<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ATLAS AIR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4731 84-1207329
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
538 COMMONS DRIVE
GOLDEN, COLORADO 80401
(303) 526-5050
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
RICHARD H. SHUYLER
EXECUTIVE VICE PRESIDENT -- STRATEGIC PLANNING
AND TREASURER
ATLAS AIR, INC.
538 COMMONS DRIVE
GOLDEN, COLORADO 80401
(303) 526-5050
(Name, Address, including Zip Code, and Telephone Number, including
Area Code, of Agent for Service)
with a copy to:
STEPHEN A. GREENE, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/4% Senior Notes due 2008................. $175,000,000 99.867% $174,767,250 $51,556
=====================================================================================================================
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
ATLASAIR LOGO
ATLASAIR LOGO
OFFER TO EXCHANGE ITS 9 1/4% SENIOR NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ITS 9 1/4% SENIOR NOTES DUE 2008, WHICH HAVE NOT BEEN REGISTERED
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED.
---------------------
Atlas Air, Inc. (the "Company"), a Delaware corporation, hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $175,000,000 aggregate principal amount of its new
9 1/4% Senior Notes due 2008 (the "New Notes"), which have been registered under
the Securities Act of 1933 as amended (the "Securities Act"), for a like
principal amount of its outstanding 9 1/4% Senior Notes due 2008 (the "Old
Notes"), which have not been so registered. The terms of the New Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions relating to the Old Notes. The New Notes will evidence the same
indebtedness as the Old Notes and will be issued pursuant to, and entitled to
the benefits of, the same Indenture that governs the Old Notes (the
"Indenture"). As used herein, the term "Notes" means the Old Notes and the New
Notes, treated as a single class.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1998
unless extended (as, and so extended, the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange pursuant to the Exchange Offer. The Exchange Offer is
subject to certain other customary conditions. See "The Exchange Offer."
The New Notes will bear interest from and including the date of
consummation of the Exchange Offer. Interest on the New Notes will be payable
semi-annually in arrears on each April 15 and October 15 of each year,
commencing October 15, 1998, at the rate of 9 1/4% per annum. The New Notes will
mature on April 15, 2008. Interest on the New Notes will accrue from the last
interest payment date on which interest was paid on the Old Notes surrendered in
exchange therefor or, if no interest has been paid on the Old Notes, from the
date of original issuance of the Old Notes. The Notes will be redeemable, in
whole or in part, at the option of the Company, on or after April 15, 2003, at
the redemption prices set forth herein, plus accrued interest to the date of
redemption. In addition, at any time on or prior to April 15, 2001 the Company,
at its option, may redeem up to 35% of the aggregate principal amount of the
Notes originally issued with the net cash proceeds of one or more Public Equity
Offerings (as defined), at a redemption price equal to 109.25% of the principal
amount thereof plus accrued interest to the date of redemption; provided that at
least $113.75 million aggregate principal amount of the Notes originally issued
remains outstanding immediately after any such redemption.
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 10, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES
IN THE EXCHANGE OFFER.
---------------------
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.
---------------------
The date of this Prospectus is , 1998.
<PAGE> 3
The New Notes represent general unsecured obligations of the Company
ranking pari passu in right of payment to any existing and future unsecured
unsubordinated indebtedness of the Company and senior in right of payment to all
subordinated indebtedness of the Company. The New Notes will be effectively
subordinated, however, to all secured indebtedness of the Company and to all
existing and future liabilities of the Company's subsidiaries. As of March 31,
1998, on a pro forma basis after giving effect to the Offering (as defined) and
the application of the proceeds thereof, the Company would have had
approximately $490.1 million of indebtedness outstanding (including
approximately $161.9 million of secured indebtedness) and the Company's
subsidiaries would have had approximately $382.9 million of liabilities
outstanding.
Upon a Change of Control (as defined), each holder of the Notes will have
the right to require the Company to repurchase such holder's Notes at a price
equal to 101% of the principal amount thereof plus accrued and unpaid interest
to the date of repurchase. In addition, the Company will be obligated to offer
to repurchase Notes with the net cash proceeds of certain asset sales at a
purchase price equal to 100% of the principal amount thereof, plus accrued
interest to the date of repurchase.
The holder of each Old Note accepted for exchange will receive a New Note
having a principal amount equal to that of the surrendered Old Note. Old Notes
accepted for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offer. Holders of Old Notes accepted for exchange
will not receive any payment in respect of accrued interest on such Old Notes.
Old Notes not tendered or not accepted for exchange will continue to accrue
interest from and after the date of consummation of the Exchange Offer.
The Old Notes were issued and sold on April 9, 1998 (the "Offering") in a
transaction exempt from the registration requirements of the Securities Act and
may not be offered or sold in the United States unless so registered or pursuant
to an applicable exemption under the Securities Act. The New Notes are being
offered hereunder in order to satisfy certain obligations of the Company
contained in the Registration Rights Agreement (as defined). Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") as set forth in no-action letters issued to third parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holder's business and such holder has no arrangement or understanding
with any person to participate in a distribution of such New Notes. However, the
Company has not sought a no-action letter with respect to the Exchange Offer and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Each holder of Old Notes,
other than a broker-dealer, must acknowledge that it is not engaged in, and does
not intend to engage or participate in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period ending on the close of business on the 180th day following
the Expiration Date (as defined herein), it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. In the event
the Company terminates the Exchange Offer and does not accept for exchange any
Old Notes, the Company will promptly return the Old Notes to the holders
thereof. See "The Exchange Offer."
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages
ii
<PAGE> 4
("PORTAL") market. The Company has been advised by the Initial Purchaser (as
defined) that it intends to make a market for the New Notes; however, the
Initial Purchaser is not obligated to do so, and the Company does not currently
intend to list the New Notes on any securities exchange. Any market-making may
be discontinued at any time, and there is no assurance that an active public
market for the New Notes will develop or, that if such a market develops, that
it will continue. This Prospectus may be used by the Initial Purchaser in
connection with offers and sales of the New Notes which may be made by it from
time to time in market-making transactions at negotiated prices relating to
prevailing market prices at the time of sale. The Initial Purchaser may act as
principal or agent in such transaction.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE 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.
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM CONSULTANT'S
REPORTS AND INDUSTRY PUBLICATIONS. INDUSTRY PUBLICATIONS AND CONSULTANT'S
REPORTS GENERALLY STATE THAT THE INFORMATION CONTAINED THEREIN HAS BEEN OBTAINED
FROM SOURCES BELIEVED TO BE RELIABLE, BUT THAT THE ACCURACY AND COMPLETENESS OF
SUCH INFORMATION IS NOT GUARANTEED. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED
THIS MARKET DATA.
Old Notes in the aggregate principal amount of $175 million were issued
originally in global form (the "Global Old Note"). The Global Old Note was
deposited with, or on behalf of DTC, as the initial depository with respect to
the Old Notes (in such capacity, the "Depository"). The Global Old Note is
registered in the name of Cede, as nominee of DTC, and the beneficial interests
in the Global Old Note are shown on and transfers thereof are effected only
through, records maintained by the Depository and its participants. The use of
the Global Old Note to represent certain of the Old Notes permits the
Depository's participants, and anyone holding a beneficial interest in an Old
Note registered in the name of such a participant, to transfer interests in the
Old Notes electronically in accordance with the Depository's established
procedures without the need to transfer a physical certificate. Except as
provided below, the New Notes will also be issued initially as a note in global
form (the "Global New Note", and together with the Global Old Note, the "Global
Notes") and deposited with, or on behalf of, the Depository.
iii
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-4 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the New Notes
offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the New Notes offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto. Any statements made in this Prospectus concerning the
provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement otherwise filed with the Commission.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, the exhibits forming a part thereof and
such reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, Seven World Trade
Center, 13th Floor, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60601.
Copies of such material can be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains an Internet Web Site at
http://www.sec.gov that contains reports and other information. The Company's
common stock is traded on the New York Stock Exchange under the symbol "CGO" and
reports, proxy statements and other information concerning the Company can be
inspected at the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K (the "Form 10-K") for the fiscal
year ended December 31, 1997, its Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, each of which has been filed with the Commission, are
hereby incorporated in this Prospectus by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer contemplated hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for all purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, on
the written or oral request, a copy of any and all of the documents incorporated
in this Prospectus by reference, other than exhibits to such documents not
incorporated by reference therein. Requests for such copies should be directed
to Atlas Air, Inc., 538 Commons Drive, Golden, Colorado 80401 Attention: Chief
Financial Officer (telephone (303) 526-5050).
iv
<PAGE> 6
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included or incorporated by reference in this Prospectus
constitute "forward looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, levels of activity, performance or
achievements of the Company, or industry results, to be materially different
from any future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. In addition,
forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe", or "continue" or the negative thereof or
variations thereon or similar terminology. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed under "Risk
Factors" and elsewhere in this Prospectus, including, without limitation, in
conjunction with the forward-looking statements attributable to the Company, or
persons acting on its behalf, are expressly qualified in their entirety by the
Cautionary Statements.
As a result of the foregoing and other factors, no assurance can be given
as to the future results and achievements of the Company. Neither the Company
nor any other person assumes responsibility for the accuracy and completeness of
these statements.
v
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in connection with, the more detailed information and financial
data, including the financial statements and the notes thereto, appearing
elsewhere in this Prospectus. Prospective investors should consider carefully
the matters discussed under the caption "Risk Factors." Unless the context
otherwise requires, references to the "Company" or "Atlas" shall mean Atlas Air,
Inc., a Delaware corporation, and its subsidiaries. In addition, references
herein to "747-400 aircraft" means the Boeing 747-400F freighter aircraft.
THE COMPANY
Atlas is the world's largest air cargo outsourcer, with an all Boeing fleet
of 747 freighter aircraft. The Company provides reliable airport-to-airport
cargo transportation services throughout the world to major international air
carriers generally under three- to five-year fixed-rate U.S. dollar denominated
contracts which typically require that the Company supply aircraft, crew,
maintenance and insurance (the "ACMI Contracts"). The Company's customers
currently include China Airlines Ltd. ("China Airlines"), KLM Royal Dutch
Airlines ("KLM"), Lufthansa Cargo AG ("Lufthansa"), British Airways World Cargo
("British Airways"), Scandinavian Airlines System ("SAS"), The International
Airline of the United Arab Emirates ("Emirates"), Thai Airways International
Public Company Limited ("Thai Airways"), Fast Air Carrier, SA ("Fast Air"),
Lineas Aereas Suramericanas, S.A. ("LAS") and Linee Aeree Italiane S.p.A.
("Alitalia"). The Company is able to provide efficient, cost effective service
to its customers primarily as a result of its productive 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 operations.
The Company's fleet currently consists of 18 Boeing 747-200 freighter
aircraft in service and one 747-200 passenger aircraft undergoing conversion to
freighter configuration. The 747-200 passenger aircraft undergoing conversion to
freighter configuration is expected to be placed in service early in the third
quarter of 1998. On June 9, 1997, the Company entered into an agreement with the
Boeing Company ("Boeing") to purchase 10 new 747-400 freighter aircraft to be
powered by engines acquired from General Electric Company ("GE"), with options
to purchase up to 10 additional 747-400 aircraft (the "Boeing Purchase
Agreement"). The 747-400 aircraft has significantly longer range, greater
payload capability, lower maintenance costs and increased fuel efficiency
compared to the Boeing 747-200 freighter aircraft. The Company expects to place
the 747-400 aircraft in service with both existing and prospective customers,
who the Company believes should be willing to pay higher ACMI Contract rates to
achieve operating benefits derived from the unique performance capabilities of
the 747-400 aircraft.
The Company attributes its leading market position and continued
opportunities for growth to the following competitive strengths:
- Long-Term Customer Contracts Which Provide Revenue Stability. The
Company's ACMI Contracts with its customers, which accounted for 96% of
the Company's total operating revenues in 1997, generally provide for its
customers to guarantee monthly minimum aircraft utilization levels at
fixed hourly rates and are typically in force for periods of three to
five years, subject in certain limited cases to early 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. The Company's customers are also
responsible under these contracts for utilizing the cargo capacity of
each of the contracted aircraft. The ACMI Contracts, therefore, minimize
for the Company the load factor, yield risk and fuel cost risk
traditionally associated with the air cargo business and provide the
Company with a minimum annual revenue base and more predictable profit
margins. The Company also periodically engages in ad hoc charter or
scheduled air service depending on availability of aircraft for these
uses. In addition, the Company differentiates itself from other air
1
<PAGE> 8
cargo companies by not directly or indirectly competing with its
customers by offering its services to freight forwarders or shippers who
do business with the Company's customers.
- Low Cost Structure. The Company has established itself as a low cost,
efficient and reliable provider of air cargo transportation primarily due
to the outsourcing of many of its own required services, the advantageous
economies of scale realized from the operation of a standardized fleet of
long-haul Boeing 747-200 aircraft, and its productive work force. The
uniformity of the 747-200 aircraft fleet allows for standardization in
maintenance and crew training, resulting in substantial cost savings in
these areas. In particular, Atlas has advantageous, long-term contracts
on a fixed-cost per flight hour basis with leading maintenance providers
such as GE and KLM for a significant portion of its on-going aircraft and
engine maintenance requirements. As a result of these efficiencies, the
Company's 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 such as personnel and systems. The new 747-400
aircraft are expected to have even greater operational capabilities than
the Boeing 747-200 aircraft and will allow the Company to continue to
maintain its low cost structure. The new aircraft's higher level of
operational reliability and warrantied condition will result in lower
maintenance costs during the early years of operation, typically for at
least five years. In addition, the acquisition of the 10 747-400
freighter aircraft will make Atlas the largest operator of this aircraft
type to date and will enable the Company to achieve economies of scale
from the standardization in maintenance and crew training.
- Expanding Business Base. The growth in demand for air cargo services,
combined with the lower rate of growth in passenger-airline cargo
capacity and the continuing pressure on the airline industry to reduce
operating costs, is expected to provide the Company with the opportunity
to expand its air cargo outsourcing services. The primary business focus
of most of the Company's customers is on the transportation of
passengers, not air cargo. Nevertheless, most passenger airlines have air
cargo customers that require quick and dependable air cargo service
between hubs serviced by these carriers. To the extent that airlines have
cargo capacity on their scheduled 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 growing trend in the passenger-airline business
toward replacing existing widebody passenger aircraft and combination
passenger/cargo aircraft with smaller, more efficient (for passenger
operations) twin-engine aircraft which have limited cargo space. The
Company's customers have therefore found that outsourcing to meet their
additional cargo transportation needs rather than allocating significant
resources and expanding their fleet of freighter aircraft to effectively
service their air cargo customers provides a cost-effective alternative
for them to maintain and expand that portion of their business.
- Increasing Cargo Market Share. The Company has successfully increased its
customer base from a single customer in 1992 to ten customers in 1998. In
addition, the Company has operated under short-term, seasonal ACMI
Contracts with Federal Express Corporation ("FedEx"), Kitty Hawk Air
Cargo, Inc. ("Kitty Hawk") and United Parcel Service ("UPS") and
anticipates providing other short-term, seasonal service. This increased
market share is a result of the Company's ability to provide a cost-
effective service which has gained acceptance within the industry due to
the Company's successful market development efforts. The addition of the
747-400 aircraft will provide the Company with the opportunity to
increase its market share to new and existing customers who have a need
for the greater payload, extended range and operational reliability of
the 747-400, but for whom the purchase of a limited number of 747-400
freighter aircraft would not be cost-effective. In addition, the 747-400
aircraft will give the Company a competitive advantage with new customers
who choose to utilize only new or relatively new aircraft or are
restricted by local regulations limiting the operation of older aircraft.
- Dramatic Industry Growth. While the air cargo industry is highly
competitive, the Company believes that current industry trends are
favorable to the continued growth of its business. According to reports
2
<PAGE> 9
prepared by Boeing, the world air cargo market is expected to more than
triple over the next 20 years. Such reports indicate that the world air
cargo market has grown at an average rate of 7.2% per year from 1986 to
1997. The average annual percentage growth through 2017 is expected to
average 6.5%, with international air cargo market growth outpacing U.S.
domestic growth. 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 Boeing reports, eastbound and westbound Trans-Pacific cargo
volumes grew at an average annual rate of 6.9% and 14.3%, respectively,
between 1986 and 1996, and are projected to grow at an average annual
rate of 8.0% and 8.1%, respectively, between 1996 and 2016. Similarly,
northbound and southbound air cargo volumes between North America and
South America increased at an average annual rate of 9.4% and 8.8%,
respectively, between 1986 and 1996, and are projected to grow at an
average annual rate of 6.5% and 6.7%, respectively, from 1996 to 2016.
Additionally, eastbound and westbound North Atlantic air cargo volumes
increased at an average annual rate of 8.4% and 5.9%, respectively,
between 1986 and 1996 and are projected to grow at average annual rates
of 6.7% and 7.2%, respectively, from 1996 to 2016. The Company believes
that, as a U.S. certificated "flag" carrier, it is well positioned to
benefit from the progressive expansion of international trade and the
consequential growth in global air cargo markets, particularly in Asia,
South America and Europe, where the Company has concentrated a
significant portion of its resources. The Company has not experienced any
adverse impact on its business as a result of the recent turmoil in the
Asian financial markets, although there can be no assurances that there
will not be any future impact.
THE EXCHANGE OFFER
Purpose and Effect......... The Old Notes were sold by the Company on April 9,
1998 to BT Alex. Brown Incorporated and Morgan
Stanley & Co. Incorporated (together, the "Initial
Purchaser"), who privately placed the Old Notes
with certain institutional investors. In connection
therewith, the Company executed and delivered for
the benefit of the holders of the Old Notes a
registration rights agreement (the "Registration
Rights Agreement") providing for, among other
things, the Exchange Offer. See "The Exchange
Offer -- Terms of the Exchange Offer."
Terms of the Exchange
Offer...................... New Notes are being offered in exchange for a like
principal amount of Old Notes. Old Notes may be
exchanged only in integral multiples of $1,000. The
Company will issue the New Notes to holders
promptly following acceptance of the Old Notes by
the Company after the Expiration Date. See "Risk
Factors -- Consequences of Failure to Exchange."
Holders of the Old Notes do not have appraisal or
dissenters' rights in connection with the Exchange
Offer under the Delaware General Corporation Law,
the governing law of the state of incorporation of
the Company. See "The Exchange Offer -- Terms of
the Exchange Offer."
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered or accepted for exchange. See "The
Exchange Offer -- Certain Conditions to the
Exchange Offer."
3
<PAGE> 10
Expiration Date............ 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Terms of the
Exchange Offer."
Conditions................. The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company reserves the right to terminate or amend
the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such
condition. The Exchange Offer is also subject to
the terms and provisions of the Registration Rights
Agreement. NO VOTE OF THE COMPANY'S SECURITYHOLDERS
IS REQUIRED TO EFFECT THE EXCHANGE OFFER AND NO
SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT
HEREBY. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
Procedures for tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes, or a Book-Entry Confirmation
(as defined), as the case may be, and any other
required documentation to the exchange agent (the
"Exchange Agent") at the address set forth herein.
The method of delivery of such documentation is at
the election and risk of the holder. By executing
the Letter of Transmittal, each holder will
represent to the Company, among other things, that
(i) the New Notes acquired pursuant to the Exchange
Offer by the holder and any beneficial owners of
Old Notes are being obtained in the ordinary course
of business of the person receiving such New Notes,
(ii) neither the holder nor such beneficial owner
is participating in, intends to participate in or
has an arrangement or understanding with any person
to participate in, the distribution of such New
Notes and (iii) neither the holder nor such
beneficial owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker
or dealer as a result of market-making activities
or other trading activities (other than Old Notes
acquired directly from the Company), must
acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer -- Procedures for Tendering Old Notes" and
"Plan of Distribution."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender, should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering his or her Old Notes, either make
appropriate arrangements to register ownership of
the Old Notes in such owner's name or obtain a
properly completed bond power from the registered
4
<PAGE> 11
holder. The transfer of registered ownership may
take considerable time. See "The Exchange
Offer -- Procedures for Tendering Old Notes."
Book-Entry Transfer........ Any financial institution that is a participant in
the Book-Entry Transfer Facility's (as defined)
system may make book-entry delivery of Old Notes by
causing the Book-Entry Transfer Facility to
transfer such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's
procedures for transfer. See "The Exchange
Offer -- Book-Entry Transfer."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m. New York City time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of New Notes.... Upon satisfaction or waiver of all conditions of
the Exchange Offer, the Company will accept for
exchange any and all Old Notes which are properly
tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will be
delivered promptly following acceptance of the Old
Notes by the Company after the Expiration Date. See
"The Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of New Notes."
Federal Income Tax
Consequences............. The exchange of Old Notes for New Notes by
tendering holders will not be a taxable exchange
for federal income tax purposes as a result of such
exchange. See "Certain Federal Income Tax
Consequences."
Regulatory Approvals....... The Company does not believe that the receipt of
any material federal or state regulatory approvals
will be necessary in connection with the Exchange
Offer. See "The Exchange Offer -- Regulatory
Approvals."
Use of Proceeds............ The Company will not receive any proceeds from the
exchange pursuant to the Exchange Offer. See "Use
of Proceeds."
Exchange Agent............. State Street Bank & Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange Agent."
Resales of the New Notes... The New Notes are being offered hereunder in order
to satisfy certain obligations of the Company
contained in the Registration Rights Agreement.
Based on positions of the Commission and no action
or interpretive letters issued to third parties,
the Company believes that the New Notes issued
pursuant to the Exchange Offer to a holder in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary
course of such holder's business and such holder is
not participating, does not intend to participate
and has no arrangement or understanding with any
person to participate in the distribution of such
New Notes. If any holder acquires New Notes in the
Exchange Offer for the purpose of distributing or
participating in a distribution of New Notes, such
holder cannot rely on the position of the staff of
the Commission set forth in its non-action and
interpretive letters and must
5
<PAGE> 12
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction,
unless an exemption from registration is otherwise
available. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange
Offer must acknowledge that (i) Old Notes tendered
by it in the Exchange Offer were acquired in the
ordinary course of its business as a result of
market-making or other trading activities and (ii)
it will deliver a prospectus in connection with any
resale of New Notes received in the Exchange Offer.
This Prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with any resale of the
New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading
activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for
a period of 180 days following the consummation of
the Exchange Offer, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "The Exchange
Offer -- Resales of the New Notes" and "Plan of
Distribution."
SUMMARY DESCRIPTION OF NEW NOTES
Securities Offered......... $175,000,000 aggregate principal amount of 9 1/4%
Senior Notes due 2008.
Issuer..................... Atlas Air, Inc.
Maturity Date.............. April 15, 2008.
Interest Payment Dates..... Interest on the New Notes will accrue from the last
interest payment date on which interest was paid on
the Old Notes surrendered in exchange therefor or,
if no interest has been paid on the Old Notes, from
the date of original issuance of the Old Notes and
will be payable semi-annually on each April 15 and
October 15 of each year, commencing October 15,
1998.
Ranking.................... The New Notes will represent general unsecured
obligations of the Company ranking senior to all
subordinated indebtedness of the Company and pari
passu in right of payment to all existing and
future unsecured unsubordinated indebtedness of the
Company and senior in right of payment to all
subordinated indebtedness of the Company. The New
Notes will be effectively subordinated, however, to
all secured indebtedness of the Company and all
existing and future liabilities of the Company's
subsidiaries. As of March 31, 1998, on a pro forma
basis after giving effect to the Offering and the
application of the proceeds thereof, the Company
would have had approximately $490.1 million of
indebtedness outstanding (including approximately
$161.9 million of secured indebtedness) and the
Company's subsidiaries would have had approximately
$382.9 million of liabilities outstanding.
Optional Redemption........ The New Notes will be redeemable, in whole or in
part, at the option of the Company on or after
April 15, 2003, at the redemption prices set forth
herein, plus accrued interest to the date of
redemption. In addition, at any time on or prior to
April 15, 2001, the Company, at its option, may
redeem up to 35% of the aggregate principal amount
of the Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings, at
a redemption price equal to 109.25% of the
principal amount thereof plus accrued interest to
the date of redemption; provided
6
<PAGE> 13
at least $113.75 million of the aggregate principal
amount of the Notes originally issued remains
outstanding immediately after any such redemption.
Change of Control.......... Upon a Change of Control (as defined), each holder
of the New Notes will have the right to require the
Company to repurchase such holder's New Notes at a
price equal to 101% of the principal amount thereof
plus accrued and unpaid interest to the date of
repurchase. There can be no assurance that, in the
event of a Change of Control, the Company will
have, or be able to obtain, sufficient funds to
repurchase the New Notes.
Certain Covenants.......... The Indenture governing the New Notes (the
"Indenture") contains certain limitations on the
ability of the Company and its subsidiaries to,
among other things, incur additional indebtedness,
pay dividends or make certain other restricted
payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur
liens, create restrictions on the ability of a
subsidiary to pay dividends or make certain
payments, sell or issue preferred stock of
subsidiaries to third parties, merge or consolidate
with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all of the assets of the Company.
For additional information regarding the New Notes, see "Description of the
Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by holders prior to tendering their Old Notes in the Exchange Offer.
7
<PAGE> 14
SUMMARY FINANCIAL AND OPERATING DATA
The summary financial data presented below have been derived from the
consolidated financial statements of the Company. The data for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 were derived from the Company's
audited consolidated financial statements and related notes, and other financial
information incorporated herein. The data for the three months ended March 31,
1998 and 1997 were derived from the Company's unaudited consolidated financial
statements, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information set forth herein. The results of operations for
the interim periods presented are not indicative of the results that may be
expected for the full year. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto, which are incorporated herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues.......... $ 41,263 $102,979 $171,267 $315,659 $401,041 $ 82,049 $ 79,634
Operating expenses:
Flight crew salaries and
benefits...................... 4,243 8,887 14,584 25,020 30,153 6,817 6,757
Other flight-related expenses... 7,844 9,270 12,361 27,404 28,784 6,366 6,519
Maintenance..................... 8,052 24,517 42,574 84,305 123,820 23,328 20,521
Aircraft and engine rentals..... 1,758 14,044 22,902 27,341 31,644 7,776 1,241
Fuel and ground handling........ 4,575 9,747 5,027 10,554 10,816 3,166 2,002
Depreciation and amortization... 5,647 7,451 14,793 25,515 42,945 9,477 12,230
Other........................... 8,698 15,169 16,352 27,457 49,777 7,977 8,821
Write-off of capital investment
and other..................... -- -- -- -- 27,100 -- --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.......... 40,817 89,085 128,593 227,596 345,039 64,907 58,091
-------- -------- -------- -------- -------- -------- --------
Operating income.................. 446 13,894 42,674 88,063 56,002 17,142 21,543
Other income (expense):
Interest income................. 244 490 2,025 7,102 7,365 1,909 1,661
Interest expense................ (10,101) (10,784) (18,460) (35,577) (52,834) (11,157) (14,775)
-------- -------- -------- -------- -------- -------- --------
Total other income (expense)...... (9,857) (10,294) (16,435) (28,475) (45,469) (9,248) (13,114)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes........................... (9,411) 3,600 26,239 59,588 10,533 7,894 8,429
Income tax benefit (expense)...... 1,388 (14) (8,408) (21,750) (3,844) (2,881) (3,119)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................ (8,023) 3,586 17,831 37,838 6,689 5,013 5,310
Extraordinary item: Gain from
extinguishment of debt, net of
applicable taxes of $9,622(1)... -- -- -- -- 16,740 -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................. $ (8,023) $ 3,586 $ 17,831 $ 37,838 $ 23,429 $ 5,013 $ 5,310
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(2)......................... $ 6,093 $ 21,345 $ 57,467 $113,578 $127,608 $ 26,886 $ 33,921
Ratio of EBITDA to interest
expense(2)...................... 0.60x 1.98x 3.11x 3.19x 2.42x 2.41x 2.30x
Ratio of earnings to fixed
charges(3)...................... --(4) 1.21x 1.86x 2.11x 1.30x 1.53x 1.00x
OPERATING DATA:
Total block hours flown(5)........ 7,907 19,049 33,265 59,445 75,254 15,443 15,388
Revenue per block hour............ $ 5,219 $ 5,406 $ 5,149 $ 5,310 $ 5,329 $ 5,313 $ 5,175
EBITDA per block hour(2).......... $ 771 $ 1,121 $ 1,728 $ 1,911 $ 1,696 $ 1,740 $ 2,204
Average aircraft operated(6)...... 2.1 5.2 7.7 14.7 19.5 17.2 17.0
Total aircraft (at end of
period)......................... 3 6 10 17 17 18 17
</TABLE>
8
<PAGE> 15
<TABLE>
<CAPTION>
MARCH 31,
1998
--------------
<S> <C>
(IN THOUSANDS)
<CAPTION>
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 90,339
Net property and equipment.................................. 1,176,812
Total assets................................................ 1,359,702
Total debt(7)............................................... 775,216
Deferred aircraft obligations............................... 225,936
Stockholders' equity........................................ 245,215
</TABLE>
- ---------------
(1) In May 1997, the Company recognized an extraordinary gain, net of applicable
taxes of $9,622, as a result of the extinguishment of a portion of the
Company's debt.
(2) EBITDA represents income (loss) before income taxes, depreciation and
amortization, and total other income (expense), as adjusted to exclude the
"Write-off of capital investment and other" in the second quarter of 1997.
EBITDA is not a recognized measure of performance under GAAP and should not
be considered in isolation or as an alternative to, or more meaningful than,
operating income or operating cash flows prepared in accordance with GAAP as
an indicator of the Company's operating performance or liquidity. The
Company believes that EBITDA may provide additional information about the
Company's ability to meet its future requirements for debt service, capital
expenditures and working capital. When evaluating EBITDA, investors should
consider, among other factors, (i) increasing or decreasing trends in
EBITDA, (ii) whether EBITDA has remained at positive levels historically and
(iii) how EBITDA compares to levels of interest expense. Other companies may
define EBITDA differently, and as a result, such measures may not be
comparable to the Company's EBITDA.
(3) In calculating the ratio of earnings to fixed charges, earnings consists of
income (loss) prior to income tax benefit (expense), as adjusted to exclude
the "Write-off of capital investment and other" in the second quarter of
1997, and fixed charges (excluding capitalized interest for the period).
Fixed charges consist of interest expense (including amounts capitalized),
amortization of debt issuance costs and one-third of rental payments on
operating leases (such one-third portion having been deemed by the Company
to represent the interest portion of such payments).
(4) Earnings were insufficient to cover fixed charges by $9,411 for the year
ended December 31, 1993.
(5) Total block hours flown for an aircraft represents the elapsed time from the
moment the aircraft first moves at the point of origin to the time it comes
to rest at its destination.
(6) Average aircraft operated represents the total number of aircraft operated
during each day of a given period divided by the number of days in such
period.
(7) The EETCs (as defined) issued in the Company's recent EETC financing are not
direct obligations of, or guaranteed by, the Company and therefore will not
be included in the Company's consolidated financial statements. If, at
delivery of an aircraft to which the EETCs relate, the Company does not
enter into a leveraged lease transaction in connection with any such
aircraft, the Company will take ownership of such aircraft and the
corresponding EETCs will revert to a direct obligation of the Company. See
"Description of Certain Indebtedness -- Enhanced Equipment Trust
Certificates."
9
<PAGE> 16
RISK FACTORS
In addition to the other information in this Prospectus holders of the Old
Notes should carefully consider the following factors prior to exchanging Old
Notes for the New Notes offered hereby.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that the New Notes issued pursuant
to the Exchange Offer to a holder in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by any holder thereof (other than any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate in the distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for a period of 180 days
following the consummation of the Exchange Offer, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
However, the ability of any holder to resell the New Notes is subject to
applicable state securities laws. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if any, for the Old Notes
not so tendered could be adversely affected. See "The Exchange Offer" and "Plan
of Distribution."
FAILURE TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer and avoid the restrictions on transfer
of the Old Notes, holders of Old Notes must transmit a properly completed Letter
of Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at one of the addresses set forth below under
"The Exchange Offer -- Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer of such Old Notes, if such procedure is
available, into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the procedure for book-entry transfer described herein, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described herein and in the
Letter of Transmittal. The method of delivery of the Old Notes and the Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the holder. See "The Exchange Offer."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged. After giving pro forma effect to the
Offering and the application of the proceeds thereof, as of March 31, 1998, the
Company's total indebtedness outstanding would have been approximately $490.1
million and the Company's subsidiaries would have had approximately $382.9
million of
10
<PAGE> 17
liabilities outstanding. The Company's high degree of leverage could have
important consequences to holders of the Notes, including the following: (i) the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be diminished in
the future; (ii) a substantial portion of the Company's cash flow from
operations will be required for the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for its
operations and other purposes; (iii) the Company may be substantially more
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage; (iv) the Company's substantial degree of leverage may
hinder its ability to adjust rapidly to changing market conditions and could
make it more vulnerable in the event of a downturn in general economic
conditions or its business; and (v) substantially all of the Company's other
indebtedness will become due prior to the time the principal payment on the
Notes will become due.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance, its indebtedness (including the Notes) and to
make scheduled payments under its lease obligations depends on its future
performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control. There can be no assurance,
however, that the Company's business will continue to generate sufficient cash
flow from operations in the future to service its debt. If unable to do so, the
Company may be required to refinance all or a portion of its existing debt,
including the Notes, to sell assets or to obtain additional financing. There can
be no assurance that any such refinancing or that any such sale of assets or
additional financing would be possible on terms reasonably favorable to the
Company.
AVAILABILITY OF 747-400 AIRCRAFT FINANCING; DELIVERY DELAYS
On June 9, 1997, the Company entered into an agreement with Boeing to
purchase 10 new 747-400 freighter aircraft to be powered by engines acquired
from GE, with options to purchase up to 10 additional 747-400 aircraft. The
aggregate value of the 10 747-400 aircraft, four installed engines per aircraft
and five spare engines, based on list prices, is approximately $1.7 billion. In
February 1998, the Company completed an offering of $538.9 million of enhanced
equipment trust certificates (the "EETCs"), the proceeds of which were deposited
with the Escrow Agent to be used to finance a portion of the acquisition cost of
the first five of the 10 747-400 aircraft scheduled to be delivered during the
period July 1998 through December 1998. While the Company currently anticipates
that it will be able to obtain the necessary financing on a timely basis to pay
the total purchase price for the remaining 747-400 aircraft to be acquired,
there can be no assurance that the Company will be able to obtain sufficient
financing or, if such financing is available, that it will be available on
commercially reasonable terms. A recent decision of the United States District
Court for the District of Colorado (in which state the Company's headquarters
are located) raises questions concerning the ability of lenders and lessors
under certain types of aircraft equipment financing arrangements to exercise
special remedies under bankruptcy law against a bankrupt air carrier, which
decision if not reversed or modified could increase the cost of the Company's
future aircraft financing arrangements. If the Company is unable to obtain
sufficient financing, the Company could be required to modify its expansion
plans, incur higher than anticipated financing costs or incur various penalty
payments under the Boeing Purchase Agreement, which could have a material
adverse effect on the Company. Due to production problems at Boeing, some of the
1998 delivery positions of the 747-400 aircraft may be delayed up to 60 days.
While Boeing has agreed to compensate the Company for delays in delivery of the
747-400 aircraft pursuant to the Boeing Purchase Agreement, any further delays
could adversely impact the Company's ability to initiate service with
prospective customers in a timely fashion.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS; EFFECTIVE
SUBORDINATION OF THE NOTES TO SECURED INDEBTEDNESS
The Indenture restricts, among other things, the Company's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, impose restrictions on the ability of a subsidiary
to pay dividends or make certain payments to the Company, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. In addition,
certain of the Company's other debt instruments contain other more restrictive
financial and operating covenants. See
11
<PAGE> 18
"Description of Certain Indebtedness" and "Description of Notes -- Certain
Covenants." The Company's ability to meet such financial ratios and tests may be
affected by events beyond its control. There can be no assurance that the
Company will meet such tests. A breach of any of these covenants could result in
a default under certain debt instruments and/or the Indenture. Upon the
occurrence of an event of default under the various debt instruments, the
lenders thereunder could elect to declare all amounts outstanding thereunder,
together with accrued interest, to be immediately due and payable. If the
Company was unable to repay those amounts, such lenders could proceed against
the collateral granted to them to secure that indebtedness. If such lenders
accelerate the payment of such indebtedness, there can be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness and
the other indebtedness of the Company, including the Notes.
The Notes are unsecured and thus will be effectively subordinated in right
of payment to any secured indebtedness of the Company to the extent of the value
of any assets securing such indebtedness. Substantially all of the indebtedness
of the Company, other than the Old Notes and the Senior Notes (as defined), are
secured by liens on substantially all of the fixed assets of the Company. As of
March 31, 1998, on a pro forma basis after giving effect to the Offering and the
application of the proceeds thereof, the Company would have had approximately
$161.9 million of secured indebtedness outstanding and the Company's
subsidiaries would have had approximately $382.9 million of liabilities
outstanding, substantially all of which represented secured indebtedness and
accrued interest thereon. In bankruptcy, the holder of a security interest with
respect to any assets of the Company will be entitled to have the proceeds of
such assets applied to the payment of such holder's claim before the remaining
proceeds, if any, are applied to the claims of the holders of the Notes. In
addition to indebtedness of the Company outstanding on the date of original
issuance of the Old Notes, the Indenture permits the Company and its
Subsidiaries (as defined) to incur additional secured indebtedness under certain
circumstances. See "Description of the Notes -- Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness."
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 than the Company. The Company believes that the most
important bases for competition in the air cargo business are the range, payload
and cubic capacities of the aircraft and the price, flexibility, quality and
reliability of the cargo transportation service. The Company provides reliable
airport-to-airport cargo transportation services throughout the world to major
international air carriers generally under three- to five-year fixed-rate U.S.
dollar denominated contracts which typically require that the Company supply
aircraft, crew, maintenance and insurance. The ability of the Company to achieve
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 and the ability of the Company to obtain higher ACMI
Contract rates in connection with the 747-400 aircraft compared to those
currently obtained in connection with existing 747-200 aircraft.
DEPENDENCE ON SIGNIFICANT CUSTOMERS; GEOGRAPHIC CONCENTRATION
In 1997, China Airlines, Fast Air and Lufthansa accounted for approximately
34%, 11% and 8%, respectively, of the Company's total operating revenues. The
Company believes that its relationships with its customers are mutually
satisfactory, as evidenced by the fact that in the last three years it has
renewed twelve ACMI Contracts with customers including China Airlines and KLM,
and entered into nine new ACMI Contracts with its existing customers. However,
there can be no assurance that any of these agreements will be renewed upon
their expiration. The scheduled termination dates for the current ACMI Contracts
range from 1998 to 2002. 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
12
<PAGE> 19
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. The Company has not experienced any
adverse impact on its business resulting from the current turmoil in the Asian
financial markets; however, there can be no assurance that continuation of the
turmoil in the Asian financial markets could not have an adverse impact on air
cargo market growth generally, which could adversely affect the Company's
ability to obtain new ACMI Contracts or to renew existing ACMI Contracts.
OPERATIONS DEPENDENT UPON LIMITED FLEET
The Boeing 747-200 aircraft in the existing fleet are typically dedicated
by the Company to the service of one or more ACMI Contracts. Although the
Company typically utilizes spare aircraft, 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. While the Company carries aircraft hull
physical damage and third party liability 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
The Company has not yet obtained a long-term ACMI Contract to be serviced
by the one Boeing 747-200 aircraft owned but not yet fully modified from
passenger to freighter configuration or for the 747-400 aircraft scheduled to be
delivered commencing in July 1998. See "-- Availability of 747-400 Aircraft
Financing; Delivery Delays." Although the Company intends to have a new
long-term ACMI Contract in place for the aircraft not yet converted from
passenger to freighter configuration by the time it is placed in service, to the
extent arrangements for such a contract 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 as well as the aircraft
currently in service in the Company's fleet, could have a material adverse
effect on the Company. See "Business -- Aircraft."
AGING AIRCRAFT
The Company's fleet currently consists of 18 Boeing 747-200 aircraft and
one passenger aircraft currently undergoing conversion to freighter
configuration, all of which were manufactured between 1974 and 1986.
Manufacturer Service Bulletins ("Service Bulletins") and the Federal Aviation
Administration's ("FAA") Airworthiness Directives ("Directives") issued under
its "Aging Aircraft" program cause Boeing 747-200 aircraft operators to be
subject to extensive aircraft examinations and require Boeing 747-200 aircraft
to undergo structural inspections and modifications to address problems of
corrosion and structural fatigue at specified times. For instance, in November
1994, Boeing issued Nacelle Strut Modification Service Bulletins which have been
converted into Directives by the FAA. Eleven of the Company's Boeing 747-200
aircraft will have to be brought into compliance with such Directives within the
next three years at an estimated aggregate cost of approximately $5.5 million.
Other Directives have been issued that require inspections and minor
modifications to Boeing 747-200 aircraft. 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,
13
<PAGE> 20
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,
the most recent solicitation having resulted in the Atlas pilots rejecting
representation by the Air Line Pilots Association ("ALPA") on January 27, 1998.
There can be no assurance that the Company's employees will not become subject
to a collective bargaining agreement and the extent to which, if any, such
collective bargaining agreement may adversely impact the Company's operations or
cost structure.
REGULATORY MATTERS
Under the Federal Aviation Act of 1958, as amended and recodified (the
"Aviation Act"), the Department of Transportation ("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 and inspection by FAA officials and to the imposition of new
regulatory requirements that can negatively affect their operations. DOT and FAA
approval is required for each of the Company's long-term ACMI Contracts. In
addition, FAA approval is required for each of the Company's short-term seasonal
ACMI 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." In addition, DOT regulates the transportation of hazardous
materials by air cargo carriers. Although customers are required to label
shipments that contain hazardous materials, customers may not inform the Company
when their cargo includes hazardous materials. Although the Company has never
had such an incident, the transportation of unmanifested hazardous materials
could result in fines, penalties, banning hazardous materials from Company
aircraft for a period of time, possible damage to the Company's aircraft or
other liability.
CONTROL BY PRINCIPAL STOCKHOLDER
Michael A. Chowdry, the founder, Chief Executive Officer, President and
Chairman of the Board of Directors of the Company, beneficially owns
approximately 59.1% 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.
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
many 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. The
Company has employment agreements with such officers, which are generally
terminable at any time by either party.
SEASONALITY OF CUSTOMERS' 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 year, when the demand for air cargo capacity
has been historically low or following the seasonal holiday peak
14
<PAGE> 21
in the latter part of the fourth quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CHANGE OF CONTROL
Upon a Change of Control, the Company is required to offer to repurchase
all outstanding Notes at 101% of the principal amount thereof plus accrued
interest to the date of repurchase. The source of funds for any such repurchase
would be the Company's available cash or cash generated from other sources.
However, there can be no assurance that sufficient funds would be available at
the time of any Change of Control to make any required repurchases of Notes
tendered or, if applicable, that restrictions in certain of the Company's debt
instruments would permit the Company to make such required repurchases. See
"Description of Certain Indebtedness," and "Description of Notes -- Change of
Control."
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The New Notes are a new issue of securities, have no
established trading market, and may not be widely distributed. The Company does
not intend to list the New Notes on any national securities exchange or to seek
the admission thereof to trading on any automated quotation system. No assurance
can be given that an active public or other market will develop for the New
Notes or as to the liquidity of or the trading market for the New Notes. If a
trading market does not develop or is not maintained, holders of the New Notes
may experience difficulty in reselling the New Notes or may be unable to sell
them at all. If a market for the New Notes develops, any such market may be
discontinued at any time. If a public trading market develops for the New Notes,
future trading prices of the New Notes will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities, and the price at which the
holders of New Notes will be able to sell such New Notes is not assured and the
New Notes could trade at a premium or discount to their purchase price or face
value. Depending on prevailing interest rates, the market for similar securities
and other factors, including the financial condition of the Company, the New
Notes may trade at a discount from their principal amount.
15
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998 (i) on an actual basis, and (ii) as adjusted for the Offering of the
Old Notes and the application of the proceeds therefrom. The information below
is unaudited and should be read in conjunction with the consolidated financial
statements, including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 90,339 $ 177,381
======== ==========
Current portion of long-term debt........................... $ 49,025 $ 49,025
======== ==========
Long-term debt, net of current portion:
Aircraft Credit Facility............................... $ 88,309 $ 8,309(1)
AFL Term Loan Facility................................. 163,000 163,000
AFL II Term Loan Facility.............................. 163,000 163,000
Equipment Notes(2)..................................... 100,000 100,000
Other secured aircraft indebtedness.................... 60,116 60,116
Senior Notes due 2005.................................. 150,000 150,000
Old Notes.............................................. -- 175,000
Other debt............................................. 1,766 1,766
-------- ----------
Total long-term debt, net of current
portion(3)(4)................................... 726,191 821,191
-------- ----------
Stockholders' equity:
Preferred stock, $1 par value; 10,000,000 shares
authorized; no shares issued.......................... -- --
Common stock, $0.01 par value; 50,000,000 shares
authorized; 22,511,659 shares issued.................. 225 225
Additional paid-in capital............................. 177,288 177,288
Retained earnings...................................... 68,098 68,098
Treasury stock, at cost; 15,906 shares................. (396) (396)
-------- ----------
Total stockholders' equity........................ 245,215 245,215
-------- ----------
Total capitalization......................... $971,406 $1,066,406
======== ==========
</TABLE>
- ---------------
(1) The Aircraft Credit Facility has a committed amount of $250.0 million of
which $241.7 million is available as adjusted for the Offering and the
application of the proceeds therefrom. See "Description of Certain
Indebtedness -- Aircraft Credit Facility."
(2) For a description of the terms of the Equipment Notes underlying the 12 1/4%
Pass Through Certificates due 2002, see "Description of Certain
Indebtedness -- Equipment Notes."
(3) Total debt does not reflect deferred aircraft obligations of $225.9 million
which represent the deferred Pre-Delivery Deposits (as defined).
(4) The EETCs issued in the Company's recent EETC financing are not direct
obligations of, or guaranteed by, the Company and therefore will not be
included in the Company's consolidated financial statements. If, at delivery
of an aircraft to which the EETCs relate, the Company does not enter into a
leveraged lease transaction in connection with any such aircraft, the
Company will take ownership of such aircraft and the corresponding EETCs
will revert to a direct obligation of the Company. See "Description of
Certain Indebtedness -- Enhanced Equipment Trust Certificates."
16
<PAGE> 23
SELECTED FINANCIAL AND OPERATING DATA
The selected financial data presented below have been derived from the
consolidated financial statements of the Company. The data for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993 were derived from the Company's
audited consolidated financial statements and related notes, and other financial
information incorporated herein. The data for the three months ended March 31,
1998 and 1997 were derived from the Company's unaudited consolidated financial
statements, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information set forth herein. The results of operations for
the interim periods presented are not indicative of the results that may be
expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues..... $ 41,263 $102,979 $171,267 $315,659 $401,041 $ 82,049 $ 79,634
Operating expenses:
Flight crew salaries and
benefits................. 4,243 8,887 14,584 25,020 30,153 6,817 6,757
Other flight-related
expenses................. 7,844 9,270 12,361 27,404 28,784 6,366 6,519
Maintenance................ 8,052 24,517 42,574 84,305 123,820 23,328 20,521
Aircraft and engine
rentals.................. 1,758 14,044 22,902 27,341 31,644 7,776 1,241
Fuel and ground handling... 4,575 9,747 5,027 10,554 10,816 3,166 2,002
Depreciation and
amortization............. 5,647 7,451 14,793 25,515 42,945 9,477 12,230
Other...................... 8,698 15,169 16,352 27,457 49,777 7,977 8,821
Write-off of capital
investment and other..... -- -- -- -- 27,100 -- --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses..... 40,817 89,085 128,593 227,596 345,039 64,907 58,091
-------- -------- -------- -------- -------- -------- --------
Operating income............. 446 13,894 42,674 88,063 56,002 17,142 21,543
Other income (expense):
Interest income............ 244 490 2,025 7,102 7,365 1,909 1,661
Interest expense........... (10,101) (10,784) (18,460) (35,577) (52,834) (11,157) (14,775)
-------- -------- -------- -------- -------- -------- --------
Total other income
(expense).................. (9,857) (10,294) (16,435) (28,475) (45,469) (9,248) (13,114)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes...................... (9,411) 3,600 26,239 59,588 10,533 7,894 8,429
Income tax benefit
(expense).................. 1,388 (14) (8,408) (21,750) (3,844) (2,881) (3,119)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item......... (8,023) 3,586 17,831 37,838 6,689 5,013 5,310
Extraordinary item: Gain from
extinguishment of debt, net
of applicable taxes of
$9,622(1).................. -- -- -- -- 16,740 -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............ $ (8,023) $ 3,586 $ 17,831 $ 37,838 $ 23,429 $ 5,013 $ 5,310
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(2).................... $ 6,093 $ 21,345 $ 57,467 $113,578 $127,608 $ 26,866 $ 33,921
Ratio of EBITDA to interest
expense(2)................. 0.60x 1.98x 3.11x 3.19x 2.42x 2.41x 2.30x
Ratio of earnings to fixed
charges(3)................. --(4) 1.21x 1.86x 2.11x 1.30x 1.53x 1.00x
OPERATING DATA:
Total block hours flown(5)... 7,907 19,049 33,265 59,445 75,254 15,443 15,388
Revenue per block hour....... $ 5,219 $ 5,406 $ 5,149 $ 5,310 $ 5,329 $ 5,313 $ 5,175
EBITDA per block hour(2)..... $ 771 $ 1,121 $ 1,728 $ 1,911 $ 1,696 $ 1,740 $ 2,204
Average aircraft
operated(6)................ 2.1 5.2 7.7 14.7 19.5 17.2 17.0
Total aircraft (at end of
period).................... 3 6 10 17 17 18 17
</TABLE>
17
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ MARCH 31,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- ---------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................ $ 6,198 $ 10,524 $ 96,990 $124,663 $ 152,969 $ 90,339
Net property and equipment........... 114,255 131,237 319,751 584,270 1,063,210 1,176,812
Total assets......................... 125,005 162,731 447,323 773,707 1,297,415 1,359,702
Total debt(7)........................ 130,690 163,615 351,261 484,429 776,075 775,216
Deferred aircraft obligations........ -- -- -- -- 163,167 225,936
Stockholders' equity (deficit)....... (19,339) (15,753) 68,715 215,785 238,829 245,215
</TABLE>
- ---------------
(1) In May 1997, the Company recognized an extraordinary gain, net of applicable
taxes of $9,622, as a result of the extinguishment of a portion of the
Company's debt.
(2) EBITDA represents income (loss) before income taxes, depreciation and
amortization, and total other income (expense), as adjusted to exclude the
"Write-off of capital investment and other" in the second quarter of 1997.
EBITDA is not a recognized measure of performance under GAAP and should not
be considered in isolation or as an alternative to, or more meaningful than,
operating income or operating cash flows prepared in accordance with GAAP as
an indicator of the Company's operating performance or liquidity. The
Company believes that EBITDA may provide additional information about the
Company's ability to meet its future requirements for debt service, capital
expenditures and working capital. When evaluating EBITDA, investors should
consider, among other factors, (i) increasing or decreasing trends in
EBITDA, (ii) whether EBITDA has remained at positive levels historically and
(iii) how EBITDA compares to levels of interest expense. Other companies may
define EBITDA differently, and as a result, such measures may not be
comparable to the Company's EBITDA.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) prior to income tax benefit (expense), as adjusted to exclude
the "Write-off of capital investment and other" in the second quarter of
1997, and fixed charges (excluding capitalized interest for the period).
Fixed charges consist of interest expense (including amounts capitalized),
amortization of debt issuance costs and one-third of rental payments on
operating leases (such one-third portion having been deemed by the Company
to represent the interest portion of such payments).
(4) Earnings were insufficient to cover fixed charges by $9,411 for the year
ended December 31, 1993.
(5) Total block hours flown for an aircraft represents the elapsed time from the
moment the aircraft first moves at the point of origin to the time it comes
to rest at its destination.
(6) Average aircraft operated represents the total number of aircraft operated
during each day of a given period divided by the number of days in such
period.
(7) The EETCs issued in the Company's recent EETC financing are not direct
obligations of, or guaranteed by, the Company and therefore will not be
included in the Company's consolidated financial statements. If, at delivery
of an aircraft to which the EETCs relate, the Company does not enter into a
leveraged lease transaction in connection with any such aircraft, the
Company will take ownership of such aircraft and the corresponding EETCs
will revert to a direct obligation of the Company. See "Description of
Certain Indebtedness -- Enhanced Equipment Trust Certificates."
18
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The cargo operations of the Company's airline customers are seasonal in
nature, with peak activity occurring 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%
per year) of guaranteed hours 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 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.
The aircraft acquisitions, lease arrangements and modification schedule are
described in Note 6 of the Company's December 31, 1997 Consolidated Financial
Statements. The timing of when an aircraft enters the Company's fleet can affect
not only annual performance, but can make quarterly results vary, thereby
affecting the comparability of operations from period to period.
The tables below set forth selected financial and operating data for the
first quarter of 1998 and the four quarters of the years ended December 31,
1997, 1996 and 1995 (dollars in thousands).
<TABLE>
<CAPTION>
1998
--------
1ST
QUARTER
--------
<S> <C>
Total operating revenues.................................... $ 79,634
Operating expenses.......................................... 58,091
Operating income............................................ 21,543
Other income (expense)...................................... (13,114)
Net income.................................................. 5,310
Block hours................................................. 15,388
Average aircraft operated................................... 17.0
Operating margin............................................ 27.1%
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
4TH 3RD 2ND 1ST
CUMULATIVE QUARTER QUARTER QUARTER QUARTER
---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Total operating revenues.............. $401,041 $120,893 $104,197 $ 93,902 $82,049
Operating expenses.................... 345,039 93,112 82,464 104,556 64,907
Operating income (loss)............... 56,002 27,781 21,733 (10,654) 17,142
Other income (expense)................ (45,469) (13,383) (11,930) (10,908) (9,248)
Net income............................ 23,429 9,143 6,225 3,048 5,013
Block hours........................... 75,254 22,333 19,937 17,541 15,443
Average aircraft operated............. 19.5 20.9 20.4 19.5 17.2
Operating margin (deficit)............ 14.0% 23.0% 20.9% (11.4)% 20.9%
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------
4TH 3RD 2ND 1ST
CUMULATIVE QUARTER QUARTER QUARTER QUARTER
---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Total operating revenues.............. $315,659 $104,715 $ 79,681 $ 72,614 $58,649
Operating expenses.................... 227,596 74,775 59,635 49,947 43,239
Operating income...................... 88,063 29,940 20,046 22,667 15,410
Other income (expense)................ (28,475) (8,569) (7,207) (6,982) (5,717)
Net income............................ 37,838 13,397 8,201 10,037 6,203
Block hours........................... 59,445 18,803 15,444 14,073 11,125
Average aircraft operated............. 14.7 18.4 15.4 14.0 10.8
Operating margin...................... 27.9% 28.6% 25.2% 31.2% 26.3%
</TABLE>
19
<PAGE> 26
<TABLE>
<CAPTION>
1995
---------------------------------------------------------
4TH 3RD 2ND 1ST
CUMULATIVE QUARTER QUARTER QUARTER QUARTER
---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Total operating revenues.............. $171,267 $ 56,142 $ 47,769 $ 38,418 $28,938
Operating expenses.................... 128,593 39,982 34,844 28,370 25,397
Operating income...................... 42,674 16,160 12,925 10,048 3,541
Other income (expense)................ (16,435) (4,014) (4,805) (4,287) (3,330)
Net income............................ 17,831 8,352 5,568 3,861 50
Block hours........................... 33,265 10,809 9,076 7,568 5,812
Average aircraft operated............. 7.7 9.4 8.2 6.9 6.1
Operating margin...................... 24.9% 28.8% 27.1% 26.2% 12.2%
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Operating Revenues and Results of Operations. Total operating revenues for
the quarter ended March 31, 1998 decreased to $79.6 million from $82.0 million
for the same period in 1997, or approximately 3%. The average number of aircraft
in the Company's fleet during the first quarter of 1998 was 17.0 compared to
17.2 during the same period in 1997. Total block hours for the first quarter of
1998 were 15,388 compared to 15,443 for the same period in 1997, a decrease of
less than 1%, principally reflecting the comparability in the size of the
Company's fleet period over period. Revenue per block hour decreased by
approximately 3% to $5,175 for the first quarter of 1998 compared to $5,313 for
the first quarter of 1997. This was substantially due to the decrease in the
volume of scheduled service operations period over period, for which the rate
per block hour is higher due to additional operating costs borne by the Company
under such arrangements. Scheduled service operations are performed on an ad hoc
basis and are dependent upon excess availability of the Company's aircraft and
customer demand.
The Company's operating results improved by 26% from a $17.1 million
operating profit for the first quarter of 1997 to an operating profit of $21.5
million for the first quarter of 1998. Results of operations were favorably
impacted by lower maintenance costs due to the return of the five aircraft which
the Company had leased from Federal Express Corporation (the "FedEx Aircraft")
upon lease termination at the beginning of 1998. The FedEx Aircraft experienced
significantly higher maintenance costs compared to the other aircraft in the
Company's fleet. In addition, operating results improved due to the increase in
the percentage of owned aircraft compared to leased aircraft in the Company's
fleet period over period. Net income of $5.0 million for the first quarter of
1997 increased to a net income of $5.3 million for the first quarter of 1998.
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 other expenses.
Flight crew salaries and benefits include all such expenses for the
Company's pilot work force. Flight crew salaries and benefits of $6.8 million in
the first quarter of 1998 was comparable to the same period of 1997, due to the
comparability in the number of aircraft in the Company's fleet and aircraft
block hours. On a block hour basis, this expense declined by less than 1% to
$439 per hour for the first quarter of 1998 from $441 per hour for the same
period in 1997.
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 slightly to $6.5 million in the
first quarter of 1998 from $6.4 million in 1997, or approximately 2%, primarily
due to the comparable fleet size. On a block hour basis, other flight-related
expenses increased by approximately 3% to $424 per hour for the first quarter of
1998 from $412 per hour for the same period in 1997.
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
20
<PAGE> 27
its regular maintenance operations and support on a fixed cost per flight hour
basis. Effective October 1996, certain additional aircraft engines were accepted
into the GE engine maintenance program, also on a fixed cost per flight hour
basis, pursuant to a 10 year maintenance agreement.
Maintenance expense decreased to $20.5 million in the first quarter of 1998
from $23.3 million in the same period of 1997, or approximately 12%, primarily
due to the return of the FedEx Aircraft upon lease termination at the beginning
of the first quarter of 1998. In addition, there were approximately $1.2 million
of maintenance charges recorded in the first quarter of the year-earlier period
associated with the return of two leased aircraft to the lessors. Excluding the
one-time charges in the year-earlier period, on a block hour basis, maintenance
expense decreased by 7% in the first quarter of 1998 compared to the first
quarter of 1997.
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 $1.2 million in the first quarter of 1998
compared to $7.8 million in the same period of 1997, or a decrease of
approximately 84%. During the first quarter of 1998, the Company leased one
aircraft as compared to the first quarter of 1997 in which the Company leased
five aircraft. In addition, the Company did not incur any cost for engine
rentals in the first quarter of 1998 due to the increase in spare engines over
the year-earlier period.
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, 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 by 37% to $2.0 million for the
first quarter of 1998 from $3.2 million for the first quarter of 1997. This was
primarily due to a 38% decrease in scheduled service, charter and other non-ACMI
block hours to 379 block hours in the first quarter of 1998 from 614 block hours
in the year-earlier period.
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 $12.2 million in the
first quarter of 1998 from $9.5 million in the same period of 1997, or
approximately 29%. This increase reflects the increase in owned aircraft and
engines for the first quarter of 1998 over the same period in 1997.
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 $8.8 million in the first quarter of
1998 from $8.0 million in the same period of 1997, or approximately 11%,
reflecting the increase in the Company's operations. On a block hour basis,
these expenses increased to $573 per hour in the first quarter of 1998 from $517
per hour in the same period of 1997, or 11%. This increase in cost was due
primarily to additional personnel and other resources necessary to properly
manage the Company's increased operations and to prepare for the introduction of
the 747-400 aircraft into the Company's fleet in the second half of 1998.
Other Income (Expense). Other income (expense) consists of interest income
and interest expense. Interest income decreased to $1.7 million in the first
quarter of 1998 from $1.9 million in the same period of 1997, primarily due to
the use of the Company's cash and cash equivalents and short-term investments
for the
21
<PAGE> 28
purchase of aircraft and general corporate purposes. Interest expense increased
to $14.8 million in the first quarter of 1998 from $11.2 million in the same
period of 1997, or approximately 32%, resulting from the increase in financed
flight equipment between these periods.
Income Taxes. Pursuant to the provisions of the Financial Accounting
Standards Board's (the "FASB") Statement of Financial Accounting Standards
("SFAS") No. 109 "Accounting for Income Taxes," the Company has recorded a tax
provision based on tax rates in effect during the period. Accordingly, the
Company accrued taxes at the rate of 37.0% during the first quarter of 1998 and
36.5% during the first quarter of 1997. Due to significant capital costs, which
are depreciated at an accelerated rate for tax purposes, a significant portion
of the Company's tax provision in the first quarters of 1998 and 1997 is
deferred.
1997 Compared to 1996
Operating Revenues and Results of Operations. Total operating revenues for
the year ended December 31, 1997 increased to $401.0 million compared to $315.7
million for 1996, an increase of approximately 27%. The average number of
aircraft in the Company's fleet during 1997 was 19.5 compared to 14.7 during
1996. Total block hours for 1997 were 75,254 compared to 59,445 for 1996, an
increase of approximately 27%, principally reflecting the increase in the size
of the Company's fleet. Revenue per block hour increased by approximately .4% to
$5,329 for 1997 compared to $5,310 for 1996. The Company's operating results
decreased from an $88.1 million operating profit in 1996 to a $56.0 million
operating profit in 1997, primarily due to the largely non-cash charge to
earnings of $27.1 million in the second quarter of 1997. The after-tax effect of
this second quarter charge was substantially offset by the after-tax effect of
the extraordinary gain on early extinguishment of debt in the same quarter of
1997. Net income of $37.8 million for 1996 declined to a net income of $23.4
million for 1997, primarily due to the increase in interest expense associated
with the increase in aircraft in service year over year and the higher
maintenance costs with respect to the aircraft sub-leased from FedEx.
Operating levels increased during the second quarter of 1997 as a result of
placing in service two additional aircraft upon completion of their respective
cargo modifications by Boeing, one in March 1997 and one in May 1997. In
addition, the Company placed in service the fifth FedEx aircraft in April 1997.
In August 1997 and at the end of September 1997, the Company took delivery of
the fifth and sixth Thai Aircraft (as defined herein), respectively, upon
completion by Boeing of its modification to cargo configuration. At the end of
1997, the Company removed from revenue service the five aircraft sub-leased from
FedEx in preparation for the return of these aircraft to FedEx in the first
quarter of 1998, as provided for in the sub-leases.
The Company's operating levels increased moderately during 1997 as a result
of these aircraft acquisitions. Block hours increased from 15,443 in the first
quarter of 1997 to 22,333 in the fourth quarter of 1997, reflecting the growth
in the average fleet size from 17.2 aircraft to 20.9 aircraft for the two
periods. Total operating revenue increased from $82.0 million in the first
quarter to $120.9 million in the fourth quarter, representing slightly higher
block hour rates for the fourth quarter compared to those of the first quarter
of 1997, primarily due to the seasonality of the business of the Company's
customers. The Company achieved $27.8 million operating income and $9.1 million
net income in the fourth quarter of 1997, compared to $17.1 million operating
income and $5.0 million net income in the first quarter of 1997.
In the second quarter of 1997, the Company recorded a largely non-cash
charge of $27.1 million to operating income. This charge included the write-off
of the Company's remaining balance sheet investment in the five aircraft
sub-leased from FedEx, as well as the establishment of certain reserves
associated with costs necessary to return the aircraft in the first quarter of
1998 and other non-recurring items. Excluding this charge, operating income was
$83.1 million for 1997 compared to $88.1 million for 1996, or a decrease of
approximately 6%. There were an average of 4.4 aircraft sub-leased from FedEx
operating in 1997 compared to an average of 1.7 aircraft sub-leased from FedEx
operating in 1996. Maintenance costs with respect to the FedEx aircraft were
substantially higher than for the rest of the Company's fleet. In addition, the
Company incurred $1.2 million of costs in the first quarter of 1997 related to
the return of two leased aircraft to their respective lessors. In the second
quarter of 1997, the realization of an after-tax extraordinary gain of
22
<PAGE> 29
$16.7 million, resulting from the receipt of a prepayment incentive credit
associated with the refinancing of approximately $228 million of indebtedness
during the second quarter, for the most part offset the $17.2 million after-tax
impact of the non-recurring charge discussed above.
Operating Expenses. Flight crew salaries and benefits include all such
expenses for the Company's pilot work force. Flight crew salaries and benefits
increased to $30.2 million in 1997 compared to $25.0 million in 1996, due to
increases in the number of aircraft in the Company's fleet and aircraft block
hours. While actual expense increased by approximately 21% during 1997, on a
block hour basis this expense declined by approximately 5% to $401 per block
hour for 1997 from $421 per block hour for 1996. This reduction was due to
increased efficiency in staffing levels and scheduling resulting from the
increased level of operations.
Other flight-related expenses increased to $28.8 million in 1997 compared
to $27.4 million in 1996, or approximately 5%. The impact of the larger fleet
size for 1997 compared to the prior year was partially offset by a reduction in
the Company's aircraft hull and liability insurance rates based on its increased
size and favorable operating history. As a result of this and other operating
efficiencies, on a block hour basis, other flight-related expenses declined by
approximately 17% to $383 per block hour for 1997 compared to $461 per block
hour for 1996.
Maintenance expense increased to $123.8 million in 1997 from $84.3 million
in 1996, or approximately 47%, partially due to the increase in the Company's
average fleet size and partially due to the higher maintenance costs with
respect to the aircraft sub-leased from FedEx. On a block hour basis,
maintenance expense increased year over year by approximately 16%, primarily due
to higher maintenance costs associated with the aircraft sub-leased from FedEx.
Aircraft and engine rentals were $31.6 million in 1997 compared to $27.3
million in 1996, or an increase of approximately 16%, of which approximately
$2.6 million was due to higher lease rates in 1997 compared to 1996 and $3.1
million was due to an additional .5 aircraft leased in 1997 over 1996. This
increase was partially offset by a $1.4 million decrease in engine rentals year
over year, due to additional spare engines purchased by the Company in 1997.
Fuel and ground handling costs increased to $10.8 million for 1997 compared
to $10.6 million for 1996, or an increase of approximately 3%. This was due to
higher fuel prices in 1997 compared to 1996, partially offset by the relative
decrease in scheduled service, charter and other non-ACMI block hours to 1,787
block hours in 1997 from 2,042 block hours in 1996.
Depreciation and amortization expense increased to $42.9 million in 1997
from $25.5 million in 1996, or approximately 68%. This increase reflected an
increase of approximately 50% in owned aircraft, an approximate two-fold
increase in owned spare engines and an increase of approximately 100% in spare
parts for 1997 over 1996. In addition, Other Revenues include $1.5 million of
depreciation for 1997, associated with the net lease of two owned aircraft which
were in passenger configuration.
Other operating expenses increased to $49.8 million in 1997 from $27.5
million in 1996, or approximately 81%, reflecting the increase in the Company's
operations. On a block hour basis, these expenses increased to $661 per block
hour in 1997 from $462 per block hour in 1996, or approximately 43%. This
increase in cost was due primarily to additional personnel and other resources
necessary to properly manage the Company's increased operations and to prepare
for the introduction of the 747-400 aircraft.
Other Income (Expense). Interest income for 1997 was $7.4 million compared
to $7.1 million for 1996, due to achieving higher interest rates in 1997
compared to 1996 on a slightly lower short-term investment level in 1997
compared to 1996. Interest expense increased to $52.8 million in 1997 from $35.6
million in 1996, or approximately 49%, primarily resulting from an increase of
approximately 50% in financed flight equipment between these periods.
Income Taxes. Pursuant to the provisions of SFAS No. 109 "Accounting for
Income Taxes," the Company has recorded a tax provision based on tax rates in
effect during the period. Accordingly, the Company accrued taxes at the rate of
36.5% during 1997 and 1996. Due to significant capital costs, which are
23
<PAGE> 30
depreciated at an accelerated rate for tax purposes, a majority of the Company's
tax provision in these periods is deferred.
1996 Compared to 1995
Operating Revenues and Results of Operations. Total operating revenues for
the year ended December 31, 1996 increased to $315.7 million compared to $171.3
million for 1995, an increase of approximately 84%. The average number of
aircraft in the Company's fleet during 1996 was 14.7, compared to 7.7 during
1995. Total block hours for 1996 were 59,445 compared to 33,265 for 1995, an
increase of approximately 79%. Revenue per block hour increased by 3% to $5,310
for 1996 compared to $5,149 for the year-earlier period reflecting a slight
increase 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 $42.7 million operating
profit for 1995 to an operating profit of $88.1 million for 1996, or
approximately 106%. Net income of $17.8 million for 1995 improved to a net
income of $37.8 million for 1996, or approximately 112%.
Operating levels increased during the first quarter of 1996 as a result of
placing in service four additional aircraft. In January 1996, the Company placed
in service one aircraft upon completion of its cargo modification by Hong Kong
Aircraft Engineering Company. Two additional aircraft were re-delivered to the
Company upon completion of their modification by Boeing in March 1996. Finally,
at the close of the first quarter, the Company took delivery of the first
aircraft sub-leased from FedEx. During the third quarter of 1996, the Company
placed in service the next three aircraft sub-leased from FedEx. At the end of
the third quarter the Company took delivery of a Boeing 747-200 passenger
aircraft acquired from Thai Airways International Public Company Limited ("Thai
Airways") upon completion by Boeing of its modification to cargo configuration.
In the fourth quarter of 1996, a second Boeing 747-200 passenger aircraft
acquired from Thai Airways was placed in service upon its delivery by Boeing
subsequent to modification to cargo configuration. At the end of 1996, two
leased aircraft were taken out of service for required maintenance prior to
re-delivery to the lessors.
The Company's operating levels increased significantly during 1996 as a
result of these aircraft acquisitions. Block hours increased from 11,125 in the
first quarter of 1996 to 18,803 in the fourth quarter of 1996, relative to the
growth in average fleet size from 10.8 aircraft to 18.4 aircraft for the two
periods. Total operating revenue increased from $58.6 million in the first
quarter to $104.7 million in the fourth quarter, representing slightly higher
block hour rates for the fourth quarter compared to those of the first quarter
of 1996, primarily due to the seasonality of the business of the Company's
customers. The Company achieved $29.9 million operating income and $13.4 million
net income in the fourth quarter of 1996, compared to $15.4 million operating
income and $6.2 million net income in the first quarter of 1996.
The Company's operating levels increased substantially during 1995 also as
a result of 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.
For the year 1995, total block hours were 33,265 and the average fleet size was
7.7 aircraft. Total operating revenue was $171.3 million, operating income was
$42.7 million and net income was $17.8 million.
Operating Expenses. Expenses for flight crew salaries and benefits
increased to $25.0 million in 1996 from $14.6 million in 1995, primarily as a
result of the increase in the Company's fleet of Boeing 747 aircraft from an
average of 7.7 aircraft in 1995 to 14.7 aircraft in 1996, while aircraft block
hours increased from 33,265 to 59,445, or 79%, over such period. On a block hour
basis, this expense declined to $421 per hour for 1996 from $438 per hour for
1995, or approximately 4%, due to increased staffing and scheduling efficiencies
associated with increased operations.
Other flight-related expenses rose to $27.4 million in 1996 from $12.4
million in 1995, or approximately 120%, primarily due to fleet expansion and
higher travel costs associated with operational difficulties related to
24
<PAGE> 31
the aircraft sub-leased from FedEx. On a per block hour basis, other
flight-related expenses increased from $372 per block hour in 1995 to $461 per
block hour in 1996, or approximately 24%.
Maintenance expense increased to $84.3 million in 1996 from $42.6 million
in 1995, or approximately 98%, due to the increase in average fleet size and
certain increased costs associated with introducing the aircraft sub-leased from
FedEx into the Company's fleet and higher ongoing maintenance costs. The
aircraft sub-leased from FedEx are not covered by the Company's maintenance
contracts with KLM and GE described above. On a block hour basis, maintenance
expense increased by 11%, primarily due to parts support requirements associated
with scheduled and unscheduled maintenance events, and due to the maintenance
costs for the aircraft sub-leased from FedEx discussed above.
Aircraft and engine rentals were $27.3 million in 1996 compared to $22.9
million in 1995, representing an increase of 19%. Lease costs in 1996 for the
aircraft sub-leased from FedEx represented $9.7 million of this increase, offset
by a $2.4 million decrease in sub-service rentals in 1996 compared to 1995. In
addition, the lease costs for one aircraft in 1995 exceeded the lease costs in
1996 by $1.6 million, due to the Company's purchase of the aircraft in the
second quarter of 1996. Engine rentals decreased by $1.8 million in 1996 to $1.8
million, due to the purchase of eight spare engines which reduced the Company's
need for leased engines.
Fuel and ground handling costs increased to $10.6 million in 1996 from $5.0
million in 1995, or approximately 110%. This increase was primarily due to an
increase in block hours for scheduled service, charters, ferry and other from
1,070 in 1995 to 2,042 in 1996, or approximately 91%. In addition, the airline
industry experienced a rise in fuel costs over the period.
Depreciation and amortization expense increased to $25.5 million in 1996
from $14.8 million in 1995, reflecting the increase in the number of owned
aircraft in the Company's fleet. On a per block hour basis, this expense
decreased from $445 per block hour in 1995 to $429 per block hour in 1996, or
approximately 4%. The proportion of owned aircraft to leased aircraft was
relatively the same for 1996 as it was for 1995.
Other operating expenses increased to $27.5 million in 1996 from $16.4
million in 1995, or approximately 68%. On a block hour basis, other operating
expenses decreased from $492 per block hour in 1995 to $462 per block hour in
1996, or approximately 6%, reflecting a lower rate of growth in the Company's
overhead as compared to its operational growth.
Other Income (Expense). Interest income increased to $7.1 million for 1996
from $2.0 million in 1995. This increase was primarily due to the investment of
$99.6 million of funds received from the secondary public offering ("SPO") in
May 1996, as well as funds retained from the Company's initial public offering
("IPO") in August 1995. Interest expense increased to $35.6 million in 1996 from
$18.5 million in 1995, resulting from the increase in financed flight equipment
between these periods.
Income Taxes. Pursuant to the provisions of SFAS No. 109, "Accounting for
Income Taxes," the Company has recorded a tax provision based on tax rates in
effect during the period. Accordingly, the Company accrued taxes at the rate of
36.5% in 1996 and 32.0% in 1995. Due to significant capital costs, which are
depreciated at an accelerated rate for tax purposes, a majority of the Company's
tax provision in 1996 and 1995 is deferred.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and cash equivalents of
approximately $62.0 million, short-term investments of approximately $28.4
million and working capital of approximately $6.2 million. During the first
quarter of 1998, cash and cash equivalents increased approximately $20.6
million, principally reflecting cash provided from operations of $22.0 million,
proceeds from equipment financings of $6.8 million, net proceeds from the
maturity and purchase of short-term investments of $83.3 million and proceeds
from the exercise of stock options of $1.0 million, partially offset by
investments in flight and other equipment of $63.2 million, principal reductions
of indebtedness of $7.7 million and deferred lease costs associated with the
financing of the 747-400 freighter aircraft of $21.6 million.
25
<PAGE> 32
At December 31, 1997, the Company had cash and cash equivalents of
approximately $41.3 million, short-term investments of approximately $111.6
million and working capital of approximately $80.4 million. During 1997, cash
and cash equivalents increased approximately $31.5 million, principally
reflecting cash provided from operations of $87.7 million, proceeds from
equipment financings of $815.8 million and net proceeds from the sale and
purchase of short-term investments of $3.2 million, partially offset by the net
sale and purchase of investments in flight and other equipment of $364.0
million, principal reductions of indebtedness of $494.1 million, debt issuance
costs of $16.6 million and net treasury stock purchases of $0.4 million.
At December 31, 1996, the Company had cash and cash equivalents of
approximately $9.8 million, short-term investments of approximately $114.9
million and working capital of approximately $98.7 million. During 1996, cash
and cash equivalents decreased $87.2 million, principally reflecting investments
in flight and other equipment of $289.7 million, the net purchase of $114.9
million of short-term investments, debt issuance costs of $6.0 million,
principal reductions of indebtedness of $21.6 million and net treasury stock
purchases of $0.5 million, partially offset by cash provided from operations of
$84.4 million, proceeds from equipment financings of $154.8 million, net common
stock issuances of $106.3 million, including the $99.6 million received from the
SPO in the second quarter of 1996.
In May 1996, the Company entered into a $175 million revolving credit
facility (the "Aircraft Credit Facility") with Goldman Sachs Credit Partners
L.P. ("Goldman Sachs"), as Syndication Agent, and Bankers Trust Company
("BTCo"), as Administrative Agent. This revolving loan facility provides for the
acquisition and conversion of flight equipment. The Aircraft Credit Facility was
subsequently amended and restated in conjunction with certain refinancings. The
Aircraft Credit Facility provides for a $250 million revolving credit facility
as of September 5, 1997 with a two-year revolving period and a subsequent
three-year term loan period in the event that permanent financing has not been
obtained for any flight equipment financed under the facility. At the time of
each borrowing, the Company must select either a Base Rate Loan (prime rate,
plus 1.5% through May 8, 1998, thereafter plus 2.0%) or a Eurodollar Rate Loan
(Eurodollar rate, plus 2.5% through May 8, 1998, thereafter plus 3.0%). The
Eurodollar Rate Loan was selected by the Company for substantially all
borrowings in 1996 and 1997. The weighted average interest rate on borrowings
outstanding under the Aircraft Credit Facility was 8.2% at March 31, 1998. Each
borrowing is secured by a first priority security interest in the collateral
flight equipment of that borrowing. Certain tests must be met before each
purchase of aircraft and related drawdown on the facility. To date, the Company
has met these tests. If in the future, the Company cannot meet all the tests
because of the difficult sequencing of aircraft acquisition, aircraft conversion
and customer contracts, the Company believes that other financing sources would
be available to the Company or that it would acquire aircraft using its internal
cash or seek a waiver of any necessary conditions. As of March 31, 1998, the
Company had $88.3 million outstanding under the Aircraft Credit Facility.
Covenants with respect to the Aircraft Credit Facility require specific levels
of insurance, as well as contain requirements regarding possession, maintenance,
and lease or transfer of the flight equipment. Certain covenants applicable to
the Company include, among other restrictions, limitations on indebtedness,
liens, investments, contingent obligations, restricted junior payments, capital
expenditures and leases. The Company was in compliance with all of its covenants
at March 31, 1998.
In March 1997, the Company refinanced one of its aircraft with Nationsbanc
Leasing Corporation ("Nationsbanc"). This aircraft was previously financed
through the Aircraft Credit Facility. As such, this refinancing increased the
availability of funds under the Aircraft Credit Facility by approximately $25
million. The Nationsbanc financing is a seven year term loan (extendible under
certain circumstances to ten years) which provides for a fixed interest rate of
9.2%. The loan is secured by a first priority security interest in this
aircraft.
In April 1997, the Company purchased the fifth and sixth aircraft from Thai
Airways. These aircraft were placed into service in the third quarter of 1997
subsequent to undergoing modification to cargo configuration by Boeing. These
aircraft were initially financed under the Aircraft Credit Facility and were
subsequently refinanced as part of the AFL II Term Loan Facility (as defined
herein).
26
<PAGE> 33
In May 1997, the Company acquired from Citicorp Investor Lease, Inc.
("Citicorp") one 747-200 passenger aircraft for a purchase price of $25 million,
including two spare engines. In connection with the purchase of the aircraft
from Citicorp, the Company agreed to assume Citicorp's lessor interest in the
lease of such aircraft to Philippine Airlines ("PAL") for the remainder of the
lease term. This aircraft is financed under the Aircraft Credit Facility.
In May 1997, the Company formed a wholly-owned subsidiary, Atlas Freighter
Leasing, Inc. ("AFL"), for the purpose of entering into the $185 million AFL
Term Loan Facility (the "AFL Term Loan Facility") to refinance six Boeing
747-200 aircraft previously financed through Internationale Nederlanden Aviation
Lease B.V. ("ING Bank"). Concurrent with entering into the AFL Term Loan
Facility, the proceeds of the AFL Term Loan Facility were used to repay all
existing principal and interest due under the ING Bank debt. Interest is based
on the Eurodollar rate, plus 2.5% for the first three years and 3.0% thereafter,
and is payable quarterly. The interest rate on borrowings outstanding under the
AFL Term Loan Facility was 8.2% at March 31, 1998. Quarterly scheduled principal
payments of $2.5 million commenced in February 1998 and increase to $5.7 million
in August 1998 with a final payment of $50.0 million in May 2004. The AFL Term
Loan Facility is secured by a first priority interest in the six subject
aircraft and is restrictive with respect to limitations on indebtedness, liens,
investments, contingent obligations, restricted junior payments, capital
expenditures, amendments of material agreements, leases, transactions with
shareholders and affiliates and the conduct of business. AFL was in compliance
with all of its covenants as of March 31, 1998.
In June 1997, the Company entered into the Boeing Purchase Agreement to
purchase 10 new 747-400 freighter aircraft to be powered by GE engines. These 10
firmly ordered 747-400 freighter aircraft are currently scheduled to be
delivered as follows: five in 1998, four in 1999 and one in 2000. Due to
production problems at Boeing, some of the 1998 delivery positions of the
747-400 aircraft have been delayed up to 60 days. While Boeing will compensate
the Company for defined delays in delivery of the 747-400 aircraft, any further
delays may adversely impact the Company's ability to initiate service with
prospective customers in a timely fashion. The Boeing Purchase Agreement also
provides the Company with options to purchase up to 10 additional 747-400
freighter aircraft for delivery from 2000 through 2002. As a result of the
Company being the largest purchaser of 747-400 freighter aircraft to date, it
was able to negotiate from Boeing and GE a significant discount off the
aggregate list price of $1.7 billion for the 10 747-400 freighter aircraft, four
installed engines per aircraft and five spare engines. In addition, the Company
also obtained certain ancillary products and services at advantageous prices.
The Boeing Purchase Agreement requires that the Company pay pre-delivery
deposits ("Pre-Delivery Deposits") to Boeing prior to the delivery date of each
747-400 freighter aircraft in order to secure delivery of the 747-400 freighter
aircraft and to defray a portion of the manufacturing costs. The Company expects
the maximum total amount of Pre-Delivery Deposits at any time outstanding will
be approximately $162.3 million, approximately $155.7 million of which was paid
as of May 31, 1998. For the remainder of 1998 and for the year 1999, the Company
expects to pay $46.5 million and $11.8 million, respectively, in accordance with
the Pre-Delivery Deposits schedule. In addition, the Boeing Purchase Agreement
provides for a deferral of a portion of the Pre-Delivery Deposits (Deferred
Aircraft Obligations) for which the Company accrues and pays interest quarterly
at 6-month LIBOR, plus 2.0%. As of May 31, 1998, there was $279.1 million of
Deferred Aircraft Obligations outstanding and the combined interest rate was
7.8%.
In August 1997, the Company completed the offering of its unsecured 10 3/4%
Senior Notes due 2005 ("Senior Notes"). The proceeds from the offering of the
Senior Notes were used to, among other things, repay short-term indebtedness
incurred by the Company to make Pre-Delivery Deposits to Boeing for the purchase
of 10 new freighter aircraft and for additional Pre-Delivery Deposits as they
become due. Interest on the Senior Notes began to accrue from their date of
original issuance and is payable semi-annually in arrears on February 1 and
August 1 of each year, commencing February 1, 1998, at the rate of 10 3/4% per
annum. The Senior Notes are redeemable, in whole or in part, at the option of
the Company, on or after August 1, 2001, at established redemption prices, plus
accrued interest to the date of redemption. In addition, at any time on or prior
to August 1, 2000, the Company, at its option, may redeem up to 35% of the
aggregate principal amount of the Senior Notes originally issued with the net
cash proceeds of one or more public equity offerings, at a redemption price
equal to 110.75% of the principal amount thereof plus accrued interest to the
date of
27
<PAGE> 34
redemption; provided that at least 65% of the aggregate principal amount of the
Senior Notes originally issued remains outstanding immediately after any such
redemption. The Senior Notes are general unsecured obligations of the Company
which rank pari passu in right of payment to any existing and future unsecured
senior indebtedness of the Company. The Senior Notes are effectively
subordinated, however, to all secured indebtedness of the Company and to all
indebtedness of the Company's subsidiaries. Covenants with respect to the Senior
Notes contain certain limitations on the ability of the Company and its
subsidiaries to, among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, incur liens, create
restrictions on the ability of a subsidiary to pay dividends or make certain
payments, sell or issue preferred stock of subsidiaries to third parties, merge
or consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company. The
Company was in compliance with all of its covenants as of March 31, 1998.
In September 1997, the Company formed another wholly-owned subsidiary,
Atlas Freighter Leasing II, Inc. ("AFL II") for the purpose of entering into the
$185 million AFL II Term Loan Facility (the "AFL II Term Loan Facility") to
refinance four of the aircraft previously financed under the Aircraft Credit
Facility, plus nine spare engines, in order to provide the Company with greater
financial flexibility in anticipation of the financing requirements for the
future acquisition of additional freighter aircraft. Interest is based on the
Eurodollar rate, plus 2.3%, less a pricing reduction, if any, in effect from
time to time, and is payable quarterly. The interest rate on borrowings
outstanding under the AFL II Term Loan Facility was 7.9% at March 31, 1998.
Quarterly scheduled principal payments of $2.5 million commenced in February
1998 and increase to $5.7 million in August 1998 with a final payment of $50.0
million in May 2004. The AFL II Term Loan Facility is secured by a first
priority interest in the four subject aircraft, plus nine spare engines, and is
restrictive with respect to limitations on indebtedness, liens, investments,
contingent obligations, restricted junior payments, capital expenditures,
amendments of material agreements, leases, transactions with shareholders and
affiliates and the conduct of business. AFL II was in compliance with all of its
covenants as of March 31, 1998.
In October 1997, Atlas Flightlease, Inc. ("AFI"), a wholly owned subsidiary
of the Company, secured a 2-year LIBOR based financing with Bankers Trust
Company for approximately 80% of the purchase price of a 1988 Canadair
Challenger passenger aircraft (the "Challenger"). AFI purchased the Challenger
from MAC Flightlease, Inc. ("MAC Flightlease"), an entity wholly-owned by the
wife of the Company's Chairman, President and CEO (see Note 7 to the
Consolidated Financial Statements), in the third quarter of 1997. In December
1997, AFI refinanced the Challenger for approximately 100% of its purchase price
with Nationsbanc under a 5-year loan which was guaranteed by the Company.
Interest is based on the Eurodollar rate, plus 2.4%, and is payable quarterly
with concurrent scheduled payments of principal. The interest rate on borrowings
outstanding under the Nationsbanc debt was 8.3% at March 31, 1998. The loan is
secured by a first priority security interest in the Challenger. Covenants with
respect to this financing require specific levels of insurance, as well as
contain requirements regarding use, maintenance, configuration, liens and
disposition of the Challenger, among other things. AFI was in compliance with
all of its covenants as of March 31, 1998.
In January and February 1998, pursuant to an early lease termination
agreement negotiated in November 1997, the Company delivered to Boeing for
modification to cargo configuration the aircraft acquired from Marine Midland
Bank in December 1996 and the aircraft acquired from Citicorp Investor Lease,
Inc. in May 1997. The first aircraft was re-delivered to the Company at the end
of April 1998 and the second aircraft is expected to be re-delivered to the
Company early in the third quarter of 1998. The financing for the modification
to cargo configuration is secured under the Aircraft Credit Facility, for which
the Company borrowed a total of $3.3 million during the first quarter of 1998
with respect to these aircraft. At the end of April 1998, the Company borrowed
an additional $13.8 million associated with the final payment for the
modification of the first aircraft upon its re-delivery to the Company.
In February 1998, the Company completed an offering of $538.9 million of
Pass Through Certificates, also known as enhanced equipment trust certificates.
The EETCs are not direct obligations of, or guaranteed by, the Company and
therefore are not included in the Company's consolidated financial statements.
The cash proceeds from the transaction were deposited with an escrow agent and
will be used to finance (through either
28
<PAGE> 35
leveraged leases or secured debt financings) the debt portion of the acquisition
cost of five of the 10 new 747-400 freighter aircraft from Boeing scheduled to
be delivered to the Company during the period July 1998 through December 1998.
In connection therewith, the Company intends to seek certain owner participants
who will commit lease equity financing to be used in leveraged leases of such
aircraft. In November and December 1997, the Company entered into three Treasury
Note hedges, approximating $300 million of principal, for the purpose of
minimizing the risk associated with the fluctuations in interest rates, which
are the basis for the pricing of the EETCs which were priced in January 1998.
The effect of the hedge resulted in a deferred cost of $6.3 million, which will
be amortized over the expected twenty-year life associated with this financing.
There can be no assurance that the Company will be able to obtain sufficient
financing to fund the purchase of the remaining five 747-400 freighter aircraft,
or if such financing is available, that it will be available on a commercially
reasonable basis. If it is unable to do so, the Company could be required to
modify its expansion plans or to incur higher than anticipated financing costs,
which could have a material adverse effect on the Company.
In April 1998, the Company consummated the offering of $175 million of
unsecured 9 1/4% Senior Notes due 2008 (i.e. the Old Notes which are subject to
the Exchange Offer). The proceeds of the offering will be used to repay $80
million of the Aircraft Credit Facility and for general corporate purposes,
which may include the partial funding of the redemption of the Company's
outstanding 12 1/4% Pass Through Certificates due 2002, which are subject to
redemption at the option of the Company on or after December 1, 1998. Interest
on the Old Notes is payable semi-annually on April 15 and October 15 of each
year, commencing October 15, 1998. The Old Notes are redeemable at the option of
the Company, in whole or in part, at any time on or after April 15, 2003,
initially at 104.625% of their principal amount, plus accrued interest,
declining ratably to 100% of their principal amount, plus accrued interest, on
or after April 15, 2006. In addition, at any time prior to April 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Old Notes
originally issued with the net cash proceeds of one or more public equity
offerings at 109.25% of their principal amount, plus accrued interest; provided
that after any such redemption at least $113.75 million aggregate principal
amount of Old Notes remains outstanding. The 9 1/4% Senior Notes will be
unsubordinated indebtedness of the Company, ranking pari passu in right of
payment with all existing and future unsubordinated indebtedness of the Company
and senior in right of payment to all subordinated indebtedness of the Company.
The Old Notes are effectively subordinated, however, to all secured indebtedness
of the Company and all existing and future liabilities of the Company's
subsidiaries. Covenants with respect to the Old Notes contain certain
limitations on the ability of the Company and its subsidiaries to, among other
things, incur additional indebtedness, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur liens, create restrictions on the ability of
a subsidiary to pay dividends or make certain payments, sell or issue preferred
stock of subsidiaries to third parties, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company.
In May 1998, the Company agreed to purchase a Boeing Business Jet ("BBJ")
from Boeing for approximately $30 million. As of May 31, 1998, the Company had
paid approximately $9.0 million in Pre-Delivery Deposits and there was
approximately $7.0 million of Deferred Aircraft Obligations outstanding. This
aircraft will be used to transport Company executives on business trips
throughout the world. The Company intends to sell the Challenger business jet
(currently owned by a subsidiary of the Company and recently appraised at
approximately $15 million), upon delivery of the BBJ in January 1999 and the
Company's Chief Executive Officer has agreed to purchase a 50% interest and to
share operating costs of the BBJ. Therefore, after sale of the Challenger and
with a 50% interest in the BBJ, the Company expects its financial exposure to
this new aircraft to be equivalent to its existing Challenger aircraft.
The Company recently entered into a sublease and ramp use agreement with
American Airlines, Inc. for 145,000 square feet of hangar, office and parking
space at Miami International Airport in support of the Company's increased
operations. The lease is for a period in excess of four years and commences July
1, 1998, at a monthly rate of approximately $105,000, subject to an annual
escalation factor. Additionally, effective August 1, 1998 the Company will lease
an additional 5,000 square feet at its existing facility located at John F.
29
<PAGE> 36
Kennedy International Airport ("JFK") and the monthly rate will increase from
approximately $55,000 to approximately $70,000.
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 generally 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, the Company has not in the past had a requirement for a
working capital facility. The Company is exploring the possibility of entering
into an unsecured line of credit for general working capital purposes.
Under the FAA's 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. In November 1994, Boeing issued Nacelle Strut Modification
Service Bulletins which have been converted into Directives by the FAA. Eleven
of the Company's Boeing 747-200 aircraft will have to be brought into compliance
with such Directives within the next three years at an estimated cost of
approximately $5.5 million. As part of the FAA's overall aging aircraft program,
it has issued Directives requiring certain additional aircraft modifications to
be accomplished prior to the aircraft reaching 20,000 cycles. The average cycle
time for the 18 aircraft in service is approximately 12,000 cycles and the
average cycles operated per year is approximately 800 cycles. The Company
estimates that the modification costs per aircraft will range between $2 million
and $3 million. Between now and the year 2000, only one aircraft is expected to
reach the 20,000 cycle limit and nine additional aircraft will require
modification prior to 2009. The remaining eight aircraft in service have already
undergone such modifications. The one aircraft undergoing modification to
freighter configuration will receive the Nacelle Strut Modification as part of
the freighter conversion. Other Directives have been issued that require
inspections and minor modifications to Boeing 747-200 aircraft. It is possible
that additional 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. Upon acquisition of an aircraft, the Company determines
whether or not the aircraft is in compliance with Airworthiness Directives and
tries to anticipate all future compliance requirements. The necessary work to
bring the aircraft into compliance is then scheduled at the time of conversion
of the aircraft to freighter configuration, in order to minimize unscheduled
maintenance events.
The Company has initiated a review of its internal information systems for
any Year 2000 transition problems through a company-wide effort, assisted by
Year 2000 experienced consultants, to address internal Year 2000 system issues,
and jointly with industry trade groups, to address issues related to key
business partners which are common to other air carriers. The Company has not
completed the development of the remediation approach for all affected areas. As
a result, the Company cannot estimate what the total cost will be to implement
remediation efforts for all critical operational systems. However, due to the
Company's relatively young systems, the Company's advanced client server and
data base architecture, and the Company's partial reliance on vendor
representations regarding Year 2000 compliant third-party systems, the Company
is confident that such remediation efforts will not be material. The Company
expects to complete the assessment and development stages of this plan by
mid-1998, at which time it expects to be able to make a reasonable cost
estimate. Implementation of all remediation efforts is scheduled to be completed
in early 1999.
The Company has started an ongoing program to review the status of key
supplier Year 2000 compliance efforts. While the Company believes it is taking
all appropriate steps to assure Year 2000 compliance, it is dependent on key
business partner compliance to some extent. The Year 2000 problem is pervasive
and complex, as virtually every computer operation will be affected in some way.
Consequently, no assurance can be given that Year 2000 compliance can be
achieved without costs that might affect future financial results or cause
reported financial information not to be necessarily indicative of future
operating results or future financial condition.
30
<PAGE> 37
The Company is finalizing negotiations for the refinancing of one aircraft
in the amount of approximately $45 million, currently financed under the
Aircraft Credit Facility. There is no assurance that this refinancing will be
completed.
From time to time the Company engages in discussions with third parties
regarding possible acquisitions of aircraft that could expand the Company's
operations. The Company is in discussions with third parties for the possible
acquisition of additional aircraft for delivery in 1998 and beyond.
The Company believes that cash on hand, the cash flow generated from its
operations and the proceeds from the May 1996 public offering of its Common
Stock, the August 1997 placement of the Senior Notes and the April 1998
placement of the Old Notes, coupled with availability under the Aircraft Credit
Facility and the proceeds of the EETCs, will be sufficient to meet its normal
ongoing liquidity needs, at least through 1998.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 128 "Earnings per Share,"
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The purpose of SFAS No. 128 is to simplify the
computation of earnings per share ("EPS") and to make the U.S. standard for
computing EPS more compatible with the EPS standards of other countries and with
that of the International Accounting Standards Committee. SFAS No. 128 requires
the dual presentation of basic earnings per share ("basic EPS"), which replaces
primary earnings per share, and diluted earnings per share ("diluted EPS").
Basic EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding during the period. Diluted
EPS is computed similar to basic EPS except that the weighted-average number of
common shares outstanding during the period is adjusted for the incremental
shares attributed to outstanding options to purchase common stock.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The objective of SFAS No. 130 is to report a measure of all changes in equity of
an enterprise that result from transactions and other economic events of the
period other than transactions with owners. Comprehensive income includes net
income plus other comprehensive income (other revenues, expenses, gains, and
losses that under generally accepted accounting principles bypass net income).
The Company does not expect other comprehensive income to be material. The
effective date for the application of SFAS No. 130 for both interim and annual
periods is for fiscal years beginning after December 15, 1997 with earlier
application permitted.
FORWARD-LOOKING STATEMENTS
To the extent that any of the statements contained herein relating to the
Company's expectations, assumptions and other Company matters are
forward-looking, they are made in reliance upon the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such statements are based
on current expectations that involve a number of uncertainties and risks that
could cause actual results to differ materially from those projected in the
forward-looking statements, including, but not limited to, risks associated
with: worldwide business and economic conditions; product demand and the rate of
growth in the air cargo industry; the impact of competitors and competitive
aircraft and aircraft financing availability; the ability to attract and retain
new and existing customers; normalized aircraft operating costs and reliability;
management of growth; the continued productivity of its workforce; dependence on
key personnel; and regulatory matters.
31
<PAGE> 38
BUSINESS
THE COMPANY
Atlas is the world's largest air cargo outsourcer, with an all Boeing fleet
of 747 freighter aircraft. The Company provides reliable airport-to-airport
cargo transportation services throughout the world to major international air
carriers generally under three- to five-year fixed-rate U.S. dollar denominated
contracts which typically require that the Company supply aircraft, crew,
maintenance and insurance. The Company's customers currently include China
Airlines, KLM, Lufthansa, British Airways, SAS, Emirates, Thai Airways, Fast
Air, LAS and Alitalia. The Company is able to provide efficient, cost effective
service to its customers primarily as a result of its productive 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 operations.
The Company's fleet currently consists of 18 Boeing 747-200 freighter
aircraft in service and one 747-200 passenger aircraft undergoing conversion to
freighter configuration. The 747-200 passenger aircraft undergoing conversion to
freighter configuration is expected to be placed in service early in the third
quarter of 1998. On June 9, 1997, the Company entered into an agreement with
Boeing to purchase 10 new 747-400 freighter aircraft to be powered by engines
acquired from GE, with options to purchase up to 10 additional 747-400 aircraft.
The 747-400 aircraft has significantly longer range, greater payload capability,
lower maintenance costs and increased fuel efficiency compared to the Boeing
747-200 freighter aircraft. The Company expects to place the 747-400 aircraft in
service with both existing and prospective customers, who the Company believes
should be willing to pay higher ACMI Contract rates to achieve operating
benefits derived from the unique performance capabilities of the 747-400
aircraft.
The Company attributes its leading market position and continued
opportunities for growth to the following competitive strengths:
- Long-Term Customer Contracts Which Provide Revenue Stability. The
Company's ACMI Contracts with its customers, which accounted for 96% of
the Company's total operating revenues in 1997, generally provide for its
customers to guarantee monthly minimum aircraft utilization levels at
fixed hourly rates and are typically in force for periods of three to
five years, subject in certain limited cases to early 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. The Company's customers are also
responsible under these contracts for utilizing the cargo capacity of
each of the contracted aircraft. The ACMI Contracts, therefore, minimize
for the Company the load factor, yield risk and fuel cost risk
traditionally associated with the air cargo business and provide the
Company with a minimum annual revenue base and more predictable profit
margins. The Company also periodically engages in ad hoc charter or
scheduled air service depending on availability of aircraft for these
uses. In addition, the Company differentiates itself from other air cargo
companies by not directly or indirectly competing with its customers by
offering its services to freight forwarders or shippers who do business
with the Company's customers.
- Low Cost Structure. The Company has established itself as a low cost,
efficient and reliable provider of air cargo transportation primarily due
to the outsourcing of many of its own required services, the advantageous
economies of scale realized from the operation of a standardized fleet of
long-haul Boeing 747-200 aircraft, and its productive work force. The
uniformity of the 747-200 aircraft fleet allows for standardization in
maintenance and crew training, resulting in substantial cost savings in
these areas. In particular, Atlas has advantageous, long-term contracts
on a fixed-cost per flight hour basis with leading maintenance providers
such as GE and KLM for a significant portion of its on-going aircraft and
engine maintenance requirements. As a result of these efficiencies, the
Company's 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
32
<PAGE> 39
purchasing additional aircraft and adding other resources such as
personnel and systems. The new 747-400 aircraft are expected to have even
greater operational capabilities than the Boeing 747-200 aircraft and
will allow the Company to continue to maintain its low cost structure.
The new aircraft's higher level of operational reliability and warrantied
condition will result in lower maintenance costs during the early years
of operation, typically for at least five years. In addition, the
acquisition of the 10 747-400 freighter aircraft will make Atlas the
largest operator of this aircraft type to date and will enable the
Company to achieve economies of scale from the standardization in
maintenance and crew training.
- Expanding Business Base. The growth in demand for air cargo services,
combined with the lower rate of growth in passenger-airline cargo
capacity and the continuing pressure on the airline industry to reduce
operating costs, is expected to provide the Company with the opportunity
to expand its air cargo outsourcing services. The primary business focus
of most of the Company's customers is on the transportation of
passengers, not air cargo. Nevertheless, most passenger airlines have air
cargo customers that require quick and dependable air cargo service
between hubs serviced by these carriers. To the extent that airlines have
cargo capacity on their scheduled 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 growing trend in the passenger-airline business
toward replacing existing widebody passenger aircraft and combination
passenger/cargo aircraft with smaller, more efficient (for passenger
operations) twin-engine aircraft which have limited cargo space. The
Company's customers have therefore found that outsourcing to meet their
additional cargo transportation needs rather than allocating significant
resources and expanding their fleet of freighter aircraft to effectively
service their air cargo customers provides a cost-effective alternative
for them to maintain and expand that portion of their business.
- Increasing Cargo Market Share. The Company has successfully increased its
customer base from a single customer in 1992 to ten customers in 1998. In
addition, the Company has operated under short-term, seasonal ACMI
Contracts with FedEx, Kitty Hawk and UPS and anticipates providing other
short-term, seasonal service. This increased market share is a result of
the Company's ability to provide a cost-effective service which has
gained acceptance within the industry due to the Company's successful
market development efforts. The addition of the 747-400 aircraft will
provide the Company with the opportunity to increase its market share to
new and existing customers who have a need for the greater payload,
extended range and operational reliability of the 747-400, but for whom
the purchase of a limited number of 747-400 freighter aircraft would not
be cost-effective. In addition, the 747-400 aircraft will give the
Company a competitive advantage with new customers who choose to utilize
only new or relatively new aircraft or are restricted by local
regulations limiting the operation of older aircraft.
- Dramatic Industry Growth. While the air cargo industry is highly
competitive, the Company believes that current industry trends are
favorable to the continued growth of its business. According to reports
prepared by Boeing, the world air cargo market is expected to more than
triple over the next 20 years. Such reports indicate that the world air
cargo market has grown at an average rate of 7.2% per year from 1986 to
1997. The average annual percentage growth through 2017 is expected to
average 6.5%, with international air cargo market growth outpacing U.S.
domestic growth. 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 Boeing reports, eastbound and westbound Trans-Pacific cargo
volumes grew at an average annual rate of 6.9% and 14.3%, respectively,
between 1986 and 1996, and are projected to grow at an average annual
rate of 8.0% and 8.1%, respectively, between 1996 and 2016. Similarly,
northbound and southbound air cargo
33
<PAGE> 40
volumes between North America and South America increased at an average
annual rate of 9.4% and 8.8%, respectively, between 1986 and 1996, and
are projected to grow at an average annual rate of 6.5% and 6.7%,
respectively, from 1996 to 2016. Additionally, eastbound and westbound
North Atlantic air cargo volumes increased at an average annual rate of
8.4% and 5.9%, respectively, between 1986 and 1996 and are projected to
grow at average annual rates of 6.7% and 7.2%, respectively, from 1996 to
2016. The Company believes that, as a U.S. certificated "flag" carrier,
it is well positioned to benefit from the progressive expansion of
international trade and the consequential growth in global air cargo
markets, particularly in Asia, South America and Europe, where the
Company has concentrated a significant portion of its resources. The
Company has not experienced any adverse impact on its business as a
result of the recent turmoil in the Asian financial markets, although
there can be no assurances that there will not be any future impact.
747-400 AIRCRAFT ACQUISITION
In June 1997, the Company entered into the Boeing Purchase Agreement to
purchase 10 new 747-400 freighter aircraft to be powered by GE engines. The
747-400 freighter aircraft are currently scheduled to be delivered as follows:
five in 1998, four in 1999 and one in 2000. Due to production problems at
Boeing, some of the 1998 delivery positions of the 747-400 aircraft have been
delayed up to 60 days. While Boeing will compensate the Company for defined
delays in delivery of the 747-400 aircraft, any further delays may adversely
impact the Company's ability to initiate service with prospective customers in a
timely fashion. The Boeing Purchase Agreement also provides the Company with
options to purchase up to 10 additional 747-400 freighter aircraft for delivery
from 2000 through 2002. As a result of the Company being the largest purchaser
of 747-400 freighter aircraft to date, it was able to negotiate from Boeing and
GE a significant discount off the aggregate list price of $1.7 billion for the
10 747-400 freighter aircraft, four installed engines per aircraft and five
spare engines. In addition, the Company also obtained certain ancillary products
and services at advantageous prices.
ACMI CONTRACTS
The Company's ACMI Contracts with its customers, which accounted for 96% of
the Company's operating revenues in 1997, typically provide for its customers to
guarantee monthly minimum aircraft utilization levels at fixed hourly rates and
are typically in force for periods of three to five years, subject in certain
limited cases to early 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. 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.
The Company is currently operating under 17 ACMI Contracts: six with China
Airlines, two each with Fast Air and LAS and one each with Alitalia, British
Airways, Emirates, KLM, Lufthansa, SAS and Thai Airways. In most cases, one
aircraft is dedicated under each contract. China Airlines, Fast Air and
Lufthansa accounted for approximately 34%, 11% and 8%, of the Company's total
revenues, respectively, for the year ended December 31, 1997. In addition, the
Company has also operated short-term, seasonal ACMI Contracts with FedEx, Kitty
Hawk and UPS and anticipates doing so in the future from time to time.
Certain of the Company's ACMI Contracts allow the Company's customers to
cancel up to a maximum of approximately 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 or late in the
fourth quarter of the year, when the demand for air cargo capacity has been
historically lower. The Company has found that such cancellations provide a
timely opportunity for the scheduling of maintenance on its aircraft, to the
extent possible. See "-- Maintenance." The ACMI Contracts are typically in force
for periods of three to five years, subject in certain limited cases to early
termination provisions. The Company believes that its relationships
34
<PAGE> 41
with its customers are mutually satisfactory, as evidenced by the fact that
within the last three years, it has renewed twelve ACMI Contracts and added nine
ACMI Contracts with its existing customers, although there can be no assurance
that future such contracts will not be canceled in accordance with their terms.
All of the ACMI Contracts provide that each of the Company's aircraft be
deemed to be at all times under the exclusive operating control, possession and
direction of the Company and that, in order to service the routes designated by
the contract, the Company obtain the 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 appropriate governments.
OTHER FLIGHT OPERATIONS
To the extent the Company has available excess aircraft capacity at any
time, it will seek to obtain ad hoc charter service contracts, which the Company
believes are generally readily available. In addition, in the past the Company
has provided service to FedEx, Kitty Hawk and UPS pursuant to short-term,
seasonal ACMI Contracts during periods of excess aircraft capacity.
AIRCRAFT
The Company's utilization of Boeing 747 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. The uniformity of the Company's current Boeing
747-200 aircraft fleet allows for standardization in maintenance and crew
training, resulting in substantial cost savings in these areas. The new 747-400
aircraft are expected to have greater operational capabilities than the 747-200
aircraft and will allow the Company to continue to maintain its low cost
structure despite their higher acquisition cost. The new aircraft's limited
maintenance requirements will provide a higher level of operational reliability
with lower maintenance costs during the early years of operation, typically for
at least five years. In addition, the acquisition of the 10 747-400 freighter
aircraft will make Atlas the largest operator of this aircraft type to date and
will enable the Company to capitalize on economies of scale from the
standardization in maintenance and crew training.
In January 1998, the Company's leases for five Boeing 747-200 from FedEx
expired and the aircraft were returned. The Company expects to make up this loss
of capacity through the utilization of one 747-200 aircraft re-delivered to the
Company upon its conversion to freighter configuration at the end of April 1998,
one 747-200 aircraft in conversion to be re-delivered to the Company early in
the third quarter of 1998, and with the delivery of five 747-400 aircraft during
the second half of 1998.
The following table describes, as of May 31, 1998, the Company's existing
fleet, aircraft currently undergoing passenger to freighter modification and the
747-400 aircraft subject to the Boeing Purchase Agreement.
FLEET PROFILE
<TABLE>
<CAPTION>
NUMBER AIRCRAFT YEAR OF
OF AIRCRAFT TYPE OWNED/LEASED MANUFACTURE
----------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Existing fleet:............................. 17 747-200 Owned(1) 1974-1986
1 747-200 Leased(2) 1976
Modification aircraft:...................... 1 747-200 Owned(3) 1979
747-400 aircraft on order:.................. 10 747-400 (4) 1998-2000
</TABLE>
- ---------------
(1) Two aircraft are powered by Pratt & Whitney ("P&W") engines and 15 are
powered by GE engines.
(2) The aircraft is leased from a third party under a lease expiring in March
2010 and is powered by GE engines.
35
<PAGE> 42
(3) This passenger aircraft is powered by GE engines and is currently undergoing
conversion to freighter configuration by Boeing. The aircraft is expected to
be placed in service early in the third quarter of 1998.
(4) The Company has agreed to purchase 10 new Boeing 747-400 freighter aircraft,
with options to purchase an additional 10 aircraft. The first 10 aircraft
are scheduled to be delivered as follows: five in 1998, four in 1999 and one
in 2000. See "-- 747-400 Aircraft Acquisition." These aircraft will be
powered by GE engines. A portion of the financing for the first five
aircraft has been secured through the EETCs. In addition, the Company may
arrange for tax-oriented long-term leases on some or all of these aircraft.
The Company has been successful in obtaining new customers, or additional
arrangements with existing customers coincident with the delivery of aircraft
into the fleet, or soon thereafter. However, from time to time, the Company
accepts delivery of aircraft that have not been committed to a particular ACMI
Contract. These aircraft have been utilized temporarily as replacement aircraft
during scheduled and unscheduled maintenance of other aircraft, as well as for
ad hoc charter arrangements. Although the Company intends to have new ACMI
Contracts in place upon delivery of aircraft, including the 747-400 aircraft,
there can be no assurance that such arrangements will have been made.
From time to time, the Company engages in discussions with third parties
regarding possible acquisitions of aircraft that could expand the Company's
operations. The Company is in discussions with third parties for the possible
acquisition of additional aircraft for delivery in 1998 and beyond.
SALES AND MARKETING
From its offices in Colorado, New York and Miami, 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 which have the need for
long-distance capacity to move such cargo to another distribution point. On
occasion, the Company may utilize independent cargo brokers to obtain new ACMI
Contracts. The Company markets its services by guaranteeing its customers a
reliable, low-cost dedicated 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. The Company expects to place the 747-400 aircraft in service
with both existing and prospective customers, which the Company believes should
be willing to pay higher ACMI Contract rates to achieve operating benefits
derived from the unique performance capabilities of the 747-400 aircraft such as
its longer range, greater payload and increased fuel efficiency.
MAINTENANCE
Due to the average age of the Company's Boeing 747-200 fleet, it is likely
that the aircraft will require greater maintenance than newer aircraft such as
the 747-400 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 major
maintenance events every five years or 25,000 flight hours, whichever comes
later if the aircraft is over the age of 18 years, or every six years or 25,000
flight hours, whichever comes later for aircraft under the age of 18 years, with
a maximum interval in either case of nine years (a "D Check"). The Company
attempts to schedule major maintenance on its aircraft in the first quarter of
the calendar year, when the demand for air cargo capacity has historically been
lower, 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, excluding D Checks) of certain of
the Company's aircraft and their GE engines is undertaken by KLM, primarily at
its maintenance base located at Schiphol International Airport in Amsterdam, The
Netherlands. KLM supplies engineering and diagnostic testing for each aircraft
and its components in compliance with the FAA and other applicable regulations.
The Maintenance Contract provides that KLM, subject to certain terms and
36
<PAGE> 43
conditions, will perform repairs and maintenance of 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 cost, for which a large part is a fixed rate per
flight hour, subject to a 3.5% annual escalation factor for the first five
years. P&W engines are serviced elsewhere, each at a cost based upon the actual
time and material necessary for such service. Under the terms of the Maintenance
Contract, in the event that the Company wishes to maintain more than 12 of its
aircraft under such contract, the terms of the contract are subject to
adjustment by KLM. Twelve of the Company's aircraft are currently subject to the
Maintenance Contract.
In June 1996, the Company entered into a ten year engine maintenance
agreement with GE for the engine maintenance of up to 15 aircraft powered by
CF6-50E2 engines at a fixed rate per flight hour, subject to an annual formula
increase. The agreement commenced in the third quarter of 1996 with the
acceptance of engines associated with aircraft acquired in the third and fourth
quarter of 1996. Effective in the year 2000, the Company has an option to add
not less than 40 engines to the program.
During the initial operating period, the 747-400 aircraft's airframe will
be covered under manufacturer's warranties. As a result, the Company does not
expect to incur significant maintenance expense in connection with the 747-400
airframe during the warranty period. In addition, the 747-400 airframe limited
maintenance requirements will provide a higher operational reliability with
lower maintenance costs during the early years of operation, typically for at
least five years. The Company will incur expenses associated with routine daily
maintenance of both the airframe and the engines. In connection with the GE
engine purchase agreement, the Company has also entered into an agreement with
GE to provide ongoing maintenance on the 747-400 aircraft engines at a fixed
rate per flight hour, subject to an annual formula increase.
The Company believes that fixed-cost contracts provide the most efficient
means of ensuring the continued service of its aircraft fleet and the most
reliable way by which to predict its maintenance costs; however, the Company
believes it is more cost effective for routine line maintenance and A Checks to
be performed on a time and material basis due to the frequency of such
maintenance. The Company also has a contract with B.F. Goodrich Co. to perform
maintenance on its brakes and for the replacement of tires.
The Company has an agreement, subject to acceptable rates, terms and
conditions, 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.
GOVERNMENTAL REGULATION
Under the Aviation Act, the DOT and the FAA exercise regulatory authority
over the Company. The 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.
To provide air cargo transportation services under long-term contracts with
major international airlines, the Company relies primarily on its worldwide
charter authorities. The Company requires separate DOT and FAA approval for each
long-term ACMI Contract. In addition, FAA approval is required for each of the
Company's short-term, seasonal ACMI Contracts.
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 the DOT. Prior to issuing a CPCN, the 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 requirement 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-
37
<PAGE> 44
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
subject to foreign control. The DOT may impose conditions or restrictions on
such a CPCN.
The 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 U.S. and Taiwan. Both CPCNs are
subject to standard terms, conditions and limitations. By virtue of holding
those CPCNs, the Company possesses worldwide charter authorities. 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.
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
prohibit services to certain countries. For countries in which service is
authorized, these bilateral agreements 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. To obtain authority under a bilateral agreement, it is often
necessary to compete against other carriers in a DOT proceeding. At the
conclusion of the proceeding, the DOT awards all route authorizations. The
provisions of bilateral agreements pertaining to charter services vary
considerably from country to country. Some agreements 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
U.S. and the countries to which the Company provides service. The Company also
operates on behalf of foreign flag air carriers between various foreign points
without serving the U.S. These services are subject to the bilateral agreements
of the respective governments. Furthermore, these services require FAA approval
but not DOT approval. 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 operating to, from or within
the United States are subject to the strict scrutiny of the FAA 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, to monitor and regulate aircraft engine noise. All of
the Company's existing fleet of aircraft comply with Stage III Standards -- the
highest standard issued by the FAA.
Under the FAA's 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. In November 1994, Boeing issued Nacelle Strut Modification
Service Bulletins which have been converted into Directives by the FAA. Eleven
of the Company's Boeing 747-200 aircraft will have to be brought into compliance
with such Directives within the next three years at an estimated cost of
approximately $5.5 million. As part of the FAA's overall Aging Aircraft program,
it has issued Directives requiring certain additional aircraft modifications to
be accomplished prior to the aircraft reaching 20,000 cycles. The average cycle
time for the 18 aircraft in service is approximately 12,000 cycles and the
average cycles operated per year is approximately 800 cycles. The Company
estimates that the modification costs per aircraft will range between $2 million
and $3 million. Between now and the year 2000, only one aircraft is expected to
reach the 20,000 cycle limit and nine additional aircraft will require
38
<PAGE> 45
modification prior to the year 2009. The remaining eight aircraft have already
undergone such modifications. The one aircraft undergoing modification to
freighter configuration will receive the Nacelle Strut Modification as part of
the freighter conversion. Other Directives have been issued that require
inspections and minor modifications to Boeing 747-200 aircraft. It is possible
that additional 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 Environmental
Protection Agency regarding air quality in the U.S. With respect to aircraft
that it operates, the Company meets the fuel venting requirements and smoke
emissions standards established by the Environmental Protection Agency.
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 than the Company. The Company believes that the most important factors
for competition in the air cargo business are the range, payload and cubic
capacities of the aircraft and the price, flexibility, quality and reliability
of service. The ability of the Company to achieve its strategic plan depends in
part 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 and the ability of the Company to obtain higher ACMI Contract
rates in connection with the 747-400 aircraft compared to those currently
obtained in connection with existing Boeing 747-200 aircraft. The Company
believes that such higher rates will be obtainable as a result of the unique
operating benefits associated with the 747-400 aircraft. These operational
benefits include a longer range, greater payload capability and increased fuel
efficiency relative to the Boeing 747-200 aircraft.
FUEL
Although fuel costs are typically the largest operating expense for
airlines, the Company has limited exposure to the fluctuation of fuel costs and
disruptions in supply as a result of its ACMI Contracts, which require the
customers to provide fuel for the aircraft. However, an increase in fuel costs
could reduce the Company's cost advantages because of its older Boeing 747-200
aircraft fleet, which are not as fuel-efficient as newer cargo aircraft such as
the 747-400 aircraft. In addition, to the extent the Company operates scheduled
cargo or ad hoc charter services, or positions its aircraft, it is responsible
for fuel and other costs that are normally borne by the customers under the ACMI
Contracts. In 1997, approximately 2% of the Company's block hours represented
scheduled cargo, ad hoc charter services or positioning its aircraft for its own
account. The Company may, at times, have excess capacity in which case it may
deploy such aircraft in scheduled cargo or ad hoc charter services.
EMPLOYEES
As of May 31, 1998, the Company had 712 employees, 412 of whom were air
crew members. The Company expects to hire additional pilots in 1998 associated
with the delivery of additional aircraft, including the 747-400 aircraft. 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 current training program can be sufficiently modified
to provide training required for pilots for the 747-400 aircraft. In addition,
as part of the Boeing Purchase Agreement, to defray a portion of the costs,
Boeing will train a limited number of the Company's pilots and crew to be
assigned to the 747-400 aircraft. However, the Company may incur incremental
costs associated with ongoing training with regard to the 747-400 aircraft.
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
a profit sharing plan, a stock purchase plan, and a Company percentage
contribution of the employee deferral contribution to a retirement plan
(Internal Revenue Code of 1986, as amended,
39
<PAGE> 46
Section 401(k) plan). Such programs are designed to allow employees to share
financially in the Company's success and to augment base salary levels and
retirement income. The Company considers its relations with its employees to be
good.
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 and are
routinely solicited by union representatives seeking to organize them. In
January 1998, the Company's pilots rejected union representation by the ALPA.
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 the 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 this 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. 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 an
adjacent building.
The Company presently occupies a 22,000 square foot facility located at
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 $55,000. Effective
August 1, 1998 the Company will lease an additional 5,000 square feet and the
monthly rate will increase to approximately $70,000. The Company believes the
JAL facility is adequate to support the near term growth in operations that will
result from the anticipated acquisition of additional aircraft. In addition, the
Company leases 7,750 square feet of warehouse space at JFK for the storage of
aircraft components, tires and other aircraft related equipment at a monthly
lease rate of $5,000. The initial lease term expires at the end of August 1999
and provides for two one-year renewal option periods beginning September 1,
1999.
Due to increased operations at Miami International Airport ("MIA"), the
Company entered into a month-to-month office lease and a month-to-month
warehouse lease with Dade County, Florida in March 1997 at a combined monthly
lease rate of approximately $6,000. The leased warehouse space is used to store
aviation equipment and aircraft components used to maintain aircraft operated by
the Company. In addition, the Company recently entered into a sublease and ramp
use agreement with American Airlines, Inc. for 145,000 square feet of hangar,
office and parking space at MIA in support of the Company's increased
operations. The lease is for a period in excess of four years and commences July
1, 1998, at a monthly rate of approximately $105,000, subject to an annual
escalation factor.
40
<PAGE> 47
LEGAL PROCEEDINGS
On February 24, 1997, the Company filed a complaint for declaratory
judgment in the Colorado District Court, Jefferson County against Israel
Aircraft Industries Ltd. ("IAI") for mechanical problems the Company experienced
with respect to an aircraft the Company sub-leased from IAI. The Company is
seeking approximately $4 million in damages against IAI to be offset by the
amount, if any, the Company owes IAI pursuant to the sub-lease. IAI had the case
removed to the U.S. District Court, District of Colorado on April 21, 1997 and
has filed counterclaims alleging damages of approximately $9 million based on
claims arising from the sub-lease. The Company intends to vigorously defend
against all of IAI's claims.
In March 1997, Air Support International, Inc. ("ASI") filed a complaint
against the Company in the U.S. District Court, Eastern District of New York
alleging actual and punitive damages of approximately $13.5 million arising from
the Company's refusal to pay commissions which ASI claims it is owed for
allegedly arranging certain ACMI Contracts. The Company intends to vigorously
defend against all of ASI's claims.
While the Company is from time to time involved in litigation in the
ordinary course of its business, there are no other material legal proceedings
pending against the Company or to which any of its property is subject.
41
<PAGE> 48
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Michael A. Chowdry..................... Chairman of the Board, Chief Executive Officer, President and
Director
Richard H. Shuyler..................... Executive Vice President -- Strategic Planning, Treasurer and
Director
James T. Matheny....................... Senior Vice President -- Operations
R. Terrence Rendleman.................. Senior Vice President -- Flight and Technical Operations
Stanley G. Wraight..................... Senior Vice President -- Marketing
Stephen C. Nevin....................... Vice President and Chief Financial Officer
Berl Bernhard.......................... Director
Lawrence W. Clarkson................... Director
David K.P. Li.......................... Director
David T. McLaughlin.................... Director
Brian Rowe............................. Director
</TABLE>
Michael A. Chowdry, 43, has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since its inception in August 1992, and
served as President from July 1995 to May 1996 and September 1997 to the
present. 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.
Richard H. Shuyler, 51, has been a member of the Company's Board of
Directors since March 1995 and was Senior Vice President -- Finance, Chief
Financial Officer and Treasurer of the Company from June 1994 to February 1998.
As of February 1998, Mr. Shuyler became Executive Vice President -- Strategic
Planning of the Company and also retained his position as Treasurer. 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 and Chief Financial Officer at those entities.
James T. Matheny, 58, has been Senior Vice President -- Operations of the
Company since December 1992. From 1991 to 1992, he was Director -- Quality
Assurance and subsequently, Vice President -- Maintenance and Engineering for
Eastern Airlines, Inc. From 1961 to 1991, he served in the United States Navy,
rising to Commanding Officer of an aircraft squadron, two air wings and an
aircraft carrier, and Operations Officer of the Seventh Fleet based in Japan.
R. Terrence Rendleman, 53, has been Senior Vice President -- Technical
Services and Flight Operations since January 1, 1997. From June 1993 to December
1996, he was Senior Vice President for Maintenance Operations at United
Airlines. Prior to that, he served as Senior Vice President -- Technical
Operations at Northwest Airlines from April 1985 to June 1993. From January 1983
to April 1985, he served as Vice President of Engineering and Maintenance at
Braniff Airlines, where he was a Boeing 727 pilot from 1979 to 1983.
Stephen C. Nevin, 48, has been Vice President and Chief Financial Officer
since February 16, 1998. From May 1994 to January 1998, he was Senior Vice
President of Finance and Chief Financial Officer at AirTran Holdings, Inc. From
December 1982 to April 1994, he served as a Vice President at McDonnell Douglas
Finance Corporation.
Stanley G. Wraight, 51, has been Senior Vice President -- Marketing since
May 1997. From 1995 to 1997, he led KLM's worldwide sales efforts. From 1965 to
1995, he was employed by KLM in various
42
<PAGE> 49
capacities, including Vice President of KLM's sales, marketing and operations in
Asia, Australia and the Middle East.
Berl Bernhard, 68, has been a member of the Washington based law firm of
Verner, Liipfert, Bernhard, McPherson and Hand since 1960 and has served as its
Chairman since 1982. He was nominated by President Kennedy and confirmed by the
Senate in 1961 to serve as Staff Director of the U.S. Commission on Civil
Rights. He was Special Advisor to Secretary of State Dean Rusk and Under
Secretary of State W. Averell Harriman (1963-65), and was Senior Advisor to
Secretary of State Edmund S. Muskie (1980-81). He also served as a Trustee of
Dartmouth College (1974-1984). He acted as special counsel to the Trustees of
Eastern Airlines and special counsel to the Chairman of Northwest Airlines, and
served as Trustee of the Federal City Council from 1988-1992. Mr. Bernhard
served as Chairman of the Aspen Institute from 1991-1996 as well as Chairman of
its Executive Committee. He was a director of Uniroyal Chemical Company, Inc.
and UNC Inc.
Lawrence W. Clarkson, 60, has been President of Boeing Enterprises since
February 1997, where he is responsible for establishing and directing new
commercial airplane-related business acquisitions, joint ventures and other
relationships outside of the traditional business scope of Boeing. Since April
1992 he has also been a Senior Vice President of Boeing. He previously held
various management and executive positions with Boeing which he joined in 1987.
Prior to that, for twenty years he held various management and executive
positions with Pratt & Whitney. He serves as Vice Chairman of the National
Bureau of Asian Research, Chairman of U.S.-Pacific Economic Cooperation Council
and Chairman of the National Center for APEC, and as a Director of the
U.S.-China Business Council, the National Association of Manufacturers and the
Atlantic Council. He also serves on the U.S.-Japan Joint High Level Advisory
Panel and is a member of the Council on Foreign Relations, the Pacific Council
on International Policy and the National Research Council -- Committee on Japan.
David K.P. Li, 58, has been a member of the Company's Board of Directors
since April 16, 1998. He has been Chairman of the Bank of East Asia, Limited
since 1997 and a director and the Chief Executive of the Bank of East Asia,
Limited since 1981. He is a director of Campbell Soup Company, CATIC Shenzhen
Holdings Limited, CBS Corporation, Chelsfield Plc., China Merchants China Direct
Investments Limited, China Overseas Land & Investment Limited, Dow Jones &
Company, Inc., Guangnan (Holdings) Limited, The Hong Kong and China Gas Company
Limited. The Hong Kong and Shanghai Hotels, Limited, Hong Kong Interbank
Clearing Limited, The Hong Kong Mortgage Corporation Limited, Hong Kong
Telecommunications Limited (Deputy Chairman), KTP Holdings Limited, New World
Infrastructure Limited, PowerGen Plc., San Miguel Brewery Hong Kong Limited,
Sime Darby Berhad and Sime Darby Hong Kong Limited, South China Morning Post
(Holdings) Limited and Vitasoy International Holdings Limited. Mr. Li serves on
the international advisory boards of Avon Products Inc., Bank Austria, Bank of
Montreal, Carlos P. Romulo Foundation for Peace and Development, Daimler-Benz
AG, Federal Reserve Bank of New York's International Capital Markets Advisory
Committee, Gulfstream Aerospace, IBM, Jardine Fleming Asian Property Company,
Lafarge, PowerGen and Rolls-Royce Plc.
David T. McLaughlin, 66, 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 to 1987, he served as president of Dartmouth College. He
is currently a director of ARCO, Chase Manhattan Corporation, Westinghouse
Electric Corporation, CBS Inc., 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.
Brian Rowe, 67, 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 held
since September 1993, where 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).
43
<PAGE> 50
DESCRIPTION OF CERTAIN INDEBTEDNESS
AIRCRAFT CREDIT FACILITY
In May 1996, the Company entered into a $175 million revolving credit
facility with Goldman Sachs, as Syndication Agent, and BTCo, as Administrative
Agent. This revolving loan facility provides for the acquisition and conversion
of flight equipment. The Aircraft Credit Facility was subsequently amended and
restated in conjunction with certain refinancings. The Aircraft Credit Facility
was amended and restated in February 1997 and in September 1997 (the "Third
Amended Restated Credit Facility"). The Third Amended and Restated Credit
Facility provides for a $250 million revolving credit facility as of September
5, 1997 with a two-year revolving period and a subsequent three-year term loan
period in the event that permanent financing has not been obtained for any
flight equipment financed under the facility. At the time of each borrowing, the
Company must select either a Base Rate Loan (prime rate, plus 1.5% through May
8, 1998, thereafter plus 2.0%) or a Eurodollar Rate Loan (Eurodollar rate, plus
2.5% through May 8, 1998, thereafter plus 3.0%). The Eurodollar Rate Loan was
selected by the Company for substantially all borrowings in 1996 and 1997. The
weighted average interest rate on borrowings outstanding under the Aircraft
Credit Facility was 8.2% at March 31, 1998. Each borrowing is secured by a first
priority security interest in the collateral flight equipment of that borrowing.
Certain tests must be met before each purchase of aircraft and related drawdown
on the facility. To date, the Company has met these tests. If in the future, the
Company cannot meet all the tests because of the difficult sequencing of
aircraft acquisition, aircraft conversion and customer contracts, the Company
believes that other financing sources would be available to the Company or that
it would acquire aircraft using its internal cash or seek a waiver of any
necessary conditions. As of March 31, 1998, the Company had $88.3 million
outstanding under the Aircraft Credit Facility. The Company will utilize a
portion of the proceeds from the Offering of the Old Notes to repay $80.0
million outstanding under the Aircraft Credit Facility.
Covenants with respect to the Aircraft Credit Facility require specific
levels of insurance, as well as contain requirements regarding possession,
maintenance, and lease or transfer of the flight equipment. Certain covenants
applicable to the Company include, among other restrictions, limitations on
indebtedness, liens, investments, contingent obligations, restricted junior
payments, capital expenditures and leases. The Company was in compliance with
all such covenants at March 31, 1998.
AFL TERM LOAN FACILITY
In May 1997, the Company formed a wholly owned subsidiary, Atlas Freighter
Leasing, Inc., for the purpose of entering into the $185 million AFL Term Loan
Facility to refinance six Boeing 747-200 aircraft previously financed through
bank debt. Concurrent with entering into the AFL Term Loan Facility, the
proceeds of the AFL Term Loan Facility were used to repay all existing principal
and interest due under the bank debt. Interest is based on the Eurodollar rate,
plus 2.5% for the first three years and 3.0% thereafter, and is payable
quarterly. The interest rate on borrowings outstanding under the AFL Term Loan
Facility was 8.2% at March 31, 1998. Quarterly scheduled principal payments of
$2.5 million commenced in February 1998 and increase to $5.7 million in August
1998 with a final payment of $50.0 million in May 2004. The AFL Term Loan
Facility is secured by a first priority interest in the six subject aircraft and
is restrictive with respect to limitations on indebtedness, liens, investments,
contingent obligations, restricted junior payments, capital expenditures,
amendments of material agreements, leases, transactions with shareholders and
affiliates and the conduct of business. The Company was in compliance with all
such covenants as of March 31, 1998.
AFL II TERM LOAN FACILITY
In September 1997, the Company formed another wholly owned subsidiary,
Atlas Freighter Leasing II, Inc. for the purpose of entering into the $185
million AFL II Term Loan Facility to refinance four of the aircraft previously
financed under the Aircraft Credit Facility, plus nine spare engines, in order
to provide the Company with greater financial flexibility in anticipation of the
financing requirements for the future acquisition of additional aircraft.
Interest is based on the Eurodollar rate, plus 2.3%, less a pricing reduction,
if any, in effect from time to time and is payable quarterly. The interest rate
on borrowings outstanding under the
44
<PAGE> 51
AFL II Term Loan Facility was 7.9% at March 31, 1998. Quarterly scheduled
principal payments of $2.5 million commenced in February 1998 and increase to
$5.7 million in August 1998 with a final payment of $50.0 million in May 2004.
The AFL II Term Loan Facility is secured by a first priority interest in the
four subject aircraft, plus nine spare engines, and is restrictive with respect
to limitations on indebtedness, liens, investments, contingent obligations,
restricted junior payments, capital expenditures, amendments of material
agreements, leases, transactions with shareholders and affiliates and the
conduct of business. The Company was in compliance with all such covenants as of
March 31, 1998.
10 3/4% SENIOR NOTES
In August 1997, the Company completed the offering of its unsecured 10 3/4%
Senior Notes due 2005. The proceeds from the offering of the Senior Notes were
used to, among other things, repay short-term indebtedness incurred by the
Company to make Pre-Delivery Deposits to Boeing for the purchase of 10 new
freighter aircraft and for additional Pre-Delivery Deposits as they become due.
Interest on the Senior Notes began to accrue from their date of original
issuance and is payable semi-annually in arrears on February 1 and August 1 of
each year, at the rate of 10 3/4% per annum. The Senior Notes are redeemable, in
whole or in part, at the option of the Company, on or after August 1, 2001, at
105.375%, 102.688% and 100.000% for the years 2001, 2002 and 2003 and
thereafter, respectively, plus accrued interest to the date of redemption. In
addition, at any time on or prior to August 1, 2000, the Company, at its option,
may redeem up to 35% of the aggregate principal amount of the Senior Notes
originally issued with the net cash proceeds of one or more public equity
offerings, at a redemption price equal to 110.75% of the principal amount
thereof plus accrued interest to the date of redemption; provided that at least
65% of the aggregate principal amount of the Senior Notes originally issued
remains outstanding immediately after any such redemption.
The Senior Notes are general unsecured obligations of the Company which
rank pari passu in right of payment to any existing and future unsecured senior
indebtedness of the Company. The Senior Notes are effectively subordinated,
however, to all secured indebtedness of the Company and to all indebtedness of
the Company's subsidiaries.
Covenants with respect to the Senior Notes contain certain limitations on
the ability of the Company and its subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, incur liens, create restrictions on the ability of a subsidiary to
pay dividends or make certain payments, sell or issue preferred stock of
subsidiaries to third parties, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. The Company was in compliance
with all such covenants as of March 31, 1998.
9 1/4% SENIOR NOTES
In April 1998, the Company consummated the offering of $175 million of
unsecured 9 1/4% Senior Notes due 2008 (the Old Notes which are subject to the
Exchange Offer). The proceeds of the Offering will be used to repay $80 million
of the Aircraft Credit Facility and for general corporate purposes, which may
include the partial funding of the redemption of the Company's outstanding
12 1/4% Pass Through Certificates due 2002, which are subject to redemption at
the option of the Company on or after December 1, 1998. Interest on the Old
Notes is payable semi-annually on April 15 and October 15 of each year,
commencing October 15, 1998. The Old Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after April 15, 2003, initially
at 104.625% of their principal amount, plus accrued interest, declining ratably
to 100% of their principal amount, plus accrued interest, on or after April 15,
2006. In addition, at any time prior to April 15, 2001, the Company may redeem
up to 35% of the aggregate principal amount of the Old Notes originally issued
with the net cash proceeds of one or more public equity offerings at 109.25% of
their principal amount, plus accrued interest; provided that after any such
redemption at least $113.75 million aggregate principal amount of Old Notes
remains outstanding. The Old Notes represent unsubordinated indebtedness of the
Company, and rank pari passu in right of payment with all existing and future
unsubordinated
45
<PAGE> 52
indebtedness of the Company and senior in right of payment to all subordinated
indebtedness of the Company. The Old Notes are effectively subordinated,
however, to all secured indebtedness of the Company and all existing and future
liabilities of the Company's subsidiaries. Covenants with respect to the Old
Notes contain certain limitations on the ability of the Company and its
subsidiaries to, among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, incur liens, create
restrictions on the ability of a subsidiary to pay dividends or make certain
payments, sell or issue preferred stock of subsidiaries to third parties, merge
or consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company.
EQUIPMENT NOTES
In November 1995, the Company issued $100 million of senior secured notes
due December 1, 2002 (the "Equipment Notes") through a pass through trust (the
"Pass Through Trust") formed with the sole purpose to hold the Equipment Notes.
Certificates (the "Pass Through Certificates") representing a fractional
undivided interest in the Pass Through Trust were issued concurrently with the
issuance of the Equipment Notes. The Equipment Notes bear interest at 12.25% per
annum with interest payment dates on June 1 and December 1. The Equipment Notes
are secured by three Boeing 747-200 aircraft (the "Equipment Note Aircraft")
fully modified to freighter configuration. The Company is required to provide
for the retirement of one third of the aggregate principal amount of the
Equipment Notes on December 1 in each of 2000 and 2001 through the operation of
a sinking fund at a redemption price of 100% of the principal amount thereof,
together with accrued interest thereon to the redemption date. The Equipment
Notes are redeemable, in whole or in part, at the option of the Company on or
after December 1, 1998 at redemption prices (expressed as a percentage of the
principal amount) declining annually over a three-year period from 108.000% to
100.000%, together with accrued and unpaid interest, if any, to the redemption
date. If a Change of Control (as defined therein) occurs, each holder of the
Pass Through Certificates has the right to require that the Company purchase
such holder's Pass Through Certificates, in whole or in part in integral
multiples of $1,000, in cash in an amount equal to 101% of the principal amount
of such Pass Through Certificates. If an Event of Loss (as defined therein)
occurs with respect to any of the Equipment Note Aircraft, the Company is
required to either redeem the Equipment Notes issued with respect to such
Equipment Note Aircraft, or provide a Substitute Collateral Aircraft (as defined
therein). The Equipment Notes are senior secured obligations of the Company and
rank pari passu in right of payment with all other existing and future senior
obligations of the Company and rank senior in right of payment to all
subordinated indebtedness of the Company. The indenture governing the Equipment
Notes contains covenants relating to the Equipment Note Aircraft which require
specific levels of insurance, as well as requirements regarding liens on and
possession, maintenance, and lease or transfer of the Equipment Note Aircraft.
In addition, the indenture contains certain covenants, including limitations on
the incurrence of debt, restricted payments, certain investments, transactions
with affiliates, asset sales and mergers and consolidations. The Company was in
compliance with all such covenants as of March 31, 1998.
ENHANCED EQUIPMENT TRUST CERTIFICATES
In February 1998, the Company completed an offering of $538.9 million of
pass-through certificates, also known as enhanced equipment trust certificates.
The EETCs are not direct obligations of, or guaranteed by, the Company and
therefore will not be included in the Company's consolidated financial
statements. The cash proceeds from the transaction were deposited with an escrow
agent and will be used to finance (through either leveraged leases or secured
debt financings) a portion of the acquisition cost of the first five of the 10
new 747-400 freighter aircraft from Boeing scheduled to be delivered to the
Company during the period July 1998 through December 1998. In connection
therewith, the Company intends to seek certain owner participants who will
commit lease equity financing to be used in leveraged leases of such aircraft.
If any funds remain as deposits with the escrow agent for such EETCs at the end
of the delivery period, such funds will be distributed back to the
certificateholders. Such distribution will include a make-whole premium payable
by the Company. In November and December 1997, the Company entered into three
Treasury Note hedges, approximating $300 million of principal, for the purpose
of minimizing the risk associated with the fluctuations in interest
46
<PAGE> 53
rates, which are the basis for the pricing of the EETCs which were priced in
January 1998. The effect of the hedge resulted in a deferred cost of $6.3
million, which will be amortized over the expected twenty-year life associated
with this financing. The EETCs issued in the Company's recent EETC financing are
not direct obligations of, or guaranteed by, the Company and therefore will not
be included in the Company's consolidated financial statements. If, at delivery
of an aircraft to which the EETCs relate, the Company does not enter into a
leveraged lease transaction in connection with any such aircraft, the Company
will take ownership of such aircraft and the corresponding EETCs will revert to
a direct obligation of the Company.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF EXCHANGE OFFER
The Old Notes were sold by the Company on April 9, 1998 to the Initial
Purchaser, who placed the Old Notes with certain institutional investors. In
connection therewith, the Company and the Initial Purchaser entered into the
Registration Rights Agreement, pursuant to which the Company agreed, for the
benefit of the holders of the Old Notes, that the Company would, at its sole
cost, (i) within 60 days following the original issuance of the Old Notes, file
with the Commission the Exchange Offer Registration Statement (of which this
Prospectus is a part) under the Securities Act with respect to an issue of a
series of new notes of the Company identical in all material respects to the
series of Old Notes and (ii) use its best efforts to cause such Exchange Offer
Registration Statement to become effective under the Securities Act within 150
days following the original issuance of the Old Notes. Upon the effectiveness of
the Exchange Offer Registration Statement (of which this Prospectus is a part),
the Company will offer to the holders of the Old Notes the opportunity to
exchange their Old Notes for a like principal amount of New Notes, to be issued
without a restrictive legend and which may be reoffered and resold by the holder
without restrictions or limitations under the Securities Act. The term "holder"
with respect to any Note means any person in whose name such Note is registered
on the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1998; provided, however, that if the Company,
in its sole discretion, has extended the period of time during which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
As of the date of this Prospectus, $175,000,000 aggregate principal amount
of Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1998, to all holders
of Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain customary
conditions as set forth below under "-- Certain Conditions to the Exchange
Offer."
The Company expressly reserves the right, at any time and from time to
time, to extend the period of time during which the Exchange Offer is open, and
thereby to delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders of the Old Notes as described
below. During any such extension, all Old Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
Any Old Notes not accepted for exchange for any reason will be returned without
expense to the tendering holders thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of $1,000
or any integral multiple thereof.
47
<PAGE> 54
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions to the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. The tender to the Company of Old Notes by a holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal, including
all other documents required by such Letter of Transmittal, to State Street Bank
& Trust Company (the "Exchange Agent") at one of the addresses set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner of Old Notes whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company, or other nominee and
who wishes to tender such Old Notes in the Exchange Offer should contact the
registered holder promptly and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to tender on its own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such beneficial owner's Old Notes, either make
appropriate arrangements to register ownership of such Old Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
(see "-- Guaranteed Delivery Procedures") unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the Old
Notes who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guaranties must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program or the Stock Exchanges
Medallion Program (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by or be
accompanied by a written instrument or instruments of transfer or exchange in
satisfactory form as determined by the Company in its
48
<PAGE> 55
sole discretion, duly executed by the registered holder exactly as the name or
names of the registered holder or holders appear on the Old Notes with the
signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes not properly tendered or the acceptance of which might, in
the judgment of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or conditions
of the Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation by the
Company of the terms and conditions of the Exchange Offer as to any particular
Old Notes either before or after the Expiration Date (including the Letter of
Transmittal and the instructions thereto) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within such reasonable period of time as
the Company shall determine. None of the Company, the Exchange Agent or any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
By tendering Old Notes for exchange, each holder will represent to the
Company that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to engage or participate in a distribution of the
New Notes. If any holder or any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company or is engaged in or intends
to engage in, or has an arrangement or understanding with any person to
participate in, a distribution of such New Notes to be acquired pursuant to the
Exchange Offer, such holder or any such other person (i) may not rely on the
applicable interpretation of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company will be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid, from
April 9, 1998. Old Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer. Holders whose Old
Notes are accepted for
49
<PAGE> 56
exchange will not receive any payment in respect of accrued interest on such Old
Notes otherwise payable on any interest payment date for which the record date
occurs on or after consummation of the Exchange Offer. Old Notes not tendered or
not accepted for exchange will continue to accrue interest from and after the
date of consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry procedures described
below, and any financial institution that is a participant in the Book-Entry
Transfer Facility's systems may make book-entry delivery of Old Notes by causing
the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or a facsimile thereof,
with any required signature guarantees and any other required documents, must in
any case, be transmitted to and received by the Exchange Agent at the addresses
set forth below under "-- Exchange Agent" on or prior to the Expiration Date or
the guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) on or prior to 5:00 P.M., New York City
time, on the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the holder of the Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in paper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "-- Exchange Agent." Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes to
be withdrawn, identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes), and (where certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then prior to
the release of such certificates the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such holder is an Eligible Institution in which case such guarantee
50
<PAGE> 57
will not be required. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination will be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Rights Agreement, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes, and may terminate or amend the Exchange Offer, if, at any time
before the acceptance of such New Notes for exchange, any of the following
events shall occur:
(a) any injunction, order or decree shall have been issued by any
court or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company;
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company;
(d) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
(e) the Exchange Offer will violate any applicable law or any
applicable interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time in
its sole discretion. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order is threatened by the Commission or in effect with
respect to the Registration Statement of which this Prospectus is a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
The Exchange Offer is not conditioned on any minimum principal amount of
Old Notes being tendered for exchange.
51
<PAGE> 58
EXCHANGE AGENT
The State Street Bank & Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests or Notices of Guaranteed
Delivery should be directed to the Exchange Agent addressed as follows:
State Street Bank & Trust Company,
Exchange Agent
By Registered or Certified Mail:
State Street Bank and Trust Company
P.O. Box 778
Boston, Massachusetts 02102
Attention: Corporate Trust Department
Kellie Mullen
By Hand or Overnight Courier:
State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attention: Corporate Trust Department
Kellie Mullen
By Hand: in Boston
State Street Bank and Trust Company
Two International Plaza
Fourth Floor, Corporate Trust
Boston, Massachusetts 02110
By Hand or Overnight Courier
in New York (as Drop Agent)
State Street Bank and Trust Company, N.A.
61 Broadway
Fifteenth Floor, Corporate Trust Window
New York, New York 10006
Confirm by Telephone:
(617) 664-5587
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
RESALES OF THE NEW NOTES
Based on positions of the Commission set forth in Morgan Stanley & Co.
Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation
(available July 2, 1993) and K-III Communications Corporation (available May 14,
1993), and similar no-action letters issued to third parties, the Company
believes that the New Notes issued pursuant to the Exchange Offer to a holder in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes
52
<PAGE> 59
are acquired in the ordinary course of such holder's business and such holder is
not participating, does not intend to participate and has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. The Company has not requested or obtained, and does not intend to seek,
an interpretive letter from the staff of the Commission with respect to this
Exchange Offer, and the Company and the holders are not entitled to rely on
interpretive advice provided by the staff of the Commission to other persons,
which advice was based on the facts and conditions represented in such letters.
Although there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer, the Exchange Offer is
being conducted in a manner intended to be consistent with the facts and
conditions represented in such letters. If any holder acquires New Notes in the
Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission set forth in the above no-action and interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for a period of 180 days
following the consummation of the Exchange Offer, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." Under the Registration Rights Agreement, the Company is
required to allow such broker-dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such New Notes.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other person) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes must
accompany the tender of Old Notes.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company. The expenses of the Exchange Offer
and the
53
<PAGE> 60
unamortized expenses related to the issuance of the Old Notes will be amortized
over the term of the New Notes.
REGULATORY APPROVALS
The Company does not believe that the receipt of any material federal or
state regulatory approvals will be necessary in connection with the Exchange
Offer.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
OTHER
Participation in the Exchange Offer is voluntary and holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holder of the Old Notes are urged to consult their financial and tax advisors in
making their own decisions on what action to take with respect to the Exchange
Offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of the Exchange Offer, the
Company will have fulfilled a covenant contained in the terms of the Old Notes
and the Registration Rights Agreement. Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will continue to hold such Old
Notes and will be entitled to all the rights, and limitations applicable
thereto, under the Indenture, except for such rights under the Registration
Rights Agreement (including rights to receive Additional Interest) which by
their terms terminate or cease to have further effect as a result of the making
and consummation of the Exchange Offer. All untendered Old Notes will continue
to be subject to the restrictions on transfer set forth in the Indenture and the
Company does not currently anticipate that it will register the Old Notes under
the Securities Act. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market, if any, for any remaining Old Notes
could be adversely affected. See "Risk Factors -- Consequences of Failure to
Exchange."
54
<PAGE> 61
DESCRIPTION OF NOTES
GENERAL
The Old Notes were, and the New Notes will be, issued under an Indenture,
to be dated as of April 9, 1998 (the "Indenture"), among the Company and State
Street Bank and Trust Company, as Trustee (the "Trustee"). The terms of the New
Notes are identical in all material respects to the Old Notes, except that the
New Notes have been registered under the Securities Act and, therefore, will
note bear legends restricting their transfer and will not contain certain
provisions providing for an increase in interest thereon under certain
circumstances described in the Registration Rights Agreement, the provisions of
which will terminate upon the consummation of the Exchange Offer. The following
summary of certain provisions of the Indenture and the Notes does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture (including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended) and the Notes.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee in New York, New York), except
that, at the option of the Company, payment of interest may be made by check
mailed to the address of the holders as such address appears in the Note
register. Initially, the Trustee will act as Paying Agent and Registrar for the
Notes. The Notes may be presented for registration of transfer and exchange at
the offices of the Registrar, which initially will be the Trustee's corporate
trust office. The Company may change any Paying Agent and Registrar without
notice to holders of the Notes.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be unsecured, senior obligations of the Company, limited to
$175.0 million aggregate principal amount, and will mature on April 15, 2008.
Each Note will bear interest at the rate of 9 1/4% per annum from the date of
issuance, or from the most recent date to which interest has been paid or
provided for, and will be payable semiannually on April 15 and October 15 of
each year commencing on October 15, 1998 to holders of record at the close of
business on the April 1 or October 1 immediately preceding the interest payment
date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. The Notes will not be entitled to the benefit of any
mandatory sinking fund.
REDEMPTION
Optional Redemption. Except as set forth below, the Notes will not be
redeemable at the option of the Company prior to April 15, 2003. On and after
such date, the Notes will be redeemable, at the Company's option, in whole or in
part, at any time upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), if redeemed
during the 12-month period commencing on April 15 of the years set forth below,
plus accrued and unpaid interest to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2003....................................................... 104.625%
2004....................................................... 103.083%
2005....................................................... 101.542%
2006 and thereafter........................................ 100.000%
</TABLE>
55
<PAGE> 62
Optional Redemption Upon Public Offerings. In addition, at any time on or
prior to April 15, 2001, the Company, at its option, may redeem up to 35% of the
aggregate principal amount of the Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings at a redemption price equal to
109.25% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided, however, that after any
such redemption the aggregate principal amount of the Notes outstanding must
equal at least 65% of the aggregate principal amount of the Notes originally
issued. In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 60
days after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten primary public offering of Qualified Capital Stock of the Company
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which such Notes are
listed, or if such Notes are not then listed on a national securities exchange,
on a pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided, however, that if a
partial redemption is made with the proceeds of a Public Equity Offering,
selection of the Notes or portion thereof for redemption shall be made by the
Trustee only on a pro rata basis, unless such method is otherwise prohibited.
Notes may be redeemed in part in multiples of $1,000 principal amount only.
Notice of redemption will be sent, by first class mail, postage prepaid, at
least 30 but not more than 60 days (unless a shorter period is acceptable to the
Trustee) prior to the date fixed for redemption to each holder whose Notes are
to be redeemed at the last address for such holder then shown on the registry
books. If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. On and after any redemption date, interest will cease to
accrue on the Notes or part thereof called for redemption as long as the Company
has deposited with the Paying Agent funds in satisfaction of the redemption
price pursuant to the Indenture.
RANKING
The Notes will be senior unsecured obligations of the Company and will rank
pari passu in right of payment with all other existing and future senior
obligations of the Company. The Notes, however, will be effectively subordinated
to secured senior obligations of the Company with respect to the assets securing
such obligations. The Notes also will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries. As of December
31, 1997, after giving pro forma effect to the Offering and the application of
the proceeds therefrom, the Company's total indebtedness outstanding would have
been approximately $485.8 million, of which approximately $160.4 million would
have been secured indebtedness, and the Company's subsidiaries would have had
liabilities of approximately $388.5 million. Subject to certain limitations, the
Company and its subsidiaries may incur additional indebtedness in the future.
CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes,
in whole or in part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount of such Notes, plus accrued interest, if any, to the date of
purchase (the "Change of Control Purchase Date"), pursuant to the offer
described below (the "Change of Control Offer") and the other procedures set
forth in the Indenture.
Within 30 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
holder of Notes by first-class mail, postage prepaid, at the
56
<PAGE> 63
address of such holder shown on the security register, stating, among other
things, (i) the purchase price and the purchase date, which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such notice is
mailed, or such later date as is necessary to comply with requirements under the
Exchange Act; (ii) that any Notes not tendered will continue to accrue interest;
(iii) that, unless the Company defaults in the payment of the purchase price,
any Notes accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Purchase Date; and (iv)
certain other procedures that a holder of Notes must follow to accept a Change
of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Notes pursuant to a Change of Control Offer,
the Company may seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing. The failure
of the Company to make or consummate the Change of Control Offer or pay the
Change of Control Purchase Price when due would result in an Event of Default
and would give the Trustee and the holders of the Notes the rights described
under "-- Events of Default."
One of the events which constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of the Company's assets. This
term has not been interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test. As a consequence, in
the event holders of the Notes elect to require the Company to purchase the
Notes and the Company elects to contest such election, there can be no assurance
as to how a court interpreting New York law would interpret the phrase.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require the Company to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined as
a Change of Control. See "-- Certain Definitions" for the definition of "Change
of Control." A transaction involving the Company's management or its affiliates,
or a transaction involving a recapitalization of the Company, would only result
in a Change of Control if it is the type of transaction specified by such
definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, in connection with a Change of Control Offer
and shall not be deemed in violation of this covenant by reason of any action
required to be taken to effect such compliance.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. (a) The Company will
not create, issue, assume, guarantee or in any manner become directly or
indirectly liable for the payment of, or otherwise incur (collectively,
"incur"), any Indebtedness (including any Acquired Indebtedness) other than
Permitted Indebtedness unless, at the time of any such incurrence, the
Consolidated Fixed Charge Coverage Ratio would have been at least equal to 2.75
to 1.0 (after giving pro forma effect to (i) the incurrence of such Indebtedness
and (if applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred and the
application of such proceeds occurred on the first day of the period for which
the Consolidated Fixed Charge Coverage Ratio is calculated, (ii) the incurrence,
repayment or retirement of any other Indebtedness by the Company or any
Subsidiary since the first day of
57
<PAGE> 64
such period as if such Indebtedness was incurred, repaid or retired at the
beginning of such period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such period) and (iii) the
acquisition (whether by purchase, merger or otherwise) or disposition (whether
by sale, merger or otherwise) of any company, entity or business acquired or
disposed of by the Company or any Subsidiary or ACMI Contracted Aircraft
acquired by the Company or any Subsidiary, in any such case, since the first day
of such period, as if such acquisition or disposition of a company, entity or
business, or such acquisition of an ACMI Contracted Aircraft acquired by the
Company or any Subsidiary, in any such case, since the first day of such period,
as if such acquisition or disposition of a company, entity or business, or such
acquisition of an ACMI Contracted Aircraft occurred at the beginning of such
period; provided, however, that pro forma effect shall not be given to a number
of ACMI Contracted Aircraft exceeding five in any four fiscal quarters.
(b) The Company will not permit any Subsidiary to incur any Indebtedness
(including any Acquired Indebtedness) other than Permitted Subsidiary
Indebtedness.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company (other than
dividends or distributions payable solely in shares of its Qualified
Capital Stock or in options, warrants or other rights to acquire such
shares of Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock of the Company or any
Subsidiary or any Affiliate of the Company, or any options, warrants or
other rights to acquire such shares of Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
or
(iv) make any Investment (other than any Permitted Investment) in any
Person
(such payments or any other actions described in (but not excluded from) clauses
(i) through (iv) are collectively referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect on a pro forma basis to, the
proposed Restricted Payment (the amount of any such Restricted Payment, if other
than cash, as determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution), (1) no
Default or Event of Default shall have occurred and be continuing, (2) the
Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in accordance with the provisions described under
"-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness"
and (3) the aggregate amount of all Restricted Payments declared or made after
the Issue Date shall not exceed the sum of:
(A) 50% of the aggregate cumulative Consolidated Adjusted Net Income
of the Company accrued on a cumulative basis during the period beginning on
July 1, 1997 and ending on the last day of the Company's last fiscal
quarter ending prior to the date of such proposed Restricted Payment (or,
if such aggregate cumulative Consolidated Adjusted Net Income shall be a
loss, minus 100% of such amount), plus
(B) 100% of the aggregate Net Cash Proceeds received after the Issue
Date by the Company from the issuance or sale (other than to any
Subsidiary) of shares of Qualified Capital Stock of the Company or
warrants, options or rights to purchase such shares of Qualified Capital
Stock of the Company, plus
(C) 100% of the aggregate Net Cash Proceeds received after the Issue
Date by the Company from the issuance or sale (other than to any
Subsidiary) of debt securities or Redeemable Capital Stock that have been
converted into or exchanged for Qualified Capital Stock of the Company to
the extent such securities were originally sold for cash, together with the
aggregate Net Cash Proceeds received by the Company at the time of such
conversion or exchange, plus
58
<PAGE> 65
(D) to the extent not otherwise included in the Consolidated Adjusted
Net Income of the Company, an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any Person
resulting from payments in cash of interest on Indebtedness, dividends,
repayments of loans or advances, or other returns of capital, in each case
to the Company or a Subsidiary after the date of the Indenture from any
such Person not to exceed the amount of Investments (other than Permitted
Investments) in such Persons by the Company and its Subsidiaries, plus
(E) $10 million, plus
(F) without duplication, the sum of (1) the aggregate amount returned
in cash on or with respect to Investments (other than Permitted
Investments) made subsequent to the Issue Date whether through interest
payments, principal payments, dividends or other distributions or payments,
(2) the net cash proceeds received by the Company or any Subsidiary from
the disposition of all or any portion of such Investments (other than to a
Subsidiary of the Company) and (3) upon redesignation of an Unrestricted
Subsidiary as a Subsidiary, the fair market value of such Subsidiary;
provided, however, that with respect to all Investments made in any
Unrestricted Subsidiary or joint venture, the sum of clauses (1), (2) and
(3) above with respect to such Investment shall not exceed the aggregate
amount of all such Investments made subsequent to the Issue Date in such
Unrestricted Subsidiary or joint venture.
(b) Notwithstanding paragraph (a) above, the Company and any Subsidiary may
take the following actions so long as (with respect to clauses (ii), (iii),
(iv), (v), (vi) and (vii), below) no Default or Event of Default shall have
occurred and be continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration the payment of such
dividend would have complied with the provisions of paragraph (a) above and
such payment shall be deemed to have been paid on such date of declaration
for purposes of the calculation required by paragraph (a) above;
(ii) the purchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company or any warrants, rights
or options to acquire shares of Capital Stock, in exchange for, or out of
the Net Cash Proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, shares of Qualified Capital Stock of the
Company;
(iii) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness or Redeemable Capital
Stock in exchange for, or out of the Net Cash Proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) of, shares of
Qualified Capital Stock of the Company;
(iv) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness of the Company in
exchange for, or out of the Net Cash Proceeds of a substantially concurrent
incurrence or sale (other than to a Subsidiary) of, new Subordinated
Indebtedness of the Company so long as (A) the principal amount of such new
Indebtedness does not exceed the principal amount (or, if such Subordinated
Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
of the Subordinated Indebtedness being so purchased, redeemed, defeased,
acquired or retired, (B) such new Subordinated Indebtedness is subordinated
to the Notes to the same extent as such Subordinated Indebtedness so
purchased, redeemed, defeased, acquired or retired and (C) such new
Subordinated Indebtedness does not have a scheduled principal payment
earlier than the final maturity of the Notes;
(v) the purchase, redemption or other acquisition or retirement for
value of shares of Capital Stock of the Company held by any future, present
or former employee or director of the Company or any Subsidiary issued
pursuant to any management equity or stock option plan of the Company;
provided that the aggregate consideration paid by the Company for such
shares so purchased, redeemed or otherwise acquired or retired for value
does not exceed $2.5 million in any fiscal year of the Company;
59
<PAGE> 66
(vi) the making of any Investment (other than a Permitted Investment)
out of the Net Cash Proceeds of the substantially concurrent issuance and
sale (other than to a Subsidiary) of Qualified Capital Stock of the
Company; and
(vii) the making of Investments in an aggregate amount not to exceed
$50,000,000 in wholly-owned Unrestricted Subsidiaries to own and lease ACMI
Contracted Aircraft or other flight equipment utilized in the normal course
of business of the Company.
The actions described in clauses (i), (ii), (iii), (v) and (vi) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be taken
in accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph (a)
and the actions described in clause (iv) and (vii) of this paragraph (b) shall
be Restricted Payments that shall be permitted to be taken in accordance with
this paragraph and shall not reduce the amount that would otherwise be available
for Restricted Payments under clause (3) of paragraph (a) above.
(c) In computing Consolidated Adjusted Net Income of the Company under
paragraph (a) above, (1) the Company shall use audited financial statements for
the portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (2) the Company shall be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment would in the good faith determination of
the Company be permitted under the requirements of the Indenture, such
Restricted Payment shall be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Adjusted Net Income of the
Company for any period.
Limitation on Issuances and Sales of Capital Stock of Subsidiaries. The
Company (a) will not permit any Subsidiary to issue any Capital Stock (other
than to the Company or a Subsidiary) and (b) will not permit any Person (other
than the Company or a Subsidiary) to own any Capital Stock of any Subsidiary;
provided, however, that this covenant shall not prohibit (i) the issuance and
sale of all, but not less than all, of the issued and outstanding Capital Stock
of any Subsidiary owned by the Company or any Subsidiary in compliance with the
other provisions of the Indenture or (ii) the ownership by directors of
director's qualifying shares or the ownership by foreign nationals of Capital
Stock of any Subsidiary, to the extent mandated by applicable law.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, enter into or suffer to
exist any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of the Company or any
Subsidiary unless (i) such transaction or series of related transactions is
between and among the Company and wholly owned Subsidiaries or (ii)(A) such
transaction or series of related transactions is on terms that are no less
favorable to the Company, or such Subsidiary, as the case may be, than those
that could have been obtained in an arm's-length transaction with unrelated
third parties; (B) the Company shall have delivered an officer's certificate to
the Trustee certifying that such transaction or series of related transactions
complies with clause (A); (C) if such transaction or series of related
transactions involves consideration of more than $3 million the Board of
Directors (including a majority of the Disinterested Directors) has approved
such transaction or series of transactions or the Company has obtained a written
opinion from a nationally recognized investment banking firm to the effect set
forth in the preceding clause (A); and (D) if such transaction or series of
related transactions involves consideration of more than $10 million the Company
has obtained a written opinion from a nationally recognized investment banking
firm to the effect set forth in the preceding clause (A). This covenant will not
apply to (i) the payment of reasonable and customary compensation and fees to,
and indemnification of, directors of the Company or any Subsidiary who are not
employees of the Company or any Subsidiary or (ii) reasonable and customary
salaries, bonuses and other compensation paid to employees of the Company or any
Subsidiary in accordance
60
<PAGE> 67
with past practice approved by the Compensation Committee of the Company.
Clauses (ii)(C) and (ii)(D) of this covenant will not apply to transactions
pursuant to the Atlas Freighter Leasing Transactions.
Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien of any kind (other than Permitted Liens) on or with respect to any of
its property or assets including any shares of stock or indebtedness of any
Subsidiary, whether owned at the date of the Indenture or thereafter acquired,
or any income, profits or proceeds therefrom, or assign or otherwise convey any
right to receive income thereon.
Limitation on Asset Sales and Disposition of Proceeds of Asset Sales. (a)
The Company will not, and will not permit any Subsidiary to, directly or
indirectly engage in any Asset Sale involving assets unless (i) the
consideration received by the Company or such Subsidiary for such Asset Sale is
not less than the Fair Market Value of the assets sold (as determined by the
Board of Directors of the Company, whose determination shall be conclusive and
evidenced by a Board Resolution) and (ii) the consideration received by the
Company or the relevant Subsidiary in respect of such Asset Sale consists of at
least 75% cash or Cash Equivalents.
(b) If the Company or any Subsidiary engages in an Asset Sale, the Company
may use the Net Cash Proceeds thereof, within 12 months after such Asset Sale,
to (i) repay permanently any then outstanding senior Indebtedness of the Company
or Indebtedness of any Subsidiary, (ii) invest (or enter into a legally binding
agreement to invest) in properties and assets to replace the properties and
assets that were the subject of the Asset Sale or in properties and assets that
will be used in businesses of the Company or its Subsidiaries, as the case may
be, existing on the Issue Date or reasonably related thereto or involving
outsourcing for the air cargo industry ("Replacement Assets"), or (iii) a
combination of repayment and investment permitted by the foregoing clauses
(b)(i) and (b)(ii). If any such legally binding agreement to invest such Net
Cash Proceeds is terminated, then the Company may, within 90 days of such
termination or within 12 months of such Asset Sale, whichever is later, invest
such Net Cash Proceeds as provided in clauses (i), (ii) (without regard to the
parenthetical contained in such clause (ii)) or (iii) above. Pending the final
application of any such Net Cash Proceeds, the Company or such Subsidiary may
temporarily reduce Indebtedness under a revolving credit facility, if any, or
otherwise invest such Net Cash Proceeds in Cash Equivalents. The amount of such
Net Cash Proceeds not so used as set forth above in this paragraph (b)
constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company shall, within 25 business days, make an offer to purchase (an "Excess
Proceeds Offer") from the holders of Notes, on a pro rata basis, in accordance
with the procedures set forth below, the maximum principal amount of Notes that
may be purchased with the Excess Proceeds. The offer price as to each Note shall
be payable in cash in an amount equal to 100% of the principal amount of such
Note (as adjusted for any prepayment of principal of the Notes), plus accrued
interest, if any (the "Offered Price"), to the date such Excess Proceeds Offer
is consummated. To the extent that the adjusted aggregate principal amount of
Notes tendered pursuant to an Excess Proceeds Offer is less than the Excess
Proceeds, the Company may use such deficiency for general corporate purposes. If
the aggregate principal amount of Notes validly tendered and not withdrawn by
holders thereof exceeds the Excess Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset to zero.
(d) Notwithstanding the foregoing, the Company and its Subsidiaries will be
permitted to consummate an Asset Sale without complying with paragraphs (a) and
(b) above to the extent (i) at least 75% of the consideration for such Asset
Sale constitutes Replacement Assets and/or Cash Equivalents and (ii) such Asset
Sale is for Fair Market Value; provided, however, that any consideration not
constituting Replacement Assets received by the Company or any Subsidiary in
connection with any Asset Sale permitted to be consummated under this paragraph
shall constitute Net Cash Proceeds subject to the provisions of paragraphs (a)
and (b) above.
(e) If the Company becomes obligated to make an Excess Proceeds Offer
pursuant to clause (c) above, the Notes shall be purchased by the Company, at
the option of the holder thereof, in whole or in part in integral multiples of
$1,000, on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to holders, or such later date as may be
necessary for the Company to comply with the
61
<PAGE> 68
requirements under the Exchange Act, subject to proration in the event the
amount Excess Proceeds is less than the aggregate Offered Price of all Notes
tendered.
(f) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, in connection with an Excess
Proceeds Offer and shall not be deemed in violation of this covenant by reason
of any action required to be taken to effect such compliance.
Limitation on Guarantees of Indebtedness by Subsidiaries. (a) The Company
will not permit any Subsidiary, directly or indirectly, to guarantee, assume or
in any other manner become liable for the payment of any Indebtedness of the
Company or Indebtedness of any other Subsidiary unless (i)(A) such Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee of payment of the Notes by such Subsidiary and (B)
with respect to any guarantee of Subordinated Indebtedness by a Subsidiary, any
such guarantee shall be subordinated to such Subsidiary's Guarantee with respect
to the Notes at least to the same extent as such Subordinated Indebtedness is
subordinated to the Notes and (ii) such Subsidiary waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary as a result of any payment by such Subsidiary under its
Guarantee.
(b) Notwithstanding the foregoing, any Guarantee by a Subsidiary of the
Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Capital Stock of a
Subsidiary owned by the Company or any Subsidiary in, or all or substantially
all the assets of, such Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the guarantee
which resulted in the creation of such Guarantee (and any other guarantees that
would have resulted in the creation of such a Guarantee), except a discharge or
release by or as a result of payment under such guarantee.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction of any kind on the ability of any
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, (b) pay any Indebtedness
owed to the Company or any other Subsidiary, (c) make Investments in the Company
or any other Subsidiary, (d) transfer any of its properties or assets to the
Company or any other Subsidiary or (e) guarantee any Indebtedness of the Company
or any other Subsidiary, except for such encumbrances or restrictions existing
under or by reason of (i) any agreement in effect on the date of the Indenture,
(ii) the Indenture, (iii) applicable law, (iv) customary non-assignment
provisions, (x) of any lease governing a leasehold interest of the Company or
any Subsidiary or (y) of Indebtedness secured by a Lien that is permitted to be
incurred under the Indebtedness that relates to the property subject to such
Lien, (v) any agreement or other instrument of a Person acquired by the Company
or any Subsidiary in existence at the time of such acquisition (but not created
in contemplation thereof), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, (vi) any restriction with
respect to a Subsidiary of the Company imposed pursuant to an agreement relating
to the sale of all or substantially all of the Capital Stock or assets of such
Subsidiary (so long as such restriction, by its terms, terminates on the earlier
of the termination of such agreement or the consummation of such agreement), and
(vii) any restrictions existing under any agreement that refinances or replaces
any agreement containing restrictions permitted under clause (i), (ii), (iv) or
(v) or (vi), provided that the terms and conditions of such restriction are not
materially less favorable to the holder of the Notes than those under or
pursuant to the agreement refinanced or replaced.
Limitations on Consolidations, Mergers and Sales of Assets. The Company
will not in a single transaction or a series of related transactions consolidate
with or merge with or into any other Person or sell, assign, convey, transfer,
lease or otherwise dispose of all or substantially all of its properties and
assets as an entirety to any Person or Persons, and the Company will not permit
any Subsidiary to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in
the sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis to any Person or Persons, unless: (i)
either
62
<PAGE> 69
(a) the Company shall be the surviving corporation or (b) the Person (if other
than the Company) formed by such consolidation or into which the Company or such
Subsidiary is merged or the Person which acquires by sale, assignment,
conveyance, transfer, lease or other disposition all or substantially all of the
properties and assets of the Company or such Subsidiary, as the case may be (the
"Surviving Entity"), (1) shall be a corporation organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia that is a "certificated United States air carrier" under
the Aviation Act and (2) shall expressly assume, by indenture, supplemental to
the Indenture, executed and delivered to the Trustee, in form satisfactory to
the Trustee, the Company's obligation for the due and punctual payment of the
principal of (or premium, if any, on) and interest on the Notes and the
performance and observance of every covenant of the Indenture on the part of the
Company to be performed or observed; (ii) immediately before and after giving
effect to such transaction or series of transactions on a pro forma basis and
treating any obligation of the Company or a Subsidiary in connection with or as
a result of such transaction as having been incurred at the time of such
transaction, no Default or Event of Default shall have occurred and be
continuing; (iii) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (on the assumption
that the transaction or series of transactions occurred on the first day of the
four-quarter period immediately prior to the consummation of such transaction or
series of transactions with the appropriate adjustments with respect to the
transaction or series of transactions being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the provisions described
under "-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness"; (iv) each Guarantor, if any, unless it is the other party to the
transactions described above, shall have by supplemental indenture confirmed
that its Guarantee shall apply to such Person's obligations under the Indenture
and the Notes; (v) if any of the property or assets of the Company or any of its
Subsidiaries would thereupon become subject to any Lien, the provisions
described under "-- Certain Covenants -- Limitation on Liens" are complied with;
and (vi) the Company or the Surviving Entity shall have delivered to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
officer's certificate and an opinion of counsel, each stating that such
consolidation, merger, conveyance, transfer or lease, and if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with the terms of the Indenture and that all conditions
precedent therein provided for relating to such transaction have been complied
with.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company in accordance with the immediately preceding paragraph in
which the Company is not the continuing obligor under the Indenture, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor had been named as the Company therein. When a successor
assumes all the obligations of its predecessor under the Indenture or the Notes,
the predecessor shall be released from those obligations; provided that in the
case of a transfer by lease, the predecessor shall not be released from the
payment of principal and interest on the Notes.
Reports. The Company will file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company will also be required (a) to file with the Trustee, and provide to each
holder of Notes, without cost to such holder, copies of such reports and
documents within 15 days after the date on which the Company files such reports
and documents with the Commission or the date on which the Company would be
required to file such reports and documents if the Company were so required, and
(b) if filing such reports and documents with the Commission is not accepted by
the Commission or is prohibited under the Exchange Act, to supply at the
Company's cost copies of such reports and documents to any prospective holder of
Notes promptly upon written request.
63
<PAGE> 70
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on the
Notes when it becomes due and payable, and continuance of such default for
a period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) the Notes at their Maturity;
(iii) (A) there shall be a default in the performance, or breach, of
any covenant or agreement of the Company contained in the Indenture (other
than a default in the performance, or breach, of a covenant or agreement
which is specifically dealt with in the immediately preceding clauses (i)
or (ii), or in clauses (B), (C) and (D) of this clause (iii)) and
continuance of such default or breach for a period of 30 days after written
notice shall have been given to the Company by the Trustee or to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Notes then outstanding; (B) there shall be a
default in the performance, or breach, of the provisions of "-- Certain
Covenants -- Limitation on Asset Sales and Disposition of Proceeds of Asset
Sales"; (C) there shall be a default in the performance or breach of the
provisions of "-- Certain Covenants -- Limitations on Consolidation, Merger
and Sale of Assets"; or (D) the Company shall have failed to make or
consummate a Change of Control Offer in accordance with the provisions of
"-- Change of Control";
(iv) (A) there shall have occurred one or more defaults in the payment
of principal of (or premium, if any, on) Indebtedness of the Company or any
Subsidiary aggregating $10 million or more, when the same becomes due and
payable at the stated maturity thereof, and such default or defaults shall
have continued after any applicable grace period and shall not have been
cured or waived or (B) Indebtedness of the Company or any Subsidiary
aggregating $10 million or more shall have been accelerated or otherwise
declared due and payable, or required to be prepaid or repurchased (other
than by regularly scheduled required prepayment), prior to the stated
maturity thereof;
(v) one or more final judgments or orders rendered against the Company
or any Subsidiary which require the payment of money, either individually
or in an aggregate amount, in excess of $10 million and either (A) an
enforcement proceeding shall have been commenced by any creditor upon such
judgment or order or (B) there shall have been a period of 30 days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, was not in effect; or
(vi) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company may declare the principal of and accrued and unpaid interest, if any, on
all the Notes to be due and payable. Upon such a declaration, such principal and
accrued and unpaid interest shall be due and payable immediately, if an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs and is continuing, the principal of and accrued and unpaid
interest on all the Notes will become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders. Under
certain circumstances, the holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity
64
<PAGE> 71
against any loss, liability or expense, (iv) the Trustee has not complied with
such request within 60 days after the receipt of the request and the offer of
security or indemnity and (v) the holders of a majority in principal amount of
the outstanding Notes have not given the Trustee a direction that, in the
opinion of the Trustee, is inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 5 days after it occurs. Except in the case of a Default in the payment of
principal of, premium (if any) or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its Trust officers in good faith
determines that withholding notice is in the interests of the Noteholders. In
addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 5 days after the occurrence
thereof, written notice of any events which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, or stockholder of the Company or any
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Subsidiary under the Notes or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes.
DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at its option by Board Resolution, at any time, terminate
the obligations of the Company with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, except for (i) the rights of holders of outstanding Notes to receive
payments in respect of the principal of (and premium, if any, on) and interest
on such Notes when such payments are due, (ii) the Company's obligations to
issue temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes, maintain an office or agency for
payments in respect of the Notes and segregate and hold such payments in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv)
the defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company with
respect to certain covenants set forth in the Indenture under " -- Certain
Covenants" above ("covenant defeasance"), and any omission to comply with such
obligations shall not constitute a Default or an Event or Default with respect
to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the Notes, money in an amount, or U.S. Government
Obligations (as defined in the Indenture) which through the scheduled payment of
principal and interest thereon will provide money in an amount, or a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of (and
premium, if any, on) and interest on the outstanding Notes at maturity (or upon
redemption, if applicable) of such principal, premium or installment of
interest; (ii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as an event of bankruptcy
under clause (vi) of "Events of Default" above is concerned, at any time during
the period ending on the 91st day after the date of such deposit; (iii) such
defeasance or
65
<PAGE> 72
covenant defeasance shall not result in a breach or violation of, or constitute
a default under, the Indenture or any material agreement or instrument to which
the Company is a party or by which it is bound; (iv) in the case of defeasance,
the Company shall have delivered to the Trustee an Opinion of Counsel stating
that the Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or since the date hereof, there has been a change in
applicable federal income tax law, in either case to the effect, and based
thereon such opinion shall confirm that, the holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance had not occurred; (v) in the case of covenant defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that the holders of the Notes outstanding will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant defeasance
had not occurred; (vi) in the case of defeasance or covenant defeasance, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States to the effect that after the 91st day following the deposit or after the
date such opinion is delivered, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company shall have delivered to
the Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the holders of the Notes over the
other creditors of the Company with the intent of hindering, delaying or
defrauding creditors of the Company; and (viii) the Company shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent provided for relating to either defeasance or
covenant defeasance, as the case may be, have been complied with.
MODIFICATION OF INDENTURE
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose holders must consent to an amendment, (ii) reduce the stated rate of
or extend the stated time for payment of interest on any Note, (iii) reduce the
principal of or extend the Maturity of any Note, (iv) waive a default in the
payment of the principal of or interest on any Note, (v) reduce the premium
payable upon the redemption or repurchase of any Note or change the time at
which any Note may be redeemed as described under "-- Redemption -- Optional
Redemption" above, (vi) make any Note payable in money other than that stated in
the Note, (vii) impair the right of any holder to receive payment of principal
of and interest on such holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
holder's Notes (viii) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate an offer with respect to
any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto, (ix) modify or change any provision of the
Indenture or the related definitions affecting the ranking of the Notes in a
manner which adversely affects the holders of the Notes or (x) make any change
in the amendment provisions which require each holder's consent or in the waiver
provisions.
Without the consent of any holder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation, partnership, trust or
limited liability company of the obligations of the Company under the Indenture,
to provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to
secure the Notes, to add to the covenants of the Company for the benefit of the
holders or to surrender any right or power conferred upon the Company, to make
any change that does not adversely affect the rights of any holder or to comply
with any requirement of the Commission in connection with the qualification of
the Indenture under the Trust Indenture Act.
66
<PAGE> 73
The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders or any defect
therein, will not impair or affect the validity of the amendment.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with regard to
the Notes. The Trustee is also the trustee under the indenture for the Senior
Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim a security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined) it
must eliminate such conflict or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes issued under the Indenture will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy
available to the Trustee. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured) the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of the Notes issued thereunder, unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"ACMI Contracted Aircraft" means an aircraft acquired by the Company or its
Subsidiaries and dedicated to a new ACMI Contract entered into within 60 days of
the acquisition of such aircraft (which ACMI Contract shall not represent a
renewal or replacement of a prior ACMI Contract unless the aircraft dedicated to
such prior ACMI Contract was operated under an operating lease and returned to
the lessor) which is in effect on the date of calculation and has a remaining
term of three years or more on the date such aircraft was dedicated to such ACMI
Contract provided that in any calendar year two ACMI Contracts may have a term
of not less than one year (subject to cancellation terms, which may include the
right to cancel on no less than six months notice). Pro forma effect shall be
given to the acquisition of an ACMI Contracted Aircraft by adding to the
appropriate components of the Consolidated Fixed Charge Coverage Ratio (i) the
net projected annualized revenues from the operation of the ACMI Contracted
Aircraft under such ACMI Contract for that portion of the period for which the
Consolidated Fixed Charge Coverage Ratio is being calculated prior to the
acquisition of such aircraft, assuming operation for the minimum guaranteed
number of block hours (less any block hours subject to cancellation) at the
minimum guaranteed rate under such ACMI Contract less (ii) the projected
annualized cash operating expenses from such operation for the same period for
which the related projected revenues are determined in clause (i) above,
provided that such projected cash operating expenses shall not be less on a per
block hour basis than the average historical per block hour cash operating
expenses of the Company for such aircraft model for the four full fiscal
quarters immediately preceding the date of calculation, and provided, further,
that if such aircraft is of a model not then currently operated by the Company,
such projected cash operating expenses shall include maintenance costs which
shall not be less than the average for such aircraft type disclosed on the most
recently available DOT Forms 41 with respect to such aircraft type or any
summary of such data as reported in a nationally recognized industry publication
or as provided in a written estimate prepared by a nationally recognized air
transportation
67
<PAGE> 74
consulting group. For purposes of this definition, "ACMI Contract" shall include
contracts pursuant to which the Company does not pay any crew costs, in which
event pro forma effect shall be given as described above but excluding from the
projected annualized cash operating expenses all crew costs. Cash operating
expenses means for purposes of this definition consolidated operating expenses,
less consolidated depreciation and amortization and consolidated rental
expenses, to the extent included in computing consolidated operating expenses.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Subsidiary or (b) assumed in connection with the
acquisition of assets from such Person.
"AFL II" means a wholly-owned Unrestricted Subsidiary formed in August 1997
for the sole purpose of owning and leasing four 747-200 aircraft and nine spare
engines previously owned by the Company and financed by the Company's existing
revolving credit facility.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any executive officer or director of any such specified Person or other
Persons or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Appraised Fair Market Value" means the Adjusted Current Market Value.
Current Market Value is the most likely trading price that, in the opinion of an
appraiser, may be generated from an aircraft under the market conditions that
are perceived to exist at the time in question. Current Market Value assumes
that the aircraft is valued for its highest, best use, that the parties to the
hypothetical transaction are willing, able, prudent and knowledgeable, and under
no unusual pressure for a prompt sale, and that the transaction would be
negotiated in an open and unrestricted market on an arm's length basis, for cash
or equivalent consideration, and given an adequate amount of time for effective
exposure to prospective buyers. Adjusted Current Market Value, in the opinion of
the appraiser, is the Current Market Value of the aircraft adjusted for the
actual technical status and maintenance condition of the aircraft.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way or merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Subsidiary; (ii) all or substantially all of the properties and assets of
the Company or its Subsidiaries; or (iii) any other properties or assets of the
Company or any Subsidiary, other than in the ordinary course of business. For
the purposes of this definition, the term "Asset Sale" shall not include any
transfer of properties or assets (A) that is governed by the provisions of the
Indenture, described under "-- Certain Covenants -- Limitations on
Consolidation, Merger and Sale of Assets," (B) by the Company to any Subsidiary,
or by any Subsidiary of the Company or any Subsidiary and in accordance with the
terms of the Indenture, (C) of aircraft engines, components, parts or spare
parts pursuant to customary pooling, exchange or similar agreements or, (D)
asset swaps involving aircraft engines, components, parts or spare parts
(provided that the assets received by the Company or any Subsidiary have a Fair
Market Value at least equal to the asset transferred (provided that with respect
to any asset swap or series of related asset swaps involving assets with a Fair
Market Value exceeding $3 million, such determination shall be made by the Board
of Directors)), (E) constituting an Investment that is permitted under the
Indenture in an Unrestricted Subsidiary, joint venture or other Person in which
the Company or a Subsidiary retains an ownership interest, or (F) having a Fair
Market Value per transaction or series of related transactions of less than
$1,000,000.
"Atlas Freighter Leasing Transactions" means the transactions in which
Atlas Freighter Leasing, Inc. and AFL II, each a wholly owned Unrestricted
Subsidiary of the Company, refinanced six 747-200 aircraft and four 747-200
aircraft all previously owned by the Company, respectively.
68
<PAGE> 75
"Aviation Act" means the Federal Aviation Act of 1958, as amended, and the
applicable regulations thereunder.
"Bankruptcy Law" means Title 11, United States Code, as amended, or any
similar United States federal or state law relating to bankruptcy, insolvency,
receivership, winding-up, liquidation, reorganization or relief of debtors or
any amendment to, succession to or change in any such law.
"Boeing Purchase Contract" means the agreement dated June 9, 1997 between
Atlas Air, Inc. and The Boeing Company to purchase 10 new 747-400 aircraft.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of the Indenture.
"Capitalized Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under a lease of (or other
agreement conveying the right to use) any property (whether real, personal or
mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of one year or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) certificates of deposit or acceptances and money market deposits
with a maturity of one year or less of any financial institution that is a
member of the Federal Reserve System, in each case having combined capital and
surplus and undivided profits of not less than $500,000,000; (iii) commercial
paper with a maturity of one year or less issued by a corporation that is not an
Affiliate of the Company and is organized under the laws of any state of the
United States or the District of Columbia and rated at least A-1 by S&P or at
least P-1 by Moody's and (iv) investment in money market funds substantially all
of whose assets are comprised of Cash Equivalents described in clauses (i)
through (iii).
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 40% of the total outstanding Voting Stock of the
Company; (b) the Company consolidates with, or merges with or into, another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is not
converted or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or is converted into
or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of the
surviving or transferee corporation or (B) cash, securities and other property
(other than Capital Stock of the Surviving Entity) in an amount that could be
paid by the Company as a Restricted Payment as described under "-- Certain
Covenants -- Limitation on Restricted Payments" (or a combination of (A) and
(B)) and (ii) immediately after such transaction, no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 40% of the total outstanding
Voting Stock of the surviving transferee corporation; (c) during any consecutive
two year period, individuals who at the beginning of such period constituted the
69
<PAGE> 76
Board of Directors of the Company (together with any new directors whose
election to such Board of Directors, or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; or (d) the Company is liquidated or dissolved or adopts a plan
of liquidation or dissolution other than in a transaction which complies with
the provisions described under "-- Certain Covenants -- Limitations on
Consolidation, Merger and Sale of Assets." For purposes of this definition, a
Permitted Holder shall be deemed to beneficially own Voting Stock that has been
pledged to a financial institution, unless the pledgee has the present right to
vote such Voting Stock in the election of directors or has exercised remedies
with respect to such Voting Stock.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and all Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding, without duplication,
(a) any net after-tax extraordinary gains or losses (less all fees and expenses
relating thereto), (b) any net after-tax gains or losses (less all fees and
expenses relating thereto) attributable to asset dispositions other than in the
ordinary course of business, (c) the portion of net income (or loss) of any
Person (other than the Company or a Subsidiary), including Unrestricted
Subsidiaries, in which the Company or any Subsidiary has an ownership interest,
except to the extent of the amount of dividends or other distributions actually
paid to the Company or any Subsidiary in cash during such period, (d) for
purposes of calculating Consolidated Adjusted Net Income under "-- Certain
Covenants -- Limitation on Restricted Payments," the net income (or loss) of any
Person combined with the Company or any Subsidiary on a "pooling of interests"
basis attributable to any period prior to the date of combination and (e) the
net income of any Subsidiary, to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the date of
determination permitted, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Subsidiary or its stockholders.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for any
period, the ratio of (a) the sum of Consolidated Adjusted Net Income,
Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated
Non-Cash Charges deducted in computing Consolidated Adjusted Net Income, in each
case, for such period, of the Company and all Subsidiaries as determined on a
consolidated basis in accordance with GAAP to (b) such Consolidated Interest
Expense.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and all
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expense" of the Company means, for any period,
without duplication, the sum of (a) the interest expense of the Company and its
Subsidiaries for such period, including, without limitation, (i) amortization of
debt discount, (ii) the net cost of interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, (iv) amortization of debt costs and (v) accrued interest and
capitalized interest, plus (b) the interest component of Capitalized Lease
Obligations of the Company and its Subsidiaries during such period, plus (c)
cash dividends due (whether or not declared) on Redeemable Capital Stock by the
Company and any Subsidiary (to any Person other than the Company and any wholly
owned Subsidiary), in each case as determined on a consolidated basis in
accordance with GAAP; provided that (x) the Consolidated Interest Expense
attributable to interest on any Indebtedness computed on a pro forma basis and
(A) bearing a floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the entire period
and (B) which was not outstanding during the period for which the computation is
being made but which bears, at the option of the Company, a fixed or floating
rate of interest, shall be computed by applying at the option of the Company,
either the fixed or floating rate, and (y) in making such computation, the
Consolidated Interest Expense attributable to interest on any Indebtedness under
a revolving credit facility computed on a pro forma basis shall be computed
based upon the average daily balance of such Indebtedness during the applicable
period. For purposes of clause (c) of the preceding sentence, dividends shall be
deemed to be an amount equal to the dividends due (whether or not declared)
divided by one minus the applicable actual combined federal,
70
<PAGE> 77
state, provincial, local and foreign income tax rate of the Company and its
Subsidiaries (expressed as a decimal).
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash items of the Company and any
Subsidiary reducing Consolidated Adjusted Net Income for such period, determined
on a consolidated basis in accordance with GAAP (excluding any such non-cash
charge which represents an accrual of or reserve for cash charges for any future
period).
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by the Company or any of its Subsidiaries in the
ordinary course of business and designed to protect against or manage exposure
to fluctuations in foreign currency exchange rates.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the date of the Indenture.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantee" means any guarantee of the Notes by any Subsidiary in
accordance with the provisions described under "-- Certain
Covenants -- Limitation on Guarantees of Indebtedness by Subsidiaries." When
used as a verb, "Guarantee" shall have a corresponding meaning.
"Guarantor" means any Person that incurs a Guarantee.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money (including overdrafts) or for
the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities (including outstanding
disbursements owed to trade creditors) incurred in the ordinary course of
business (whether or not evidenced by a note), but including, without
limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit and acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities, (b) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness of such Person created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even if the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) all Indebtedness referred to in (but not
excluded from) the preceding clauses of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though
71
<PAGE> 78
such Person has not assumed or become liable for the payment of such
Indebtedness (the amount of such obligation being deemed to be the lesser of the
value of such property or asset or the amount of the obligation so secured), (f)
all guarantees by such Person of Indebtedness referred to in this definition of
any other Person, (g) all Redeemable Capital Stock of such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends and (h) all obligations of such Person under or in
respect of Interest Rate Agreements or Currency Agreements. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock, such Fair Market Value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates in respect of Indebtedness.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued or owned by, any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP. In addition, the Fair Market Value of the net
assets of any Subsidiary at the time that such Subsidiary is designated an
Unrestricted Subsidiary shall be deemed to be an "Investment" made by the
Company in such Unrestricted Subsidiary at such time. "Investment" shall exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale, agreement, capital lease or other title retention
agreement.
"Maturity" means, with respect to any Note, the date on which any principal
of such Note becomes due and payable as therein or in the Indenture provided,
whether at the Stated Maturity with respect to such principal, by sinking fund
payment or by declaration of acceleration, call for redemption or purchase or
otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means (a) with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations, but only when received in the form of, or stock or
other assets when disposed for, cash or Cash Equivalents (except to the extent
that such obligations are financed or sold with recourse to the Company or any
Subsidiary), net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of legal counsel and investment banks) related to
such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset
Sale, (iii) payments made to retire Indebtedness where payment of such
Indebtedness is secured by the assets or properties the subject of such Asset
Sale, (iv) amounts required to be paid to any Person (other than the Company or
any Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by the
Company or any Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment
72
<PAGE> 79
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in an Officers' Certificate delivered to the Trustee and
(b) with respect to any issuance or sale of Capital Stock or options, warrants
or rights to purchase Capital Stock, or debt securities or Redeemable Capital
Stock that have been converted into or exchanged for Qualified Capital Stock, as
referred to under "-- Certain Covenants -- Limitation on Restricted Payments,"
the proceeds of such issuance or sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed for, cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Subsidiary of the Company), net of
attorney's fees, accountant's fees and brokerage, consultation, underwriting and
other fees and expenses actually incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Permitted Holders" means Michael A. Chowdry, the Related Parties and/or a
trustee or other fiduciary holding Voting Stock under an employee benefit plan
of the Company.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness of the Company in an aggregate principal amount at
any one time outstanding not to exceed $100 million provided that such
Indebtedness is incurred to finance the acquisition of additional aircraft
by the Company and is secured by Liens on such aircraft;
(b) Indebtedness of the Company outstanding on the Issue Date;
(c) Indebtedness of the Company to any wholly owned Subsidiary;
provided that any Indebtedness of the Company owing to any such Subsidiary
is made pursuant to an intercompany note and is subordinated in right of
payment from and after such time as the Notes shall become due and payable
(whether at Stated Maturity, upon acceleration or otherwise) to the payment
and performance of the Company's obligations under the Notes; provided
further, that any disposition, pledge or transfer of any such Indebtedness
to a Person (other than the Company or another wholly owned Subsidiary)
shall be deemed to be an incurrence of such Indebtedness by the Company not
permitted by this clause (c);
(d) Indebtedness of the Company under Currency Agreements and Interest
Rate Agreements entered into in the ordinary course of business, provided
that the notional amount of such obligations does not exceed the amount of
the related obligation on Indebtedness outstanding or committed to be
incurred on the date such Currency Agreement or Interest Rate Agreements
are entered into;
(e) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company of any Indebtedness of the Company pursuant to clause (b) of this
definition, including any successive refinancings by the Company, so long
as (i) any such new Indebtedness shall be in a principal amount that does
not exceed the principal amount (or, if such Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as
of the date of determination) so refinanced, plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the
terms of the Indebtedness refinanced or the amount of any premium
reasonably determined by the Company as necessary to accomplish such
refinancing, plus the amount of expenses of the Company incurred in
connection with such refinancing, (ii) in the case of any refinancing of
Subordinated Indebtedness, such new Indebtedness is made subordinate to the
Notes at least to the same extent as the Indebtedness being refinanced and
(iii) such new Indebtedness has no scheduled principal payments prior to
the final Stated Maturity of the Notes;
(f) Indebtedness of the Company in addition to any amounts listed in
clauses (a) through (e) above in an aggregate principal amount at any one
time outstanding not to exceed $20 million less the amount of Permitted
Subsidiary Indebtedness then outstanding pursuant to clause (f) of the
definition thereof;
(g) Indebtedness under the Notes and the Indenture;
73
<PAGE> 80
(h) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence; and
(i) Indebtedness of the Company and its Subsidiaries incurred in
connection with the acquisition of 10 new Boeing 747-400 aircraft pursuant
to the Boeing Purchase Contract provided that such Indebtedness shall not
exceed 80% of Appraised Fair Market Value of such aircraft at the time of
borrowing, neither individually nor in the aggregate.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents;
(b) Investments in the Company or any wholly owned Subsidiary;
(c) Investments in Subsidiaries and Unrestricted Subsidiaries in an
amount not to exceed $20 million in aggregate which Subsidiaries or
Unrestricted Subsidiaries are in the business of the Company as conducted
on the Issue Date or a business reasonably related thereto or involved in
outsourcing for the air cargo industry or the leasing of aircraft to the
Company;
(d) Investments by the Company or any Subsidiary in another Person, if
as a result of such Investment (i) such other Person becomes a wholly owned
Subsidiary or (ii) such other Person is merged or consolidated with or
into, or transfers or conveys all or substantially all of its assets to,
the Company or a wholly owned Subsidiary;
(e) Currency Agreements and Interest Rate Agreements;
(f) Loans and advances to employees and officers of the Company and
its Subsidiaries in the ordinary course of business not in excess of $2.0
million at any one time outstanding;
(g) Investments in securities of trade creditors or customers received
pursuant to a plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(h) Investments existing on the Issue Date; or
(i) Investments by the Company in AFL II.
"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the date of the Indenture;
(b) Liens on any property or assets of a wholly owned Subsidiary
granted in favor of the Company or any other wholly owned Subsidiary;
(c) Liens on property acquired after the date of the Indenture that
secures Indebtedness permitted to be incurred under the covenant described
under "-- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness" and provided further that such Liens shall not extend to any
other property of the Company or its Subsidiaries;
(d) statutory Liens of landlords and carrier's, warehouseman's,
mechanics, supplier's, materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceeding,
if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor;
(e) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other
74
<PAGE> 81
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor;
(f) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money);
(g) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business
of the Company or any Subsidiary incurred in the ordinary course of
business;
(h) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired; and
(i) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (i); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets.
"Permitted Subsidiary Indebtedness" means any of the following:
(a) Indebtedness of Subsidiaries outstanding on the Issue Date;
(b) Indebtedness of any Subsidiary under Currency Agreements and
Interest Rate Agreements, provided that the notional principal amount of
such obligations does not exceed the amount of Indebtedness outstanding or
committed to be incurred on the date such Currency Agreements or Interest
Rate Agreements are entered into;
(c) Indebtedness of any wholly owned Subsidiary to any other wholly
owned Subsidiary or to the Company;
(d) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by any
Subsidiary of any Indebtedness of such Subsidiary pursuant to clause (a) of
this definition, including any successive refinancings by such Subsidiary,
so long as any such new Indebtedness shall be in a principal amount that
does not exceed the principal amount (or, if such Indebtedness being
refinanced provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination) so refinanced plus the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness refinanced or the amount of any
premium reasonably determined by such Subsidiary as necessary to accomplish
such refinancing, plus the amount of expenses of such Subsidiary incurred
in connection with such refinancing;
(e) guarantees by Subsidiaries of Indebtedness of the Company entered
into in accordance with the provisions described under "-- Certain
Covenants -- Limitation on Guarantees of Indebtedness by Subsidiaries" and
guarantees by Subsidiaries of Permitted Subsidiary Indebtedness of wholly
owned Subsidiaries; and
(f) Indebtedness of Subsidiaries in addition to any amounts listed in
clauses (a) through (e) above in an aggregate principal amount at any one
time outstanding not to exceed $20 million, less the amount of Permitted
Indebtedness then outstanding pursuant to clause (f) of the definition
thereof.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
75
<PAGE> 82
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock whether outstanding on the date of the
Indenture, or issued thereafter, and including, without limitation, all classes
and series of preferred or preference stock of such Person.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such final Stated
Maturity.
"Related Parties" means (a) the spouse, children or other descendants (by
blood or adoption), stepchildren, siblings, and in-laws of Michael A. Chowdry or
the spouse of Michael A. Chowdry; (b) the heirs, legatees, devisees,
distributees, personal representatives, or the estate of Michael A. Chowdry or
of persons listed in the foregoing clause (a); (c) any trust primarily for the
benefit of Michael A. Chowdry or any of the persons or entities listed in the
foregoing clauses of this definition; (d) any trust, corporation, limited or
general partnership, limited liability company or partnership or other entity of
which Michael A. Chowdry and/or any of the other persons or entities listed in
the foregoing clauses of this definition are the beneficial owners (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time) of a controlling interest in the outstanding voting and
equity securities or interests; (e) a transferee pursuant to a decree of
dissolution of marriage relating to Michael A. Chowdry or a Person that has been
immediately prior to the disposition of a Related Person under any clause of
this definition; or (f) a transferee by disposition in an involuntary manner
without the consent of Michael A. Chowdry or a Person that has been immediately
prior to the disposition a Related Person under any clause of this definition,
including, but not limited to, disposition under judicial orders.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., and its successors.
"Significant Subsidiary" means any Subsidiary of the Company that, together
with its Subsidiaries, (i) for the most recent fiscal year of the Company,
accounted for more than 10% of the consolidated revenues of the Company and its
Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more
than 10% of the consolidated assets of the Company and its Subsidiaries, all as
set forth on the most recently available consolidated financial statements of
the Company for such fiscal year.
"Stated Maturity" means, when used with respect to the Notes or any
installment of interest thereon, the date specified in the Note as the fixed
date on which the principal of the Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries. For purposes of the Indenture, the term Subsidiary shall not
include any Unrestricted Subsidiary, except in the definition of Unrestricted
Subsidiary.
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (b) any Subsidiary
of an Unrestricted Subsidiary and (c) Atlas Freighter Leasing, Inc. and Atlas
Freighter Leasing II, Inc. ("AFL II") are Unrestricted Subsidiaries as of the
Issue Date. The Board of
76
<PAGE> 83
Directors of the Company may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so long as
(i) neither the Company nor any Subsidiary is directly or indirectly liable for
any Indebtedness of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Subsidiary
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity, (iii) any Investment in
such Subsidiary made as a result of designation of such Subsidiary an
Unrestricted Subsidiary or otherwise was permitted under paragraph (a), clause
(iv) of "-- Certain Covenants -- Limitation on Restricted Payments", (iv)
neither the Company nor any Subsidiary has a contract, agreement, arrangement,
understanding or obligation of any kind, whether written or oral, with such
Subsidiary other than those that might be obtained at the time from Persons who
are not affiliates of the Company, and (v) neither the Company nor any
Subsidiary has any obligation (1) to subscribe for additional shares of Capital
Stock or other equity interests in such Subsidiary, or (2) to maintain or
preserve such Subsidiary's financial condition or to cause such Subsidiary to
achieve certain levels of operating results. Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustee by filing a board
resolution with the Trustee giving effect to such designation. The Board of
Directors of the Company may designate any Unrestricted Subsidiary as a
Subsidiary if immediately after giving effect to such designation, there would
be no Default or Event of Default under the Indenture and the Company could
incur $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the provisions described under "-- Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness".
"Voting Stock" means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences of (i) the exchange of Old Notes for New Notes and (ii) the
ownership and disposition of the New Notes. This summary is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change (including changes in effective dates) or possible differing
interpretations. It assumes that the Old Notes and New Notes are (or will be)
held as capital assets. It does not purport to deal with persons in special tax
situations, such as financial institutions, insurance companies, regulated
investment companies, dealers in securities or currencies, persons holding New
Notes as a hedge against currency risks or as a position in a "straddle" for tax
purposes, or persons whose functional currency is not the United States dollar.
It also does not deal with holders other than Holders participating in the
Exchange Offer (except where otherwise specifically noted). Persons considering
participation in the Exchange Offer should consult their own tax advisors
concerning the application of United States federal income tax laws to their
particular situations as well as any consequences of the exchange of Old Notes
for New Notes, and the ownership and disposition of the New Notes arising under
the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a New
Note that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate that is described in Section
7701(a)(30)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), or
a trust that is described in Section 7701(a)(30)(E) of the Code or (iv) any
other person whose income or gain in respect of a New Note is effectively
connected with the conduct of a United States trade or business. As used herein,
the term "non-U.S. Holder" means a beneficial owner of a New Note that is not a
U.S. Holder.
77
<PAGE> 84
FEDERAL INCOME TAX CONSEQUENCES OF TENDERING OLD NOTES FOR NEW NOTES
Exchange Offer. The exchange of Old Notes for New Notes pursuant to the
Exchange Offer should not be treated as an exchange or other taxable event for
United States federal income tax purposes because under Treasury regulations,
the New Notes should not be considered to differ materially in kind or extent
from the Old Notes. Rather, the New Notes received by a holder should be treated
as a continuation of the Old Notes in the hands of such holder. As a result,
there should be no United States federal income tax consequences to holders who
exchange Old Notes for New Notes pursuant to the Exchange Offer and any such
holder should have the same tax basis and holding period in the New Notes as it
had in the Old Notes immediately before the exchange.
FEDERAL INCOME TAX CONSEQUENCES OF OWNING NEW NOTES
U.S. Holders
Payment of Interest. The Old Notes were not issued with original issue
discount. As a result, payments of interest on a New Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received, in accordance with the U.S. Holder's regular method
of tax accounting.
Market Discount. A Note will be considered to bear "market discount" if the
U.S. Holder's tax basis for the Note is less than the principal amount of the
Note by more than a de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment on, or any gain realized on the sale, exchange,
retirement or other disposition of, a Note as ordinary income to the extent of
the lesser of (i) the amount of such payment or realized gain or (ii) the market
discount which has not previously been included in income and is treated as
having accrued on such New Note at the time of such payment or disposition.
Market discount will be considered to accrue on a straight-line basis during the
period from the date of acquisition to the maturity date of the Note, unless the
U.S. Holder elects to accrue market discount on the basis of semiannual
compounding.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a New Note with market discount until the maturity of the New
Note or certain earlier dispositions. A U.S. Holder may elect to include market
discount in income currently as it accrues, in which case the rules described
above regarding the treatment as ordinary income of gain upon the disposition of
the Note and upon the receipt of certain cash payments and regarding the
deferral of interest deductions will not apply. Persons considering making this
election should consult their tax advisors.
Premium. If a U.S. Holder's initial tax basis in any Note is greater than
the principal amount of the Note, the Note will be considered to have
"amortizable bond premium" equal in amount to such excess. A U.S. Holder may
elect to amortize such premium using a constant yield method over the remaining
term of the New Note and may offset interest otherwise required to be included
in respect of the New Note during any taxable year by the amortized amount of
such excess for the taxable year. Any election to amortize bond premium applies
to all taxable debt instruments acquired by the U.S. Holder on or after the
first day of the first taxable year to which such election applies and may be
revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale, exchange
or retirement of a New Note, a U.S. Holder generally will recognize taxable gain
or loss equal to the difference between the amount realized on the sale,
exchange or retirement (other than amounts representing accrued and unpaid
interest) and such U.S. Holder's adjusted tax basis in the New Note. A U.S.
Holder's adjusted tax basis in a New Note generally will equal such U.S.
Holder's initial investment in the Note increased by any accrued market discount
that the U.S. Holder has included in income and decreased by the amount of any
amortizable bond premium taken with respect to such Note. Such gain or loss
generally will be capital gain or loss and will, in the case of individuals, be
long-term capital gain or loss subject to a maximum rate of 20% if the Note has
been held for more than 18 months at the time of such disposition. An individual
will be taxed on his or her net capital gain at a rate of 28% for property held
for 18 months or less but more than one year. Special rates (and generally lower
maximum rates) apply to individuals in lower tax brackets.
78
<PAGE> 85
Non-U.S. Holders
A non-U.S. Holder will not be subject to United States federal income taxes
on payments of principal, premium (if any) or interest (including original issue
discount, if any) on a New Note, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of the Company or a controlled foreign
corporation related to the Company. To qualify for the exemption from taxation,
the last United States payor in the chain of payment prior to payment to a
non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial owner
of the New Note under penalties of perjury, (ii) certifies that such owner is
not a U.S. Holder and (iii) provides the name and address of the beneficial
owner. The statement may be made on an IRS Form W-8 or a substantially similar
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of such change. If a New Note
is held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. Proposed Treasury
Regulations have been issued which, if adopted, could affect these withholding
rules and other U.S. federal tax rules applicable to non-U.S. Holders, and
non-U.S. Holders should therefore consult their tax advisors with respect to the
effect of such proposed Treasury Regulations.
Generally, a non-U.S. Holder will not be subject to federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
New Note, provided the gain is not effectively connected with the conduct of a
trade or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The New Notes will not be includible in the estate of a non-U.S. Holder
unless the individual is a direct or indirect 10% or greater shareholder of the
Company or, at the time of such individual's death, payments in respect of the
New Notes would have been effectively connected with the conduct by such
individual of a trade or business in the United States.
Backup Withholding; Information Reporting
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the New Notes to registered owners who are
not "exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the New Notes to a U.S. Holder must be reported to the IRS, unless
the U.S. Holder is an exempt recipient or establishes an exemption. Compliance
with the identification procedures described in the preceding section would
establish an exemption from backup withholding for those non-U.S. Holders who
are not exempt recipients.
In addition, upon the sale of a New Note to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient or
(ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Holder, certifies that such seller is
a non-U.S. Holder (and certain other conditions are met). Such a sale must also
be reported by the broker to the IRS, unless either (a) the broker determines
that the seller is an exempt recipient or (b) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the registered
owner's non-U.S. status would be made normally on an IRS Form W-8 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
79
<PAGE> 86
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the Expiration Date and ending on the close of business on the 180th day
following the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Act and any profit of any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. By acceptance of the Exchange Offer, each
broker-dealer that receives New Notes pursuant to the Exchange Offer hereby
agrees to notify the Company prior to using this Prospectus in connection with
the sale or transfer of New Notes, and acknowledges and agrees that, upon
receipt of notice from the Company of the happening of any event which makes any
statement in this Prospectus untrue in any material respect or which requires
the making of any changes in this Prospectus in order to make the statements
herein not misleading (which notice the Company agrees to deliver promptly to
such broker-dealer), such broker-dealer will suspend use of this Prospectus
until the Company has amended or supplemented the Prospectus to correct such
misstatement or omission and has furnished copies of the amended or supplemented
prospectus to such broker-dealer.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of any one special
counsel for the holders of the Notes) other than commissions or concessions of
any brokers or dealers and will indemnify the holders of the Notes participating
in the Exchange Offer (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the New Notes offered hereby will
be passed upon for the Company by Cahill Gordon & Reindel, New York, New York (a
partnership including a professional corporation).
EXPERTS
The audited consolidated financial statements incorporated by reference in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in giving said report.
80
<PAGE> 87
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF ANY
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. iv
Incorporation of Certain Documents by
Reference........................... iv
Special Note Regarding Forward-Looking
Information......................... v
Summary............................... 1
Risk Factors.......................... 10
Capitalization........................ 16
Selected Financial and Operating
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 32
Management............................ 42
Description of Certain Indebtedness... 44
The Exchange Offer.................... 47
Description of Notes.................. 55
Certain United States Federal Income
Tax Considerations.................. 77
Plan of Distribution.................. 80
Legal Matters......................... 80
Experts............................... 80
</TABLE>
======================================================
======================================================
$175,000,000
[ATLASAIR LOGO]
[ATLASAIR LOGO]
OFFER TO EXCHANGE ITS
9 1/4% SENIOR NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT, FOR
ITS 9 1/4% SENIOR NOTES DUE 2008,
WHICH HAVE NOT BEEN REGISTERED
--------------------
PROSPECTUS
--------------------
, 1998
======================================================
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Restated Certificate of
Incorporation of Atlas Air, Inc. (the "Charter") provide for indemnification of
directors and officers for liabilities and expenses incurred in defending
actions brought against them in such capacities. The Company's Charter provides
that the Company shall indemnify directors of the Company to the maximum extent
now or hereafter permitted by law, and officers, employees and agents of the
Company to the extent required by law and may, as authorized hereafter by the
Board of Directors, provide further indemnification to officers, employees and
agents of the Company to the maximum extent now or hereafter permitted by law.
The Company maintains directors' and officers' liability insurance covering
all directors and officers of the Company against claims arising out of the
performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+2.1 -- Plan of Reorganization and Merger Agreement dated as of
July 12, 1995 by and between Holdings and the Company.
+3.2 -- Restated Certificate of Incorporation of the Company.
+3.3 -- Amended and Restated By-Laws of the Company.
++4.1 -- Form of Indenture between the Company and First Fidelity
Bank, N.A., as Trustee.
++4.2 -- Form of Second Indenture between the Company and First
Fidelity Bank, N.A., as Trustee.
++4.3 -- Form of Pass Through Trust Agreement between the Company
and First Fidelity Bank, N.A., as Trustee (with form of
Pass Through Certificate attached as exhibit thereto).
++4.4 -- Form of Pass Through Agreement between the Company and
First Fidelity Bank, N.A., as Trustee (with form of Pass
Through Certificate attached as exhibit thereto).
5 -- Opinion of Cahill Gordon & Reindel as to the legality of
the New Certificates.
+10.14 -- Boeing 747 Maintenance Agreement dated January 1, 1995,
between the Company and KLM Royal Dutch Airlines, as
amended.
+10.15 -- Atlas Air, Inc. 1995 Long Term Incentive and Stock Award
Plan.
+10.16 -- Atlas Air, Inc. Employee Stock Purchase Plan.
10.17 -- Atlas Air, Inc. Profit Sharing Plan.
+10.18 -- Atlas Air, Inc. Retirement Plan.
++10.19 -- Employment Agreement between the Company and Michael A.
Chowdry.
++10.20 -- Employment Agreement between the Company and Richard H.
Shuyler.
++10.23 -- Employment Agreement between the Company and James T.
Matheny.
+10.26 -- Maintenance Agreement between the Company and Hong Kong
Aircraft Engineering Company Limited dated April 12,
1995, for the performance of certain maintenance events.
+10.30 -- Conditional Sales Agreement dated as of September 22,
1994 by and between Lufthansa and the Company relating to
B747-230 aircraft, registration D-ABYS.
+10.31 -- Conditional Sales Agreement dated as of September 22,
1994 by and between Lufthansa and the Company relating to
B747-230 aircraft, registration D-ABYL.
*10.36 -- Aircraft Purchase Agreement, dated as of January 19, 1996
between Langdon Asset Management, Inc. and the Company.
</TABLE>
II-1
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
***10.52 -- Employment Agreement dated as of November 18, 1996
between the Company and R. Terrence Rendlerman.
***10.53 -- Secured Loan Agreement by and between the Company and
Finova Capital Corporation dated April 11, 1996.
***10.54 -- Second Amended and Restated Credit Agreement among the
Company and the Lenders listed therein, Goldman Sachs
Credit Partners L.P. (as syndication agent) and Bankers
Trust Company (as Administrative Agent) dated February
28, 1997.
***/****10.55 -- Engine Maintenance Agreement between the Company and
General Electric Company dated June 6, 1996.
**10.56 -- Employment Agreement dated as of May 1, 1997 between the
Company and Stanley G. Wraight.
**10.58 -- Third Amended and Restated Credit Agreement among the
Company, the Lenders listed therein, Goldman Sachs Credit
Partners L.P. (as Syndication Agent) and Bankers Trust
Company (as Administrative Agent) dated September 5,
1997.
**10.59 -- Credit Agreement among Atlas Freighter Leasing, Inc., the
Lenders listed therein and Bankers Trust Company, as
agent, dated May 29, 1997.
**10.60 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N516MC.
**10.61 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N508MC.
**10.62 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N507MC.
**10.63 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N509MC.
**10.64 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N808MC.
**10.65 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N505MC.
**10.66 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N808MC.
**10.67 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N507MC.
**10.68 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N509MC.
**10.69 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N505MC.
**10.70 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N508MC.
**10.71 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N516MC.
**10.72 -- Form of Indenture, dated August 13, 1997, between the
Company and State Street Bank and Trust Company, as
Trustee, relating to the 10 3/4% Senior Notes (with form
of Note attached as exhibit thereto)
**10.73 -- Purchase Agreement, dated August 8, 1997, between the
Company and BT Securities Corporation relating to the
10 3/4% Senior Notes.
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**10.74 -- Registration Rights Agreement, dated August 13, 1997,
between the Company and BT Securities Corporation
relating to the 10 3/4% Senior Notes.
**10.75 -- Credit Agreement among Atlas Freighter Leasing II, Inc.,
the Lenders listed therein, Bankers Trust Company (as
Administrative Agent) and Goldman Sachs Credit Partners
L.P. (as Syndication Agent) dated September 5, 1997.
**10.76 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N527MC and Spare Engine Nos. 517538,
517539 and 455167.
**10.77 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N523MC and Spare Engine Nos. 530168 and
517530.
**10.78 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N524MC and Spare Engine Nos. 517790 and
517602.
**10.79 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N526MC and Spare Engine Nos. 517544 and
517547.
**10.80 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N523MC and Spare
Engine Nos. 530168 and 517530.
*10.81 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N524MC and Spare
Engine Nos. 517790 and 517602.
**10.82 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N526MC and Spare
Engine Nos. 517544 and 517547.
**10.84 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N527MC and Spare
Engine Nos. 517538, 517539 and 455167.
**10.85 -- First Amendment to Lease Agreement among Atlas Freighter
Leasing, Inc. and Bankers Trust Company, as agent, dated
September 5, 1997
**/****10.86 -- Purchase Agreement Number 2021 between The Boeing Company
and the Company dated June 6, 1997.
**10.87 -- Aircraft General Terms Agreement between The Boeing
Company and the Company dated June 6, 1997.
++10.88 -- Placement Agreement, dated January 26, 1998, among the
Company, Morgan Stanley & Co. Incorporated, BT Alex.
Brown Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Goldman, Sachs & Co. relating
to the Pass Through Certificates Series 1998-1.
++10.89 -- Registration Rights Agreement, dated February 9, 1998,
among the Company, Morgan Stanley & Co. Incorporated, BT
Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Goldman, Sachs & Co. relating
to the Pass Through Certificates Series 1998-1.
++10.90 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1A-0.
</TABLE>
II-3
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
++10.91 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1A-S.
++10.92 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1B-0.
++10.93 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1B-S.
++10.94 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1C-0.
++10.95 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1C-S.
++10.96 -- Deposit Agreement (Class A), dated as of February 9,
1998, between First Security Bank, National Association,
as Escrow Agent, and ABN AMRO Bank N.V., acting through
its Chicago Branch, as Depositary.
++10.97 -- Deposit Agreement (Class B), dated as of February 9,
1998, between First Security Bank, National Association,
as Escrow Agent, and ABN AMRO Bank N.V., acting through
its Chicago Branch, as Depositary.
++10.98 -- Deposit Agreement (Class C), dated as of February 9,
1998, between First Security Bank, National Association,
as Escrow Agent, and ABN AMRO Bank N.V., acting through
its Chicago Branch, as Depositary.
++10.99 -- Indemnity Agreement, dated as of February 9, 1998,
between ABN AMRO Bank N.V., acting through its Chicago
Branch, as Depositary, and the Company.
++10.100 -- Escrow and Paying Agent Agreement (Class A), dated as of
February 9, 1998, among First Security Bank, National
Association, as Escrow Agent, Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman,
Sachs & Co., as Placement Agents, Wilmington Trust
Company, not in its individual capacity, but solely as
Pass Through Trustee, and Wilmington Trust Company, as
Paying Agent.
++10.101 -- Escrow and Paying Agent Agreement (Class B), dated as of
February 9, 1998, among First Security Bank, National
Association, as Escrow Agent, Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman,
Sachs & Co., as Placement Agents, Wilmington Trust
Company, not in its individual capacity, but solely as
Pass Through Trustee, and Wilmington Trust Company, as
Paying Agent.
++10.102 -- Escrow and Paying Agent Agreement (Class C), dated as of
February 9, 1998, among First Security Bank, National
Association, as Escrow Agent, Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman,
Sachs & Co., as Placement Agents, Wilmington Trust
Company, not in its individual capacity, but solely as
Pass Through Trustee, and Wilmington Trust Company, as
Paying Agent.
++10.103 -- Revolving Credit Agreement (1998-1A), dated as of
February 9, 1998, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as Borrower, and ABN AMRO Bank N.V., acting
through its Chicago Branch as Liquidity Provider.
++10.104 -- Revolving Credit Agreement (1998-1B), dated as of
February 9, 1998, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as Borrower, and Morgan Stanley Capital Services,
Inc., as Liquidity Provider.
</TABLE>
II-4
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
++10.105 -- Revolving Credit Agreement (1998-1C), dated as of
February 9, 1998, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as Borrower, and Morgan Stanley Capital Services,
Inc., as Liquidity Provider.
++10.106 -- Guarantee, dated as of February 9, 1998, from Morgan
Stanley, Dean Witter, Discover & Co. to Atlas Air, Inc.
Pass Through Trust 1998-B relating to Class B Liquidity
Facility.
++10.107 -- Guarantee, dated as of February 9, 1998, from Morgan
Stanley, Dean Witter, Discover & Co. to Atlas Air, Inc.
Pass Through Trust 1998-C relating to Class C Liquidity
Facility.
++10.108 -- Intercreditor Agreement, dated as of February 9, 1998,
among Wilmington Trust Company, not in its individual
capacity but solely as Trustee, ABN AMRO Bank N.V.,
acting through its Chicago Branch, as Class A Liquidity
Provider, Morgan Stanley Capital Services, Inc., as Class
B Liquidity Provider and Class C Liquidity Provider, and
Wilmington Trust Company.
++10.109 -- Note Purchase Agreement, dated as of February 9, 1998,
among the Company, Wilmington Trust Company and First
Security Bank, National Association.
++10.110 -- Employment Agreement dated as of February 16, 1998
between the Company and Stephen C. Nevin.
++++10.111 -- Form of Indenture, dated April 9, 1998, between the
Company and State Street Bank and Trust company, as
Trustee, relating to the 9 1/4% Senior Notes (with form
of Note attached as exhibit thereto).
++++10.112 -- Placement Agreement, dated April 7, 1998, among the
Company and Morgan Stanley & Co. Incorporated and BT
Alex. Brown Incorporated relating to the 9 1/4% Senior
Notes.
++++10.113 -- Registration Rights Agreement, dated April 9, 1998, among
the Company and Morgan Stanley & Co. Incorporated and BT
Alex. Brown Incorporated relating to the 9 1/4% Senior
Notes.
+16.1 -- Letter dated July 21, 1995 from Ernst & Young to the
Securities and Exchange Commission.
++21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Public Accountants.
23.2 -- Consent of Cahill Gordon & Reindel (included in Exhibit
5).
24.1 -- Powers of Attorney (set forth on the signature page of
the Registration Statement).
25 -- Statement of Eligibility of Trustee for the 9 1/4% Senior
Notes.
</TABLE>
- ---------------
++ Incorporated by reference to the exhibits to the Company's Annual Report
for 1997 on Form 10-K.
+ Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 33-90304).
++ Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 33-97892).
++++ Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-4 (No. 333-51819).
* Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 333-2810).
** Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-4 (No. 333-36305).
*** Incorporated by reference to the exhibits to the Company's Annual Report
for 1996 on Form 10-K.
**** Portions of this document, for which the Company has been granted
confidential treatment, have been redacted and filed separately with the
Securities and Exchange Commission.
II-5
<PAGE> 93
(b) Schedules.
All schedules are omitted as the required information is presented in
the Registrant's consolidated financial statements or related notes or such
schedules are not applicable.
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrants hereby undertake as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of the
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
The undersigned registrants hereby undertake to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the SEC under Section 305(b)(2) of the Act.
II-6
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized in the City of Denver, State of Colorado
on the 9th day of June, 1998.
ATLAS AIR, INC.
By: /s/ RICHARD H. SHUYLER
----------------------------------
Name: Richard H. Shuyler
Title: Executive Vice
President -- Strategic
Planning, Treasurer and
Director
POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby constitutes Richard H. Shuyler and Stephen C. Nevin, and each of them
singly, such person's true and lawful attorneys, each with full power of
substitution to sign for such person and in such person's name and capacity
indicated below, any and all amendments to this Registration Statement,
including post-effective amendments thereto, and to file the same with the
Securities and Exchange Commission, hereby ratifying and confirming such
person's signature as it may be signed by said attorneys to any and all
amendments.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL A. CHOWDRY Chairman of the Board, Chief June 9, 1998
- ----------------------------------------------------- Executive Officer, President
Michael A. Chowdry and Director
/s/ RICHARD H. SHUYLER Executive Vice President -- June 9, 1998
- ----------------------------------------------------- Strategic Planning,
Richard H. Shuyler Treasurer and Director
/s/ STEPHEN C. NEVIN Vice President and Chief June 9, 1998
- ----------------------------------------------------- Financial Officer
Stephen C. Nevin
/s/ LAWRENCE W. CLARKSON Director June 9, 1998
- -----------------------------------------------------
Lawrence W. Clarkson
/s/ DAVID K.P. LI Director June 9, 1998
- -----------------------------------------------------
David K.P. Li
/s/ DAVID T. MCLAUGHLIN Director June 9, 1998
- -----------------------------------------------------
David T. McLaughlin
/s/ BRIAN ROWE Director June 9, 1998
- -----------------------------------------------------
Brian Rowe
</TABLE>
II-7
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+2.1 -- Plan of Reorganization and Merger Agreement dated as of
July 12, 1995 by and between Holdings and the Company.
+3.2 -- Restated Certificate of Incorporation of the Company.
+3.3 -- Amended and Restated By-Laws of the Company.
++4.1 -- Form of Indenture between the Company and First Fidelity
Bank, N.A., as Trustee.
++4.2 -- Form of Second Indenture between the Company and First
Fidelity Bank, N.A., as Trustee.
++4.3 -- Form of Pass Through Trust Agreement between the Company
and First Fidelity Bank, N.A., as Trustee (with form of
Pass Through Certificate attached as exhibit thereto).
++4.4 -- Form of Pass Through Agreement between the Company and
First Fidelity Bank, N.A., as Trustee (with form of Pass
Through Certificate attached as exhibit thereto).
5 -- Opinion of Cahill Gordon & Reindel as to the legality of
the New Certificates.
+10.14 -- Boeing 747 Maintenance Agreement dated January 1, 1995,
between the Company and KLM Royal Dutch Airlines, as
amended.
+10.15 -- Atlas Air, Inc. 1995 Long Term Incentive and Stock Award
Plan.
+10.16 -- Atlas Air, Inc. Employee Stock Purchase Plan.
10.17 -- Atlas Air, Inc. Profit Sharing Plan.
+10.18 -- Atlas Air, Inc. Retirement Plan.
++10.19 -- Employment Agreement between the Company and Michael A.
Chowdry.
++10.20 -- Employment Agreement between the Company and Richard H.
Shuyler.
++10.23 -- Employment Agreement between the Company and James T.
Matheny.
+10.26 -- Maintenance Agreement between the Company and Hong Kong
Aircraft Engineering Company Limited dated April 12,
1995, for the performance of certain maintenance events.
+10.30 -- Conditional Sales Agreement dated as of September 22,
1994 by and between Lufthansa and the Company relating to
B747-230 aircraft, registration D-ABYS.
+10.31 -- Conditional Sales Agreement dated as of September 22,
1994 by and between Lufthansa and the Company relating to
B747-230 aircraft, registration D-ABYL.
*10.36 -- Aircraft Purchase Agreement, dated as of January 19, 1996
between Langdon Asset Management, Inc. and the Company.
***10.52 -- Employment Agreement dated as of November 18, 1996
between the Company and R. Terrence Rendlerman.
***10.53 -- Secured Loan Agreement by and between the Company and
Finova Capital Corporation dated April 11, 1996.
***10.54 -- Second Amended and Restated Credit Agreement among the
Company and the Lenders listed therein, Goldman Sachs
Credit Partners L.P. (as syndication agent) and Bankers
Trust Company (as Administrative Agent) dated February
28, 1997.
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
***/****10.55 -- Engine Maintenance Agreement between the Company and
General Electric Company dated June 6, 1996.
**10.56 -- Employment Agreement dated as of May 1, 1997 between the
Company and Stanley G. Wraight.
**10.58 -- Third Amended and Restated Credit Agreement among the
Company, the Lenders listed therein, Goldman Sachs Credit
Partners L.P. (as Syndication Agent) and Bankers Trust
Company (as Administrative Agent) dated September 5,
1997.
**10.59 -- Credit Agreement among Atlas Freighter Leasing, Inc., the
Lenders listed therein and Bankers Trust Company, as
agent, dated May 29, 1997.
**10.60 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N516MC.
**10.61 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N508MC.
**10.62 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N507MC.
**10.63 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N509MC.
**10.64 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N808MC.
**10.65 -- Lease Agreement between Atlas Freighter Leasing, Inc., as
lessor, and the Company, as lessee, relating to B747-200
aircraft. U.S. Registration No. N505MC.
**10.66 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N808MC.
**10.67 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N507MC.
**10.68 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N509MC.
**10.69 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N505MC.
**10.70 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N508MC.
**10.71 -- Security Agreement and Chattel Mortgage between the
Company, Atlas Freighter Leasing, Inc. and Bankers Trust
Company, as agent, relating to B747-200 aircraft. U.S.
Registration No. N516MC.
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
**10.72 -- Form of Indenture, dated August 13, 1997, between the
Company and State Street Bank and Trust Company, as
Trustee, relating to the 10 3/4% Senior Notes (with form
of Note attached as exhibit thereto)
**10.73 -- Purchase Agreement, dated August 8, 1997, between the
Company and BT Securities Corporation relating to the
10 3/4% Senior Notes.
**10.74 -- Registration Rights Agreement, dated August 13, 1997,
between the Company and BT Securities Corporation
relating to the 10 3/4% Senior Notes.
**10.75 -- Credit Agreement among Atlas Freighter Leasing II, Inc.,
the Lenders listed therein, Bankers Trust Company (as
Administrative Agent) and Goldman Sachs Credit Partners
L.P. (as Syndication Agent) dated September 5, 1997.
**10.76 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N527MC and Spare Engine Nos. 517538,
517539 and 455167.
**10.77 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N523MC and Spare Engine Nos. 530168 and
517530.
**10.78 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N524MC and Spare Engine Nos. 517790 and
517602.
**10.79 -- Lease Agreement dated September 5, 1997 between Atlas
Freighter Leasing II, Inc., as lessor, and the Company,
as lessee, relating to B747-200 aircraft, U.S.
Registration No. N526MC and Spare Engine Nos. 517544 and
517547.
**10.80 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N523MC and Spare
Engine Nos. 530168 and 517530.
*10.81 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N524MC and Spare
Engine Nos. 517790 and 517602.
**10.82 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N526MC and Spare
Engine Nos. 517544 and 517547.
**10.84 -- Security Agreement and Chattel Mortgage dated September
5, 1997 between Atlas Freighter Leasing II, Inc., the
Company and Bankers Trust Company, as Agent, relating to
B747-200 aircraft, U.S. Registration No. N527MC and Spare
Engine Nos. 517538, 517539 and 455167.
**10.85 -- First Amendment to Lease Agreement among Atlas Freighter
Leasing, Inc. and Bankers Trust Company, as agent, dated
September 5, 1997
**/****10.86 -- Purchase Agreement Number 2021 between The Boeing Company
and the Company dated June 6, 1997.
</TABLE>
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
**10.87 -- Aircraft General Terms Agreement between The Boeing
Company and the Company dated June 6, 1997.
++10.88 -- Placement Agreement, dated January 26, 1998, among the
Company, Morgan Stanley & Co. Incorporated, BT Alex.
Brown Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Goldman, Sachs & Co. relating
to the Pass Through Certificates Series 1998-1.
++10.89 -- Registration Rights Agreement, dated February 9, 1998,
among the Company, Morgan Stanley & Co. Incorporated, BT
Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and Goldman, Sachs & Co. relating
to the Pass Through Certificates Series 1998-1.
++10.90 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1A-0.
++10.91 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1A-S.
++10.92 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1B-0.
++10.93 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1B-S.
++10.94 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1C-0.
++10.95 -- Pass Through Trust Agreement, dated as of February 9,
1998, between the Company and Wilmington Trust Company,
as Trustee, relating to the Atlas Air Pass Through Trust
1998-1C-S.
++10.96 -- Deposit Agreement (Class A), dated as of February 9,
1998, between First Security Bank, National Association,
as Escrow Agent, and ABN AMRO Bank N.V., acting through
its Chicago Branch, as Depositary.
++10.97 -- Deposit Agreement (Class B), dated as of February 9,
1998, between First Security Bank, National Association,
as Escrow Agent, and ABN AMRO Bank N.V., acting through
its Chicago Branch, as Depositary.
++10.98 -- Deposit Agreement (Class C), dated as of February 9,
1998, between First Security Bank, National Association,
as Escrow Agent, and ABN AMRO Bank N.V., acting through
its Chicago Branch, as Depositary.
++10.99 -- Indemnity Agreement, dated as of February 9, 1998,
between ABN AMRO Bank N.V., acting through its Chicago
Branch, as Depositary, and the Company.
++10.100 -- Escrow and Paying Agent Agreement (Class A), dated as of
February 9, 1998, among First Security Bank, National
Association, as Escrow Agent, Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman,
Sachs & Co., as Placement Agents, Wilmington Trust
Company, not in its individual capacity, but solely as
Pass Through Trustee, and Wilmington Trust Company, as
Paying Agent.
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
++10.101 -- Escrow and Paying Agent Agreement (Class B), dated as of
February 9, 1998, among First Security Bank, National
Association, as Escrow Agent, Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman,
Sachs & Co., as Placement Agents, Wilmington Trust
Company, not in its individual capacity, but solely as
Pass Through Trustee, and Wilmington Trust Company, as
Paying Agent.
++10.102 -- Escrow and Paying Agent Agreement (Class C), dated as of
February 9, 1998, among First Security Bank, National
Association, as Escrow Agent, Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Goldman,
Sachs & Co., as Placement Agents, Wilmington Trust
Company, not in its individual capacity, but solely as
Pass Through Trustee, and Wilmington Trust Company, as
Paying Agent.
++10.103 -- Revolving Credit Agreement (1998-1A), dated as of
February 9, 1998, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as Borrower, and ABN AMRO Bank N.V., acting
through its Chicago Branch as Liquidity Provider.
++10.104 -- Revolving Credit Agreement (1998-1B), dated as of
February 9, 1998, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as Borrower, and Morgan Stanley Capital Services,
Inc., as Liquidity Provider.
++10.105 -- Revolving Credit Agreement (1998-1C), dated as of
February 9, 1998, between Wilmington Trust Company, not
in its individual capacity but solely as Subordination
Agent, as Borrower, and Morgan Stanley Capital Services,
Inc., as Liquidity Provider.
++10.106 -- Guarantee, dated as of February 9, 1998, from Morgan
Stanley, Dean Witter, Discover & Co. to Atlas Air, Inc.
Pass Through Trust 1998-B relating to Class B Liquidity
Facility.
++10.107 -- Guarantee, dated as of February 9, 1998, from Morgan
Stanley, Dean Witter, Discover & Co. to Atlas Air, Inc.
Pass Through Trust 1998-C relating to Class C Liquidity
Facility.
++10.108 -- Intercreditor Agreement, dated as of February 9, 1998,
among Wilmington Trust Company, not in its individual
capacity but solely as Trustee, ABN AMRO Bank N.V.,
acting through its Chicago Branch, as Class A Liquidity
Provider, Morgan Stanley Capital Services, Inc., as Class
B Liquidity Provider and Class C Liquidity Provider, and
Wilmington Trust Company.
++10.109 -- Note Purchase Agreement, dated as of February 9, 1998,
among the Company, Wilmington Trust Company and First
Security Bank, National Association.
++10.110 -- Employment Agreement dated as of February 16, 1998
between the Company and Stephen C. Nevin.
++++10.111 -- Form of Indenture, dated April 9, 1998, between the
Company and State Street Bank and Trust company, as
Trustee, relating to the 9 1/4% Senior Notes (with form
of Note attached as exhibit thereto).
++++10.112 -- Placement Agreement, dated April 7, 1998, among the
Company and Morgan Stanley & Co. Incorporated and BT
Alex. Brown Incorporated relating to the 9 1/4% Senior
Notes.
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
++++10.113 -- Registration Rights Agreement, dated April 9, 1998, among
the Company and Morgan Stanley & Co. Incorporated and BT
Alex. Brown Incorporated relating to the 9 1/4% Senior
Notes.
+16.1 -- Letter dated July 21, 1995 from Ernst & Young to the
Securities and Exchange Commission.
++21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Public Accountants.
23.2 -- Consent of Cahill Gordon & Reindel (included in Exhibit
5).
24.1 -- Powers of Attorney (set forth on the signature page of
the Registration Statement).
25 -- Statement of Eligibility of Trustee for the 9 1/4% Senior
Notes.
</TABLE>
- ---------------
++ Incorporated by reference to the exhibits to the Company's Annual Report
for 1997 on Form 10-K.
+ Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 33-90304).
++ Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 33-97892).
++++ Incorporated by reference to the exhibits to the Company's
Registration Statement on Form S-4 (No. 333-51819).
* Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (No. 333-2810).
** Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-4 (No. 333-36305).
*** Incorporated by reference to the exhibits to the Company's Annual Report
for 1996 on Form 10-K.
**** Portions of this document, for which the Company has been granted
confidential treatment, have been redacted and filed separately with the
Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF CAHILL GORDON & REINDEL]
June 9, 1998
Atlas Air, Inc.
538 Commons Drive
Golden, Colorado 80401
(212) 701-3000
Ladies and Gentlemen:
We have examined a copy of the Registration Statement on Form S-4
(No. 333- ) (the "Registration Statement"), filed by Atlas Air, Inc. (the
"Company") with the Securities and Exchange Commission (the "Commission") on
June 9, 1998 and relating to the registration pursuant to the provisions of
the Securities Act of 1933, as amended (the "Act"), of up to $175,000,000
principal amount of 9 1/4% Notes due 2008 (the "New Notes"). The New Notes,
which upon the effectiveness of the Registration Statement will be registered
under the Act, will be issued in exchange for a like principal amount of the
Company's outstanding 9 1/4% Notes due 2008 (the "Old Notes"), which are not
registered under the Act. The New Notes will be issued pursuant to an Indenture
(the "Indenture") dated as of April 9, 1998, between the Company and State
Street Bank & Trust Company. In rendering this opinion, we have reviewed such
documents and made such investigations as we have deemed appropriate.
Based on the foregoing, the subject to the qualifications stated herein, we
are of the opinion that:
The New Notes have been duly authorized for issuance and, when duly
executed, authenticated, registered, issued and delivered in exchange for Old
Notes of like principal amount, in accordance with the terms of the Indenture
and as contemplated by the Registration Statement, will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the Indenture,
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance
<PAGE> 2
-2-
and similar laws affecting creditors' rights and remedies generally and subject
to general principles of equity.
We are members of the bar of the State of New York and do not purport to be
experts in, or to express any opinion concerning, the laws of any jurisdiction
other than the law of the State of New York, the Delaware General Corporation
Law and the federal laws of the United States of America.
Neither this opinion nor any part hereof may be delivered to, used or
relied upon by any person other than you without our prior written consent.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the reference to our firm under the
caption "Legal Matters" in the Registration Statement and related prospectus.
Our consent to such reference does not constitute a consent under Section 7 of
the Securities Act, and in consenting to such reference we have not certified
any part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under said Section 7 or under
the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ CAHILL GORDON & REINDEL
---------------------------
Cahill Gordon & Reindel
<PAGE> 1
EXHIBIT 10.17
ATLAS AIR PROFIT SHARING PLAN
Preamble
THIS PROFIT SHARING PLAN, amended and restated as of May 15, 1998 by
Atlas Air, Inc., a Delaware corporation (the "Company"), hereby restates the
Atlas Air Profit Sharing Plan (the "Plan") in accordance with the terms and
conditions set forth herein.
WHEREAS, the Company wishes to continue to recognize the vital role
each of its Employees plays in the growth and profitability of the Company, and
seeks to maintain and retain a work force dedicated to achieving those goals;
and
WHEREAS, in recognition of that vital role, the Company wishes to
restate the Plan for payment to Employees of an annual amount specifically based
upon the Company's profits;
NOW, THEREFORE, the Company hereby adopts, establishes and restates the
Plan for the benefit of its Eligible Employees.
Article 1.
Purpose of the Plan
The purpose of the Plan is to share the profits of the Company with
Eligible Employees whose efforts are instrumental in the Company's financial
success by providing, in addition to other compensation, payments to such
Employees based upon pre-tax profits of the Company over the period beginning
June 30, 1994 through December 31, 1994, and annually thereafter on a calendar
basis for each year ended December 31 for so long as the Plan is in effect.
Article 2.
Definitions
Capitalized terms used herein shall have the following meanings, unless
the context clearly requires otherwise.
2.1 Annual Profit Sharing Contribution means the total annual Company
contribution to be distributed in profit sharing payments to Eligible Employees
pursuant to the terms of Article 4 hereof.
2.2 Annual Profit Sharing Allocation means the amount paid to an
Eligible Employee in accordance with the terms of Article 5 hereof.
2.3 Board of Directors or Board means the Board of Directors of the
Company.
2.4 Company means Atlas Air, Inc., a Delaware corporation, and any of
its subsidiaries whose participation in this Plan is approved by the Board.
1
<PAGE> 2
2.5 Compensation means gross wages reported for U.S. federal income tax
purposes on a W-2 federal tax form, deducting from such amounts any of the
following: profit sharing (including guaranteed profit sharing payments made
pursuant to Article 5.1(a) hereof), completion bonus, per diem, compensation
paid prior to becoming an Eligible Employee under this Plan, expense
reimbursements, excess life insurance, travel benefits, and other unusual
payments that might occur in the future.
2.6 Eligible Employee means any full-time (more than 20 hours per week)
Employee employed by the Company who has met the requirements for participation
in the Plan, except for those who are subject to a collective bargaining
agreement or who have been certified by the National Mediation Board or any
other such regulatory agency for representation. To be eligible, an individual
must be employed by the Company on the date the profit sharing distribution is
made, unless the individual is a Retired Employee, subject to the provisions of
Article 3 hereof.
2.7 Employee means any individual who is employed by the Company on
either a salaried or hourly basis, and from whom the Company is required to
withhold taxes from remuneration paid by the Company to such individuals for
personal services rendered to the Company. This does not include any individual
who is a "leased employee," as defined in Section 414(n) of the Code, nor any
person retained as an independent contractor.
2.8 Fiscal Year means the Company's financial reporting year.
2.9 Plan means the Atlas Air Profit Sharing Plan.
2.10 Retired Employee means a previous Employee who has reached age 62
(60 for pilots) or greater and has completed four complete years (for 1998 only;
five years thereafter) of continuous service as an Eligible Employee with the
Company on or before the date such person elects to retire. An Eligible Employee
who, through no fault of his/her own, is no longer able to work due to the loss
of FAA-required licenses or medical certificates, or due to disability, will
also be eligible to retire.
Article 3.
Requirements for Participation
Eligible Employees (see Article 2.6) will participate in the Plan at
the start of the month following their one year anniversary as a full-time
Employee. An Eligible Employee must be a current Employee (or a Retired
Employee) as of the day on which profit sharing is paid.
Article 4.
Annual Profit Sharing Contribution
The Company will make an annual Profit Sharing Contribution, for each
Fiscal Year, of an amount equal to 10% of pre-tax profits for Fiscal Years 1997,
1998 and 1999. However, the Company will guarantee a minimum payment for those
years, as described in Article 5.1(a).
2
<PAGE> 3
4.1 Pre-tax profits, for the purposes of calculating the Company's
Annual Profit Sharing Contribution, will be determined by the Company using the
same methods as used in the ordinary course of its business. However, the
following items defined under generally accepted accounting principles or which
are in common use in public financial statement reporting will be excluded from
pre-tax profits for purposes of calculating the company's Annual Profit Sharing
Contribution:
(a) Any income or loss related to charges or credits (whether
or not identified as special credits or charges) for unusual or
infrequently-occurring items (such as business dispositions or sale of property,
plant or equipment not in the ordinary course of business), or related to
intangible assets.
(b) Extraordinary items reported on separate line items in the
Company's income statement.
Article 5.
Annual Profit Sharing Allocation
5.1 Timing and Methodology of Payment. The Annual Profit Sharing
Allocation shall be due and payable as follows:
(a) For years 1997, 1998 and 1999 only, beginning with an
Eligible Employee's 13th month of employment, an Employee will be entitled to
receive a guaranteed profit sharing payment of 10% of Compensation (captains
receive a guarantee of 20%).
(b) If actual profit sharing exceeds 10% of Compensation, or
20% in the case of captains, Eligible Employees will be entitled to receive the
excess in two installments. An estimate of one-half (1/2) of the excess will be
paid no later than December 15 of the calendar year for which the profit sharing
contribution is being made (based on preliminary, unaudited financial results),
and the remaining balance will be paid no later than May 15 of the following
year (based on finalized, audited results, including any required adjustments to
the prior December 15 payment).
5.2 Method of Allocation. When the Annual Profit Sharing Contribution
for the Fiscal Year has been determined, individual profit sharing amounts will
be allocated to each Eligible Employee. All individual amounts are calculated by
multiplying the Company's Annual Profit Sharing Contribution by the ratio of
each individual Eligible Employee's Compensation to the total Compensation of
all Eligible Employees. Payments may be made in cash, Company stock, or come
combination thereof, at the discretion of the Board of Atlas Air, Inc.
5.3 Retirement Plan Contributions. All profit sharing pay will be
subject to 401(k) and (m) elections on file at the time of payment.
3
<PAGE> 4
Article 6.
Miscellaneous
6.1 Effect Upon Employment. Nothing contained herein shall be construed
to be a contract of employment of any kind or any period, and this Plan shall
not confer any rights to any Employee to continue in the employ of the Company.
6.2 Assignability. The right to receive payments hereunder shall not be
transferable or assignable, except by Last Will and Testament or in estate
succession, and no rights shall vest until payment is made.
6.3 Governing Law. This Plan shall be construed in accordance with, and
shall be governed by the laws of the State of Delaware.
6.4 Entire Plan. This instrument contains the entire understanding and
undertaking of the Company relating to the subject matter hereof, except as
otherwise referred to herein, and supersedes any and all prior and
contemporaneous undertakings, agreements, understandings, inducements or
conditions, whether express or implied, written or oral, except as herein
contained.
6.5 Number and Gender. Whenever appropriate, as the context may
require, words used herein shall be construed in the singular or the plural, and
words used in one gender shall be construed in the other gender.
6.6 Plan Binding Upon All Parties. This Plan shall be binding upon the
parties hereto, their successors and assigns, and upon all Employees and their
spouses, heirs, executors and administrators.
6.7 Decision of Board of Directors Final and Binding; Amendments and
Termination. The Board of Directors of the Company shall resolve any disputes or
questions arising under the Plan, and its decision shall be final and binding
upon all parties. The Board of Directors may also amend this Plan from time to
time and terminate the Plan.
6.8 No Assignments. No rights or any amounts which might be due
hereunder are assignable to any third party, and shall not vest until actual
payment is made to the recipient.
Article 7.
Effective Date
The Plan, as restated, shall become effective January 1, 1998 upon the
execution of the Plan by the President of the Company.
4
<PAGE> 5
IN WITNESS WHEREOF, this Plan is executed for and on behalf of the
Company the day and year first above written.
ATLAS AIR, INC., a Delaware corporation
By: /s/ Michael A. Chowdry
-------------------------------------------------
Name: Michael A. Chowdry
Title: President, Chairman & Chief Executive Officer
5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 13, 1998
included in Atlas Air, Inc.'s Form 10-K for the year ended December 31, 1997
and to all references to our Firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado
June 9, 1998
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF l939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
[_] CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)
STATE STREET BANK AND TRUST COMPANY
------------------------------------------------------------
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
------------------------ ------------------------
(State of incorporation if (I.R.S. Employer
not a national bank Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
John R. Towers, Executive Vice President and General
Counsel,
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
------------------------------------------------------------
(Name, address and telephone number of agent for service)
ATLAS AIR, INC.
------------------------------------------------------------
(Exact name of obligor as specified in its charter)
Delaware 84-1207329
------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
538 Commons Drive, Golden, Colorado 80401
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
9-1/4% Senior Notes due 2008
------------------------------------------------------------
(Title of the indenture securities)
<PAGE> 2
Item l. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject:
Department of Banking and Insurance of
The Commonwealth of Massachusetts
100 Cambridge Street
Boston, Massachusetts
Board of Governors of the Federal Reserve System
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor. If the obligor is an affiliate of
the trustee, describe each such affiliation.
None with respect to the trustee or its parent, State Street
Corporation.
Item l6. List of exhibits. List below all exhibits filed as a part of this
statement of eligibility and qualification.
l. A copy of the Articles of Association of the trustee as now
in effect.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed
with Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A copy of the Certificate of Authority of the trustee to do
Business.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities
- 2 -
<PAGE> 3
and Exchange Commission as Exhibit 2 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
3. A copy of the Certification of Fiduciary Powers of the Trustee.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
4. A copy of the By-laws of the trustee as now in effect.
A copy of the By-Laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to
the Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with Registration Statement of Eastern Edison Company
(File No. 33-37823) and is incorporated herein by reference
thereto.
5. A consent of the trustee required by Section 32l(b) of the Act is
annexed hereto as Exhibit 5 and made a part hereof.
6. A copy of the latest Consolidated Reports of Condition of the
trustee, published pursuant to law or the requirements of its
supervising or examining authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 6 and made a
part hereof.
- 3 -
<PAGE> 4
NOTES
Inasmuch as this Form T-l is filed prior to the ascertainment by the
trustee of all facts on which to base its answer to Item 2, the answer to said
Item is based upon incomplete information. Said Item may, however, be considered
correct unless amended by an amendment to this Form T-l.
- 4 -
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of l939, the
trustee, State Street Bank and Trust Company, a Massachusetts trust company, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Hartford, and State of Connecticut, on the 9th day of June, 1998.
STATE STREET BANK AND TRUST
COMPANY,
Trustee
By /s/ Steven Cimalore
----------------------
Name: Steven Cimalore
Title: Vice President
- 5 -
<PAGE> 6
EXHIBIT 5
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
The undersigned, as Trustee under an Indenture entered into between Atlas
Air, Inc. and State Street Bank and Trust Company, Trustee, does hereby consent
that, pursuant to Section 321(b) of the Trust Indenture Act of 1939, reports of
examinations with respect to the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST
COMPANY,
Trustee
By /s/ Steven Cimalore
---------------------
Name: Steven Cimalore
Title: Vice President
Dated: June 9, 1998
<PAGE> 7
EXHIBIT 6
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin.................... 1,144,309
Interest-bearing balances ............................................ 9,914,704
Securities ................................................................. 10,062,052
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary .................................. 8,073,970
Loans and lease financing receivables:
Loans and leases, net of unearned income 6,433,627
Allowance for loan and lease losses ........88,820
Allocated transfer risk reserve .................0
Loans and leases, net of unearned income and allowances............... 6,344,807
Assets held in trading accounts ............................................ 1,117,547
Premises and fixed assets .................................................. 453,576
Other real estate owned .................................................... 100
Investments in unconsolidated subsidiaries ................................. 44,985
Customers' liability to this bank on acceptances outstanding ............... 66,149
Intangible assets .......................................................... 263,249
Other assets ............................................................... 1,066,572
----------
Total assets ............................................................... 38,552,020
==========
LIABILITIES
Deposits:
In domestic offices .................................................. 9,266,492
Noninterest-bearing ...............6,824,432
Interest-bearing ..................2,442,060
In foreign offices and Edge subsidiary ............................... 14,385,048
Noninterest-bearing ..................75,909
Interest-bearing .................14,309,136
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary .................................. 9,949,994
Demand notes issued to the U.S. Treasury and Trading Liabilities ........... 171,783
Trading liabilities ........................................................ 1,078,189
Other borrowed money ....................................................... 406,583
Subordinated notes and debentures .......................................... 0
Bank's liability on acceptances executed and outstanding ................... 66,149
Other liabilities .......................................................... 878,947
Total liabilities .......................................................... 36,203,185
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus .............................. 0
Common stock ............................................................... 29,931
Surplus .................................................................... 450,003
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,857,021
Cumulative foreign currency translation adjustments ........................ (6,256)
Total equity capital ....................................................... 2,348,835
----------
Total liabilities and equity capital ....................................... 38,552,020
----------
</TABLE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
<PAGE> 8
David A. Spina
Marshall N. Carter
Truman S. Casnern
- 2 -
