AMN

Business Context and Reporting Period

Company: AMN Healthcare Services, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: July 28, 2010
Event: Entry into a Material Definitive Agreement (Merger Agreement) to acquire NF Investors, Inc. ("NFI").

Key Financial Metrics and Transaction Structure

This filing details a merger transaction rather than periodic financial performance. Key financial terms include:

• Consideration to NFI Stockholders:
  • 6.3 million newly issued shares of AMN Common Stock.
  • Approximately 5.7 million shares of newly created Series A Conditional Convertible Preferred Stock.
• Dilution Impact: The combined Common and Preferred Stock (assuming conversion) will represent approximately 26% of AMN's issued and outstanding capital stock post-merger.
• Debt Refinancing:
  • AMN expects to refinance its existing Term B facility (approx. $107 million) and NFI's debt (approx. $132 million).
  • Planned new financing includes increasing the Term B loan to $175 million and issuing a $50 million second lien term loan.
• Indemnification Caps: Liability for breaches of representations and warranties is capped at $16,000,000 for each party.
• Escrow Arrangements:
  • $16,000,000 (1,454,545 Preferred Shares) held in escrow for indemnification claims.
  • $3,000,000 (272,727 Preferred Shares) held in escrow for purchase price adjustments and appraisal claims.

Material Changes and Transaction Conditions

The filing outlines significant structural changes to AMN's capitalization and debt profile contingent on the merger closing. Material conditions precedent include:

• Financing Condition: AMN must obtain proceeds from the "AMN Financing" to refinance existing credit facilities and pay transaction costs.
• Debt Thresholds: NFI's indebtedness at closing must be between $127,000,000 and $132,000,000.
• Regulatory Approvals: Clearance under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act) and absence of prohibitory laws or orders.
• Stockholder Approval: AMN must obtain stockholder approval for the conversion and voting features of the Preferred Stock following the merger.

Guidance, Outlook, and Risks

Outlook and Timeline:

• The Merger is expected to close in the third quarter of 2010.
• The agreement may be terminated if not completed by October 31, 2010 (extendable to November 30, 2010 if conditions are met).

Preferred Stock Terms:

• Dividends: Accrue at 11.0% per annum until stockholder approval of conversion/voting features. If approval is obtained within 6 months, accrued dividends are forgiven.
• Conversion: Mandatory conversion to Common Stock occurs if the trading price is $\ge$ $10.00 for 30 consecutive trading days after stockholder approval.
• Liquidation Preference: Greater of $10.00 per share plus accrued dividends or the value of shares upon conversion.

Risks and Contingencies:

• Termination Risks: The deal can be terminated by mutual consent, by either party if prohibited by law, or if there is a material breach of representations.
• Executive Severance: A Severance and Non-Competition Agreement was executed with Robert Livonius (CEO of Nursefinders, an NFI subsidiary). In a change of control termination within one year, he is entitled to a lump sum equal to two times his annual base salary plus average bonus (subject to excise tax reduction).
• Lock-up Provisions: NFI stockholders holding 85% of NFI stock are prohibited from transferring AMN shares for six months post-closing, followed by a graduated release schedule.

Forward-Looking Statements: The filing contains forward-looking statements regarding plans and expectations; actual results may differ materially due to risks and uncertainties.

Investor Verification Checklist

• Verify the final terms of the AMN Financing and whether the $175 million Term B and $50 million second lien loans are secured on satisfactory terms.
• Confirm NFI's indebtedness at closing falls strictly within the $127 million to $132 million range required by the agreement.
• Monitor the status of HSR Act regulatory clearance and other governmental consents required for the home health business.
• Review the upcoming Proxy Statement for details on the stockholder vote required to approve the Preferred Stock conversion and voting rights.
• Assess the impact of the 11.0% dividend accrual on AMN's cash flow if stockholder approval is delayed beyond six months.
• Confirm the final number of Preferred Shares issued, as this is subject to adjustment based on NFI's working capital and transaction expenses at closing.