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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1999
REGISTRATION NO. 333-72211
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ATLAS AIR, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 4731 84-1207329
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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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. [ ]
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.
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PROSPECTUS
ATLASAIR LOGO
ATLASAIR LOGO
OFFER TO EXCHANGE OUR 9 3/8% SENIOR NOTES DUE 2006,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR OUR 9 3/8% SENIOR NOTES DUE 2006, WHICH HAVE NOT BEEN REGISTERED
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TERMS OF THE EXCHANGE OFFER:
- Offer to exchange up to $150,000,000 aggregate principal amount of our
new 9 3/8% Senior Notes due 2006 (the "New Notes"), for a like principal
amount of our outstanding 9 3/8% Senior Notes due 2006 (the "Old Notes"
and collectively with the New Notes referred to as the "Notes").
- Expires 5:00 p.m., New York City time, on March 26, 1999 unless extended.
- Tenders of the Old Notes may be withdrawn any time prior to the
expiration of the Exchange Offer.
- We will accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to the expiration of the Exchange Offer.
- Not subject to any condition, other than that the Exchange Offer not
violate applicable law or any applicable interpretation of the staff of
the Securities and Exchange Commission and certain other customary
conditions.
- We will not receive any proceeds from the Exchange Offer.
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
- The terms of the New Notes and the Old Notes are identical in all
material respects, 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 NEW NOTES:
- Interest Payment: semi-annually in arrears on May 15 and November 15,
commencing on May 15, 1999.
- Redemption: The New Notes will be redeemable on or after November 15,
2002. Up to 35% of the New Notes will be redeemable prior to November 15,
2001, with the net proceeds of one or more Public Equity Offerings.
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 11, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES
IN THE EXCHANGE OFFER.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is February 19, 1999.
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TABLE OF CONTENTS
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PAGE
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Special Note Regarding Forward-Looking Information.......... ii
Summary..................................................... 1
Risk Factors................................................ 11
Capitalization.............................................. 17
Selected Financial and Operating Data....................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 32
Management.................................................. 40
Description of Certain Indebtedness......................... 43
The Exchange Offer.......................................... 46
Description of Notes........................................ 54
Certain United States Federal Income Tax Considerations..... 79
Plan of Distribution........................................ 81
Legal Matters............................................... 82
Experts..................................................... 82
Where You Can Find More Information......................... 83
Incorporation of Certain Documents by Reference............. 83
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THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL WE ACCEPT SURRENDERS FOR
EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT COMPLY WITH THE SECURITIES OR BLUE SKY
LAWS OF SUCH JURISDICTION.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE PURSUANT TO THIS
PROSPECTUS SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED IN THIS DOCUMENT 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. WE HAVE NOT INDEPENDENTLY VERIFIED THIS
MARKET DATA.
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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 of 1933, as amended (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 our actual results,
levels of activity, performance or achievements 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 we believe that the
expectations reflected in such forward-looking statements are reasonable, we can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from our
expectations are disclosed under "Risk Factors" and elsewhere in this
Prospectus.
To the extent that any of the statements contained herein relating to our
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 our workforce;
- dependence on key personnel; and
- regulatory matters.
As a result of the foregoing and other factors, no assurance can be given
as to our future results and achievements. Neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.
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SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This
Prospectus includes the terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this Prospectus in its entirety. References in this Prospectus to "we,"
"us," "our," or the "Company" refer to Atlas Air, Inc and its subsidiaries. In
addition, references to "747-400 aircraft" in this Prospectus mean the Boeing
747-400F freighter aircraft. The term "you" refers to prospective investors in
the New Notes.
THE COMPANY
We are the world's largest air cargo outsourcer, with an all Boeing fleet
of 747 freighter aircraft that comply with Stage 3 FAA noise regulations. We
provide 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 we
supply aircraft, crew, maintenance and insurance (the "ACMI Contracts"). Our
customers currently include China Airlines Ltd., British Airways World Cargo,
Scandinavian Airlines System, The International Airline of the United Arab
Emirates, Thai Airways International Public Company Limited, Fast Air Carrier,
S.A., Lineas Aereas Suramericanas, S.A., Cargolux Airlines International, S.A.,
Linee Aeree Italiane S.p.A., Iberia Airlines of Spain, El Al Israel Airlines
Ltd. and Federal Express Corporation. We provide efficient, cost effective
service to our customers primarily as a result of our productive work force, the
outsourcing of a significant part of our regular maintenance work on a
long-term, fixed-cost contractual basis and the advantageous cost economies
realized in the operation of our fleet, comprised solely of Boeing 747 aircraft
which are configured for service in long-haul cargo operations.
Our fleet currently includes 23 Boeing 747-200 and 5 Boeing 747-400
freighter aircraft in service. We acquired the 747-400 aircraft in the second
half of 1998 pursuant to an agreement with the Boeing Company to purchase 10 new
747-400 freighter aircraft to be powered by engines acquired from General
Electric Company, with options to purchase up to 10 additional 747-400 aircraft
(the "Boeing Purchase Agreement"). The remaining five 747-400 aircraft are
scheduled to be delivered as follows: four in 1999 and one in 2000.
The advantages of the 747-400 aircraft as compared to the 747-200 aircraft
include:
- significantly longer range;
- greater payload capability;
- lower maintenance costs; and
- increased fuel efficiency.
We placed the first five 747-400 aircraft into service in 1998 and expect to
place the other 747-400 aircraft in service with both existing and prospective
customers whom we believe could benefit from the unique performance capabilities
of the 747-400 aircraft.
We believe that our leading market position and our continued opportunities
for growth are directly attributable to the following competitive strengths:
Long-Term Customer Contracts Which Provide Revenue Stability
Our ACMI Contracts, which accounted for approximately 94% of our total
operating revenues in 1998, generally allow our customers to guarantee monthly
minimum aircraft utilization levels at fixed hourly rates. These ACMI Contracts
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 us to supply aircraft, crew, maintenance and insurance, while our
customers bear all other operating expenses, including:
- fuel and fuel servicing;
- marketing costs associated with obtaining cargo;
- airport cargo handling;
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- landing fees;
- ground handling, aircraft push-back and de-icing services; and
- specific cargo and mail insurance.
Our customers are also responsible under these contracts for utilizing the cargo
capacity of each of the contracted aircraft. As a result, our ACMI Contracts
minimize the load factor, yield risk and fuel cost risk traditionally associated
with the air cargo business and provide a minimum annual revenue base and more
predictable profit margins. We also periodically engage in ad hoc charter or
scheduled air service depending on availability of aircraft for these uses.
Low Cost Structure
We have established ourself as a low cost, efficient and reliable provider
of air cargo transportation. This is primarily due to the outsourcing of many of
our required services, the advantageous economies of scale realized from the
operation of a standardized fleet of long-haul Boeing 747-200 aircraft, and our
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, we have advantageous, long-term contracts
on a fixed cost per flight hour basis with leading maintenance providers such as
GE and KLM Royal Dutch Airlines for a significant portion of our on-going
aircraft and engine maintenance requirements. As a result of these efficiencies,
our high service standards and increased airline industry pressure to reduce
costs, our airline customers have determined that outsourcing portions of their
air cargo business to us 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 have even greater operational capabilities than
the Boeing 747-200 aircraft and allow us to maintain our 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 10 747-400
freighter aircraft will make Atlas the largest operator of this aircraft type to
date and will enable us to achieve economies of scale from the standardization
in maintenance and crew training.
Expanding Business Base
We expect that 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, will provide us with
the opportunity to expand our air cargo outsourcing services. The primary
business focus of most of our 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.
Our 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
We have successfully increased our customer base from a single customer in
1992 to twelve customers in 1998. In addition, we have in the past operated
under short-term, seasonal ACMI Contracts with Kitty Hawk Air Cargo, Inc. and
anticipate providing short-term, seasonal service in the future. The growth in
the number of customers is a result of our ability to provide a cost-effective
service which has gained acceptance within the
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industry due to our successful market development efforts. The addition of the
747-400 aircraft provides us with the opportunity to increase our market share
by offering this product 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 gives us 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, we believe that current
industry trends are favorable to the continued growth of our 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 7.9% per year from 1987 to 1997.
The average annual percentage growth through 2017 is expected to average 6.4%,
with international air cargo market growth outpacing U.S. domestic growth. We
believe 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 establishment of the WTO;
- 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, we expect to benefit from
growth in the export-driven economies of the countries in the Pacific Rim, where
we have focused a significant amount of our flight operations. We have not
experienced any adverse impact on our business as a result of the recent
economic and political turmoil in Asia, although there can be no assurances that
there will not be any future impact. According to Boeing reports, eastbound and
westbound Trans-Pacific cargo volumes grew at average annual rates of 7.6% and
10.8%, respectively, between 1987 and 1997, and are projected to grow at average
annual rates of 7.7% and 6.0%, respectively, between 1997 and 2017. Similarly,
northbound and southbound air cargo volumes between North America and South
America increased at average annual rates of 8.7% and 10.2%, respectively,
between 1987 and 1997, and are projected to grow at average annual rates of 6.4%
and 6.8%, respectively, from 1997 to 2017. Additionally, eastbound and westbound
North Atlantic air cargo volumes increased at average annual rates of 6.8% and
6.9%, respectively, between 1987 and 1997 and are projected to grow at average
annual rates of 6.7% and 7.3%, respectively, from 1997 to 2017. We believe that,
as a U.S. certificated "flag" carrier, we are 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
we have concentrated a significant portion of our resources.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 538 Commons Drive, Golden,
Colorado 80401. Our telephone number is (303) 526-5050.
THE EXCHANGE OFFER
Purpose and Effect......... The Company sold the Old Notes on November 18, 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
with this sale, we executed and delivered for the
benefit of the holders of the Old Notes a
registration rights agreement (the "Registration
Rights Agreement") providing
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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. We
will issue the New Notes on or promptly after the
expiration of the Exchange Offer. 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."
Expiration Date............ 5:00 p.m., New York City time, on March 26, 1999,
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 us. We reserve
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
OUR SECURITYHOLDERS IS REQUIRED TO EFFECT THE
EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR)
IS BEING SOUGHT BY THIS PROSPECTUS. See "The
Exchange Offer -- Certain Conditions to the
Exchange Offer."
Procedures for tendering
Old Notes.................. If you wish to tender your Old Notes pursuant to
the Exchange Offer, you must complete, sign and
date the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained in this Prospectus and in the Letter of
Transmittal. You must 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 in this Prospectus. The method of delivery of
such documentation is at your election and risk. By
executing the Letter of Transmittal, you will
represent to us, among other things, that:
- the New Notes acquired pursuant to the Exchange
Offer by you and any beneficial owners of Old
Notes are being obtained in the ordinary course
of business of the person receiving such New
Notes;
- neither you 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
- neither you nor such beneficial owner is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company.
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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 us), 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.......... If you are a beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
you wish to tender your Old Notes in the Exchange
Offer, you should contact such registered holder
promptly and instruct such registered holder to
tender on your behalf. If you wish to tender on
your own behalf, you must, prior to completing and
executing the Letter of Transmittal and delivering
your Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in your name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time and
may not be able to be completed prior to the
Expiration Date. 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 -- Procedures for Tendering Old Notes."
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, we 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
us 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 United States Federal Income
Tax Considerations."
Regulatory Approvals....... We do 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............ We will not receive any proceeds from the exchange
pursuant to the Exchange Offer.
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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 pursuant to this
Prospectus in order to satisfy certain obligations
contained in the Registration Rights Agreement.
Based on positions of the Commission and no action
or interpretive letters issued to third parties, we
believe that the New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold
and otherwise transferred by you, without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that:
- you are acquiring the New Notes in the ordinary
course of your business;
- you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate in
the distribution of such New Notes; and
- you are not an "affiliate" of our company.
If you acquire New Notes in the Exchange Offer for
the purpose of distributing or participating in a
distribution of New Notes, you cannot rely on the
position of the staff of the Commission set forth
in its non-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:
(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 us). We have agreed that, for a period of 180
days following the consummation of the Exchange
Offer, we 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......... $150,000,000 aggregate principal amount of 9 3/8%
Senior Notes due 2006.
Issuer..................... Atlas Air, Inc.
Maturity Date.............. November 15, 2006.
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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 May 15 and
November 15 of each year, commencing May 15, 1999.
Ranking.................... The New Notes will represent general unsecured
obligations of the Company and will rank senior to
all of our subordinated indebtedness and pari passu
in right of payment to all of our existing and
future unsecured senior indebtedness. The New Notes
will be effectively subordinated, however, to all
of our secured indebtedness and all existing and
future liabilities of our subsidiaries. As of
September 30, 1998, on a pro forma basis after
giving effect to the Offering and the application
of the proceeds therefrom, we would have had
approximately $678.6 million of indebtedness
outstanding (including approximately $202.6 million
of secured indebtedness) and our subsidiaries would
have had approximately $363.4 million of
liabilities outstanding.
Optional Redemption........ The New Notes will be redeemable, in whole or in
part, at our option on or after November 15, 2002,
at the redemption prices set forth in this
Prospectus, plus accrued interest to the date of
redemption. In addition, at any time on or prior to
November 15, 2001, we, at our 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 109.375% of the principal
amount of the Notes plus accrued interest to the
date of redemption; provided at least 65% 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 us
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 repurchase date.
There can be no assurance that, in the event of a
Change of Control, we 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 our
ability and the ability of our 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
7
<PAGE> 12
- sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of
our assets.
For additional information regarding the New Notes, see "Description of
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.
8
<PAGE> 13
SUMMARY FINANCIAL AND OPERATING DATA
The summary financial data presented below have been derived from our
consolidated financial statements. The data for the years ended December 31,
1997, 1996, 1995, 1994 and 1993 were derived from our audited consolidated
financial statements and related notes, and other financial information
incorporated herein. The data for the nine months ended September 30, 1998 and
1997 were derived from our 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
our consolidated financial statements and notes thereto, which are incorporated
herein.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------- -------------------
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 $280,148 $276,773
Operating expenses:
Flight crew salaries and
benefits.......................... 4,243 8,887 14,584 25,020 30,153 21,437 24,110
Other flight-related expenses... 7,844 9,270 12,361 27,404 28,784 20,546 21,093
Maintenance....................... 8,052 24,517 42,574 84,305 123,820 88,470 65,385
Aircraft and engine rentals..... 1,758 14,044 22,902 27,341 31,644 23,279 6,163
Fuel and ground handling.......... 4,575 9,747 5,027 10,554 10,816 9,024 6,317
Depreciation and amortization..... 5,647 7,451 14,793 25,515 42,945 30,183 40,837
Other............................. 8,698 15,169 16,352 27,457 49,777 31,888 24,091
Write-off of capital investment
and other..................... -- -- -- -- 27,100 27,100 --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.......... 40,817 89,085 128,593 227,596 345,039 251,927 187,996
-------- -------- -------- -------- -------- -------- --------
Operating income.................. 446 13,894 42,674 88,063 56,002 28,221 88,777
Other income (expense):
Interest income................... 244 490 2,025 7,102 7,365 5,161 7,821
Interest expense................ (10,101) (10,784) (18,460) (35,577) (52,834) (37,246) (51,892)
-------- -------- -------- -------- -------- -------- --------
Total other income (expense)...... (9,857) (10,294) (16,435) (28,475) (45,469) (32,085) (44,071)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes............................. (9,411) 3,600 26,239 59,588 10,533 (3,864) 44,706
Income tax benefit (expense)...... 1,388 (14) (8,408) (21,750) (3,844) 1,411 (16,546)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item.............................. (8,023) 3,586 17,831 37,838 6,689 (2,453) 28,160
Extraordinary item: Gain from
extinguishment of debt, net of
applicable taxes of $9,622(1)... -- -- -- -- 16,740 16,740 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................. $ (8,023) $ 3,586 $ 17,831 $ 37,838 $ 23,429 $ 14,287 $ 28,160
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(2)......................... $ 6,093 $ 21,345 $ 57,467 $113,578 $127,608 $ 86,604 $129,761
Ratio of EBITDA to interest
expense(2)...................... 0.60x 1.98x 3.11x 3.19x 2.42x 2.33x 2.50x
Ratio of earnings to fixed
charges(3)...................... --(4) 1.21x 1.86x 2.11x 1.30x 1.29x 1.21x
Pro forma ratio of earnings to
fixed charges(5)................ N/A N/A N/A N/A 1.27x 1.25x 1.19x
</TABLE>
9
<PAGE> 14
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total block hours flown(6)........ 7,907 19,049 33,265 59,445 75,254 52,921 51,142
Revenue per block hour............ $ 5,219 $ 5,406 $ 5,149 $ 5,310 $ 5,329 $ 5,294 $ 5,412
EBITDA per block hour(2).......... $ 771 $ 1,121 $ 1,728 $ 1,911 $ 1,696 $ 1,636 $ 2,537
Average aircraft operated(7)...... 2.1 5.2 7.7 14.7 19.5 19.1 18.2
Total aircraft (at end of
period)......................... 3 6 10 17 17 22 21
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
(IN
THOUSANDS)
<CAPTION>
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 253,351
Net property and equipment.................................. 1,310,781
Total assets................................................ 1,656,330
Total debt(8)............................................... 991,951
Deferred aircraft obligations............................... 269,206
Stockholders' equity........................................ 264,887
</TABLE>
- ---------------
(1) In May 1997, we recognized an extraordinary gain, net of applicable taxes of
$9,622, as a result of the extinguishment of a portion of our 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 our operating performance or liquidity. We believe that
EBITDA may provide additional information about our ability to meet our
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 our
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 us 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) In calculating the pro forma ratio of earnings to fixed charges, the pro
forma redemption of our outstanding 12 1/4% Pass Through Certificates due
2002 and the offering of Old Notes are taken into account.
(6) 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.
(7) 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.
(8) The EETCs (as defined) issued in our recent EETC financing are not direct
obligations of, or guaranteed by, us and therefore are not included in our
consolidated financial statements. We entered into leveraged lease
transactions with respect to four of the five 747-400 aircraft delivered in
1998. We took ownership of one such aircraft and the corresponding EETCs
reverted to a direct obligation of the Company. See "Description of Certain
Indebtedness -- Enhanced Equipment Trust Certificates."
10
<PAGE> 15
RISK FACTORS
You should consider the following risk factors, as well as the other
information contained in this Prospectus, before making a decision to exchange
your Old Notes for New Notes in this Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your Old Notes for New Notes pursuant to the
Exchange Offer, you 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. We do not currently anticipate that we 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, we believe
that the New Notes issued to you pursuant to the Exchange Offer 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 our
company within the meaning of Rule 405 under the Securities Act) without further
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). We have agreed that, for a period of
180 days following the consummation of the Exchange Offer, we will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. However, your ability 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, you 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 your election and risk. See
"The Exchange Offer."
11
<PAGE> 16
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
We are highly leveraged. After giving pro forma effect to the offering of
the Old Notes and the application of the proceeds thereof, as of September 30,
1998, our total indebtedness outstanding would have been approximately $678.6
million and our subsidiaries would have had approximately $363.4 million of
liabilities outstanding.
Our high degree of leverage could have important consequences to holders of
the Notes, including the following:
- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be
diminished in the future;
- a substantial portion of our cash flow from operations will be required
for the payment of principal and interest on our indebtedness, thereby
reducing the funds available to us for our operations and other purposes;
- we may be substantially more leveraged than some of our competitors,
which may place us at a competitive disadvantage;
- our substantial degree of leverage may hinder our ability to adjust
rapidly to changing market conditions and could make us more vulnerable
in the event of a downturn in our business or general economic
conditions; and
- substantially all of our other indebtedness will become due prior to the
time the principal payment on the Notes will become due.
Our ability to make scheduled payments of the principal of, or to pay
interest on, or to refinance, our indebtedness (including the Notes) and to make
scheduled payments under our lease obligations depends on our future
performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond our control. There can be no assurance,
however, that our business will continue to generate sufficient cash flow from
operations in the future to service our debt. If unable to do so, we may be
required to refinance all or a portion of our 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 reasonably favorable terms.
AVAILABILITY OF 747-400 AIRCRAFT FINANCING; DELIVERY DELAYS
On June 9, 1997, we 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,
we completed an offering of $538.9 million of enhanced equipment trust
certificates (the "EETCs"), the proceeds of which were used to finance a portion
of the acquisition cost of the first five 747-400 aircraft which were delivered
during the period July 1998 through December 1998. While we currently anticipate
that we will be able to obtain the necessary financing on a timely basis to pay
the total purchase price for the remaining 747-400 freighter aircraft to be
acquired, there can be no assurance that we 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 (the state in which our 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 our future aircraft
financing arrangements. If we are unable to obtain sufficient financing, we
could be required to modify our 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 were delayed. We were compensated for these delays. In
addition, Boeing has agreed to compensate us for future delays, if any, in
deliveries of the 747-400 aircraft pursuant to the Boeing Purchase Agreement.
Any delays in
12
<PAGE> 17
future deliveries of the 747-400 aircraft could adversely impact our ability to
initiate service with existing and 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 governing the Notes limits our ability to undertake certain
transactions. The Indenture restricts our ability to:
- incur additional indebtedness;
- incur liens, pay dividends or make other restricted payments;
- consummate asset sales;
- enter into certain transactions with affiliates;
- impose restrictions on the ability of a subsidiary to pay dividends or
make certain payments to us;
- merge or consolidate with any other person; or
- sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets.
In addition, certain of our other debt instruments contain other more
restrictive financial and operating covenants. See "Description of Certain
Indebtedness" and "Description of Notes -- Certain Covenants." Our ability to
meet such financial ratios and tests may be affected by events beyond our
control. There can be no assurance that we 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 we are 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 our assets would be sufficient to repay in full such
indebtedness and our other indebtedness, including the Notes.
The Notes are unsecured and thus will be effectively subordinated in right
of payment to any of our secured indebtedness to the extent of the value of any
assets securing such indebtedness. Substantially all of our existing
indebtedness, other than the 10 3/4% Senior Notes and the 9 1/4% Senior Notes
(each as defined), is secured by liens on substantially all of our fixed assets.
As of September 30, 1998, on a pro forma basis after giving effect to the
offering of the Old Notes and the application of the proceeds thereof, we would
have had approximately $202.6 million of secured indebtedness outstanding and
our subsidiaries would have had approximately $363.4 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 of our assets 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 our outstanding indebtedness on the date of original issuance of the
Notes, the Indenture permits us and our Subsidiaries (as defined) to incur
additional secured indebtedness under certain circumstances. See "Description of
Notes -- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness."
COMPETITION
The market for air cargo services is highly competitive. A number of
airlines, including Lufthansa Cargo AG, currently provide services for
themselves and for others, similar to the services we offer and new airlines may
be formed that would also compete with us. Such airlines may have substantially
greater financial resources than we do. In addition, certain retail air freight
companies, such as Evergreen International and Kitty Hawk, compete with us on a
limited, indirect basis, generally outside of the ACMI Contract operating
structure. We believe that the most important elements 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. Our ability to achieve our strategic plan depends upon our 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 upon our ability to
13
<PAGE> 18
continue 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 1998, China Airlines, LAS and Fast Air accounted for approximately 33%,
10% and 9%, respectively, of our total operating revenues. We believe that our
relationships with our customers are mutually satisfactory, as evidenced by the
fact that we have renewed and, in certain cases, added a significant number of
ACMI Contracts with our existing customers. However, there can be no assurance
that any of our ACMI Contracts will be renewed upon their expiration. The
scheduled termination dates for the current ACMI Contracts range from 1999 to
2003. See "Business -- ACMI Contracts." The failure to renew any of our ACMI
Contracts, or the renewal of any of our ACMI Contracts on less favorable terms,
could have a material adverse effect on the Company. Additionally, we have
concentrated a significant percentage of our resources in routes between the
United States and Asia and the Pacific Rim and between Europe and Asia and the
Pacific Rim. Any economic decline or any military or political disturbance in
these areas of the world might prevent or interfere with our ability to provide
service to our Asian and Pacific Rim destinations and could have a material
adverse effect on the Company. We have not experienced any adverse impact on our
business as a result of the current economic and political turmoil in Asia;
however, there can be no assurance that continuation of the economic and
political turmoil in Asia will not have an adverse impact on air cargo market
growth generally, which could adversely affect our ability to obtain new ACMI
Contracts or to renew existing ACMI Contracts.
OPERATIONS DEPENDENT UPON LIMITED FLEET
Each of our aircraft is typically dedicated to the service of one or more
ACMI Contracts. Although we typically utilize spare aircraft, in the event one
or more of our aircraft were to be lost or out of service for an extended period
of time, we may have difficulty fulfilling our obligations under one or more of
our ACMI Contracts. While we believe that our 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, we could
contract for the services of such an aircraft without undertaking substantial
costs. While we carry aircraft hull physical damage and third party liability
insurance, any extended interruption of our operations due to the loss of an
aircraft could have a material adverse effect on the Company.
UTILIZATION OF FUTURE AIRCRAFT
We have not yet obtained long-term ACMI Contracts to be serviced by the
five 747-400 aircraft scheduled to be delivered in 1999 and 2000. See
"-- Availability of 747-400 Aircraft Financing; Delivery Delays." 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 our fleet, could have a material adverse
effect on the Company. See "Business -- Aircraft."
AGING AIRCRAFT
Our fleet currently includes 23 Boeing 747-200 aircraft in service, all of
which were manufactured between 1974 and 1986. Manufacturer Service Bulletins
and the Federal Aviation Administration's ("FAA") Airworthiness 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. Nine of our Boeing 747-200
aircraft will have to be brought into compliance with such Directives by March
2000 at an estimated aggregate cost of approximately $4.5 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 our 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.
14
<PAGE> 19
EMPLOYEE RELATIONS
We believe we operate with lower incremental personnel costs than many
established international airlines and cargo carriers, principally due to the
flexibility and high productivity of our workforce, arising in part as a result
of our emphasis on providing financial incentives to our personnel that are
focused on our financial performance rather than on base wages. Our employees
are not currently subject to a collective bargaining agreement; however, many
airline industry employees are subject to such agreements and our employees have
been solicited from time to time by union representatives seeking to organize
them. The most recent solicitation having resulted in our pilots rejecting
representation by the Air Line Pilots Association ("ALPA") on January 27, 1998.
On February 2, 1999, we were notified by the National Mediation Board ("NMB")
that an application has been filed by the International Brotherhood of Teamsters
("IBT") and ALPA requesting authority to ballot Atlas' crew members to determine
if they wish to be represented by a third party. The filing of this application
requires the NMB to verify the authenticity of the union authorization cards
presented by both IBT and ALPA to determine if a representation election should
take place. There can be no assurance that our employees will not become subject
to a collective bargaining agreement and the extent to which, if any, such
collective bargaining agreement may adversely impact our operations or cost
structure.
REGULATORY MATTERS
Under the Federal Aviation Act of 1958, as amended and recodified at 49
U.S.C. Subtitle VII (the "Aviation Act"), the Department of Transportation
("DOT") and the FAA exercise regulatory authority over the Company. We have
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 our continued compliance 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. FAA
approval is required for each of our long-term ACMI Contracts and DOT approval
is required for each of our long-term ACMI Contracts with foreign air carriers.
In addition, FAA approval is required for each of our short-term seasonal ACMI
Contracts. In order to provide service to foreign points, we 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 us when their cargo includes
hazardous materials. Although we have never had such an incident, the
transportation of unmanifested hazardous materials could result in fines,
penalties, banning hazardous materials from our aircraft for a period of time,
possible damage to our aircraft or other liability. On December 3, 1998, the FAA
issued a Directive ordering Boeing 747 operators to change fuel pump procedures
immediately to prevent dry operation that could result in ignition of the center
fuel or horizontal stabilizer tanks. Compliance with this Directive may
adversely impact our customers' operating costs and schedules.
CONTROL BY PRINCIPAL STOCKHOLDER
As of December 31, 1998 Michael A. Chowdry, the founder, Chief Executive
Officer, President and Chairman of the Board of Directors of the Company,
beneficially owned approximately 59.2% of our outstanding common stock. As a
result, Mr. Chowdry is able to direct and control our policies, including the
election of directors, mergers, sales of assets and other such transactions.
DEPENDENCE UPON KEY MANAGEMENT PERSONNEL
We believe that our success in acquiring ACMI Contracts and managing our
operations will depend substantially upon the continued services of many of our
present executive officers. The loss of the services of any of such persons
could have a material adverse effect on the Company. We have employment
agreements with such officers, which are generally terminable at any time by
either party.
15
<PAGE> 20
SEASONALITY OF CUSTOMERS' CARGO OPERATIONS
The cargo operations of our 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, our revenues
typically decline in the first quarter of the year as our minimum contractual
aircraft utilization level temporarily decreases. Our ACMI Contracts typically
allow our customers to cancel a maximum of 5% of the guaranteed hours of
aircraft utilization over the course of a year. Our 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 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, we are 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
our 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 our debt instruments would permit us 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. We do 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, you 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;
- our results of operations; and
- the market for similar securities.
Additionally, the price at which you 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 our financial condition, the New
Notes may trade at a discount from their principal amount. We have been advised
by the Initial Purchaser that it intends to make a market for the New Notes;
however, the Initial Purchaser is not obligated to do so, and we do 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 it makes 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.
16
<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization at September 30, 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 our consolidated financial statements,
including the notes thereto, incorporated herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 253,351 $ 290,351
========== ==========
Current portion of long-term debt........................... $ 56,261 $ 56,261
========== ==========
Long-term debt, net of current portion:
Aircraft Credit Facility............................... $ 113,204 $ 113,204
AFL Term Loan Facility................................. 151,700 151,700
AFL II Term Loan Facility.............................. 151,700 151,700
Equipment Notes(1)..................................... 100,000 --
Other secured aircraft indebtedness.................... 94,311 94,311
Senior Notes due 2005.................................. 150,000 150,000
Senior Notes due 2008.................................. 174,775 174,775
Senior Notes due 2006.................................. -- 150,000
---------- ----------
Total long-term debt, net of current
portion(2)(3)................................... 935,690 985,690
---------- ----------
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; 22,521,659 shares issued.................. 225 225
Additional paid-in capital............................. 177,448 177,448
Retained earnings...................................... 90,942 84,230
Treasury stock, at cost; 115,218 shares................ (3,728) (3,728)
---------- ----------
Total stockholders' equity........................ 264,887 258,175(4)
---------- ----------
Total capitalization......................... $1,200,577 $1,243,865
========== ==========
</TABLE>
- ---------------
(1) The Equipment Notes underlying the 12 1/4% Pass Through Certificates due
2002 were redeemed on January 19, 1999.
(2) The EETCs issued in our recent EETC financing are not direct obligations of,
or guaranteed by, us and therefore are not included in our consolidated
financial statements. We entered into leveraged lease transactions with
respect to four of the five 747-400 aircraft delivered in 1998. We took
ownership of one such aircraft and the corresponding EETCs reverted to a
direct obligation of the Company. See "Description of Certain
Indebtedness -- Enhanced Equipment Trust Certificates."
(3) Total long-term debt does not reflect other liabilities, which includes
deferred aircraft obligations.
(4) Reflects extraordinary loss of approximately $6.7 million relating to the
redemption of the 12 1/4% Pass Through Certificates due 2002. This loss
consists of an $8.0 million premium payment and the write-off of $2.6
million of unamortized loan fees associated with the original financing of
the 12 1/4% Pass Through Certificates due 2002, net of applicable taxes of
$3.9 million.
17
<PAGE> 22
SELECTED FINANCIAL AND OPERATING DATA
The selected financial data presented below have been derived from our
consolidated financial statements. The data for the years ended December 31,
1993, 1994, 1995, 1996 and 1997 were derived from our audited consolidated
financial statements and related notes, and other financial information
incorporated herein. The data for the nine months ended September 30, 1997 and
1998 were derived from our 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>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------------- -------------------
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 $280,148 $276,773
Operating expenses:
Flight crew salaries and
benefits................. 4,243 8,887 14,584 25,020 30,153 21,437 24,110
Other flight-related
expenses................. 7,844 9,270 12,361 27,404 28,784 20,546 21,093
Maintenance................ 8,052 24,517 42,574 84,305 123,820 88,470 65,385
Aircraft and engine
rentals.................. 1,758 14,044 22,902 27,341 31,644 23,279 6,163
Fuel and ground handling... 4,575 9,747 5,027 10,554 10,816 9,024 6,317
Depreciation and
amortization............. 5,647 7,451 14,793 25,515 42,945 30,183 40,837
Other...................... 8,698 15,169 16,352 27,457 49,777 31,888 24,091
Write-off of capital
investment and other..... -- -- -- -- 27,100 27,100 --
-------- -------- -------- -------- -------- -------- --------
Total operating expenses..... 40,817 89,085 128,593 227,596 345,039 251,927 187,996
-------- -------- -------- -------- -------- -------- --------
Operating income............. 446 13,894 42,674 88,063 56,002 28,221 88,777
Other income (expense):
Interest income............ 244 490 2,025 7,102 7,365 5,161 7,821
Interest expense........... (10,101) (10,784) (18,460) (35,577) (52,834) (37,246) (51,892)
-------- -------- -------- -------- -------- -------- --------
Total other income
(expense).................. (9,857) (10,294) (16,435) (28,475) (45,469) (32,085) (44,071)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes...................... (9,411) 3,600 26,239 59,588 10,533 (3,864) 44,706
Income tax benefit
(expense).................. 1,388 (14) (8,408) (21,750) (3,844) 1,411 (16,546)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item......... (8,023) 3,586 17,831 37,838 6,689 (2,453) 28,160
Extraordinary item: Gain from
extinguishment of debt, net
of applicable taxes of
$9,622(1).................. -- -- -- -- 16,740 16,740 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............ $ (8,023) $ 3,586 $ 17,831 $ 37,838 $ 23,429 $ 14,287 $ 28,160
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(2).................... $ 6,093 $ 21,345 $ 57,467 $113,578 $127,608 $ 86,604 $129,761
Ratio of EBITDA to interest
expense(2)................. 0.60x 1.98x 3.11x 3.19x 2.42x 2.33x 2.50x
Ratio of earnings to fixed
charges(3)................. --(4) 1.21x 1.86x 2.11x 1.30x 1.29x 1.21x
Pro forma ratio of earnings
to fixed charges(5)........ N/A N/A N/A N/A 1.27x 1.25x 1.19x
OPERATING DATA:
Total block hours flown(6)... 7,907 19,049 33,265 59,445 75,254 52,921 51,142
Revenue per block hour....... $ 5,219 $ 5,406 $ 5,149 $ 5,310 $ 5,329 $ 5,294 $ 5,412
EBITDA per block hour(2)..... $ 771 $ 1,121 $ 1,728 $ 1,911 $ 1,696 $ 1,636 $ 2,537
Average aircraft
operated(7)................ 2.1 5.2 7.7 14.7 19.5 19.1 18.2
Total aircraft (at end of
period).................... 3 6 10 17 17 22 21
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ -------------
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 $ 253,351
Net property and equipment......... 114,255 131,237 319,751 584,270 1,063,210 1,310,781
Total assets....................... 125,005 162,731 447,323 773,707 1,297,415 1,656,330
Total debt(8)...................... 130,690 163,615 351,261 484,429 776,075 991,951
Other liabilities.................. -- -- -- -- 163,167 269,206
Stockholders' equity (deficit)..... (19,339) (15,753) 68,715 215,785 238,829 264,887
</TABLE>
- ---------------
(1) In May 1997, we recognized an extraordinary gain, net of applicable taxes of
$9,622, as a result of the extinguishment of a portion of our 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 our operating performance or liquidity. We believe that
EBITDA may provide additional information about our ability to meet our
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 our
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 us 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) In calculating the pro forma ratio of earnings to fixed charges, the pro
forma redemption of our outstanding 12 1/4% Pass Through Certificates due
2002 and the offering of Old Notes are taken into account.
(6) 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.
(7) 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.
(8) The EETCs issued in our recent EETC financing are not direct obligations of,
or guaranteed by, us and therefore are not included in our consolidated
financial statements. We entered into leveraged lease transactions with
respect to four of the five 747-400 aircraft delivered in 1998. We took
ownership of one such aircraft and the corresponding EETCs reverted to a
direct obligation of the Company. See "Description of Certain
Indebtedness -- Enhanced Equipment Trust Certificates."
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The cargo operations of our 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 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
us, and are expected to continue to do so in the future. As a result, our
revenues typically decline in the first quarter of the year as our contractual
aircraft utilization level temporarily decreases. We seek to schedule, to the
extent possible, our 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 our December 31, 1997 Consolidated Financial Statements.
The timing of when an aircraft enters our fleet can affect not only annual
performance, but can make quarterly results vary, thereby affecting the
comparability of operations from period to period. In addition, the number of
aircraft utilized from period to period as spare or maintenance back-up aircraft
may also cause quarterly results to vary.
The tables below set forth selected financial and operating data for the
first, second and third quarters of 1998 and the four quarters of the years
ended December 31, 1997, 1996 and 1995 (dollars in thousands).
<TABLE>
<CAPTION>
1998
----------------------------------------------
3RD 2ND 1ST
CUMULATIVE QUARTER QUARTER QUARTER
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Total operating revenues....................... $276,773 $109,189 $ 87,950 $ 79,634
Operating expenses............................. 187,996 73,473 56,432 58,091
Operating income............................... 88,777 35,716 31,518 21,543
Other income (expense)......................... (44,071) (15,478) (15,479) (13,114)
Net income..................................... 28,160 12,745 10,105 5,310
Block hours.................................... 51,142 18,926 16,828 15,388
Average aircraft operated...................... 18.2 19.9 17.7 17.0
Operating margin............................... 32.1% 32.7% 35.8% 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>
20
<PAGE> 25
<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 and Nine Months Ended September 30, 1998 Compared to Three Months
and Nine Months Ended September 30, 1997
Operating Revenues and Results of Operations. Total operating revenues for
the quarter ended September 30, 1998 increased to $109.2 million from $104.2
million for the same period in 1997, or approximately 5%. There was a decline in
the average number of aircraft in our fleet during the third quarter of 1998, to
19.9 aircraft compared to 20.4 during the same period in 1997, or a decrease of
approximately 2%. Total block hours for the third quarter of 1998 were 18,926
compared to 19,937 for the same period in 1997, a decrease of approximately 5%,
reflecting a slightly lower utilization per average aircraft period over period
as a result of a greater requirement for spare maintenance back-up aircraft, and
the reduction in average aircraft operated. Revenue per block hour increased by
approximately 10% to $5,769 for the third quarter of 1998 compared to $5,226 for
the third quarter of 1997. This was substantially due to: the increase in the
volume of charter operations period over period, due partially to the operation
of the first two 747-400 deliveries under non-scheduled service during the
period of their FAA-required proving runs prior to their entry into scheduled
service, for which the rate per block hour is higher due to additional operating
costs borne by us under such arrangements; the introduction into service of the
first two 747-400 freighter aircraft, which operate on a higher block hour rate
than the 747-200 freighter aircraft; and delayed delivery credits provided to us
with respect to the late delivery of the first and second 747-400 freighter
aircraft, pursuant to the Boeing Purchase Agreement. Charter operations are
performed on an ad hoc basis and are generally dependent upon excess
availability of our aircraft and customer demand.
Our operating results improved by 64% from a $21.7 million operating profit
for the third quarter of 1997 to an operating profit of $35.7 million for the
third quarter of 1998. Results of operations were favorably impacted by lower
maintenance costs due to the return upon lease termination at the beginning of
1998 of the five aircraft which we leased from FedEx (the "FedEx Aircraft"). The
FedEx Aircraft experienced significantly higher maintenance costs and were less
reliable compared to the other aircraft in our fleet. In addition, operating
results improved due to the increase in the percentage of owned aircraft
compared to leased aircraft in our fleet period over period. Net income of $6.2
million for the third quarter of 1997 increased by 105% to a net income of $12.7
million for the third quarter of 1998.
Total operating revenues for the nine months ended September 30, 1998
decreased to $276.8 million from $280.1 million for the same period in 1997, or
approximately 1%. There was a decline in the average number of aircraft in our
fleet during the first nine months of 1998, to 18.2 aircraft compared to 19.1
during the same period in 1997, a decrease of approximately 5%. Total block
hours for the first nine months of 1998 were 51,142 compared to 52,921 for the
same period in 1997, a decrease of approximately 3%, reflecting a slightly
higher utilization per average aircraft period over period. Revenue per block
hour increased by approximately 2% to $5,412 for the first nine months of 1998
compared to $5,294 for the same period in 1997. This was substantially due to
the increase in the volume of charter operations period over period, the
introduction of the 747-400 freighter aircraft and the delayed delivery credits,
as discussed above.
Our operating results improved by approximately 215% from a $28.2 million
operating profit for the first nine months of 1997 to an operating profit of
$88.8 million for the first nine months of 1998. Results of operations were
favorably impacted by lower maintenance costs and the increase in the percentage
of owned
21
<PAGE> 26
aircraft, as discussed above. Net income of $14.3 million for the first nine
months of 1997 increased by 97% to a net income of $28.2 million for the first
nine months of 1998. See "-- 1997 Compared to 1996."
Operating Expenses. Our 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 our pilot
work force. Flight crew salaries and benefits increased to $9.7 million in the
third quarter of 1998 compared to $7.5 million in the same period of 1997, or
approximately 29%, due primarily to increased staffing associated with overall
operational requirements and the introduction of the 747-400 freighter aircraft
into our fleet in the second half of 1998. The expense increased approximately
12% from $21.4 million to $24.1 million during the first nine months of 1998
compared to the year-earlier period. Expense in both the third quarter of 1998
and the first nine months of 1998 was partially offset by a reduction in block
hours period over period. On a block hour basis, expense increased by
approximately 36% to $511 per hour for the third quarter of 1998 from $376 per
hour for the same period in 1997, and by approximately 16% to $471 per hour for
the first nine months of 1998 from $405 per hour for the year-earlier period.
Other flight-related expenses include hull and liability insurance on our
fleet of Boeing 747 aircraft, crew travel and meal expenses, initial and
recurrent crew training costs and other expenses necessary to conduct our flight
operations.
Other flight-related expenses increased to $9.1 million in the third
quarter of 1998 compared to $6.8 million for the same period of 1997, and to
$21.1 million for the first nine months of 1998 compared to $20.5 million for
the year-earlier period, or approximately 34% and 3%, respectively. These
increases were primarily due to the quarter over quarter increase in crew travel
costs associated with operational requirements and with the introduction of the
747-400 freighter aircraft into our fleet, partially offset by the decrease in
block hours. On a block hour basis, other flight-related expenses increased by
approximately 41% to $482 per hour for the third quarter of 1998 compared to
$342 per hour for the same period in 1997, and by approximately 6% to $412 per
hour for the first nine months of 1998 compared to $388 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 Check (as defined), D Check (as defined) 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 we contracted with KLM for a significant part of our 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. In the first half of 1998, we
entered into separate long-term contracts with Lufthansa Technik
Aktiengesellschaft for the airframe maintenance and with GE for the engine
maintenance of the 747-400 freighter aircraft, in conjunction with the
introduction of the 747-400 freighter aircraft into our fleet in the second half
of 1998.
Maintenance expense decreased to $23.9 million in the third quarter of 1998
from $33.5 million in the same period of 1997, and to $65.4 million in the nine
months ended September 30, 1998 from $88.5 million in the nine months ended
September 30, 1997, or approximately 29% and 26%, respectively. These decreases
were primarily due to the return of the FedEx Aircraft upon lease termination at
the beginning of the first quarter of 1998. On a block hour basis, maintenance
expense decreased by approximately 25% and 24%, respectively, primarily due to
higher maintenance costs associated with the FedEx Aircraft in the 1997 periods
compared to the other aircraft in our fleet.
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 our aircraft for either scheduled or unscheduled
maintenance and any related short-term replacement aircraft lease costs.
Aircraft and engine rentals were $4.0 million in the third quarter of 1998
compared to $7.8 million in the same period of 1997, and were $6.2 million in
the first nine months of 1998 compared to $23.3 million in the first nine months
of 1997, or a decrease of approximately 49% and 74%, respectively. The
reductions in quarter
22
<PAGE> 27
and nine months expense in 1998 were attributed to the reduction in leased
aircraft in the 1998 periods compared to the 1997 periods. The cost of engine
rentals in the 1998 and 1997 quarterly and nine month periods was insignificant,
due to the use of owned spare engines.
Because of the nature of our ACMI Contracts with our airline customers,
under which we are responsible for the ownership cost and maintenance of the
aircraft and for supplying aircraft crews and insurance, our airline customers
bear all other operating expenses. As a result, we incur fuel and ground
handling expenses only when we operate on our own behalf, either in scheduled
services, for ad hoc charters or for ferry flights. Fuel expenses for our
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 our
aircraft at the various airports to which we operate.
Fuel and ground handling costs increased by approximately 35% to $2.6
million for the third quarter of 1998 from $1.9 million for the third quarter of
1997, and decreased by approximately 30% to $6.3 million for the first nine
months of 1998 from $9.0 million for the first nine months of 1997. The increase
quarter over quarter was primarily due to the increased charter operations and
the nine month decrease was primarily due to a reduction in scheduled service
compared to the same period in 1997.
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 $15.6 million in the
third quarter of 1998 from $11.0 million in the same period of 1997, and to
$40.8 million in the first nine months of 1998 from $30.2 million in the
year-earlier period, or approximately 42% and 35%, respectively. These increases
reflect the additional owned aircraft, engines and spare parts for the third
quarter and nine months of 1998 over the same periods in 1997.
Other operating expenses include salaries, wages, benefits, travel and meal
expenses for non-crewmembers and other miscellaneous operating costs.
Other operating expenses decreased to $8.7 million in the third quarter of
1998 from $14.0 million in the same period of 1997, and to $24.1 million for the
first nine months of 1998 from $31.9 million for the same period of 1997, or
approximately 38% and 24%, respectively. The reduced expense in cost from the
prior year, quarter and nine month periods was due primarily to the
capitalization of start-up costs in the second and third quarters of 1998
associated with the introduction of the 747-400 aircraft and manufacturer
credits, partially offset by increased staffing and other resources associated
with the expansion of our operations.
Other Income (Expense). Other income (expense) consists of interest income
and interest expense. Interest income increased to $3.2 million in the third
quarter of 1998 from $1.7 million in the same period of 1997, and to $7.8
million for the first nine months of 1998 from $5.2 million for the first nine
months of 1997, primarily due to the investment of proceeds from our issuance of
the 9 1/4% Senior Notes (as defined) in April 1998 and the return of deposits
and proceeds from financing the delivery of the first two 747-400 freighter
aircraft in the third quarter of 1998. Interest expense increased to $18.7
million in the third quarter of 1998 from $13.6 million in the same period of
1997, and to $51.9 million in the first nine months of 1998 from $37.2 million
in the year-earlier period, or approximately 38% and 39%, respectively. These
increases resulted from the financing associated with the acquisition of
additional 747-200 aircraft, the cost of freighter conversions between these
periods and the issuance of $175 million of the 9 1/4% Senior Notes in April
1998.
Income Taxes. Pursuant to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes," we have
recorded a tax provision based on tax rates in effect during the period.
Accordingly, we accrued taxes at the rate of 37.0% during the third quarter and
first nine months of 1998 and 36.5% during the third quarter and first nine
months of 1997. Due to the amount of owned assets, which are depreciated at an
accelerated rate for tax purposes, a significant portion of our tax provision
for the 1998 and 1997 periods is deferred.
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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 our 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 our fleet.
Revenue per block hour increased by approximately .4% to $5,329 for 1997
compared to $5,310 for 1996. Our 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, we placed in service the fifth FedEx aircraft in April 1997. In August
1997 and at the end of September 1997, we took delivery of a fifth and sixth
aircraft from Thai Airways, respectively, upon completion by Boeing of its
modification to cargo configuration. At the end of 1997, we 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.
Our 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 our customers. We 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, we recorded a largely non-cash charge of
$27.1 million to operating income. This charge included the write-off of our
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 our fleet. In addition, we 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 $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.
One of our customers has disputed a portion of approximately $8.9 million
of ACMI billings and non-ACMI billings associated with maintenance support. We
believe that we have established adequate reserves with respect to this dispute.
Operating Expenses. 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 our 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.
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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
our 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 our 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 0.5 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 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 our
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 our 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," we have recorded a tax provision based on tax rates in effect
during the period. Accordingly, we accrued taxes at the rate of 36.5% during
1997 and 1996. Due to significant capital costs, which are depreciated at an
accelerated rate for tax purposes, a majority of our 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 our 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 we must bear. Our operating
results improved from a $42.7 million operating profit for 1995 to an
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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, we placed in
service one aircraft upon completion of its cargo modification by Hong Kong
Aircraft Engineering Company. Two additional aircraft were re-delivered to us
upon completion of their modification by Boeing in March 1996. Finally, at the
close of the first quarter, we took delivery of the first aircraft sub-leased
from FedEx. During the third quarter of 1996, we placed in service the next
three aircraft sub-leased from FedEx. At the end of the third quarter we took
delivery of a Boeing 747-200 passenger aircraft acquired from 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.
Our 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 our customers. We 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.
Our 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
our 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 our 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 our 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 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 our fleet and higher ongoing maintenance costs. The aircraft
sub-leased from FedEx are not covered by our 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 our purchase of the
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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 our 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 our 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 our overhead as
compared to our 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 in May 1996,
as well as funds retained from our initial public offering 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," we have recorded a tax provision based on tax rates in effect
during the period. Accordingly, we 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 our tax provision in 1996 and
1995 is deferred.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, we had cash and cash equivalents of approximately
$153.4 million, short-term investments of approximately $100.0 million and
working capital of approximately $170.9 million. During the first nine months of
1998, cash and cash equivalents increased approximately $112.0 million,
principally reflecting cash provided by operations of $75.0 million, net
proceeds from debt issuance and lease financing of $361.1 million, net proceeds
from the maturity and purchase of short-term investments of $11.6 million and
proceeds from the exercise of stock options of $1.2 million, partially offset by
investments in flight and other equipment of $260.6 million, principal
reductions of indebtedness of $66.9 million, debt issuance costs of $6.1 million
and net treasury stock purchases of $3.3 million. Our overall borrowing level
increased to $992.0 million at September 30, 1998 from $776.1 million at
December 31, 1997.
In June 1997, we entered into the Boeing Purchase Agreement 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. We have arranged
leveraged lease financing for four of the 747-400 freighter aircraft that were
delivered in July, August, October and December 1998. See "Description of
Certain Indebtedness -- Enhanced Equipment Trust Certificates." The Boeing
Purchase Agreement requires that we pay 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. Based on the current expected firm aircraft delivery schedule, we expect
the maximum total amount of pre-delivery deposits at any time outstanding will
be approximately $162.3 million, which was paid as of June 30, 1998. There were
approximately $143.1 million of pre-delivery deposits outstanding at September
30, 1998 which were included in flight equipment. For the remainder of 1998 ,we
paid $16.7 million and we expect to pay an additional $11.8 million, in 1999 in
pre-delivery deposits in accordance with the firm order pre-delivery deposits
schedule. Upon each delivery, Boeing will refund to us the pre-delivery deposits
associated with the delivered 747-400 freighter aircraft. Boeing delivered and
we placed into service the first five of these aircraft in the second half of
1998 and Boeing refunded the pre-delivery deposits associated with these
aircraft. In addition, the Boeing
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Purchase Agreement provides for a deferral of a portion of the pre-delivery
deposits (deferred aircraft obligations) for which we accrue and pay interest
quarterly at 6-month LIBOR, plus 2.0%. As of September 30, 1998, there was
$235.6 million of deferred aircraft obligations included in other liabilities,
and the combined interest rate was approximately 7.8%.
In January and February 1998, pursuant to an early lease termination
agreement negotiated in November 1997 with Philippine Airlines, we 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 us at the end of
April 1998 and the second aircraft was re-delivered to us in July 1998. The
financing for the modification to cargo configuration was provided under the
Aircraft Credit Facility (as defined), under which we borrowed a total of $3.3
million during the first quarter of 1998 with respect to these aircraft. In
April 1998 and July 1998, we borrowed an additional $13.8 million and $17.2
million, respectively, to pay for the final costs of conversion for these two
aircraft.
In February 1998, we completed an offering of $538.9 million of EETCs. The
EETCs are not direct obligations of, or guaranteed by, us and therefore are not
included in our consolidated financial statements. In November and December
1997, we 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. The cash proceeds from the
EETCs have been used, to finance (through four leveraged leases and one secured
debt financing) the acquisition of the first five new 747-400 freighter aircraft
from Boeing which were delivered to us during the period July 1998 through
December 1998. There can be no assurance that we will be able to obtain
sufficient financing to fund the purchase of the remaining 747-400 freighter
aircraft, or if such financing is available, that it will be available on a
commercially reasonable basis. If we are unable to do so, we could be required
to modify our expansion plans or to incur higher than anticipated financing
costs, which could have a material adverse effect on the Company. We have
arranged for equity participation for four of our 747-400 freighter aircraft
deliveries. We have determined that these leveraged leases are operating leases
as defined under SFAS No. 13 "Accounting for Leases" and lease credits are being
amortized over the lives of the respective leases, with unamortized credits
included in other liabilities.
In March 1998, we entered into a 10-year agreement with GE to provide all
repair and overhaul work on the engines related to both the 10 firm and 10
option 747-400 freighter aircraft. This agreement is based on a fixed cost per
flight hour, similar to our engine agreement with GE for its 747-200 fleet.
In April 1998, we completed the offering of $175 million of unsecured
9 1/4% Senior Notes at 99.867% due 2008 (the "9 1/4% Senior Notes"). The
proceeds of the offering are being used for general corporate purposes. See
"Description of Certain Indebtedness -- 9 1/4% Senior Notes."
In April 1998, we 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 ("MIA") in support of our increased
operations. The lease is for a period in excess of four years and commenced July
1, 1998, at a monthly rate of approximately $105,000, subject to an annual
escalation factor. Additionally, in the third quarter of 1998, we leased an
additional 8,000 square feet at its existing facility located at John F. Kennedy
International Airport ("JFK") with a monthly rate increase to approximately
$88,000.
In May 1998, we agreed to purchase a Boeing Business Jet ("BBJ") from
Boeing for approximately $30 million. At the end of January 1999, we took
delivery of the BBJ from Boeing and immediately delivered the aircraft to a
third party for installation of the interior business configuration. This
aircraft will be used to transport our executives on business trips throughout
the world. We intend to sell our current corporate aircraft (currently owned by
one of our subsidiaries), upon delivery of the BBJ from the third party, and our
Chief Executive Officer has agreed to share in the acquisition costs and capital
improvement costs of the BBJ.
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In June 1998, we entered into an agreement with Lufthansa Technik pursuant
to which Lufthansa Technik will provide all required airframe maintenance for
our initial order of 10 747-400 freighter aircraft, plus any additional 747-400
freighter aircraft we purchase pursuant to our option in the Boeing Purchase
Agreement, on a fixed cost per flight hour basis for 10 years, with a provision
for us to terminate the agreement as of June 2003.
In July 1998, we secured permanent financing in the amount of $38.9 million
from Banc One Leasing Corporation for one of the aircraft originally financed
under the Aircraft Credit Facility. The new financing carries a term of 10 years
at an annual interest rate of approximately 7.5% with quarterly debt service
payments.
In July 1998, we purchased a 747-200 freighter aircraft from Air France
Partnairs Leasing N.V. for which we financed approximately $31.3 million through
the Aircraft Credit Facility.
In September 1998, the commitment for the Aircraft Credit Facility was
decreased from $250.0 million to $200.0 million in connection with a revision of
terms that are more favorable to us, including a decrease in the interest rate
from LIBOR plus 2.5% to LIBOR plus 2.0%.
In September 1998, we entered into an agreement to acquire three 747-200
freighter aircraft from Cargolux for scheduled deliveries in the fourth quarter
of 1998, of which the first delivery occurred in October 1998, the second
delivery occurred in November 1998 and the third delivery occurred in December
1998. Upon delivery, we immediately placed these aircraft into service. We
financed these aircraft through the Aircraft Credit Facility for approximately
$31.0 million, $34.1 million and $30.1 million, respectively.
In November 1998, we completed the offering of $150 million of unsecured
9 3/8% Senior Notes due 2006 (i.e. the Old Notes). The proceeds of the offering
are being used for general corporate purposes, which includes the redemption of
the Company's outstanding 12 1/4% Pass Through Certificates due 2002. See
"Description of Certain Indentures -- 9 3/8% Senior Notes."
Due to the contractual nature of our business, our management does not
consider our 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 our customers, we do not incur significant costs in
advance of the receipt of corresponding revenues. Moreover, ACMI costs, which
are our responsibility, are generally incurred on a regular, periodic basis
ranging from flight hours to months. These costs are largely matched by revenue
receipts, as our contracts require regular payments from our customers, based
upon current flight activity, generally every two to four weeks. As a result, we
have not in the past had a requirement for a working capital facility.
Under the FAA's Directives issued under its "Aging Aircraft" program, we
are subject to extensive aircraft examinations and will be required to undertake
structural modifications to our fleet 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. Nine of
our Boeing 747-200 aircraft will have to be brought into compliance with such
Directives by March 2000 at an estimated total cost of approximately $4.5
million. As part of the FAA's overall aging aircraft program, it has issued
Directives requiring certain additional aircraft modifications to be
accomplished. We estimate that the modification costs per 747-200 aircraft will
range between $2 million and $3 million. Twelve aircraft in our 747-200 fleet
have already undergone the major portion of such modifications. The remaining
eleven 747-200 aircraft will require modification prior to the year 2009. Other
Directives have been issued that require inspections and minor modifications to
Boeing 747-200 aircraft. The newly manufactured 747-400 freighter aircraft were
delivered to us in compliance with all existing FAA Directives. On December 3,
1998, the FAA issued a Directive ordering Boeing 747 operators to change fuel
pump procedures immediately to prevent dry operation that could result in
ignition of the center fuel or horizontal stabilizer tanks. Compliance with this
Directive may adversely impact our customers' operating costs and schedules. It
is possible that additional Directives applicable to the types of aircraft or
engines included in our fleet could be issued in the future, the cost of which
could be substantial.
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We have performed a review of our internal information systems for Year
2000 ("Y2K") automation problems through a company-wide effort, assisted by Y2K
experienced consultants, to address internal Y2K system issues and, jointly with
industry trade groups, issues related to key business partners which are common
to other air carriers. As a result, we do not anticipate that Y2K compliance
will have a material financial impact. We have completed the first phase of this
project, which included an inventory of our computer network environment and an
assessment of the effort involved to bring our internal computer system
environment to full Y2K compliance. Due to our relatively young systems, our
advanced client server, development and data base architecture, and our partial
reliance on vendor representations regarding Y2K compliant third-party systems,
related remediation efforts are minimal and achievable. Third-party hardware and
software used by us are, for the most part, Y2K compliant; those that are not
compliant have broad customer bases and available software upgrades. A limited
number of systems remain to be reviewed for compliance, but are not of material
significance. Initial review of our 747-200 and 747-400 aircraft computer
systems indicate that most all of the systems are compliant, and those not
compliant are being addressed by Boeing sub-contractors. A limited number of
systems need further analysis.
We have begun an ongoing program to review the status of key
supplier/business partner Y2K compliance efforts. While we believe we are taking
all appropriate steps to assure our Y2K compliance, we are dependent on key
business partner compliance to some extent. We plan to have all
company-controllable systems Y2K tested and compliant by mid-1999, for which we
expect to incur between $100,000 to $200,000. We anticipate that third-party and
supplier/business partner systems will be fully addressed by mid-1999 in the
form of compliance remediation, plans for timely remediation, or contingency
plans. The Y2K problem is pervasive and complex, as virtually every global
computer operation will be affected in some way. Consequently, no assurance can
be given that all company-used third-party systems and suppliers/business
partners can achieve Y2K compliance.
From time to time we engage in discussions with third-parties regarding
possible acquisitions of aircraft that could expand our operations. We are
currently in discussions with third-parties for the possible acquisition of
additional aircraft for delivery in 1999 and beyond.
We believe that cash on hand and the cash flow generated from our
operations, combined with availability under the Aircraft Credit Facility and
the proceeds of the 9 1/4% Senior Notes, EETCs and the Notes, will be sufficient
to meet our normal ongoing liquidity needs for the next twelve months.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants ("AICPA") issued
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 is effective for financial statements for fiscal years beginning
after December 15, 1998. We believe that the application of SOP 98-1 will not
have a material impact on our financial statements.
In April 1998, the AcSEC issued SOP 98-5 "Reporting on the Costs of
Start-up Activities." SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and requires such costs to be expensed as
incurred. Generally, initial application of SOP 98-5 should be reported as the
cumulative effect of a change in accounting principle. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998.
Presently, we are deferring certain start-up costs related to the introduction
of new Boeing 747-400 freighter aircraft into our fleet. We expect that the net
of tax effect of the application of SOP 98-5 in the first quarter of 1999 will
be in the range of $1 million to $2 million.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value.
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<PAGE> 35
SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for years
beginning after June 15, 1999 and may be implemented as of the beginning of any
fiscal quarter after June 15, 1998. We have not yet quantified the impact, if
any, of adopting SFAS No. 133 on our financial statements and have not
determined the timing of or method of our adoption of SFAS No. 133. However,
SFAS No. 133 could increase volatility in earnings and other comprehensive
income.
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<PAGE> 36
BUSINESS
OVERVIEW
We are the world's largest air cargo outsourcer, with an all Boeing fleet
of 747 freighter aircraft that comply with Stage 3 FAA noise regulations. We
provide 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 we
supply aircraft, crew, maintenance and insurance. Our customers currently
include China Airlines, British Airways, SAS, Emirates, Thai Airways, Fast Air,
LAS, Cargolux, Alitalia, Iberia, El Al and FedEx. We provide efficient, cost
effective service to our customers primarily as a result of our productive work
force, the outsourcing of a significant part of our regular maintenance work on
a long-term, fixed-cost contractual basis and the advantageous cost economies
realized in the operation of our fleet, comprised solely of Boeing 747 aircraft
which are configured for service in long-haul cargo operations.
747-400 AIRCRAFT ACQUISITION
In June 1997, we entered into the Boeing Purchase Agreement to purchase 10
new 747-400 freighter aircraft to be powered by GE engines. We acquired and
placed into service five of the 747-400 aircraft in the second half of 1998. Due
to production problems at Boeing, some of the 1998 delivery positions of the
747-400 aircraft were delayed. We were compensated for these delays. In
addition, Boeing has agreed to compensate us for future delays, if any, in
deliveries of the 747-400 aircraft pursuant to the Boeing Purchase Agreement.
Any delays in future deliveries of the 747-400 aircraft could adversely impact
our ability to initiate service with existing and prospective customers in a
timely fashion. The Boeing Purchase Agreement also provides us with options to
purchase up to 10 additional 747-400 freighter aircraft for delivery from 2000
through 2002. As a result of our being the largest purchaser of 747-400
freighter aircraft to date, we were 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, we obtained certain ancillary products and services at
advantageous prices.
ACMI CONTRACTS
The Company's ACMI Contracts, which accounted for approximately 94% of our
total operating revenues in 1998, typically allow our 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
us to supply aircraft, crew, maintenance and insurance, while 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 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 our customers.
All of our revenues, and most of our costs, are in U.S. dollars, thus avoiding
currency risks normally associated with doing business primarily overseas.
At December 31, 1998, the Company operated under twenty-seven ACMI
Contracts with twelve customers. In most cases, one aircraft is dedicated under
each contract. China Airlines, LAS and Fast Air accounted for approximately 33%,
10% and 9% of the our total revenues, respectively, for the year ended December
31, 1998. In addition, we have also operated short-term, seasonal ACMI Contracts
with Kitty Hawk and anticipate doing so in the future.
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<PAGE> 37
Some of our ACMI Contracts allow our customers to cancel up to a maximum of
approximately 5% of the guaranteed hours of aircraft utilization over the course
of a year. Our 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. We have found that such
cancellations provide a timely opportunity for the scheduling of maintenance on
our aircraft, to the extent possible. See "-- Maintenance." We believe that our
relationships with our customers are mutually satisfactory, as evidenced by the
fact that we have renewed and, in certain cases, added a significant number of
ACMI Contracts with our existing customers, although there can be no assurance
that in the future such contracts will not be canceled in accordance with their
terms.
All of the ACMI Contracts provide that each of our aircraft be deemed to be
at all times under our exclusive operating control, possession and direction.
They also provide that, in order to service the routes designated by the
contract, we obtain the authority from the governments having jurisdiction over
the route. See "-- Governmental Regulation." Additionally, if we are required to
use the customer's "call sign" in identifying ourself throughout our route, the
customer must also have obtained underlying authority from the governments
having jurisdiction over the route. Therefore, our route structure is limited to
areas in which we can gain access from the appropriate governments.
OTHER FLIGHT OPERATIONS
To the extent we have available excess aircraft capacity at any time, we
will seek to obtain ad hoc charter service contracts, which we believe are
generally readily available. In addition, in the past we have provided service
to Kitty Hawk pursuant to short-term, seasonal ACMI Contracts during periods of
excess aircraft capacity.
AIRCRAFT
Our 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 our 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 have greater
operational capabilities than the 747-200 aircraft and will allow us to maintain
our 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 10 747-400
freighter aircraft will make Atlas the largest operator of this aircraft type to
date and will enable us to capitalize on economies of scale from the
standardization in maintenance and crew training.
The following table describes, as of January 15, 1999, our existing fleet
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:............................. 22 747-200 Owned(1) 1974-1986(2)
1 747-200 Leased(3) 1976
1 747-400 Owned 1998
4 747-400 Leased(4) 1998
747-400 aircraft on order:(5)............... 4 747-400 1999
1 747-400 2000
</TABLE>
- ---------------
(1) Two aircraft are powered by Pratt & Whitney engines and 20 are powered by GE
engines. See "-- Maintenance."
(2) The years of manufacture for these 22 aircraft are as follows: six aircraft
in 1979, four aircraft in 1980, two aircraft each in 1976, 1978 and 1981 and
one aircraft each in 1974, 1975, 1977, 1984, 1985 and 1986.
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<PAGE> 38
(3) The aircraft is leased from a third party under a lease expiring in March
2010 and is powered by GE engines.
(4) These aircraft are leased from third parties under three leases expiring in
2019, and one lease expiring in 2020.
(5) We have agreed to purchase 10 new Boeing 747-400 freighter aircraft, with
options to purchase an additional 10 aircraft. The first five aircraft were
delivered in July, August, October and December 1998. The remaining five
aircraft are scheduled to be delivered as follows: 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 and lease equity.
We have been successful in obtaining new customers, or establishing
additional arrangements with existing customers, coincident with the delivery of
aircraft into the fleet or soon thereafter. However, from time to time, we
accept 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 we intend 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, we engage in discussions with third parties regarding
possible acquisitions of aircraft that could expand our operations. We are in
discussions with third parties for the possible acquisition of additional
aircraft for delivery in 1999 and beyond.
SALES AND MARKETING
From our offices in Colorado, New York and Miami, we service our air cargo
customers and solicit ACMI Contract business. Our 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, we may
utilize independent cargo brokers to obtain new ACMI Contracts. We market our
services by guaranteeing our 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. We
have placed the first five 747-400 aircraft into service and expect to place the
remaining 747-400 aircraft into service with both existing and prospective
customers whom we believe could benefit 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 our 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"). We attempt to schedule
major maintenance on our 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 our customers that generally occur most
frequently during this period.
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
our 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
conditions, will perform repairs and maintenance of our aircraft on the same
basis and order of priority as repairs to its own fleet. Such service is
provided to us at a cost, for which a large part is a fixed rate per flight
hour, subject to a
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<PAGE> 39
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. We have entered into a contract with Boeing to re-engine two
aircraft in the Company's fleet from Pratt & Whitney engines to GE engines, in
order to improve the standardization of our fleet. We have contracted with a
third-party to acquire, among other things, the GE engines and parts required
for such re-engineing. In addition, we believe that the recent sale of Pratt &
Whitney engines coupled with the expected sale of the unused parts associated
with the acquisition of the GE engines will not result in any material financial
impact as a result of these re-engineing efforts. On a going forward basis, we
expect to incur lower maintenance costs related to these two aircraft compared
to the costs we have experienced to date. Under the terms of the Maintenance
Contract, in the event that we wish to maintain more than 12 of our aircraft
under such contract, the terms of the contract are subject to adjustment by KLM.
More than twelve of our aircraft are currently subject to the Maintenance
Contract.
In June 1996, we 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, we have 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, we do 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. We will incur expenses associated with routine daily
maintenance of both the airframe and the engines. In July 1998, we entered into
an agreement with Lufthansa Technik by which Lufthansa Technik will provide all
required maintenance for our initial order of ten 747-400 aircraft, plus any
additional 747-400 aircraft that we purchase pursuant to our option in the
Boeing Purchase Contract, on a fixed cost per flight hour basis for ten years,
with a provision for the Company to terminate the agreement as of June 2003. In
connection with the GE engine purchase agreement, we have also entered into two
agreements with GE to provide ongoing maintenance on the 747-400 aircraft
engines at a fixed cost per flight hour, subject to an annual formula increase.
We believe that fixed cost contracts provide the most efficient means of
ensuring the continued service of our aircraft fleet and the most reliable way
by which to predict our maintenance costs; however, we believe 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.
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 schedule 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.
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<PAGE> 40
To provide air cargo transportation services under long-term contracts with
major international airlines, we rely primarily on our worldwide charter
authorities. FAA approval is required for each of our long-term ACMI Contracts
and DOT approval is required for each of our long-term ACMI Contracts with
foreign air carriers. In addition, FAA approval is required for each of our
short-term, seasonal ACMI Contracts.
In order to engage in the air transportation business, we are 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. The DOT also examines
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-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, we possess worldwide charter authorities. We also hold limited-term
DOT exemption authority to engage in scheduled air transportation of property
and mail between certain points in the U.S., on the one hand, and Hong Kong,
Colombia and The Netherlands, on the other hand.
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. These bilateral agreements may be open skies agreements which
contain no restrictions or limitations, or they may specify the city-pair
markets that may be served; restrict the number of carriers that may be
designated; provide for prior approval by one or both governments of the prices
the carriers may charge; limit frequencies or the amount of capacity to be
offered in the market; and, in various other ways, impose limitations on the
operations of air carriers. To obtain authority under a restrictive 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. We are
subject to various international bilateral air services agreements between the
U.S. and the countries to which we provide service. We also operate 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. We must obtain permission from the applicable foreign governments to
provide service to foreign points.
We have 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. We must obtain
and maintain FAA certificates of airworthiness for all of our aircraft. Our
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
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<PAGE> 41
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
our existing fleet of aircraft comply with Stage 3 Standards -- the highest
standard issued by the FAA.
Under the FAA's Directives issued under its "Aging Aircraft" program, we
are subject to extensive aircraft examinations and will be required to undertake
structural modifications to our fleet 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. Nine of
our Boeing 747-200 aircraft will have to be brought into compliance with such
Directives by March 2000 at an estimated total cost of approximately $4.5
million. As part of the FAA's overall aging aircraft program, it has issued
Directives requiring certain additional aircraft modifications to be
accomplished. We estimate that the modification costs per aircraft will range
between $2 million and $3 million. Twelve aircraft in our fleet have already
undergone the major portion of such modifications. The remaining eleven aircraft
in service will require modification prior to the year 2009. Other Directives
have been issued that require inspections and minor modifications to Boeing
747-200 aircraft. The newly manufactured 747-400 freighter aircraft were
delivered in compliance with all existing FAA Directives. On December 3, 1998,
the FAA issued a Directive ordering Boeing 747 operators to change fuel pump
procedures immediately to prevent dry operation that could result in ignition of
the center fuel or horizontal stabilizer tanks. Compliance with this Directive
may adversely impact our customers' operating costs and schedules. It is
possible that additional Directives applicable to the types of aircraft or
engines included in our fleet could be issued in the future, the cost of which
could be substantial.
We are also subject to the regulations of the Environmental Protection
Agency regarding air quality in the U.S. The aircraft that we operate meet 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, including Lufthansa, currently provide services for themselves and for
others similar to the services offered by us, and new airlines may be formed
that would also compete with us. Such airlines may have substantially greater
financial resources than we do. In addition, certain retail air freight
companies, such as Evergreen International and Kitty Hawk, compete with us on a
limited, indirect basis, generally outside of the ACMI operating structure. We
believe that the most important elements 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.
Our ability to achieve our strategic plan depends in part upon our 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 upon our ability to
continue 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. We believe that such higher rates have been and will continue
to 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, we have limited exposure to the fluctuation of fuel costs and
disruptions in supply as a result of our ACMI Contracts, which require the
customers to provide fuel for the aircraft. However, an increase in fuel costs
could reduce our cost advantages because of our 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 we operate scheduled cargo or ad
hoc charter services, or position our aircraft, we are responsible for fuel and
other costs that are normally borne by the customers
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under the ACMI Contracts. In 1998, approximately 3% of our block hours
represented scheduled cargo, ad hoc charter services or positioning our aircraft
for our own account. We may, at times, have excess capacity in which case we may
deploy such aircraft in scheduled cargo or ad hoc charter services.
EMPLOYEES
As of December 31, 1998, we had 890 employees, 507 of whom were air crew
members. We have hired and expect to hire additional pilots in 1999 associated
with the delivery of additional aircraft, including the 747-400 aircraft. We
maintain a comprehensive training program for our pilots in compliance with FAA
requirements in which each pilot regularly attends update programs. We believe
that our current training program has been 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 has
trained and will train a limited number of our pilots and crew assigned to the
747-400 aircraft. However, we have incurred and will incur incremental costs
associated with ongoing training with regard to the 747-400 aircraft.
We believe that our employees' participation in the growth and
profitability of our business is essential to maintain our productivity and low
cost structure, and we have 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, Section 401(k) plan). Such programs
are designed to allow employees to share financially in our success and to
augment base salary levels and retirement income. We consider our relations with
our employees to be good.
Our labor relations are covered under Title II of the Railway Labor Act of
1926, as amended, and are subject to the jurisdiction of the NMB. None of our
employees is subject to a collective bargaining agreement; however, many airline
industry employees are subject to such agreements and our employees have been
and are routinely solicited by union representatives seeking to organize them.
In January 1998, our pilots rejected union representation by ALPA. On February
2, 1999, we were notified by the NMB that an application has been filed by the
IBT and ALPA requesting authority to ballot Atlas' crew members to determine if
they wish to be represented by a third party. The filing of this application
requires the NMB to verify the authenticity of the union authorization cards
presented by both IBT and ALPA to determine if a representation election should
take place.
INSURANCE
We may incur potential losses which could result 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.
We are required by the DOT to carry liability insurance on each of our aircraft,
and each of our aircraft leases and ACMI Contracts also require us to carry such
insurance. While we carry this insurance, any extended interruption of our
operations due to the loss of an aircraft could have a material adverse effect
on the Company. We currently maintain 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. We maintain baggage and
cargo liability insurance if not provided by our customers under ACMI Contracts.
Although we believe that our insurance coverage is adequate, there can be no
assurance that the amount of such coverage will not be changed upon renewal or
that we will not be forced to bear substantial losses from accidents.
Substantial claims resulting from an accident could have a material adverse
effect on our financial condition and could affect our ability to obtain
insurance in the future. We believe that we have good relations with our
insurance providers.
FACILITIES
Our principal executive offices are located in a 7,000 square foot office
building owned by the Company at 538 Commons Drive, Golden, Colorado. We also
rent 5,300 square feet of office space in two adjacent buildings.
We presently occupy 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. We occupy 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
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$55,000. Additionally, in the third quarter of 1998, we leased an additional
8,000 square feet with a monthly rate increase to approximately $88,000. We
believe 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, we lease 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 MIA, we entered into a month-to-month office
lease and a month-to-month warehouse lease with Dade County, Florida in March
1997 that currently provide for a combined monthly lease rate of approximately
$19,000. The leased warehouse space is used to store aviation equipment and
aircraft components used to maintain aircraft operated by the Company. In the
third quarter of 1998, we 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 our increased operations. The lease is for a period
in excess of four years and commenced July 1, 1998, at a monthly rate of
approximately $105,000, subject to an annual escalation factor.
LEGAL PROCEEDINGS
In March 1997, Air Support International, Inc. ("ASI") filed a complaint
against us in the U.S. District Court, Eastern District of New York alleging
actual and punitive damages of approximately $13.5 million arising from our
refusal to pay commissions which ASI claims it is owed for allegedly arranging
certain ACMI Contracts. We intend to vigorously defend against all of ASI's
claims.
While we are from time to time involved in litigation in the ordinary
course of our business, there are no other material legal proceedings pending
against us or to which any of our property is subject.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive
officers and directors.
<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
Thomas G. Scott........................ Senior Vice President and General Counsel
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, 44, has been the Chairman of the Board of Directors and
Chief Executive Officer since our 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 our Board of Directors since
March 1995 and was the Senior Vice President -- Finance, Chief Financial Officer
and Treasurer from June 1994 to February 1998. As of February 1998, Mr. Shuyler
became the Executive Vice President -- Strategic Planning 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, 59, has been the Senior Vice President -- Operations
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.
Stanley G. Wraight, 52, 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 capacities, including Vice President of
KLM's sales, marketing and operations in Asia, Australia and the Middle East.
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Thomas G. Scott, 49, has been Senior Vice President and General Counsel
since July 1998. Prior to his employment with us and since 1980, Mr. Scott was
employed with UPS where he served in a variety of positions, including Vice
President and Chief Legal Officer, with primary responsibility for managing the
airline legal department including aircraft acquisitions, airport projects and
international expansion. Mr. Scott received a B.S.A.S. from Youngstown State
University and a J.D. from the University of Cincinnati College of Law.
Stephen C. Nevin, 49, 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.
Berl Bernhard, 69, 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, was President of Boeing Enterprises from February
1997 until December 1998, where he was 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 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, 59, has been a member of our 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, 67, has been a member of our Board of Directors since
September 1995. Since 1998, Mr. McLaughlin has served as chairman and chief
executive officer of Orion Safety Products (formerly Standard Fusee
Corporation). From 1987 to 1988, Mr. McLaughlin was chairman of the Aspen
Institute and was appointed president and chief executive officer in 1988. Upon
his retirement from The Aspen Institute in 1997, he was named president
emeritus. From 1981 to 1987, Mr. McLaughlin served as President of Dartmouth
College. From 1970 to 1981, Mr. McLaughlin served in various management
positions at The
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Toro Company, being named chairman and chief executive officer in 1977. Mr.
McLaughlin is Chairman of the Board of CBS Inc. and a director of Atlantic
Richfield Company and PartnerRe Ltd.
Brian Rowe, 67, has been a member of our 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).
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DESCRIPTION OF CERTAIN INDEBTEDNESS
AIRCRAFT CREDIT FACILITY
In May 1996, we entered into a $175 million revolving credit facility (the
"Aircraft Credit Facility") with Goldman Sachs Credit Partners L.P., 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
was amended and restated in February 1997 and in September 1997 and further
amended in August 1998. The Aircraft Credit Facility, as amended, provides for a
$200 million revolving credit facility with a two-year revolving period and a
subsequent two-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, we must select either a Base Rate Loan (prime rate, plus
1.0% through September 30, 2000, thereafter plus 1.5%) or a Eurodollar Rate Loan
(Eurodollar rate, plus 2.0% through September 30, 2000, thereafter plus 2.5%).
We selected the Eurodollar Rate Loan for substantially all borrowings in 1996,
1997 and the first nine months of 1998. The weighted average interest rate on
borrowings outstanding under the Aircraft Credit Facility was 7.6% at September
30, 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, we have
met these tests. If in the future, we cannot meet all the tests because of the
difficult sequencing of aircraft acquisition, aircraft conversion and customer
contracts, we believe that other financing sources would be available to us or
that we would acquire aircraft using our internal cash or seek a waiver of any
necessary conditions. As of September 30, 1998, we had $113.2 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 us include, among other restrictions:
- limitations on indebtedness;
- liens;
- investments;
- contingent obligations;
- restricted junior payments;
- capital expenditures; and
- leases.
We are in compliance with all such covenants as of December 31, 1998.
AFL TERM LOAN FACILITY
In May 1997, we formed a wholly owned subsidiary, Atlas Freighter Leasing,
Inc., for the purpose of entering into a $185 million term loan facility (the
"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 September 30, 1998. Quarterly scheduled
principal payments of $2.5 million commenced in February 1998 and increased 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;
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- capital expenditures;
- amendments of material agreements;
- leases;
- transactions with shareholders and affiliates; and
- the conduct of business.
We are in compliance with all such covenants as of December 31, 1998.
AFL II TERM LOAN FACILITY
In September 1997, we formed another wholly owned subsidiary, Atlas
Freighter Leasing II, Inc. for the purpose of entering into a $185 million 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 aircraft. Interest is based on the Eurodollar rate, plus 2.25%, 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 September 30, 1998. Quarterly scheduled principal
payments of $2.5 million commenced in February 1998 and increased 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.
We are in compliance with all such covenants as of December 31, 1998.
10 3/4% SENIOR NOTES
In August 1997, we consummated the offering of $150 million of unsecured
10 3/4% Senior Notes due 2005 (the "10 3/4% Senior Notes"). The proceeds from
the offering of the 10 3/4% Senior Notes were used to, among other things, repay
short-term indebtedness incurred 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 10 3/4% 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 10 3/4% Senior
Notes are redeemable, in whole or in part, at our option, at any time, on or
after August 1, 2001, initially at 105.375% of their principal amount, plus
accrued interest, declining ratably to 100% of their principal amount, plus
accrued interest, on or after August 1, 2003. In addition, at any time on or
prior to August 1, 2000, we, at our option, may redeem up to 35% of the
aggregate principal amount of the 10 3/4% 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 10 3/4% Senior Notes originally issued remains outstanding
immediately after any such redemption.
The 10 3/4% Senior Notes are general unsecured obligations of the Company
which rank pari passu in right of payment to any of our existing and future
unsecured senior indebtedness. The 10 3/4% Senior Notes are effectively
subordinated, however, to all of our secured indebtedness and to all
indebtedness of our subsidiaries.
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Covenants with respect to the 10 3/4% Senior Notes contain certain
limitations on our ability and our 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 our assets.
We are in compliance with all such covenants as of December 31, 1998.
9 1/4% SENIOR NOTES
In April 1998, we consummated the offering of $175 million of unsecured
9 1/4% Senior Notes at 99.867% due 2008. The proceeds of the offering of 9 1/4%
Senior Notes are being used for general corporate purposes.
Interest on the 9 1/4% Senior Notes is payable semi-annually on April 15
and October 15 of each year, commencing October 15, 1998. The 9 1/4% Senior
Notes are redeemable at our option, 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, we may redeem up to 35% of the aggregate principal amount of the
9 1/4% Senior 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 65% of the aggregate
principal amount of 9 1/4% Senior Notes remains outstanding.
The 9 1/4% Senior Notes represent unsubordinated indebtedness of the
Company, and rank pari passu in right of payment with all of our existing and
future unsubordinated indebtedness and senior in right of payment to all of our
subordinated indebtedness. The 9 1/4% Senior Notes are effectively subordinated,
however, to all of our secured indebtedness and all existing and future
liabilities of our subsidiaries.
Covenants with respect to the 9 1/4% Senior Notes contain certain
limitations on our ability and our 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 our assets.
We are in compliance with all such covenants as of December 31, 1998.
9 3/8% SENIOR NOTES
In November 1998, we consummated the offering of $150 million of unsecured
9 3/8% Senior Notes due 2006. The proceeds of the offering of 9 3/8% Senior
Notes are being used for general corporate purposes,which included the
redemption of the Equipment Notes.
Interest on the 9 3/8% Senior Notes is payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 1999. The 9 3/8% Senior Notes are
redeemable at our option, in whole or in part, at any time on or after November
15, 2002, initially at 104.688% of their principal amount, plus accrued
interest, declining ratably to 100% of their principal amount, plus accrued
interest, on or after November 15, 2005. In
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addition, at any time prior to November 15, 2001, we may redeem up to 35% of the
aggregate principal amount of the 9 3/8% Senior Notes originally issued with the
net cash proceeds of one or more public equity offerings at 109.375% of their
principal amount, plus accrued interest; provided that after any such redemption
at least 65% of the aggregate principal amount of the Notes originally issued
remains outstanding.
The 9 3/8% Senior Notes represent unsubordinated indebtedness of the
Company, and rank pari passu in right of payment with all of our existing and
future unsubordinated indebtedness and senior in right of payment to all of our
subordinated indebtedness. The 9 3/8% Senior Notes are effectively subordinated,
however, to all of our secured indebtedness and all existing and future
liabilities of our subsidiaries.
Covenants with respect to the 9 3/8% Senior Notes contain certain
limitations on our ability and our 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 our assets.
We are in compliance with all such covenants as of December 31, 1998.
ENHANCED EQUIPMENT TRUST CERTIFICATES
In February 1998, we 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 are
not included in our consolidated financial statements until such time that we
draw upon the proceeds to take delivery and ownership of an aircraft. The cash
proceeds from the transaction were used to finance (through four leveraged
leases and one secured debt financing) the first five new 747-400 freighter
aircraft from Boeing delivered to us during the period July 1998 through
December 1998. In connection with the secured debt financing, we took ownership
of the aircraft and executed equipment notes in the aggregate amount of
$107,889,000. In November and December 1997, we 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.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF EXCHANGE OFFER
We sold the Old Notes on November 18, 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 we agreed, for the benefit of the holders of
the Old Notes, that we would, at our sole cost, (i) within 90 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 our 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), we 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
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respect to any Note means any person in whose name such Note is registered on
our books 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), we 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 March 26, 1999; provided, however, that if we, in our sole discretion,
extend 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, $150,000,000 aggregate principal amount
of Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about February 19, 1999, to all holders
of Old Notes known to us. Our 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."
We expressly reserve 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 us. 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.
We expressly reserve 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." We 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
If you are a registered holder of Old Notes you may tender such Old Notes
in the Exchange Offer. If you tender Old Notes to the Company as set forth
below, our acceptance of such Old Notes will constitute a binding agreement
between you 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, if you wish to tender Old Notes for exchange pursuant to the
Exchange Offer, you 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, or (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 YOUR ELECTION AND RISK. IF YOU MAIL THESE
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DOCUMENTS, WE RECOMMEND THAT YOU USE REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED. ALWAYS ALLOW SUFFICIENT TIME TO ASSURE TIMELY
DELIVERY. DO NOT SEND LETTERS OF TRANSMITTAL OR OLD NOTES TO THE COMPANY. YOU
MAY REQUEST YOUR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR YOU.
If your Old Notes are registered in the name of a broker, dealer,
commercial bank, trust company, or other nominee and you wish to tender such Old
Notes in the Exchange Offer you should contact the registered holder promptly
and instruct such registered holder to tender on your behalf. If you wish to
tender on your own behalf, you must, prior to completing and executing the
Letter of Transmittal and delivering your Old Notes, either make appropriate
arrangements to register ownership of such Old Notes in your 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 us in our 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
us in our sole discretion, which determination shall be final and binding. We
reserve 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 our judgment or in the
judgment of our counsel, be unlawful. We also reserve 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). Our interpretation 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 we shall determine. None of the
Company, the Exchange Agent or any other person shall be under any duty to
notify 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 notify.
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,
satisfactory evidence of their authority to so act must be submitted with the
Letter of Transmittal.
By tendering Old Notes for exchange, you represent to us 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.
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If any holder or any such other person is an "affiliate," as defined under Rule
405 of the Securities Act, of our 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,
we 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, we will be deemed to have accepted properly tendered Old
Notes for exchange when, as and if we have given oral or written notice thereof
to the Exchange Agent.
For each Old Note accepted for exchange you 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 November 18, 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 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
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<PAGE> 54
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 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, we 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 our ability to proceed with the Exchange Offer;
(b) any change, or any development involving a prospective change, in
our business or financial affairs or any of our subsidiaries has occurred
which, in our sole judgment, might materially impair our ability to proceed
with the Exchange Offer or materially impair the contemplated benefits of
the Exchange Offer to the Company;
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<PAGE> 55
(c) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in our sole judgment, might materially impair our ability
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 we
shall, in our 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 our sole benefit and may be asserted by us
in whole or in part at any time and from time to time in our sole discretion.
Our failure 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, we 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.
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
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<PAGE> 56
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, we believe 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 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. We have not requested or
obtained, and do not intend to seek, an interpretive letter from the staff of
the Commission with respect to this Exchange Offer, and neither we nor the
holders are 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). We have agreed that, for a period of 180 days following the
consummation of the Exchange Offer, we 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, we are 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 us. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone or in person by our officers and regular employees and
our affiliates.
We have 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. However, we will pay the
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<PAGE> 57
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 us. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
We 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 our accounting records on the date
of the exchange. Accordingly, we will recognize no gain or loss for accounting
purposes. The expenses of the Exchange Offer and the unamortized expenses
related to the issuance of the Old Notes will be amortized over the term of the
New Notes.
REGULATORY APPROVALS
We do 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
us 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 you should carefully
consider whether to accept the terms and conditions thereof. You are urged to
consult your financial and tax advisors in making your 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, we will
have fulfilled a covenant contained in the terms of the Old Notes and the
Registration Rights Agreement. If you do not tender your Old Notes in the
Exchange Offer you 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 we do not currently anticipate that we
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."
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<PAGE> 58
DESCRIPTION OF NOTES
GENERAL
The Old Notes were, and the New Notes will be, issued under an Indenture,
to be dated as of November 18, 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 not 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
prior 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
$150.0 million aggregate principal amount, and will mature on November 15, 2006.
Each Note will bear interest at the rate of 9 3/8% 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 May 15 and November 15 of each
year commencing on May 15, 1999 to holders of record at the close of business on
the May 1 or November 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 November 15, 2002. 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 November 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>
2002....................................................... 104.688%
2003....................................................... 103.125%
2004....................................................... 101.563%
2005 and thereafter........................................ 100.000%
</TABLE>
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<PAGE> 59
Optional Redemption Upon Public Offerings. In addition, at any time on or
prior to November 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
109.375% 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 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 September
30, 1998, 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 $678.6 million, of which approximately $202.6 million would
have been secured indebtedness, and the Company's subsidiaries would have had
liabilities of approximately $363.4 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.
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<PAGE> 60
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 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 Change
of Control 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
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<PAGE> 61
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 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
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
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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
(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,
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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;
(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
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(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 (1) 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 (2)
reasonable and customary salaries, bonuses and other compensation paid to
employees of the Company or any Subsidiary in accordance 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
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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 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
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(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 (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
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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
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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.
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
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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 made a written request to the Trustee to pursue the remedy;
(iii) such holders have offered the Trustee reasonable security or
indemnity 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 becoming aware
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;
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(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 ("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 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
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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) 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;
(v) make any Note payable in money other than that stated in the Note;
(vi) 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;
(vii) waive a default in the payment of the principal of or interest
on any Note;
(viii) make any change in the provisions of the Indenture relative to
waivers of past defaults;
(ix) 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;
(x) 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
(xi) 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.
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 to be 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 and 9 1/4% 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
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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 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.
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"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.
"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
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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
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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 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
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(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, 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.
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"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
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.
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"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 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;
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(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;
(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;
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(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 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.
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"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.
"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
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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 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.
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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.
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.
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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.
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
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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.
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. We have 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.
81
<PAGE> 86
We 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 us 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 us 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 we agree to deliver promptly to such broker-dealer), such
broker-dealer will suspend use of this Prospectus until we have amended or
supplemented the Prospectus to correct such misstatement or omission and have
furnished copies of the amended or supplemented prospectus to such
broker-dealer.
For a period of 180 days after the Expiration Date, we 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. We have 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 (a partnership
including a professional corporation), New York, New York.
EXPERTS
The audited consolidated financial statements and schedule 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 reports with respect thereto, and are incorporated herein in
reliance upon the authority of said firm as experts in giving said reports.
82
<PAGE> 87
WHERE YOU CAN FIND MORE INFORMATION
We 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 more
information about the Company and the New Notes offered by this Prospectus,
reference is made to the Registration Statement and its exhibits and schedules.
Any statements made in this Prospectus concerning the provisions of certain
documents may be incomplete 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.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the" Commission"). The
Registration Statement, its exhibits 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. Our 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
Our Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998, and September 30, 1998, each of which has been filed with the
Commission, are hereby incorporated in this Prospectus by reference.
All documents we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, 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.
We undertake 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).
83
<PAGE> 88
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEBRUARY 19, 1999
[ATLASAIR LOGO]
[ATLASAIR LOGO]
$150,000,000
9 3/8% SENIOR NOTES DUE 2006
--------------------
PROSPECTUS
--------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this Prospectus or to make representations as to
matters not stated in this Prospectus. You must not rely on unauthorized
information. This Prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this Prospectus nor any
sales made hereunder after the date of this Prospectus shall create an
implication that the information contained herein or the affairs of the Company
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 89
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>
+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 Notes.
+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.
***10.52 -- 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.
***/****10.55 -- 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.
</TABLE>
II-1
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**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)
**10.75 -- 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.
</TABLE>
II-2
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*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.
++10.90 -- 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>
II-3
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
++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).
****/*****10.114 -- Engine Maintenance Agreement between the Company and GE
Engine Services, Inc.
****/*****10.115 -- Engine Maintenance Agreement between the Company and GE
Engine Services, Inc.
****/*****10.116 -- General Terms Agreement between the Company and General
Electric Company dated June 6, 1997.
+++10.117 -- Form of Indenture, dated November 18, 1998, between the
Company and State Street Bank and Trust Company, as
Trustee, relating to the 9 3/8% Senior Notes (with form
of Note attached as exhibit thereto).
++21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Public Accountants.
+++23.2 -- Consent of Cahill Gordon & Reindel (included in Exhibit
5).
</TABLE>
II-4
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+++24.1 -- Powers of Attorney (set forth on the signature page of
the Registration Statement).
+++25 -- Statement of Eligibility of Trustee for the 9 3/8% Senior
Notes.
</TABLE>
- ---------------
+++ Previously filed.
++ 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.
***** Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-4 (No. 333-56391).
(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.
II-5
<PAGE> 94
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> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, hereunto duly authorized in the City of
Denver, State of Colorado on the 19th day of February, 1999.
ATLAS AIR, INC.
By: /s/ RICHARD H. SHUYLER
----------------------------------
Name: Richard H. Shuyler
Title: Executive Vice
President -- Strategic
Planning, Treasurer and
Director
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, Chief February 19, 1999
- ----------------------------------------------------- Executive Officer,
Michael A. Chowdry President and Director
/s/ RICHARD H. SHUYLER Executive Vice President -- February 19, 1999
- ----------------------------------------------------- Strategic Planning,
Richard H. Shuyler Treasurer and Director
* Vice President and Chief February 19, 1999
- ----------------------------------------------------- Financial Officer
Stephen C. Nevin
* Director February 19, 1999
- -----------------------------------------------------
Berl Bernhard
* Director February 19, 1999
- -----------------------------------------------------
Lawrence W. Clarkson
* Director February 19, 1999
- -----------------------------------------------------
David K.P. Li
* Director February 19, 1999
- -----------------------------------------------------
David T. McLaughlin
* Director February 19, 1999
- -----------------------------------------------------
Brian Rowe
*By: /s/ RICHARD H. SHUYLER
- -----------------------------------------------------
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+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 Notes.
+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.
***10.52 -- 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.
***/****10.55 -- 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.
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**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)
**10.75 -- 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
------- -----------
<C> <S>
**10.87 -- Aircraft General Terms Agreement between The Boeing
Company and the Company dated June 6, 1997.
++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.
++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.
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
++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).
****/*****10.114 -- Engine Maintenance Agreement between the Company and GE
Engine Services, Inc.
****/*****10.115 -- Engine Maintenance Agreement between the Company and GE
Engine Services, Inc.
****/*****10.116 -- General Terms Agreement between the Company and General
Electric Company dated June 6, 1997.
+++10.117 -- Form of Indenture, dated November 18, 1998, between the
Company and State Street Bank and Trust Company, as
Trustee, relating to the 9 3/8% Senior Notes (with form
of Note attached as exhibit thereto).
++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 3/8% Senior
Notes.
</TABLE>
- ---------------
+++ Previously filed.
++ 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.
<PAGE> 100
**** 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.
***** Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-4 (No. 333-56391).
<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 on Form S-4 of our reports 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.
ARTHUR ANDERSEN LLP
February 19, 1999
Denver, Colorado
