ATLAS AIR INC, 424B1, 1996-05-07

ATLAS AIR INC
424B1, 1996-05-07
AIR TRANSPORTATION, SCHEDULED

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<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-2870

PROSPECTUS
3,429,565 Shares

LOGO
COMMON STOCK
------------------------
OF THE 3,429,565 SHARES OF COMMON STOCK BEING OFFERED, 2,829,565 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 600,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." OF THE 3,429,565 SHARES OF COMMON STOCK BEING OFFERED
HEREBY, 2,000,000 SHARES ARE BEING SOLD BY THE COMPANY AND 1,429,565
SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDER. SEE "PRINCIPAL
AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF
THE PROCEEDS FROM THE SALE OF THE SHARES BEING SOLD BY THE
SELLING STOCKHOLDER. THE COMMON STOCK IS QUOTED ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ATLS." ON MAY 6,
1996, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET WAS $46 3/4 PER SHARE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $45 3/4 A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER(2)
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Per Share......................... $45.75 $2.17 $43.58 $43.58
Total(3).......................... $156,902,599 $7,442,156 $87,160,000 $62,300,443
</TABLE>

- ---------------

(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
(2) Before deducting expenses payable by the Company and the Selling Stockholder
estimated at $450,000 and $225,000, respectively.
(3) The Company and the Selling Stockholder have granted the U.S. Underwriters
options, exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 300,000 and 214,434 additional shares, respectively, at the
price to public less underwriting discounts and commissions for the purpose
of covering over-allotments, if any. If the U.S. Underwriters exercise such
options in full, the total price to public, underwriting discounts and
commissions, proceeds to Company and proceeds to Selling Stockholder will be
$180,437,954, $8,558,478, $100,234,000 and $71,645,476, respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Shares will be made on or about May 10, 1996, at the office of Morgan Stanley &
Co. Incorporated, New York, New York, against payment therefor in immediately
available funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
GOLDMAN, SACHS & CO.
SMITH BARNEY INC.
May 6, 1996
<PAGE> 2

PROSPECTUS

3,429,565 Shares

LOGO
COMMON STOCK
------------------------
OF THE 3,429,565 SHARES OF COMMON STOCK BEING OFFERED, 600,000 SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND 2,829,565 SHARES ARE BEING OFFERED INITIALLY IN THE
UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS."
OF THE 3,429,565 SHARES OF COMMON STOCK BEING OFFERED HEREBY,
2,000,000 SHARES ARE BEING SOLD BY THE COMPANY AND 1,429,565 SHARES
ARE BEING SOLD BY THE SELLING STOCKHOLDER. SEE "PRINCIPAL AND
SELLING STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE
PROCEEDS FROM THE SALE OF THE SHARES BEING SOLD BY THE SELLING
STOCKHOLDER. THE COMMON STOCK IS QUOTED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "ATLS." ON MAY 6, 1996,
THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET WAS $46 3/4 PER SHARE.
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

PRICE $45 3/4 A SHARE
------------------------

- ---------------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters and subject to approval of certain legal matters by Shearman &
Sterling, counsel for the Underwriters. It is expected that delivery of the
Shares will be made on or about May 10, 1996, at the office of Morgan Stanley &
Co. Incorporated, New York, New York, against payment therefor in immediately
available funds.
------------------------

MORGAN STANLEY & CO.
International
GOLDMAN SACHS INTERNATIONAL
SMITH BARNEY INC.
May 6, 1996
<PAGE> 3

[ATLAS ROUTE MAP]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITERS."
<PAGE> 4

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY THE SELLING STOCKHOLDER
OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------

For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company, by the Selling Stockholder or by any
Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company, by the
Selling Stockholder and the Underwriters to inform themselves about and to
observe any restrictions as to the offering of the Common Stock and the
distribution of this Prospectus.

In this Prospectus references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 2
Risk Factors.......................................................................... 6
The Company........................................................................... 11
Use of Proceeds....................................................................... 12
Market Price of Common Stock and Dividend Policy...................................... 12
Capitalization........................................................................ 13
Selected Financial Data............................................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 15
Business.............................................................................. 23
Management............................................................................ 33
Principal and Selling Stockholders.................................................... 40
Certain Transactions.................................................................. 41
Description of Capital Stock.......................................................... 41
Shares Eligible for Future Sale....................................................... 43
Certain Federal Income Tax Consequences to Non-United States Holders.................. 44
Underwriters.......................................................................... 47
Legal Matters......................................................................... 49
Experts............................................................................... 49
Available Information................................................................. 51
Index to Consolidated Financial Statements............................................ F-1
</TABLE>

1
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Except where otherwise indicated, the information in this Prospectus assumes
that the U.S. Underwriters' over-allotment options are not exercised. For a
discussion of certain factors to be considered by prospective investors, see
"Risk Factors."

THE COMPANY

Atlas Air, Inc. (the "Company") is a cargo carrier which provides, through
its all Boeing 747 fleet, highly reliable airport-to-airport air transportation
services throughout the world to major international airlines consisting of
China Airlines, KLM, Lufthansa, British Airways, SAS, Swissair, Varig and
Emirates under fixed-rate, long-term contracts. As a result of the Company's
efficient and cost-effective services and increased airline industry pressure to
reduce costs, the Company's customers have determined that outsourcing portions
of their air cargo business to the Company can be less costly and offer greater
operational flexibility than expanding their cargo operations by purchasing
additional aircraft and adding other resources.

The Company believes that it has several key advantages which allow it to
offer efficient and cost-effective outsourcing services to its customers on a
profitable basis:

- Long-Term Customer Contracts Which Minimize Revenue and Cost Risks. The
Company's contractual arrangements with its customers, which accounted for
97% of the Company's flight hours in 1995, typically provide for its
customers to guarantee monthly minimum aircraft utilization levels at
fixed hourly rates and are typically in force for periods of one to five
years, subject to certain termination provisions. These contracts
typically require that the Company supply aircraft, crew, maintenance and
insurance ("ACMI") and that its customers bear all other operating
expenses, including fuel and fuel servicing; marketing costs associated
with obtaining cargo; airport cargo handling; landing fees; ground
handling, aircraft push-back and de-icing services; and specific cargo and
mail insurance. The Company's customers are also responsible under these
contracts for utilizing the cargo capacity of such aircraft. These
contracts, therefore, minimize for the Company the load factor and yield
risk traditionally associated with the air cargo business. The Company
currently has twelve ACMI contracts with at least one aircraft dedicated
to each contract and is currently in preliminary discussions with respect
to other possible ACMI contracts. All of the Company's revenues and
virtually all of its costs are in U.S. dollars, thus avoiding currency
risks normally associated with doing business primarily overseas.

- Efficient Fleet Configuration of Boeing 747 Aircraft. The Company
currently employs a fleet of thirteen Boeing 747-200 aircraft and one
Boeing 747-100 aircraft (the "Existing Fleet"). In addition, in January
1996, the Company entered into an agreement to acquire six Boeing 747-200
passenger aircraft (the "Thai Aircraft"), from Thai Airways International
Public Company Limited ("Thai Airways"). The Thai Aircraft will be
converted to freighter configuration and delivered to the Company over a
period beginning in the fourth quarter of 1996 through the fourth quarter
of 1997. In addition, the Company has entered into an agreement with
Federal Express Corporation ("Federal Express") to lease five Boeing
747-200 freighter aircraft plus spare engines (the "Federal Express
Aircraft"). The first Federal Express Aircraft was delivered to the
Company in March 1996 (and is included in the Existing Fleet), with the
remaining Federal Express Aircraft to be delivered over a four-month
period beginning in June 1996, each with a lease term ending in January
1998. The Company is also in preliminary discussions with respect to other
possible aircraft purchases. See "Business -- Aircraft."

The Company's Existing Fleet, the Thai Aircraft and the remaining four
Federal Express Aircraft are, or will be upon delivery to the Company,
high gross weight aircraft which, based upon information provided by The
Boeing Company ("Boeing"), have a maximum take-off weight ("MTOW") of not
less than 812,000 pounds and a maximum range at MTOW of not less than
4,926 statute miles (the

2
<PAGE> 6

"High Gross Weight Aircraft"). High Gross Weight Aircraft provide among
the highest maximum payload and cubic capacities, as well as the longest
range, of any cargo aircraft currently in commercial service in the world.
Additionally, the uniformity of the Company's fleet of Boeing 747 aircraft
allows for standardization in maintenance and crew training, resulting in
substantial cost savings in these areas. As the Company's fleet size
increases, the Company expects to realize additional economies of scale.

- Outsourcing of Maintenance on a Fixed Cost Basis. The Company has
focused its own resources in those areas where it believes it has
competitive and cost advantages and has outsourced other services which it
believes can be provided by others at a lower cost. In that regard, a
significant portion of the regular maintenance of the Company's fleet is
provided on a fixed cost per flight hour basis by KLM. The fixed-cost
formula of the contract also helps the Company to predict its maintenance
costs when negotiating its customer contracts. The Company also has
maintenance contracts with HAECO and Alitalia. See
"Business -- Maintenance."

- Motivated and Productive Work Force. The Company maintains a good
working relationship with its employees, in part by providing financial
incentives to its personnel which are based on the Company's performance.
The Company believes that it operates with lower personnel costs than many
established international carriers partially as a result of focusing on
profit-based incentives rather than base wages. As of March 1, 1996, the
Company had 435 employees, 294 of whom were pilots. None of the Company's
employees is subject to a collective bargaining agreement. See "Risk
Factors -- Employee Relations."

The Company's business strategy is to grow its business profitably by (i)
securing long-term ACMI contracts with new customers and expanding its long-term
ACMI relationships with its existing customers; (ii) maintaining its own costs
at the lowest practicable level and, where feasible, locking in its costs, such
as through the outsourcing of a significant portion of its regular aircraft
maintenance at a fixed cost per flight hour; and (iii) differentiating itself
from other air cargo carriers by not directly or indirectly competing with its
customers by offering its services to freight forwarders or shippers with whom
its customers deal. By focusing on expanding its ACMI contracts, the Company can
obtain minimum annual revenues and more predictable profit margins while
minimizing the load factor and yield risks traditionally associated with the air
cargo business.

Management believes that, as a U.S. certificated "flag" carrier, the
Company is well positioned to benefit from the continued lowering of
international trade barriers and from growth in the global air cargo markets,
particularly in Europe, Asia and the Pacific Rim, where the Company has
concentrated a significant portion of its resources, as well as in Latin
America, where it has been operating since July 1994 and currently has dedicated
one aircraft to serve Varig. The Company also expects to benefit from a trend in
the passenger-airline industry toward replacement of existing widebody passenger
and cargo-capable aircraft with smaller, more efficient twin-engine aircraft
which have more limited cargo space. The Company believes that anticipated
growth in the demand for air cargo services, combined with reduced
passenger-airline widebody cargo capacity and the continuing pressure on the
airline industry to reduce operating costs, should provide the Company with the
opportunity to continue to expand its air cargo outsourcing services.

3
<PAGE> 7

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered:
Common Stock Offered by the Company........ 2,000,000 shares
Common Stock Offered by the Selling
Stockholder(1).......................... 1,429,565 shares
-----------
Total Common Stock Offered......... 3,429,565 shares
-----------
-----------
U.S. Offering.............................. 2,829,565 shares
International Offering..................... 600,000 shares
Common Stock outstanding after the
Offering(2)................................ 21,917,000 shares
Use of Proceeds.............................. For working capital and other general
corporate purposes including, but not limited
to, the acquisition of aircraft.
Nasdaq National Market symbol................ "ATLS"
</TABLE>

- ---------------

(1) Includes 200,000 shares to be sold by Mr. Chowdry personally and 1,229,565
shares to be sold by Chowdry Limited Partnership. See "Principal and
Selling Stockholders."

(2) Based on the number of shares outstanding at April 25, 1996. Excludes (i)
536,650 shares of Common Stock issuable pursuant to outstanding options and
1,142,780 shares of Common Stock reserved for issuance upon exercise of
options that may be granted under the Company's 1995 Long Term Incentive
and Share Award Plan (the "1995 Stock Option Plan") and (ii) 1,000,000
shares of Common Stock reserved for issuance pursuant to the Company's
Employee Stock Purchase Plan (the "Stock Purchase Plan", together with the
1995 Stock Option Plan, the "Plans"). In addition, the Company's Board of
Directors has proposed increasing the number of shares reserved for
issuance under the Company's 1995 Stock Option Plan by 300,000, subject to
stockholder approval at the Company's annual meeting to be held on June 4,
1996. See "Management -- Employment Contracts," "-- 1995 Stock Option Plan"
and "-- Employee Stock Purchase Plan."

------------------------

4
<PAGE> 8

SUMMARY FINANCIAL DATA

The summary financial data presented below have been derived from the
consolidated financial statements of the Company. The data as of the years ended
December 31, 1995, 1994 and 1993, and for the period from April 22, 1992
(inception) through December 31, 1992, were derived from the Company's audited
consolidated financial statements and related notes, and other financial
information.

THE COMPANY
------------------------------------------------- THE COMPANY AND
THREE MONTHS PREDECESSORS(1)
ENDED -----------------
MARCH 31, YEARS ENDED DECEMBER 31, APRIL 22, 1992
----------------- ----------------------------- THROUGH
1996 1995 1995 1994 1993 DECEMBER 31, 1992
------- ------- -------- -------- ------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues.............. $58,649 $28,938 $171,267 $102,979 $41,263 $19,568
Operating income................ 15,410 3,541 42,674 13,894 446 4,743
Net income (loss)............... 6,203 50 17,831 3,586 (8,023) (9,114)
Net income (loss) per share..... .32 .00 1.06 .24 (.53) (.61)
Common shares outstanding during
the period (weighted
average)...................... 19,686 15,000 16,783 15,000 15,000 15,000
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
---------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash............................................................... $ 96,990 $183,700
Working capital.................................................... 81,022 167,732
Total assets....................................................... 447,323 534,033
Long-term debt (3)................................................. 335,902 335,902
Stockholders' equity............................................... 68,715 155,425
</TABLE>

- ---------------

(1) For the period April 22, 1992 (inception) through December 31, 1992, the
financial information for the Company, which was formed in August 1992, has
been combined with the financial information of the Company's predecessors
in a manner similar to a pooling-of-interests transaction. The Company
received its required Federal Aviation Administration ("FAA") and
Department of Transportation ("DOT") operating certificates in February
1993 and began operations under its own name at that time. Prior to
February 1993, financial results reflect the costs associated with the
formation of the Company and the operating results from the ownership of
two Boeing 747 aircraft which were leased to another carrier for operation
by such carrier pursuant to leases with China Airlines beginning April 1992
and November 1992, respectively, as well as to the United States military
during November and December 1992.
(2) Adjusted to reflect the sale of the 2,000,000 shares of Common Stock
offered by the Company hereby and the application of proceeds therefrom
(after deducting underwriting discounts and commissions and estimated
offering expenses).
(3) Excludes current maturities.

5
<PAGE> 9

RISK FACTORS

In addition to the other information in this Prospectus, prospective
investors should carefully consider the following factors prior to making an
investment in the Common Stock.

LIMITED HISTORY OF OPERATIONS

The Company received its operating certificate in February 1993. Although
many of the Company's managerial and supervisory personnel have substantial
airline industry experience, the Company has only a limited operating history.
Accordingly, there is no basis, other than the Company's short operating history
and management's judgment, on which to estimate the profitability or revenue
growth that the Company's operations may generate over a longer period of time.
See "Management." During the period from its inception through December 31,
1993, the Company incurred cumulative losses totalling approximately $17.1
million. In 1994 and 1995, the Company recorded net income of approximately $3.6
million and $17.8 million, respectively, although there can be no assurance that
net income will be sustained in the future.

COMPETITION

The market for air cargo services is highly competitive. A number of
airlines currently provide services for themselves and for others, similar to
the services offered by the Company, and new airlines may be formed that would
also compete with the Company. Such airlines may have substantially greater
financial resources and a larger fleet of aircraft than the Company. The Company
believes that the most important bases for competition in the air cargo business
are the payload and cubic capacities of the aircraft and the price, flexibility,
quality and reliability of the cargo transportation service. The ability of the
Company to achieve the growth anticipated by its strategic plan depends upon its
success in convincing major international airlines that outsourcing some portion
of their air cargo business remains more cost-effective than undertaking cargo
operations with their own incremental capacity and resources.

DEPENDENCE ON SIGNIFICANT CUSTOMERS; GEOGRAPHIC CONCENTRATION

In 1995, three of the Company's customers, China Airlines, KLM and Varig,
accounted for approximately 47%, 20% and 14%, respectively, of the Company's
total revenues. The Company also began service on additional ACMI contracts for
Lufthansa and British Airways in July and September 1995, respectively, and
entered into ACMI contracts with SAS, Swissair and Lufthansa which commenced
service in April 1996. The Company believes that its relationships with these
customers are mutually satisfactory, as evidenced by the fact that it has
renewed four ACMI contracts, and entered into five new ACMI contracts, with its
existing customers. However, there can be no assurance that any of these
agreements will remain in effect for their scheduled terms or that upon their
expiration they will be renewed. The scheduled termination dates for these
contracts range from September 1996 to February 2001. See "Business -- ACMI
Contracts." The failure to renew any of these agreements, or the renewal of any
of these agreements on terms less favorable to the Company, could have a
material adverse effect on the Company. Additionally, the Company has
concentrated a significant percentage of its resources in routes between the
United States and Asia and the Pacific Rim and between Europe and Asia and the
Pacific Rim. Any economic decline or any military or political disturbance in
these areas of the world might prevent or interfere with the Company's ability
to provide service to its Asian and Pacific Rim destinations and could have a
material adverse effect on the Company.

DEPENDENCE UPON AIRCRAFT AVAILABILITY AND FINANCING

The Company believes it enjoys significant competitive advantages resulting
from its use of High Gross Weight Aircraft. See "The Company" and
"Business -- Aircraft." Although the Company currently employs thirteen High
Gross Weight Aircraft in its operations and has contracted for the delivery of
ten more, the Boeing 747-200 High Gross Weight Aircraft is no longer in
production. The Company believes that the Existing Fleet, and, when delivered,
the Thai Aircraft and the remaining Federal Express Aircraft will be adequate to
meet the requirements of its operations for the immediate future; however,
additional aircraft (including spare aircraft capability) will be necessary for
the Company to expand in accordance with its

6
<PAGE> 10

strategic business plan. See "Business -- Strategy." The Company has
historically been successful in obtaining both Boeing 747 aircraft and the
financing necessary for the acquisition of such aircraft and, when necessary,
the conversion of such aircraft for freight carrying use; however, there can be
no assurance that Boeing 747 aircraft (particularly High Gross Weight Aircraft),
a satisfactory substitute therefor (such as a combination passenger and cargo
Boeing 747 aircraft or a passenger Boeing 747 aircraft) or the financing
necessary for the acquisition and/or conversion of the aircraft will be
available to the Company on satisfactory terms or at all in the future.

OPERATIONS DEPENDENT UPON LIMITED FLEET

Each of the Boeing 747-200 aircraft in the Existing Fleet is dedicated by
the Company to the service of one or more ACMI contracts, with one Boeing
747-100 aircraft designated to provide back-up capability. See "The Company" and
"Business -- Strategy." Therefore, in the event one or more of the Company's
aircraft were to be lost or out of service for an extended period of time, the
Company may have difficulty fulfilling its obligations under one or more of its
ACMI contracts. While the Company believes that its insurance coverage is
sufficient to cover the replacement cost of an aircraft, there can be no
assurance that suitable replacement aircraft could be located or that, if
located, the Company could contract for the services of such an aircraft without
undertaking substantial costs therefor. See "-- Dependence upon Aircraft
Availability and Financing." While the Company carries business interruption
insurance, any extended interruption of the Company's operations due to the loss
of an aircraft could have a material adverse effect on the Company.

UTILIZATION OF FUTURE AIRCRAFT

Although the Company generally does not agree to acquire new aircraft
unless such aircraft can service existing needs or the Company anticipates that
it will have obtained additional ACMI contracts for the aircraft to service, the
Company has not yet obtained ACMI contracts to be serviced by the Thai Aircraft
to be placed into service beginning in the fourth quarter of 1996 through the
fourth quarter of 1997, or the four remaining Federal Express Aircraft to be
placed in service over the four-month period beginning in June 1996. The Company
is seeking to obtain ACMI contracts with new and existing customers, to which
such aircraft would be dedicated when placed in service. The Company intends to
have new ACMI contracts in place for all these aircraft by the time they are
placed in service; however, to the extent arrangements for such contracts have
not been made at such time, the Company would seek other revenue opportunities
for such aircraft which it believes are generally available, although there can
be no assurance that such opportunities will be available at such time. The
failure to generate adequate revenue from new aircraft pending the entering into
of ACMI contracts, or the failure to secure ACMI contracts for such aircraft,
could have a material adverse effect on the Company.

AGING AIRCRAFT

The Company's Existing Fleet consists of thirteen Boeing 747-200 aircraft
manufactured between 1974 and 1986, and one Boeing 747-100 manufactured in 1970.
Manufacturer Service Bulletins ("Service Bulletins") and the FAA's Airworthiness
Directives ("Directives") issued under its "Aging Aircraft" program cause Boeing
747-100 and 747-200 aircraft operators to be subject to extensive aircraft
examinations and require Boeing 747-100 and 747-200 aircraft to undergo
structural inspections and modifications to address problems of corrosion and
structural fatigue at specified times. For instance, on September 21, 1993 and
June 4, 1994, the FAA issued Directives requiring the inspection and replacement
of certain engine components with which the Company must comply by December 1997
at an aggregate estimated cost of $1.1 million for all of the Company's
aircraft. In November 1994, the FAA issued Nacelle Strut Modification Service
Bulletins which are expected to be converted into Directives. The Company's
aircraft would have to be brought into compliance with such Directives within
the next five years at an estimated cost of approximately $500,000 for each
aircraft in its fleet. Additionally, although the Existing Fleet is currently in
compliance with FAA Stage III noise requirement standards ("Stage III
Standards"), modifications to one of the aircraft in the Existing Fleet will be
required prior to December 31, 1999 for continued compliance with such Stage III
Standards for High Gross Weight Aircraft, and the Company will incur an
estimated expenditure of

7
<PAGE> 11

approximately $100,000 to effect such compliance. For a further description of
Stage III Standards, see "Business -- Governmental Regulation." It is possible
that additional Service Bulletins or Directives applicable to the types of
aircraft or engines included in the Company's fleet could be issued in the
future. The cost of compliance with Directives and of following Service
Bulletins cannot currently be estimated, but could be substantial.

EMPLOYEE RELATIONS

The Company believes it operates with lower incremental personnel costs
than many established international airlines and cargo carriers, principally due
to the flexibility and high productivity of its workforce, arising in part as a
result of the Company's emphasis on providing financial incentives to its
personnel that are focused on the Company's financial performance rather than on
base wages. The Company's employees are not currently subject to a collective
bargaining agreement; however, many airline industry employees are subject to
such agreements and the Company's employees have been solicited from time to
time by union representatives seeking to organize them. There can be no
assurance that the Company will maintain these advantages for any extended
period of time.

REGULATORY MATTERS

Under the Federal Aviation Act of 1958, as amended and recodified (the
"Aviation Act"), the DOT and the FAA exercise regulatory authority over the
Company. The Company has obtained the necessary authority to conduct flight
operations, including a Certificate of Public Convenience and Necessity from the
DOT and an Air Carrier Operating Certificate from the FAA; however, the
continuation of such authority is subject to continued compliance by the Company
with applicable statutes, rules and regulations pertaining to the airline
industry, including any new rules and regulations that may be adopted in the
future. All air carriers are subject to the strict scrutiny of FAA officials and
to the imposition of regulatory demands that can negatively affect their
operations. DOT authorization is required for each of the Company's long-term
contracts. In order to provide service to foreign points, the Company must also
obtain permission for such operations from the applicable foreign governments
and certain airport authorities. See "Business -- Governmental Regulation."

CONTROL BY PRINCIPAL STOCKHOLDER

After giving effect to the sale of shares of Common Stock contemplated
hereby (the "Offering"), Michael A. Chowdry, the founder, Chief Executive
Officer, Chairman of the Board of Directors and President of the Company, will
beneficially own approximately 61.5% of the outstanding Common Stock of the
Company. As a result, Mr. Chowdry will be able to direct and control the
policies of the Company, including the election of directors, and mergers, sales
of assets and other such transactions. See "Principal and Selling Stockholders."

DEPENDENCE UPON KEY MANAGEMENT PERSONNEL

The Company believes that its success in acquiring ACMI contracts and
managing its operations will depend substantially upon the continued services of
the present executive officers of the Company. The loss of the services of any
of such persons could have a material adverse effect on the Company's business
prospects. The Company has employment agreements with such officers, which are
generally terminable at any time by either party. See "Management -- Employment
Agreements."

SEASONALITY OF CUSTOMER'S CARGO OPERATIONS

The cargo operations of the Company's airline customers are seasonal in
nature, with peak activity traditionally in the second half of the year, and
with a significant decline occurring in the first quarter. As a result, the
Company's revenues typically decline in the first quarter of the year as its
minimum contractual aircraft utilization level temporarily decreases. The
Company's ACMI contracts typically allow the Company's customers to cancel a
maximum of 5% of the guaranteed hours of aircraft utilization over the course of
a year. The Company's customers most often exercise such cancellation options
early in the first quarter of the

8
<PAGE> 12

year, when the demand for air cargo capacity has been historically low. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Seasonality" and "Business."

LIMITATION ON VOTING BY FOREIGN OWNERS

Under applicable regulatory restrictions, no more than 25% of the voting
stock of the Company can be owned or controlled, directly or indirectly, by
persons who are not U.S. citizens. The Company's Restated Certificate of
Incorporation provides that no shares of capital stock may be voted by or at the
direction of persons who are not U.S. citizens unless such shares are registered
on a separate stock record. See "Description of Capital Stock -- Limitation on
Voting by Foreign Owners."

ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK

The Restated Certificate of Incorporation of the Company authorizes the
Board of Directors to issue preferred stock without stockholder approval. The
Board of Directors could use the preferred stock as a means to delay, defer or
prevent a takeover attempt that a stockholder might consider in the Company's
best interest. In addition, certain provisions of Delaware law and the Company's
Restated Certificate of Incorporation and Restated Bylaws might impede a merger,
consolidation, takeover or other business combination involving the Company, as
well as specified transactions with an interested stockholder. See "Description
of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

As of April 25, 1996, after giving effect to the completion of the
Offering, the Company will have outstanding 21,917,000 shares of Common Stock,
without taking into account any shares issuable upon the exercise of outstanding
options. See "Management." 8,446,565 of these shares will be freely transferable
by persons other than "affiliates" of the Company without restriction or further
registration under the Securities Act of 1933, as amended. The remaining shares
of Common Stock beneficially owned by Mr. Chowdry will be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may not
be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including exemptions contained in Rule
144 under the Securities Act. The Company and the Selling Stockholder have
agreed that without the prior written consent of Morgan Stanley & Co.
Incorporated ("Morgan Stanley") on behalf of the Underwriters, they will not,
during the period commencing on the date hereof and ending, with respect to the
Company, 90 days and, with respect to the Selling Stockholder, 120 days after
the date of this Prospectus, (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are now owned by the Company or the Selling Stockholder or are
hereafter acquired), or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to the
sale of any Shares to the Underwriters pursuant to this Offering or pursuant to
the Plans or stock options outstanding as of the date of this Prospectus. In
addition, the Selling Stockholder agrees that, without the prior written consent
of Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 120 days after the date of this
Prospectus, make any demand for or exercise any right with respect to the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock. See "Shares Eligible for Future
Sale." Sales of substantial numbers of shares of Common Stock in the public
market could adversely affect the market price of the Common Stock.

9
<PAGE> 13

June 4, 1996. The Company has registered under the Securities Act all shares of
Common Stock issuable upon exercise of such options. Shares of Common Stock
issued upon exercise of options will be immediately available for sale in the
public market, subject to the volume limitations of Rule 144 under the
Securities Act applicable to affiliates of the Company. See "Shares Eligible for
Future Sale" and "Management -- 1995 Stock Option Plan."

POSSIBLE VOLATILITY OF STOCK PRICE

The trading price of the Company's Common Stock has increased substantially
since the Company's initial public offering in August 1995 (the "IPO"), although
it has been subject to wide fluctuations in response to a variety of factors,
including quarterly variations in operating results, market conditions in the
air cargo industry, comments or recommendations issued by analysts who follow
the Company, its competitors or the air cargo industry and general economic and
market conditions. In addition, the stock market has from time to time
experienced extreme price and volume volatility. These fluctuations may be
unrelated to the operating performance of particular companies whose shares are
traded. Market fluctuations may adversely affect the market price of the Common
Stock. The market price of the Common Stock could continue to be subject to
significant fluctuations in response to the Company's operating results and
other factors and there can be no assurance that the market price of the Common
Stock will not decline below the public offering price.

10
<PAGE> 14

THE COMPANY

The Company is a cargo carrier which provides, through its all Boeing 747
aircraft fleet, highly reliable airport-to-airport air transportation services
throughout the world to major international airlines consisting of China
Airlines Ltd. ("China Airlines"), KLM Royal Dutch Airlines ("KLM"), Deutsche
Lufthansa A.G. ("Lufthansa"), British Airways World Cargo ("British Airways"),
Varig Brazilian Airlines ("Varig"), International Airline of the United Arab
Emirates ("Emirates"), Scandinavian Airlines System ("SAS") and Swissair Cargo
("Swissair") under fixed-rate, long-term contracts. As the worldwide air
transportation industry has become increasingly competitive in recent years,
carriers have come under pressure to re-examine all facets of their business and
to reduce costs where possible, including outsourcing of operations where it is
economically advantageous to do so. The Company has established itself as a
low-cost, efficient and reliable provider of air cargo transportation primarily
because of its low cost structure which it has achieved as a result of its
productive and flexible work force, the outsourcing of many of its own services
(such as maintenance on a fixed-cost per flight hour basis), and the
advantageous economies realized from the operation of a standardized fleet of
long-haul Boeing 747 aircraft. As a result of these efficiencies, high service
standards and increased airline industry pressure to reduce costs, the Company's
airline customers have determined that outsourcing portions of their air cargo
business to the Company can be significantly less costly and offer greater
operational flexibility than expanding their cargo operations by purchasing
additional aircraft and adding other resources.

The Company's contractual arrangements with its customers, which accounted
for 97% of the Company's flight hours in 1995, typically provide for its
customers to guarantee monthly minimum aircraft utilization levels at fixed
hourly rates and are typically in force for periods of one to five years,
subject to certain termination provisions. These ACMI contracts typically
require that the Company supply aircraft, crew, maintenance and insurance and
that its customers bear all other operating expenses, including fuel and fuel
servicing; marketing costs associated with obtaining cargo; airport cargo
handling; landing fees; ground handling, aircraft push-back and de-icing
services; and specific cargo and mail insurance. These contracts, therefore,
minimize for the Company the load factor and yield risk traditionally associated
with the air cargo business. The Company currently has twelve ACMI contracts
with at least one aircraft dedicated to each contract. All of the Company's
revenues and virtually all of its costs are in U.S. dollars, thus avoiding
currency risks normally associated with doing business primarily overseas. See
"Business -- ACMI Contracts."

The Company's Existing Fleet is comprised of fourteen Boeing 747 aircraft,
thirteen of which are Boeing 747-200 aircraft and one of which is a Boeing
747-100. See "Business -- Aircraft." The Company believes that its utilization
of primarily High Gross Weight Aircraft provides significant marketing
advantages because these aircraft, relative to most other cargo aircraft that
are commercially available, have higher maximum payload and cubic capacities,
and longer range. Additionally, the uniformity of the Company's Boeing 747
aircraft fleet allows for standardization in maintenance and crew training,
resulting in substantial costs savings in these areas. The Company has
contracted to acquire the Thai Aircraft, which are expected to be placed in
service over a period from the fourth quarter of 1996 through the fourth quarter
of 1997. The Company has also contracted to lease the Federal Express Aircraft,
one of which was delivered to the Company in March 1996 and the rest of which
will be delivered over the four-month period beginning in June 1996. The Company
is also in preliminary discussions with others with respect to additional
purchases of Boeing 747-200 aircraft. See "Business -- Aircraft."

The principal executive offices of the Company are located at 538 Commons
Drive, Golden, Colorado 80401, and the Company's telephone number is (303)
526-5050. The Company was incorporated in Delaware in April 1992.

11
<PAGE> 15

USE OF PROCEEDS

The net proceeds from the sale of the 2,000,000 shares of Common Stock
offered by the Company will be approximately $86.7 million ($99.8 million if the
Underwriters' over-allotment option from the Company is exercised in full) after
deducting the aggregate underwriting discounts and the estimated expenses of the
Offering. All net proceeds will be retained for working capital and other
general corporate purposes including, but not limited to, the acquisition and
conversion of aircraft. See "Business -- Aircraft." Prior to the use of the net
proceeds of the Offering, such proceeds will be placed in interest-bearing bank
accounts or invested in short-term United States government securities or other
short-term investment grade securities. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholder.

MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY

Since the initial public offering of the Company's Common Stock at $16.00
per share in August 1995, the Common Stock has been traded on the Nasdaq
National Market under the symbol "ATLS." The following table sets forth for the
periods indicated the high and low sale prices per share of Common Stock on the
Nasdaq National Market as reported by Nasdaq:

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
Third Quarter (August 11 to September 29).............................. $24 1/4 $17
Fourth Quarter......................................................... 23 12
1996
First Quarter.......................................................... 41 7/8 15
Second Quarter (through May 6)......................................... 48 5/8 36 3/4
</TABLE>

A recent reported last sale price of the Common Stock as reported on the
Nasdaq National Market is set forth on the cover page of this Prospectus. As of
April 25, 1996 there were approximately 136 holders of record of the Common
Stock.

The Company has never paid a cash dividend on its Common Stock. The Company
does not anticipate paying cash dividends on its capital stock in the
foreseeable future and intends to retain all earnings to finance the operations
and expansion of the Company's business. The payment of cash dividends in the
future will depend on the Company's earnings, financial condition and capital
needs and on other factors deemed relevant by the Board of Directors at that
time. In addition, the indentures governing the Company's 12 1/4% Senior Secured
Notes due 2002 place restrictions on the Company's ability to declare cash
dividends on the Common Stock. See Note 2 to the Consolidated Financial
Statements of the Company.

12
<PAGE> 16

CAPITALIZATION

The following table sets forth the cash position and the capitalization of
the Company as of December 31, 1995, and as adjusted to give effect to the sale
of 2,000,000 shares of Common Stock offered by the Company hereby. See "Use of
Proceeds."

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS............................................ $ 96,990 $183,700
======== ========
CURRENT PORTION OF LONG-TERM DEBT.................................... $ 15,359 $ 15,359
LONG-TERM INDEBTEDNESS (LESS CURRENT PORTION)(2)
ING Bank debt...................................................... 226,024 226,024
Equipment Notes.................................................... 100,000 100,000
Lufthansa.......................................................... 9,556 9,556
Other.............................................................. 322 322
-------- --------
Total long-term indebtedness (less current portion)........ 335,902 335,902
STOCKHOLDERS' EQUITY:
Preferred Stock, $1.00 par value; 10,000,000 shares authorized;
no shares issued................................................
Common Stock, $.01 par value; 50,000,000 shares authorized;
19,600,000 shares (actual), 21,600,000 shares (as adjusted)
issued and outstanding(3)....................................... 196 216
Additional paid-in capital......................................... 66,591 153,281
Retained earnings.................................................. 1,928 1,928
-------- --------
Total stockholders' equity................................. 68,715 155,425
-------- --------
TOTAL CAPITALIZATION................................................. $419,976 $506,686
======== ========
</TABLE>

- ---------------

(1) The net proceeds of the Offering are shown in cash and cash equivalents.
The Company expects to use the net proceeds of the Offering, together
with its own funds, for general corporate purposes including the
acquisition and conversion of aircraft to freighter configuration. See
"Use of Proceeds."

(2) At March 31, 1996, long-term indebtedness (less current portion) and
working capital were $350,248,000 and $48,900,000, respectively.

(3) Excludes (i) at April 25, 1996, 536,650 shares of Common Stock issuable
pursuant to outstanding options, 317,000 shares issued pursuant to options
that were exercised in March and April 1996 and 1,142,780 shares of Common
Stock reserved for issuance upon exercise of options that may be granted
under the Company's 1995 Stock Option Plan and (ii) at April 25, 1996,
1,000,000 shares of Common Stock reserved for purchase pursuant to the
Company's Stock Purchase Plan. In addition, the Company's Board of
Directors has proposed increasing the number of shares reserved for
issuance under the Company's 1995 Stock Option Plan by 300,000, subject to
stockholder approval at the Company's annual meeting to be held on June 4,
1996. See "Management -- 1995 Stock Option Plan," "-- Employee Stock
Purchase Plan."

13
<PAGE> 17

SELECTED FINANCIAL DATA

The selected financial data presented below have been derived from the
consolidated financial statements of the Company. The data as of the years ended
December 31, 1995, 1994 and 1993, and for the period from April 22, 1992
(inception) through December 31, 1992, were derived from the Company's audited
consolidated financial statements and related notes, and other financial
information.

<TABLE>
<CAPTION>
THE COMPANY AND
PREDECESSORS(1)
THE COMPANY -----------------
YEARS ENDED DECEMBER 31, APRIL 22, 1992
----------------------------- THROUGH
1995 1994 1993 DECEMBER 31, 1992
-------- -------- ------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue................................ $171,267 $102,979 $41,263 $19,568
Operating income................................. 42,674 13,894 446 4,743
Net income (loss)................................ 17,831 3,586 (8,023) (9,114)
Net income (loss) per share...................... 1.06 .24 (.53) (.61)
Common shares outstanding during the period
(weighted average)............................. 16,783 15,000 15,000 15,000
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1995 1994 1993 1992
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................................................. $ 96,990 $ 10,524 $ 6,198 $ 13,323
Working capital (deficit)............................. 81,022 (1,937) (5,291) 2,067
Total assets.......................................... 447,323 162,731 125,005 133,410
Long-term debt(2)..................................... 335,902 158,730 129,663 132,438
Stockholders' equity (deficit)........................ 68,715 (15,753) (19,339) (11,316)
</TABLE>

- ---------------

(1) For the period April 22, 1992 (inception) through December 31, 1992, the
financial information for the Company, which was formed in August 1992, has
been combined with the financial information of the Company's predecessors
in a manner similar to a pooling-of-interests transaction. The Company
received its required FAA and DOT operating certificates in February 1993
and began operations under its own name at that time. Prior to 1993,
financial results reflect the costs associated with the formation of the
Company and the operating results from the ownership of two Boeing 747
aircraft which were leased to another carrier for operation by such carrier
pursuant to leases with China Airlines beginning in April 1992 and November
1992, respectively, as well as to the United States military during
November and December 1992.
(2) Excludes current maturities.

FIRST QUARTER RESULTS

On April 24, 1996, the Company reported the following first quarter results
of operations:

<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
1996 1995
------ ------
(DOLLARS IN
MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Operating revenues....................................................... $ 58.6 $ 28.9
Operating income......................................................... 15.4 3.5
Pre-Tax income........................................................... 9.7 0.2
Net income............................................................... 6.2 0.1
Net income per share..................................................... .32 .00
Common shares outstanding during the period
(weighted average, in thousands)....................................... 19,686 15,000
Total Block Hours........................................................ 11,125 5,812
Aircraft at End of Period................................................ 14 7
</TABLE>

14
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The Company, through its predecessors, began its operations on April 22,
1992 with one Boeing 747-200 High Gross Weight Aircraft in the service of China
Airlines and expanded its operations to a second Boeing 747-200 High Gross
Weight Aircraft in November 1992. These operations were undertaken on behalf of
the Company by another carrier utilizing pilot crews, dispatch facilities,
maintenance operations and other services provided by such carrier. As a result,
the Company's operations prior to 1993 were primarily limited to aircraft
leasing and start-up activities with normal operations commencing in early 1993.
As such, the Company's revenues and expenses during that period are not
indicative of the revenues and expenses which were incurred by the Company in
1994 and 1993 and which may be incurred in the future. Furthermore, the Company
expensed its start-up costs in 1992. As a result, the Company does not believe
that any comparison of the period prior to 1993 with later periods would be
meaningful.

The table below sets forth selected financial and operating data for the
four quarters of the years ended December 31, 1995 and 1994 (dollars in
thousands).

<TABLE>
<CAPTION>
1995 1994
------------------------------------------------ ------------------------------------------------
CUMU- 4TH 3RD 2ND 1ST CUMU- 4TH 3RD 2ND 1ST
LATIVE QUARTER QUARTER QUARTER QUARTER LATIVE QUARTER QUARTER QUARTER QUARTER
-------- ------- ------- ------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total operating revenues... $171,267 $56,142 $47,769 $38,418 $28,938 $102,979 $35,729 $34,271 $20,802 $12,177
Operating expenses......... 128,593 39,982 34,844 28,370 25,397 89,085 29,848 27,400 17,743 14,094
Operating income (loss).... 42,674 16,160 12,925 10,048 3,541 13,894 5,881 6,871 3,059 (1,917)
Other income (expense)..... (16,435) (4,014) (4,805) (4,287) (3,330) (10,294) (2,560) (2,635) (2,700) (2,399)
Net income (loss).......... 17,831 8,352 5,568 3,861 50 3,586 3,321 4,235 346 (4,316)
Block hours................ 33,265 10,809 9,076 7,568 5,812 19,049 6,619 6,226 3,789 2,415
Average aircraft
operated................. 7.7 9.4 8.2 6.9 6.1 5.2 6 5.8 5 3.8
Operating margin........... 24.9% 28.8% 27.1% 26.2% 12.2% 13.5% 16.5% 20.0% 14.7% (15.7)%
</TABLE>

Operating Revenues and Results of Operations. Total operating revenues for
the year ended December 31, 1995 increased to $171.3 million compared to $103.0
million for 1994, an increase of approximately 66%. The average number of
aircraft in the Company's fleet during 1995 was 7.7, compared to 5.2 during
1994, excluding scheduled aircraft maintenance down-time. Total block hours for
1995 were 33,265 compared to 19,049 for 1994, an increase of approximately 75%.
Revenue per block hour decreased by 5% to $5,149 for 1995 compared to $5,406 for
the year-earlier period reflecting a reduction in the level of charter and
scheduled service hours. While charter and scheduled service activity provides a
higher revenue rate per block hour, costs are also higher due to fuel and ground
handling costs which the Company must bear. The Company's operating results
improved from a $13.9 million operating profit for 1994 to an operating profit
of $42.7 million for 1995. Net income of $3.6 million for 1994 improved to a net
income of $17.8 million for 1995.

The Company initiated cargo services under the name Atlas Air, Inc. in
February 1993, with one Boeing 747-200 aircraft dedicated under an ACMI contract
to China Airlines and one Boeing 747-200 aircraft utilized primarily for ad hoc
charter operations until the second quarter of 1993, when the Company entered
into a second long-term dedicated ACMI contract with China Airlines. In the
fourth quarter of 1993, the Company added a leased Boeing 747-100 to its fleet,
which was intended as a back-up aircraft for its two Boeing 747-200s, and which
was additionally utilized for certain operations on behalf of KLM.

As a result of the addition of the second China Airlines ACMI contract and
the subsequent acquisition of the third aircraft, the Company's aircraft
utilization levels and, consequently, its revenue production, grew throughout
1993. Average daily aircraft utilization increased from approximately 6.9 hours
during the first quarter to approximately 12.2 hours during the fourth quarter,
and total operating revenue grew from $6.0 million in the first quarter of 1993
to $15.0 million in the fourth quarter. Total block hours flown by the Company's
fleet increased from 1,240 flown in the first quarter of 1993 to 2,745 flown in
the fourth quarter. Concurrent with these increases, and in conjunction with the
addition of the second aircraft to dedicated ACMI contract service with China
Airlines, the Company's operating results improved from a $1.4 million operating
loss in the first quarter of 1993 to a $1.5 million operating profit in the
fourth quarter, and its net losses declined from $2.4 million to $0.9 million
over such period.

15
<PAGE> 19

During the fourth quarter of 1993 and the first quarter of 1994, the
Company commenced negotiations for the acquisition of additional aircraft in
anticipation of entering into additional long-term ACMI contracts and began the
process of increasing its operational and staffing levels, including the hiring
and training of additional pilots. In 1994, during the first quarter, which
traditionally represents a seasonal decline in cargo shipping activity, China
Airlines canceled certain of its flight operations pursuant to contractual
options in that respect, and one of the Company's aircraft underwent a major
maintenance event (a "D Check"). The resulting reduction in revenue, coupled
with the added costs incurred in building up its operations, resulted in a $1.9
million operating loss and $4.3 million net loss for the Company for the first
quarter of 1994.

One additional leased Boeing 747-200 was delivered in each of the first and
second quarters of 1994, bringing the Company's fleet to five cargo aircraft.
The first of these two aircraft went into dedicated ACMI contract service for
KLM in April 1994 and the second began dedicated ACMI contract service for Varig
in June 1994. The acquisition of these aircraft and the associated long-term
contracts resulted in the Company's reaching the necessary size to bring its
revenue levels above the point where it could cover its contract-related and
fixed costs, with the Company becoming profitable in April of 1994. In July
1994, the Company commenced ACMI contract service for Aerolineas Argentinas and
leased a Boeing 747-200 aircraft on a short-term basis for that purpose.

As a result of the acquisition of these aircraft and the addition of the
associated long-term contracts, the Company's operating levels grew
substantially in the last three quarters of 1994, with block hours increasing
from 2,415 hours in the first quarter to 6,619 hours in the fourth quarter,
equating to average daily aircraft utilization of approximately 12.3 hours by
the fourth quarter. Over the corresponding period, total operating revenue
increased from $12.2 million in the first quarter to $35.7 million in the fourth
quarter and the Company's operating results improved from a first quarter
operating loss of approximately $1.9 million to operating profits of $6.9
million and $5.9 million in the third and fourth quarters, respectively. In
addition, the first quarter net loss of $4.3 million improved to third and
fourth quarter net incomes of $4.2 million and $3.3 million, respectively.

In March 1995, the Company took delivery following its conversion to full
cargo configuration of the first of four Boeing 747-200 aircraft contracted to
be acquired from Lufthansa, with the second such aircraft delivered to the
Company in April 1995. These two aircraft went into dedicated ACMI contract
service for each of KLM and China Airlines, respectively. The third aircraft
acquired pursuant to the Lufthansa purchase agreement was delivered to the
Company in July 1995 and went immediately into ACMI contract service with
Lufthansa. In conjunction with the commencement of contract service with British
Airways in September 1995, the Company leased a Boeing 747-200 freighter on a
short-term basis, which was then replaced in November 1995 by the first of three
Boeing 747-200 aircraft acquired from Alitalia.

The Company's operating levels increased substantially during 1995 as a
result of these aircraft acquisitions. Block hours rose from 5,812 hours in the
first quarter of 1995 to 10,809 in the fourth quarter, as the average number of
aircraft in the Company's fleet grew from 6.1 aircraft to 9.4 aircraft over the
corresponding period. Total operating revenue increased from $28.9 million in
the first quarter of 1995 to $56.1 million in the fourth quarter, with the
Company's operating income increasing from $3.5 million to $16.2 million and its
net income improving from $0.1 million to $8.4 million over that same period.

Operating Expenses. The Company's principal operating expenses include
flight crew salaries and benefits; other flight-related expenses; maintenance;
aircraft and engine rentals; fuel costs and ground handling; depreciation and
amortization; and selling, general and administrative expenses.

Flight crew salaries and benefits include all such expenses for the
Company's pilot work force. Flight crew salaries and benefits increased to $14.6
million in 1995 compared to $8.9 million in 1994, due to an increase in the
number of aircraft in the Company's fleet and aircraft block hours. While actual
expense increased by approximately 64% during 1995 as a result of the increase
in the number of aircraft in the Company's fleet and aircraft block hours, on a
block hour basis this expense declined to $438 per hour for 1995 from $467 per
hour for 1994. This reduction of 6% was due to increased efficiency in staffing
levels and scheduling resulting from the increased level of operations.

16
<PAGE> 20

Expenses for flight crew salaries and benefits increased to $8.9 million in
1994 from $4.2 million in 1993, primarily as a result of the increase in the
Company's fleet of Boeing 747 aircraft from an average of 2.1 aircraft in 1993
to 5.2 aircraft in 1994, while aircraft block hours increased from 7,907 to
19,049, or approximately 141%, over such period. These expenses did not increase
at the same rate as the increase in the Company's operations due to the
realization of certain efficiencies and economies of scale as the Company's
fleet increased and average seniority levels declined as new pilots were added
to the work force.

Other flight-related expenses include hull and liability insurance on the
Company's fleet of Boeing 747 aircraft, crew travel and meal expenses, initial
and recurring crew training costs and other expenses necessary to conduct its
flight operations.

Other flight-related expenses increased to $12.4 million in 1995 compared
to $9.3 million in 1994, or approximately 33%, due primarily to the larger fleet
size. On a block hour basis, this expense declined to $372 per hour for 1995
compared to $487 per hour for 1994. This reduction of 24% was due primarily to
reduced insurance and training costs on a block hour basis due to cost savings
created by the larger fleet.

Other flight-related expenses increased to $9.3 million in 1994 from $7.8
million in 1993, or approximately 18%, primarily as a result of the training
costs incurred in hiring new pilots for the Company's expanded operations. In
addition, the Company's aircraft insurance costs increased in direct proportion
to the increase in the Company's fleet size, as the Company was considered a
start-up carrier for insurance purposes until 1995 when it renewed its hull and
liability policy at rates approximately 25% below those in effect during the
first quarter of 1994. Other flight-related expenses in 1993 included payments
made in early 1993 to another carrier in connection with the operation by such
carrier of certain of the Company's aircraft pursuant to leases with China
Airlines beginning in April 1992 and November 1992, respectively.

Maintenance expenses include all expenses related to the upkeep of the
aircraft, including maintenance labor, parts, supplies and maintenance reserves.
The costs of C Checks and engine overhauls not otherwise covered by maintenance
reserves, are capitalized as they are incurred and amortized over the life of
the maintenance event. In addition, in January 1995 the Company contracted with
KLM for a significant part of its regular maintenance operations and support on
a fixed cost per flight hour basis and in April 1995 with another contract
maintenance operator, Hong Kong Aircraft Engineering Company ("HAECO"), at fixed
rates to undertake conversions and/or D Checks on ten Boeing 747 aircraft over
the next 24 months, which will help serve to decrease its maintenance expense on
a per aircraft basis in future periods. See "Business -- Maintenance."

Maintenance expense increased to $42.6 million in 1995 from $24.5 million
in 1994, or approximately 74%. On a block hour basis, maintenance expense
decreased by 1% during 1995, primarily reflecting new hourly rates negotiated in
conjunction with the long-term maintenance agreement with KLM described above
that became effective as of January 1, 1995. Maintenance expenses increased
approximately 204%, from $8.1 million in 1993 to $24.5 million in 1994, as a
direct result of the increase in the Company's average fleet size from 2.1
aircraft in 1993 to 5.2 aircraft in 1994.

Aircraft and engine rentals include the cost of leasing aircraft and spare
engines, as well as the cost of short-term engine leases required to replace
engines removed from the Company's aircraft for either scheduled or unscheduled
maintenance and any related short-term replacement aircraft lease costs.

Aircraft and engine rentals were $22.9 million in 1995 compared to $14.0
million in 1994, or an increase of approximately 63%. Maintenance events during
1995 resulted in substitute leased engine expense of $3.7 million, and the
Company incurred $2.8 million in sublease costs for aircraft necessary to
service contract obligations which could otherwise not be met with the Company's
fleet due principally to the scheduled major maintenance events which occurred
during the period. This increase was also due to the greater mix of leased
versus owned aircraft from an average of 3.2 leased aircraft in 1994 to an
average of 3.6 leased aircraft in 1995. The Company purchased three spare
engines in 1995 in order to ensure adequate future spares levels. The Company
operated throughout most of 1993 with only the two aircraft owned through its
subsidiaries and leased its first aircraft during the fourth quarter of 1993.
Additional aircraft were leased in each of the first three quarters of 1994 as
the Company entered into additional ACMI contracts for dedicated aircraft. As a

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<PAGE> 21

result, and in conjunction with the short-term lease of several replacement
engines for engines undergoing overhaul during 1994, aircraft and engine rental
expense increased from $1.8 million in 1993 to $14.0 million in 1994.

Because of the nature of the Company's ACMI contracts with its airline
customers, under which the Company is responsible only for the ownership cost
and maintenance of the aircraft and for supplying aircraft crews and insurance,
the Company's airline customers bear all other operating expenses, including
fuel and fuel servicing; marketing costs associated with obtaining cargo;
airport cargo handling; landing fees; ground handling; aircraft push-back and
de-icing services; and specific cargo and mail insurance. As a result, the
Company incurs fuel and ground handling expenses only when it operates on its
own behalf, either in scheduled services it sometimes provides between Hong Kong
and the United States, for ad hoc charters or for ferry flights. Fuel expenses
for the Company's non-ACMI contract services include both the direct cost of
aircraft fuel as well as the cost of delivering fuel into the aircraft. Ground
handling expenses for non-ACMI contract service include the costs associated
with servicing the Company's aircraft at the various airports to which it
operates as well as other direct flight related costs.

Fuel and ground handling costs decreased to $5.0 million in 1995 from $9.7
million in 1994, or approximately 48%. The decrease in total fuel and ground
handling costs was caused principally by a decline of 57% in scheduled service,
charter and non-revenue hours flown.

While total fuel and ground handling expenses rose from $4.6 million in
1993 to $9.7 million in 1994, or approximately 113%, such costs declined as a
percentage of total operating revenues over such period, from 11.1% to 9.5%, as
the Company decreased its charter activities and increased the scope of its ACMI
contracts, which accounted for 88% of the Company's flight hours in 1994.

Depreciation and amortization expense includes depreciation on aircraft,
spare parts and ground equipment, and the amortization of capitalized major
aircraft maintenance and engine overhauls.

Depreciation and amortization expense increased to $14.8 million in 1995
from $7.5 million in 1994, or approximately 99%. This increase primarily
reflected the impact of the owned aircraft added to the Company's fleet and to
the amortization of capitalized engine overhaul costs.

Pre-operating and start-up costs were expensed in 1992. Depreciation and
amortization expense increased from $5.6 million in 1993 to $7.5 million in
1994, primarily as a result of the amortization of 1994 maintenance events.

Other operating expenses include salaries, wages and benefits for all
employees other than pilots; accounting and legal expenses; supplies; travel and
meal expenses, excluding those of the aircraft crews; commissions; and other
miscellaneous operating costs. Other operating expenses increased to $16.4
million in 1995 from $15.2 million in 1994, or approximately 7.8%. On a block
hour basis, these expenses declined to $492 per hour in 1995 from $796 in 1994,
or 38%, as overhead growth did not match operational growth. Other expenses
increased by approximately 74%, from $8.7 million in 1993 to $15.2 million in
1994. This increase related primarily to the expansion of the Company's
operations; however, these expenses did not increase at the same rate as the
increase in operations, as the Company was able to contain its growth in
overhead, primarily in the form of general and administrative expenses, to
relatively modest levels.

Other Income (Expense). Other income (expense) consists of interest income
and interest expense. Interest income increased to $2.0 million for 1995 from
$0.5 million in 1994 due primarily to the receipt in August 1995 of
approximately $67 million of net proceeds from the IPO and to the receipt of
approximately $100 million in proceeds from the Company's issuance of 12 1/4%
Pass Through Certificates due 2002 (the "Equipment Notes") in November 1995,
approximately two thirds of which was utilized immediately to make payments with
respect to the acquisition of additional aircraft. Interest expense increased to
$18.5 million in 1995 from $10.8 million in 1994, or approximately 71%,
substantially all of which relates to a net increase in indebtedness associated
with the acquisition of flight equipment.

Interest income grew from $0.2 million in 1993 to $0.5 million in 1994, or
approximately 101%, as the Company's cash balances available for investment
increased from $6.2 million at the end of 1993 to

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<PAGE> 22

$10.5 million at the end of 1994. Interest expense, which represents interest
costs associated with the financing provided for the Company's owned assets,
primarily aircraft, increased from $10.1 million in 1993 to $10.8 million in
1994, primarily due to an increase in the LIBOR-based interest rate and the
financing of an aircraft D Check during 1994.

Income Taxes. Income taxes provided for in 1995 of $8.4 million are based
on a 32% effective tax rate for the year, reflecting utilization of prior year
net operating losses and reversal of the prior year valuation allowance. As a
result of the existing net operating loss carryovers and the tax benefits of
ownership of new aircraft, $8.1 million of the income tax expense will be
deferred to future periods.

The Company realized an income tax benefit in 1993 and had an effective tax
rate of 0.4% in 1994 as a result of utilizing the benefits of net operating
losses. Income tax benefit (expense) represents tax refunds received resulting
from the utilization of alternative minimum tax carrybacks, amounting to $1.4
million in 1993, and charges of $14,000 for state and local income taxes in
1994.

The Company had net loss carryforwards of approximately $45.1 million as of
December 31, 1995 and approximately $5.0 million of alternative minimum tax
carryforwards, which will be available to offset a corresponding amount of any
future taxable income or alternative minimum taxable income, respectively. For
financial reporting purposes, the Company had net operating loss carryforwards
of $3.6 million at December 31, 1994. The Company has not had Federal taxable
income since inception and there can be no assurance the Company will have
future Federal taxable income. Accordingly, the Company had recognized a
valuation allowance equal to the Company's net deferred tax asset at December
31, 1994 which was subsequently reversed.

Seasonality. The cargo operations of the Company's airline customers are
seasonal in nature, with peak activity traditionally in the second half of the
year, and with a significant decline occurring in the first quarter. This
decline in cargo activity is largely due to the decrease in shipping that occurs
following the December and January holiday seasons associated with the
celebration of Christmas and the Chinese New Year. Certain of the Company's
customers have, in the past, elected to use that period of the year to exercise
their contractual options to cancel a limited number (generally not more than
5%) of cargo flights with the Company, and are expected to continue to do so in
the future. As a result, the Company's revenues typically decline in the first
quarter of the year as its minimum contractual aircraft utilization level
temporarily decreases. The Company seeks to schedule, to the extent possible,
its major aircraft maintenance activities during this period to take advantage
of any unutilized aircraft time.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1995, the Company had cash and cash equivalents of
approximately $97.0 million and working capital of approximately $81.0 million.
During 1995, cash and cash equivalents increased by $86.5 million, principally
reflecting cash provided from operations of $43.6 million, the receipt of
approximately $66.6 million of net proceeds from the IPO, the receipt of net
proceeds of approximately $95.9 million from the Equipment Notes and proceeds
from bank financings of approximately $81.2 million, partially offset by
principal reductions on indebtedness of $7.8 million and investments in flight
equipment of $190.8 million.

At December 31, 1994, the Company had cash and cash equivalents of
approximately $10.5 million and a working capital deficit of approximately $1.9
million. During 1994, the Company's cash and cash equivalents increased by
approximately $4.3 million, principally reflecting approximately $12.8 million
of cash flow generated from operations and approximately $10.1 million raised by
the Company through financing activities, primarily related to the financing of
flight equipment, offset by $18.6 million in costs associated with purchasing
such flight equipment.

On December 30, 1994, in connection with the acquisition of four Boeing 747
aircraft (the "Lufthansa Aircraft") pursuant to four purchase agreements with
Lufthansa, the Company negotiated a new loan agreement (the "ING Financing
Agreement") with Internationale Nederlanden Aviation Lease B.V. ("ING Bank")
whereby ING Bank committed to provide up to $231 million of financing to the
Company to, among other things, finance the purchase price of at least two of
the Lufthansa Aircraft (as well as the remaining two

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<PAGE> 23

Lufthansa Aircraft if Lufthansa had not elected to provide such financing as
described below) and refinance two existing aircraft previously financed by ING
Bank (the "Existing Aircraft"). Subsequently, ING Bank increased the size of the
financing under the ING Financing Agreement to $232.9 million. In addition, in
June 1995, in connection with the acquisition of the three Boeing 747 aircraft
(the "Alitalia Aircraft") pursuant to an agreement with Alitalia Linee Aeree
Italiane S.p.A. ("Alitalia"), ING Bank agreed to transfer its financing
commitment with respect to one of the Lufthansa Aircraft to the purchase and
cargo modification of one of the Alitalia Aircraft, deposits on the remaining
two Alitalia Aircraft and certain loan fees, up to a maximum amount of $26
million. ING Bank also agreed under the ING Financing Agreement to pay for the
cost of one D Check in 1995, to reimburse the Company for $2.9 million in
predelivery deposits associated with the Lufthansa Aircraft and to finance the
costs of accomplishing the modification of all four of the Lufthansa Aircraft by
Boeing under an agreement with Boeing for such modification (the "Boeing
Modification Agreement"), to a maximum average of $15 million per aircraft. The
Company remained responsible, however, for all modification costs under the
Boeing Modification Agreement, which exceeded the amount financed by ING Bank by
$8.6 million. The three Lufthansa Aircraft and the one Alitalia Aircraft which
were financed under the ING Financing Agreement were placed in service in 1995.

The ING Financing Agreement requires three consecutive monthly payments by
the Company to ING Bank of $1.1 million from January 1995 through March 1995 and
$980,000 per month thereafter for the two Existing Aircraft. As the two aircraft
that are financed by Lufthansa (the "Lufthansa Financed Aircraft") were
delivered to the Company, the terms of the ING Financing Agreement required
payments by the Company of $90,000 per month per Lufthansa Financed Aircraft to
ING Bank and $400,000 per month per Lufthansa Financed Aircraft to Lufthansa
until the Lufthansa debt is paid in full. At such time, the payment to ING Bank
will increase to $490,000 per month per Lufthansa Financed Aircraft. As the
Lufthansa Aircraft and the Alitalia Aircraft financed under the ING Financing
Agreement were delivered to the Company, the terms of the loan agreement require
payments by the Company of $490,000 per month per aircraft to ING Bank.

For all but $30 million of the total indebtedness to ING Bank (which amount
was financed at a fixed interest rate of 11.53% through September 1995, at which
time the interest rate was converted to one-month LIBOR (London Interbank
Offered Rate) plus 2.65%), the ING Financing Agreement accrues interest at
one-month LIBOR plus 2.65%. To the extent one-month LIBOR increases or
decreases, the loan's maturity date will lengthen or shorten, respectively.
Should LIBOR exceed 7.5% after November 1997, the scheduled payments described
above will be increased in accordance with a prescribed formula; likewise, if
LIBOR should decrease below 2.5%, the scheduled payments will be decreased in
accordance with a prescribed formula.

The collateral for the ING Financing Agreement consists of the following: a
first priority lien and security interest in and to all aircraft owned by the
Company (other than the Lufthansa Financed Aircraft, two of the three Alitalia
Aircraft and the Thai Aircraft) and the common stock of the Company's subsidiary
owning such aircraft; a pledge of shares of Common Stock of the Company
beneficially owned by Mr. Chowdry with a fair market value of $20 million; an
assignment of the Company's interest in the Boeing Modification Agreement for
the Lufthansa Aircraft; and a second priority lien and security interest in and
to the Lufthansa Financed Aircraft (which converts to a first priority lien when
Lufthansa is paid in full).

At December 31, 1994 and 1995, the Company had outstanding borrowings of
$149.5 million and $232.5 million, respectively, under the ING Financing
Agreement. Borrowings under the ING Financing Agreement are expected to be
retired over a ten year period commencing in 1998.

Pursuant to two of the purchase agreements with Lufthansa (the "Lufthansa
Financing Agreements"), Lufthansa has financed the purchase price (but not the
cost of conversion) of the two Lufthansa Financed Aircraft. The Lufthansa
Financing Agreements require monthly payments of $400,000 per Lufthansa Financed
Aircraft commencing three months after delivery until the Lufthansa debt and
related interest is paid in full. The Company began remitting payments on the
first and second Lufthansa Financed Aircraft in January 1995 and February 1995,
respectively. Borrowings under the Lufthansa Financing Agreements accrue
interest at an annual rate of approximately 8.8%. The loan is secured by a first
priority lien and security interest

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<PAGE> 24

in and to the Lufthansa Financed Aircraft. At December 31, 1994 and 1995, the
Company had outstanding borrowings of $12.7 million and $18.4 million,
respectively, under the Lufthansa Financing Agreements. Borrowings under the
Lufthansa Financing Agreements are scheduled to be retired over a three year
period commencing in early 1995.

The Company has contracted to purchase three Boeing 747-200 aircraft,
consisting of two Alitalia Aircraft and one Lufthansa Aircraft, at an average
cost of approximately $34 million each (including the cost of modifying the
aircraft for long-haul cargo service), one of which was delivered to the Company
in January 1996 and the other two of which were delivered to the Company during
March 1996. The Company utilized the proceeds from the Equipment Notes offering,
together with funds from the Company, to pay the purchase price including
modification cost of these three aircraft.

In January 1996, the Company entered into a contract with Langdon Asset
Management, Inc. for the purpose of acquiring six Boeing 747-200 passenger
aircraft from Thai Airways. The Thai Aircraft will be converted into freighters
by Boeing and delivered to the Company for placement into service between the
fourth quarter of 1996 and year-end 1997. The average cost of the six aircraft,
including conversion costs and spare engines and parts, is expected to
approximate $40 million. The Company has placed a nonrefundable deposit of $3
million with Thai Airways International with respect to its acquisition of the
Thai Aircraft. As discussed below, the Company has preliminary commitments for
financing with respect to two of the Thai Aircraft. The Company is currently
negotiating for the purchase of spare engines and parts from Thai Airways. In
addition, the Company is in preliminary discussions for the acquisition of
additional aircraft.

In March 1996, the Company entered into an agreement with Federal Express
Corporation to lease five 747-200 freighter aircraft, plus spare engines. The
first Federal Express Aircraft was delivered to the Company in March 1996, and
the remaining Federal Express Aircraft will be delivered to the Company over a
four-month period beginning in June 1996 and each will have a lease term ending
in January 1998. The lease rate will be $450,000 per month per aircraft. In
addition, the Company has agreed to purchase on or before October 1, 1996 a
Boeing 747 simulator from Federal Express for a purchase price of $2.1 million.
The Company is also negotiating the possible purchase of certain Boeing 747-200
spare parts from Federal Express.

The Company has entered into an agreement with HAECO, pursuant to which
HAECO has agreed to convert and/or undertake D Checks on ten Boeing 747 aircraft
through October 2, 1997 at fixed rates, with the Company guaranteeing a minimum
number of man hours. In addition, the Company has agreed with Alitalia to
utilize, or find other parties to utilize, an amount of Alitalia's maintenance
services with an aggregate cost of $25 million over a five-year period ending in
June 2000.

Beginning in 1997, the Company will be required to comply with certain FAA
Airworthiness Directives at an aggregate estimated cost of $1.1 million for all
of the Company's aircraft and will have to modify one aircraft to comply with
Stage III Standards by December 31, 1999, at an estimated cost of $100,000.
Additionally, in November 1994, the FAA issued Nacelle Strut Modification
Service Bulletins which are expected to be converted into Airworthiness
Directives. The Company's aircraft would have to be brought into compliance with
such Airworthiness Directives within the next five years at an estimated cost of
approximately $500,000 for each aircraft in its fleet. See
"Business -- Governmental Regulation" and "Risk Factors -- Aging Aircraft."

Due to the contractual nature of the Company's business, the Company's
management does not consider its operations to be highly working
capital-intensive in nature. Because most of the non-ACMI costs normally
associated with operations are borne by and directly paid for by the Company's
customers, the Company does not incur significant costs in advance of the
receipt of corresponding revenues. Moreover ACMI costs, which are the
responsibility of the Company, are mostly incurred on a regular, periodic basis
ranging from flight hours to months. These costs are largely matched by revenue
receipts, as the Company's contracts require regular payments from its
customers, based upon current flight activity, generally every two to four
weeks. As a result, while the Company may in the future seek to obtain a working
capital facility, it currently has no such facility in place and does not
foresee any operating necessity for a working capital facility. The Company may

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<PAGE> 25

seek commitments for a credit facility which may be used, among other things,
for aircraft acquisitions and modifications.

The Company believes that the cash flow generated from its operations and
the proceeds from its IPO, the offering of Equipment Notes and this Offering are
sufficient to meet its normal ongoing liquidity needs for 1996. The Company does
anticipate that it will, however, have to seek additional financing for the
acquisition and conversion of the Thai Aircraft. It has received a preliminary
commitment from certain banks for the financing of up to 80% of the purchase
price of the first Thai Aircraft and is in preliminary discussions with certain
lenders with respect to a revolving credit facility for the acquisition of the
remaining five Thai Aircraft. The Company used approximately $22.4 million of
cash in April 1996 for the purchase of one of the Thai Aircraft and a spare
engine. The Company believes that it will obtain the necessary financing for
such aircraft; however, there can be no assurance that such financing will be
available to the Company or that any such financing obtained will be on
satisfactory terms and conditions.

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<PAGE> 26

BUSINESS

GENERAL

The Company is a cargo carrier which provides, through its all Boeing 747
aircraft fleet, highly reliable airport-to-airport air transportation services
throughout the world to major international airlines consisting of China
Airlines, KLM, Lufthansa, British Airways, SAS, Swissair, Varig and Emirates
under fixed-rate, long-term contracts. The Company is able to provide efficient,
cost-effective service to its customers primarily as a result of its productive
and flexible work force, the outsourcing of a significant part of its regular
maintenance work on a fixed-cost basis and the advantageous cost economies
realized in the operation of its fleet comprised solely of Boeing 747 aircraft,
which are configured for service in long-haul cargo markets.

The Company's contractual arrangements with its customers, which accounted
for 97% of the Company's flight hours in 1995, typically provide for its
customers to guarantee monthly minimum aircraft utilization levels at fixed
hourly rates and are typically in force for periods of one to five years,
subject to certain termination provisions. These contracts typically require
that the Company supply aircraft, crew, maintenance and insurance and that its
customers bear all other operating expenses, including fuel and fuel servicing;
marketing costs associated with obtaining cargo; airport cargo handling; landing
fees; ground handling, aircraft push-back and de-icing services; and specific
cargo and mail insurance. The Company's customers are also responsible under
these contracts for utilizing the cargo capacity of each of the contracted
aircraft. These contracts, therefore, minimize for the Company the load factor
and yield risk traditionally associated with the air cargo business. The Company
also sometimes provides its own ad hoc charter or weekly scheduled air cargo
service on a seasonal basis between the United States and Hong Kong, for which
China Airlines has acted as its general sales agent.

The Company's utilization of primarily High Gross Weight Aircraft provides
significant cost and marketing advantages because these aircraft, relative to
most other cargo aircraft that are commercially available, have higher maximum
payload and cubic capacities, and longer range. Additionally, the uniformity of
the Company's Boeing 747 aircraft fleet allows for standardization in
maintenance and crew training, resulting in substantial cost savings in these
areas. Partially as a result of the Company's high level of standardization, KLM
has agreed to provide a significant part of the regular maintenance of the
aircraft and GE engines in the Company's fleet at a fixed cost per flight hour,
rather than on a more traditional straight payment basis for actual labor time
incurred and part costs. The Company also has maintenance contracts with HAECO
and Alitalia. See "-- Aircraft" and "-- Maintenance."

The primary focus of the Company's customers' business is on the
transportation of passengers, not air cargo. Nevertheless, most passenger
airlines have air cargo customers that require quick and dependable air cargo
lift between hubs serviced by such airlines. To the extent that airlines have
the cargo capacity on any of their flights, which are generally scheduled for
the convenience of passengers rather than for the needs of air cargo customers,
air cargo service can be provided by them to meet such demand. However, there is
a trend in the passenger-airline business toward replacing Boeing 747 passenger
aircraft and Boeing 747 combination passenger and cargo aircraft ("Combi
Aircraft") with smaller, more efficient twin-engine aircraft, with more limited
cargo capability. The Company's customers have therefore found that they must
outsource additional cargo capacity, or add other resources and expand their
fleet of aircraft to service their air cargo customers in order to avoid losing
that portion of their business. The Company believes that it provides a
cost-effective solution to this problem.

INDUSTRY BACKGROUND

While the air cargo industry is highly competitive, the Company believes
that current industry trends are favorable to the continued growth of its
business. The world air cargo market grew by 12% in 1994 as measured in revenue
ton kilometers ("RTKs") and has grown at an average rate of more than 8.0% per
year from 1970 to 1994 as measured in RTKs, more than 2.5 times the rate of
world Gross Domestic Product growth during the same period, according to the
1995 World Cargo Forecast, a report published annually by

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<PAGE> 27

Boeing (the "Boeing Report"),* although the Boeing Report forecasts continued
growth in the world air cargo market at an average annual rate of less than 8.0%
over the next twenty years. The Company believes this growth has been fueled, in
part, by economic growth, the relaxation of international trade barriers (as
indicated by the passage of the NAFTA and GATT treaties), reductions in the
price of shipping by air, manufacturers' search for low-cost labor in developing
countries, and the increasingly time-sensitive nature of product-delivery
schedules due to shorter product life-cycles and "just-in-time" inventory
management.

In addition to growth in the global air cargo market, the Company expects
to benefit from growth in the export-driven economies of the countries in the
Pacific Rim where the Company has focused a significant amount of its flight
operations. According to the Boeing Report, eastbound and westbound freight
volumes (cargo volumes excluding mail) between Asia and the U.S. grew by an
average of 7.5% and 15.1% per year, respectively, between 1984 and 1994, while
air cargo volumes between Europe and Asia grew by an average 12.3% per year
between 1984 and 1994.

The Company also expects to benefit from its focus on increasing its share
of air cargo volumes currently transported by non-U.S. airlines which were
responsible for 68% of the 99.5 billion RTKs of world air cargo traffic in 1994,
according to the Boeing Report. The Company believes that it provides air cargo
transportation services for a de minimus portion of the world air cargo market.

STRATEGY

The Company's business strategy is to grow its business profitably by (i)
securing long-term ACMI contracts with new customers and expanding its long-term
ACMI relationships with its existing customers by continuing to provide a
dependable, efficient and less costly outsourcing alternative to major
international airlines; (ii) maintaining its own costs at the lowest practicable
level and, where feasible, locking in its costs, such as through the outsourcing
of a significant part of its regular aircraft maintenance and D checks at a
fixed cost per flight hour; and (iii) differentiating itself from other air
cargo carriers by not directly or indirectly competing with its customers by
offering its services to freight forwarders or shippers with whom its customers
deal. By focusing on expanding its ACMI contracts, the Company can obtain
assured minimum annual revenues and more predictable profit margins and minimize
the load factor and yield risk traditionally associated with the air cargo
business.

The Company presently provides air cargo services to the high-growth Asian
and Pacific Rim markets from the United States and Europe and believes that,
with the necessary underlying U.S. operating authorities, landing slots and
expertise already established, it is well positioned to take advantage of the
continued relaxation of international trade barriers and the expected market
growth. Competition for access to certain areas such as Japan, Hong Kong, South
America and Eastern Europe has traditionally been fierce. Management believes
that, as a U.S. certificated carrier, the Company maintains a distinct
competitive advantage over air cargo carriers from foreign nations because of
the demand for access to the United States market by foreign certificated
carriers, which tends to facilitate reciprocity in access to landing slots and
route authority for U.S. carriers. See "-- Competition."

In order to meet the expected increase in demand for its services, the
Company continuously searches the market for additional High Gross Weight
Aircraft that may become available. In that regard, it has entered into an
agreement to acquire the six Thai Aircraft. The Thai Aircraft will be converted
to High Gross Weight freighter configuration and delivered to the Company over a
period beginning in the fourth quarter of 1996 through the fourth quarter of
1997. In addition, the Company has entered into an agreement with Federal
Express to lease the five Federal Express Aircraft, one of which was delivered
to the Company in March 1996. The four remaining Federal Express Aircraft will
be delivered to the Company over the four-month period beginning in June 1996
and each will have a lease term ending in January 1998.

- ---------------

* The information in the Boeing Report was compiled from many sources. Data
represented in such report should be considered estimates based on Boeing
analyses.

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Because of the Company's policy that an aircraft be dedicated to one or
more airline customers, the Company generally does not agree to acquire a new
aircraft unless such an aircraft can service existing needs or the Company
anticipates that it will have obtained an additional ACMI contract upon or
shortly following its delivery. In that regard, the Company is in the process of
securing new customers, or additional arrangements with existing customers, to
which the Thai Aircraft and the remaining four Federal Express Aircraft would be
dedicated upon their delivery dates. Although the Company intends to have new
ACMI contracts in place upon delivery of all these aircraft, there can be no
assurance that such arrangements will have been made. See "Risk
Factors -- Utilization of Future Aircraft."

ACMI CONTRACTS

The Company's contractual arrangements with its customers, which accounted
for 97% of the Company's flight hours in 1995, typically provide for its
customers to guarantee monthly minimum aircraft utilization levels at fixed
hourly rates and are typically in force for periods of one to five years,
subject to certain termination provisions. These contracts typically require
that the Company supply aircraft, crew, maintenance and insurance and that its
customers bear all other operating expenses, including fuel and fuel servicing;
marketing costs associated with obtaining cargo; airport cargo handling; landing
fees; ground handling, aircraft push-back and de-icing services; and specific
cargo and mail insurance. These contracts, therefore, minimize for the Company
the load factor and yield risk traditionally associated with the air cargo
business. The ACMI contracts typically require minimum air freight capacity to
be provided to its customers by the Company. See "Risk Factors -- Operations
Dependent upon Limited Fleet." All of the Company's revenues, and virtually all
of its costs, are in U.S. dollars, thus avoiding currency risks normally
associated with doing business primarily overseas.

As of the date of this Prospectus, the Company was operating under twelve
ACMI contracts: four with China Airlines, two with KLM, two with Lufthansa and
one with SAS (each with a duration of two years or more), one with Swissair
(with a duration of 21 months, subject to a one-time cancellation on 60 days
notice at Swissair's option), one with British Airways and Varig (each with a
duration of one year). In addition, the Company has an agreement with Alitalia
to provide cargo capacity through 1996. At least one aircraft is dedicated under
each contract. The Company also provides air freight services to Emirates under
one of its other ACMI contracts. Additionally, the Company has an ACMI contract
with UPS Worldwide Forwarding, Inc. ("UPS") that expires in 1996, whereby the
Company provides cargo capacity for UPS during a two-week period prior to the
end of the calendar year when U.S. airline demand for air cargo capacity is at
its peak.

The Company's ACMI contracts typically allow the Company's customers to
cancel a maximum of 5% of the guaranteed hours of aircraft utilization over the
course of a year. The Company's customers most often exercise such cancellation
options early in the first quarter of the year, when the demand for air cargo
capacity has been historically low. The Company has found that such
cancellations provide a timely opportunity for the scheduling of maintenance on
its aircraft. See "-- Maintenance." Certain of the Company's ACMI contracts
(which accounted for approximately 20% of its revenues in 1995) are terminable
upon six months' notice by the customer and certain of such contracts permit the
customer to terminate in the event its relevant route authority is revoked. The
Company believes that its relationships with its customers are mutually
satisfactory, as evidenced by the fact it has renewed four ACMI contracts and
added five ACMI contracts with its existing customers, although there can be no
assurance that such contracts will not be canceled in accordance with their
terms. See "Risk Factors -- Dependence on Significant Customers; Geographic
Concentration."

All of the ACMI contracts provide that each of the Company's aircraft is
deemed to be at all times under the exclusive operating control, possession and
direction of the Company and that, in order to service the route designated by
the contract, the Company obtain the underlying authority from the governments
having jurisdiction over the route. See "-- Governmental Regulation."
Additionally, if the Company is required to use the customer's "call sign" in
identifying itself throughout its route, the customer must also have obtained
underlying authority from the governments having jurisdiction over the route.
Therefore, the Company's route structure is limited to areas in which it can
gain access from the relevant governments.

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<PAGE> 29

OTHER FLIGHT OPERATIONS

To the extent the Company has available excess aircraft capacity at any
time, it will seek to provide scheduled flight activity or obtain ad hoc charter
service contracts, which the Company believes are generally readily available.
In that regard, the Company sometimes provides its own ad hoc charter or weekly
scheduled air cargo service on a seasonal basis between the United States and
Hong Kong, for which China Airlines has acted as its general sales agent.

SALES AND MARKETING

From its offices in Colorado, New York and Luxembourg, the Company services
its air cargo customers and solicits ACMI-contract business. The Company's
efforts to obtain new ACMI contract business focus principally on international
airlines with established air cargo customers, high operating costs and hub and
spoke systems which gather cargo at a particular location and who have the need
for long-distance capacity to move such cargo to another distribution point. On
occasion, as in the case of Varig, the Company may utilize an independent cargo
broker to obtain new ACMI contracts. The Company also participates in most
international air cargo trade shows and advertises its services extensively in
industry trade journals. The Company markets its services by guaranteeing its
customers a reliable, low-cost dedicated High Gross Weight Aircraft with the
capacity to ensure the efficient linkage of such customers' distribution points
without the customers' having to purchase and maintain additional aircraft,
schedule additional flights and add other resources.

AIRCRAFT

The Company's utilization of primarily High Gross Weight Aircraft provides
significant marketing advantages because these aircraft, relative to most other
cargo aircraft that are commercially available, have higher maximum payload and
cubic capacities, and longer range. All but one of the Existing Fleet and all of
the Thai Aircraft and the remaining four Federal Express Aircraft are (or will
be following modification) configured as High Gross Weight Aircraft.
Additionally, the uniformity of the Company's Boeing 747 aircraft fleet allows
for standardization in maintenance and crew training, resulting in substantial
cost savings in these areas. See "-- Maintenance."

26
<PAGE> 30

The following chart describes the Company's Existing Fleet, the Thai
Aircraft and remaining Federal Express Aircraft to be delivered to the Company
in 1996 and 1997.

FLEET PROFILE

<TABLE>
<CAPTION>
LEASE ENGINE DATE OF
AIRCRAFT EXPIRATION/OWNERSHIP TYPE(1) MANUFACTURE
-------- -------------------- ------- -----------
<S> <C> <C> <C> <C>
Existing Fleet 747-200 Owned P&W 1975
747-200 Owned GE 1977
747-200 Owned GE 1978
747-200 Owned GE 1979
747-200 Owned GE 1976
747-200 Owned GE 1980
747-200 Owned GE 1986
747-200 Owned GE 1976
747-200 Owned GE 1985
747-200 January 1997 GE 1985
747-200 March 2010 GE 1977
747-200 January 1998 P&W 1974
747-200 June 1996 P&W 1974
747-100 December 1996 P&W 1970
Thai Aircraft(2) 747-200 Owned GE 1979
747-200 Owned GE 1979
747-200 Owned GE 1980
747-200 Owned GE 1980
747-200 Owned GE 1981
747-200 Owned GE 1984
Federal Express
Aircraft(3) 747-200 January 1998 P&W 1979
747-200 January 1998 P&W 1979
747-200 January 1998 P&W 1979
747-200 January 1998 P&W 1976
</TABLE>

- ---------------

(1) The engines are either Pratt & Whitney ("P&W") JT9D-7 or General Electric
("GE") CF6-50 engines.
(2) The Company has contracts to acquire these aircraft. These aircraft are
scheduled to be converted to freighter use and are estimated to be placed
in service beginning in the fourth quarter of 1996 and through the fourth
quarter of 1997.
(3) The Company has a contract to lease these aircraft, with deliveries to the
Company and placement into service over a four-month period beginning in
June 1996 (the first Federal Express Aircraft was delivered to the Company
in March 1996 and is listed above under Existing Fleet).

Thai Aircraft. The Company has contracted to purchase the Thai Aircraft
consisting of six Boeing 747-200 passenger aircraft (equipped with GE engines).
Such purchase contract is expected to be assigned to a third party, from whom
the Company will acquire such aircraft following their modification to all-cargo
configuration. The Thai Aircraft are expected to cost an average of
approximately $40 million per aircraft (including the cost of converting the
aircraft for cargo service as well as spare engines and parts), and are
scheduled to be placed into service from the fourth quarter of 1996 through the
end of 1997. Although the Company believes that it will be able to obtain
satisfactory financing for the acquisition and conversion of the Thai Aircraft
(it currently has preliminary commitments for the financing of the first two
Thai Aircraft), there can be no assurance that such financing will be obtained.
In addition, the Company is currently negotiating for the purchase of spare
engines and parts from Thai Airways.

Federal Express Aircraft. The Company has entered into an agreement with
Federal Express to lease the five Federal Express Aircraft, plus spare engines.
The first Federal Express Aircraft was delivered to the

27
<PAGE> 31

Company in March 1996; the remaining Federal Express Aircraft will be delivered
to the Company over a four-month period beginning in June 1996, and each will
have a lease term ending in January 1998.

In addition, the Company has agreed to purchase on or before October 1,
1996 a Boeing 747 flight training simulator from Federal Express for a purchase
price of $2.1 million. The Company is also negotiating the possible purchase of
certain Boeing 747 spare parts from Federal Express.

High Gross Weight Aircraft. As of the date of this Prospectus, the
Company's aircraft fleet consists of thirteen High Gross Weight Aircraft, and
one Boeing 747-100. Although the world inventory of aircraft with MTOW of more
than 800,000 lbs is low relative to other cargo aircraft (with the Company's
fleet in early 1996 expected to consist of approximately 10% of the 136 such
aircraft that were produced by Boeing and which remain in service), the Company
believes it can obtain a sufficient number of such aircraft to maintain its
strategic growth. These aircraft generally have been available to the Company,
due primarily to the commercial airline trend toward aircraft downsizing and
modernization (particularly the reduction of Combi Aircraft from the fleets of
major international carriers), at less than 30% of the cost of a new aircraft of
similar size and capabilities (such as the new Boeing 747-400 aircraft). To the
extent suitable High Gross Weight Aircraft such as the Combi Aircraft are not
available to the Company in the future, other aircraft (such as lower-capacity
Boeing 747 passenger aircraft similar to the Thai Aircraft) could be acquired
and modified at costs which are higher than the costs of modifying a Combi
Aircraft.

The following table sets forth the relative benefits of High Gross Weight
Aircraft compared to other similar cargo aircraft currently available. The data
was obtained from Boeing.

AIRCRAFT PAYLOAD ADVANTAGE

<TABLE>
<CAPTION>
MAXIMUM
MAXIMUM RANGE AT
PAYLOAD AT MTOW
MTOW MTOW (STATUTE
AIRCRAFT TYPE (POUNDS) (TONS) MILES)
- -------------- --------------- ----------- -----------
<S> <C> <C> <C>
B747-400F 875,000 116.5 5,584
B747-200F/SF* 812,000-833,000 118.4-119.7 4,926-5,173
B747-100SF 750,000 99.6 4,793
MD-11F 605,500 93.4 5,574
DC-10-30F 580,000 82.0 4,517
</TABLE>

- ---------------

* Of the 13 Boeing 747-200 aircraft in the Company's Existing Fleet, 11 have
MTOW of 833,000 and 2 have MTOW of 812,000. Boeing 747-200 freighters were
also manufactured with different MTOW, payload and range characteristics.
Boeing 747-300 freighters are expected to have similar characteristics to the
Boeing 747-200 freighter.

MAINTENANCE

Due to the average age of the Company's aircraft, it is likely that they
will require greater maintenance than newer aircraft. See "-- Aircraft."
Aircraft maintenance includes, among other things, routine daily maintenance,
maintenance every six weeks (an "A Check"), significant maintenance work every
18 months (a "C Check") and a D Check every five years or 25,000 hours,
whichever comes later if the aircraft is over the age of 18 years, or six years
or 25,000 hours, whichever comes later for aircraft under the age of 18 years,
with a maximum interval in either case of nine years. The Company generally
schedules major maintenance on its aircraft in the first quarter of the calendar
year when the demand for air cargo capacity has historically been low, taking
advantage of cancellations of flights by the Company's customers that generally
occur most frequently during these periods.

Pursuant to a maintenance contract with KLM (the "Maintenance Contract") in
effect until January 2005, a significant part of the regular maintenance
(principally C Checks and engine overhauls) of the Company's aircraft and their
GE engines is undertaken by KLM, primarily at its headquarters located at
Schiphol International Airport in Amsterdam, The Netherlands. KLM supplies all
replacement parts,

28
<PAGE> 32

engineering and diagnostic testing for each aircraft and their respective
components (including for all the GE engines) in compliance with FAA and other
applicable regulations. The Maintenance Contract provides that KLM will perform
repairs and maintenance on the Company's aircraft on the same basis and order of
priority as repairs to its own fleet. Such service is provided to the Company at
a fixed cost per flight hour. P&W engines are serviced elsewhere, each at a cost
based upon the actual labor time and the parts necessary for such service. On
March 13, 1996, in response to an inspection by the FAA of KLM's compliance with
record keeping and related requirements under Part 145 of the Federal Aviation
Regulations, KLM voluntarily surrendered its CF-6 powerplant rating pending an
FAA re-inspection. Until the rating is reissued, KLM will not be permitted to
approve for return to service CF-6 engines and related components under its FAA
foreign repair station certificate. However, KLM remains obligated under the
Maintenance Contract to provide the Company with FAA certified engines, and, to
the extent that the Company incurs any additional costs and expenses (e.g. for
the leasing of additional engines while its engines are being repaired), KLM has
agreed to reimburse the Company for all such costs and expenses.

Under the terms of the Maintenance Contract, in the event that the Company
wishes to maintain more than ten of its aircraft under such contract, the terms
of contract are subject to readjustment by KLM. Ten of the Company's aircraft
are currently subject to the Maintenance Contract. Federal Express will be
providing all scheduled maintenance on the Federal Express Aircraft. The Company
is currently negotiating with several maintenance providers, including KLM, with
respect to providing maintenance on a fixed cost basis for additional aircraft.

Routine, daily maintenance, consisting of the inspection and minor repair,
if necessary, of an aircraft and its components, and A Checks are conducted by
various parties subcontracted by the Company at the airports in which it
operates based upon actual labor time and the parts necessary for such service.
The Company has an agreement with a contract-maintenance operator, HAECO,
pursuant to which HAECO has agreed to convert and/or undertake D Checks on ten
Boeing 747 aircraft through September 1997 at fixed rates, with the Company
guaranteeing a minimum number of man hours. In addition, the Company has agreed
with Alitalia to utilize, or find other parties to utilize, an amount of
Alitalia's maintenance services with an aggregate cost of $25 million over a
five-year period ending in June 2000. The Company also has a fixed cost per
landing contract with the B.F. Goodrich Co. ("BF Goodrich") to perform
maintenance on its brakes and for the replacement of tires. The Company believes
that fixed-cost contracts such as these, provide the most efficient means of
ensuring the continued service of its aircraft fleet and the most reliable way
in which to predict its maintenance costs; however, the Company believes it is
more cost effective for routine maintenance and A Checks to be performed on a
time and labor basis due to the frequency of such maintenance.

GOVERNMENTAL REGULATION

Under the Aviation Act, the DOT and FAA exercise regulatory authority over
the Company. DOT's jurisdiction extends primarily to economic issues related to
the air transportation industry, including, among other things, air carrier
certification and fitness, insurance, certain leasing arrangements, the
authorization of proposed scheduled and charter operations, tariffs, consumer
protection, unfair methods of competition, unjust discrimination and deceptive
practices. The FAA's regulatory authority relates primarily to air safety,
including aircraft certification and operations, crew licensing/training and
maintenance standards.

In order to engage in its air transportation business, the Company is
required to maintain a Certificate of Public Convenience and Necessity (a
"CPCN") from DOT. Prior to issuing a CPCN, DOT examines a company's managerial
competence, financial resources and plans and compliance disposition in order to
determine whether a carrier is fit, willing and able to engage in the
transportation services it has proposed to undertake, and whether a carrier
conforms with the Aviation Act requiring that the transportation services
proposed are consistent with the public convenience and necessity. Among other
things, a company holding a CPCN must qualify as a United States citizen, which
requires that it be organized under the laws of the United States or a State,
territory or possession thereof; that its chief executive officer and at least
two-thirds of its Board of Directors and other managing officers be United
States citizens; that not more than 25% of its voting stock be owned or
controlled, directly or indirectly, by foreign nationals; and that it not
otherwise be

29
<PAGE> 33

subject to foreign control. A CPCN confers no proprietary rights on the holder
and DOT may impose conditions or restrictions on such a CPCN.

DOT has issued the Company a CPCN to engage in interstate and overseas air
transportation of property and mail, and a CPCN to engage in foreign air
transportation of property and mail between the United States and Taiwan. Both
CPCNs are subject to standard terms, conditions and limitations. By virtue of
holding those CPCN, the Company also possesses worldwide charter authority. It
also holds limited-term DOT exemption authority to engage in scheduled air
transportation of property and mail between certain points in the U.S. and Hong
Kong.

To provide air cargo transportation services under long-term contracts with
major international airlines, the Company relies primarily on its worldwide
charter authority. The Company also requires separate DOT authorization for each
long-term arrangement. DOT has authorized the Company to operate for China
Airlines over its authorized routes through January 13, 1997; for KLM between
Chicago and Amsterdam through March 31, 1997; Varig over New
York/Miami-Manaus/Sao Paulo and Los Angeles-Manaus-Sao Paulo routings through
June 22, 1997; for Lufthansa over New York-Frankfurt routing through July 11,
1996, and over Atlanta/Chicago/Dallas-Ft. Worth/Miami (and beyond)-Germany
routings through September 1, 1996; and for SAS over New
York/Gothenberg/Dubai/Delhi/Osaka/Macao routings through March 31, 1999. In
addition, the Company's exemption to serve New York/Chicago/Los
Angeles/Anchorage/Honolulu-Hong Kong via Taiwan and Korea is effective through
August 9, 1997.

International air services are generally governed by a network of bilateral
civil air transport agreements in which rights are exchanged between
governments, which then select and designate air carriers authorized to exercise
such rights. Insofar as scheduled service is involved, bilateral agreements may
specify the city-pair markets that may be served; may restrict the number of
carriers that may be designated; may provide for prior approval by one or both
governments of the prices the carriers may charge; may limit frequencies or the
amount of capacity to be offered in the market; and, in various other ways, may
impose limitations on the operations of air carriers. The provisions of
bilateral agreements pertaining to charter services vary considerably from
country to country. Some agreements, such as that between the United States and
Brazil, limit the number of charter flights that carriers of each country may
operate. The Company is subject to various international bilateral air services
agreements between the United States and the countries to which the Company
provides service. The Company must obtain permission from the applicable foreign
governments to provide service to foreign points.

The Company has obtained an operating certificate issued by the FAA
pursuant to Part 121 of the Federal Aviation Regulations. The FAA has
jurisdiction over the regulation of flight operations generally, including the
licensing of pilots and maintenance personnel; the establishment of minimum
standards for training and retraining; maintenance of technical standards for
flight; communications and ground equipment; security programs; and other
matters affecting air safety. In addition, the FAA mandates certain
recordkeeping procedures. The Company must obtain and maintain FAA certificates
of airworthiness for all of its aircraft. The Company's aircraft, flight
personnel and flight and emergency procedures are subject to periodic
inspections and tests by the FAA. All air carriers are subject to the strict
scrutiny of FAA officials to ensure proper compliance with FAA regulations.

The DOT and the FAA have authority under the Aviation Safety and Noise
Abatement Act of 1979, as amended and recodified, and under the Airport Noise
and Capacity Act of 1990 (the "ANCA"), to monitor and regulate aircraft engine
noise. Under the ANCA, the Company's aircraft fleet must comply with Stage III
Standards by specified deadlines. Of the Existing Fleet, one aircraft must be
modified to meet Stage III Standards prior to December 31, 1999, at an estimated
cost of $100,000.

Under the FAA's Airworthiness Directives issued under its "Aging Aircraft"
program, the Company is subject to extensive aircraft examinations and may be
required to undertake structural modifications to address the problem of
corrosion and structural fatigue. For instance, on September 21, 1993 and June
4, 1994, the FAA issued Directives requiring the inspection and replacement of
certain engine components with which the Company must comply by December 1997 at
an aggregate estimated cost of $1.1 million for all of the Company's aircraft.
In November 1994, the FAA issued Nacelle Strut Modification Service Bulletins

30
<PAGE> 34

which are expected to be converted into Directives. The Company's aircraft would
have to be brought into compliance with such Directives within the next five
years at an estimated cost of approximately $500,000 for each aircraft in its
fleet. It is possible that additional Directives of this nature as well as other
Directives applicable to the types of aircraft or engines included in the
Company's fleet could be issued in the future, the cost of which could be
substantial.

The Company is also subject to the regulations of the EPA regarding air
quality in the United States. The Company meets the fuel venting requirements
and smoke emissions standards established by the EPA.

COMPETITION

The market for air cargo services is highly competitive. A number of
airlines currently provide services for themselves and for others similar to the
services offered by the Company and new airlines may be formed that would also
compete with the Company. Such airlines may have substantially greater financial
resources and a larger fleet of aircraft than the Company. The Company believes
that the most important bases for competition in the air cargo business are the
payload and cubic capacities of the aircraft and the price, flexibility, quality
and reliability of service. The ability of the Company to achieve the growth
anticipated by its strategic plan depends upon its success in convincing major
international airlines that outsourcing some portion of their air cargo business
remains more cost-effective than undertaking cargo operations with their own
incremental capacity and resources. See "-- Strategy."

FUEL

Although fuel costs are typically the largest operating expense for
companies providing air services, the Company has limited exposure to the
volatility of fuel costs and disruptions in fuel supply as a result of its ACMI
contractual arrangements, whereby the Company's customers bear the fuel costs
and concomitant risks thereof. However, an increase in fuel costs could reduce
the Company's cost advantages because of its older aircraft, which are not as
fuel-efficient as newer cargo aircraft. In addition, to the extent the Company
operates scheduled cargo or ad hoc charter services, or ferries its aircraft, it
would be responsible for fuel and other costs that are normally borne by its
customers through its ACMI contracts. In 1995, approximately 3% of the Company's
flight hours represented scheduled cargo, ad hoc charter services or ferrying
its aircraft for its own account. In the future, the Company may, for periods of
time, have excess capacity as it acquires aircraft, in which case it may deploy
such aircraft in scheduled cargo or ad hoc charter services, pending dedication
of the aircraft to an ACMI contract.

EMPLOYEES

As of March 1, 1996, the Company had 435 employees, 294 of whom were
pilots. In connection with the increase in its fleet upon the delivery of the
Thai Aircraft and the remaining four Federal Express Aircraft, the Company
expects to hire additional pilots by the end of 1996, and into 1997. The Company
maintains a comprehensive training program for its pilots in compliance with FAA
requirements in which each pilot regularly attends update programs.

The Company believes that its employees' participation in the growth and
profitability of its business is essential to maintain its productivity and low
cost structure, and has therefore established programs for that purpose such as
the Profit Sharing Plan and the Stock Purchase Plan. Such programs are designed
to allow employees to share financially in the Company's success and to augment
base salary levels. See "Management -- Employee Stock Purchase Plan" and
"-- Profit Sharing Plan."

The Company's labor relations are covered under Title II of the Railway
Labor Act of 1926, as amended, and are subject to the jurisdiction of the
National Mediation Board. None of the Company's employees is subject to a
collective bargaining agreement; however, many airline industry employees are
subject to such agreements and the Company's employees have been solicited from
time to time by union representatives seeking to organize them. The Company
considers its relations with its employees to be good.

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<PAGE> 35

INSURANCE

The Company is vulnerable to potential losses which may be incurred in the
event of an aircraft accident. Any such accident could involve not only repair
or replacement of a damaged aircraft and its consequent temporary or permanent
loss from service, but also potential claims involving injury to persons or
property. The Company is required by DOT to carry liability insurance on each of
its aircraft, and each of the Company's aircraft leases and ACMI contracts also
requires the Company to carry such insurance. While the Company carries business
interruption insurance, any extended interruption of the Company's operations
due to the loss of an aircraft could have a material adverse effect on the
Company. See "Risk Factors -- Operations Dependent upon Limited Fleet." The
Company currently maintains public liability and property damage insurance and
aircraft hull and liability insurance for each of the aircraft in the fleet in
amounts consistent with industry standards. The Company maintains baggage and
cargo liability insurance if not provided by its customers under ACMI contracts.
Although the Company believes that its insurance coverage is adequate, there can
be no assurance that the amount of such coverage will not be changed upon
renewal or that the Company will not be forced to bear substantial losses from
accidents. Substantial claims resulting from an accident could have a material
adverse effect on the Company's financial condition and could affect the ability
of the Company to obtain insurance in the future. The Company believes that it
has good relations with its insurance providers.

FACILITIES

The Company's principal executive offices are located in a 7,000 square
foot office building owned by the Company at 538 Commons Drive, Golden,
Colorado. The Company also rents 2,500 square feet of office space in Golden,
Colorado.

The Company presently occupies a 20,000 square foot facility located at
John F. Kennedy Airport ("JFK"). This facility includes administrative offices,
maintenance work areas and hangar and parts storage facilities, as well as
flight dispatch operations. The Company occupies this facility pursuant to a
lease agreement with Japan Airlines ("JAL") for a five-year period with two
five-year renewal rights from JAL, which began on June 1, 1995, at a monthly
rate of approximately $40,000. The Company believes the JAL facility is adequate
to support the growth in operations that will result from the anticipated
acquisition of additional aircraft.

LEGAL PROCEEDINGS

While the Company is from time to time involved in litigation in the
ordinary course of its business, there are no material legal proceedings pending
against the Company or to which any of its property is subject.

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<PAGE> 36

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and their ages as of
the date of this Prospectus are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------- ---- ------------------------------------------------------
<S> <C> <C>
*Michael A. Chowdry...... 41 Chairman of the Board of Directors, Chief Executive
Officer and President(1)
Mickey P. Foret.......... 50 President, Director Nominee(1)
Richard H. Shuyler....... 49 Senior Vice President -- Finance, Chief Financial
Officer, Treasurer and Director
David M. McElroy......... 50 Senior Vice President and Director
Clark H. Onstad.......... 50 Senior Vice President, General Counsel and Secretary
+*Brian Rowe............. 64 Director
Robert V. Glaser......... 44 Director
+David T. McLaughlin..... 63 Director
James J. Blanchard....... 53 Director Nominee(2)
</TABLE>

- ---------------

(1) Pursuant to an employment agreement dated as of April 19, 1996, Mr. Foret
will become President of the Company commencing June 1, 1996, and has been
nominated for election to the Company's Board of Directors at the Annual
Meeting of Stockholders to be held on June 4, 1996. See "-- Employment
Agreements."

(2) Mr. Blanchard has been nominated for election to the Company's Board of
Directors at the Annual Meeting of Stockholders to be held on June 4, 1996.

* Member of Compensation Committee of the Board of Directors.

+ Member of Audit Committee of the Board of Directors.

MICHAEL A. CHOWDRY has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since its inception in August 1992, and
President since July 1995. He is also Chairman of the Board (since its inception
in April 1985) of Aeronautics Leasing, Inc., an affiliate of the Company
("ALI"). Prior to his founding of ALI, he formed a Colorado-based certificated
commuter air carrier in 1981, and was the principal stockholder of Skybus, Inc.,
the certificated air carrier successor to Frontier Horizon Airlines, from 1984
to 1985. He has been involved in the operation, acquisition, financing and
disposition of aircraft and aviation assets since 1978.

MICKEY P. FORET has been named President of the Company effective June 1,
1996. From September 1993 to May 1996, he was Executive Vice President -- Chief
Financial Officer at Northwest Airlines; he had joined Northwest as Senior Vice
President Planning and Finance in December 1992. From 1990 to 1992, he was
President of KLC, Inc., an airline consultancy, and President and Chief
Executive Officer of KLH Computers, Inc., a personal computer manufacturer. From
1974 to 1990, he held various management and executive positions with
Continental Airlines Holdings, Inc., and various of its affiliates and corporate
predecessors including Continental Airlines, Inc., where he served as President
and Chief Financial Officer; Chelsea Catering Company, Inc., where he served as
Chairman and Chief Executive Officer; Eastern Airlines, Inc., where he served as
Senior Vice President Finance and International; and, Texas International
Airlines, where he served as Vice President and Treasurer. He is currently a
director of WORLDSPAN and Nor Am Energy Corporation.

RICHARD H. SHUYLER has been Senior Vice President -- Finance, Chief
Financial Officer and Treasurer of the Company since June 1994 and a member of
the Company's Board of Directors since March 1995. From January 1993 to June
1994, he was Senior Vice President -- Finance and Chief Financial Officer at
Trans World Airlines, Inc. ("TWA"). From 1975 to 1992, he held various
management and executive positions with Continental Airlines, Inc., and various
of its affiliates and corporate predecessors, including Texas International
Airlines, Inc., Texas Air Corporation and New York Air, serving as Senior Vice
President -- Finance

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<PAGE> 37

and Chief Financial Officer at those entities. TWA filed for reorganization
under Chapter 11 of the Code on June 30, 1995.

DAVID M. MCELROY has been Senior Vice President of the Company since March
1993, and a director of the Company since July 1995. From 1989 to 1992, he was
President of Lucas Aviation/Tracor Aviation, which provided aircraft
modification, engineering, maintenance and component manufacturing operations
and services. From 1987 to 1989, he was President of Cross Continental Aircraft
Services, an aircraft maintenance and modification company. In 1980, he helped
found People Express Airlines, for which he served as a Managing Officer until
1986. From 1978 to 1980, he was Director of Technical Services for Itel
Corporation, an aircraft leasing firm.

CLARK H. ONSTAD has been Senior Vice President, General Counsel and
Secretary of the Company since March 1995. From 1991 to 1995, he was affiliated
with the Washington, D.C. law firm of Verner, Liipfert, Bernhard, McPherson and
Hand. From 1982 to 1990, he held various executive positions with Texas Air
Corporation and its Continental Airlines, Inc. subsidiary, including Senior Vice
President -- Properties, Purchasing and Government Affairs. From 1977 to 1981,
he served as Chief Counsel of the Federal Aviation Administration. Prior to
that, he was affiliated with the Washington, D.C. law firm of Ginsberg, Feldman
and Bress.

BRIAN ROWE has been a member of the Company's Board of Directors since
March 1995. He retired as Chairman of the General Electric Aircraft Engines
division of the General Electric Company in January 1995, a position he had held
since September 1993 in which he was in charge of world-wide sales of GE
engines. Prior to that, he held various management and executive positions with
General Electric, which he joined in 1957, including President of General
Electric Aircraft Engines (from 1979 to 1993), Vice President and General
Manager of the Aircraft Engineering Division (from 1976 to 1979), Vice President
and General Manager of the Airline Programs Division (from 1974 to 1976) and
Vice President and General Manager of the Commercial Engine Projects Division
(from 1972 to 1974).

ROBERT V. GLASER has been a member of the Company's Board of Directors
since September 1995. He had been Director of Investcorp International Inc., the
U.S. arm of the Investcorp group of companies, from 1987 until his retirement in
December 1995. He had been a member of the Management Committee of the
Investcorp group of companies from 1983 to 1995. From 1983 to 1987 he was
employed by other entities of the Investcorp group of companies. Investcorp is
an investor in corporate and real estate investments in the United States and
Western Europe; Mr. Glaser served as a director of a number of companies
controlled by Investcorp International Inc. during this period.

DAVID T. MCLAUGHLIN has been a member of the Company's Board of Directors
since September 1995. He has been President and Chief Executive Officer of The
Aspen Institute since his appointment in 1988, as well as Chairman of its Board
of Trustees since 1994. From 1972 to 1977 he served as Chief Executive Officer
of The Toro Company, and served as its Chairman from 1977 to 1981. From
1981-1987, he served as president of Dartmouth College. He is currently a
director of ARCO, Chase Manhattan Corporation, Westinghouse Electric
Corporation, Standard Fusee Corporation, and PartnerRe, Inc. and serves as a
member of the Board of Trustees of the Asia Foundation Center for Asian Pacific
Affairs.

JAMES J. BLANCHARD was United States Ambassador to Canada from August 1993
until April 1996. From 1991 to 1993, he was a partner in the Washington, D.C.
law firm of Verner, Liipfert, Bernhard, McPherson and Hand. He served as
Governor of Michigan for eight years (1983-1991). From 1975 to 1983 he served as
a member of the United States House of Representatives. Before election to
Congress, Ambassador Blanchard was Assistant Attorney General of Michigan
(1969-1974). He has been awarded the State Department's Foreign Affairs Award
for Public Service and the International Freedom Festival's Freedom Award.

34
<PAGE> 38

EXECUTIVE COMPENSATION

The following table sets forth, for 1995 and 1994, the compensation of the
Company's five most highly compensated executive officers (the "Named Executive
Officers"), including the Company's Chief Executive Officer and President.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY(1) BONUS COMPENSATION OPTIONS COMPENSATION
- ----------------------------- ---- --------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Chowdry........... 1995 $ 563,783 $240,000 $49,684(3) 0 $ 0
Chairman, Chief 1994 463,542 16,800 48,818(3) 0 0
Executive Officer
and President
John S. Blue................. 1995 107,253 87,500 30,891(3) 196,430 0
President and Director(2) 1994 138,958 5,527 14,190(3) 0 25,802(4)
Richard H. Shuyler........... 1995 188,470 87,500 16,013(3) 150,391 0
Senior Vice President -- 1994 89,444 125,000 8,006(3) 0 0
Finance,
Chief Financial Officer,
Treasurer and Director(5)
David M. McElroy............. 1995 204,944 43,750 13,670(3) 179,688 10,883(4)
Senior Vice President 1994 176,267 7,263 3,417(3) 0 35,208
and Director
Clark H. Onstad.............. 1995 142,857 0 12,042(3) 150,391 125,000(7)
Senior Vice President, 1994 0 0 0 0 0
General Counsel
and Secretary(6)
James T. Matheny............. 1995 128,342 0 0 93,750 0
Vice 1994 111,200 23,850 0 0 0
President -- Operations
</TABLE>

- ---------------

(1) Includes amounts paid under the Profit Sharing Plan.
(2) Mr. Blue resigned as President and director of the Company in July 1995.
(3) Represents compensation derived from the furnishing of Company-owned
automobiles.
(4) Represents payments made with respect to certain retirement plans funded on
behalf of the individuals by the Company.
(5) Mr. Shuyler commenced employment with the Company on June 26, 1994.
(6) Mr. Onstad commenced employment with the Company on March 6, 1995.
(7) Represents forgiveness of a loan from the Company.

35
<PAGE> 39

The following table sets forth information with respect to grants of stock
options to each of the Named Executive Officers during the year ended December
31, 1995.

OPTION GRANTS IN 1995

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL 1995 PER SHARE DATE 5% 10%
- ---------------------------- ---------- ------------- -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
John S. Blue................ 125,000(1) 14.7% $10.00 06/30/98 $197,500 $ 413,750
71,430(1) 8.4 14.00 06/30/98 -- --
Richard H. Shuyler.......... 93,750(1) 11.0 10.00 07/11/05 589,688 1,494,375
56,641(2) 6.7 16.00 10/30/05 569,808 1,444,346
David M. McElroy............ 125,000(1) 14.7 10.00 07/11/05 786,250 1,992,500
54,688(2) 6.4 16.00 10/30/05 550,161 1,394,544
Clark H. Onstad............. 93,750(1) 11.0 10.00 07/11/05 589,688 1,494,375
56,641(2) 6.7 16.00 10/30/05 569,808 1,444,346
James T. Matheny............ 50,000(1) 5.9 10.00 07/11/05 314,500 797,000
43,750(2) 5.1 16.00 10/30/05 440,125 1,115,625
</TABLE>

- ---------------

(1) These stock options were granted in July 1995, and became fully exercisable
upon the consummation of the IPO.
(2) The stock options were granted in August 1995, and become exercisable
ratably on March 31, 1996, March 31, 1997 and March 31, 1998.
(3) The potential realizable value uses the hypothetical rates specified by the
Securities and Exchange Commission and is not intended to forecast future
appreciation, if any, of the Company's stock price. The Company did not use
an alternative formula for this valuation as the Company is not aware of
any formula which will determine with reasonable accuracy a present value
based on future unknown or volatile factors. In fact, the Company disavows
the ability of this or any other valuation model to predict or estimate the
Company's future stock price or to place a reasonably accurate present
value on the stock options because all models depend on assumptions about
the stock's future price movement, which is unknown. The value indicated is
a net amount, as the aggregate exercise price has been deducted from the
final appreciated value.

During the year ended December 31, 1995 no stock options were exercised by
officers of the Company. The following table sets forth information with respect
to each of the Named Executive Officers concerning the value of all unexercised
stock options of such individuals at December 31, 1995.

OPTION VALUES AT DECEMBER 31, 1995

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John S. Blue.................................... 196,430 0 $ 1,040,183 $ 0
Richard H. Shuyler.............................. 93,750 56,641 632,815 42,481
David M. McElroy................................ 125,000 54,688 843,750 41,016
Clark H. Onstad................................. 93,750 56,641 632,813 42,481
James T. Matheny................................ 50,000 43,750 337,500 32,813
</TABLE>

EMPLOYMENT AGREEMENTS

Mr. Michael A. Chowdry has entered into an employment agreement with the
Company that provides for a base salary of $485,000 per annum and discretionary
annual bonuses to be determined by the Compensation

36
<PAGE> 40

Committee of the Board of Directors of the Company. The employment agreement
will expire June 30, 2002 and is subject to termination by either party with or
without cause. If the employment agreement were terminated by the Company
without cause, Mr. Chowdry would be entitled to receive a termination payment
equal to twelve months of his base compensation.

The Company has also entered into employment agreements with Messrs.
Shuyler, McElroy, Onstad and Matheny, each of which will expire on June 30,
1998. Each such agreement will be subject to termination by the Company with or
without cause. If such employment agreements are terminated by the Company
without cause, the employees are entitled to receive a termination payment equal
to twelve months of their base compensation and all the options granted to such
employees under the 1995 Stock Option Plan vest on the date of such termination.
The employment agreements with Messrs. Shuyler, McElroy and Onstad each provide
for an annual salary of $175,000 while the employment agreement with Mr. Matheny
provides for an annual salary of $110,000. In addition to the annual salary,
each employee is entitled to receive an annual bonus in the discretion of the
Compensation Committee. The employment agreements require that the employees
devote substantially all of their time to the Company.

In connection with the merger of Atlas Holdings, Inc. ("Holdings") into the
Company and the transfer of the aircraft leasing operations of ALI and other
assets from Holdings to Michael Chowdry and entities controlled by him (see
"Certain Transactions"), John S. Blue, who had held various executive positions
since 1985 with ALI prior to becoming President of the Company, resigned as
President and director of the Company on July 11, 1995 to devote himself full
time as President of ALI. Mr. Chowdry succeeded Mr. Blue as President of the
Company. Pursuant to his employment agreement with the Company, Mr. Blue was
granted on July 11, 1995 stock options for the purchase of (i) 125,000 shares of
Common Stock at an exercise price of $10 per share and (ii) 71,430 shares of
Common Stock at the exercise price of $14 per share. These options are currently
exercisable and expire on June 30, 1998.

In February 1996, the Company entered into a separation agreement with
George Murnane III, a former executive officer of the Company, providing for a
lump sum payment of $131,250 followed by six monthly payments of $21,875. In
addition, the agreement provides that stock options for 80,000 shares of Common
Stock at an exercise price of $22.25 per share granted to Mr. Murnane in October
1995 become immediately exercisable and that the Company deliver title of the
Company-provided automobile to Mr. Murnane. Until June 1, 1996, Mr. Murnane may
require the Company to purchase or cause to be purchased his Denver residence
for a one-time lump sum payment of $515,450. In addition, the Company will pay
Mr. Murnane $3,715 in monthly carrying costs until either Mr. Murnane elects to
require the Company to purchase or cause to be purchased his house, in which
case the Company will continue making such payments until the house is
purchased, or until the cut-off date for Mr. Murnane to exercise such option has
lapsed, in which case the last such payment shall be made on May 1, 1996. The
Company will reimburse Mr. Murnane for his health insurance coverage costs under
the Company's welfare plans for six months on an after-tax basis.

The Company entered into an employment agreement with Mickey Foret dated as
of April 19, 1996, pursuant to which Mr. Foret will begin his employment as
President of the Company effective June 1, 1996. The agreement will expire on
May 31, 1999. The employment agreement provides for a base annual salary of
$400,000. In addition, Mr. Foret is entitled to receive signing bonuses of
$750,000 and $2,115,639, payable on June 1, 1996 and January 1, 1997,
respectively, as well as an annual bonus in the discretion of the Compensation
Committee. The agreement provides that Mr. Foret be granted options on the
commencement of his employment under the 1995 Stock Option Plan to purchase
300,000 shares of Common Stock at an exercise price of $41.75 per share,
exercisable in five equal installments commencing one year following the date of
grant and annually thereafter. In connection with Mr. Foret's relocation to the
Denver area, the Company has agreed to extend to Mr. Foret, at his option, an
interest bearing demand loan in the maximum amount of $750,000, and to purchase
his home in Minneapolis for $1.1 million. The agreement is subject to
termination by the Company with or without cause. If the agreement is terminated
by the Company without cause, Mr. Foret is entitled to receive a termination
payment equal to 24 months of his base compensation and all options granted to
Mr. Foret under the 1995 Stock Option Plan vest on the date of his termination.
If Mr. Foret's employment were terminated without cause before January 1, 1997,
he would be entitled to receive his January 1 signing bonus upon termination.

37
<PAGE> 41

DIRECTOR COMPENSATION

The Company's non-employee directors receive $10,000 on a quarterly basis
for their services, and receive $2,500 for each Board meeting attended in
person. In addition, the Company reimburses non-employee directors for
out-of-pocket travel expenditures relating to their service on the Board.
Non-employee directors of the Company also receive options to purchase shares of
Common Stock under the Company's 1995 Stock Option Plan. See "Management -- 1995
Stock Option Plan."

CONSULTING AGREEMENT

Mr. Johannes Einarsson serves as a consultant to the Company under a
consulting agreement which expires on April 1, 1997 (the "Consulting
Agreement"). For his services to the Company as a consultant, which include
servicing the Company's air cargo customers and the marketing of ACMI contracts,
Mr. Einarsson receives $200,000 per year, plus expenses. The Consulting
Agreement is terminable by either party at any time.

1995 STOCK OPTION PLAN

The 1995 Stock Option Plan is intended to provide a means to attract,
retain and motivate selected employees of the Company and non-employee directors
of the Company. The 1995 Stock Option Plan provides for the grant to eligible
employees of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted shares, performance share and performance units,
dividend equivalents and other share based awards. All employees and directors
are eligible to participate in the 1995 Stock Option Plan. The portion of the
1995 Stock Option Plan applicable to employees is administered by the
Compensation Committee. The Compensation Committee has the full and final
authority to select employees to whom awards may be granted, to determine the
type of awards to be granted to such employees and to make all administrative
determinations required by the 1995 Stock Option Plan. The Compensation
Committee also has authority to waive conditions relating to an award or
accelerate vesting of awards. The 1995 Stock Option Plan also provides for
certain grants of non-qualified stock options to non-employee directors, and, in
the case of such grants, is intended to operate automatically and not require
administration.

An aggregate of 1,800,000 shares of Common Stock have been reserved for
issuance under the 1995 Stock Option Plan, subject to anti-dilution adjustments
in the event of certain changes in the Company's capital structure. No eligible
employee may receive options or stock appreciation rights under the 1995 Stock
Option Plan for more than 300,000 shares of Common Stock (subject to adjustment)
during any calendar year. In addition, the Company's Board of Directors has
proposed increasing the number of shares reserved for issuance under the
Company's 1995 Stock Option Plan by 300,000, and providing that options
exercisable for 1,000 shares of Common Stock, be granted to each non-employee
director upon his or her initial election or appointment to the Board, subject
to stockholder approval at the Company's annual meeting to be held on June 4,
1996.

Following consummation of the IPO, options exercisable for 1,000 shares of
Common Stock were granted to each non-employee director of the Company at an
exercise price, subject to adjustment, equal to the initial public offering
price of the Common Stock in the IPO. On each anniversary of the consummation of
the IPO, options for an additional 1,000 shares of Common Stock will be granted
to each non-employee director, at an exercise price equal to the fair market
value of the shares on such date. All of such options will be fully exercisable
from the date of grant.

EMPLOYEE STOCK PURCHASE PLAN

The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Code. All regular full-time employees of
the Company (including officers), and all other employees whose customary
employment is for more than five months in any calendar year or more than 20
hours per week, who in either case have been employed by the Company for at
least 12 months are eligible to participate in the Stock Purchase Plan.
Directors who are not employees are not eligible. A maximum of 1,000,000 shares
of the Company's Common Stock are reserved for offering under the Stock Purchase
Plan and available for

38
<PAGE> 42

purchase thereunder, subject to anti-dilution adjustments in the event of
certain changes in the capital structure of the Company.

Under the Stock Purchase Plan, offerings will be made at the commencement
of each quarter (each a "Purchase Period") (or in the case of the first Purchase
Period, the commencement date of such Purchase Period) during which deductions
are to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the Stock Purchase Plan.
Payroll deductions may be from 1% to 15% (in whole percentage increments) of a
participant's regular base pay. Participants may not make direct cash payments
to their accounts.

The price per share at which shares of Common Stock are to be purchased
pursuant to the Stock Purchase Plan for any Purchase Period is the lesser of (a)
85% of the fair market value of Common Stock on the commencement of the Purchase
Period or (b) 85% of the fair market value of Common Stock on the last business
day of a Purchase Period. On the last business day of each Purchase Period,
amounts credited to the accounts of participants who have been neither
terminated from the employ of the Company nor withdrawn from the Stock Purchase
Plan for such Purchase Period are used to purchase shares of Common Stock in
accordance with the elections of such participants. Any amounts remaining in the
accounts of participants at the end of any Purchase Period are refunded to the
participants. Only amounts credited to the accounts of participants may be
applied to the purchase of shares of Common Stock under the Stock Purchase Plan.

If for any Purchase Period the number of shares of Common Stock available
for Stock Purchase Plan purposes shall be insufficient, the Board of Directors
of the Company is authorized to apportion the remaining available shares pro
rata among participating employees on the basis of their payroll deductions in
effect for such Purchase Period.

The Company makes no cash contributions to the Stock Purchase Plan, but
bears the expenses of its administration. The Stock Purchase Plan is
administered by the Compensation Committee, which has authority to establish the
number and duration of the Purchase Periods during the term of the Stock
Purchase Plan, and to make rulings and interpretations thereunder.

The Stock Purchase Plan will terminate on February 28, 2000. The first
Purchase Period commenced on October 1, 1995. At December 31, 1995, there were
approximately 259 employees (including officers and directors) who were eligible
to participate in the Stock Purchase Plan.

PROFIT SHARING PLAN

The Company's Profit Sharing Plan provides for payments to eligible
employees in semiannual distributions based upon the Company's pretax profits.
The Company is obligated to make an annual profit sharing contribution of ten
percent of the Company's pretax profits, which is defined to mean net income
before taxes, but excluding (i) any income or loss related to charges or credits
for unusual or infrequently occurring items and (ii) extraordinary items
reported on separate line items in the Company's income statement. Annual profit
sharing contributions may be in the form of cash or Common Stock of the Company.
Employees who have been employed by the Company for twelve months as full time
employees and who are not subject to a collective bargaining agreement are
eligible to participate. Shared amounts under the Profit Sharing Plan are
allocated pro rata based upon each employee's compensation during any annual
period relative to the aggregate amount of compensation thereunder.

401(K) PLAN

The Company has adopted a retirement plan for its employees who have
completed three consecutive months of service. The plan is expected to be
qualified under the Internal Revenue Code of 1986, as amended. Employees may
make voluntary contributions to the plan, subject to IRS limitations. The
Company has no obligation under the plan to make contributions, but may make
discretionary contributions as determined by the Board of Directors. Commencing
in the second quarter of 1996, the Company intends to match 50% of up to 5% of
employee contributions to the 401(k) Plan.

39
<PAGE> 43

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

From January 1993 until March 13, 1995, the executive compensation program
of the Company was administered by Michael A. Chowdry, the Chief Executive
Officer and sole Director of the Company. On March 13, 1995, the Board of
Directors established a Compensation Committee, comprised of Messrs. Chowdry and
Rowe, to administer the Company's executive compensation programs.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Pursuant to the Delaware General Corporation Law, the Company has adopted
provisions in its Restated Certificate of Incorporation which eliminate the
personal liability of its directors and officers to the Company and its
stockholders for monetary damages for breach of the directors' fiduciary duties
in certain circumstances and which authorize the Company to indemnify its
directors, officers and other agents, by bylaw, agreement or otherwise, to the
fullest extent permitted by law, including circumstances in which
indemnification would otherwise be discretionary, and the Company is required to
advance expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. The Company's
Restated Bylaws require the Company to indemnify its directors, officers,
employees and other agents to the fullest extent permitted by law. The Company
has obtained director and officer liability insurance.

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 25, 1996 and as adjusted to
give effect to the sale of the 3,429,565 shares of Common Stock offered hereby,
by (i) each person (or group or affiliated persons) known to the Company to be
the beneficial owners of more than 5% of the Company's Common Stock, (ii) each
director of the Company, (iii) each of the Company's executive officers, (iv)
the Selling Stockholder, and, (v) all of the Company's directors and officers as
a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING(1) OFFERING
-------------------- NUMBER OF --------------------
NAME AND ADDRESS NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ------------------------------------------- ---------- ------- -------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Michael A. Chowdry(2)...................... 14,900,000 74.8% 1,429,565 13,470,435 61.5%
538 Commons Drive
Golden, Colorado 80401
Richard H. Shuyler......................... 81,605 * 81,605 *
David M. McElroy........................... 28,229 * 28,229 *
Clark H. Onstad............................ 23,630 * 23,630 *
James T. Matheny........................... 64,583 * 64,583 *
Brian Rowe................................. 15,000 * 15,000 *
Robert V. Glaser........................... 7,000 * 7,000 *
David T. McLaughlin........................ 1,500 * 1,500 *
All directors and executive officers as a 15,121,547 75.9 13,691,982 62.5
group....................................
</TABLE>

- ---------------

* Represents less than 1% beneficial ownership.

(1) Unless otherwise indicated, ownership means sole voting and investment
power.

(2) The number of shares of Common Stock listed for Mr. Chowdry includes
7,395,000 shares held by Chowdry Limited Partnership (a limited partnership
the general partner of which is Chowdry, Inc. and whose limited partner is
a trust for the benefit of Mr. Chowdry's children) and 1,170,000 shares
held by Chowdry, Inc. Mr. Chowdry is the sole stockholder and director of
Chowdry, Inc. Mr. Chowdry has the sole voting and disposition powers with
respect to these shares. The shares to be sold by the Selling Stockholder
in this Offering include 200,000 shares to be sold by Mr. Chowdry
personally and 1,229,565 shares to be sold by Chowdry Limited Partnership.
Mr. Chowdry, Chowdry Limited Partnership and

40
<PAGE> 44

Chowdry, Inc. have pledged to ING Bank $20 million worth of shares of the
Common Stock of the Company beneficially owned by them to secure
performance of Mr. Chowdry's agreement to guarantee to ING Bank a minimum
amount of proceeds from the sale of one aircraft held by ING Bank (which is
to occur no earlier than November 15, 1999) and the ING loan to the
Company.

CERTAIN TRANSACTIONS

The Company was incorporated in April 1992 as a wholly owned subsidiary of
ALI. ALI's sole stockholder was Mr. Chowdry. In December 1992, Mr. Chowdry
incorporated Holdings to serve as a holding company for both the Company and ALI
in order to separate the third-party leasing activities of ALI from the
Company's air cargo operations. During this reorganization of entities under
common control, the Company became a wholly-owned subsidiary of Holdings. On
July 12, 1995, ALI and all assets and liabilities of Holdings not related to the
Company's operations were spun off from Holdings to Mr. Chowdry and certain of
his affiliates other than the Company in a tax-free transaction and Holdings was
merged into the Company, with the Company as the surviving entity. Following the
spin-off, at the time of such merger, the assets and liabilities of Holdings
consisted principally of all of the issued and outstanding stock of the Company;
all of the issued and outstanding stock of a special purpose corporation
("ATO"); cash of $1.7 million; and accounts payable and accrued expenses of $2.4
million, including a $1.6 million capital contribution to be paid to ALI. The
assets and liabilities of ATO consisted of six aircraft with a historical cost
basis of $216.2 million; deposits of $4.3 million; debt issuance costs of $4.9
million; and outstanding debt of $254.8 million. All of these items relate to
the historical operations of the Company and have been accounted for in the
financial statements in a manner similar to a pooling of interests. See Note 10
to the Consolidated Financial Statements of the Company.

ALI paid the Company $360,000 in 1993 and 1994, for office, management and
administrative personnel expenses incurred by the Company on ALI's behalf.
Effective December 31, 1994, the Company ceased providing such services to ALI.

In June 1995, the Company extended a non-interest bearing demand loan to an
officer of the Company in the amount of $125,000 in connection with such
officer's relocation to Colorado. On July 20, 1995 the Company forgave such
loan.

In August and September 1995, the Company extended demand loans to three
senior vice presidents of the Company, in the aggregate amount of $550,000,
bearing interest at an annual rate of 7.50%. As of May 2, 1996, $264,000 of such
amount remained outstanding.

In November 1995, the Company commenced renting a Cessna Citation SP
corporate jet aircraft on an as needed basis from MAC Flightlease, Inc. ("MAC")
for the purpose of corporate business travel. MAC is wholly owned by Linda
Chowdry, Mr. Chowdry's wife. The Company incurred $52,000 for such travel in
1995 at rates which it believes are equivalent to those it could obtain from an
unaffiliated third party.

DESCRIPTION OF CAPITAL STOCK

The following summarizes the material terms of the capital stock of the
Company.

GENERAL

Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, par value $.01 per
share, 21,917,000 of which will be issued and outstanding and 10,000,000 shares
of Preferred Stock, $1.00 per share, none of which will be outstanding.

COMMON STOCK

Except as set forth under "-- Limitation on Voting by Foreign Owners," the
holders of Common Stock are entitled under the Restated Certificate of
Incorporation to one vote for each share held of record on all matters submitted
to a vote of the stockholders. Subject to preferential rights with respect to
any outstanding

41
<PAGE> 45

Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and satisfaction of preferential
rights and have no rights to convert their Common Stock into any other
securities. The outstanding shares of Common Stock are, and the shares of Common
Stock to be issued by the Company upon completion of this Offering will be,
fully paid and non-assessable. See "Capitalization."

PREFERRED STOCK

The Board of Directors is authorized under the Restated Certificate of
Incorporation to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders. The issuance of Preferred
Stock with voting and conversion rights may adversely affect the voting power of
the holders of Common Stock, including the loss of voting control to others. At
present, the Company has no plans to issue any shares of Preferred Stock.

LIMITATION ON VOTING BY FOREIGN OWNERS

The Restated Certificate of Incorporation defines "Foreign Ownership
Restrictions" as "applicable statutory, regulatory and interpretive restrictions
regarding foreign ownership or control of U.S. air carriers (as amended or
modified from time to time)." Such restrictions currently require that no more
than 25% of the voting stock of the Company be owned or controlled, directly or
indirectly, by persons who are not U.S. citizens ("Foreigners") for purposes of
the Foreign Ownership Restrictions, that the Company's chief executive officer
and at least two-thirds of the members of its Board of Directors and other
managing officers be U.S. citizens and that the Company not otherwise be subject
to foreign control.

The Restated Certificate of Incorporation provides that no shares of
capital stock may be voted by or at the direction of Foreigners, unless such
shares are registered on a separate stock record (the "Foreign Stock Record").
The Company's Restated Bylaws further provide that no shares will be registered
on the Foreign Stock Record if the amount so registered would exceed the Foreign
Ownership Restrictions. Registration on the Foreign Stock Record is made in
chronological order based on the date the Company receives a written request for
registration. ING Bank, which holds a pledge for that number of the Company's
shares of Common Stock beneficially owned by Mr. Chowdry having a fair market
value of $20 million based upon the market value of such shares, as adjusted
annually, would be a Foreigner under the Restated Bylaws should it foreclose its
lien, thereby acquiring ownership thereof.

CERTAIN PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION AND
BYLAWS

The Restated Certificate of Incorporation and Restated Bylaws include
certain provisions summarized below which may have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that stockholders
might consider in their best interest, including attempts that might result in a
premium over the market price for the shares held by stockholders.

The Company's Restated Certificate of Incorporation and Restated Bylaws
provide (i) that, commencing with the consummation of the IPO, any action
required or permitted to be taken by the stockholders of the Company may be
effected only at an annual or special meeting of stockholders, and not by
written consent of the stockholders, (ii) that any meeting of stockholders may
be called only by the Chairman of the Board or upon the affirmative vote of at
least a majority of the members of the Board of Directors and (iii) for an
advance notice procedure for the nomination, other than by or at the direction
of the Board of Directors or a Committee of the Board of Directors, of
candidates for election as directors, as well as for other stockholder proposals
to be considered at annual meetings of stockholders. In general, notice of
intent to nominate a

42
<PAGE> 46

director or raise business at such meetings must be received by the Company not
less than 60 nor more than 90 days before the meeting, and must contain certain
information concerning the person to be nominated or the matters to be brought
before the meeting and concerning the stockholder submitting the proposal. The
affirmative vote of at least a majority of the directors or the holders of at
least 66 2/3% of the voting power of the Company's voting stock is required to
alter, amend or repeal, or adopt any provision inconsistent with, the Bylaw
provisions described in this paragraph.

CERTAIN PROVISIONS OF DELAWARE LAW

The Company will be subject to Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in a wide
range of specified transactions with any interested stockholder, defined to
include, among others, any person or entity who in the previous three years
obtained 15% or more of any class or series of stock entitled to vote in the
election of directors, unless, among other exceptions, the transaction is
approved by (i) the Board of Directors prior to the date the interested
stockholder obtained such status or (ii) the holders of two-thirds of the
outstanding shares of each class or series owned by the interested stockholder.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American
Securities Transfer Incorporated.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding
21,917,000 shares of Common Stock (22,217,000 if the U.S. Underwriters'
over-allotment option from the Company is exercised in full), without taking
into account any shares issuable upon the exercise of outstanding options. See
"Management." 8,446,565 of these shares will be freely transferable by persons
other than "affiliates" of the Company without restriction or further
registration under the Securities Act of 1933, as amended. The remaining
13,470,435 shares of Common Stock beneficially owned by Mr. Chowdry will be
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including exemptions
contained in Rule 144 under the Securities Act, and are subject to the lock-up
provisions discussed below.

In general, under Rule 144 as currently in effect, a stockholder, including
an affiliate (as that term is defined in Rule 144) of the Company, who has
beneficially owned his or her restricted securities for at least two years from
the later of the date such securities were acquired from the Company or (if
applicable) the date they were acquired from an affiliate is entitled to sell,
within any three-month period, a number of such shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock (approximately
219,170, (222,170 if the U.S. Underwriters' over-allotment option from the
Company is exercised in full) shares immediately after the Offering and the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements of Rule 144 are satisfied.

The Company and the Selling Stockholder have agreed that, without the prior
written consent of Morgan Stanley on behalf of the Underwriters, they will not,
during the period commencing on the date hereof and ending, with respect to the
Company, 90 days and with respect to the Selling Stockholder, 120 days after the
date of this Prospectus, (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are now owned by the Company or the Selling Stockholder or are
hereafter acquired), or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to the
sale of any Shares to the Underwriters pursuant to this Offering or pursuant to
the Plans or stock options

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<PAGE> 47

outstanding as of the date of this Prospectus. In addition, the Selling
Stockholder agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 120 days after the date of the Prospectus, make any
demand for or exercise any right with respect to the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.

In addition to the shares described above, at April 25, 1996, options to
purchase an aggregate of 536,650 shares of Common Stock were outstanding. An
aggregate of an additional 2,142,780 shares of Common Stock have been reserved
for issuance under the Plans. In addition, the Company's Board of Directors has
proposed increasing the number of shares reserved for issuance under the
Company's 1995 Stock Option Plan by 300,000, subject to stockholder approval at
the Company's annual meeting to be held on June 4, 1996. The Company has
registered under the Securities Act all shares of Common Stock issuable upon
exercise of such options. Shares of Common Stock issued upon exercise of options
will be immediately available for sale in the public market, subject to the
volume limitations of Rule 144 under the Securities Act applicable to affiliates
of the Company.

CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO NON-UNITED STATES HOLDERS

GENERAL

The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a Non-U.S. Holder. For this purpose, the term "Non-U.S. Holder" is
defined as any person who is, for United States federal income tax purposes, a
foreign corporation, a non-resident alien individual, a foreign partnership or a
foreign estate or trust, as such terms are defined in the Internal Review Code
of 1986, as amended (the "Code"). This discussion does not address all aspects
of United States federal income and estate taxes and does not deal with foreign,
state and local consequences that may be relevant to such Non-U.S. Holders in
light of their personal circumstances, or to certain types of Non-U.S. Holders
which may be subject to special treatment under United States federal income tax
laws (for example, insurance companies, tax-exempt organizations, financial
institutions or broker-dealers). Furthermore, this discussion is based on
provisions of the Code, existing and proposed regulations promulgated thereunder
and administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly with retroactive effect. Each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding
and disposing of Common Stock as well as any tax consequences that may arise
under the laws of any U.S. state, municipality or other taxing jurisdiction.

An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to U.S. federal tax as if they were U.S. citizens.

DIVIDENDS

The Company does not anticipate paying cash dividends on its capital stock
in the foreseeable future. See "Market Price of Common Stock and Dividend
Policy." In the event, however, that dividends are paid on shares of Common
Stock, dividends paid to a Non-U.S. Holder of Common Stock will be subject to
withholding of United States federal income tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty, unless (i) the dividends
are effectively connected with the conduct of a trade or business of the
Non-U.S. Holder within the United States and the Non-U.S. Holder provides the
payor with proper documentation or (ii) if a tax treaty applies, are
attributable to a U.S. permanent establishment of the Non-U.S. Holder. In order
to claim the benefit of an applicable tax treaty rate, a Non-U.S. Holder may be

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<PAGE> 48

required to file with the Company or its dividend paying agent a reduced treaty
rate certificate. Dividends that are effectively connected with the conduct of a
trade or business within the United States or, if a tax treaty applies, are
attributable to such a United States permanent establishment, are subject to
United States federal income tax on a net income basis (that is, after allowance
for applicable deductions) at applicable graduated individual or corporate
rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above (unless the payor has
knowledge to the contrary) and, under the current interpretation of United
States Treasury regulations, for purpose of determining the applicability of a
tax treaty rate. However, under proposed regulations, in the case of dividends
paid after December 31, 1997 (December 31, 1999 in the case of dividends paid to
accounts in existence on or before the date that is 60 days after the proposed
regulations are published as final regulations), a Non-U.S. Holder generally
would be subject to United States withholding tax at a 31-percent rate under the
backup withholding rules described below, rather than at a 30-percent rate or at
a reduced rate under an income tax treaty, unless certain certification
procedures (or, in the case of payments made outside the United States with
respect to an offshore account, certain documentary evidence procedures) are
complied with, directly or through an intermediary.

A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder will generally not be subject to United States federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i)(a) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States or (b) if a treaty applies,
the gain is attributable to a United States permanent establishment of the
Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual and
holds the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year of the sale or other disposition
and certain other conditions are met, (iii) the Company is or has been a "U.S.
real property holding corporation" for United States federal income tax
purposes, or (iv) the Non-U.S. Holder is subject to tax pursuant to certain
provisions of the Code applicable to expatriates. The Company believes it is not
currently, and does not anticipate becoming, a "U.S. real property holding
corporation" for United States federal income tax purposes.

If an individual Non-U.S. Holder falls under clause (i) above, such
individual generally will be taxed on the net gain derived from a sale under
regular graduated United States federal income tax rates. If an individual
Non-U.S. Holder falls under clause (ii) above, such individual generally will be
subject to a flat 30% tax on the gain derived from a sale, which may be offset
by certain United States capital losses (notwithstanding the fact that such
individual is not considered a resident of the United States). Thus, Non-U.S.
Holders who have spent (or expect to spend) 183 days or more in the United
States in the taxable year in which they contemplate a sale of Common Stock are
urged to consult their tax advisors as to the tax consequences of such sale.

If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it generally will be taxed on its net gain under regular graduated United
States federal income tax rates and, in addition, will be subject to the branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable income tax
treaty.

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<PAGE> 49

FEDERAL ESTATE TAX

Common Stock held by an individual Non-U.S. Holder at the time of death
will be included in such holder's gross estate for the United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Under Treasury regulations, the Company must report annually to the IRS and
to each Non-U.S. Holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected with a trade or business in the United States of the
Non-U.S. Holder or withholding was reduced or eliminated by an applicable income
tax treaty. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder resides or is established under the provisions of an
applicable income tax treaty or agreement.

United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that are not "exempt
recipients" fail to furnish certain information under the United States
information reporting requirements) will generally not apply to dividends paid
to Non-U.S. Holders outside the United States that are either subject to the 30%
withholding discussed above or that are not so subject because a tax treaty
applies that reduces or eliminates such 30% withholding. In that regard, under
temporary United States Treasury regulations, backup withholding currently does
not apply to dividends paid on Common Stock to a Non-U.S. Holder at an address
outside the United States unless the payer has knowledge that the payee is a
U.S. person. However, under proposed regulations, in the case of dividends paid
after December 31, 1997 (December 31, 1999 in the case of dividends paid to
accounts in existence on or before the date that is 60 days after the proposed
regulations are published as final regulations), a Non-U.S. Holder generally
would be subject to backup withholding at a 31-percent rate, unless certain
certification procedures (or, in the case of payments made outside the United
States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary.

In general, backup withholding and information reporting will not apply to
a payment of the proceeds of a sale of Common Stock by or through a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes, a U.S. person, a controlled foreign corporation, or a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, such payments will
not be subject to backup withholding but will be subject to information
reporting, unless (1) such broker has documentary evidence in its records that
the beneficial owner is a Non-U.S. Holder and certain other conditions are met,
or (2) the beneficial owner otherwise establishes an exemption. Temporary
Treasury regulations provide that the Treasury is considering whether backup
withholding should be required in such circumstances. Under proposed Treasury
regulations not currently in effect, backup withholding will not apply to such
payments absent actual knowledge that the payee is a United States person.

Payment by a United States office of a broker of the proceeds of a sale of
Common Stock is subject to both backup withholding and information reporting
unless the beneficial owner certifies under penalties of perjury that it is a
Non-U.S. Holder, or otherwise establishes an exemption. Any amounts withheld
under the backup withholding rules will be allowed as a refund or a credit
against such holder's U.S. federal income tax liability provided the required
information is furnished to the IRS.

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<PAGE> 50

UNDERWRITERS

Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co.
and Smith Barney Inc. are serving as U.S. Representatives, have severally agreed
to purchase, and the Company and Selling Stockholder have agreed to sell to
them, and the International Underwriters named below, for whom Morgan Stanley &
Co. International Limited, Goldman Sachs International and Smith Barney Inc. are
serving as International Representatives, have severally agreed to purchase, and
the Company and Selling Stockholder have agreed to sell to them, the respective
number of shares of the Common Stock set forth opposite the names of such
Underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated....................................... 709,855
Goldman, Sachs & Co. ................................................... 709,855
Smith Barney Inc. ...................................................... 709,855
Alex. Brown & Sons Incorporated......................................... 70,000
BT Securities Corporation............................................... 70,000
Dillon, Read & Co. Inc. ................................................ 70,000
A.G. Edwards & Sons, Inc. .............................................. 70,000
PaineWebber Incorporated................................................ 70,000
Salomon Brothers Inc.................................................... 70,000
EVEREN Securities, Inc. ................................................ 35,000
Furman Selz LLC......................................................... 35,000
Hanifen, Imhoff Inc. ................................................... 35,000
Jefferies & Company, Inc. .............................................. 35,000
Neidiger, Tucker, Bruner, Inc. ......................................... 35,000
Pacific Crest Securities................................................ 35,000
Piper Jaffray Inc. ..................................................... 35,000
Ragen MacKenzie Incorporated............................................ 35,000
---------
Subtotal................................................................ 2,829,565
---------
International Underwriters:
Morgan Stanley & Co. International Limited.............................. 180,000
Goldman Sachs International............................................. 180,000
Smith Barney Inc. ...................................................... 180,000
Banque Indosuez......................................................... 30,000
Kleinwort Benson Limited................................................ 30,000
---------
Subtotal................................................................ 600,000
---------
Total..................................................................... 3,429,565
=========
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any such shares
are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and

47
<PAGE> 51

(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any International Shares or distribute any prospectus relating to
the International Shares within the United States or Canada or to any United
States or Canadian Person. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement Between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
U.S. Underwriters and the International Underwriters under the Underwriting
Agreement are referred to herein as the U.S. Shares and the International
Shares, respectively.

Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the price to public set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in any
province or territory of Canada in contravention of the securities laws thereof
and has represented that any offer or sale of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made. Each
U.S. Underwriter has further agreed to send to any dealer who purchases from it
any shares of Common Stock a notice stating in substance that, by purchasing
such Common Stock, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Common
Stock in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer or sale is
made, and that such dealer will deliver to any other dealer to whom it sells any
of such Common Stock a notice to the foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and will not offer or sell any shares of Common Stock in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purpose of their business or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulation 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock in, from or
otherwise involving the United Kingdom and (iii) it has only issued or passed on
and will only issue or pass on to any person in the United Kingdom any document
received by it in connection with the issue of the shares of Common Stock if
that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to
whom such document may otherwise lawfully be issued or passed on.

The Underwriters initially propose to offer part of the Common Stock
directly to the public at the price to public set forth on the cover page hereof
and part to certain dealers at a price which represents a concession not in
excess of $1.32 per share under the public offering price. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of $0.10 per
share to other Underwriters or to certain other dealers. After the initial
offering of the Common Stock, the offering price and other selling terms may
from time to time be varied by the Representatives.

Pursuant to the Underwriting Agreement, the Company and the Selling
Stockholder have granted to the U.S. Underwriters options, exercisable for 30
days from the date of this Prospectus, to purchase up to 300,000 and 214,434
additional shares of Common Stock, respectively, at the price to public set
forth on the cover page

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<PAGE> 52

hereof, less underwriting discounts and commissions. The U.S. Underwriters may
exercise such options to purchase solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
Common Stock hereby. To the extent either of such options is exercised, each
U.S. Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number set forth next to such Underwriter's name in the preceding table bears to
the total number of shares of Common Stock offered by the U.S. Underwriters
hereby.

The Company and the Selling Stockholder have agreed that, without the prior
written consent of Morgan Stanley on behalf of the Underwriters, they will not,
during the period commencing on the date hereof and ending, with respect to the
Company, 90 days and, with respect to the Selling Stockholder, 120 days after
the date of this Prospectus, (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are now owned by the Company or the Selling Stockholder or are
hereafter acquired), or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to the
sale of any Shares to the Underwriters pursuant to this Offering or pursuant to
the Plans or stock options outstanding as of the date of this Prospectus. In
addition, the Selling Stockholder agrees that, without the prior written consent
of Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 120 days after the date of the
Prospectus, make any demand for or exercise any right with respect to the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.

In connection with the offering of Common Stock hereby, the Underwriters
and selling group members, if any, may engage in passive market making
transactions in the Company's Common Stock on the Nasdaq Stock Market
immediately prior to the commencement of the sale of shares in this offering, in
accordance with Rule 10b-6A under the Exchange Act. Passive market making
consists of displaying bids on the Nasdaq Stock Market limited by the bid prices
of market makers not connected with this offering and purchases limited by such
prices and effected in response to order flow. Net purchases by a passive market
maker on each day are limited in amount to 30% of the passive market maker's
average daily trading volume in the Common Stock during the period of the two
full consecutive calendar months prior to the filing with the Commission of the
Registration Statement of which this Prospectus is a part and must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.

The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act. From time to time Smith Barney Inc. has provided investment
banking services to the Company, including acting as a co-manager in the
Company's IPO in August 1995 and in the Company's offering of 12 1/4% Pass
Through Certificates in November 1995, for which it received customary
underwriting fees.

LEGAL MATTERS

Certain matters with respect to the validity of the shares of Common Stock
offered hereby will be passed upon for the Company by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York, and for
the Underwriters by Shearman & Sterling, New York, New York.

EXPERTS

The consolidated financial statements included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their

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<PAGE> 53

report with respect thereto, and are included herein in reliance upon the said
authority of such firm as experts in accounting and auditing.

On December 30, 1994, the Company entered into a refinancing transaction
that was reflected in its December 31, 1994 financial statements which were
audited by Ernst & Young LLP ("Ernst & Young") and were included in a
Registration Statement filed by the Company on March 14, 1995 with the
Securities and Exchange Commission (the "Commission"). In the Commission's
comment letter to the March 14 filing, the Commission staff raised questions
about the accounting treatment of the refinancing transaction which the Company
had adopted after consultation with, and with the concurrence of, Ernst & Young.
Although Ernst & Young and the Company worked together to respond to questions
raised by the Commission staff, the working relationship between certain members
of management and Ernst & Young personnel became acrimonious with the Company
expressing concerns that Ernst & Young was not being sufficiently supportive
regarding the accounting treatment of the refinancing transaction. Following a
May 5, 1995 meeting between Company and Ernst & Young personnel at which the
Company threatened litigation against Ernst & Young, Ernst & Young advised the
Company that it would be unable to continue to rely upon the representations of
members of management pertaining to the refinancing and that it was resigning as
the Company's auditors and withdrawing its report on the Company's 1994
financial statements.

No report of Ernst & Young on the financial statements of the Company for
either of the past two fiscal years contained an adverse opinion or a disclaimer
of opinion, or was qualified as to uncertainty, audit scope, or accounting
principles. During the Company's two most recent fiscal years and the subsequent
interim period preceding such resignation, there were no disagreements with
Ernst & Young on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures; the only reportable event
within such period was the statement of Ernst & Young referred to above with
respect to its inability to continue to rely on the representations of
management. Such statement was based on Ernst & Young's contentions that (i) it
was unaware of a higher fair market value aircraft appraisal that had been
performed after the financing transaction had been completed, notwithstanding
the Company's contention that it had delivered the appraisal to Ernst & Young
and (ii) the Company had indicated that it exercised a lease extension option
with its affiliate when in fact it was still in process of completing the
documentation. The Company has authorized Ernst & Young to respond fully to the
inquiries of Arthur Andersen LLP ("Arthur Andersen"), the Company's successor
auditors, concerning such reportable event.

On May 10, 1995, the Company requested that Arthur Andersen serve as the
Company's successor auditors. Following Arthur Andersen's inquiry of members of
Company management, Ernst & Young personnel and certain of the Company's outside
consultants regarding the Company and in particular, the issues which led to
Ernst & Young's resignation, Arthur Andersen accepted the engagement as the
Company's auditors on May 22, 1995 and subsequently issued an unqualified
opinion with respect to the Company's financial statements included herein.

In the Company's initial filing with the Commission for the IPO, the
financial statements of Atlas Air, Inc. ("Air") only were included and Air used
capitalized lease accounting for certain aircraft that Air had leased from ATO
without consolidating such entity. This resulted in capitalized property and
debt of approximately $66 million and a positive shareholder equity of $12.2
million at December 31, 1994. Subsequent to the resignation of Ernst & Young,
the Company asked Arthur Andersen for their opinion with respect to the
appropriate accounting treatment. Arthur Andersen reviewed the accounting and
determined that if the Company were to refile, it should follow the accounting
as set forth in Emerging Issue Task Force Issue No. 90-15 which calls for the
consolidation of special purpose entities such as ATO. In light of the
requirement for such consolidation, the Company reviewed its operations and
determined that Holdings should be merged into Air after spinning off the assets
of ALI; consequently, a new entity that contains Air and ATO along with the
remaining assets of Holdings is included in this Registration Statement. The
financial statements included herein approximate what the financial statements
would have been had Air refiled its financial statements without merging with
Holdings using the accounting set forth in Emerging Issue Task Force Issue No.
90-15.

50
<PAGE> 54

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, is
required to file reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC" or the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of the
reports, proxy statements and other information can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549, at prescribed
rates. The Common Stock of the Company is traded on the Nasdaq National Market
(Symbol: ATLS), and such reports, proxy statements and other information
concerning the Company also can be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules filed as a part thereof. The summary description of each document
contained in this Prospectus accurately describes the material provisions
thereof. The Registration Statement, including exhibits and schedules thereto,
may be inspected without charge at the Commission's public reference facility at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from such office, after payment of the fees prescribed
by the Commission.

Like many airlines, the Company overflies Cuba in order to serve other
destinations in Latin America and is required by the Cuban government to pay
fees for such overflight, which the Company does pursuant to a license which it
has obtained from the U.S. government. This information is accurate as of the
date of this Prospectus and current information concerning business dealings of
the Company with the government of Cuba or with any person or affiliate located
in Cuba may be obtained from the Florida Department of Banking and Finance,
Plaza Level, The Capitol, Tallahassee, Florida 32399-0350, telephone number
(904) 488-9530.

51
<PAGE> 55

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 56

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and December 31, 1994............. F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and
1993................................................................................ F-4
Consolidated Statements of Stockholder's Equity (Deficit) for the years ended December
31, 1995, 1994, 1993 and 1992....................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 57

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Atlas Air, Inc.:

We have audited the accompanying consolidated balance sheets of Atlas Air,
Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 consolidated financial position of
Atlas Air, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the three period ended December 31, 1995, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Denver, Colorado
February 16, 1996.

F-2
<PAGE> 58

ATLAS AIR, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 96,990 $ 10,524
Accounts receivable and other........................................ 18,594 7,293
-------- --------
Total current assets......................................... 115,584 17,817
Property and equipment:
Flight equipment..................................................... 349,836 148,165
Other................................................................ 3,055 2,370
-------- --------
352,891 150,535
Less accumulated depreciation........................................ (33,140) (19,298)
-------- --------
Net property and equipment................................... 319,751 131,237
Other assets:
Debt issuance costs.................................................. 8,607 4,580
Deposits............................................................. 3,381 9,097
-------- --------
11,988 13,677
-------- --------
Total assets................................................. $447,323 $162,731
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt.................................... $ 15,359 $ 4,885
Accounts payable and accrued expenses................................ 19,203 13,169
Due to affiliate..................................................... -- 1,700
-------- --------
Total current liabilities.................................... 34,562 19,754
Notes payable.......................................................... 335,902 158,730
Deferred income tax payable............................................ 8,144 --
Commitments and contingencies
Stockholders' equity (deficit):
Preferred Stock, $1 par value; 10,000,000 shares authorized; no
shares issued..................................................... -- --
Common Stock, $0.01 par value; 50,000,000 shares authorized
19,600,000 and 15,000,000 shares issued........................... 196 150
Additional paid-in capital........................................... 66,591 --
Retained earnings (deficit).......................................... 1,928 (15,903)
-------- --------
Total stockholders' equity (deficit)......................... 68,715 (15,753)
-------- --------
Total liabilities and stockholders' equity (deficit)......... $447,323 $162,731
======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE> 59

ATLAS AIR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Contract services......................................... $166,070 $ 86,704 $ 35,426
Scheduled services........................................ 1,335 10,917 --
Charters and other........................................ 3,862 5,358 5,837
-------- -------- --------
Total operating revenues.......................... 171,267 102,979 41,263
Operating expenses:
Flight crew salaries and benefits......................... 14,584 8,887 4,243
Other flight-related expenses............................. 12,361 9,270 7,844
Maintenance............................................... 42,574 24,517 8,052
Aircraft and engine rentals............................... 22,902 14,044 1,758
Fuel and ground handling.................................. 5,027 9,747 4,575
Depreciation and amortization............................. 14,793 7,451 5,647
Other..................................................... 16,352 15,169 8,698
-------- -------- --------
Total operating expenses.......................... 128,593 89,085 40,817
Operating income............................................ 42,674 13,894 446
Other income (expense):
Interest income........................................... 2,025 490 244
Interest expense.......................................... (18,460) (10,784) (10,101)
-------- -------- --------
(16,435) (10,294) (9,857)
-------- -------- --------
Income (loss) before income taxes........................... 26,239 3,600 (9,411)
(Provision) benefit for income taxes........................ (8,408) (14) 1,388
-------- -------- --------
Net income (loss)........................................... $ 17,831 $ 3,586 $ (8,023)
======== ======== ========
Net income (loss) per common share.......................... $ 1.06 $ . 24 $ (.53)
======== ======== ========
Weighted average common and common equivalent shares
outstanding............................................... 16,783 15,000 15,000
======== ======== ========
</TABLE>

See accompanying notes.

F-4
<PAGE> 60

ATLAS AIR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
---------------- PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992.................. 15,000 $150 $ -- $(11,466) $ (11,316)
Net loss.................................. -- -- -- (8,023) (8,023)
------ ---- -------- -------- ---------
Balance, December 31, 1993.................. 15,000 150 -- (19,489) (19,339)
Net income................................ -- -- -- 3,586 3,586
------ ---- -------- -------- ---------
Balance, December 31, 1994.................. 15,000 150 -- (15,903) (15,753)
Issuance of Common Stock.................. 4,600 46 66,591 -- 66,637
Net income................................ -- -- -- 17,831 17,831
------ ---- -------- -------- ---------
Balance, December 31, 1995.................. 19,600 $196 $ 66,591 $ 1,928 $ 68,715
====== ==== ======== ======== =========
</TABLE>

See accompanying notes.

F-5
<PAGE> 61

ATLAS AIR, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
--------- -------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ 17,831 $ 3,586 $(8,023)
Adjustments to reconcile net income (loss) to net cash
provided by
(used in) operating activities:
Depreciation and amortization............................. 14,793 7,451 5,647
Amortization of debt issuance cost........................ 546 217 218
Interest financed......................................... 1,258 -- --
Change in deferred income tax payable..................... 8,144 -- --
Changes in operating assets and liabilities:
Accounts receivable and other.......................... (10,751) (4,101) (1,807)
Deposits............................................... 5,716 (1,850) (563)
Accounts payable and accrued expenses.................. 6,034 7,516 1,643
--------- -------- -------
Net cash provided by (used in) operating
activities...................................... 43,571 12,819 (2,885)
INVESTMENT ACTIVITIES:
Purchase of property and equipment.......................... (190,807) (18,617) (2,111)
Advances of notes receivable................................ (550) -- --
--------- -------- -------
Net cash used in investing activities............. (191,357) (18,617) (2,111)
FINANCING ACTIVITIES:
Issuance of Common Stock.................................... 66,637 -- --
Additional borrowings on notes payable...................... 181,680 11,653 3,904
Principal payments on notes payable......................... (7,792) (1,043) (6,679)
Debt issuance costs......................................... (4,573) -- --
Advances from affiliate, net................................ (1,700) (486) 646
--------- -------- -------
Net cash provided by (used in) financing
activities...................................... 234,252 10,124 (2,129)
--------- -------- -------
Net increase (decrease) in cash................... 86,466 4,326 (7,125)
Cash and cash equivalents at beginning of period............ 10,524 6,198 13,323
--------- -------- -------
Cash and cash equivalents at end of period.................. $ 96,990 $ 10,524 $ 6,198
========= ======== =======
</TABLE>

F-6
<PAGE> 62

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND HISTORY

Atlas Air, Inc. (the "Company") was incorporated in Delaware in August 1992
as a wholly owned subsidiary of Aeronautics Leasing, Inc. ("Leasing"). Leasing's
sole stockholder was Michael A. Chowdry. In December 1992, Mr. Chowdry
incorporated Atlas Holdings, Inc. ("Holdings") to serve as a holding company for
both the Company and Leasing in order to separate the third-party leasing
activities of Leasing from the Company's air cargo operations. During this
reorganization of entities under common control (accounted for in a manner
similar to a pooling of interests), the Company became a wholly-owned subsidiary
of Holdings. On July 12, 1995, Leasing and certain other assets and liabilities
not related to the Company's business were spun off from Holdings to Mr. Chowdry
and certain of his affiliates in a tax-free transaction and Holdings was merged
into the Company which was accounted for in a manner similar to a pooling of
interests (see Note 10 for discussion of the spin-off). The accompanying
consolidated financial statements do not include operations of Leasing as those
operations are distinctly dissimilar to the operations of the Company. The
accompanying consolidated financial statements have been retroactively restated
to reflect the spin-off discussed above. As part of the merger, Atlas One, Inc.,
and LHC Properties became wholly-owned subsidiaries of the Company. Atlas One,
Inc. owns certain aircraft acquired through financing provided by Internationale
Nederlanden Aviation Lease B.V. ("ING Bank") (see Note 2) and leases these
aircraft to the Company. LHC Properties owns the building and other fixed assets
which the Company leases for its corporate offices.

Until the Company obtained its Federal Aviation Administration ("FAA")
certification in February 1993, the Company, together with its predecessors,
provided air freight services to its customer through the leasing of its
aircraft to another air cargo operator. The relationship with the air cargo
operator ceased in April 1993 upon completion of the one year contract with such
operator and subsequent to receiving FAA certification. While the Company had no
significant revenue until it received its FAA certification, two special purpose
entities affiliated with the Company, Aeronautics I, Inc. ("Aero I") and
Aeronautics O, Inc. ("Aero O"), provided air cargo services to its principal
customer (see following discussion of concentration of credit risk) from April
1992 through December 1992. The principal assets consisted of two Boeing 747-200
freighter aircraft (collectively, the "Existing Aircraft"), one in each of Aero
I and Aero O, which were financed by ING Bank. The financial statements of these
predecessor companies have been combined with the financial statements of the
Company as entities under common control in a manner similar to a pooling of
interests.

The Company provides airport to airport cargo services throughout the world
to major international airlines pursuant to contractual arrangements with its
customers in which the Company provides the aircraft, crew, maintenance and
insurance ("ACMI"), referred to as "contract services." The Company also
provides charter services and scheduled services on an ad hoc basis. The
principal markets served by the Company are Asia and the Pacific Rim from the
United States and Europe, and between South America and the United States.

BASIS OF PRESENTATION

On March 13, 1995, the Company's Board of Directors approved a restated
certificate of incorporation in Delaware. Upon filing of the restated
certificate, the Company split the Common Stock on a 15,000-for-1 basis (the
"Stock Split") and adjusted the par value of the Common Stock from $1 to $0.01.
All par value, authorized shares, common share and common per share amounts have
been retroactively restated in the consolidated financial statements to reflect
the Stock Split.

F-7
<PAGE> 63

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries and predecessors. All material
intercompany balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES

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.

PROPERTY AND EQUIPMENT

Owned aircraft are stated at cost. Expenditures for major additions,
improvements, flight equipment modifications and certain overhaul and
maintenance costs are capitalized. A significant portion of scheduled and
unscheduled maintenance is contracted with a maintenance provider under a
long-term agreement pursuant to which monthly reserve payments are made to the
provider based on flight-hours and such amount is charged to expense currently.
Other maintenance and repairs are charged to expense as incurred, except for
significant engine overhaul maintenance which is capitalized and charged to
expense on a flight-hour basis. Owned aircraft are depreciated over their
estimated useful lives of 20 years, using the straight-line method and estimated
salvage values of 10% of cost. The cost and accumulated depreciation of property
and equipment disposed of are removed from the related accounts and any gain or
loss is reflected in the results of operations. Substantially all property and
equipment is specifically pledged as collateral for indebtedness of the Company.

CAPITALIZED INTEREST

Interest attributable to funds used to finance the acquisition and
modification of aircraft is capitalized as an additional cost of the related
aircraft. Interest is capitalized at the Company's weighted average interest
rate on long-term debt, or where applicable, the interest rate related to
specific borrowings. Capitalization of interest ceases when the aircraft is
placed in service. Capitalized interest was $3,573,000, $261,000, and $0 for the
years ended December 31, 1995, 1994 and 1993, respectively.

DEFERRED COSTS

Debt issuance costs consist of loan costs associated with the ING Bank
financing and offering costs associated with the sale of the 12 1/4% Pass
Through Certificates (see Note 2). These costs are being amortized over the life
of the respective debt obligation, using the interest method for amortization.
Amortization of debt issuance costs was $546,000, $218,000 and $218,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.

CASH EQUIVALENTS

All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents.

NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share is computed based on the weighted
average number of common shares outstanding during the period. The effect of
outstanding stock options is immaterial.

F-8
<PAGE> 64

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

The Company provides for income taxes using the asset and liability method
prescribed by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under this method deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities. The effect on deferred taxes of a change in tax laws or tax rates
is recognized in income in the period that includes the enactment date.

RECENTLY ISSUED ACCOUNTING STANDARD

In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held 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 and long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. SFAS No. 121 also establishes
the procedures for review of recoverability, and measurement of impairment if
necessary, of long-lived assets and certain identifiable intangibles to be held
and used by an entity. The Company adopted SFAS No. 121 during the second
quarter of 1995. In connection therewith, the Company determined that the
estimated future cash flows (undiscounted and without interest charges) of each
of its flight equipment and other long-lived assets exceeded the carrying amount
of such assets, therefore, the Company determined that under SFAS No. 121 no
impairment provision was necessary.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash, certificates of
deposit, short-term trade receivables and payables and long-term debt. The
carrying values of cash, certificates of deposit, and short-term trade
receivables and payables approximate fair value. The fair value of long-term
debt is estimated based on current rates available for similar debt with similar
maturities and security (see Note 2).

SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK

China Airlines Ltd., KLM Royal Dutch Airlines and Varig Brazilian Airlines
accounted for approximately 47%, 20% and 14% of the Company's total revenue,
respectively, for the year ended December 31, 1994 and approximately 60%, 19%
and 11%, respectively, for the year ended December 31, 1995. The Company had one
principal customer (China Airlines Ltd.) which accounted for approximately 86%
of its total revenue for the year ended December 31, 1993. Accounts receivable
from these principal customers were $11,038,000 and $4,882,000 in the aggregate
at December 31, 1995 and 1994, respectively.

SIGNIFICANT TRANSACTIONS

During 1994, the Company committed to the purchase of four Boeing 747-200
aircraft from Deutsche Lufthansa AG (the "Lufthansa Aircraft"). Upon completion
of cargo modification by The Boeing Company ("Boeing"), the first, second and
third Lufthansa Aircraft were placed in service by the Company in March, April
and June 1995, respectively. Payments to Boeing were financed with funds
available under the ING Bank loan agreement (see Note 2). The fourth Lufthansa
Aircraft was delivered to Boeing in December 1995 and is expected to be placed
in service in March 1996. funding for this aircraft was made available through
the issuance by the Company of Equipment Notes (see Note 2).

During 1995, the Company committed to the purchase of three Boeing 747-200
aircraft (the "Alitalia Aircraft") from Alitalia Linee Aeree Italiane S.p.A.
("Alitalia"). The first Alitalia Aircraft was delivered to

F-9
<PAGE> 65

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Boeing for cargo modification in June 1995. This aircraft was placed in service
by the Company in November 1995. The second Alitalia Aircraft was delivered to
Hong Kong Aircraft Engineering Co., Ltd. ("HAECO") in November 1995 for cargo
modification and was placed in service by the Company in January 1996. The third
Alitalia Aircraft was delivered to HAECO in December 1995 for cargo modification
and is expected to be placed in service by the Company in March 1996.

In accordance with the terms of the ING Bank loan agreement, the Company
financed the purchase and cargo modification of the first Alitalia Aircraft with
funds previously committed for the purchase and cargo modification of the fourth
Lufthansa Aircraft under the ING Bank loan agreement (see Note 2). In addition,
in June 1995, the Company utilized approximately $4 million available under the
ING Bank loan agreement to fund deposits with Alitalia for the second and third
Alitalia Aircraft.

In August 1995, the Company consummated its initial public offering ("IPO")
covering 4,600,000 shares of its Common Stock at a price of $16 per share. IPO
proceeds in excess of par value, net of costs, are reflected in Additional Paid
in Capital. The proceeds of the IPO were used for working capital and other
general corporate purposes.

In November 1995, the Company sold $100 million of 12 1/4% Pass Through
Certificates, for which it issued Equipment Notes (see Note 2), the proceeds of
which are being utilized to complete the purchase and cargo modification of the
fourth Lufthansa Aircraft and the second and third Alitalia Aircraft.

SUPPLEMENTAL CASH FLOW INFORMATION

The aggregate interest payments made by the Company were, $19,136,000,
$9,985,000 and $9,338,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. Prior to December 1995, the required monthly payment under the ING
Bank loan agreement was less than the accrued interest, thus causing $1,258,000
of accrued interest in 1995 to be financed by the lender as an increase in the
principal balance (see Note 2).

2. LONG-TERM DEBT

Long-term debt and current maturities are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
ING Bank debt.................................................. $232,494 $149,543
Lufthansa Debt................................................. 18,373 12,677
Equipment Notes................................................ 100,000 --
Other.......................................................... 394 1,395
-------- --------
351,261 163,615
Current maturities............................................. (15,359) (4,885)
-------- --------
Long-term debt....................................... $335,902 $158,730
======== ========
</TABLE>

ING BANK DEBT

In December 1994, the Company renegotiated its loan agreement with ING
Bank. Pursuant to the new loan agreement, ING Bank agreed to provide up to $231
million of financing to the Company for the following purposes: refinance
amounts previously borrowed by the Company; finance the purchase price of
Lufthansa Aircraft ("ING Bank Financed Lufthansa Aircraft"); finance the costs
of converting the Lufthansa Aircraft to freighter configuration; finance
advances to Lufthansa for the purchase of the Lufthansa Aircraft; provide
financing for the cost of a maintenance event (D Check) in 1995 on an Existing
Aircraft; pay certain loan origination fees and finance a previous obligation of
the Company to ING Bank arising as a result of a

F-10
<PAGE> 66

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

guarantee of the debt of an unrelated party. Subsequently, ING Bank increased
the size of its commitment under the new loan agreement to $232.9 million.

The loan agreement required three consecutive monthly payments by the
Company to ING Bank of $1,100,000 from January 1995 through March 1995 and
requires monthly payments of $980,000 thereafter for the two Existing Aircraft.
As to the Lufthansa Aircraft that are financed by Lufthansa ("Lufthansa Financed
Aircraft") (see discussion of Lufthansa Debt below), the terms of the loan
agreement require payments by the Company of $90,000 per month per Lufthansa
Financed Aircraft to ING Bank and $400,000 per month per Lufthansa Financed
Aircraft to Lufthansa until the Lufthansa Debt is paid in full. At such time,
the payment to ING Bank will increase to $490,000 per month per Lufthansa
Financed Aircraft. The terms of the loan agreement require payments by the
Company of $490,000 per month per ING Bank Financed Lufthansa Aircraft to ING
Bank.

For all but $30,000,000 of the total indebtedness to ING Bank (which amount
was financed at a fixed interest rate of 11.53% through September 1995, at which
time the interest rate was converted to one-month LIBOR (London Interbank
Offered Rate) plus 2.65%), the loan agreement accrues interest at one-month
LIBOR plus 2.65%. To the extent one-month LIBOR increases or decreases, the
loan's maturity date will lengthen or shorten, respectively. Should LIBOR exceed
7.5% after November 1997, the scheduled payments described above will be
increased in accordance with a prescribed formula; likewise, if LIBOR should
decrease below 2.5%, the scheduled payments will be decreased in accordance with
a prescribed formula. The one-month LIBOR rate at December 29, 1995 was 5.72%.

The collateral for the loan agreement between the Company and ING Bank
consists of the following: a first priority lien and security interest in and to
all aircraft owned by the Company (other than the Lufthansa Financed Aircraft
and the Equipment Notes Financed Aircraft) and the common stock of the Company's
subsidiary owning such aircraft; a pledge of shares of Common Stock of the
Company held by Mr. Chowdry with a fair market value of $20,000,000; an
assignment of the Boeing Modification Agreement for the Lufthansa Aircraft; and
a second priority lien and security interest in and to the Lufthansa Financed
Aircraft (which converts to a first priority lien when the Lufthansa Debt is
paid in full).

Certain debt covenants under the ING Bank debt preclude one of the
Company's subsidiaries from declaring dividends, redeeming its own stock for
value, or returning any capital to its stockholders.

LUFTHANSA DEBT

Deutsche Lufthansa AG ("Lufthansa") financed approximately $12.5 million of
the purchase price of each Lufthansa Financed Aircraft ("Lufthansa Debt"). The
Lufthansa Debt associated with the first Lufthansa Financed Aircraft is included
in long-term debt at December 31, 1994, and the Lufthansa Debt associated with
the first and second Lufthansa Financed Aircraft is included in long-term debt
at December 31, 1995.

The loan agreement requires monthly payments of $400,000 per Lufthansa
Financed Aircraft commencing three months after scheduled delivery until the
Lufthansa Debt and related interest is paid in full. The Company began remitting
payments on the first and second Lufthansa Financed Aircraft in January 1995,
and February 1995, respectively. The Lufthansa Debt accrues interest at an
annual rate of approximately 8.8%. The loan is secured by a first priority lien
and security interest in and to the Lufthansa Financed Aircraft.

EQUIPMENT NOTES

In November 1995, the Company sold $100 million of 12 1/4% Pass Through
Certificates. Each 12 1/4% Pass Through Certificate due 2002 (each a
"Certificate") represents a fractional undivided interest in the Atlas Air Pass
Through Trust formed pursuant to a pass through trust agreement between the
Company and First Fidelity Bank, N.A., as trustee under the Trust. The property
of the Trust consists of 12 1/4% Senior Secured

F-11
<PAGE> 67

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Notes due 2002 (the "Equipment Notes") issued by the Company to finance,
together with funds from the Company, the acquisition and conversion cost of
three Boeing 747 aircraft (the "Collateral Aircraft") that are being acquired by
the Company. Pending payments towards the acquisition of Collateral Aircraft,
the cash proceeds are being held in escrow. The Company is currently scheduled
to acquire the Collateral Aircraft during the first quarter of 1996 and has
issued, or will issue, the related Equipment Notes during the fourth quarter of
1995 and the first quarter of 1996 at or prior to the time predelivery deposits
and final purchase price payments are required to be made with respect to the
Collateral Aircraft.

The Equipment Notes are senior obligations of the Company issued under
separate indentures relating to each of the Collateral Aircraft, and have an
interest rate equal to the interest rate payable on the Certificates. The
Equipment Notes issued with respect to each Collateral Aircraft are secured by a
first priority security interest in such Collateral Aircraft, and by a second
priority security interest in each of the other Collateral Aircraft. The amounts
payable by the Company on account of the Equipment Notes, together with other
amounts payable by the Company, will be sufficient to pay in full when due all
payments of principal, premium, if any, and interest on, the Certificates.

Interest paid on the Equipment Notes will be passed through to the
Certificateholders on June 1 and December 1 of each year, commencing June 1,
1996, at a rate per annum of 12 1/4%. The Equipment Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after December 1,
1998 at redemption prices ranging from 108% in 1998 to 100% in 2001 and
thereafter, together with accrued and unpaid interest, if any, to the date of
redemption.

Covenants with respect to the Collateral Aircraft require specific levels
of insurance, as well as contain requirements regarding possession, maintenance,
lease or transfer of the aircraft. Certain covenants applicable to the Company
include, among other restrictions, limitations on indebtedness, restricted
payments and asset sales. The Company is in compliance with all of its
covenants.

With respect to limitation on indebtedness, the Company is limited as to
the amount and type of indebtedness it may incur, unless it meets or exceeds a
consolidated fixed charge coverage ratio. This ratio is the sum of (a) net
income, interest expense, tax expense and non-cash charges deducted in computing
net income for a certain period, as compared to (b) the interest expense for
that period. The Company may not incur more than $15,000,000 of additional
indebtedness, unless at the time of such incurrence the consolidated fixed
charge coverage ratio would have been at least equal to 2.5 to 1.0 through
December 31, 1996 and 2.75 to 1.0 thereafter. The Company may, however, incur up
to $100 million of indebtedness secured by aircraft at any time outstanding
without regard to the foregoing test.

Restricted payments of the Company include (a) the payment of dividends or
distributions to shareholders, other than in shares of its capital stock; (b)
the purchase or redemption of shares of its capital stock; (c) the payment
towards debt prior to any scheduled principal payment or maturity; and (d) the
investment in an entity unless the entity becomes a wholly-owned subsidiary.
Restricted payments are allowable provided that (a) the Company is not in
default of its covenants; (b) the Company meets or exceeds the consolidated
fixed charge coverage ratio; and (c) the aggregate amount of all restricted
payments does not exceed the sum of (1) 50% of the cumulative net income during
the period of indenture to date; (2) net cash proceeds from any sale of its
capital stock or debt securities subsequent to the period of indenture; (3) any
return of capital from other than a wholly-owned subsidiary; and (4)
$10,000,000.

FAIR VALUE OF LONG-TERM DEBT

Based on current rates available for similar debt with similar maturities
and security, the fair values of the ING Bank debt and the Lufthansa Debt at
December 31, 1995, are estimated to be their carrying values of $232.5 million
and $18.4 million, respectively. The Equipment Notes are publicly traded. Based
on published trading prices at December 29, 1995, the fair value of the
Equipment Notes is estimated to be $103.0 million.

F-12
<PAGE> 68

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FIVE YEAR DEBT MATURITIES

At December 31, 1995, principal repayments on long-term debt for the next
five years were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 THEREAFTER
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
ING Bank debt................... $ 6,470 $ 7,094 $17,288 $19,226 $20,900 $ 161,516
Lufthansa Debt.................. 8,817 9,158 398 -- -- --
Equipment Notes................. -- -- -- -- -- 100,000
Other........................... 72 10 12 13 14 273
------- ------- ------- ------- ------- ---------
$15,359 $16,262 $17,698 $19,239 $20,914 $ 261,789
======= ======= ======= ======= ======= =========
</TABLE>

3. INCOME TAXES

The Company has historically filed a consolidated federal income tax return
with Holdings and Leasing. Subsequent to the completion of the spin-off in July
1995 (discussed in Note 10), Leasing is no longer included in the consolidated
group. Tax attributes allocable to the Company as a result of the spin-off
include net operating loss carryforwards of approximately $45,100,000 as of
December 31, 1995, which expire between 2008 and 2010. The Company also has
alternative minimum tax carryforwards of approximately $5,000,000 as of December
31, 1995, which also expire between 2008 and 2010. The Company has approximately
$251,000 of current federal tax liability, due to statutory limitations on the
utilization of alternative minimum tax net operating loss carryforwards. All tax
years of the Company are currently open to examination by the Internal Revenue
Service ("IRS"), as well as state and local authorities. The Company believes
that it has adequately provided for all income tax liabilities and that final
resolution of any IRS examination will not have a material effect on its
financial position or results of operations.

The (provision) benefit for income taxes consisted of the following (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------- ---- -------
<S> <C> <C> <C>
Current:
Federal................................................ $ 251 $ -- $(1,415)
State and local........................................ 13 14 27
Deferred:
Federal................................................ 8,144 -- --
State and local........................................ -- -- --
------- ---- -------
(Provision) benefit for income taxes..................... $(8,408) $(14) $ 1,388
======= ==== =======
</TABLE>

F-13
<PAGE> 69

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The (provision) benefit for income taxes were at rates different from the
U.S. federal statutory rate for the following reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax (provision) benefit
rate............................................ (35.00)% (35.00)% 35.00 %
State and local income taxes, net of federal tax
benefit......................................... -- (.25)% (.26)%
Nondeductible items............................... (1.44)% (6.92)% (1.30)%
Reversal of prior year valuation allowance........ 4.83 % -- --
Benefit of net operating losses................... -- 41.78 % --
Limitation on the utilization of tax benefit...... -- -- (18.69)%
Other............................................. (.43)% -- --
------ ------ ------
Effective tax (provision) benefit rate............ (32.04)% (.39)% 14.75 %
====== ====== ======
</TABLE>

The tax benefit realized for the year ended December 31, 1993 was due to
the carryback of the Company's alternative minimum tax net operating loss
against prior alternative minimum taxable income of an affiliate.

Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Deferred income tax liability components are as follows (in
thousands):

<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of book depreciation................ $29,602 $20,519
------- -------
Total deferred tax liabilities......................... 29,602 20,519
Deferred tax assets:
Tax benefit of net operating loss carryforwards................ 15,793 16,337
Tax benefit of passive loss carryforwards...................... 2,920 2,842
Other.......................................................... 2,745 2,607
------- -------
Total deferred tax assets.............................. 21,458 21,786
------- -------
Net deferred tax liability (asset)............................... 8,144 (1,267)
Valuation allowance.............................................. -- 1,267
------- -------
Net deferred taxes............................................... $ 8,144 $ --
======= =======
</TABLE>

4. COMMITMENTS AND CONTINGENCIES

AIRCRAFT

Minimum annual rental commitments under noncancelable operating leases for
four Boeing 747 aircraft for years ending December 31, are approximately (in
thousands):

The Company has the option to renew one aircraft lease which expires in
January 1997 for two additional years at approximately $6,100,000 per year.

F-14
<PAGE> 70

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition to the above commitments, the Company leases engines under
short-term lease agreements on an as needed basis.

Aircraft and engine rentals, including short-term rentals, were
$22,902,000, $14,044,000 and $1,758,000 for the years ended December 31, 1995,
1994 and 1993, respectively.

CARGO MODIFICATION

As of December 31, 1995, two Alitalia Aircraft and one Lufthansa Aircraft
were undergoing cargo modification as to which certain of the costs had already
been paid to the two conversion contractors. Such amounts are recorded in Flight
Equipment in the December 31, 1995 balance sheet. The remaining commitment as of
December 31, 1995 for one aircraft at Boeing was $8,463,000 and the remaining
commitment for two aircraft at HAECO was $5,322,000. These commitments are
expected to be paid in the first quarter of 1996.

MAINTENANCE AGREEMENTS

In January 1995, the Company entered into a maintenance agreement with one
of its principal customers. This agreement includes a provision which requires
the Company to remit a fixed amount per flight hour each month to the customer,
for which the customer will perform most regular maintenance on a substantial
portion of the aircraft in the Company's fleet. The agreement extends for a
period of ten years and contains provisions for additional charges under certain
circumstances.

In April 1995, the Company entered into an agreement with a
contract-maintenance operator pursuant to which the operator agreed to convert
to full freighter configuration and/or undertake D-checks on ten Boeing 747
aircraft, by October 1, 1997, at a fixed rate per man hour. The Company has
guaranteed a minimum number of such man hours. The Company anticipates that it
will be able to fulfill this commitment during the life of the agreement.

As part of the purchase of the Alitalia Aircraft, the Company has agreed
with Alitalia to utilize, or cause other parties to utilize, Alitalia's
maintenance services for an aggregate cost of $25 million over a five year
period. The Company anticipates that it will be able to fulfill this commitment
during the life of the agreement.

OFFICE AND WAREHOUSE

The Company has entered into an operating lease for office and warehouse
space expiring in the year 2000, with two five year renewal provisions. Future
minimum rental commitments by year are as follows for the years ending December
31: 1996 to 1999 -- $481,000 per year; and 2000 -- $187,000. Rental expense,
including short-term rentals, was $579,000, $248,000 and $172,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.

EMPLOYMENT AGREEMENT

Mr. Chowdry has entered into an employment agreement with the Company that
provides for a base salary of $485,000 per annum and discretionary annual
bonuses to be determined by the Compensation Committee of the Company's Board of
Directors. Mr. Chowdry is entitled to receive a termination payment equal to 12
months of his base compensation if his employment is terminated by the Company
without cause.

The Company has also entered into employment agreements with four officers.
These agreements provide for annual salaries of $175,000 for three of the
officers and $110,000 for the fourth, and entitle each of the employees to
receive an annual bonus to be determined by the Compensation Committee of the
Company's Board of Directors. These agreements allow the officers to receive 12
months of their base compensation if

F-15
<PAGE> 71

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

terminated by the Company without cause. The agreements also provide for the
grant of stock options pursuant to the 1995 Long Term Incentive and Share Award
Plan ("1995 Stock Option Plan") (see Note 12).

In October 1995, pursuant to their employment agreements, the four officers
were granted options totaling 211,720 to purchase shares of the Company's Common
Stock. The options will expire on March 1, 2005 and have an exercise price of
$16 per share. Such options will be exercisable ratably, on March 31, 1996,
March 31, 1997 and March 31, 1998 (see Note 12).

The Company has an obligation which arose in prior years to pay an officer
of the Company $332,000 should his employment by the Company and its affiliates
be terminated for any reason. On July 11, 1995, this officer resigned his
position with the Company to accept a position with an affiliate of the Company.
This obligation is recorded in accrued salaries and wages (see Note 7).

The Company has an agreement dated in 1994 with a former employee of the
Company, who is currently a consultant to the Company, for the payment of
semi-monthly payments of approximately $4,500 for a total of $325,000, in
addition to consulting fees. The final semi-monthly payment will be made in
March 1997. This obligation is recorded in accrued salaries and wages (see Note
7).

FAA AIRWORTHINESS DIRECTIVES

On September 21, 1993 and June 4, 1994, the FAA issued Airworthiness
Directives requiring the inspection and replacement of certain engine components
with which the Company must comply by December 1997 at an estimated aggregate
cost of $1.1 million for all of the aircraft in the Company's fleet. In November
1994, the FAA issued Nacelle Strut Modification Service Bulletins which are
expected to be converted into Airworthiness Directives. The Company's aircraft
would have to be brought into compliance with such Airworthiness Directives
within the next five years at an estimated cost of approximately $500,000 for
each aircraft in its fleet. It is possible that additional Service Bulletins or
Airworthiness Directives applicable to the types of aircraft included in the
Company's fleet could be issued in the future. The cost of compliance with such
Airworthiness Directives cannot currently be estimated, but could be
substantial.

5. RELATED PARTY TRANSACTIONS

Leasing paid the Company $360,000 in each of 1993 and 1994, for office,
management and administrative personnel expenses incurred by the Company on
Leasing's behalf. Effective December 31, 1994, the Company ceased providing such
services to Leasing. The Company recorded the payments from Leasing as other
income in 1993 and 1994. During 1995, the Company performed minor accounting and
payroll services on behalf of Leasing for which it was reimbursed for
out-of-pocket expenses.

In June 1995, the Company extended a non-interest bearing loan to an
officer of the Company in the amount of $125,000 in connection with such
officer's relocation to Colorado, which the Company forgave in July 1995.

In August and September 1995, the Company extended demand loans to three
senior vice presidents of the Company in the aggregate amount of $550,000,
bearing interest at an annual rate of 7.50%.

In November 1995, the Company began renting a Cessna Citation SP, on an as
needed basis, from MAC Flightlease, Inc. for the purpose of corporate business
travel. MAC Flightlease, Inc. is wholly owned by Mr. Chowdry. The Company
incurred $52,000 for such travel in 1995, at rates which are considered by the
Company to be at fair market value.

F-16
<PAGE> 72

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. ACCOUNTS RECEIVABLE AND OTHER

The components of accounts receivable and other are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- ------
<S> <C> <C>
Accounts receivable-trade......................................... $14,422 $5,884
Insurance and vendor claims....................................... 3,365 1,035
Employee receivables.............................................. 561 5
Prepaids and other................................................ 870 436
Less: Allowance for doubtful accounts............................. (624) (67)
------- ------
$18,594 $7,293
======= ======
</TABLE>

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The components of accounts payable and accrued expenses are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Accounts payable-trade........................................... $ 1,708 $ 2,144
Accrued salaries and wages....................................... 3,859 1,654
Accrued maintenance.............................................. 6,538 5,181
Accrued interest................................................. 1,055 --
Other accrued expenses........................................... 6,043 4,190
------- -------
$19,203 $13,169
======= =======
</TABLE>

8. SAVINGS AND RETIREMENT PLAN

The Company implemented a 401(k) Retirement Plan (the "Plan") in June 1994,
under which eligible employees may contribute up to 15% of their total pay. The
Plan covers substantially all employees. The Company did not make contributions
to the Plan in 1994 or 1995.

9. BUSINESS SEGMENTS

The Company operates in one business segment, which is to provide the
common carriage of freight over various worldwide routes.

The assets of the Company, principally flight equipment, support its entire
worldwide transportation system and are not readily identifiable by geographic
area. Property and equipment, other than flight equipment, located in foreign
locations is not significant.

Foreign sales accounted for 99%, 99% and 97% of total revenues for the
years ended December 31, 1995, 1994 and 1993, respectively. All foreign sales
were U.S. dollar denominated.

10. SPIN-OFF OF LEASING

On July 12, 1995, Leasing and all other assets and liabilities of Holdings
not related to the Company's operation were spun off from Holdings to Mr.
Chowdry and certain of his affiliates (other than the Company) in a tax-free
transaction. The consolidated financial statements have been retroactively
restated to reflect the spin-off. At December 31, 1994, the Company had a
remaining accrual of approximately $1.6 million for amounts representing a cash
capital contribution payable to Leasing intended to provide funding necessary
for

F-17
<PAGE> 73

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Leasing to be independent from the Company after completion of the spin-off. The
contribution was deducted from the equity of Holdings and included in amounts
due to affiliate in the Balance Sheets.

11. PREFERRED STOCK

The Board of Directors is authorized under the restated certificate of
incorporation to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders. The issuance of Preferred
Stock with voting and conversion rights may adversely affect the voting power of
the holders of Common Stock, including the loss of voting control to others. At
present, the Company has no plans to issue any shares of Preferred Stock.

12. 1995 STOCK OPTION PLAN

In 1995, the Company adopted the 1995 Stock Option Plan, whereby employees
may be granted options, incentive stock options, share appreciation rights, and
restricted shares. The portion of the 1995 Stock Option Plan applicable to
employees is administered by the Compensation Committee of the Board of
Directors of the Company which also establishes the terms of the awards. The
1995 Stock Option Plan also provides for certain automatic grants of
nonqualified stock options to non-employee directors which become exercisable on
the date of grant and expire on the tenth anniversary of the date of grant. An
aggregate of 1,800,000 shares have been reserved for issuance in connection with
awards and director's options under the 1995 Stock Option Plan.

In July 1995, options to purchase an aggregate of 362,500 shares of Common
Stock were granted to certain executive officers at an exercise price of $10 per
share. Such options vested immediately upon grant.

Upon the consummation of the IPO, the Company granted stock options to
purchase an aggregate of 211,720 shares of Common Stock to certain executive
officers of the Company. These options expire on March 1, 2005 and have an
exercise price of $16 per share. Such options will be exercisable ratably, on
March 31, 1996, March 31, 1997 and March 31, 1998 (see Note 4). In addition and
pursuant to the terms of the 1995 Stock Option Plan, each of the Company's
non-employee directors were automatically granted options to purchase 1,000
shares of Common Stock at $16 per share.

In addition, in July 1995, options to purchase 125,000 and 71,430 shares of
the Company's Common Stock were granted to an officer, who subsequently resigned
his position with the Company to accept a position with an affiliate of the
Company, at exercise prices of $10 per share and $14 per share, respectively. In
October 1995, options to purchase 80,000 shares of the Company's Common Stock at
an exercise price of $22.25 per share were granted to an officer who
subsequently resigned (see Note 16).

13. EMPLOYEE STOCK PURCHASE PLAN

In 1995, the Company established an Employee Stock Purchase Plan (the
"Stock Purchase Plan"). Employees eligible to participate in the Stock Purchase
Plan are those who have completed at least one year of employment with the
Company, but excluding employees whose customary employment is not more than
five months in any calendar year or 20 hours or less per week. The Stock
Purchase Plan shall be administered by the Compensation Committee of the Board
of Directors of the Company which shall determine the terms and conditions under
which shares shall be offered and corresponding options shall be granted under
the Stock Purchase Plan for any Purchase Period, as defined in the Stock
Purchase Plan. Employees may contribute up to 15% of their gross base
compensation subject to certain limitations. The price per share at which the

F-18
<PAGE> 74

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Common Stock is to be purchased pursuant to the Stock Purchase Plan is the
lesser of 85% of the fair market value of the Common Stock on the first or last
day of the applicable Purchase Period. The maximum number of shares of Common
Stock which may be issued on the exercise of options purchased under the Stock
Purchase Plan is 1,000,000 shares.

14. PROFIT SHARING PLAN

Employees who have been employed by the Company for at least twelve months
as full-time employees are eligible to participate in the Company's Profit
Sharing Plan, which was adopted in 1994. The Profit Sharing Plan provides for
payments to eligible employees in semiannual distributions based on the
Company's pretax profits. The Company is obligated to make an annual profit
sharing contribution of ten percent of the Company's pretax profits, which is
defined as net income before taxes, but excluding (i) any income or loss related
to charges or credits for unusual or infrequently occurring items or related to
intangible assets, and (ii) extraordinary items. Annual profit sharing
contributions may be in the form of cash or Common Stock of the Company. The
expense for the Profit Sharing Plan and the Pilot Completion Bonus Program was
$581,000 for the year ended December 31, 1994. The Pilot Completion Bonus
Program began in March 1993 and terminated in 1994. The expense for the Profit
Sharing Plan for the year ended December 31, 1995 was $2,768,000.

15. SUBSEQUENT EVENTS

In January 1996, the Company placed in service the second Alitalia Aircraft
upon completion of its cargo conversion by HAECO. This aircraft is being leased
by China Airlines under a long-term ACMI contract. Long-term contracts for the
third Alitalia Aircraft and the fourth Lufthansa Aircraft have been entered into
with Scandinavian Airlines System and Lufthansa, respectively.

In January 1996, the Company entered into a contract with Langdon Asset
Management Co. for the purpose of acquiring six Boeing 747-200 passenger
aircraft and spare engines and parts from Thai Airways International Public
Company Limited (the "Thai Aircraft"). The Thai Aircraft will be delivered to
Boeing for conversion to cargo configuration and subsequently delivered to the
Company for placement into service from the fourth quarter of 1996 through the
fourth quarter of 1997. The average cost of the six aircraft, including
conversion costs and spare engines and parts, is expected to approximate $40
million each. The Company has placed a nonrefundable deposit of $3 million with
Thai Airways International with respect to its acquisition of the Thai Aircraft.
The Company believes that it will be able to arrange a favorable combination of
financings to consummate the acquisition of the Thai Aircraft. However, there
can be no assurances that such financing will be attainable.

16. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)

In February 1996, an officer of the Company resigned his position with the
Company. The Company has an agreement with the former officer for the payment
over a six-month period during 1996 of a total of $262,500. In addition, the
agreement allows the exercise at any time for a three-year period beginning
February 1996 of options totaling 80,000 to purchase shares of the Company's
Common Stock at an exercise price of $22.25 per share.

In March 1996, the Company entered into an agreement with Federal Express
Corporation ("Federal Express") to lease five 747-200 freighter aircraft, plus
spare engines (the "Federal Express Aircraft"). One of the Federal Express
Aircraft has been delivered to the Company in March 1996 and the remaining
Federal Express Aircraft will be delivered to the Company over a four-month
period beginning in June 1996 and each will have a lease term ending in January
1998. The lease and maintenance supply rate will be $450,000 per month per
aircraft. Payment of standard maintenance reserves is also required for each
aircraft on a monthly basis. In addition, the Company has agreed to purchase on
or before October 1, 1996 a Boeing 747 simulator

F-19
<PAGE> 75

ATLAS AIR, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from Federal Express for a purchase price of $2.1 million. The Company is also
negotiating the possible purchase of certain Boeing 747-200 spare parts from
Federal Express.

The Company has filed registration statements covering 3,429,565 shares of
its Common Stock (assuming the Underwriters' over-allotment options are not
exercised).

F-20
<PAGE> 76
[Inside Back Cover - Picture of Atlas Aircraft being loaded with cargo]