Exhibit 99.12
2000 EETC RESTRUCTURING AND FORBEARANCE TERM SHEET AGREEMENT
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This 2000 EETC Restructuring and Forbearance Term Sheet Agreement (this
"TERM SHEET") reflects the conditional agreement of the parties hereto regarding
the primary terms for the restructuring of the 2000 EETC transaction (the "2000
EETC TRANSACTION") involving ATLAS AIR, INC., ("ATLAS" or the "COMPANY") and the
holders of the A Certificates referred to below (each an "A HOLDER" and
collectively, the "A HOLDERS") pursuant to a pre-negotiated case under Chapter
11 of Title 11 of the United States Bankruptcy Code (the "Bankruptcy Code").
BACKGROUND
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A. The A Holders hold 2000 8.707% Atlas Air Pass Through Certificates(1/),
Series A (the "A Certificates") issued pursuant to that certain Pass Through
Trust Agreement dated as of January 28, 2000, between the Company and Wilmington
Trust Company ("WTC") as Pass Through Trustee for the Atlas Air Pass Through
Trust 2000-1A, as supplemented pursuant to that Trust Supplement No. 2001-1A
dated as of January 28, 2000, between the Company and WTC as Class A Trustee.
The A Holders that are signatories hereto hold more than 50% of the Fractional
Undivided Interests of the Class A Certificates in the 2000 EETC Transaction.
B. With respect to the 2000 EETC Transaction, reference is also made to (i)
those certain Lease Agreements (the "LEASES") between Owner Trustee, as Lessor,
and Atlas, as Lessee, relating to each of the Leased Aircraft, (ii) those
certain Trust Indentures and Mortgages (the "LEASE INDENTURES"), between Xxxxx
Fargo Bank Northwest, National Association (f/k/a First Security Bank, National
Association), in its capacity as Owner Trustee ("OWNER TRUSTEE") and WTC, as
Mortgagee, pursuant to which Owner Trustee issued the Equipment Notes relating
to the Leased Aircraft (the "LEASED EQUIPMENT NOTES"), (iii) that certain Trust
Indenture and Mortgage (the "OWNED INDENTURE," and together with the Leased
Indenture, the "INDENTURES"), between the Company and WTC, as Mortgagee,
pursuant to which the Company issued the Equipment Notes relating to the Owned
Aircraft (the "OWNED EQUIPMENT NOTES," and together with the Leased Equipment
Notes, the "EQUIPMENT NOTES"), including the Class A Equipment Notes (the "A
EQUIPMENT NOTES"), the Class B Equipment Notes and the Class C Equipment Notes,
and (iv) that certain Intercreditor Agreement dated as of January 28, 2000 (the
"INTERCREDITOR AGREEMENT"), among WTC, as Pass Through Trustee, the Liquidity
Providers party thereto and WTC, as Subordination Agent and Trustee. Unless
otherwise defined herein, capitalized terms used in this Term Sheet shall have
the definitions assigned to them in the Intercreditor Agreement, the Leases or
the Indentures, as applicable.
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(1/) Contemporaneously with this Term Sheet, substantially similar term
sheets (the "1998 AND 1999 TERM SHEETS") are being executed concerning the Atlas
1998 and 1999 EETC Transactions (and together with the 2000 EETC Transaction,
the "EETC TRANSACTIONS").
C. Atlas has entered into transactions similar to those described in
Paragraph A above concerning the Atlas 1998 and 1999 EETC Transactions. Atlas
acknowledges that (i) Lease Events of Default and Indenture Events of Default
occurred in July, 2003 as a result of Atlas' failure to pay in full the
scheduled Lease payments with respect to each of such EETC Transactions, (ii) a
Performing Note Deficiency exists and (iii) Atlas anticipates that it will not
be able to make all of the payments that it is obligated to make on the next
Regular Distribution Date, January 2, 2004, and subsequent Regular Distribution
Dates under each of the EETC Transactions. As a result, in conjunction with the
Program (as defined below), Atlas has requested a comprehensive restructuring of
all its obligations with respect to the EETC transactions.
D. Pursuant to the Intercreditor Agreement, the Class A Trustee is the
Controlling Party and, after the occurrence and during the continuance of an
Indenture Event of Default which has not been cured by the applicable Owner
Trustee or Owner Participant, the Mortgagee will be directed in taking any
action under the Indentures or with respect to the Equipment Notes by the
Controlling Party. Pursuant to the Class A Trust Agreement, and subject to the
limitations therein, the Class A Trustee will consent to any amendment or other
action as the Controlling Party as it is directed to take by the holders of
Fractional Undivided Interests aggregating not less than a majority in interest
in the Class A Trust.
E. In connection with a comprehensive restructuring being proposed by the
Company and certain of its affiliates (the "PROGRAM") with respect to their debt
and lease obligations, Atlas and the A Holders have entered into a Forbearance
Agreement Relating to 2000 EETC dated July 2, 2003, as amended on August 29,
2003, by Amendment to Forbearance Agreement Relating to 2000 EETC (as amended
the "FORBEARANCE AGREEMENT"). Atlas has requested the A Holders enter into (i) a
further amendment and extension of the Forbearance Agreement and (ii) this Term
Sheet regarding amendments to the Equipment Notes, the Indentures, the Leases
and related documents (collectively, the "EETC DOCUMENTS"). Atlas has also
requested the A Holders to agree to take all reasonable actions necessary or
advisable to amend or cause or direct the amendment of the EETC Documents as
provided herein. As used in this Term Sheet, the phrase "TAKE ALL A HOLDER
ACTION" shall mean that A Holders shall vote and take all other reasonable
actions necessary to direct Depository Trust Company and WTC, Pass Through
Trustee, as Controlling Party, to instruct the Subordination Agent, as holder of
the Equipment Notes, to vote all such notes for, and direct the Mortgagee to
take, the specified action to effectuate the restructuring contemplated herein,
provided that (i) it is understood that, for such purpose the A Holders shall
not be required to provide to any trustee or agent any joint and several
indemnities or any other indemnities that are not deemed by the holders of
Fractional Undivided Interests aggregating a majority in interest in the Class A
Trust to be reasonable, (ii) Atlas shall pay all costs and expenses, including
reasonable fees of counsel, financial advisors, and aviation consultants,
incurred by the A Holders in connection with the taking of any such action, and
(iii) Atlas shall indemnify the Pass Through Trustee, the Subordination Agent
and the Mortgagee with respect to any matters as to which any of such parties
require indemnification in connection with any action taken as contemplated
hereby by the A Holders, and such indemnity shall provide that each such party
shall seek such indemnity from Atlas before seeking indemnity from the A
Holders. F. The Program will be effectuated through the means of a plan of
reorganization under Chapter 11 of the Bankruptcy Code that has been
pre-negotiated by Atlas with all of its primary debt and lease constituents as
contemplated herein, and this Term Sheet is intended to reflect the conditional
agreement of the parties hereto regarding the primary terms and conditions of
such restructuring, subject to the terms and conditions set forth herein, and
other
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customary and reasonable terms, conditions, and provisions for the restructuring
transactions and bankruptcy cases of the type and nature contemplated herein.
G. Atlas acknowledges that, as an inducement to the A Holders to enter into
this Term Sheet and thereby allowing Atlas continued use of the Aircraft, Atlas
is, among other things, agreeing to make the payments described herein and
establish the collateral account referred to in paragraph 1(f) below.
1. AMENDMENTS OF FINANCIAL TERMS.
The Leases, Equipment Notes and other operative documents shall be
amended to provide for:
(a) Monthly payments of (i) $725,000 for the period that commenced
January 1, 2003 through and including December 1, 2007, and (ii)
for the period commencing January 1, 2008 and thereafter,
$830,000 per Aircraft until the Equipment Notes are paid in full
(or, if greater with respect to any Lease, until the total amount
has been paid that would have been paid into the Collection
Account under the Intercreditor Agreement had all payments been
made by Atlas pursuant to the terms of such Lease without giving
effect to the Amendments (as defined in paragraph 5(a) below)).
Atlas will be given credit for the Lease and Equipment Note
payments that it made on July 2, 2003. Consistent with the
Company's "most favored nation" restructuring proposals, no other
creditor or lessor with respect to a 747-400 shall receive
contractual payments at a rate in excess of the amount that is
paid with respect to the Leased and Owned Aircraft as specified
herein. No other creditor or lessor shall in any event receive
more with respect to such creditor's or lessor's fleet of 747-400
aircraft than such creditor's or lessor's contractual payment in
effect prior to the commencement of the Program.
(b) Lease and Equipment Note payments shall be made monthly rather
than semi-annually. Monthly payments for the period that
commenced January 1, 2003 through June 30, 2003 in the aggregate
amount of $8,700,000 minus the sum of (i) $4,166,666.67, which is
the portion of 2000 Transaction-related Lease and Equipment Note
payments paid by Atlas on July 2, 2003, and (ii) the Deferred
Rent Amount (as defined below), shall be paid by Atlas as set
forth in paragraph 1(f) hereof. Monthly payments for the period
that commenced in July, 2003 through and including December, 2003
shall also be made by Atlas as set forth in paragraph 1(f). The
amount of $3,616,666.67 (the "DEFERRED RENT AMOUNT") shall be
deferred and shall be payable in twelve monthly installments,
eleven of which shall be in the amount of $166,666.67 each
commencing January 2, 2005 and ending November 2, 2005, and the
final installment of which shall be in the amount of
$1,783,333.33 and shall be payable on December 2, 2005. Interest
on the unpaid Deferred Rent Amount shall accrue at the
incremental rate of ten per cent per annum. Interest of
$542,995.43 on the Deferred Rent Amount for the period that
commenced July 2, 2003 through December 31, 2004 shall be prepaid
by Atlas as provided in paragraph 1(f). Interest on the Deferred
Rent Amount for the period commencing January 1, 2005 through
December 2, 2005 shall be due and payable in monthly
installments, payable in arrears commencing on February 2, 2005.
Payments of interest on the Deferred Rent Amount pursuant to this
paragraph 1(b) shall be in addition to the monthly payments that
are required under paragraph 1(a) above.
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(c) In addition to the payments provided for in paragraphs 1(a) and
1(b) above, Atlas shall also make to the airframe maintenance
contractors under the airframe maintenance contracts referred to
in paragraph 4 a one-time payment aggregating the lesser of (i)
$8.8 million and (ii) 50% of the amounts payable by Atlas under
the airframe maintenance contracts referred to in paragraph 4
below (the "D-CHECK PAYMENTS") not later than October 31, 2003
and commence payments (the "ENGINE PAYMENTS") to the engine
maintenance contractors under the engine maintenance contracts
referred to in paragraph 4 below in accordance with that
paragraph and the terms of such contracts (or, if the contracts
referred to in paragraphs 4 below are not executed by October 31,
2003, Atlas shall provide irrevocable, confirmed letters of
credit, in form and substance acceptable to the A Holders and
issued by a bank acceptable to the A Holders, subject to
arrangement on commercially reasonable terms, or cash deposits
for the benefit of the A Holders on or before October 31, 2003,
with the proceeds of such letters of credit or cash deposits to
fund the D-Check Payments at the time that such airframe
maintenance contracts are executed or to fund the Engine Payments
at the time such engine maintenance contracts are executed, as
applicable). Any letter of credit provided to fund the D-Check
Payments or Engine Payments will be terminated if the Company
uses the cash collateral securing such letter of credit to pay
for the D-Check Payments or Engine Payments, as applicable. The
amount of the D- Check Payments was based in part on Atlas'
having advised the A Holders that a D-Check has been completed on
Aircraft N491MC by an entity previously disclosed to the advisors
to the A Holders and that Aircraft N492MC is in the process of
receiving a D-Check by another entity previously disclosed to the
advisors to the A Holders which is expected to be completed on or
about September 14, 2003. If such D-Check with respect to
Aircraft N492MC is not completed by October 31, 2003, then Atlas
shall make an additional D-Check Payment on October 31, 2003 in
an amount equal to the result of (i) $2,200,000, minus (ii) the
amount, if any, paid by Atlas to such entity previously disclosed
to the advisors to the A Holders prior to October 31, 2003 with
respect to the D-Check of Aircraft N492MC, evidence of which
payments, if any, to such entity shall be provided to the A
Holders on or before October 31, 2003 if the D-Check of Aircraft
N492MC is not completed by October 31, 2003. Atlas shall provide
to the advisors to the A Holders within 10 days after the
execution of this Term Sheet reasonable evidence of the
completion of the D-Check with respect to Aircraft N491MC. Atlas
shall provide to the advisors to the A Holders within 10 days
after the completion of the D-Check with respect to Aircraft
N492MC reasonable evidence of the completion of the D-Check with
respect to Aircraft N492MC.
(d) The reduced monthly payments contemplated in paragraph 1(a) above
shall be subject to "snap back" provisions acceptable to the A
Holders to the effect that such payment reductions shall not
become permanent unless and until all of such reduced monthly
payments shall have been timely (within any applicable grace
period) paid in full.
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(e) The financing arrangements regarding the Deferred Rent Amount
shall be implemented through a debtor-in-possession credit
facility under Section 364 of the Bankruptcy Code in form and
substance acceptable to the A Holders (the "DEFERRED RENT DIP").
Such financing shall be guaranteed by Polar Air Cargo Inc.
("POLAR") and Atlas Air Worldwide Holdings, Inc. ("PARENT"), and
secured by a first priority security interest (the "PLEDGE") in
all of the then existing and thereafter created or acquired
accounts of Atlas, Polar and Parent. The Pledge and the
administrative claim status of the Deferred Rent DIP shall be
subordinated to the security interests in such collateral
securing any debtor-in-possession financing or exit financing
provided to Atlas, Polar or Parent in connection with their
respective Chapter 11 cases contemplated hereby and shall be
primed by the liens and security interests and administrative and
priority claims granted to such debtor-in-possession lenders. The
terms of the subordination for debtor-in-possession or exit
financing shall be acceptable in all respects to any such lender,
provided that, (i) with respect to the debtor-in-possession
financing, if the senior lender accelerates its indebtedness or
exercises remedies with respect thereto, the A Holders shall also
have the right to accelerate and take other action (other than
foreclosure) to preserve their rights with respect thereto, and
(ii) with respect to any exit financing, if the senior lender
accelerates its indebtedness or exercises remedies with respect
thereto, the A Holders shall also have the right to accelerate
and take other action to preserve their rights under the
Bankruptcy Code with respect thereto, and the A Holders shall not
be required to waive or modify their rights with respect to any
subsequent bankruptcy proceeding, including without limitation
rights such as the right to file proofs of claim, seek adequate
protection, attend meetings of creditors, vote on a plan of
reorganization and obtain relief from automatic stay under the
Bankruptcy Code. The A Holders agree to take all A Holder Action
reasonably necessary to effect such subordination or as such
lenders shall reasonably require.
(f) The payments required by paragraphs 1(a) and 1(b) above shall be
made at such time, to such account, and in such manner as may be
directed by the holders of Fractional Undivided Interests
aggregating a majority in interest in the Class A Trust by
written notice to the Company, but in no event after the later of
the entry date of the Section 1110 Stipulations described in
paragraph 10(a) hereof and January 2, 2004. Unless Atlas is
otherwise directed by the A Holders, all of such payments shall
be made by Atlas to a collateral agent designated by the A
Holders, to be held by the collateral agent as security for
Atlas' obligations under the EETC Documents pending final
arrangements for the payment of sums pursuant to the Program
contemplated hereby. The fees and expenses of any such collateral
agent shall be paid by Atlas. With respect to any pledge of such
payments to a collateral agent as security for Atlas' obligations
under the EETC Documents, Atlas shall cooperate with the A
Holders and the advisors to the A Holders in making any
arrangements and executing any pledge agreements, control
agreements, or other documents reasonably requested by the A
Holders (the "Collateral Account Documents") or their advisors in
connection therewith and, if not otherwise directed by the A
Holders, Atlas shall use its
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reasonable best efforts to cause such arrangements and agreements
to be completed and in effect as soon as reasonably practicable
(and in any event within 30 days) after the execution of this
Term Sheet. The A Holders, directly or through their legal
advisors, shall cooperate reasonably with the Company and such
collateral agent in giving the Company and such collateral agent
reasonable input and direction as to the A Holders' requirements
with respect to the establishment of the collateral account and
the Collateral Account Documents.
2. ADDITIONAL CONSIDERATION TO CERTIFICATEHOLDERS.
A Holders shall receive their respective pro rata shares of any
amendment fee consideration (which shall not include any reasonable and
customary work or agent fee paid to an administrative agent or similar
agent but not paid to or for the benefit of the creditors for which such
agent acts) being paid or delivered, in the aggregate, to any of the Other
Creditors (as defined below) in connection with the restructurings on their
credit and lease facilities simultaneously herewith, as referred to in
paragraph 8 hereof. Such equivalent amendment fee consideration shall be of
the same type and proportion to the debt owed to the A Holders as the
percentage that the fee payable to any such Other Creditor constitutes with
respect to the outstanding debt or lease payments owed to (or commitment
of) such Other Creditor, and the amount and nature of such equivalent
amendment fee consideration shall be resolved to the reasonable
satisfaction of the A Holders. It is agreed that equity consideration being
provided to the Company's senior bank lenders (the "BANK LENDERS") and
General Electric Capital Aviation Services ("GECAS") at or before the
effective date of the Amendments in amounts not exceeding 2.5% and 5%, on a
fully diluted basis, of the common stock of Parent, is not an amendment fee
and will not entitle the A Holders to receive equity consideration.
3. COVENANTS.
The Indentures, Leases and operative documents shall be modified to
provide affirmative and negative covenants and cross defaults to the other
debt and lease facilities of Atlas and its affiliates, including without
limitation:
(a) All subordinated debt issued by Parent, Atlas or any other
affiliate of Parent, including without limitation the Senior
Subordinated Unsecured Notes that Atlas contemplates issuing to
its unsecured bondholders, shall be expressly subordinated to the
Leases and the Equipment Notes and payments on account of
subordinated debt shall be subject to the satisfaction of
financial covenants acceptable to the A Holders and shall not be
made at any time that there is a default on any of the Equipment
Notes. The A Holders will seek to coordinate the financial
covenants that are included in the Amendments for the purposes
referred to in this paragraph (a) with those being used by the
Bank Lenders for such purposes and will use such Bank Lender
financial covenants as part of the Definitive Documents for the
purposes of this paragraph (a) if they are determined in a manner
acceptable to the A Holders on or before December 1, 2003.
(b) All preferred and common stock issued by Parent, Atlas or any
other affiliate of Atlas or Parent shall be subject to
restrictions on redemptions and the payment of dividends and
distributions, with such restrictions to be based upon the
satisfaction of financial covenants acceptable to the A Holders.
The A Holders will seek to coordinate the financial covenants
that are included in
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the Amendments for the purposes referred to in this paragraph (b)
with those being used for such purposes by the Bank Lenders and
will use such Bank Lender financial covenants as part of the
Definitive Documents for the purposes of this paragraph (b) if
they are determined in a manner acceptable to the A Holders on or
before December 1, 2003.
(c) Debt and lease incurrence tests based on leverage and coverage
ratios, with reasonable baskets to be agreed upon, which tests
and baskets shall be acceptable to the A Holders. As it is
intended that the A Holders receive the same debt and Lease
incurrence covenants as are given to the Bank Lenders, it is a
condition of the A Holders' obligations hereunder that all such
Bank Lender debt and lease incurrence covenants be determined on
or before December 1, 2003 in a manner acceptable to the A
Holders. Except for the purposes set forth in paragraphs 3(a) and
(b) hereof, the Amendments will not include any financial
covenants except for the covenants referred to in this paragraph
(c).
(d) Prohibition of mergers, business combinations, changes in
existing lines of business and engaging in new lines of business
other than airfreight and airfreight services consistent with the
Company's Business Strategy dated March 28, 2003 previously
delivered by Atlas to the advisors to the A Holders. As it is
intended that the A Holders receive the same covenants as are
given to the Bank Lenders with respect to the matters referred to
above in this paragraph (d), it is a condition of the A Holders'
obligations hereunder that all such Bank Lender covenants be
determined on or before December 1, 2003 in a manner acceptable
to the A Holders.
(e) Cross-defaults ("CROSS DEFAULTS") to events of default (following
applicable cure periods) under the Company's debt and lease
facilities with GECAS, Boeing Capital Corporation and its
affiliates ("BOEING"), and the Bank Lenders, and to the other
EETC Transactions. It will also constitute a Cross Default if
there is an acceleration of obligations owed to Other Creditors,
if such other accelerated obligations exceed $50,000,000. The
obligations that are the subject of the Cross Default are
referred to herein as the "CROSS DEFAULT OBLIGATIONS".
(f) A Cross Default shall be a Lease Event of Default. Upon the
occurrence of a Cross Default following the Plan Effective Date
(as hereinafter defined), the A Holders shall have the right in
their sole and absolute discretion upon the earlier of (i) 30
days following the occurrence of the Cross-Default if such
default is a payment default or 60 days following the occurrence
of the Cross-Default if such default is a non-payment default,
and (ii) acceleration of the applicable Cross-Default Obligation,
to direct the Class A Trustee to direct the collateral trustee to
exercise all available rights and remedies. If, before the
occurrence of an Action Event (as defined below), (x) GECAS,
Boeing or the Bank Lenders waives or amends, a Cross Default that
occurs under its facility, or (y) the Bank Lenders waive or amend
a covenant referred to in paragraph 3(c) or 3(d) above, then such
Cross Default or such covenant will
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be deemed to have been similarly waived or amended by the A
Holders, but such waiver or amendment shall only take effect if
Atlas has complied with the provisions of paragraph 3(g) below.
As used herein, an "ACTION EVENT" means (x) any acceleration or
other exercise of rights or remedies by the Class A Trustee,
Subordination Agent or Mortgagee as a result of the Cross Default
or (y) the giving of instructions or directions by holders of
Fractional Undivided Interests aggregating a majority-in-interest
in the Class A Trust to the Class A Trustee to exercise any such
rights or remedies. For the purposes hereof, if Atlas refinances
from time to time, with institutional lenders not affiliated with
Atlas, the entire debt that Atlas owes to the Bank Lenders with
another senior loan facility, the lenders under such new facility
after the date of such refinancing, shall be deemed to be the
"Bank Lenders" hereunder and the covenants referred to in
paragraphs 3(c) and 3(d) shall thereby automatically be deemed to
have been amended to be the covenants set forth in the documents
evidencing the indebtedness to the new Bank Lenders. If more than
one such new senior loan facility takes effect at any one time,
the larger facility will be deemed to be the new Bank Lender
facility for the purposes hereof.
(g) If, after the Plan Confirmation Date, in connection with any
amendment, waiver, or modification of any debt or lease facility
of any Other Creditor regarding any action, inaction, state of
affairs or item which constitutes an event of default or may have
become an event of default without such amendment, waiver, or
modification, any Other Creditor receives any (i) new or
increased rent, debt payments, maintenance reserves or other form
of additional payment, (ii) new fees or other compensation, (iii)
increase in interest rate, (iv) additional collateral or credit
support, (v) materially improved maintenance provisions or return
condition provisions, or (vi) other form of material enhancement
(collectively, the "ENHANCEMENTS"), the Company shall (A) give
prompt notice to the Class A Trustee describing in reasonable
detail the amendment or waiver and the Enhancement given in
connection therewith, and (B) cause the Subordination Agent with
respect to the 2000 EETC Transaction to simultaneously receive
equal and identical Enhancements (calculated as the net economic
benefit to such Other Creditor, but not less than zero), provided
that any settlement by Atlas in the ordinary course of business
of contractual aircraft return condition obligations of Atlas
regarding an Aircraft which does not exceed the amount of the
applicable contractual aircraft return condition obligation of
Atlas shall not constitute an Enhancement for the purposes
hereof. Enhancements which are calculated on a per unit basis
will be provided to the A Holders on a per unit basis, and
Enhancements which are provided as a percentage of outstanding
obligations shall be provided to the A Holders pro rata in the
proportion that the debt outstanding on the A Equipment Notes
bears to the debt outstanding to such other creditor.
(h) The A Holders will not require other new covenants that are
inconsistent with the terms of this Term Sheet. The definitive
documents will provide that the new covenants added pursuant to
this Term Sheet will cease to be in effect
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upon the earlier of (i) the payment in full of the A Certificates
and (ii) the Covenant Termination Date (as defined below). After
the Bank Lenders have been paid in full, the covenants shall
continue in effect in the form of such covenants at the time that
the debt to such Bank Lenders is paid in full (but without giving
effect to any amendments or waivers thereof that were made or
given in anticipation of or in connection with such payment in
full of the debt to the Bank Lenders). As used herein, the
"COVENANT TERMINATION DATE" means the first date after the debt
to the Bank Lenders has been paid in full that the unsecured
senior debt of Atlas is rated as investment grade.
4. AMENDMENTS TO PROVIDE PROTECTION FOR THE USE AND DEPRECIATION OF
THE AIRCRAFT.
(a) The Company shall at all times maintain the Aircraft and the
48 engines associated with the Aircraft (the "ENGINES") in
airworthy condition, including the performance of all
airframe D-Checks as required for further operation of the
Aircraft (with no extensions of D-Check intervals by more
than one year beyond the manufacturer's recommended D-Check
interval, in each case as approved by the FAA) and the
performance of all Engine overhauls as required by the
Engine's condition.
(b) Atlas will implement contractual maintenance arrangements
(the "CONTRACTS") that have the objective of achieving, by
not later than March 31, 2004 and thereafter, the protection
levels described below, with the Contracts providing for
monthly payments to Maintenance Contractors (as defined
below) in accordance with Annex A attached hereto (it being
understood that Atlas and the A Holders will be discussing
revisions to Annex A after the date hereof and that Annex A
will be finalized in a form, scope and substance reasonably
acceptable to the A Holders (or to the aircraft advisor
designated by the A Holders), and consistent with the
provisions of this paragraph 4, not later than October 31,
2003) (as finalized "ANNEX A"), and to otherwise provide for
the following:
(i) Entering into and properly funding Contracts with
an engine overhaul contractor of international stature that
is reasonably acceptable to the A Holders (or to the
aircraft advisor designated by the A Holders) (each an
"ENGINE MAINTENANCE CONTRACTOR") with respect to each
Engine, which contract arrangements and related payments
will be designed to achieve the following result:
(A) each Engine either (x) being at or above 25%
of hours remaining to its next required overhaul ("25%
REMAINING LIFE"), or (y) being the subject of a pre-
funding payment to an Engine Maintenance Contractor
equal to 25% Remaining Life for each such Engine; or
(z) having, in combination, remaining life and/or pre-
funded payments to the Engine Maintenance Contractor
that aggregate 25% Remaining Life; and
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(B) all Engines and airframes of all Aircraft on
average and across each EETC Series either (x) having a
combined Engine and airframe maintenance value that is
at or above 50% of hours remaining to their next
required overhauls ("50% COMBINED REMAINING LIFE"), or
(y) being the subject of a pre-funding to one or more
Engine Maintenance Contractors and/or one or more
airframe maintenance contractors of international
stature that is reasonably acceptable to the A Holders
(or to the aircraft advisor designated by the A
Holders) ("AIRFRAME MAINTENANCE CONTRACTOR" together
with the Engine Maintenance Contractor, a "MAINTENANCE
CONTRACTOR") equal to 50% Combined Remaining Life for
all such Engines and airframes, or (z) having, in
combination, remaining life and/or pre-funded payments
to Engine Maintenance Contractor and/or Airframe
Maintenance Contractors that aggregate 50% Combined
Remaining Life.
Atlas' obligations with respect to maintenance of the
Engines and Aircraft will be limited to meeting the
obligations contained in the Contracts, paragraph 1(c)
hereof, this paragraph 4 and Annex A.
(ii) By not later than October 31, 2003, Atlas will
have entered into and have in effect Contracts or other
binding agreements with Engine Maintenance Contractors and
with Airframe Maintenance Contractors. Under those
arrangements, by not later than October 31, 2003, (A) the
engine maintenance contract arrangements contemplated by
paragraph 4(b)(i) above will be fully complied with and,
additionally, five Engine overhauls (with serial numbers to
be specified) shall have commenced, and (B) 50% of the
amount required to perform "D-Checks" for eight Aircraft
which have not had or are not undergoing an initial D-Check
(the "D-CHECK AIRCRAFT") will be pre-funded by paying to an
Airframe Maintenance Contractor with respect to those
Aircraft (or by providing the financial assurance
contemplated by paragraph 1(c) above) an amount equal to the
lesser of (x) $1.1 million per Aircraft that has not
completed a D-Check (that is, an aggregate of $1.1 million,
$5.5 million, and $2.2 million for the 1998, 1999 and 2000
EETC Transactions, respectively) and (y) 50% of the actual
contract cost for each such Aircraft.
(iii) By not later than October 31, 2003, Atlas shall
have entered into Contracts or other legally binding legal
arrangements that the A Holders determine are appropriate,
that are designed to achieve the objectives of this
paragraph 4, that provide for monthly payments commencing by
November 15, 2003 (with respect to October 2003 flight
hours), and that otherwise are reasonably acceptable to the
A Holders with Engine Maintenance Contractors covering all
Engines and with Airframe Maintenance Contractors covering
all Aircraft.
(iv) If by October 31, 2003 Atlas fails to enter
Contracts or other legally binding arrangements that are
sufficiently definitive to make funding
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of payments appropriate with Maintenance Contractors for
each of the Engines and all of the D-Check Aircraft or each
of the five Engine overhauls has not begun, Atlas will fund
the amounts, including all monthly payments and all other
payments to be made under this paragraph 4 or Annex A, that
otherwise would have been payable to the Maintenance
Contractors to an escrow agent designated by the A Holders,
which shall hold such funds to be paid over in the
appropriate amount to the Maintenance Contractor when Atlas
agrees with that Maintenance Contractor to arrangements
consistent with this paragraph 4. If definitive agreements
relating to all Engines and all D-Check Aircraft are not
agreed to and in effect by December 15, 2003 or if by
December 31, 2003 the five Engine overhauls have not been
completed, then the escrow agent shall transfer the funds to
an aircraft advisor designated by the A Holders (the
"CONSULTANT"), which shall hold and as appropriate apply the
funds to satisfy the purposes of this paragraph 4 and Annex
A. Atlas will pay the escrow agent and the Consultant for
their fees and expenses incurred with respect to the various
functions under this paragraph 4 and Annex A promptly upon
being billed therefor.
(v) In order to monitor the maintenance activities
contemplated by this paragraph 4 and Annex A, (A) not later
than the fifteenth day of each calendar month, Atlas shall
provide information to the Consultant with respect to the
use and operation of the Engines and the Aircraft in the
immediately preceding month, (B) not later than the
twenty-fifth day of each month each Maintenance Contractor
shall provide the Consultant with a report that indicates
the current credit balance for each Engine or Aircraft under
the applicable maintenance contract, and (C) on December 31,
2005 and every two years thereafter, Atlas shall provide to
the Consultant a certificate from an executive officer
certifying, as of the relevant date, that all of the
assumptions upon which the arrangements in this paragraph 4
and Annex A are based continue to be correct and accurate in
all respects (or, if they are no longer correct and
accurate, certifying as to the ways in which those
assumptions have changed) and that the maintenance programs
provided under the Contracts have met the objectives
contemplated by this paragraph 4 and Annex A (or, if they
have not met those objectives, certifying as to the ways in
which those objectives have not been met).
(vi) If the information provided to or obtained by the
Consultant indicates that the objectives of this paragraph 4
or Annex A are not being met, including, without limitation,
due to a failure to meet its contractual obligations
contemplated by this paragraph 4 or Annex A or that there
has been either a change in any material respect in the
assumptions upon which the arrangements in this paragraph 4
or Annex A are based or any material variance in meeting the
objectives contemplated by this paragraph 4 and Annex A, the
Consultant, after consultation with A Holders that it can
reasonably identify and reasonable discussions and
consultation with Atlas, shall by written notice to Atlas
(A) advise Atlas of such non-compliance, failure to meet its
obligations, changed circumstances or a material variance,
and (B) specify reasonable actions or adjustments respecting
maintenance in
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order to comply with its obligations contemplated by this
paragraph 4 and Annex A. Atlas shall have 30 days from the
delivery of such notice to comply with obligations specified
in the Consultant's notice, which shall be implemented as
provided in Annex A.
(c) The Company's obligation to maintain the engine maintenance
contracts referred to above will end on the earlier to occur
of (i) the A Equipment Note indebtedness against such
Aircraft is $30 million or less in the aggregate or (ii)
Atlas becoming an investment grade credit, in either case,
however, only if all Aircraft are then in compliance with
all maintenance covenants set forth herein and in the EETC
Loan Documents.
(d) The maintenance contracts described in this paragraph 4
shall be (i) freely assignable, (ii) subject to a first
priority lien in favor of the collateral trustee with
respect to the Equipment Notes, (iii) expressly divisible
for bankruptcy purposes by Engine and airframe and (iv)
otherwise in form, scope and substance reasonably acceptable
to the A Holders consistent with the provisions of this
paragraph 4 and Annex A. In addition and without limitation,
each Maintenance Contractor shall (w) agree to provide to
the Consultant, not later than the twenty-fifth day of each
month, a report that indicates the current credit balance
under the applicable maintenance contracts, (x) consent to
the assignment of such contract as additional collateral to
such collateral trustee, agree not to amend or terminate the
contract or waive any provisions of the contract without the
consent of the holders at the applicable time of a majority
in interest of the Fractional Undivided Interests in the
Class A Trust, and agree that such collateral trustee shall
have all rights of Atlas under such contract after a default
by Atlas in such contract or in any Lease or other EETC
document, (y) waive any and all rights of reduction, setoff
or security for or with respect to obligations due to such
Maintenance Contractor from Atlas or any Affiliate (other
than entitlement to payment for maintenance of the engines
that are the subject of such contract) regardless of whether
the applicable Atlas maintenance contract is then in breach
or has been rejected or assumed in bankruptcy (a "SETOFF
WAIVER"), and (z) agree that, if the Engine Maintenance
Contractor is released from its obligations with respect to
a particular engine, then any excess maintenance funds from
one engine shall be available for other engines, and the
maintenance contract with the Airframe Maintenance
Contractor shall provide that prepaid credits shall, if the
collateral trustee so requires after it has exercised its
rights under such contract, be allocated among the Aircraft
that are the subject of the Equipment Notes in such manner
as may be directed by the collateral trustee.
(e) It will be an event of default under the Leases and
Indentures if any of the following occurs and continues for
30 days after the earlier of (i) notice thereof from the
Lessor or Mortgagee, and (ii) knowledge thereof by any
executive officer (or any other officer with
responsibilities in relation to any of the Leases or any
other person determining senior management policies or
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exercising executive responsibilities) of Atlas: (A) Atlas
fails or refuses to comply with the obligations specified in
the Consultant's notice referred to in paragraph 4(b)(vi)
above, (B) Atlas defaults on any of its material obligations
under any maintenance contract referred to in paragraph 4(d)
above, and (C) any Maintenance Contractor breaches any of
its material obligations under any maintenance contract
referred to in paragraph 4(d) above, such breach is not
remedied within any cure period set forth in such
maintenance contract, and Atlas fails to replace such
Maintenance Contractor with another Maintenance Contractor
acceptable (and pursuant to a contract that is acceptable)
to the holders of a majority in interest of the Fractional
Undivided Interests of the Class A Trust within 90 days
after the date of such breach by the Maintenance Contractor
(or, if there is a cure period, after the end of such cure
period), which replacement maintenance contract shall be
funded at the same level as the maintenance contract that it
replaced.
(f) Prohibitions against suspension of maintenance and against
parking of Aircraft in a condition that does not satisfy the
return condition requirements set forth in the EETC
Documents.
(g) Periodic inspections (but, prior to default, not to exceed
one inspection per 12 month period) of Aircraft and
maintenance records, including inspection of Aircraft and
maintenance records prior to closing the restructuring, by
an aviation professional designated by A Holders collateral
trustee from a pre-approved list of aviation professionals.
Such inspections shall be subject to usual and customary
terms including, among other things, reasonableness and
timing, including without limitation more frequent
inspection rights after default.
5. PROTECTION OF A EQUIPMENT NOTES AND A CERTIFICATES.
(a) The Company will take all action and the A Holders, as
Controlling Party, will take all A Holder Action reasonably
necessary to implement amendments of the EETC Documents (the
"AMENDMENTS") consistent with the note and rental payments
contemplated hereby and necessary to accomplish the Program
contemplated hereby, such Amendments to be in a manner reasonably
satisfactory to the A Holders. If the Company obtains the
consents of the Owner Participants and Liquidity Providers as
contemplated by paragraph 6(a) hereof, and if the Class B and
Class C Liquidity Providers have given "Termination Notices", as
such term is defined in the Liquidity Facilities, or the
continuing role of the Liquidity Providers has been otherwise
resolved satisfactorily to the A Holders as contemplated by
paragraph 5(c) hereof the Amendments will include, among other
things, a waiver of all existing and known defaults.
(b) Prior to the date of the Filing (as defined in paragraph 10(a)
below), the Company will cause the Class A Liquidity Providers to
be retained solely at the cost and expense of the Company and at
no cost or expense to the A Holders. Within 60 days after the
date of the Filing, Atlas shall have
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obtained the consent of the Class A Liquidity Providers to the
Amendments on terms reasonably acceptable to the A Holders.
(c) Within 60 days after the date of the Filing, (i) each of the
Class B Liquidity Providers and the Class C Liquidity Providers
shall have given a Termination Notice or the continuing role of
the Liquidity Providers shall have been otherwise resolved in a
manner satisfactory to the A Holders, and (ii) Atlas shall have
obtained the consent of the Class A Liquidity Providers, the
Class B Liquidity Providers and the Class C Liquidity Providers
to the Amendments on terms reasonably acceptable to the A
Holders.
(d) In each of the Leases for the four Leased Aircraft and in the
Owned Indenture(2/) Atlas will agree and covenant, upon the
occurrence of a Trigger Event (defined below), to either:
(i) commence and continue to pursue diligent commercial efforts
to sell one of the Leased or Owned Aircraft, of Atlas'
choice within six months of the Trigger Event through a
recognized broker at the highest cash bid available as
determined by such broker (but subject to such cash bid
realizing minimum net cash proceeds to be acceptable to the
A Holders), and (if the selected Aircraft is a Leased
Aircraft) to terminate the Lease of such Aircraft upon its
sale; or
(ii) at Atlas' option in lieu of such sale, make an open market
tender for A Certificates at par in an aggregate amount not
less than the Trigger Prepayment Amount within six months of
the Trigger Event. As used herein, "TRIGGER PREPAYMENT
AMOUNT" means the then current amount outstanding on all of
the A Equipment Notes of such EETC Transaction divided by
the number Aircraft in such EETC Transaction.
Atlas will agree and covenant to report consolidated EBITDA
(excluding restructuring and bankruptcy-related expenses) for the
12-month periods ending March 31, 2005, September 30, 2005 and
March 31, 2006 (each, a "SALE TEST DATE") within 45 days after
each Sale Test Date (the date of each such report being a
"REPORTING DATE"). A "TRIGGER EVENT" shall be deemed to have
occurred as of any Reporting Date if consolidated EBITDA
(excluding customary restructuring and bankruptcy-related
expenses) for the trailing twelve months ending on the
immediately preceding Sale Test Date is less than (A) with
respect to the 12-month period ending on March 31, 2005, 66.5% of
the Projected EBITDA, as defined below (excluding restructuring
-----------------
2/ A similar provision is included in the 1998 and 1999 Term Sheets so that
Atlas may be required to sell up to three Aircraft in the aggregate.
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and bankruptcy-related expenses) for such period, (B) with
respect to the 12-month period ending on September 30, 2005,
73.7% of the Projected EBITDA (excluding restructuring and
bankruptcy-related expenses) for such period, and (C) with
respect to the 12-month period ending on March 31, 2006, 75% of
the Projected EBITDA (excluding restructuring and
bankruptcy-related expenses) for such period; provided that, if
the Company sells any Aircraft after the occurrence of any
Trigger Event, the Projected EBITDA for periods ending on Sale
Test Dates occurring after such sale will be adjusted to reflect
the elimination of revenues and expenses relating to the
operation of such Aircraft. As used herein, "PROJECTED EBITDA"
means the EBITDA of the Company as projected in connection with
the confirmation of the Plan, provided that, if such projected
EBITDA is materially less than the projected EBITDA as set forth
in the projections delivered by the Company to the advisors for
the A Holders on September 11, 2003 (the "SEPTEMBER 11 PROJECTED
EBITDA"), then the restructuring contemplated by this Term Sheet
shall be conditioned on such revised Projected EBITDA being
acceptable to the A Holders. If the final accounting treatment of
the restructuring of the Leases has a material impact on the
Company's EBITDA for any of the periods ending on a Sale Test
Date, the Projected EBITDA or applicable percentage will be
appropriately adjusted so as to have an effect, and provide
protection to the A Holders, that is equivalent to that set forth
herein based on the September 11 Projected EBITDA.
(e) Notice and cure provisions relating to defaults and events of
default in the EETC Documents shall be modified so as to be
satisfactory to the A Holders.
(f) To the extent permitted by the documents, the Leases and Trust
Indenture and Mortgage and other applicable documents relating to
the owned Aircraft will be further modified to (i) permit
defaults under or amendments to covenants in such documents to be
waived or amended, as applicable, by a Fractional Undivided
Interest aggregating not less than a majority in interest in the
Class A Trust and (ii) permit the Company or its affiliates to
purchase some or all of the A Equipment Notes without being
required to purchase all Equipment Notes.
(g) As soon as practicable after the execution of this Term Sheet,
the A Holders agree to request that the Subordination Agent
obtain LTV Appraisals of the Aircraft pursuant to Section
4.1(a)(iii) of the Intercreditor Agreement. At least 30 days
prior to the Filing Date, the Subordination Agent shall have
received such LTV Appraisals. In connection therewith, as and
when requested from time to time by the A Holders or the
Subordination Agent at any time after the date hereof, Atlas will
(i) fully cooperate with the Subordination Agent and assist the
Subordination Agent in promptly obtaining such LTV Appraisals
with respect to the Aircraft, provided that Atlas shall not be
required unreasonably to disrupt its business in providing such
cooperation, but Atlas shall nevertheless be required to make the
Aircraft available to the appraiser within a reasonable time
after request therefor at places reasonably acceptable to the
appraiser in order to permit the
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appraiser to inspect the Aircraft, (ii) without limiting the
generality of the foregoing, use its reasonable best efforts to
assist the Subordination Agent in obtaining the LTV Appraisals
prior to the Filing Date if requested to do so by the A Holders,
(iii) promptly provide to the Appraiser designated by the A
Holders or the Subordination Agent access to each of the Aircraft
at a location reasonably convenient for such Appraiser and access
to all data and records requested by such Appraiser with respect
to the Aircraft, (iv) pay, promptly upon being billed therefor
(which payment shall be made in advance if billed in advance),
for the costs of such LTV Appraisals and provide such indemnity
as may be reasonably requested by the Subordination Agent in
connection with the obtaining of the LTV Appraisals, and (v)
cooperate with the A Holders and the Subordination Agent in
permitting the LTV Appraisals to be obtained by the Subordination
Agent and provided to the A Holders on a privileged basis, to the
maximum extent that it is possible to do so.
6. CONSENTS OF OWNER PARTICIPANTS AND LIQUIDITY PROVIDERS.
(a) Prior to the date of the Filing Atlas shall obtain the consent of
the Owner Participants, and within 60 days after the date of the
Filing Atlas shall obtain the consent of the Liquidity Providers,
to the Amendments and to amendments of the following Lease terms
and to the waiver of tax indemnity claims on terms acceptable to
the A Holders:
(i) the ability of A Holders, after future defaults, to amend
Lease income streams to reflect future market conditions,
without the consent of Owner Participants or Owner Trustee;
and
(ii) the right of the Company to use a pre-approved short form
lease in form and substance acceptable to the A Holders to
dry lease the Aircraft to Polar. No such dry lease of
Aircraft to Polar would affect the continuing liens of the
Mortgagee on the Aircraft or relieve Atlas from any of its
obligations under the applicable Leases or from its
obligations to assign all sub-leases to the Mortgagee.
(b) In the event Atlas is unable to obtain the required consents of
the Owner Participants or Liquidity Providers to the Amendments,
the A Holders, in their sole and absolute discretion, would
consider other means to implement the restructuring contemplated
hereby without the consent of the Owner Participants and the
Liquidity Providers.
7. CREDIT ENHANCEMENT.
Parent and Polar shall guarantee Atlas' obligations under the Leases,
the A Equipment Notes, and related documents, effective on the Plan
Effective Date.
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8. OTHER RESTRUCTURINGS.
The Company shall provide to the advisors to the A Holders periodic
updates of its restructuring negotiations with GECAS, the Bank Lenders and
holders of its other lease and debt obligations (the "OTHER CREDITORS")
through and including the Plan Effective Date (defined below). The terms
and conditions of the definitive amendments to the EETC Documents,
including without limitation payment terms, fees, consideration, covenants,
collateral, credit support, maintenance requirements, and return
conditions, shall be no less favorable to the A Holders than the definitive
amendments entered into with, or proposed and implemented under the Plan
(as defined below) with respect to the Other Creditors subject to the
Program, taking all relevant facts and circumstances into account (the
"CONFORMITY OF THE OTHER CREDITOR TRANSACTIONS"). If Atlas is unable to
obtain the consent of any Other Creditor to the delivery of its definitive
documents to the A Holders for the purpose of permitting the A Holders to
confirm the Conformity of the Other Creditor Transactions, then Atlas shall
cause the A Holders to receive from the financial advisors to the A Holders
or from an independent third party acceptable to the A Holders a written
report in form and substance satisfactory to the A Holders confirming the
Conformity of the Other Creditor Transactions. Nothing herein shall be
deemed to waive the rights of the A Holders as a party in interest in the
Bankruptcy Case to seek to compel production and disclosure of the
underlying contractual documents and proposed amendment documents of Other
Creditors pursuant to the Bankruptcy Code and the Bankruptcy Rules subject
to any confidentiality protections which may be imposed by the Bankruptcy
Court.
9. MANAGEMENT AND CONSULTING ARRANGEMENTS.
(a) The form of the Company's corporate governance and the process
for designating its board of directors after the unsecured
bondholders and other unsecured creditors obtain a controlling
interest in the equity of the Company must be reasonably
satisfactory to the A Holders; provided, however that it shall be
deemed satisfactory to the A Holders if a majority of the board
of directors immediately following the Plan Effective Date is
designated by the unsecured bondholders and other creditors of
the Company pursuant to the Plan for terms of not longer than one
year, and thereafter the board of directors is elected by the
shareholders of the company generally in accordance with
applicable law.
(b) Atlas shall disclose to the advisors to the A Holders all
material information with respect to its management and
consulting arrangements with its employees and consultants
(excluding legal counsel), including information with respect to
all cash, equity and other compensation (whether direct or
indirect, absolute or contingent) to be paid or given. Nothing
herein is intended to constitute a waiver by the A Holders of
their right to object in any Chapter 11 case to the ratification,
approval, or implementation of any employee retention plan or
other management or consulting arrangements with employees and
consultants.
10. IMPLEMENTATION IN BANKRUPTCY.
(a) The restructuring of the EETC Documents and of all
obligations to Other Creditors shall be implemented through
a pre-negotiated
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Chapter 11 case (the "BANKRUPTCY CASE") and related plan of
reorganization filed by Atlas and its affiliates ("PLAN")
under the Bankruptcy Code. The term "PLAN CONFIRMATION DATE"
shall mean the date of entry of the order of the Bankruptcy
Court confirming the Plan, which order is not subject to
stay, and the term "PLAN EFFECTIVE DATE" shall mean the
effective date of such Plan as provided therein. The Chapter
11 case shall be commenced in a Bankruptcy Court (the
"BANKRUPTCY COURT") on or before December 15, 2003 (the
"FILING"). The Plan Confirmation Date must occur on or
before 180 days after the Filing, and the Plan Effective
Date must occur not later than 30 days after the Plan
Confirmation Date. The form, scope and substance of all
primary Chapter 11 documents and orders relating to the
overall restructuring of the EETC Transactions and of all
other primary debt and lease constituencies shall have been
agreed upon and finalized to the reasonable satisfaction of
the A Holders prior to the Filing, including without
limitation all maintenance contracts and arrangements
contemplated hereby, the Plan, Disclosure Statement,
Adequate Protection and Section 1110 Stipulations and
Orders, DIP Financing Documents and Orders, Lease
Modification and Assumption Stipulations and Orders, and all
First Day Motions and Orders relating to the comprehensive
restructuring transactions of all primary debt and lease
constituencies as contemplated hereby. The Deferred Rent DIP
shall be implemented on an interim and final basis
simultaneously (to the extent reasonably possible) with the
general debtor-in-possession financing being arranged by
Atlas and its affiliates for the Chapter 11 case, but in no
event shall the final order be entered later than 45 days
after the Filing. The Section 1110 Stipulation described
below shall have become final, and all payments due
thereunder shall have been made, no later than 45 days after
the Filing.
(b) The Deferred Rent DIP and Section 1110 Stipulation shall
contain reasonable and customary terms and provisions for a
transaction of this type, including without limitation
findings and an order or orders by the Bankruptcy Court
binding upon the debtors in the Bankruptcy Case (the
"DEBTORS"), the Debtors' estates, and any Chapter 7 Trustee,
providing that (i) the Leases are the valid and binding
prepetition lease obligations of Atlas without defense,
setoff, avoidance, or counterclaim (other than the right to
assume or reject a Lease under Sections 365 and 1110 of the
Bankruptcy Code, or assume all of the Leases under the Plan
with the modification contemplated herein), and (ii) the
Company, on behalf of the bankruptcy estate, waives any
avoidance claims regarding any prepetition or postpetition
payments made (including without limitation cure payments),
or collateral granted, prior thereto regarding any Lease or
Equipment Note.
-18-
(c) Pursuant to the Intercreditor Agreement, the Class A Trustee
is the Controlling Party and, after the occurrence and
during the continuance of an Indenture Event of Default
which has not been cured by the applicable Owner Trustee or
Owner Participant, the Mortgagee will be directed in taking
any action under the Indentures or with respect to the
Equipment Notes by the Controlling Party. Although the A
Holders are not holders of claims or interests in the
bankruptcy estate of Atlas and its affiliates, they are
beneficial holders of Fractional Undivided Interests
aggregating a majority in interest in the Class A Trust.
Pursuant to the Class A Trust Agreement, and subject to the
limitations therein, the Class A Trustee will consent to any
amendment or other action as the Controlling Party as it is
directed to take by the holders of Fractional Undivided
Interests aggregating not less than a majority in interest
in the Class A Trust. The undersigned A Holders have
informally consulted with each other with the advice of
counsel, financial advisor, and aviation consultant (the
"COMMITTEE ADVISORS") as an ad hoc committee of A Holders
(the "AD HOC A HOLDER COMMITTEE") for purposes of
considering the restructuring contemplated herein at the
Company's request. As reasonably requested by Atlas from
time to time before and after the Filing, the Ad Hoc A
Holder Committee, through its counsel, will provide to Atlas
the names of the institutions which are the beneficial A
Holders on the Committee, and the aggregate amount of the
Fractional Undivided Interests held by the Ad Hoc A Holder
Committee from time to time in each EETC Series Transaction,
it being understood, however, that no Ad Hoc A Holder
Committee member shall be required to (i) disclose its
individual holdings to Atlas (but rather shall disclose such
holdings to counsel for the Ad Hoc A Holder Committee on a
confidential basis for reporting by counsel of the aggregate
holdings of the Ad Hoc A Holder Committee), or (ii) receive
material non-public information at any time for purposes of
taking A Holder Action, but may request and receive the same
upon reasonable confidentiality and "cleansing disclosure"
mechanics substantially similar to the existing Non
Disclosure Agreements in place at the time of the execution
of this Term Sheet. During the bankruptcy case to implement
the restructuring, the Debtors shall acknowledge the Ad Hoc
A Holder Committee as parties in interest in the Chapter 11
case, and shall pay on a monthly basis (pursuant to the
Deferred Rent DIP and/or Section 1110 Stipulation without
the requirement of a court approved fee application) the
reasonable fees and expenses of Committee Advisors. The
Company reserves the right to terminate discussions with the
Ad Hoc A Holder Committee for any series of EETC
Transaction, and to cease paying the fees and expenses of
such Committee Advisors for such series, if at any time
after the date hereof (before or after the Filing) (i) the
Ad Hoc A Holder Committee for such series shall hold less
than 25% of the Fractional Undivided Interests of the Class
A Certificates of such series (or shall refuse to reasonably
report and
-19-
update its aggregate holdings from time to time), or (ii)
another holder or group of holders holding more than 50% of
the Fractional Undivided Interests of the Class A
Certificates of such series becomes active in the
restructuring discussions of such series.
(d) The A Holders (and/or the Subordination Agent, Class A Trustee,
or other appropriate party as directed by A Holder Action) and
the Company will execute and deliver to the Bankruptcy Court a
stipulation and agreement pursuant to Section 1110(b) and Section
361 of the Bankruptcy Code (reasonably satisfactory in form and
substance to Company and A Holders) (the "SECTION 1110
STIPULATION") which shall, without limitation, (i) contain a
recital by Atlas that, because of its financial condition, Atlas
refuses to assume or agree to perform its full obligations under
all of the Leases (as in effect prior to giving effect to the
Amendment), (ii) provide for payments under the Leases and Owned
Equipment Notes as amended and provided herein, and (iii) provide
that, for so long as the Debtors timely fulfill all of their
obligations thereunder and all of their obligations under this
Term Sheet and the definitive documents executed pursuant hereto,
A Holders will forbear from exercising rights under Section 1110
of the Bankruptcy Code, or seeking relief from the automatic stay
under Section 362 of the Bankruptcy Code, from the date of filing
of the Chapter 11 case (the "FILING DATE") until the earliest of
(A) the date which is 180 days after the Filing Date and (B)
confirmation of a Plan. In addition to other reasonable and
customary provisions, the Stipulation will also provide that all
Basic Rent, all Supplemental Rent, principal and interest owed by
Atlas, and all maintenance obligations and expenses due and
payable under the Leases and other EETC documents at or after the
Filing Date (less any payments thereof made by Lessee after the
Filing Date) shall be allowed as an administrative expense
pursuant to Sections 503(b)(1)(A) and 507(a)(1) of the Bankruptcy
Code; provided, however, that there shall not be allowed as an
administrative expense (x) any other damages payable by reason or
in respect of the rejection or other termination of the Leases or
the exercise of remedies with respect to the rejection or other
termination of the Leases or the occurrence of any Lease Event of
Default under and as defined in the Leases, or (y) any amounts
payable by the Company pursuant to the Leases in respect of the
failure of the Aircraft to meet the minimum hour and cycle
requirements specified therein.
(e) For so long as (i) all of the terms and conditions of this Term
Sheet and the definitive documents executed pursuant hereto have
been satisfied (or waived or modified to the satisfaction of the
A Holders in their sole and absolute discretion), (ii) Atlas and
its affiliates are timely fulfilling or performing all of their
obligations hereunder and under the definitive documents executed
pursuant hereto, including their obligations with respect to the
Deferred Rent DIP and the Section 1110 Stipulation, and (iii)
Atlas shall not have rejected any Lease or related maintenance
contract without the consent of a majority-in-interest of the A
Holders, the A Holders agree to take all A Holder Action
reasonably necessary:
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(A) to effect the subordination of any Pledge and the
administrative claim status of the Deferred Rent DIP
pursuant to paragraph 1(e) hereof;
(B) (x) not to file any objection to the Plan based on the
proposed Amendments to the Equipment Notes, the Trust
Indentures or the Leases and (y) to vote any claims it may
have in favor of the Plan and oppose all competing Chapter
11 plans;
(C) not to grant or cause to be granted to any other person or
entity any proxy to vote with respect to the Plan (except to
permitted transferees as contemplated by paragraph 12
hereof);
(D) not to directly or indirectly take any action (including as
a member of any creditors committee), solicit, initiate,
fund, or encourage any competing Chapter 11 plan that may
interfere with or be inconsistent with the Plan;
(E) not to object to the extension of any exclusive period under
11 U.S.C. Section 1121 necessary to obtain confirmation of
the Plan during such extended exclusive period, and
(F) perform their A Holder obligations hereunder and generally
support the implementation of the restructuring contemplated
herein on the terms and conditions, and in the manner and
time frame, set forth herein.
11. FORBEARANCE.
A Second Amendment to Forbearance Agreement Relating to 2000 EETC
dated July 2, 2003, is being executed by the parties simultaneously with
the execution of this Term Sheet.
12. EFFECT ON ASSIGNEES; NO THIRD PARTY BENEFICIARIES.
This Term Sheet is being executed by A Holders holding a majority in
interest of the Fractional Undivided Interests in the Class A Certificates
in the 2000 EETC Transaction. Each of the A Holders agrees to inform the
initial successor of such A Holder or initial assignee of a Class A
Certificate of such A Holders (or, if the A Holder is dealing only with a
broker or other intermediary (a "BROKER CONTACT"), such broker contact)
(any such initial successor, initial assignee of a Class A Certificate, or
broker contact being referred to herein as a "TRANSFEREE"), and each A
Holder that becomes bound by this Term Sheet after the date hereof shall
notify its transferee, if any, of the existence of this Term Sheet and any
amendment hereto and obtain through the electronic DTC trading system a
trade confirmation that such transferee's A Certificates are subject to the
provisions of this Term Sheet and any amendment hereto, provided that, (a)
no A Holder makes any representation or warranty herein as to whether a
transferee will in fact be subject to the provisions of this Term Sheet,
(b) no A Holder will have any liability to Atlas or any other person if it
is
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determined that any such transferee is not in fact bound by this Term
Sheet, (c) Atlas agrees to indemnify each A Holder against any liability,
loss or expense (including reasonable counsel fees) incurred by such A
Holder as a result of any claim by any transferee that it should not be
bound by this Term Sheet or that the predecessor or assignor A Holder
(other than the transferee with which such A Holder dealt) should have
disclosed to such transferee the existence of this agreement or that this
agreement would be binding upon such transferee, and (d) Atlas agrees to
sufficiently describe in a public announcement and on the DTC electronic
trading system the terms and conditions of this Term Sheet, and the fact
that it provides that transferees of the A Holders are subject to the
provisions of this Term Sheet, such that any such transferee will have the
opportunity to have become aware of such information. No person other than
the parties hereto, the holders of A Certificates from time to time, and
the Class A Trustee, the Subordination Agent and the Mortgagee shall have
any rights hereunder or be entitled to rely on this Term Sheet, and all
third-party beneficiary rights are hereby expressly disclaimed.
13. EFFECTIVENESS; COUNTERPARTS; PAYMENT OF ADVISORS.
(a) This Term Sheet, any amendment hereof, and any of the Amendments
contemplated herein shall become effective and binding on the
parties hereto when counsel to the A Holders (i) shall have
received from the A Holders signatory hereto notices
acknowledging that they hold A Certificates evidencing their
respective Fractional Undivided Interests in the Class A Trust in
an aggregate amount of not less than $62,319,501 of the original
face amount of such A Certificates, and shall have notified Atlas
or its counsel in writing of such receipt, and (ii) shall have
received from Atlas and each of the A Holders included in such
written notice, a counterpart hereof signed by such party or a
facsimile or other written confirmation (in form satisfactory to
such counsel) that such party has signed a counterpart hereof.
The parties agree to take A Holder Action to enter into
definitive documents to effect the provisions of this Term Sheet.
However it is hereby understood and agreed that (i) each A
Holder's agreement to the terms of this Term Sheet is subject to
such A Holder's satisfaction in its sole and absolute discretion
with such definitive documents, (ii) each party's agreement to
this Term Sheet is subject to and conditioned on any open issues
(including matters that are to be resolved or determined to the
reasonable satisfaction of the A Holders or which are required to
be acceptable to the A Holders) being resolved to such party's
sole and absolute satisfaction, (iii) nothing herein shall
prevent any party from proposing or requiring, as a condition of
its agreement to the Amendments, additional provisions not
inconsistent with the provisions of this Term Sheet even though
such additional provisions are not referred to in this Term
Sheet, each party's agreement to this Term Sheet being subject to
and conditioned on its being satisfied with the terms of any such
additional provisions, and (iv) the A Holders shall have the
right to terminate this Term Sheet upon the occurrence of any
"Termination Event", as defined in the Forbearance Agreement.
This Term Sheet shall be governed by the laws of the State of New
York and may be executed by the parties hereto in any number of
counterparts, each of which shall be deemed to be an original,
but all such counterparts when taken together shall constitute
one and the same
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instrument. Except as expressly provided for herein, no
modification, amendment or waiver of any provision of this Term
Sheet shall be effective unless such modification, amendment or
waiver is in writing and signed by Atlas and the holders from
time to time of a majority in interest of the Fractional
Undivided Interests of the A Certificates in the 2000 EETC
Transaction.
(b) Atlas shall continue to pay, as and when billed therefor (or for
retainers with respect thereto), the reasonable fees and
disbursements of the Committee Advisors in connection with the
Program. Atlas shall also pay, as and when billed therefor (or
for retainers with respect thereto), the reasonable fees and
disbursements of the Class A Trustee, Subordination Agent and
Mortgagee and their counsel with respect to the Program, the
Amendments, the Forbearance Agreements, the events of default
that have occurred under the EETC Documents and their review of
the EETC Documents in connection therewith, and any other action
taken or requested to be taken by any of such Persons in
connection with any of the foregoing.
(c) Any requirement herein that any matter be acceptable or
satisfactory to the A Holders will be complied with if such
matter is acceptable or satisfactory to (i) the holders of
Fractional Undivided Interests aggregating a majority in interest
in the Class A Trust or (ii) any advisor or designee of such
majority in interest who is authorized by such majority in
interest to make such determination.
14. TIME OF THE ESSENCE.
TIME IS OF THE ESSENCE AS TO ALL PROVISIONS OF THIS TERM SHEET.
Dated this 12 day of September, 2003.
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ANNEX A
-------
Covenants and Amendments to Provide Protection for the Use and Depreciation
of the Aircraft.
1. (a) Maintenance Contracts. The Company will establish engine maintenance
contracts designed, together with the partial pre-payment of eight near-term
airframe D-checks, to meet the following objectives for the EETC Aircraft and
Engines as of the end of each calendar month:
(i) half-time (50%) "Aggregate Maintenance Condition" for all of the
Aircraft and Engines, taken as a whole and not individually, in
each EETC Series; and
(ii) 25% "Individual Engine Maintenance Condition" for each of the
Engines.
(b) Engine Maintenance Accounts. Each of the Company's Engine Maintenance
Contractors will establish and maintain record-keeping book-entry accounts (the
"Accounts", which will be for record-keeping purposes only, and will not hold
actual funds) for each of the Engines assigned to such Contractor. The Accounts
will record the monthly payments for each Engine received by such Contractor
from the Company pursuant to the Company's Engine Maintenance Contract with such
Contractor, together with the cumulative balance for each Engine, net of any
amounts previously applied to payment for such Engine's over-hauls completed or
then in-progress.
(c) Monthly Payments: Commencing on November 15, 2003 and on the 15th day of
each month thereafter, for each of the Engines the Company will make monthly
payments to the applicable Engine Maintenance Contractor for the Account of each
Engine. The monthly payment for each Engine will be determined by:
The number of engine flight hours such Engine was operated during the
previous calendar month in excess of the Remaining Engine Life Limits
for such month as defined in Exhibit 1 - Monthly Payment Schedule
(i.e. if such Engine had exceeded its Remaining Engine Life Limits
prior to the beginning of such previous calendar month, the entire
number of engine flight hours such Engine was operated during such
previous calendar month; if such Engine did not exceed its Remaining
Engine Life Limits prior to the beginning of such previous calendar
month but did exceed its Remaining Engine Life Limits at the end of
such previous calendar month, the number of engine flight hours by
which such Engine exceeded its Remaining Engine Life Limits at the end
of such previous calendar month)
times
the rate per engine flight hour (the "Rate") applicable to such Engine
for such calendar month.
The Rate applicable to an Engine for any calendar month will be calculated as
the engine overhaul cost (the "Cost") as specified under the Engine Maintenance
Contract for the next over-haul of such Engine divided by the number of flights
hours expected (the "Interval") until such next overhaul is required, which
depends on the number of overhauls such Engine has already received.
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(d) Monthly Payment Schedule: Exhibit 1 - Monthly Payment Schedule provides the
basis for calculating monthly payments for any Engine for any calendar month.
Exhibit 1 is based on the assumption that the Company will receive FAA approval
of an airframe D-check interval for the Aircraft of 6 years or 25,000 flight
hours, and provides for different Rates for two alternative engine overhaul
Costs of $1.75 million and $1.10 million. Part A of Monthly Payment Schedule 1
shows the Rate per engine flight hour under the alternative engine overhaul Cost
assumptions for Engines that have previously received no overhauls, one
overhaul, or two or more overhauls. Part B of Monthly Payment Schedule 1 shows
the engine remaining life percentage limits (the "Limits") applicable to an
Engine for any calendar month that trigger commencement of monthly payments for
such Engine. Once an Engine reaches the Limit applicable for such Engine and
EETC Series, the Company will, for such month and subsequent calendar months
until such Engine exceeds the applicable Limit as of the beginning of any
calendar month, pay an amount monthly for each such calendar month for such
Engine equal to the number of engine hours that such Engine was operated during
such calendar month times the Rate per engine flight hour then-applicable for
such Engine.
Exhibit 1 will be revised by October 31, 2003 when the Company enters into
legally binding agreements with one or more qualified Engine Maintenance
Contractors, to reflect engine overhaul costs specified in these agreements.
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--------------------------------------------------------------------------------
EXHIBIT 1: MONTHLY PAYMENT SCHEDULE
--------------------------------------------------------------------------------
Part A - Rate per Engine Flight Hour
Engine Overhaul Cost Engine Overhauls Already Performed
($million) None One Two or More
$1.75 $102.94 $125.00 $159.09
$1.10 $64.71 $78.57 $100.00
Part B - Remaining Engine Life Limits that Trigger Monthly Payments
For Calendar Months Remaining Life with Remaining Life with
commencing with: EETC Series $1.75 Overhaul Cost $1.10 Overhaul Cost
Oct-03 1998 25% 25%
1999 25% 25%
2000 60% 25%
Jul-04 1998 25% 25%
1999 25% 25%
2000 25% 25%
Jul-05 1998 50% 25%
1999 25% 25%
2000 25% 25%
Jan-06 1998 50% 100%
1999 25% 25%
2000 25% 25%
Jul-06 1998 30% 100%
1999 25% 25%
2000 25% 25%
Jan-07 1998 25% 25%
1999 25% 25%
2000 25% 25%
Jul-07 1998 25% 100%
1999 75% 75%
2000 75% 75%
Jan-08 1998 100% 100%
1999 80% 80%
2000 75% 100%
Jul-08 2000 25% 25%
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(e) Reporting: The Company will provide to the designated consultant for the A
Holders, for each calendar month commencing with October 2003, a report
("Report") for each of the Engines indicating:
o the engine flight hours that the Engine was operated during the
calendar month;
o the airframe or airframes on which the Engine operated during the
calendar month;
o the total flight hours since the Engine was new or since its latest
shop visit;
o any unexpected changes in the Engine's condition due to foreign object
damage or other cause;
o any changes to the Engine's scheduled shop visits;
o the Rate per flight hour applicable to such Engine for the calendar
month;
o amount of the monthly payment made for the Engine's Account for the
calendar month's flight hours; and
o the balance of the Engine's Account as of the end of the calendar
month.
The Company will provide the Report of the previous month's activity no later
than the fifteenth day of the next subsequent calendar month.
(f) Beginning December 31, 2005 and every two years thereafter the designated
consultant for the A Holders will review the assumptions underlying the
Maintenance Contracts to determine whether changes in those assumptions that
have occurred, or are reasonably expected to occur, require changes to the
remaining life limits and/or rate per flight hour amounts so that the objectives
described in this Annex A can be met. Within 20 days of December 31, 2005 and
subsequent two year review dates, the Company shall provide to the Consultant
the maintenance conditions of the Engines and airframes and the variance of such
conditions from the Objectives (the "Variance"), together with the engine
over-haul costs pursuant to the then-applicable Contracts for the Engines and
the contractor quotes or cost estimates for the next D-checks (including landing
gear, if necessary) for the Airframes and the then-applicable values for the
assumptions used in developing Annex A. If the Variance is more than 0.5% of the
Time Remaining under either of the two Objectives or there are material
differences for the future periods in such assumptions, then the Company will
propose to the Consultant an increase or decrease in the monthly payments per
engine flight hour under the then-applicable Contracts so as to eliminate such
Variance over the next twelve (12) months, giving effect to the assumptions then
applicable for future periods; provided that the Variance will be eliminated
over a period longer than twelve (12) months, but not to exceed twenty-four (24)
months, if such increase in payments per flight hour would have been more than
110% of the payments per flight hour applicable for the month ended December 31,
2005, or the months preceding subsequent two year reviews, as applicable.
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2. Maintenance Definitions for Annex A: The following definitions will be used
to measure the degree to which the Maintenance Contracts meet the objectives
stated in Paragraph 1(a)(i) and (ii) of this Annex.
(a) "Aggregate Maintenance Condition": For each EETC Series, the
"Aggregate Maintenance Condition" at any point in time will be
calculated as the percentage result of the division of (w) the sum,
for all of the Aircraft in such EETC Series, of (A) the Aggregate
Engine Maintenance Value (as defined below) plus (B) the Aggregate
Airframe Maintenance Value (as defined below), divided by (x) the
Maximum Aircraft Maintenance Value (as defined below) for all of the
Aircraft in such EETC Series.
(b) "Individual Engine Maintenance Condition": For each Engine in a EETC
Series, the "Individual Engine Maintenance Condition" at any point in
time will be calculated as the percentage result of the division of
(y) the Individual Engine Maintenance Value for such Engine, divided
by (z) the Maximum Engine Maintenance Value (as defined below) for
such Engine.
(c) Aggregate Engine Maintenance Value: At any point in time for an EETC
Series, "Aggregate Engine Maintenance Value" is calculated as the sum
of the Individual Engine Maintenance Values for each of the Engines in
the Series.
(d) Individual Engine Maintenance Value: This is calculated as the value
of the time remaining until the next over-haul for such Engine, with
such value to be calculated for each Engine as:
(i) the product of (1) the percentage that the total hours
remaining until the next over-haul for such Engine then
represents of the relevant interval between overhauls for such
Engine, assuming an overhaul interval of 17,000 flight hours (or
20,000 flight hours if such engine is currently in excess of
17,000 hours since its last overhaul) for an Engine's first
overhaul and 14,000 hours for its second overhaul (with an Engine
undergoing overhaul deemed to be in half-time (50%) maintenance
condition), multiplied by (2) the assumed Engine over-haul cost
of $1.75 million per over-haul;
LESS
(ii) 10% of the excess, if any, of (x) the value calculated in
paragraph (i) above, over (y) 50% of the Engine over-haul cost as
determined in clause (2) of paragraph (i) above; and
PLUS
(iii) the aggregate value of all monthly flight-hour payments
previously paid by the Company to the Engine Maintenance
Contractor with respect each Engine since its last overhaul
pursuant to the Engine Maintenance Contract with respect to such
Engine; and
(e) Maximum Engine Maintenance Value: This is assumed to be $1.75 million
per Engine at any time.
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(f) Aggregate Airframe Maintenance Value: This is calculated as the sum of
the Individual Airframe Maintenance Values for each of the Aircraft in
an EETC Series.
(g) Individual Airframe Maintenance Value: For an individual Aircraft,
this is calculated as the value of the time and/or cycles (whichever
is limiting) remaining until the next airframe D-check for such
Aircraft, with such value to be calculated for each Aircraft as:
(i) the product of (1) the percentage that the total hours or
cycles (whichever is limiting) remaining until the next D-check
for such Airframe then represents of the then-applicable interval
between D-checks for such Aircraft, assuming a D-check interval
of 25,000 flight hours or 6 years (whichever is limiting) (with
an Aircraft undergoing a D-check deemed to be in a half-time
(50%) maintenance condition), multiplied by (2) the lower of the
airframe D-check contract price applicable to such Aircraft or
the assumed airframe D-check cost of $2.2 million for the
Aircraft's first D-check or $5.0 million for the Aircraft's
second D-check;
LESS
(ii) 25% of the excess, if any, of (x) the value calculated in
paragraph (i) above, over (y) 50% of the airframe D-check cost as
determined in clause (2) of paragraph (i) above;
PLUS
(iii) the aggregate value of all pre-payments paid by the Company
to the Airframe Maintenance Contractor pursuant to the Airframe
Maintenance Contract with respect to such Aircraft since its last
D-check.
(h) the Maximum Aircraft Maintenance Value at any time for an Aircraft is
the sum of (A) the sum of the maximum overhaul cost for its four
originally-installed Engines, assumed to be $[1.75] million per Engine
per over-haul, plus (B) the applicable D-check cost for such Airframe
per paragraph (g)(i)(2) above.
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