Lease Agreement

LEASE AGREEMENT


DATED AS OF APRIL 25, 2000


BETWEEN


ATLAS FREIGHTER LEASING III, INC.,
Lessor


and


ATLAS AIR, INC.,
Lessee


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Three General Electric CF6-80C2 Engines
Manufacturer's Serial Nos. 704699, 704860, 704918


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THE LESSOR HAS ASSIGNED TO THE AGENT CERTAIN OF ITS RIGHT, TITLE AND INTEREST IN AND TO THIS LEASE. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL EXECUTED COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE AGENT ON THE SIGNATURE PAGE HEREOF.


TABLE OF CONTENTS


Page


SECTION 1. Definitions.......................................................1


SECTION 2. Acceptance and Lease.............................................22


SECTION 3. Term and Rent....................................................23


(a) Term and Basic Rent.......................................23
(b) Adjustments to Basic Rent.................................23
(c) Supplemental Rent.........................................23
(d) Payments in General.......................................24
(e) Minimum Rent..............................................24
(f) Prepayment of Rent Payments...............................25


SECTION 4. Certain Representations and Warranties...........................25


SECTION 5. Lessee's Representations and Warranties..........................26


(a) Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries...............................26
(b) Authorization of Transaction Documents, etc...............27
(c) Financial Condition.......................................28
(d) No Material Adverse Change; No Restricted
Junior Payments.........................................29
(e) Title to Properties, Liens................................29
(f) Litigation, Adverse Facts.................................30
(g) Payment of Taxes..........................................30
(h) Performance of Agreements.................................30
(i) Governmental Regulation...................................31
(j) Employee Benefit Plans....................................31
(k) Certain Fees..............................................31
(l) Environmental Protection..................................31
(m) Employee Matters..........................................32
(n) Solvency..................................................32
(o) Disclosure................................................32
(p) Registration and Filing; Chief Executive Office...........33


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SECTION 6. Lessee's Affirmative Covenants...................................33


(a) Financial Statements and Other Reports....................33
(b) Corporate Existence.......................................39
(c) Payment of Taxes and Claims; Tax Consolidation............39
(d) Maintenance of Properties; Insurance......................39
(e) Inspection; Lender Meeting................................40
(f) Compliance with Laws, etc.................................40
(g) Lessee's Remedial Action Regarding Hazardous Materials....41
(h) Employee Benefit Plans....................................41
(i) Corporate Separateness....................................41


SECTION 7. Lessee's Negative Covenants......................................42


(a) Indebtedness..............................................42
(b) Liens and Related Matters.................................43
(c) Investments; Joint Ventures...............................44
(d) Contingent Obligations....................................45
(e) Restricted Junior Payments................................46
(f) Financial Covenants.......................................47
(g) Restriction on Fundamental Changes; Asset Sales
and Acquisitions; New Subsidiaries .....................52
(h) Amendments of Material Agreements.........................54
(i) Restriction on Leases.....................................55
(j) Sales and Lease-Backs.....................................55
(k) Transactions with Shareholders and Affiliates.............56
(l) Disposal of Subsidiary Stock..............................56
(m) Conduct of Business.......................................56
(n) Change of Chief Executive Office..........................57


SECTION 8. Return of the Engines............................................57


(a) Condition Upon Return.....................................57
(b) Overhaul and Repair.......................................57
(c) Repairs...................................................57
(d) Modifications.............................................57
(e) Airworthiness Directives..................................58
(f) Return of the Engines.....................................58
(g) Deferred Maintenance......................................58
(h) Corrosion Treatment.......................................58
(i) Manuals...................................................58
(j) Storage Upon Return.......................................58


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(k) Severable Parts...........................................59
(l) Survival..................................................59
(m) Deregistration and Export.................................59


SECTION 9. Liens............................................................60


SECTION 10. Registration, Maintenance and Operation; Possession
and Subleases; Insignia........................................60


(a) Maintenance and Operation.................................60
(b) Possession................................................62
(c) Insignia..................................................64
(d) Holding Out...............................................64
(e) No Pledging of Credit.....................................64
(f) Title.....................................................64
(g) Information and Records...................................65


SECTION 11. Replacement and Pooling of Parts; Alterations,
Modifications and Additions....................................66


SECTION 12. Indemnities......................................................68


SECTION 13. Event of Loss....................................................69


SECTION 14. Insurance........................................................71


SECTION 15. Assignment.......................................................74


SECTION 16. Events of Default................................................75


SECTION 17. Remedies.........................................................79


SECTION 18. Lessee's Cooperation Concerning Certain Matters..................82


SECTION 19. Notices..........................................................82


SECTION 20. Net Lease, True Lease, etc.......................................83


SECTION 21. Purchase Option..................................................84


(a) Purchase Option...........................................84
(b) Notice of Purchase........................................85


SECTION 22. Lessor's Right to Perform for Lessee.............................85


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SECTION 23. Miscellaneous....................................................85


SECTION 24. Security for Lessor's Obligations................................86


SCHEDULES


SCHEDULE 5(a)(iii) Subsidiaries SCHEDULE 7(a)(4) Indebtedness SCHEDULE 7(b) Existing Liens SCHEDULE 7(c)(v) Investments SCHEDULE 7(d)(4) Contingent Obligations


EXHIBITS


EXHIBIT A Form of Lease Supplement EXHIBIT B Basic Rent Schedule EXHIBIT C Stipulated Loss Value Schedule EXHIBIT D Compliance Certificate


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LEASE AGREEMENT


LEASE AGREEMENT dated as of April 25, 2000, between ATLAS FREIGHTER LEASING III, INC., a Delaware corporation (the "Lessor"), and ATLAS AIR, INC., a Delaware corporation (the "Lessee").


W I T N E S S E T H :


WHEREAS, the Lessee desires to lease from the Lessor and the Lessor is willing to lease to the Lessee the Engines upon the terms and subject to the conditions of this Lease;


WHEREAS, the Lessor and the Lessee desire that this be a net lease;


WHEREAS, the Lessor has incurred certain Loans under the Credit Agreement in connection with the Engines to be leased pursuant to the terms of this Lease and other aircraft and spare engines to be leased pursuant to the other Leases:


WHEREAS, the Lessor and the Lessee desire that this Lease be, and be treated as, a Lease for federal income tax purposes.


NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the Lessor and the Lessee hereby agree as follows:


SECTION 1. Definitions. All capitalized terms used herein shall have the respective meanings set forth in this section.


"Acceptable Alternate Engine" means a General Electric CF6-80C2 engine or an engine of the same or another manufacturer of equivalent or greater residual value, condition, utility, airworthiness, and remaining useful life and suitable for installation and use on one or more of the Boeing 747-400 aircraft used by the Lessee in its business; provided, that such engine shall be an engine of a type then being utilized by the Lessee on other Boeing 747-400 aircraft operated by the Lessee, and shall have been maintained, serviced, repaired and overhauled in substantially the same manner as required under this Lease without in any way discriminating against such engine.


"ACMI Contract" means (i) any contract entered into by the Lessee pursuant to which the Lessee furnishes the aircraft, crew, maintenance and insurance and customers bear all other operating expenses and (ii) any similar contract in which the customer provides the flight crew, all substantially in accordance with the Lessee's historical practices.


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"ACMI Contracted Aircraft" means an aircraft acquired by the Lessee or its Subsidiaries and intended to be used in connection with an ACMI Contract entered into at the time of the acquisition of such aircraft (which ACMI Contract shall not represent a renewal or replacement of a prior ACMI Contract unless the aircraft used pursuant 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 one year or more on the date such aircraft was intended to be used in connection with such ACMI Contract (subject to cancellation terms, which may include the right to cancel on six months notice). When making any calculation on a Pro Forma Basis, effect shall be given to the acquisition of an ACMI Contracted Aircraft by adding to the appropriate components of Consolidated Adjusted EBITDA (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 Consolidated Adjusted EBITDA 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 operating expenses of the Lessee for the four full fiscal quarters immediately preceding the date of calculation; and provided further, that if such aircraft is of a model other than a Boeing 747 freighter, 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. For purposes of this definition, "ACMI Contract" shall include contracts pursuant to which the Lessee 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 Payments, to the extent included in computing consolidated operating expenses.


"Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.


"Agent" shall mean the Administrative Agent under the Credit Agreement.


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"Aircraft" means each of the "Aircraft" as defined in the Credit Agreement.


"Aircraft Chattel Mortgage" means each Security Agreement and Aircraft Chattel Mortgage entered into in connection with the Credit Agreement.


"Airframe" means each "Airframe" as defined in the Credit Agreement.


"Amended Aircraft Credit Facility" means the Fourth Amended and Restated Credit Agreement dated as of April 25, 2000, among the Lessee, as borrower, the lenders listed therein, and Bankers Trust Company, as administrative agent, without giving effect to any amendments, modifications, supplements or waivers thereof.


"Approved Appraiser" means any of AvSolutions, Inc., BK Associates, Inc., Simat, Helliesen & Eichner, Inc., Morton Beyer & Agnew, Inc., AVITAS, Inc., Airclaims, Ltd., Aircraft Information Services, Inc., or any other nationally recognized firm of aircraft appraisers reasonably satisfactory to the Agent.


"Asset Sale" means the sale (including any sale-leaseback transaction other than sale-leaseback transactions permitted by subsections 7(i) and 7(j) of this Lease) by the Lessee or any of its Subsidiaries to any other Person of (i) any of the stock of any of the Lessee's Subsidiaries, (ii) substantially all of the assets of any division or line of business of the Lessee or any of its Subsidiaries, or (iii) any other assets (whether tangible or intangible) of the Lessee or any of its Subsidiaries outside of the ordinary course of business, excluding (A) any such other assets to the extent that the aggregate value of such assets sold in any single transaction or related series of transactions is equal to $5,000,000 or less, (B) transactions related to aircraft engines, components, parts or spare parts pursuant to customary pooling, exchange or similar arrangements, (C) asset swaps involving aircraft engines, components, parts or spare parts, provided that the assets received by the Lessee or any Subsidiary have a fair market value at least equal to the assets transferred (provided that with respect to any asset swap or series of related asset swaps involving assets of the Lessee or any Subsidiary with a fair market value exceeding $10,000,000, such determination shall be made by the Board of Directors of the Lessee), (D) asset sales involving obsolete, worn-out, excess or redundant equipment as long as the proceeds therefrom are used to replace or to upgrade the aircraft or the equipment installed thereon, (E) transactions permitted by Section 9.21 of the Credit Agreement and (F) the sale by the Lessor of a single aircraft pursuant to Section 6.6 (ii) of the Credit Agreement.


"Bankruptcy Code" means Title 11 of the United States Code, entitled "Bankruptcy," as now and hereafter in effect, or any successor statute.


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"Basic Rent" means, for the Term, the rent payable for the Engines pursuant to Section 3(a) of this Lease adjusted as provided in Section 3(b) of this Lease.


"Basic Rent Payment Date" means each date set forth on Exhibit B.


"Business Day" means any day excluding Saturday, Sunday and any day that is a legal holiday under the laws of the States of New York or Colorado or is a day on which banking institutions located in either such state are authorized or required by law or other governmental action to close.


"Capital Lease," as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person.


"Cash" means money, currency or a credit balance in a Deposit Account.


"Cash Equivalents" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, the highest rating obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier I capital (as defined in such regulations) of not less than $100,000,000; and (v) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's.


"Certificated Air Carrier" means a United States "air carrier" within the meaning of the Federal Aviation Act, operating pursuant to a certificate issued under Section 401 of such Act, or a carrier of comparable status under any successor law or provision.


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"Compliance Certificate" means a certificate, substantially in the form of Exhibit D annexed hereto, delivered to the Lessor, the Agent and the Lenders by the Lessee pursuant to subsection 6(a)(3) hereunder.


"Consolidated Adjusted EBITDA" means, for any period, (I) the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) provisions for taxes based on income, (iv) total depreciation expense, (v) total amortization expense, (vi) other non-cash items reducing Consolidated Net Income less other non-cash items increasing Consolidated Net Income less (II) all cash expenditures reducing reserves appearing on the December 31, 1999, balance sheet of Atlas, all of the foregoing as determined on a consolidated basis for the Lessee and its Subsidiaries in conformity with GAAP.


"Consolidated Capital Expenditures" means, for any period, the sum of (i) the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of the Lessee and its Subsidiaries) by the Lessee and its Subsidiaries during that period that, in conformity with GAAP, are included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of the Lessee and its Subsidiaries plus (ii) to the extent not covered by clause (i) of this definition, the aggregate of all expenditures by the Lessee and its Subsidiaries during that period to acquire (by purchase or otherwise) the business, property or fixed assets of any Person, or the stock or other evidence of beneficial ownership of any Person that, as a result of such acquisition, becomes a Subsidiary of the Lessee.


"Consolidated Interest Expense" means, for any period, total net interest expense (to be computed by reducing interest expense by the amount of interest income) (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of the Lessee and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of the Lessee and its Subsidiaries, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements and Currency Agreements, but excluding, however, any amounts referred to in subsection 2.3 of the Amended Aircraft Credit Facility on or before the Fourth Restatement Date (as such term is defined in the Amended Aircraft Credit Facility).


"Consolidated Leverage Ratio" means, as of the last day of any fiscal quarter of the Lessee, the ratio of (i) Consolidated Total Debt as of such date (less Cash and Cash Equivalents held by the Lessee in excess of $25 million as of such date) plus seven times Consolidated Rental Payments (for the four fiscal quarter period ending as of such date) to (ii) Consolidated Adjusted EBITDA plus Consolidated Rental Payments for the four fiscal quarter period ending as of such date.


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"Consolidated Net Income" means, for any period, the net income (or loss) of the Lessee and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided, that there shall be excluded (i) the income (or loss) of any Person (other than a Subsidiary of the Lessee) in which any other Person (other than the Lessee or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Lessee or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of the Lessee or is merged into or consolidated with the Lessee or any of its Subsidiaries or that Person's assets are acquired by the Lessee or any of its Subsidiaries, (iii) the income of any Subsidiary of the Lessee to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any pension plan, and (v) (to the extent not included in clauses (i) through (iv) above) any net extraordinary gains or net non-cash extraordinary losses.


"Consolidated Net Worth" means, as at any date of determination, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficits) of the Lessee and its Subsidiaries on a consolidated basis determined in conformity with GAAP.


"Consolidated Rental Payments" means, for any period, the aggregate amount of all rents paid or payable by the Lessee and its Subsidiaries on a consolidated basis (excluding rent paid pursuant to the Leases) during that period under all Capital Leases and Operating Leases to which the Lessee or any of its Subsidiaries is a party as lessee (net of sublease income other than income from ACMI Contracts). For the avoidance of doubt, all rental payments to the Lessor shall not be included in Consolidated Rental Payments.


"Consolidated Total Debt" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of the Lessee and its Subsidiaries, determined on a consolidated basis in accordance with GAAP.


"Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for


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reimbursement of drawings, or (iii) under Interest Rate Agreements and Currency Agreements. Contingent Obligations shall include, without limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security theref ...