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Item 1.01.
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Entry into a Material Definitive Agreement.
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As
of May 29, 2020, Atlas Air, Inc. (“Atlas”) and Southern Air Inc.
(“Southern” and, together with Atlas, the “PSP Recipients”), each a wholly owned subsidiary of Atlas
Air Worldwide Holdings, Inc. (the “Company”), entered into definitive documentation with the United States
Department of the Treasury (“Treasury”) with respect to payroll support funding (the “Payroll Support
Program”) available to cargo air carriers pursuant to Section 4112 of the Coronavirus Aid, Relief, and Economic
Security Act (“CARES Act”). These funds will be used to pay wages, salaries and benefits for eligible employees
at Atlas and Southern. The PSP Recipients’ expected disbursements under the Payroll
Support Program consist of approximately $207.0 million in direct payroll support and a $199.8 million unsecured
ten-year term loan. In addition, and as compensation for the payroll support, the Company is providing warrants to purchase
up to an aggregate of 625,452 shares of the Company’s common stock, par value $0.01 per share (“Common
Stock”), to be issued to Treasury as funds are disbursed. Funds are expected to be disbursed to the PSP Recipients in
three installments from June to July 2020. The Payroll Support Program subjects the PSP Recipients and certain of their
affiliates to a number of restrictions, including prohibitions against reductions in certain employee salaries, wages and
benefits, certain involuntary terminations and furloughs of employees, share buybacks and the payment of dividends until
September 30, 2021, as well as certain limitations on executive compensation until March 24, 2022.
Payroll
Support Program Agreement
As
of May 29, 2020, the PSP Recipients entered into a payroll support program agreement (the “PSP Agreement”) with
Treasury, pursuant to which the PSP Recipients will receive payroll support funding (“Payroll Support”) under the
Payroll Support Program. Funds received in connection with Payroll Support are to be used exclusively for the payment of
certain employee wages, salaries and benefits of the PSP Recipients. The PSP Agreement subjects the PSP Recipients and
certain of their affiliates to a number of restrictions as summarized above and also imposes reporting obligations on the
Company and the PSP Recipients.
Payroll Support Agreement Promissory Note
As
compensation for Payroll Support, as of May 29, 2020, the Company issued a senior unsecured promissory note (the
“Note”) to Treasury. In connection with the disbursement of the initial Payroll Support, the Note was issued at
an initial principal amount of $85,915,990. The principal amount of the Note will be increased as the Company receives
additional funds under the PSP Agreement, up to an expected maximum principal amount of $199.8 million after the final
disbursement. The Note is guaranteed by each of the PSP Recipients.
The
Note matures in full on May 29, 2030, and is subject to mandatory prepayment requirements in connection with certain change of
control triggering events. The Company may prepay the Note, in whole or in part, at any time prior to its maturity without premium
or penalty. Principal amounts outstanding under the Note bear interest at a rate per annum of 1.00% until May 29, 2025 and, afterwards,
at a rate per annum equal to an interest rate based on the Secured Overnight Financing Rate (SOFR) plus 2.00%. The Note contains
customary representations and warranties, covenants and events of default provisions.
Payroll Support Program Warrant Agreement and Warrant
As
compensation for Payroll Support, as of May 29, 2020, the Company entered into a warrant agreement with Treasury (the
“Warrant Agreement”), pursuant to which the Company agreed to issue warrants (each such issuance, a
“Warrant” and, together with the PSP Agreement, the Note and the Warrant Agreement, the “Payroll Support
Documents”) to purchase shares of Common Stock of the Company to Treasury. In connection with the disbursement of the
initial Payroll Support, the Company issued a Warrant to purchase up to 268,908 shares of the Company’s Common Stock.
Upon each subsequent disbursement of Payroll Support to the PSP Recipients under the PSP Agreement, the Company will issue a
Warrant to Treasury in an amount equal to 10% of the increase in the principal amount of the Note, divided by the exercise
price of $31.95 (which was the closing price of the Company’s Common Stock on the Nasdaq Global Select Market on May 1,
2020).
The
Warrant Agreement sets out the Company’s obligations to issue Warrants in connection with disbursements of Payroll Support
and provides Treasury certain registration rights with respect to the Warrants and the underlying Common Stock. Assuming the total
installments to be paid pursuant to the PSP Agreement aggregate to the total expected disbursements, the total number of Warrants
issuable to Treasury will be 625,452, subject to certain anti-dilution provisions. Each Warrant is exercisable at an exercise price
of $31.95 per share of Common Stock and will expire on the fifth anniversary of the issue date of such Warrant. Warrants may be
settled through net share settlement or net cash settlement, at the Company’s option. The Warrants will include customary
anti-dilution provisions and will be freely transferable with registration rights. Treasury will not vote any shares it acquires
upon exercise of the Warrants.
The Warrants issued to Treasury will
trigger an anti-dilution adjustment to the terms of the warrants that the Company issued to Amazon.com, Inc. in 2016 and 2019
in accordance with their terms.
The
Warrants issued under the Warrant Agreement are issued pursuant to an exemption from registration provided for under Section 4(a)(2)
of the Securities Act of 1933, as amended (the “Securities Act”) as transactions not involving a public offering. Any
issuance of Common Stock upon exercise of the Warrants will be exempt as an exchange by the Company exclusively with its security
holders eligible for exemption under Section 3(a)(9) of the Securities Act.
The
Warrant was, and any subsequent Warrants will be, issued solely as compensation to Treasury related to entry into the PSP Agreement.
The
description of the Payroll Support Documents in this Item 1.01 is qualified in its entirety by reference to the full text of each
of Payroll Support Documents, a copy of which will be filed with the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2020.