The law firm of Wohl & Fruchter LLP announces that it is investigating the board of directors (Board) and the controlling shareholder of Erickson Air-Crane Incorporated (Erickson) (NASDAQ: EAC) for possible breaches of fiduciary duty and other violations of state law in connection with Erickson’s recent acquisition of Evergreen Helicopters, Inc. (Evergreen).
As of December 31, 2012, a group of affiliated private equity funds, referred to collectively as the ZM Funds, held approximately 50% of the $119.2 million in second lien debt owed by Evergreen.
Prior to its acquisition by Erickson, Evergreen was in severe financial distress. Among other things, Evergreen’s suppliers were withholding parts due to unpaid bills, and Evergreen was unable to maintain its aircraft. Evergreen’s auditor also expressed substantial doubt about the company’s ability to continue as a going concern. Further, a significant percentage of Evergreen’s revenues came from Department of Defense contracts in Afghanistan, and in February 2013, President Obama announced that half of US forces in Afghanistan would withdraw by early 2014. As a result of the foregoing, repayment of the substantial second lien debt owed by Evergreen to ZM Funds was highly improbable.
ZM Funds also held approximately 60% of the stock of Erickson. Two managers of ZM Funds, Quinn Morgan and Kenneth Lau, sit on the Erickson Board.
On March 20, 2013, Erickson announced that it had agreed to acquire Evergreen for a total consideration of $250 million, including $185 million in cash, and 4,008,439 shares of a new class of preferred stock worth $11.85/share and convertible into Erickson common stock on a one-for-one basis. Approximately 85% of the preferred stock was issued to ZM Funds in exchange for retirement of the outstanding second lien debt owed to ZM Funds by Evergreen.
To finance the cash portion of the acquisition, Erickson issued $400 million in notes. Prior to the issuance of the notes, Erickson already had approximately $107.9 million in long term debt outstanding.