Item 1.01
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Entry into a Material Definitive Agreement.
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Purchase Agreement
On September 25, 2017, Air Transport Services Group, Inc. (the Company) entered into a Purchase Agreement (the Purchase Agreement)
with Goldman Sachs & Co. LLC and SunTrust Robinson Humphrey, Inc., as representatives of the initial purchasers named therein (collectively, the Initial Purchasers), relating to the sale of $225 million in aggregate
principal amount of the Companys 1.125% convertible senior notes due 2024 (the notes) to the Initial Purchasers. The Company also granted the Initial Purchasers a
30-day
option to purchase up
to an additional $33.75 million in aggregate principal amount of notes (the option).
On September 26, 2017, the Initial Purchasers
notified the Company of their election to purchase an additional $33.75 million in aggregate principal amount of notes pursuant to the option. A total of $258.75 million in aggregate principal amount of notes was issued by the Company to
the Initial Purchasers on September 29, 2017.
The Purchase Agreement includes customary representations, warranties and covenants by the Company and
customary closing conditions. Under the terms of the Purchase Agreement, the Company has agreed to indemnify the Initial Purchasers against certain liabilities.
The foregoing description of the Purchase Agreement is qualified in its entirety by reference to the Purchase Agreement, which is filed as Exhibit 10.1 to
this Current Report on Form
8-K
and is incorporated herein by reference.
Indenture and the Notes
On September 29, 2017, the Company entered into an indenture relating to the issuance of the notes (the Indenture) with U.S. Bank National
Association, as trustee (the Trustee). The notes will bear interest at the annual rate of 1.125%, payable on April 15 and October 15 of each year, beginning on April 15, 2018, and will mature on October 15, 2024,
unless earlier converted or repurchased. Unless and until the Company amends its Certificate of Incorporation to increase the number of authorized shares of common stock, the notes will be convertible, subject to certain conditions, solely into
cash. If the Certificate of Incorporation is amended to increase the number of authorized shares, the notes may thereafter be settled in cash, the Companys common stock or a combination of cash and the Companys common stock, at the
Companys election (subject to, and in accordance with, the Indenture). The initial conversion rate for the notes is 31.3475 shares of common stock per $1,000 principal amount of the notes, which is equal to an initial conversion price of
approximately $31.90 per share. The initial conversion price of the notes represents a premium of approximately 35% over the $23.63 per share closing price of the Companys common stock on September 25, 2017. The conversion rate will be
subject to adjustment upon the occurrence of events specified in the Indenture but will not be adjusted for accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture) prior to the
maturity date of the notes, the Company will, in certain circumstances, increase the conversion rate by the number of additional shares described in the Indenture for a holder that elects to convert such holders notes in connection with such
make-whole fundamental change.
Holders of the notes may convert their notes prior to the close of business on the business day immediately preceding
April 15, 2024, only under the following circumstances:
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during any calendar quarter commencing after the calendar quarter ending on December 31, 2017 (and only
during such calendar quarter), if the last reported sale price per share
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of the Companys common stock for each of at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day
of the immediately preceding calendar quarter is greater than 130% of the conversion price for the notes on each applicable trading day;
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during the five consecutive business day period immediately after any five consecutive trading day period (the measurement period) in which the trading price (as defined in the Indenture) per
$1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Companys common stock and the conversion rate for the notes on each such trading
day; or
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upon the occurrence of specified corporate events described in the Indenture.
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On or after April 15,
2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the notes may convert their notes at any time regardless of the foregoing conditions.
The Company may not redeem the notes at its option prior to the maturity date, and no sinking fund is provided for the notes.
If the Company undergoes a fundamental change, as described in the Indenture, prior to the maturity date of the notes, holders of the notes will, subject to
specified conditions, have the right to require the Company to repurchase their notes or a portion thereof for cash at a repurchase price equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest on such notes
to, but excluding, the fundamental change repurchase date (as defined in the Indenture).
The Indenture contains customary terms and
covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% of the aggregate principal amount of the outstanding Notes may declare 100% of the principal of, and accrued and
unpaid interest, if any, on, all the Notes to be due and payable immediately.
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The foregoing description is qualified in its entirety by reference to the text of the Indenture and the Form of
1.125% Convertible Senior Notes due 2024, which are attached as Exhibits 4.1 and 4.2, respectively, to this Current Report on Form
8-K
and are incorporated herein by reference.
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Convertible Bond Hedge and Warrant Transactions
On September 25, 2017, in connection with the pricing of the notes, the Company entered into privately negotiated convertible bond hedge transactions (the
Base Hedge Transactions) with Goldman Sachs & Co. LLC, Bank of America, N.A., JPMorgan Chase Bank, National Association, London Branch, and Bank of Montreal (the Option Counterparties). On September 26, 2017, in
connection with the Initial Purchasers exercise of their option to purchase additional notes, the Company entered into additional convertible bond hedge transactions (the Additional Hedge Transactions and, together with the Base
Hedge Transactions, the Hedge Transactions) with the Option Counterparties.
The Hedge Transactions cover, subject to customary anti-dilution
adjustments, the number of shares of the Companys common stock that initially underlie the notes, and are expected generally to reduce the potential dilution and/or offset any cash payments the Company is required to make in excess of the
principal amount due, as the case may be, upon conversion of the notes in the event that the market price of the Companys common stock is greater than the strike price of the Hedge Transactions, which is initially $31.9005 per share (subject
to adjustment under the terms of the Hedge Transactions), corresponding to the initial conversion price of the notes.
On September 25, 2017, the
Company also entered into separate, privately negotiated warrant transactions with the Option Counterparties (the Base Warrant Transactions). On September 26, 2017, the Company entered into additional privately negotiated warrant
transactions (the Additional Warrant Transactions and, together with the Base Warrant Transactions, the Warrant Transactions) with the Option Counterparties. Pursuant to the Warrant Transactions, the Company sold warrants at
a higher strike price relating to the same number of shares of the Companys common stock that initially underlie the notes, subject to customary anti-dilution adjustments. The initial strike price of the warrants is $41.3525 per share (subject
to adjustment under the terms of the Warrant Transactions), which is approximately 75% above the last reported sale price of the Companys common stock on September 25, 2017. The Warrant Transactions could have a dilutive effect to the
Companys stockholders to the extent that the market price per share of the Companys common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.
The Company used $17.6 million of the net proceeds of the offering of the notes to pay the cost of the Hedge Transactions (after such cost was partially
offset by the proceeds to the Company from the sale of warrants in the Warrant Transactions).
The Hedge Transactions and the Warrant Transactions are
separate transactions, in each case, entered into by the Company with the Option Counterparties, and are not part of the terms of the notes and will not affect any holders rights under the notes. Holders of the notes will not have any rights
with respect to the Hedge Transactions or the Warrant Transactions.
The foregoing description of the Hedge Transactions and Warrant Transactions is
qualified in its entirety by reference to the copies of the confirmations for the Hedge Transactions and the Warrant Transactions, which are attached as Exhibits 10.2 through 10.17 to this Current Report on Form
8-K
and are incorporated herein by reference.
Affiliates of one or more of the Initial Purchasers serve as agents
and/or lenders under the Companys Amended and Restated Credit Agreement and/or as Option Counterparties. The affiliates of the Initial Purchasers which serve as lenders under the Credit Facility and/or as Option Counterparties will receive a
portion of the net proceeds from the offering of the notes that are used to repay borrowings under the Credit Agreement and to pay the cost of the Hedge Transactions, respectively.
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