On March 27, 2019, Atlas Air Worldwide Holdings, Inc. (“AAWW”) entered into an Amended and Restated Air Transportation Services Agreement (the “A&R ATSA”) with Amazon.com Services, Inc. a subsidiary of Amazon.com, Inc. (“Amazon”), pursuant to which AAWW’s wholly owned subsidiary, Southern Air, Inc. (“Southern Air”) will provide crew, maintenance and insurance (“CMI”) services to Amazon using Boeing 737-800 series aircraft. The Boeing 737-800 aircraft will be leased by Amazon from a third party and subleased to Southern Air. The B737-800 CMI operations will be for a term of seven years, with an extension option by Amazon for a total term of 10 years. Five aircraft are scheduled to be placed into service in this fiscal year. Amazon may, in its sole discretion, place up to 15 additional Boeing 737-800 aircraft into service with Southern Air by May 31, 2021, subject to Amazon’s confirmation that it will exercise such options no less than 240 days in advance of the scheduled delivery date for each aircraft.
In connection with the A&R ATSA, AAWW has granted Amazon incremental warrants that would allow it to potentially acquire up to a total of 39.9% (after the issuance) of AAWW’s common shares, an increase from up to 30.0% previously. The warrants relate to existing B767 activities and expected B737 CMI flying for Amazon, and they will also capture future growth of the relationship as Amazon may increase its business with AAWW. The following summarizes the existing warrants issued to Amazon as well as the incremental warrants issued in connection with the A&R ATSA.
As part of the transaction announced on May 4, 2016 related to AAWW’s operation of 20 B767-300 aircraft for Amazon (the “2016 Transaction”), Amazon was granted warrants to acquire up to 20% (after the issuance) of AAWW shares at an exercise price of $37.50 per share (“Warrant A”). Warrant A, which may be exercised through May 4, 2021, has already vested in full in accordance with its existing terms.
As part of the 2016 Transaction, Amazon was also granted warrants to acquire up to an additional 10% (after the issuance) of AAWW’s common shares at an exercise price of $37.50 per share (“Warrant B”). Warrant B, which may be exercised through May 4, 2023, will vest in increments of 37,500 shares each time Amazon has paid $4.2 million of revenue to AAWW, up to a total of $420 million, for incremental new business beyond the leasing or operation of the 20 Boeing 767-300 series aircraft that vested Warrant A.
In connection with the transactions contemplated by the A&R ATSA, AAWW agreed to issue to Amazon an incremental warrant to acquire 6,632,576 shares of AAWW common stock (“Warrant C”) at an exercise price of $52.90 per share, which will allow Amazon to purchase, when combined with Warrant A and Warrant B, a total of 39.9% (after the issuance) of AAWW’s common shares. Warrant C, which may be exercised through March 27, 2026, will vest after Warrant B has vested in full in increments of 45,428 shares each time Amazon has paid $6.85 million of revenue to AAWW, up to a total of $1 billion, for incremental new business beyond the leasing or operation of the 20 Boeing 767-300 series aircraft that vested Warrant A.
The B737-800 CMI flying as well as additional future growth of the relationship will contribute toward vesting of Warrant B and Warrant C. Full vesting of these warrants will require $1.42 billion in future incremental revenue from Amazon.
AAWW can make no guarantee as to the future revenue that may be generated under the A&R ATSA or otherwise with respect to any existing or future aircraft.
Warrant C was issued pursuant to the terms of an Investment Agreement dated March 27, 2019 (the “Investment Agreement”) which includes customary representations and warranties and covenants of AAWW and Amazon.
The Investment Agreement also contains amendments to Warrant A and Warrant B to reflect certain conforming changes to address defined terms used in the A&R ATSA and certain other mutually agreed changes, including as to what payments count towards the vesting of Warrant B.
On March 27, 2019, in connection with the issuance of Warrant C, AAWW and Amazon entered into an Amended and Restated Stockholders Agreement (the “A&R Stockholders Agreement”) to reflect the issuance of Warrant C and certain other mutually agreed changes.
The issuance of Warrant C and of common stock issuable upon the exercise of Warrant C, which are subject to the terms and conditions set forth in the Investment Agreement, Warrant C and the A&R Stockholders Agreement, have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) promulgated thereunder. Warrant C was issued only to Amazon in connection with the transactions contemplated by the Investment Agreement and the A&R ATSA. This current report on Form 8-K does not constitute an offer to sell, or a solicitation of an offer to buy, any security and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offering would be unlawful.