or the Participating Subsidiary, is required by any law or regulation or any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with any Stock Option, Stock Appreciation Right or Supplemental Bonus including, but not limited to, the withholding of all or any portion of any payment or the withholding of issuance of shares of Common Stock to be issued upon the exercise of any Stock Option or Stock Appreciation Right or upon payment of any Supplemental Bonus, until the Participant reimburses the Company, or Participating Subsidiary, for the amount the Company or Participating Subsidiary is required to withhold with respect to such taxes, or canceling any portion of such payment or issuance in an amount sufficient to reimburse itself for the amount it is required to so withhold. Notwithstanding any other provision of this Plan, whenever any such withholding of taxes is required in connection with any such Stock Option, or Stock Appreciation Right or Supplemental Bonus issued in shares of Common Stock, issued to a Participant who is subject to Section 16 of the Securities Exchange Act of 1934, shares of Common Stock shall be withheld as the method of reimbursement for such tax withholding in lieu of any other form of withholding under the Plan. -8- XVI. NON-EXCLUSIVITY OF THE PLAN --------------------------- Neither the adoption of the Plan by the Board nor the submission of the Plan to stockholders of the Company for approval shall be construed as creating any limitations on the power or authority of the Board to adopt such other or additional incentive or other compensation arrangements of whatever nature as the Board may deem necessary or desirable or preclude or limit the continuation of any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees, consultants and directors generally, or to any class or group of employees, consultants or directors, which the Company or any Participating Subsidiary now has lawfully put into effect, including, without limitation, any retirement, pension, savings and stock purchase plan, insurance, death and disability benefits, and executive short term incentive plans. XVII. EFFECTIVE DATE; PRIOR PLAN SUPERSEDED ------------------------------------- 17.1 Effective Date of Plan. This 1995 Stock ---------------------- Option Plan was adopted by the Board of Directors effective as of August 15, 1996 (the "ffective Date") and approved by the Stockholders on May 23, 1996. 17.2 1987 Plan Superseded. This 1995 Stock Option Plan -------------------- supersedes the Stock Option Plan adopted June 1, 1987, and approved by the Company's Stockholders on August 25, 1987, as subsequently amended through February 19, 1995 (the "987 Plan"). No further stock options may be granted under the 1987 Plan after August 15, 1995, but all options granted under the 1987 Plan that were outstanding on August 15, 1995, remain valid and shall continue to be governed by the provisions of the 1987 Plan. 17.3 Term of Plan. No stock option shall be granted ------------ under this 1995 Stock Option Plan subsequent to ten (10) years after the Effective Date. Stock options outstanding subsequent to the ten years after the Effective Date shall continue to be governed by the provisions of the Plan. amendment to the Plan, increasing the maximum aggregate number of shares of Common Stock that may be made subject to Stock Options from 1,500,000 to 2,500,000, and expanding the eligibility requirements of the Plan to include consultants and nonemployee directors of the Company. No Stock Options shall be granted subsequent to ten years after the effective date of the Plan. Stock Options outstanding subsequent to ten years after the effective date of the Plan shall continue to be governed by the provisions of the Plan. -9- EX-23 3 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS ------------------------------- THE BOARD OF DIRECTORS AND STOCKHOLDERS AIR METHODS CORPORATION: We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-24980, 33-46691, 33-55750, 33-65370 and 33-75742) and Form S-3 (Nos. 33-59690 and 33-75744) of Air Methods Corporation of our report dated February 7, 1997 relating to the consolidated balance sheets of Air Methods Corporation and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1996 and 1995, the six months ended December 31, 1994, and the year ended June 30, 1994, which report appears in the December 31, 1996 Annual Report on Form 10-K of Air Methods Corporation. KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP Denver, Colorado March 18, 1997 EX-27 4 FDS 12/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1996 DEC-31-1996 2058 0 1672 (24) 1775 7109 43942 (10013) 45389 6607 0 487 0 0 49696 45389 3478 30257 4045 28897 (112) 0 940 308 0 308 0 0 0 308 .04 .0 Net non-operating income Net of interest income of $357
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