UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
PURSUANT
TO
SECTION
13
OR
15(d)
OF
THE
SECURITIES
EXCHANGE
ACT
OF
1934
March 31, 2023
PURSUANT
TO
SECTION
13
OR
15(d)
OF
THE
SECURITIES
EXCHANGE
ACT
OF
1934
(Mark one)
X
ANNUAL
For the fiscal year ended
REPORT
or
TRANSITION
☐☐
For the transition period from
REPORT
Commission file number
001-35476
to
Air T, Inc.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
52-1206400
(I.R.S. Employer
Identification No.)
11020 David Taylor Drive, Suite 305, Charlotte, North Carolina 28262
(Address of principal executive offices, including zip code)
(980) 595 – 2840
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Alpha Income Preferred Securities (also referred to as 8% Cumulative Capital
Securities) ("TruPs")*
*Issued by Air T Funding
Trading
Symbol(s)
AIRT
AIRTP
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No X
Name of each exchange on which registered
NASDAQ Stock Market
NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes X No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of
"large accelerated filer,” "accelerated filer,” "smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated Filer
Non-accelerated Filer
☐
X
Accelerated Filer
Smaller reporting company
Emerging growth company
☐
X
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☐.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers
during the relevant recovery period pursuant to §240.10D-1(b).☐.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No X
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of September 30, 2022 (the last business day of the registrant’s most recently completed
second fiscal quarter) based upon the closing price of the common stock on September 30, 2022 was approximately $17,244,993.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock
Outstanding Shares at May 31, 2023
Common Shares, par value of $.25 per share
2,817,754
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive proxy statement for its 2023 annual meeting of stockholders to be filed within 120 days of the registrant's fiscal year end are incorporated by reference into Part III of
this Form 10-K.
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Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
AIR T, INC. AND SUBSIDIARIES
2023 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Interactive Data Files
PART IV
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4
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21
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24
35
36
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93
PART I
Item 1. Business
Air T, Inc. (the "Company,” "Air T,” "we” or "us” or "our”) is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversify Air T’s
earnings power and compound the growth in its free cash flow per share over time.
We currently operate in four industry segments:
• Overnight air cargo, which operates in the air express delivery services industry;
• Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial
customers;
Commercial jet engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft
disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and;
Corporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other is also comprised of insignificant businesses that do
not pertain to other reportable segments.
•
•
Acquisitions
On January 31, 2023, the Company acquired Worldwide Aircraft Services, Inc. ("WASI"), a Kansas corporation that services the aircraft industry across the United States and internationally through the
operation of a repair station which is located in Springfield, Missouri at the Branson National Airport. The acquisition was was funded with cash and the loans described in Note 14 of Notes to
Consolidated Financial Statements included under Part II, Item 8 of this report. WASI is included within the Overnight Air Cargo segment. See Note 2 of Notes to Consolidated Financial Statements
included under Part II, Item 8 of this report.
Unconsolidated Investments
The Company has ownership interest in Contrail Asset Management, LLC ("CAM”). The operations of CAM are not consolidated into the operations of the Company. See Note 24 of Notes to
Consolidated Financial Statements included under Part II, Item 8 of this report.
The Company also has ownership interests in Insignia Systems, Inc. ("Insignia") and Cadillac Casting, Inc. ("CCI"). The operations of these companies are not consolidated into the operations of the
Company. See Note 10 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.
Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income
(loss) and Adjusted EBITDA.
Certain financial data with respect to the Company’s geographic areas and segments is set forth in Notes 21 and 22 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this
report.
Air T was incorporated under the laws of the State of Delaware in 1980. The principal place of business of Air T is 11020 David Taylor Drive, Suite 305, Charlotte NC, 28262 and Mountain Air Cargo, Inc.
("MAC”) is 5930 Balsom Ridge Road, Denver, North Carolina. The principal place of business of CSA Air, Inc. ("CSA”) is Iron Mountain, Michigan. The principal place of business for Global Ground
Support, LLC ("GGS”) is Olathe, Kansas. The principal place of business of Delphax Technologies, Inc ("Delphax”) is Minneapolis, Minnesota. The principal place of business for Delphax Solutions, Inc.
("DSI”) is Mississauga, Canada. The principal place of business of Contrail Aviation Support, LLC ("Contrail”) is Verona, Wisconsin. The principal place of business of AirCo, LLC, AirCo 1, LLC, AirCo
2, LLC and AirCo Services, LLC (collectively, "AirCo”) and Worthington Aviation, LLC ("Worthington”) is Eagan, Minnesota. The principal place of business of Jet Yard, LLC ("Jet Yard”) and Jet Yard
Solutions, LLC ("Jet Yard Solutions") is Marana, Arizona. The principal place of business of Air'Zona Aircraft Services, Inc. ("Air'Zona") is Kingman, Arizona. The principal place of business of Wolfe
Lake is Minneapolis, Minnesota. The principal place of business of GdW Beheer B.V. ("GdW") is Amsterdam, the Netherlands. GdW was administratively dissolved on June 24, 2022 with Shanwick B.V.
("Shanwick") as the surviving entity and Shanwick's principal place of business is Amsterdam, the Netherlands. The principal place of business of Landing Gear Support Services, Inc. and Landing Gear
Support Services PTE Limited (collectively, "LGSS") is Singapore, Singapore. The principal place of business of WASI is Springfield, Missouri.
We maintain an Internet website at http://www.airt.net and our SEC filings may be accessed through links on our website. The information on our website is available for information purposes only and
is not incorporated by reference in this Annual Report on Form 10-K.
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Overnight Air Cargo.
The Company’s Overnight Air Cargo segment comprises the operations of MAC, CSA and WASI. MAC and CSA have a relationship with FedEx spanning over 40 years and represent two of nine
companies in the U.S. that have North American feeder airlines under contract with FedEx. MAC and CSA operate and maintain Cessna Caravan, Sky Courier, ATR-42 and ATR-72 aircraft that fly daily
small-package cargo routes throughout the eastern United States and upper Midwest, and in the Caribbean. MAC and CSA’s revenues are derived principally pursuant to "dry-lease” service contracts
with FedEx. In these "dry- lease" contracts, FedEx provides the aircraft while MAC and CSA provide their own crew and exercise operational control of their flights.
On June 1, 2021, MAC and CSA entered into new dry-lease agreements with FedEx which together cover all of the aircraft operated by MAC and CSA and replaced all prior dry-lease service
contracts. These dry-lease agreements provide for the lease of specified aircraft by MAC and CSA in return for the payment of monthly rent with respect to each aircraft leased, which monthly rent
reflected an estimate of a fair market rental rate. These dry-lease agreements provide that FedEx determines the type of aircraft and schedule of routes to be flown by MAC and CSA, with all other
operational decisions made by MAC and CSA, respectively. The current dry-lease agreements provide for the reimbursement of MAC and CSA’s costs by FedEx, without mark up, incurred in
connection with the operation of the leased aircraft for the following: fuel, landing fees, third-party maintenance, parts and certain other direct operating costs. The current dry-lease agreement was most
recently renewed on June 1, 2021 and is set to expire on August 31, 2026. The dry-lease agreements may be terminated by FedEx or MAC and CSA, respectively, at any time upon 90 days’ written notice
and FedEx may at any time terminate the lease of any particular aircraft thereunder upon 10 days’ written notice. In addition, each of the dry-lease agreements provides that FedEx may terminate the
agreement upon written notice if 60% or more of MAC or CSA’s revenue (excluding revenues arising from reimbursement payments under the dry-lease agreement) is derived from the services performed
by it pursuant to the respective dry-lease agreement, FedEx becomes MAC or CSA’s only customer, or MAC or CSA employs fewer than six employees. As of the date of this report, FedEx would be
permitted to terminate each of the dry-lease agreements under this provision. The Company believes that the short-term nature of its agreements with FedEx is standard within the airfreight contract
delivery service industry, where performance is measured on a daily basis.
As of March 31, 2023, MAC and CSA had an aggregate of 85 aircraft under its dry-lease agreements with FedEx. Included within the 85 aircraft, 2 Cessna Caravan aircraft are considered soft-parked. Soft-
parked aircraft remain covered under our agreements with FedEx although at a reduced administrative fee compared to aircraft that are in operation. MAC and CSA continue to perform maintenance on
soft-parked aircraft, but they are not crewed and do not operate on scheduled routes.
Revenues from MAC and CSA’s contracts with FedEx accounted for approximately 36% and 41% of the Company’s consolidated revenue for the fiscal years ended March 31, 2023 and 2022,
respectively. The loss of FedEx as a customer would have a material adverse effect on the Company. FedEx has been a customer of the Company since 1980. MAC and CSA are not contractually
precluded from providing services to other parties and MAC occasionally provides third-party maintenance services to other airline customers and the U.S. military.
MAC and CSA operate under separate aviation certifications. MAC is certified to operate under Part 121, Part 135 and Part 145 of the regulations of the FAA. These certifications permit MAC to operate
and maintain aircraft that can carry a maximum cargo capacity of 7,500 pounds on the Cessna Caravan 208B under Part 135 and a maximum cargo capacity of 14,000 pounds for the ATR-42 and 17,800
pounds for the ATR-72 aircraft under Part 121. The maximum payload (cargo capacity) for the Cessna 408 operated under Part 135 is 6,000 pounds. The maximum structural payload (cargo capacity) for
the ATR72-600F operated under Part 121 is 20,281 pounds. CSA is certified to operate and maintain aircraft under Part 135 of the FAA regulations. This certification permits CSA to operate aircraft with a
maximum cargo capacity of 7,500 pounds.
MAC and CSA, together, operated the following FedEx-owned cargo aircraft as of March 31, 2023:
Type of Aircraft
Cessna Caravan 208B (single turbo prop)
Cessna SkyCourier 408 (twin turbo prop)
ATR-42 (twin turbo prop)
ATR-72 (twin turbo prop)
ATR-72-600 (twin turbo prop)
Model Year
1985-1996
2022-2023
1992
1992
2022-2023
Form of Ownership
Dry lease
Dry lease
Dry lease
Dry lease
Dry lease
Number
of
Aircraft
61
4
9
10
1
85
The Cessna Caravan 208B aircraft are maintained under an FAA Approved Aircraft Inspection Program ("AAIP”). The inspection intervals range from 100 to 200 hours. The current engine overhaul
period on the Cessna aircraft is 8,000 hours.
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The ATR-42 and ATR-72 aircraft are maintained under a FAA Part 121 continuous airworthiness maintenance program. The program consists of A and C service checks as well as calendar checks
ranging from weekly to 12 years in duration. The engine overhaul period is 6,000 hours.
The Cessna Caravan 408 aircraft are maintained under an FAA Approved AAIP. The inspection program consists of 400 to 5,600 flight hour checks and 18 month to 120 month calendar checks.
MAC and CSA operate in a niche market within a highly competitive contract cargo carrier market. MAC and CSA are two of nine carriers that operate within the United States as FedEx feeder carriers.
MAC and CSA are benchmarked against the other five FedEx feeders based on safety, reliability, compliance with federal, state and applicable foreign regulations, price and other service-related
measurements. The Company believes accurate industry data is not available to indicate the Company’s position within its marketplace (in large measure because all of the Company’s direct competitors
are privately held), but management believes that MAC and CSA, combined, constitute the largest contract carrier of the type described.
FedEx conducts periodic audits of MAC and CSA, and these audits are an integral part of the relationship between the carrier and FedEx. The audits test adherence to the dry-lease agreements and
assess the carrier’s overall internal control environment, particularly as related to the processing of invoices of FedEx-reimbursable costs. The scope of these audits typically extends beyond simple
validation of invoice data against the third-party supporting documentation. The audit teams generally investigate the operator’s processes and internal control procedures. The Company believes
satisfactory audit results are critical to maintaining its relationship with FedEx. The audits conducted by FedEx are not designed to provide any assurance with respect to the Company’s consolidated
financial statements, and investors, in evaluating the Company’s consolidated financial statements, should not rely in any way on any such examination of the Company or any of its subsidiaries.
On January 31, 2023, the Company acquired WASI, an aircraft repair station that began operating in 1986. WASI is a certified FAA/EASA part 145 repair station (no. OWRF547L) and specializes in
medium passenger regional jets, regional/commuter turboprops, cargo and special mission operators. It maintains a fully equipped engine shop with tooling and engine run stands. Services of WASI
include inspections, contract maintenance, refurbishment, structural repairs and modifications, avionics, engine service refurbishment and upgrades.
The Company’s overnight air cargo operations are not materially seasonal.
Ground Equipment Sales.
GGS is located in Olathe, Kansas and manufactures, sells and services aircraft deicers and other specialized equipment sold to domestic and international passenger and cargo airlines, ground handling
companies, the United States Air Force ("USAF”), airports and industrial customers. GGS’s product line includes aircraft deicers, scissor-type lifts, military and civilian decontamination units, flight-line
tow tractors, glycol recovery vehicles and other specialized equipment. In the fiscal year ended March 31, 2023, sales of deicing equipment accounted for approximately 85% of GGS’s revenues,
compared to 88% in the prior fiscal year.
GGS designs and engineers its products. Components acquired from third-party suppliers are used in the assembly of its finished products. Components are sourced from a diverse supply chain. The
primary components for mobile deicing equipment are the chassis (which is a commercial medium or heavy-duty truck), the fluid storage tank, a boom system, the fluid delivery system and heating
equipment. The price of these components is influenced by raw material costs, principally high-strength carbon steels and stainless steel. GGS utilizes continuous improvements and other techniques to
improve efficiencies and designs to minimize product price increases to its customers, to respond to regulatory changes, such as emission standards, and to incorporate technological improvements to
enhance the efficiency of GGS’s products. Improvements have included the development of single operator mobile deicing units to replace units requiring two operators, a patented premium deicing
blend system and a more efficient forced-air deicing system.
GGS manufactures five basic models of mobile deicing equipment with capacities ranging from 700 to 2,800 gallons. GGS also offers fixed-pedestal-mounted deicers. Each model can be customized as
requested by the customer, including single operator configuration, fire suppressant equipment, open basket or enclosed cab design, a patented forced-air deicing nozzle, on-board glycol blending
system to substantially reduce glycol usage, and color and style of the exterior finish. GGS also manufactures five models of scissor-lift equipment, for catering, cabin service and maintenance service of
aircraft, and has developed a line of decontamination equipment, flight-line tow tractors, glycol recovery vehicles and other special purpose mobile equipment.
GGS competes primarily on the basis of the quality and reliability of its products, prompt delivery, service and price. The market for aviation ground service equipment is highly competitive. Certain of
GGS' competitors may have substantially greater financial resources than we do. These entities or investors may be able to accept more risk than the Company believes is in our best interest. In addition,
the market for aviation ground services in the past has typically been directly related to the financial health of the aviation industry, weather patterns and changes in technology.
GGS’s mobile deicing equipment business has historically been seasonal, with revenues typically being lower in the fourth and first fiscal quarters as commercial deicers are typically delivered prior to
the winter season. The Company has continued its
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efforts to reduce GGS’s seasonal fluctuation in revenues and earnings by broadening its international and domestic customer base and its product line.
In October 2021, GGS was awarded a new contract to supply deicing trucks to the USAF. This agreement renewed GGS' original agreement with the USAF entered in July 2009. Per the contract, GGS had
to provide annual pricing for each one-year period during the duration of the contract. Further, based upon volume of commercial items purchased during that year, there may be discounts calculated
into the pricing and are reflective of the submitted pricing. With all option years expected to be executed by the government, this contract would expire on October 21, 2027.
GGS sold a total of 14 and 7 deicers under the current contract with the USAF including both GL 1800 and ER 2875 models during fiscal years ended March 31, 2023 and March 31, 2022, respectively and
all the units were accepted by the USAF. GGS has already received confirmed orders of 6 deicers for fiscal 2024’s delivery order and currently expects the delivery of both GL 1800 and ER 2875 models to
begin in the second quarter of fiscal year 2024.
Commercial Jet Engines and Parts.
Contrail and Jet Yard (acquired during fiscal year 2017), AirCo (formed in May 2017), Worthington (acquired in May 2018), Jet Yard Solutions (formed in January 2021), Air'Zona (acquired in March 2021),
LGSS (formed March 2022), and Crestone Air Partners ("Crestone", formed April 2022) comprises the commercial jet engines and parts segment of the Company’s operations. Contrail is a commercial
aircraft trading, leasing and parts solutions provider. Its primary focus revolves around the CFM International CFM56-3/-5/-7 engines and the International Aero Engines V2500A5 engine, which power
the two most prevalent narrow body, single aisle aircraft that are currently flown commercially—the Boeing 737 Classic / 737 NG and the Airbus A320 family. Contrail acquires commercial aircraft, jet
engines and components for the purposes of sale, trading, leasing and disassembly/overhaul. Contrail holds an ASA-100 accreditation from the Aviation Suppliers Association.
Jet Yard and Jet Yard Solutions offer commercial aircraft storage, storage maintenance and aircraft disassembly/part-out services at facilities leased at the Pinal Air Park in Marana, Arizona. The
prevailing climate in this area of Arizona provides conditions conducive to long-term storage of aircraft. Jet Yard Solutions is registered to operate a repair station under Part 145 of the regulations of the
FAA. Jet Yard leases approximately 48.5 acres of land under a lease agreement with Pinal County, Arizona. Jet Yard was organized in 2014, entered into the lease in June 2016 and had maintained de
minimus operations from formation through the date it was acquired by the Company. Effective January 1, 2021, Jet Yard subleased the aforementioned lease with Pinal County to Jet Yard Solutions.
AirCo operates an established business offering commercial aircraft parts sales, exchanges, procurement services, consignment programs and overhaul and repair services. AirCo Services, a wholly-
owned subsidiary of AirCo ("AirCo Services"), holds FAA and European Aviation Safety Agency certifications covering aircraft instrumentation, avionics and a range of electrical accessories for
civilian, military transport, regional/commuter and business/commercial jet and turboprop aircraft. Customers of AirCo include airlines and commercial aircraft leasing companies.
Worthington Aviation, like AirCo, operates an established business which supplies spare parts, repair programs and aircraft maintenance services to the global aviation community of regional and
business aircraft fleets. Worthington offers a globally networked infrastructure and 24/7 support, ensuring fast delivery of spare parts and service, with four locations strategically located in the United
States, United Kingdom & Australia. In addition, Worthington operates two FAA and EASA Certificated repair stations. The Tulsa maintenance, repair and overhaul ("MRO") facility provides
composite aircraft structures, repair and support services. As a strategic resource for flight control, exhaust system and line replacement components, Worthington offers a wide array of services for
complex operations. At the Eagan, Minnesota-based Repair Station, Worthington repair services offers a wide range of capabilities for repair and overhaul of airframe, accessories and power plant
components in support of external as well as internal sales.
Air'Zona is a full service Fixed Base Operator, located on field at Kingman Airport (IGM) in Kingman, Arizona that provides aircraft service and maintenance. LGSS delivers landing gear focused asset
management and technical and commercial services worldwide. Crestone invests in commercial jet aircraft and engines on behalf of capital partners and provides full-service aviation asset management.
The revenues of Air'Zona, LGSS, and Crestone are not material to the Company's consolidated financial statements.
The Company’s commercial jet engines and parts operations are not materially seasonal.
Backlog.
GGS’s backlog consists of "firm” orders supported by customer purchase orders for the equipment sold by GGS. At March 31, 2023, GGS’s backlog of orders was $13.6 million, all of which GGS expects
to be filled in the fiscal year ending March 31, 2024. At March 31, 2022, GGS’s backlog of orders was $14.0 million. Backlog is not meaningful for the Company’s other business segments.
Governmental Regulation.
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The Company and its subsidiaries are subject to regulation by various governmental agencies.
The Department of Transportation ("DOT”) has the authority to regulate air service. The DOT has authority to investigate and institute proceedings to enforce its economic regulations, and may, in
certain circumstances, assess civil penalties, revoke operating authority and seek criminal sanctions.
Under the Aviation and Transportation Security Act of 2001, as amended, the Transportation Security Administration ("TSA”), an agency within the Department of Homeland Security, has
responsibility for aviation security. The TSA requires MAC and CSA to comply with a Full All-Cargo Aircraft Operator Standard Security Plan, which contains evolving and strict security requirements.
These requirements are not static but change periodically as the result of regulatory and legislative requirements, imposing additional security costs and creating a level of uncertainty for our operations.
It is reasonably possible that these rules or other future security requirements could impose material costs on us.
The FAA has safety jurisdiction over flight operations generally, including flight equipment, flight and ground personnel training, examination and certification, certain ground facilities, flight equipment
maintenance programs and procedures, examination and certification of mechanics, flight routes, air traffic control and communications and other matters. The FAA is concerned with safety and the
regulation of flight operations generally, including equipment used, ground facilities, maintenance, communications and other matters. The FAA can suspend or revoke the authority of air carriers or
their licensed personnel for failure to comply with its regulations and can ground aircraft if questions arise concerning airworthiness. The FAA also has power to suspend or revoke for cause the
certificates it issues and to institute proceedings for imposition and collection of fines for violation of federal aviation regulations. The Company, through its subsidiaries, holds all operating
airworthiness and other FAA certificates that are currently required for the conduct of its business, although these certificates may be suspended or revoked for cause. The FAA periodically conducts
routine reviews of MAC and CSA’s operating procedures and flight and maintenance records.
The FAA has authority under the Noise Control Act of 1972, as amended, to monitor and regulate aircraft engine noise. The aircraft operated by the Company are in compliance with all such regulations
promulgated by the FAA. Moreover, because the Company does not operate jet aircraft, noncompliance is not likely. Aircraft operated by us also comply with standards for aircraft exhaust emissions
promulgated by the U.S. Environmental Protection Agency ("EPA”) pursuant to the Clean Air Act of 1970, as amended.
Jet Yard, Jet Yard Solutions, AirCo, and WASI, like Worthington, operate repair stations licensed under Part 145 of the regulations of the FAA. These certifications must be renewed annually, or in
certain circumstances within 24 months. Certified repair stations are subject to periodic FAA inspection and audit. The repair station may not be relocated without written approval from the FAA.
Because of the extensive use of radio and other communication facilities in its aircraft operations, the Company is also subject to the Federal Communications Act of 1934, as amended.
Maintenance and Insurance.
The Company, through its subsidiaries, is required to maintain the aircraft it operates under the appropriate FAA and manufacturer standards and regulations.
The Company has secured public liability and property damage insurance in excess of minimum amounts required by the United States Department of Transportation.
The Company maintains cargo liability insurance, workers’ compensation insurance and fire and extended coverage insurance for owned and leased facilities and equipment. In addition, the Company
maintains product liability insurance with respect to injuries and loss arising from use of products sold and services provided.
In March 2014, the Company formed SAIC, a captive insurance company licensed in Utah. SAIC insures risks of the Company and its subsidiaries that were not previously insured by the various
Company insurance programs (including the risk of loss of key customers and contacts, administrative actions and regulatory changes); and may from time to time underwrite third-party risk through
certain reinsurance arrangements. SAIC is included within the Company's Corporate and other segment.
Employees and Human Capital Resources.
As of March 31, 2023, the Company and its subsidiaries had 584 full-time and full-time-equivalent employees. None of the employees of the Company or any of its consolidated subsidiaries are
represented by labor unions. The Company believes its relations with its employees are good.
We consider our relationship with our employees to be good. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing
and additional employees. As it relates to our employees:
Oversight and Management
8
Our executive officers are tasked with leading our organization in managing employment-related matters, including recruiting and hiring, onboarding and training, compensation planning, talent
management and development. We are committed to providing team members with the training and resources necessary to continually strengthen their skills. Our executive team is responsible for
periodically reviewing team member programs and initiatives, including healthcare and other benefits, as well as our management development and succession planning practices. Management
periodically reports to the Board regarding our human capital measures and results that guide how we attract, retain and develop a workforce to enable our business strategies.
Diversity, Equity and Inclusion
We believe that a diverse workforce is critical to our success, and we continue to monitor and improve the application of our hiring, retention, compensation and advancement processes for women and
underrepresented populations across our workforce, including persons of color, veterans and LGBTQ to enhance our inclusive and diverse culture. We plan to invest in recruiting diverse talent.
Workplace Safety and Health
A vital part of our business is providing our workforce with a safe, healthy and sustainable working environment. We focus on implementing change through workforce observation and feedback
channels to recognize risk and continuously improve our processes.
Importantly during fiscal years 2020 through 2022, our focus on providing a positive work environment on workplace safety have enabled us to preserve business continuity without sacrificing our
commitment to keeping our colleagues and workplace visitors safe during the COVID-19 pandemic. We took immediate action at the onset of the COVID-19 pandemic to enact rigorous safety protocols in
our facilities by improving sanitation measures, implementing mandatory social distancing, use of facing coverings, reducing on-site workforce through staggered shifts and schedules, remote working
where possible, and restricting visitor access to our locations. We believe these actions helped minimize the impact of COVID-19 on our workforce.
Item 1B. Risk Factors
Market fluctuations may affect our operations.
General Business Risks
Market fluctuations may affect our ability to obtain funds necessary for the operation of our businesses from current lenders or new borrowings. In addition, we may be unable to obtain financing on
satisfactory terms, or at all. Third-party reports relating to market studies or demographics we obtained previously also may no longer be accurate or complete. The occurrence of any of the foregoing
events or any other related matters could materially and adversely affect our business, financial condition, results of operation and the overall value of our assets.
Rising inflation may result in increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results of operations
and the market price of our common stock.
Inflation has accelerated in the U.S. and globally due in part to global supply chain issues, the increase in interest rates by the Federal Reserve, the Ukraine-Russia war, a rise in energy prices, and strong
consumer demand. An inflationary environment can increase our cost of labor, as well as our other operating costs, which may have a material adverse impact on our financial results. In addition,
economic conditions could impact and reduce the number of customers who purchase our products or services as credit becomes more expensive or unavailable. Although interest rates have increased
and may increase further, inflation may continue. Further, increased interest rates could have a negative effect on the securities markets generally which may, in turn, have a material adverse effect on the
market price of our common stock and our ability to sell additional trust preferred securities.
We could experience significant increases in operating costs and reduced profitability due to competition for skilled management and staff employees in our operating businesses.
We compete with many other organizations for skilled management and staff employees, including organizations that operate in different market sectors than us. Costs to recruit and retain adequate
personnel could adversely affect results of operations.
Legacy technology systems require a unique technical skillset which is becoming scarcer.
The Company deploys legacy technology systems in several significant business units. As technology continues to rapidly change, the available pool of individuals technically trained in and able to
repair or perform maintenance on these legacy systems shrinks. As this scarcity increases, the Company’s ability to efficiently and quickly repair its legacy systems becomes increasingly difficult, which
could have a significant impact on the Company’s day-to-day operations.
Security threats and other sophisticated computer intrusions could harm our information systems, which in turn could harm our business and financial results.
9
We utilize information systems and computer technology throughout our business. We store sensitive data and proprietary information on these systems. Threats to these systems, and the laws and
regulations governing security of data, including personal data, on information systems and otherwise held by companies is evolving and adding layers of complexity in the form of new requirements
and increasing costs of attempting to protect information systems and data and complying with new cybersecurity regulations. Information systems are subject to numerous and evolving cybersecurity
threats and sophisticated computer crimes, which pose a risk to the stability and security of our information systems, computer technology, and business.
Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information systems and computer technology to sophisticated and targeted measures
known as advanced persistent threats and ransomware. The techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in
anticipating and implementing adequate preventative measures. A failure or breach in security could expose our company as well as our customers and suppliers to risks of misuse of information,
compromising confidential information and technology, destruction of data, production disruptions, ransom payments, and other business risks which could damage our reputation, competitive position
and financial results of our operations. Further, our technology resources may be strained due to an increase in the number of remote users. In addition, defending ourselves against these threats may
increase costs or slow operational efficiencies of our business. If any of the foregoing were to occur, it could have a material adverse effect on our business and results of operations.
We sustained a cybersecurity attack in May 2022 involving ransomware that caused a network disruption and impacted certain of our systems. Upon detection, we undertook steps to address the
incident, including engaging a team of third-party forensic experts and notifying law enforcement. We restored network systems and resumed normal operations. We have taken actions to improve our
existing systems such as adding multi-factor authentication and to improve employee training and security competency. While we do not believe this event or resultant actions will have a material
adverse effect on our business, this or similar incidents, or any other such breach of our data security infrastructure could have a material adverse effect on our business, results of operations and
financial condition.
Although we maintain cybersecurity liability insurance, our insurance may not cover potential claims of these types or may not be adequate to indemnify us for any liability that may be imposed. Any
imposition of liability or litigation costs that are not covered by insurance could harm our business.
We may not be able to insure certain risks adequately or economically.
We cannot be certain that we will be able to insure all risks that we desire to insure economically or that all of our insurers or reinsurers will be financially viable if we make a claim. If an uninsured loss or
a loss in excess of insured limits should occur, or if we are required to pay a deductible for an insured loss, results of operations could be adversely affected.
Legal liability may harm our business.
Many aspects of our businesses involve substantial risks of liability, and, in the normal course of business, we have been named as a defendant or co-defendant in lawsuits involving primarily claims for
damages. The risks associated with potential legal liabilities often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. The
expansion of our businesses, including expansions into new products or markets, impose greater risks of liability. In addition, unauthorized or illegal acts of our employees could result in substantial
liability. Substantial legal liability could have a material adverse financial effect or cause us significant reputational harm, which in turn could seriously harm our businesses and our prospects. Although
our current assessment is that there is no pending litigation that could have a significant adverse impact, if our assessment proves to be in error, then the outcome of such litigation could have a
significant impact on our consolidated financial statements.
Our business might suffer if we were to lose the services of certain key employees.
Our business operations depend upon our key employees, including our executive officers. Loss of any of these employees, particularly our Chief Executive Officer, could have a material adverse effect
on our businesses as our key employees have knowledge of our businesses, the industries they operate in and customers that would be difficult to replace.
Our business, financial condition and results of operations could be adversely affected by global public health issues or similar events.
During the fiscal years ended March 31, 2021 and 2022, and to a lesser extent during the fiscal year ended March 31, 2023, the Company’s operations were impacted by the spread of the COVID-19
pandemic. Additionally, the Company has had to navigate the impact it had on employees, supply chains and the economy in general and the aviation industry in particular. The Company is unable at
this time to predict the impact that a global health crisis or similar event would have on its businesses, financial position and operating results in future periods due to numerous uncertainties.
A pandemic, epidemic or outbreak of a contagious disease in the markets in which we operate or that otherwise impacts our centers could adversely impact our business.
If a pandemic, epidemic or outbreak of an infectious disease, including new COVID-19 variants, or other public health crisis were to affect the areas in which we operate, our business, including our
revenue, profitability and cash flows, could be
10
adversely affected. Further, a pandemic, epidemic or outbreak of an infectious disease might adversely impact our business by causing temporary shutdowns of our businesses or by causing staffing
shortages. We may be unable to locate replacement supplies, and ongoing delays could require us to reduce business operations. Although we have disaster plans in place, the extent to which new
COVID-19 variants or other public health crisis will impact our business is difficult to predict and will depend on many factors beyond our control, including the speed of contagion, the development and
implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.
The operating results of our four segments may fluctuate, particularly our commercial jet engine and parts segment.
Risks Related to Our Segment Operations
The operating results of our four segments have varied from period to period and comparisons to results for preceding periods may not be meaningful. Due to a number of factors, including the risks
described in this section, our operating results may fluctuate. These fluctuations may also be caused by, among other things:
the economic health of the economy and the aviation industry in general;
a.
b. FedEx’s demand for the use of the services of our Air Cargo segment;
the timing and number of purchases and sales of engines or aircraft;
c.
the timing and amount of maintenance reserve revenues recorded resulting from the termination of long term leases, for which significant amounts of maintenance reserves may have
d.
accumulated;
the termination or announced termination of production of particular aircraft and engine types;
the retirement or announced retirement of particular aircraft models by aircraft operators;
the operating history of any particular engine, aircraft or engine or aircraft model;
the length of our operating leases; and
the timing of necessary overhauls of engines and aircraft.
e.
f.
g.
h.
i.
These risks may reduce our operating segment’s results including particularly our commercial jet engines and parts segment. These risks may reduce the commercial jet engines and parts segment’s
engine utilization rates, lease margins, maintenance reserve revenues and proceeds from engine sales, and result in higher legal, technical, maintenance, storage and insurance costs related to
repossession and the cost of engines being off-lease. As a result of the foregoing and other factors, the availability of engines for lease or sale periodically experiences cycles of oversupply and
undersupply of given engine models and generally. The incidence of an oversupply of engines may produce substantial decreases in engine lease rates and the appraised and resale value of engines
and may increase the time and costs incurred to lease or sell engines. We anticipate that supply fluctuations from period to period will continue in the future. As a result, comparisons to results from
preceding periods may not be meaningful and results of prior periods should not be relied upon as an indication of our future performance.
Our Air Cargo Segment is dependent on a significant customer.
Our Air Cargo business is significantly dependent on a contractual relationship with FedEx Corporation (" FedEx”), the loss of which would have a material adverse effect on our business, results of
operations and financial position. In the fiscal year ended March 31, 2023, 36% of our consolidated operating revenues, and 98% of the operating revenues for our overnight air cargo segment, arose
from services we provided to FedEx. While FedEx has been our customer since 1980 under similar terms, our current agreements may be terminated by FedEx upon 90 days’ written notice and FedEx may
at any time terminate the lease of any particular aircraft thereunder upon 10 days’ written notice. In addition, FedEx may terminate the dry-lease agreement with MAC or CSA upon written notice if 60% or
more of MAC or CSA’s revenue (excluding revenues arising from reimbursement payments under the dry-lease agreement) is derived from the services performed by it pursuant to the respective dry-
lease agreement, FedEx becomes its only customer, or either MAC or CSA employs less than six employees. As of the date of issuance of this report, FedEx would be permitted to terminate each of the
dry-lease agreements under this provision. The loss of these contracts with FedEx would have a material adverse effect on our business, results of operations and financial position.
Our dry-lease agreements with FedEx subject us to operating risks.
Our dry-lease agreements with FedEx provide for the lease of specified aircraft by us in return for the payment of monthly rent with respect to each aircraft leased. The dry-lease agreements provide for
the reimbursement by FedEx of our costs, without mark up, incurred in connection with the operation of the leased aircraft for the following: fuel, landing fees, third-party maintenance, parts and certain
other direct operating costs. Under the dry-lease agreements, certain operational costs incurred by us in operating the aircraft are not reimbursed by FedEx at cost, and such operational costs are borne
solely by us. An increase in unreimbursed operational costs would negatively affect our results of operations.
Because of our dependence on FedEx, we are subject to the risks that may affect FedEx’s operations.
Because of our dependence on FedEx, we are subject to the risks that may affect FedEx’s operations. These risks are discussed in FedEx’s periodic reports filed with the SEC including its Annual Report
on Form 10-K for the fiscal year ended May 31, 2022. These risks include but are not limited to the following:
Economic conditions and anti-trade measures/trade policies and relations in the global markets in which it operates;
•
• Additional changes in international trade policies and relations could significantly reduce the volume of goods transported globally and adversely affect its business and results of operations.
•
The price and availability of fuel.
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Potential disruption to operations resulting from a significant data breach or other disruption to FedEx’s technology infrastructure;
The continuing impact of the COVID-19 pandemic;
The impact of being self-insured for certain costs;
The transportation infrastructure continues to be a target for terrorist activities;
Failure to successfully implement its business strategy and effectively respond to changes in market dynamics and customer preferences.
• Dependence on its strong reputation and value of its brand;
•
•
•
•
•
• Any inability to execute and effectively operate, integrate, leverage and grow acquired businesses and realize the anticipated benefits of acquisitions, joint ventures or strategic alliances;
•
•
•
•
•
•
•
FedEx's ability to manage capital and its assets, including aircraft, to match shifting and future shipping volumes;
Intense competition;
Its autonomous delivery strategy is dependent upon the ability to successfully mitigate unique technological, operational and regulatory risks.
The failure to successfully implement its business strategy and effectively respond to changes in market dynamics and customer preferences;
Failure to attract and maintain employee talent or maintain company culture, as well as increases in labor and purchased transportation cost;
Labor organizations attempt to organize groups of our employees from time to time, and potential changes in labor laws could make it easier for them to do so.
FedEx Ground relies on service providers to conduct its linehaul and pickup-and-delivery operations, and the status of these service providers as direct employers of drivers providing these
services is being challenged.
The impact of proposed pilot flight and duty time regulations;
Increasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits;
The impact of global climate change or by legal, regulatory or market responses to such change;
Potentially being unable to achieve our goal of carbon neutrality for its global operations by calendar 2040;
• Disruptions, modifications in service or changes in the business or financial soundness of the United States Postal Service, a significant customer and vendor of FedEx;
•
•
•
•
• Any inability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography;
•
• Any adverse changes in regulations and interpretations or challenges to its tax positions;
Complex and evolving U.S. and foreign laws and regulations regarding data protection;
•
•
The regulatory environment for global aviation or other transportation rights;
• Other risks and uncertainties, including:
Evolving Government regulation and enforcement;
▪ widespread outbreak of an illness or any other communicable disease, or any other public health crisis;
▪
the increasing costs of compliance with federal, state and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending
against inappropriate or unjustified enforcement or other actions by such agencies;
changes in foreign currency exchange rates, especially in the euro, Chinese yuan, British pound, Canadian dollar, Australian dollar, Hong Kong dollar, Mexican peso, Japanese yen and
Brazilian real, which can affect our sales levels and foreign currency sales prices;
any liability resulting from and the costs of defending against class-action, derivative and other litigation, such as wage-and-hour, joint employment, securities and discrimination and
retaliation claims, and any other legal or governmental proceedings;
the impact of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information-technology
redundancy and complexity throughout the organization;
governmental underinvestment in transportation infrastructure, which could increase our costs and adversely impact our service levels due to traffic congestion, prolonged closure of
key thoroughfares or sub-optimal routing of our vehicles and aircraft;
disruptions in global supply chains, which can limit the access of FedEx and our service providers to vehicles and other key capital resources and increase our costs;
stockholder activism, which could divert the attention of management and our board of directors from our business, hinder execution of our business strategy, give rise to perceived
uncertainties as to our future and cause the price of our common stock to fluctuate significantly; and,
constraints, volatility or disruption in the capital markets, our ability to maintain our current credit ratings, commercial paper ratings, and senior unsecured debt and pass-through
certificate credit ratings, and our ability to meet credit agreement financial covenants.
▪
▪
▪
▪
▪
▪
▪
A material reduction in the aircraft we fly for FedEx could materially adversely affect our business and results of operations.
Under our agreements with FedEx, we are not guaranteed a number of aircraft or routes we are to fly and FedEx may reduce the number of aircraft we lease and operate upon 10 days’ written notice. Our
compensation under these agreements, including our administrative fees, depends on the number of aircraft leased to us by FedEx. Any material permanent reduction in the aircraft we operate could
materially adversely affect our business and results of operations. A temporary reduction in any period could materially adversely affect our results of operations for that period.
12
Sales of deicing equipment can be affected by weather conditions.
Our ground equipment sales segment’s deicing equipment is used to deice commercial and military aircraft. The extent of deicing activity depends on the severity of winter weather. Mild winter weather
conditions permit airports to use fewer deicing units, since less time is required to deice aircraft in mild weather conditions. As a result, airports may be able to extend the useful lives of their existing
units, reducing the demand for new units.
We are affected by the risks faced by commercial aircraft operators and MRO companies because they are our customers.
Commercial aircraft operators are engaged in economically sensitive, highly cyclical and competitive businesses. We are a supplier to commercial aircraft operators and MROs. As a result, we are
indirectly affected by all of the risks facing commercial aircraft operators and MROs, with such risks being largely beyond our control. Our results of operations depend, in part, on the financial strength
of our customers and our customers’ ability to compete effectively in the marketplace and manage their risks.
Our engine values and lease rates, which are dependent on the status of the types of aircraft on which engines are installed, and other factors, could decline.
The value of a particular model of engine depends heavily on the types of aircraft on which it may be installed and the available supply of such engines. Values of engines generally tend to be relatively
stable so long as there is sufficient demand for the host aircraft. However, the value of an engine may begin to decline rapidly once the host aircraft begins to be retired from service and/or used for spare
parts in significant numbers. Certain types of engines may be used in significant numbers by commercial aircraft operators that are currently experiencing financial difficulties. If such operators were to
go into liquidation or similar proceedings, the resulting over-supply of engines from these operators could have an adverse effect on the demand for the affected engine types and the values of such
engines.
Upon termination of a lease, we may be unable to enter into new leases or sell the airframe, engine or its parts on acceptable terms.
We directly or indirectly own the engines or aircraft that we lease to customers and bear the risk of not recovering our entire investment through leasing and selling the engines or aircraft. Upon
termination of a lease, we seek to enter a new lease or to sell or part-out the engine or aircraft. We also selectively sell engines on an opportunistic basis. We cannot give assurance that we will be able to
find, in a timely manner, a lessee or a buyer for our engines or aircraft coming off-lease or for their associated parts. If we do find a lessee, we may not be able to obtain satisfactory lease rates and terms
(including maintenance and redelivery conditions), and we cannot guarantee that the creditworthiness of any future lessee will be equal to or better than that of the existing lessees of our engines.
Because the terms of engine leases may be less than 12 months, we may frequently need to remarket engines. We face the risk that we may not be able to keep our engines on lease consistently.
Failures by lessees to meet their maintenance and recordkeeping obligations under our leases could adversely affect the value of our leased engines and aircraft which could affect our ability to re-
lease the engines and aircraft in a timely manner following termination of the leases.
The value and income producing potential of an engine or aircraft depends heavily on it being maintained in accordance with an approved maintenance system and complying with all applicable
governmental directives and manufacturer requirements. In addition, for an engine or aircraft to be available for service, all records, logs, licenses and documentation relating to maintenance and
operations of the engine or aircraft must be maintained in accordance with governmental and manufacturer specifications. Under our leases, our lessees are primarily responsible for maintaining our
aircraft and engines and complying with all governmental requirements applicable to the lessee and the aircraft and engines, including operational, maintenance, government agency oversight,
registration requirements and airworthiness directives. However, over time, certain lessees have experienced, and may experience in the future, difficulties in meeting their maintenance and recordkeeping
obligations as specified by the terms of our leases. Failure by our lessees to maintain our assets in accordance with requirements could negatively affect the value and desirability of our assets and
expose us to increased maintenance costs that may not be sufficiently covered by supplemental maintenance rents paid by such lessees.
Our ability to determine the condition of the engines or aircraft and whether the lessees are properly maintaining our assets is generally limited to the lessees’ reporting of monthly usage and any
maintenance performed, confirmed by periodic inspections performed by us and third-parties. A lessee’s failure to meet its maintenance or recordkeeping obligations under a lease could result in:
a.
b.
c.
d.
e.
f.
a grounding of the related engine or aircraft;
a repossession that would likely cause us to incur additional and potentially substantial expenditures in restoring the engine or aircraft to an acceptable maintenance condition;
a need to incur additional costs and devote resources to recreate the records prior to the sale or lease of the engine or aircraft;
a decline in the market value of the aircraft or engine resulting in lower revenues upon a subsequent lease or sale;
loss of lease revenue while we perform refurbishments or repairs and recreate records; and
a lower lease rate and/or shorter lease term under a new lease entered into by us following repossession of the engine or aircraft.
Any of these events may adversely affect the value of the engine, unless and until remedied, and reduce our revenues and increase our expenses. If an engine is damaged during a lease and we are
unable to recover from the lessee or though insurance, we may incur a loss.
13
We may experience losses and delays in connection with repossession of engines or aircraft when a lessee defaults.
We may not be able to repossess an engine or aircraft when the lessee defaults, and even if we are able to repossess the engine or aircraft, we may have to expend significant funds in the repossession,
remarketing and leasing of the asset. When a lessee defaults and such default is not cured in a timely manner, we typically seek to terminate the lease and repossess the engine or aircraft. If a defaulting
lessee contests the termination and repossession or is under court protection, enforcement of our rights under the lease may be difficult, expensive and time-consuming. We may not realize any practical
benefits from our legal rights and we may need to obtain consents to export the engine or aircraft. As a result, the relevant asset may be off-lease or not producing revenue for a prolonged period of time.
In addition, we will incur direct costs associated with repossessing our engine or aircraft, including, but not limited to, legal and similar costs, the direct costs of transporting, storing and insuring the
engine or aircraft, and costs associated with necessary maintenance and recordkeeping to make the asset available for lease or sale. During this time, we will realize no revenue from the leased engine or
aircraft, and we will continue to be obligated to pay any debt financing associated with the asset. If an engine is installed on an airframe, the airframe may be owned by an aircraft lessor or other third
party. Our ability to recover engines installed on airframes may depend on the cooperation of the airframe owner.
Our commercial jet engine and parts segment and its customers operate in a highly regulated industry and changes in laws or regulations may adversely affect our ability to lease or sell our engines
or aircraft.
Certain of the laws and regulations applicable to our business, include:
Licenses and consents. A number of our leases require specific governmental or regulatory licenses, consents or approvals. These include consents for certain payments under the leases and for the
export, import or re-export of our engines or aircraft. Consents needed in connection with future leasing or sale of our engines or aircraft may not be received timely or have economically feasible terms.
Any of these events could adversely affect our ability to lease or sell engines or aircraft.
Export/import regulations. The U.S. Department of Commerce (the "Commerce Department”) regulates exports. We are subject to the Commerce Department’s and the U.S. Department of State’s
regulations with respect to the lease and sale of engines and aircraft to foreign entities and the export of related parts. These Departments may, in some cases, require us to obtain export licenses for
engines exported to foreign countries. The U.S. Department of Homeland Security, through the U.S. Customs and Border Protection, enforces regulations related to the import of engines and aircraft into
the United States for maintenance or lease and imports of parts for installation on our engines and aircraft.
Restriction Lists. We are prohibited from doing business with persons designated by the U.S. Department of the Treasury’s Office of Foreign Assets Control (" OFAC”) on its "Specially Designated
Nationals List,” and must monitor our operations and existing and potential lessees and other counterparties for compliance with OFAC’s rules. Similarly, sanctions issued by the United Nations, the
U.S. government, the European Union or other foreign governments could prohibit or restrict us from doing business in certain countries or with certain persons. As a result, we must monitor our
operations and existing and potential lessees and other counterparties for compliance with such sanctions.
Anti-corruption Laws. As a U.S. corporation with international operations, we are required to comply with a number of U.S. and international laws and regulations which combat corruption. For example,
the U.S. Foreign Corrupt Practices Act (the " FCPA”) and similar world-wide anti-bribery laws generally prohibit improper payments to foreign officials for the purpose of influencing any official act or
decision or securing any improper advantage. The scope and enforcement of such anti-corruption laws and regulations may vary. Although our policies expressly mandate compliance with the FCPA
and similarly applicable laws, there can be no assurance that none of our employees or agents will take any action in violation of our policies. Violations of such laws or regulations could result in
substantial civil or criminal fines or penalties. Actual or alleged violations could also damage our reputation, be expensive to defend, and impair our ability to do business.
Civil aviation regulation. Users of engines and aircraft are subject to general civil aviation authorities, including the FAA and the EASA, who regulate the maintenance of engines and issue airworthiness
directives. Airworthiness directives typically set forth special maintenance actions or modifications to certain engine and aircraft types or a series of specific engines that must be implemented for the
engine or aircraft to remain in service. Also, airworthiness directives may require the lessee to make more frequent inspections of an engine, aircraft or particular engine parts. Each lessee of an engine or
aircraft generally is responsible for complying with all airworthiness directives. However, if the engine or aircraft is off lease, we may be forced to bear the cost of compliance with such airworthiness
directives. Additionally, even if the engine or aircraft is leased, subject to the terms of the lease, if any, we may still be forced to share the cost of compliance.
Our aircraft, engines and parts could cause damage resulting in liability claims.
Our aircraft, engines or parts could cause bodily injury or property damage, exposing us to liability claims. Our leases require our lessees to indemnify us against these claims and to carry insurance
customary in the air transportation industry, including general liability and property insurance at agreed upon levels. However, we cannot guarantee that one or more catastrophic events will not exceed
insurance coverage limits or that lessees’ insurance will cover all claims that may be asserted against us. Any insurance coverage deficiency or default by lessees under their indemnification or insurance
obligations may reduce our recovery of losses upon an event of loss.
We have risks in managing our portfolio of aircraft and engines to meet customer needs.
14
The relatively long life cycles of aircraft and jet engines can be shortened by world events, government regulation or customer preferences. We seek to manage these risks by trying to anticipate demand
for particular engine and aircraft types, maintaining a portfolio mix of engines that we believe is diversified, has long-term value and will be sought by lessees in the global market for jet engines, and by
selling engines and aircraft that we expect will not experience obsolescence or declining usefulness in the foreseeable future. There is no assurance that the engine and aircraft types owned or acquired
by us will meet customer demand.
Liens on our engines or aircraft could exceed the value of such assets, which could negatively affect our ability to repossess, lease or sell a particular engine or aircraft.
Liens that secure the payment of repairers’ charges or other liens may, depending on the jurisdiction, attach to engines and aircraft. Engines also may be installed on airframes to which liens unrelated to
the engines have attached. These liens may secure substantial sums that may, in certain jurisdictions or for certain types of liens, exceed the value of the particular engine or aircraft to which the liens
have attached. In some jurisdictions, a lien may give the holder the right to detain or, in limited cases, sell or cause the forfeiture of the engine or aircraft. Such liens may have priority over our interest as
well as our creditors’ interest in the engines or aircraft. These liens and lien holders could impair our ability to repossess and lease or sell the engines or aircraft. We cannot give assurance that our
lessees will comply with their obligations to discharge third-party liens on our assets. If they do not, we may, in the future, find it necessary to pay the claims secured by such liens to repossess such
assets.
In certain countries, an engine affixed to an aircraft may become an addition to the aircraft and we may not be able to exercise our ownership rights over the engine.
In certain jurisdictions, an engine affixed to an aircraft may become an addition to the aircraft such that the ownership rights of the owner of the aircraft supersede the ownership rights of the owner of
the engine. If an aircraft is security for the owner’s obligations to a third-party, the security interest in the aircraft may supersede our rights as owner of the engine. Such a security interest could limit our
ability to repossess an engine located in such a jurisdiction in the event of a lessee bankruptcy or lease default. We may suffer a loss if we are not able to repossess engines leased to lessees in these
jurisdictions.
Higher or volatile fuel prices could affect the profitability of the aviation industry and our lessees’ ability to meet their lease payment obligations to us.
Historically, fuel prices have fluctuated widely depending primarily on international market conditions, geopolitical and environmental factors and events and currency exchange rates. Natural and other
disasters can also significantly affect fuel availability and prices. The cost of fuel represents a major expense to airlines that is not within their control, and significant increases in fuel costs or hedges
that inaccurately assess the direction of fuel costs can materially and adversely affect their operating results. Due to the competitive nature of the aviation industry, operators may be unable to pass on
increases in fuel prices to their customers by increasing fares in a manner that fully offsets the increased fuel costs they may incur. In addition, they may not be able to manage this risk by appropriately
hedging their exposure to fuel price fluctuations. The profitability and liquidity of those airlines that do hedge their fuel costs can also be adversely affected by swift movements in fuel prices if such
airlines are required to post cash collateral under hedge agreements. Therefore, if for any reason fuel prices return to historically high levels or show significant volatility, our lessees are likely to incur
higher costs or generate lower revenues, which may affect their ability to meet their obligations to us.
Interruptions in the capital markets could impair our lessees’ ability to finance their operations, which could prevent the lessees from complying with payment obligations to us.
The global financial markets can be highly volatile and the availability of credit from financial markets and financial institutions can vary substantially depending on developments in the global financial
markets. Our lessees depend on banks and the capital markets to provide working capital and to refinance existing indebtedness. To the extent such funding is unavailable, or available only on
unfavorable terms, and to the extent financial markets do not provide equity financing as an alternative, our lessees’ operations and operating results may be materially and adversely affected and they
may not comply with their respective payment obligations to us.
Our lessees may fail to adequately insure our aircraft or engines which could subject us to additional costs.
While an aircraft or engine is on lease, we do not directly control its operation. Nevertheless, because we hold title to the aircraft or engine, we could, in certain jurisdictions, be held liable for losses
resulting from its operation. At a minimum, we may be required to expend resources in our defense. We require our lessees to obtain specified levels of insurance and indemnify us for, and insure
against, such operational liabilities. However, some lessees may fail to maintain adequate insurance coverage during a lease term, which, although constituting a breach of the lease, would require us to
take some corrective action, such as terminating the lease or securing insurance for the aircraft or engines. Therefore, our lessees’ insurance coverage may not be sufficient to cover all claims that could
be asserted against us arising from the operation of our aircraft or engines. Inadequate insurance coverage or default by lessees in fulfilling their indemnification or insurance obligations to us will reduce
the insurance proceeds that we would otherwise be entitled to receive in the event we are sued and are required to make payments to claimants. Moreover, our lessees’ insurance coverage is dependent
on the financial condition of insurance companies and their ability to pay claims. A reduction in insurance proceeds otherwise payable to us as a result of any of these factors could materially and
adversely affect our financial results.
If our lessees fail to cooperate in returning our aircraft or engines following lease terminations, we may encounter obstacles and are likely to incur significant costs and expenses conducting
repossessions.
15
Our legal rights and the relative difficulty of repossession vary significantly depending on the jurisdiction in which an aircraft or engines are located. We may need to obtain a court order or consents for
de-registration or re-export, a process that can differ substantially from county to country. When a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings,
additional limitations may also apply. For example, certain jurisdictions give rights to the trustee in bankruptcy or a similar officer to assume or reject the lease, to assign it to a third party, or to entitle the
lessee or another third party to retain possession of the aircraft or engines without paying lease rentals or performing all or some of the obligations under the relevant lease. Certain of our lessees are
partially or wholly owned by government-related entities, which can further complicate our efforts to repossess our aircraft or engines in that government’s jurisdiction. If we encounter any of these
difficulties, we may be delayed in, or prevented from, enforcing certain of our rights under a lease and in re-leasing the affected aircraft or engines.
When conducting a repossession, we are likely to incur significant costs and expenses that are unlikely to be recouped. These include legal and other expenses related to legal proceedings, including the
cost of posting security bonds or letters of credit necessary to effect repossession of the aircraft or engines, particularly if the lessee is contesting the proceedings or is in bankruptcy. We must absorb
the cost of lost revenue for the time the aircraft or engines are off-lease. We may incur substantial maintenance, refurbishment or repair costs that a defaulting lessee has failed to pay and are necessary
to put the aircraft or engines in suitable condition for re-lease or sale. We may also incur significant costs in retrieving or recreating aircraft records required for registration of the aircraft and in obtaining
the certificate of airworthiness for an aircraft. It may be necessary to pay to discharge liens or pay taxes and other governmental charges on the aircraft to obtain clear possession and to remarket the
aircraft effectively, including, in some cases, liens that the lessee may have incurred in connection with the operation of its other aircraft. We may also incur other costs in connection with the physical
possession of the aircraft or engines.
If our lessees fail to discharge aircraft liens for which they are responsible, we may be obligated to pay to discharge the liens.
In the normal course of their businesses, our lessees are likely to incur aircraft and engine liens that secure the payment of airport fees and taxes, custom duties, Eurocontrol and other air navigation
charges, landing charges, crew wages, and other liens that may attach to our aircraft. Aircraft may also be subject to mechanic’s liens as a result of routine maintenance performed by third parties on
behalf of our customers. Some of these liens can secure substantial sums, and if they attach to entire fleets of aircraft, as permitted for certain kinds of liens, they may exceed the value of the aircraft
itself. Although the financial obligations relating to these liens are the contractual responsibility of our lessees, if they fail to fulfill their obligations, the liens may ultimately become our financial
responsibility. Until they are discharged, these liens could impair our ability to repossess, re-lease or sell our aircraft or engines. In some jurisdictions, aircraft and engine liens may give the holder thereof
the right to detain or, in limited cases, sell or cause the forfeiture of the aircraft. If we are obliged to pay a large amount to discharge a lien, or if we are unable take possession of our aircraft subject to a
lien in a timely and cost-effective manner, it could materially and adversely affect our financial results.
If our lessees encounter financial difficulties and we restructure or terminate our leases, we are likely to obtain less favorable lease terms.
If a lessee delays, reduces, or fails to make rental payments when due, or has advised us that it will do so in the future, we may elect or be required to restructure or terminate the lease. A restructured
lease will likely contain terms that are less favorable to us. If we are unable to agree on a restructuring and we terminate the lease, we may not receive all or any payments still outstanding, and we may be
unable to re-lease the aircraft or engines promptly and at favorable rates, if at all.
Withdrawal, suspension or revocation of governmental authorizations or approvals could negatively affect our business.
We are subject to governmental regulation and our failure to comply with these regulations could cause the government to withdraw or revoke our authorizations and approvals to do business and
could subject us to penalties and sanctions that could harm our business. Governmental agencies throughout the world, including the FAA, highly regulate the manufacture, repair and operation of
aircraft operated in the United States and equivalent regulatory agencies in other countries, such as the EASA in Europe, regulate aircraft operated in those countries. With the aircraft, engines and
related parts that we purchase, lease and sell to our customers, we include documentation certifying that each part complies with applicable regulatory requirements and meets applicable standards of
airworthiness established by the FAA or the equivalent regulatory agencies in other countries. Specific regulations vary from country to country, although regulatory requirements in other countries are
generally satisfied by compliance with FAA requirements. With respect to a particular engine or engine component, we utilize FAA and/or EASA certified repair stations to repair and certify engines and
components to ensure marketability. The revocation or suspension of any of our material authorizations or approvals would have an adverse effect on our business, financial condition and results of
operations. New and more stringent government regulations, if enacted, could have an adverse effect on our business, financial condition and results of operations. In addition, certain product sales to
foreign countries require approval or licensing from the U.S. government. Denial of export licenses could reduce our sales to those countries and could have a material adverse effect on our business.
Our holding company structure may increase risks related to our operations.
Risks Related to Our Structure and Financing/Liquidity Risks
Our business, financial condition and results of operations are dependent upon those of our individual businesses, and our aggregate investment in particular industries. We are a holding company with
investments in businesses and assets in a number of industries. Our business, financial condition and results of operations are dependent upon our various businesses and investments and their
management teams. Each of our businesses generally operate independently and in a decentralized manner. Additionally, in the ordinary course of business we guarantee the obligations of entities that
we manage and/or invest
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in. Any material adverse change in one of our businesses, investments or management teams, or in a particular industry in which we operate or invest, may cause material adverse changes to our
business, financial condition and results of operations. The more capital we devote to a particular investment or industry may increase the risk that such investment could significantly impact our
financial condition and results of operations, possibly in a material adverse way.
A small number of stockholders has the ability to control the Company.
We have a very concentrated stockholder base. As of March 31, 2023, our three largest stockholders beneficially owned or had the ability to direct the voting of shares of our common stock representing
approximately 65% of the outstanding shares. As a result, these stockholders have the power to determine the outcome of substantially all matters submitted to our stockholders for approval, including
the election of our board of directors. In addition, future sales by these stockholders of substantial amounts of our common stock, or the potential for such sales, could adversely affect the prevailing
market price of our securities.
Although we do not expect to rely on the "controlled company” exemption, we may soon become a "controlled company” within the meaning of the Nasdaq listing standards, and we would qualify for
exemptions from certain corporate governance requirements.
A "controlled company,” as defined in the Nasdaq listing standards, is a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another
company. Controlled companies are not required to comply with certain Nasdaq listing standards relating to corporate governance, including:
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the requirement that a majority of its board of directors consist of independent directors;
the requirement that its nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and
responsibilities; and
the requirement that its compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
As of May 4, 2023, Nicolas Swenson, our President, Chief Executive Officer and Chairman of the Board, beneficially owned an aggregate of 1,340,799 shares of our common stock, which represents
47.84% of the voting power of our outstanding common stock. Our President, CEO/Chairman could soon own a majority of the voting power for the election of our directors, and thus we would meet the
definition of a "controlled company.” As a result, these requirements would not apply to us as long as we remain a "controlled company.”
Although we may soon qualify as a "controlled company,” we currently do not, and we do not expect to, rely on this exemption and we currently comply with, and we expect to continue to comply with,
all relevant corporate governance requirements under the Nasdaq listing standards. However, if we were to utilize some or all of these exemptions, you may not have the same protections afforded to
shareholders of companies that are subject to all of the Nasdaq listing standards that relate to corporate governance.
An increase in interest rates or in our borrowing margin would increase the cost of servicing our debt and could reduce our cash flow and negatively affect the results of our business operations.
A portion of our outstanding debt bears interest at floating rates. As a result, to the extent we have not hedged against rising interest rates, an increase in the applicable benchmark interest rates would
increase the cost of servicing our debt and could materially and adversely affect our results of operations, financial condition, liquidity and cash flows. In addition, if we refinance our indebtedness or it
matures and interest rates or our borrowing margins increase between the time an existing financing arrangement was consummated and the time such financing arrangement is refinanced or matures, the
cost of servicing our debt would increase and our results of operations, financial condition, liquidity and cash flows could be materially and adversely affected.
Our inability to maintain sufficient liquidity could limit our operational flexibility and also impact our ability to make payments on our obligations as they come due.
In addition to being capital intensive and highly leveraged, our aircraft and engine business requires that we maintain sufficient liquidity to enable us to contribute the non-financed portion of engine
and aircraft purchases as well as to service our payment obligations to our creditors as they become due, despite the fact that the timing and amounts of our revenues do not match the timing under our
debt service obligations. Our restricted cash is unavailable for general corporate purposes. Accordingly, our ability to successfully execute our business strategy and maintain our operations depends
on our ability to continue to maintain sufficient liquidity, cash and available credit under our credit facilities. Our liquidity could be adversely impacted if we are subjected to one or more of the following:
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a significant decline in revenues,
a material increase in interest expense that is not matched by a corresponding increase in revenues,
a significant increase in operating expenses,
a reduction in our available credit under our credit facilities, or
general economic or national events.
If we do not maintain sufficient liquidity, our ability to meet our payment obligations to creditors or to borrow additional funds could become impaired.
Future cash flows from operations or through financings may not be sufficient to enable the Company to meet its obligations.
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Future cash flow of the Company’s operations can fluctuate significantly. If future cash flows are not sufficient to permit the Company to meet its obligations, this would likely have a material adverse
effect on the Company, its businesses, financial condition and results of operations. Additionally, credit market volatility may affect our ability to refinance our existing debt, borrow funds under our
existing lines of credit or incur additional debt. There can be no assurance that the Company or its subsidiaries will continue to have access to their lines of credit if their financial performance does not
satisfy the financial covenants set forth in the applicable financing agreements. If the Company or its subsidiaries do not meet certain of its financial covenants, and if they are unable to secure
necessary waivers or other amendments from the respective lenders on terms acceptable to management and to renew or replace financing arrangements that mature during the current fiscal year, their
ability to access available lines of credit could be limited, their debt obligations could be accelerated by the respective lenders and liquidity could be adversely affected.
The Company and/or its subsidiaries may be required to seek additional or alternative financing sources if the Company’s or its subsidiaries’ cash needs are significantly greater than anticipated or they
do not materially meet their business plans, or there are unanticipated downturns in the markets for the Company’s and its subsidiaries’ products and services. Future disruption and volatility in credit
market conditions could have a material adverse impact on the Company’s ability, or that of its subsidiaries, to refinance debt when it comes due on terms similar to our current credit facilities, to draw
upon existing lines of credit or to incur additional debt if needed. There can be no assurance therefore that such financing will be available or available on acceptable terms. The inability to generate
sufficient cash flows from operations or through financings or disruptions in the credit markets could impair the Company’s or its subsidiaries’ liquidity and would likely have a material adverse effect on
their businesses, financial condition and results of operations.
A large proportion of our capital is invested in physical assets and securities that can be hard to sell, especially if market conditions are poor.
Because our investment strategy can involve public company securities, we may be restricted in our ability to effect sales during certain time periods. A lack of liquidity could limit our ability to vary our
portfolio or assets promptly in response to changing economic or investment conditions. Additionally, if financial or operating difficulties of other competitors result in distress sales, such sales could
depress asset values in the markets in which we operate. The restrictions inherent in owning physical assets could reduce our ability to respond to changes in market conditions and could adversely
affect the performance of our investments, our financial condition and results of operations. Because there is significant uncertainty in the valuation of, or in the stability of the value of illiquid or non-
public investments, the fair values of such investments do not necessarily reflect the prices that would actually be obtained when such investments are realized.
To service our debt and meet our other cash needs, we will require a significant amount of cash, which may not be available.
Our ability to make payments on, or repay or refinance, our debt, will depend largely upon our future operating performance. Our future performance, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on our
maintaining specified financial ratios and satisfying financial condition tests and other covenants in the agreements governing our debt. Our business may not generate sufficient cash flow from
operations and future borrowings may not be available in amounts sufficient to pay our debt and to satisfy our other liquidity needs.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to seek alternatives.
If we cannot meet our debt service obligations, we may be forced to reduce or delay investments and aircraft or engine purchases, sell assets, seek additional capital or restructure or refinance our
indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher
interest rates and might require us to comply with more onerous covenants, which could further restrict our business operations. The terms of our debt instruments may restrict us from adopting some of
these alternatives. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations or to meet our aircraft or engine purchase commitments as
they come due.
The transition away from LIBOR may adversely affect our cost to obtain financing and may potentially negatively impact our interest rate swap agreements.
It is expected that a transition away from the widespread use of London Interbank Offered Rate ("LIBOR") to alternative rates may have a material adverse impact on the availability and cost of our
financing, including LIBOR-based loans, as well as our interest rate swap agreements. We currently anticipate phasing out of our LIBOR based loans and swaps in the foreseeable future but uncertainty
remains with respect to the implementation of the phase out and what revisions will be required and implemented, which will depend heavily on the current market conditions. It therefore remains
uncertain how such changes will be implemented and the effects such changes would have on us and the financial markets generally. These changes may have a material adverse impact on the
availability of financing and on our financing costs. Also, increases in interest rates on variable rate debt would increase our interest expense and the cost of refinancing existing debt and incurring new
debt, unless we make arrangements that hedge the risk of rising interest rates, which would adversely affect net income and cash available for payment of our debt obligations and distributions to equity
holders.
Despite our substantial indebtedness, we may incur significantly more debt, and cash may not be available to meet our financial obligations when due or enable us to capitalize on investment
opportunities when they arise.
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We employ debt and other forms of leverage in the ordinary course of business to enhance returns to our investors and finance our operations, and despite our current indebtedness levels, we expect to
incur additional debt in the future to finance our operations, including purchasing aircraft and engines and meeting our contractual obligations as the agreements relating to our debt, including our junior
subordinated debentures, indentures, term loan facilities, revolving credit facilities, and other financings do not entirely prohibit us from incurring additional debt. We also enter into financing
commitments in the normal course of business, which we may be required to fund. If we are required to fund these commitments and are unable to do so, we could be liable for damages pursued against
us or a loss of opportunity through default under contracts that are otherwise to our benefit could occur. We are therefore subject to the risks associated with debt financing and refinancing, including
but not limited to the following: (i) our cash flow may be insufficient to meet required payments of principal and interest; (ii) payments of principal and interest on borrowings may leave us with
insufficient cash resources to pay operating expenses and dividends; (iii) if we are unable to obtain committed debt financing for potential acquisitions or can only obtain debt at high interest rates or on
other unfavorable terms, we may have difficulty completing acquisitions or may generate profits that are lower than would otherwise be the case; (iv) we may not be able to refinance indebtedness at
maturity due to company and market factors such as the estimated cash flow produced by our assets, the value of our assets, liquidity in the debt markets, and/or financial, competitive, business and
other factors; and (v) if we are able to refinance our indebtedness, the terms of a refinancing may not be as favorable as the original terms for such indebtedness. If we are unable to refinance our
indebtedness on acceptable terms, or at all, we may need to utilize available liquidity, which would reduce our ability to pursue new investment opportunities, dispose of one or more of our assets on
disadvantageous terms, or raise equity, causing dilution to existing stockholders.
The terms of our various credit agreements and other financing documents also require us to comply with a number of customary financial and other covenants, such as maintaining debt service
coverage and leverage ratios, and adequate insurance coverage. These covenants may limit our flexibility in conducting our operations and breaches of these covenants could result in defaults under
the instruments governing the applicable indebtedness, even if we have satisfied and continue to satisfy our payment obligations. Regulatory and market changes may also result in higher borrowing
costs and reduced access to credit.
Our current financing arrangements require compliance with financial and other covenants and a failure to comply with such covenants could adversely affect our ability to operate.
The terms of our various credit agreements and other financing documents require us to comply with a number of customary financial and other covenants, such as maintaining debt service coverage
and leverage ratios and adequate insurance coverage. These covenants may limit our flexibility in conducting our operations and breaches of these covenants could result in defaults under the
instruments governing the applicable indebtedness, even if we have satisfied and continue to satisfy our payment obligations. Regulatory and market changes may also result in higher borrowing costs
and reduced access to credit.
Future acquisitions and dispositions of businesses and investments are possible, changing the components of our assets and liabilities, and if unsuccessful or unfavorable, could reduce the value of
the Company and its securities.
Any future acquisitions or dispositions may result in significant changes in the composition of our assets and liabilities, as well as our business mix and prospects. Consequently, our financial condition,
results of operations and the trading price of our securities may be affected by factors different from those affecting our financial condition, results of operations and trading price at the present time.
We face numerous risks and uncertainties as we expand our business.
We expect the growth and development of our business to come primarily from internal expansion and through acquisitions, investments, and strategic partnering. As we expand our business, there can
be no assurance that financial controls, the level and knowledge of personnel, operational abilities, legal and compliance controls and other corporate support systems will be adequate to manage our
business and growth. The ineffectiveness of any of these controls or systems could adversely affect our business and prospects. In addition, if we acquire new businesses and/or introduce new
products, we face numerous risks and uncertainties concerning the integration of their controls and systems, including financial controls, accounting and data processing systems, management controls,
other operations and adequate security. A failure to integrate these systems and controls, and even an inefficient integration of these systems and controls, could adversely affect our business and
prospects.
Our business strategy includes acquisitions, and acquisitions entail numerous risks, including the risk of management diversion and increased costs and expenses, all of which could negatively
affect the Company’s ability to operate profitably.
Our business strategy includes, among other things, strategic and opportunistic acquisitions. This element of our strategy entails several risks, including, but not limited to the diversion of
management’s attention from other business concerns and the need to finance such acquisitions with additional equity and/or debt. In addition, once completed, acquisitions entail further risks,
including: unanticipated costs and liabilities of the acquired businesses, including environmental liabilities, that could materially adversely affect our results of operations; difficulties in assimilating
acquired businesses, preventing the expected benefits from the transaction from being realized or achieved within the anticipated time frame; negative effects on existing business relationships with
suppliers and customers; and losing key employees of the acquired businesses. If our acquisition strategy is not successful or if acquisitions are not well integrated into our existing operations, the
Company’s operations and business results could be negatively affected.
Strategic ventures may increase risks applicable to our operations.
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We may enter into strategic ventures that pose risks, including a lack of complete control over the enterprise, and other potential unforeseen risks, any of which could adversely impact our financial
results. We may occasionally enter into strategic ventures or investments with third parties in order to take advantage of favorable financing opportunities, to share capital or operating risk, or to earn
aircraft management fees. These strategic ventures and investments may subject us to various risks, including those arising from our possessing limited decision-making rights in the enterprise or over
the related aircraft. If we were unable to resolve a dispute with a strategic partner in such a venture that retains material managerial veto rights, we might reach an impasse which may lead to operational
difficulties in the venture and increases costs or the liquidation of our investment at a time and in a manner that would result in our losing some or all of our original investment and/or the occurrence of
other losses, which could adversely impact our financial results.
Rapid business expansions or new business initiatives may increase risk.
Certain business initiatives, including expansions of existing businesses such as the relatively recent expansion at our commercial jet engines and parts segment and the establishment of an aircraft asset
management business and an aircraft capital joint venture, may bring us into contact, directly or indirectly, with individuals and entities that are not within our traditional client and counterparty base and
may expose us to new asset classes, new business plans and new markets. These business activities expose us to new and enhanced risks, greater regulatory scrutiny of these activities, increased
credit-related, sovereign and operational risks, and reputational concerns regarding the manner in which these assets are being operated or held. There is no assurance that prior year activity and results
will occur in future periods.
Our policies and procedures may not be effective in ensuring compliance with applicable law.
Our policies and procedures designed to ensure compliance with applicable laws may not be effective in all instances to prevent violations. We could become subject to various governmental
investigations, audits and inquiries, both formal and informal. Such investigations, regardless of their outcome, could be costly, divert management attention, and damage our reputation. The
unfavorable resolution of such investigations could result in criminal liability, fines, penalties or other monetary or non-monetary sanctions and could materially affect our business or results of
operations.
Compliance with the regulatory requirements imposed on us as a public company results in significant costs that may have an adverse effect on our results.
As a public company, we are subject to various regulatory requirements including, but not limited to, compliance with the rules
and regulations of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010. Compliance with these rules and regulations results in significant additional costs to us both directly, through increased audit and consulting fees, and indirectly,
through the time required by our limited resources to address such regulations.
Deficiencies in our public company financial reporting and disclosures could adversely impact our reputation.
As we expand the size and scope of our business, there is a greater susceptibility that our financial reporting and other public disclosure documents may contain material misstatements and that the
controls we maintain to attempt to ensure the complete accuracy of our public disclosures may fail to operate as intended. The occurrence of such events could adversely impact our reputation and
financial condition. Management is responsible for establishing and maintaining adequate internal controls over financial reporting to give our stakeholders assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles ("GAAP”). However, the process for establishing and
maintaining adequate internal controls over financial reporting has inherent limitations, including the possibility of human error. Our internal controls over financial reporting may not prevent or detect
misstatements in our financial disclosures on a timely basis, or at all. Some of these processes may be new for certain subsidiaries in our structure, and in the case of acquisitions, may take time to be
fully implemented. Our disclosure controls and procedures are designed to provide assurance that information required to be disclosed by us in reports filed or submitted under U.S. securities laws is
recorded, processed, summarized and reported within the required time periods. Our policies and procedures governing disclosures may not ensure that all material information regarding us is disclosed
in a proper and timely fashion or that we will be successful in preventing the disclosure of material information to a single person or a limited group of people before such information is generally
disseminated.
Risks Related to Environmental, Social, and Governance Issues
Climate change, related legislative and regulatory responses to climate change, and the transition to a lower carbon economy may adversely affect our business.
There is increasing concern that a gradual rise in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant
changes in weather patterns around the globe, an increase in the frequency, severity, and duration of extreme weather conditions and natural disasters, and water scarcity and poor water quality. These
events could also compound adverse economic conditions. To the extent that significant changes in the climate occur in areas where our businesses are located or operate, we may experience extreme
weather and/or changes in precipitation and temperature, all of which may result in physical damage to, or a decrease in demand for, our properties located in these areas or affected by these conditions
and could negatively impact our operations. In addition, changes in federal, state, and local legislation and regulation based on concerns about climate change, including regulations aimed at limiting
greenhouse gas emissions and the implementation of "green” building codes, could result in increased capital expenditures without a corresponding increase in revenue. Any assessment of the potential
impact of future climate change legislation, regulations, or
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industry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change.
We are subject to risks from natural disasters such as earthquakes and severe weather (the frequency and severity of which may be impacted by climate change), which may include more frequent or
severe storms, extreme temperatures and ambient temperature increases, hurricanes, flooding, rising sea levels, shortages of water, droughts and wildfires, any of which could have a material
adverse effect on our business, results of operations, and financial condition.
Natural disasters, severe weather such as earthquakes, tornadoes, wind, or floods, and wildfires may result in significant damage to our properties or disruption of our operations. The extent of casualty
losses and loss of income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. Additional consequences of severe weather
could include increased insurance premiums and deductibles or a decrease in the availability of coverage.
Environmentally hazardous conditions could potentially adversely affect us.
Under various federal, state, and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on
such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Even if more than one person
may have been responsible for the contamination, each person covered by applicable environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue
the owner or operator of a site for damages based on personal injury, natural resources, or property damage or other costs, including investigation and clean-up costs, resulting from the environmental
contamination. The presence of hazardous or toxic substances on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government
for costs it may incur to address the contamination or otherwise adversely affect our ability to sell or lease the property or borrow using the property as collateral. Environmental laws also may impose
restrictions on the manner in which property may be used or businesses may be operated. A property owner who violates environmental laws may be subject to sanctions which may be enforced by
governmental agencies or, in certain circumstances, private parties. The cost of defending against environmental claims, of compliance with environmental regulatory requirements, or of remediating any
contaminated property could materially and adversely affect us.
We are subject to increasing scrutiny from investors and others regarding our environmental, social, governance, or sustainability responsibilities, which could result in additional costs or risks
and adversely impact our reputation, associate retention, and ability to raise capital from such investors.
Investor advocacy groups, certain institutional investors, investment funds, other market participants, and stakeholders have focused increasingly on the Environmental, Social and Governance ("ESG”
or "sustainability”) practices of companies, including those associated with climate change. These parties have placed increased importance on the implications of the social cost of their investments. If
our ESG practices do not meet investor or other industry stakeholder expectations and standards, which continue to evolve, our reputation and associate retention may be negatively impacted based on
an assessment of our ESG practices. Any sustainability disclosures we make may include our policies and practices on a variety of social and ethical matters, including corporate governance,
environmental compliance, associate health and safety practices, human capital management, product quality, supply chain management, and workforce inclusion and diversity. It is possible that
stakeholders may not be satisfied with our ESG practices or the speed of their adoption. We could also incur additional costs and require additional resources to monitor, report, and comply with various
ESG practices. In addition, investors may decide to refrain from investing in us as a result of their assessment of our approach to and consideration of the ESG factors.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties.
The Company owns approximately 4.626 acres in Denver, North Carolina, which houses the operations of Air T and MAC and a 55,000 square feet office building in St. Louis Park, Minnesota that is
partially leased to tenants and is the location of the Company's Minnesota executive office. On April 13, 2023, the Company signed a lease agreement to move the operations of Air T to Charlotte, North
Carolina. The lease is for 4,900 square feet of office space, will commence on July 1, 2023 and expire on November 30, 2028 with the option to extend the lease for one additional three year term.
The Company leases approximately 1,950 square feet of office space and approximately 4,800 square feet of hangar space at the Ford Airport in Iron Mountain, Michigan. CSA’s operations are
headquartered at these facilities which are leased from a third party under an annually renewable agreement.
The Company leases approximately 53,000 square feet of a 66,000 square foot aircraft maintenance facility located in Kinston, North Carolina under an agreement that extends through January 2028, with
the option to extend the lease for three additional five-year periods thereafter. The rental rate under the lease increases by increments for each of the five-year renewal periods.
GGS leases an 112,500 square feet production facility in Olathe, Kansas. The facility is leased from a third party under a lease agreement, which expires in August 2024.
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As of March 31, 2023, the Company leased hangar, maintenance and office space from third parties at a variety of other locations, at prevailing market terms.
Contrail leases a 21,000 square feet facility in Verona, Wisconsin. This is a lease from a related party. See Note 15 "Related Party Matters” of Notes to Consolidated Financial Statements included under
Part II, Item 8 of this report. This lease expires on July 17, 2026. Contrail also leased a 1,453 square feet office space in Denver, Colorado. The lease is a 60 month lease that extends through June 2026. As
part of the formation of Crestone and transition of certain Contrail's employees to Crestone, Contrail terminated this lease prior to its expiration in 2026. Crestone entered into a lease agreement of a 1,663
square feet office space in Glendale, Colorado on September 1, 2022. The lease is a 24 month lease that extends through August 2024 with no option to renew.
Jet Yard leases approximately 48.5 acres of land from Pinal County at the Pinal Air Park in Marana, Arizona. The lease expires in May 2046, though Jet Yard has an option to renew the lease for an
additional 30-year period (though the lease to a 2.6-acre parcel of the leased premises may be terminated by Pinal County upon 90 days’ notice). The lease agreement permits Pinal County to terminate
the lease if Jet Yard fails to make substantial progress toward the construction of facilities on the leased premises in phases in accordance with a specified timetable. On May 27, 2020, Pinal County and
Jet Yard entered into the first amendment to the lease agreement in which Pinal County agreed to the terms of Jet Yard's ground hardening civil improvement project ("ground hardening improvements")
on areas under lease to improve its aircraft parking facilities. Starting in fiscal 2021, Jet Yard subleased the aforementioned lease along with the ground hardening improvements to Jet Yard Solutions.
DSI leases 12,206 square feet of space in a building located in Mississauga, Canada. The lease expires on July 31, 2028.
Worthington and AirCo lease a 41,280 square-feet facility in Eagan, Minnesota. The lease for this facility expires in April 2027. Worthington has a lease in Tulsa, Oklahoma, which is 22,582 square feet
and expires in January 2027. Additionally, Worthington also has two facility leases in Australia: Unit E3 is 1,195 square feet and Unit B5 is 1,442 square feet, both of which expire in January 2025.
WASI subleases approximately 53,500 square feet of land and facilities located at Branson National Airport, Springfield, Missouri. The lease expires on January 30, 2028 with an option to renew for two
additional and consecutive five year terms plus an additional and consecutive term ending on May 5, 2039. WASI also leases an additional 2,000 square feet hangar space that expires on January 30,
2025 with no option to renew.
Item 3. Legal Proceedings.
The Company and its subsidiaries are subject to legal proceedings and claims that arise in the ordinary course of their business. We believe that our current proceedings will not have a material adverse
effect on our financial condition, liquidity or results of operations. We record a liability when a loss is considered probable, and the amount can be reasonably estimated.
22
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company’s common stock is publicly traded on the NASDAQ Global Market under the symbol "AIRT.”
As of March 31, 2023, the approximate number of holders of record of the Company’s Common Stock was 154.
The Company has not paid any cash dividends since 2014.
On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 shares (adjusted to 1,125,000 shares after the stock split on June 10, 2019) of
the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period. The Company purchased 51,794
shares pursuant to this authorization during the fiscal year ended March 31, 2023.
The equity compensation plan information called for by Item 201(d) of Regulation S-K is set forth in Item 12 "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” of Part III of this report under the heading "Equity Compensation Plan Information”.
Purchases of shares of common stock during the fourth quarter are described below:
Dates of
Shares Purchased
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
Jan 1 - Jan 31, 2023
Feb 1 - Feb 28, 2023
March 1 - March 31, 2023
2,336 $
214 $
1,072 $
25.04
22.60
21.85
2,336
214
1,072
872,999
872,785
871,713
As of March 31, 2023, the Company did not sell any securities within the past three years that were not registered under the Securities Act.
Item 6. [Reserved]
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Air T, Inc. (the "Company,” "Air T,” "we” or "us” or "our”) is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversify Air T’s
earnings power and compound the growth in its free cash flow per share over time.
We currently operate in four industry segments:
• Overnight air cargo, which operates in the air express delivery services industry;
• Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial
customers;
Commercial aircraft, engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft
disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and;
Corporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other is also comprised of insignificant businesses that do
not pertain to other reportable segments.
•
•
Acquisitions
On January 31, 2023, the Company acquired WASI, a Kansas corporation that services the aircraft industry across the United States and internationally through the operation of a repair station which is
located in Springfield, Missouri at the Branson National Airport. The acquisition was funded with cash and the loans described in Note 14 of Notes to Consolidated Financial Statements included under
Part II, Item 8 of this report. WASI is included within the Overnight air cargo segment. See Note 2 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.
Unconsolidated Investments
The Company has an ownership interest in Contrail Asset Management, LLC ("CAM”). The operations of CAM are not consolidated into the operations of the Company. See Note 24 of Notes to
Consolidated Financial Statements included under Part II, Item 8 of this report.
The Company also has ownership interests in Insignia and CCI. The operations of these companies are not consolidated into the operations of the Company. See Note 10 of Notes to Consolidated
Financial Statements included under Part II, Item 8 of this report.
Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income
(loss) and Adjusted EBITDA.
24
Forward Looking Statements
Certain statements in this Report, including those contained in "Overview,” are "forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the Company’s financial condition, results of operations, plans, objectives, future performance and business. Forward-looking statements include those preceded by, followed by or that include the
words "believes”, "pending”, "future”, "expects,” "anticipates,” "estimates,” "depends” or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may
differ materially from those contemplated by such forward-looking statements, because of, among other things, potential risks and uncertainties, such as:
•
•
•
•
•
•
Economic and industry conditions in the Company’s markets;
The risk that contracts with FedEx could be terminated or adversely modified;
The risk that the number of aircraft operated for FedEx will be reduced;
The risk that GGS customers will defer or reduce significant orders for deicing equipment;
The impact of any terrorist activities on United States soil or abroad;
The Company’s ability to manage its cost structure for operating expenses, or unanticipated capital requirements, and match them to shifting customer service requirements and production
volume levels;
The Company's ability to meet debt service covenants and to refinance existing debt obligations;
The risk of injury or other damage arising from accidents involving the Company’s overnight air cargo operations, equipment or parts sold and/or services provided;
•
•
• Market acceptance of the Company’s commercial and military equipment and services;
•
•
•
• Mild winter weather conditions reducing the demand for deicing equipment;
• Market acceptance and operational success of the Company’s relatively new aircraft asset management business and related aircraft capital joint venture; and
• Despite our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial
Competition from other providers of similar equipment and services;
Changes in government regulation and technology;
Changes in the value of marketable securities held as investments;
leverage.
A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. We are under no obligation, and we
expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
25
Results of Operations
Fiscal 2023 vs. 2022
Consolidated revenue increased by $70.2 million (40%) to $247.3 million for the fiscal year ended March 31, 2023 compared to the prior fiscal year. Following is a table detailing revenue (after elimination
of intercompany transactions), in thousands:
Overnight Air Cargo
Ground Equipment Sales
Commercial Jet Engines and Parts
Corporate and Other
Total
Year ended March 31,
2023
2022
90,543
48,485
101,737
6,558
247,323
$
$
74,409
42,239
57,689
2,740
177,077
$
$
$
$
Change
16,134
6,246
44,048
3,818
70,246
22 %
15 %
76 %
139 %
40 %
Revenues from the air cargo segment increased by $16.1 million (22%) compared to the prior fiscal year, principally attributable to higher labor revenues, higher admin fees and higher FedEx pass through
revenues due to increased fleet (72 aircraft in the prior year compared to 85 in the current year). Pass-through costs under the dry-lease agreements with FedEx totaled $29.2 million and $23.0 million for
the years ended March 31, 2023 and 2022, respectively.
The ground equipment sales segment contributed approximately $48.5 million and $42.2 million to the Company’s revenues for the fiscal years ended March 31, 2023 and 2022, respectively, representing
a $6.2 million (15%) increase in the current year. The increase was primarily driven by a higher volume of truck sales to the USAF and commercial customers in the current fiscal year. At March 31,
2023, the ground equipment sales segment’s order backlog was $13.6 million compared to $14.0 million at March 31, 2022.
The commercial jet engines and parts segment contributed $101.7 million of revenues in fiscal year ended March 31, 2023 compared to $57.7 million in the prior fiscal year which is an increase of $44.0
million (76%). The increase is primarily attributable to the fact that all the companies within this segment had higher component sales as the aviation industry started to see more activity in the current
year as COVID-19 related restrictions continued to loosen.
Revenues from the corporate and other segment increased by $3.8 million (139%) compared to the prior fiscal year, principally attributable to having a full year of Shanwick's revenues in fiscal 2023
compared to having only 2 months of revenues in fiscal 2022.
Following is a table detailing operating (loss) income by segment, net of intercompany during Fiscal 2023 and Fiscal 2022 (in thousands):
Overnight Air Cargo
Ground Equipment Sales
Commercial Jet Engines and Parts
Corporate and Other
Total
Year ended March 31,
2023
2022
Change
$
$
$
4,047
3,141
(957)
(10,638)
(4,407)
$
$
2,794
3,220
3,619
(878)
8,755
$
$
1,253
(79)
(4,576)
(9,760)
(13,162)
Consolidated operating loss for the fiscal year ended March 31, 2023 was $4.4 million compared to consolidated operating income of $8.8 million in the prior fiscal year.
Operating income for the air cargo segment increased by $1.3 million in the current fiscal year, due primarily to having higher segment revenues as described above, offset by higher pilot salaries and
aircraft lease costs.
The current fiscal year's ground equipment sales segment operating income was relatively flat compared to the prior fiscal year.
Operating loss of the commercial jet engines and parts segment was $1.0 million compared to operating income of $3.6 million in the prior year. The change was primarily attributable to the increase in
inventory write-down of $6.6 million in the current fiscal year compared to the prior fiscal year, offset by the increase in sales explained above.
Operating loss of the corporate and other segment increased by $9.8 million in the current fiscal year, primarily driven by the $9.1 million offset to general and administrative expenses in the prior fiscal
year as a result of the Employee Retention Credit ("ERC") that did not recur in the current fiscal year.
The table below provides Adjusted EBITDA by segment for the fiscal year ended March 31, 2023 and 2022 (in thousands):
Overnight Air Cargo
Ground Equipment Sales
Commercial Jet Engines and Parts
Corporate and Other
Adjusted EBITDA
Twelve Months Ended
Change
$
$
March 31, 2023
4,505
3,314
7,105
(8,895)
6,029
$
$
March 31, 2022
2,854
3,455
5,200
(103)
11,406
$
$
1,651
(141)
1,905
(8,792)
(5,377)
Consolidated Adjusted EBITDA for the fiscal year ended March 31, 2023 was $6.0 million, a decrease of $5.4 million compared to the prior fiscal year.
Adjusted EBITDA for the air cargo segment increased by $1.7 million in the current fiscal year, due primarily to having higher segment operating income as described above.
The current fiscal year's ground equipment sales segment Adjusted EBITDA was relatively flat compared to the prior fiscal year's.
Adjusted EBITDA of the commercial jet engines and parts segment was $7.1 million, an increase of $1.9 million from the prior fiscal year. The increase was primarily driven by higher component sales
explained above.
The corporate and other segment Adjusted EBITDA loss increased by $8.8 million from fiscal 2022 to fiscal 2023. The increase was driven by the $9.1 million offset to general and administrative expenses
in the prior fiscal year as a result of the ERC credit that did not recur in the current fiscal year.
Following is a table detailing consolidated non-operating income (expense), net of intercompany during fiscal 2023 and fiscal 2022 (in thousands):
Interest expense, net
Gain on forgiveness of Paycheck Protection Program ("PPP")
Income from equity method investments
Other
Total
Year Ended March 31,
2023
2022
Change
(7,935)
—
1,460
(471)
(6,946)
$
$
(4,948)
8,331
37
1,221
4,641
$
$
(2,987)
(8,331)
1,423
(1,692)
(11,587)
$
$
The Company had net non-operating loss of $6.9 million for the fiscal year ended March 31, 2023 compared to a non-operating income of $4.6 million in the prior fiscal year. The change was primarily
attributable to the $8.3 million gain on the SBA's forgiveness of the Company's PPP loan recognized in the prior fiscal year, in addition to the $3.0 million increase in contractual interest expense driven by
an increase in Contrail's revolver usage in the current fiscal year.
During the year ended March 31, 2023, the Company recorded $0.4 million of income tax expense, which yielded an effective rate of -3.8%. The primary factors contributing to the difference between the
federal statutory rate of 21% and the Company’s effective tax rate for the fiscal year ended March 31, 2023 were the estimated benefit for the exclusion of income for the Company’s captive insurance
company subsidiary under §831(b), the exclusion of the minority owned portion of pretax income of Contrail, state income tax expense, and changes in the valuation allowance. The net change in the
valuation allowance was $3.1 million for the year ended March 31, 2023. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. The change in the Company’s valuation allowance is primarily due to the
realizability of the domestic deferred tax assets, the unrealized losses on investments, the foreign tax credits generated by the operations in the Company’s Puerto Rico branch that is expected to expire
before being fully utilized, and the change in full valuation allowances associated with the Delphax entities.
During the fiscal year ended March 31, 2022, the Company recorded $1.2 million of income tax expense at an effective tax rate of 8.7%. The primary factors contributing to the difference between the
federal statutory rate of 21% and the Company’s effective tax rate for the fiscal year ended March 31, 2022 were the estimated benefit for the exclusion of income for the Company’s captive insurance
company subsidiary under §831(b), the exclusion of the minority owned portion of pretax income of Contrail, state income tax expense, the exclusion of PPP loan forgiveness proceeds from taxable
income, and changes in the valuation allowance. The change in the valuation allowance is primarily due to unrealized losses on investments and the generation of foreign tax credits through the NOL
carryback claim that the Company expects to expire before they are fully utilized, and attribute reduction incurred by Delphax related to dissolution of its French subsidiary.
26
Market Outlook
Future economic developments such as inflation and increased interest rates as well as further business issues such as supply chain issues present uncertainty and risk with respect to our financial
condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 and economic and business issues but we still experienced disruptions, and
we experienced a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flows and
could operate at a loss from time to time beyond fiscal 2023. We expect that issues caused by the pandemic and other economic and business issue will continue to some extent. The fluidity of this
situation precludes any prediction as to the ultimate adverse impact these issues on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and
risk with respect to us and our results of operations.
27
Liquidity and Capital Resources
As of March 31, 2023, the Company held approximately $7.1 million in total cash, cash equivalents and restricted cash, of which, $0.8 million related to cash collateral for three Opportunity Zone fund
investments. The Company also held $2.2 million in restricted investments held as statutory reserve of SAIC.
As of March 31, 2023, the Company’s working capital amounted to $52.3 million, a decrease of $45.1 million compared to March 31, 2022, primarily driven by an increase of $32.3 million in the current
portion of long-term debt and a decrease of $8.2 million in the ERC receivable as refunds were received during fiscal 2023.
The Company’s Credit Agreement with Minnesota Bank & Trust, a Minnesota state banking corporation ("MBT”) (the Air T debt in Note 14 of Notes to Consolidated Financial Statements included
under Part II, Item 8 of this report) includes several covenants that are measured twice a year at September 30 and March 31, including but not limited to, a negative covenant requiring a debt service
coverage ratio of 1.25.
The AirCo 1 Credit Agreement (the AirCo 1 debt in Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report) contains an affirmative covenant relating to
collateral valuation.
The Air T Acquisition 22.1's term loans with ING (the Air T Acquisition 22.1 debt in Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report) include several
covenants that are measured once a year at December 31, including but not limited to, a negative covenant requiring a debt service coverage ratio of 1.10 and a senior net leverage ratio of 2.10 at
December 31, 2022 and 1.50 at subsequent years.
The Contrail Credit Agreement (the Contrail debt in Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report) contains affirmative and negative covenants,
including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations,
make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Contrail Credit Agreement also contains quarterly financial covenants
applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum tangible net worth ("TNW") of $12 million. As of March 31, 2023, the Company,
AirCo 1, Air T Acquisition 22.1 and Contrail were in compliance with all financial covenants.
As of December 31, 2022, Contrail management forecasted that Contrail would be in violation of the debt service coverage ratio covenant contained in the ONB financing agreements during the twelve-
month period subsequent to the filing date of the Form 10-Q for the quarterly period ended December 31, 2022, primarily because the first principal payment of its Term Note G ("Term Note G – ONB”)
was to become due in November 2023. Non-compliance with a debt covenant that is not subsequently cured allows Old National Bank ("ONB”) the right to accelerate the maturity of the Contrail Credit
Agreement and declare the entire amount of Contrail’s outstanding debt at the time of non-compliance immediately due and payable and exercise its remedies with respect to the collateral that secures
the debt. In the event of acceleration of maturity of the Contrail Credit Agreement, the Company would not have sufficient cash on hand or available liquidity to repay the outstanding debt.
In response to this condition, Contrail entered into an amendment to the Credit Agreement with ONB whereby, among other things, in exchange for a $20 million principal prepayment of Term Note G,
Contrail obtained a waiver of the debt service coverage ratio covenant. $6.7 million of the $20.0 million prepayment was paid on March 30, 2023 and the remaining $13.3 million payment is currently
expected to be paid in September 2023. These payments will eliminate the need for Contrail to make any future scheduled principal payments on Term Note G until the final maturity of (on) November 24,
2025. At this time, Contrail management believes it is highly probable that it will have sufficient liquidity to make the $13.3 million prepayment in September 2023.
The obligations of Contrail under the Contrail Credit Agreement are guaranteed by the Company, up to a maximum of $1.6 million, plus costs of collection. The Company is not liable for any other assets
or liabilities of Contrail and there are no cross-default provisions with respect to Contrail’s debt in any of the Company’s debt agreements with other lenders.
As mentioned in Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, on June 9, 2022, the Company, Jet Yard and MBT entered into Amendment No. 1 to
Third Amended and Restated Credit Agreement ("Amendment”) and a related Overline Note ("Overline Note”) in the original principal amount of $5.0 million. The Amendment and Note memorialize an
increase to the amount that may be drawn by the Company on the MBT revolving credit agreement from $17.0 million to $22.0 million. As of March 31, 2023, the Overline Note was paid in full and
terminated and the unused commitment on the MBT revolver was $8.3 million. The borrowing base calculation methodology remains unchanged.
As mentioned in Note 10 and Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, on September 30, 2022, the Company executed a promissory note payable
to CCI for $2.0 million that bears interest at 10.00% per annum and matured on December 30, 2022. As of December 31, 2022, this note has been repaid.
As mentioned in Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, on November 8, 2022, Contrail entered into the Second Amendment to Master Loan
Agreement (the "Amendment”) with ONB. The Amendment amends the Master Loan Agreement dated as of June 24, 2019, as amended. The principal revisions made in the Amendment are: (i) the
tangible net worth covenant was revised to require that Contrail maintain a tangible net worth of at least $12.0 million at all times prior to March 31, 2024 and $15.0 million at all times on or following
March 31, 2024; and, (ii) that all proceeds from certain asset sales during the period beginning on October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G. Contrail
executed a Collateral Assignment of two Aircraft engines in connection with the Amendment.
28
As mentioned in Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, on March 22, 2023, Contrail entered into the First Amendment to Second Amendment
to Master Loan Agreement and Third Amendment to Master Loan Agreement ("the Amendment") with ONB. The Amendment amends the Master Loan Agreement dated June 24, 2019 with principal
revisions to: (i) Section 3 of the Second Amendment was revised so that exclusion of certain gains and losses from the definition of "net income” applies through September 30, 2023, not March 31, 2023;
(ii) Section 5 of the Second Amendment relating to prepayment of Term Loan G was amended to eliminate the requirement that all asset sales during the period beginning with October 1, 2022 and ending
on March 31, 2023 be applied as prepayments on Term Loan G; instead, the Amendment provision now reflects the agreement that voluntary payments totaling $20.0 million would be made by the
borrower on Term Loan G no later than September 30, 2023; and, (iii) a revolving note resting period covenant was added to the Amendment whereby the outstanding principal balance on the revolving
note would be paid to zero (0) for at least thirty (30) consecutive days during each annual period ending on the anniversary date of the revolving note, provided the borrower has not achieved a debt
service coverage ratio of 1.10:1.
As mentioned in Note 2 and Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, on January 31, 2022 the Company funded the WASI acquisition through
(i) a promissory note to Worldwide Aviation, LLC, (ii) cash, and (iii) an additional secured loan from MBT. The promissory note to Worldwide Aviation, LLC ("Seller's Note") in the amount of $1.5 million
bears a fixed interest rate of 6.00% and is payable via periodic payments up to the January 1, 2026 maturity date. In connection with the acquisition, the Company and Jet Yard, LLC entered Amendment
No. 2 to the Third Amended and Restated Credit Agreement ("Amendment No. 2”) with MBT. Amendment No. 2 amends the Third Amended and Restated Credit Agreement dated as of August 31, 2021
as amended by that certain Amendment No. 1 to the Third Amended and Restated Credit Agreement dated June 9, 2022. Amendment No. 2 provides for a new term loan ("Term Loan F”) in the amount of
$1.0 million to help finance a portion of the consideration paid by the Company. Pursuant to the amendment, the Company executed Term Note F in favor of MBT in the original principal amount of $1.0
million. The note bears interest at a rate equal to the greater of six percent (6.00%) or the prime rate plus one percent (1.00%). The note obligates the Company to make monthly payments of principal plus
accrued interest commencing March 1, 2023. The note may be prepaid, in whole or part, at any time without penalty and final payment of all amounts due under the note is due January 31, 2028.
As mentioned in Note 24 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, Contrail entered into an Operating Agreement with the Seller providing for the put
and call options with regard to the 21% non-controlling interest retained by the Seller. The Seller is the founder of Contrail and its current Chief Executive Officer. The Put/Call Option permits the Seller to
require Contrail to purchase all of the Seller’s equity membership interests in Contrail commencing on July 18, 2021 ("Contrail RNCI"). As of the date of this filing, neither the Seller nor Air T has
indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as
determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.
As mentioned in Note 24 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, the Company has ownership interest in Contrail Asset Management, LLC ("CAM”).
The operations of CAM are not consolidated into the operations of the Company. For its Investment Function (as defined in Note 24 of Notes to Consolidated Financial Statements included under Part
II, Item 8 of this report), CAM’s initial commitment to CJVII was approximately $51.0 million. The Company and MRC have commitments to CAM in the respective amounts of $7.0 million and $44.0
million. As of March 31, 2023, the Company has fulfilled its capital commitments to CAM.
The revolving lines of credit at Air T with MBT and Contrail with ONB have a due date or expire within the next twelve months. As of the date of this report, the Company and MBT entered into
amendments to the MBT revolving credit agreement and related promissory note to extend the maturity date of the credit facility to August 31, 2024 and include the following changes:
1.
A $2.0 million seasonal increase in the maximum amount available under the facility. The maximum amount of the facility will now increase to $19.0 million between May 1 and November 30 of
each year and will decrease to $17.0 million between December 1 and April 30 of each year;
2. The reference rate for the interest rate payable on the revolving facility will change from Prime to SOFR, plus a spread. The exact spread over SOFR will change every September 30 and March 31
based on the Company calculated funded debt leverage ratio (defined as total debt divided by EBITDA). Depending on the result of the calculation, the interest rate spread applicable to the
facility will range between 2.25% and 3.25%;
3. The unused commitment fee on the revolving credit facility will increase from 0.11% to 0.15%; and,
4. The covenant restricting the Company’s use of funds for "Other Investments” was revised to limit the Company to $5.0 million of "Other Investments” per year.
We are currently seeking to refinance the Contrail revolver prior to its maturity date; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance this
obligation, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.
As a result, management believes it is probable that the cash on hand and current financings, net cash provided by operations from its remaining operating segments, together with amounts available
under our current revolving lines of credit, as amended, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these
financial statements are issued.
29
Cash Flows
Following is a table of changes in cash flow from continuing operations for the respective years ended March 31, 2023 and 2022 (in thousands):
Net Cash Provided by (Used in) Operating Activities
Net Cash Used in Investing Activities
Net Cash (Used in) Provided by Financing Activities
Effect of foreign currency exchange rates
Net Decrease in Cash and Cash Equivalents and Restricted Cash
Year Ended March 31,
2023
2022
Change
$
$
16,909
(6,168)
(12,380)
361
(1,278)
$
$
(33,084)
(33,388)
59,254
(341)
(7,559)
$
$
49,993
27,220
(71,634)
702
6,281
Cash provided by operating activities was $16.9 million in fiscal year 2023 compared to cash used in operating activities of $33.1 million in fiscal year 2022. The fluctuation was primarily driven by the
$17.3 million change in the ERC receivable: in the prior fiscal year, the Company applied for the ERC in the amount of $9.1 million, of which, in the current fiscal year, the Company received $8.2 million. In
addition, the fluctuation was further increased by the $27.8 million change in inventories, primarily due to Contrail and GGS generating more sales of their inventories compared to the prior fiscal year.
Cash used in investing activities for fiscal year 2023 was $6.2 million compared to cash used in investing activities for the prior fiscal year of $33.4 million. The current fiscal year's cash usage was
primarily driven by cash used for the acquisition of WASI of $2.5 million and investment in unconsolidated entities of $3.1 million. The prior fiscal year's cash usage was primarily driven by cash used for
the acquisitions of Wolfe Lake assets of $13.4 million, Shanwick's acquisition of $12.8 million, and investment in unconsolidated entities of $6.8 million.
Cash used in financing activities for fiscal year 2023 was $12.4 million compared to cash provided by financing activities for the prior fiscal year of $59.3 million. This was primarily due to decreased net
proceeds from lines of credit of $8.4 million, less proceeds from term loans of $23.6 million in addition to increased payments on term loans of $24.0 million. Lastly, the change was also due to the fact that
there was no proceeds received from issuance of TruPs in the current fiscal year compared to $11.3 million in the prior fiscal year.
30
Off-Balance Sheet Arrangements
The Company defines an off-balance sheet arrangement as any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a Company has (1) made
guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in
an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging, or research and development arrangements with the
Company. The Company is not currently engaged in the use of any of these arrangements.
Systems and Network Security
Although we have employed significant resources to develop our security measures against breaches, our cybersecurity measures may not detect or prevent all attempts to compromise our systems,
including hacking, viruses, malicious software, break-ins, phishing attacks, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and
transmitted by our systems. Breaches of our cybersecurity measures could result in unauthorized access to our systems, misappropriation of information or data, deletion or modification of client
information or other interruption to our business operations. As techniques used to obtain unauthorized access to sabotage systems change frequently and may not be known until launched against us
or our third-party service providers, we may be unable to anticipate, or implement adequate measures to protect against these attacks. If we are unable to avert these attacks and security breaches, we
could be subject to significant legal and financial liability, our reputation would be harmed and we could sustain substantial revenue loss from lost sales and customer dissatisfaction. We may not have
the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us or other participants, or the communication infrastructure on which
we depend. Actual or anticipated attacks and risks may cause us to incur significantly higher costs, including costs to deploy additional personnel and network protection technologies, train employees,
and engage third-party experts and consultants. Cybersecurity breaches would not only harm our reputation and business, but also could materially decrease our revenue and net income.
Supply Chain and Inflation
The Company continues to monitor a wide range of health, safety, and regulatory matters related to the continuing COVID-19 pandemic including its impact on our business operations. In addition,
ongoing supply chain disruptions have impacted product availability and costs across all markets including the aviation industry in which our Company operates. Additionally, the United States is
experiencing an acute workforce shortage and increasing inflation and interests rates which has created a hyper-competitive wage environment and increased debt costs. Thus far, the direct impact of
these items on our businesses has not been material. However, ongoing or future disruptions to consumer demand, our supply chain, product pricing inflation, continued increases in interest rates, our
ability to attract and retain employees, or our ability to procure products and fulfill orders, could negatively impact the Company’s operations and financial results in a material manner. We continue to
look for proactive ways to mitigate potential impacts of these issues at our businesses.
The Company believes that inflation has not had a material effect on its manufacturing and commercial jet engine and parts operations, because increased costs to date have been passed on to
customers. Under the terms of its overnight air cargo business contracts the major cost components of that segment's operations, consisting principally of fuel, crew and other direct operating costs, and
certain maintenance costs are reimbursed by its customer. Significant increases in inflation rates could, however, have a material impact on future revenue and operating income.
31
Non-GAAP Financial Measures
The Company uses adjusted earnings before taxes, interest, and depreciation and amortization ("Adjusted EBITDA"), a non-GAAP financial measure as defined by the SEC, to evaluate the Company's
financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP
financial measures.
Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. The Company calculates Adjusted EBITDA by removing the impact of
specific items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. When calculating Adjusted EBITDA, the Company does not add back
depreciation expense for aircraft engines that are on lease, as the Company believes this expense matches with the corresponding revenue earned on engine leases. Depreciation expense for leased
engines totaled $1.6 million and $0.3 million for the fiscal year ended March 31, 2023 and 2022.
Management believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better
evaluation of underlying business performance and better period-to-period comparability. Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss) from continuing
operations, the most directly comparable amounts reported under GAAP.
The table below provides a reconciliation of operating income (loss) from continuing operations to Adjusted EBITDA for the fiscal year ended March 31, 2023 and 2022 (in thousands):
Operating (loss) income from continuing operations
Depreciation and amortization (excluding leased engines depreciation)
Asset impairment, restructuring or impairment charges
Loss on sale of property and equipment
Securities expenses
1
Adjusted EBITDA
The table below provides Adjusted EBITDA by segment for the fiscal year ended March 31, 2023 and 2022 (in thousands):
Overnight Air Cargo
Ground Equipment Sales
Commercial Jet Engines and Parts
Corporate and Other
Adjusted EBITDA
Twelve Months Ended
March 31, 2023
(4,407)
2,525
7,840
8
63
6,029
$
$
March 31, 2022
8,755
1,589
805
5
252
11,406
Twelve Months Ended
March 31, 2023
4,505
3,314
7,105
(8,895)
6,029
$
$
March 31, 2022
2,854
3,455
5,200
(103)
11,406
$
$
$
$
1
Included in the asset impairment, restructuring or impairment charges for the fiscal year ended March 31, 2023 was a write-down of $7.3 million on the commercial jet engines and parts segment's
inventory, of which, $5.4 million was due to a management decision to monetize three engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds. The remainder of
the write-down was attributable to our evaluation of the carrying value of inventory as of March 31, 2023, where we compared its cost to its net realizable value and considered factors such as physical
condition, sales patterns and expected future demand to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory.
32
Seasonality
The ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being higher in the second and third fiscal quarters as commercial
deicers are typically delivered prior to the winter season. Other segments are typically not susceptible to material seasonal trends.
33
Critical Accounting Policies and Estimates.
The Company’s significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report. The preparation of the Company’s
consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities,
revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company’s estimates and assumptions
could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. The Company believes that the following are its most
critical accounting policies:
Business Combinations. The Company accounts for business combinations in accordance with Financial Accounting Standards Board ("FASB”) Accounting Standards Codification ("ASC”) 805,
Business Combinations. Consistent with ASC 805, the Company accounts for each business combination by applying the acquisition method. Under the acquisition method, the Company records the
identifiable assets acquired and liabilities assumed at their respective fair values on the acquisition date. Goodwill is recognized for the excess of the purchase consideration over the fair value of
identifiable net assets acquired. Included in purchase consideration is the estimated acquisition date fair value of any earn-out obligation incurred. For business combinations where non-controlling
interests remain after the acquisition, assets (including goodwill) and liabilities of the acquired business are recorded at the full fair value and the portion of the acquisition date fair value attributable to
non-controlling interests is recorded as a separate line item within the equity section or, as applicable to redeemable non-controlling interests, between the liabilities and equity sections of the
Company’s consolidated balance sheets. There are various estimates and judgments related to the valuation of identifiable assets acquired, liabilities assumed, goodwill and non-controlling interests.
These estimates and judgments have the potential to materially impact the Company’s consolidated financial statements.
Inventories – Inventories are carried at the lower of cost or net realizable value. Within the Company’s commercial jet engines and parts segment, there are various estimates and judgments made in relief
of inventory as parts are sold from established groups of parts from one engine or airframe purchase. The estimates and judgments made in relief of inventory are based on assumptions that are
consistent with a market participant’s future expectations for the commercial aircraft, jet engines and parts industry and the economy in general and our expected intent for the inventory. These
assumptions and estimates are complex and subjective in nature. Changes in economic and operating conditions, including those occurring as a result of the impact of the COVID-19 pandemic or its
effects could impact the assumptions and result in future losses to our inventory.
The Company periodically evaluates the carrying value of inventory. In these evaluations, the Company is required to make estimates regarding the net realizable value, which includes the consideration
of sales patterns and expected future demand. Any slow moving, obsolete or damaged inventory and inventory with costs exceeding net realizable value are evaluated for write-downs. These estimates
could vary significantly from actual amounts based upon future economic conditions, customer inventory levels, or competitive factors that were not foreseen or did not exist when the estimated write-
downs were made.
Valuation of Assets on Lease or Held for Lease - Engine assets on lease or held for lease are stated at cost, less accumulated depreciation. On a quarterly basis, we monitor the portfolio for events which
may indicate that a particular asset may need to be evaluated for potential impairment. These events may include a decision to part-out or sell an asset, knowledge of specific damage to an asset, or
supply/demand events which may impact the Company’s ability to lease an asset in the future. On an annual basis, even absent any such ‘triggering event’, we evaluate the assets in our portfolio to
determine if their carrying amount may not be recoverable. If an asset is determined to be unrecoverable, the asset is written down to fair value. When evaluating for impairment, we test at the individual
asset level (e.g., engine, airframe or aircraft), as each asset generates its own stream of cash flows, including lease rents and maintenance reserves.
The Company must make significant and subjective estimates in determining whether any impairment exists. Those estimates are as follows:
•
•
Fair value – we determine fair value by reference to independent appraisals, quoted market prices (e.g., an offer to purchase) and other factors such as current data from airlines, engine
manufacturers and MRO providers as well as specific market sales and repair cost data.
Future cash flows – when evaluating the future cash flows that an asset will generate, we make assumptions regarding the lease market for specific engine models, including estimates of market
lease rates and future demand. These assumptions are based upon lease rates that we are obtaining in the current market as well as our expectation of future demand for the specific
engine/aircraft model.
If the forecasted undiscounted cash flows and fair value of our long-lived assets decrease in the future, we may incur impairment charges.
Accounting for Redeemable Non-Controlling Interest. Policies related to redeemable non-controlling interests involve judgment and complexity, specifically on the classification of the non-controlling
interests in the Company’s consolidated balance sheet, and the accounting treatment for changes in the fair value or estimated redemption value for non-controlling interests that are redeemed at other
than fair value. Further, there is significant judgment in determining whether an equity instrument is currently redeemable or not currently redeemable but probable that the equity instrument will become
redeemable. Additionally, there are also significant estimates made in the valuation of Contrail's RNCI. The fair value of Contrail's non-controlling interest is determined using a combination of the income
approach, utilizing a discounted cash flow analysis, and the market approach, utilizing the guideline public company method. Contrail's discounted cash flow analysis requires significant management
judgment with respect to forecasts of revenue, operating margins, capital expenditures, and the selection and use of an appropriate discount rate. Contrail’s market approach requires management to
make significant assumptions related to market multiples of earnings derived from comparable publicly-traded companies with similar operating characteristics as Contrail. There are also significant
estimates made to determine the estimated redemption value of Shanwick's redeemable non-controlling interest ("Shanwick RNCI"). The analysis uses significant inputs such as forecasted earnings
before interest and taxes ("EBIT"), discount rate and expected volatility, which require significant management judgment and assumptions.
34
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Company is subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of its variable rate borrowing. The Company has entered into variable to fixed rate
interest-rate swap agreements to effectively reduce its exposure to interest rate fluctuations.
We are also exposed to certain losses in the event of nonperformance by the counterparties under the swaps. We regularly evaluate the financial condition of our counterparties. Based on this review,
we currently expect the counterparties to perform fully under the swaps. However, if a counterparty defaults on its obligations under a swap, we could be required to pay the full rates on the applicable
debt, even if such rates were in excess of the rate in the contract.
See "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and the Notes to Consolidated Financial Statements for a
description of our accounting policies and other information related to these financial instruments.
35
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
AIR T, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income (Loss) for the Years Ended March 31, 2023 and 2022
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2023 and 2022
Consolidated Balance Sheets as of March 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended March 31, 2023 and 2022
Consolidated Statements of Equity for the Years Ended March 31, 2023 and 2022
Notes to Consolidated Financial Statements
36
Page
37
39
40
41
42
43
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Air T, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Air T, Inc. and subsidiaries (the "Company") as of March 31, 2023 and 2022, the related consolidated statements of income (loss),
comprehensive income (loss), equity, and cash flows, for each of the two years in the period ended March 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and 2022, and the results of its operations and its cash flows for each of
the two years in the period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee
and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Redeemable non-controlling interest – valuation of Contrail Aviation Support, LLC — Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The Company has a 79% controlling interest in Contrail Aviation Support, LLC and is party to an operating agreement with the owner of the remaining 21% ownership interest in Contrail Aviation
Support, LLC, that contains certain future redemption features that are outside the control of the Company.
37
This arrangement is recorded and disclosed as a redeemable non-controlling interest at fair value of $7.2 million as of March 31, 2022. The Company adjusts the redeemable non-controlling interest each
reporting period to the higher of the redemption value or carrying value, using a combination of the income approach, utilizing a discounted cash flow analysis, and the market approach, utilizing the
guideline public company method. The determination of fair value includes estimation uncertainty under both approaches.
The income approach requires significant management judgment with respect to forecasts of future revenue, operating margins, and capital expenditures, and the selection and use of an appropriate
discount rate. The market approach requires management to make significant assumptions related to market multiples of earnings derived from comparable publicly-traded companies with similar
operating characteristics as Contrail Aviation Support, LLC. We identified the valuation of redeemable non-controlling interest in Contrail Aviation Support, LLC as a critical audit matter given the
significant judgments and assumptions required by management to estimate the fair value of the redeemable non-controlling interest, as well as the fact that performing audit procedures required a high
degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the significant judgments and assumptions utilized in the valuation of the redeemable non-controlling interest in Contrail Aviation Support, LLC, included the following,
among others:
• We evaluated the reasonableness of management’s forecasts of future revenue and operating margins by comparing the forecasts to:
◦ Historical results of Contrail Aviation Support, LLC, and
Forecasted information included in industry reports.
◦
• We considered the impact of industry and market conditions on management’s forecasts for Contrail Aviation Support, LLC.
• We involved our fair value specialists to assist in the evaluation of:
◦
◦
◦
The valuation methodologies used by the Company to determine whether they were consistent with generally accepted valuation practices, and reasonably weighted.
The discount rates, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and
comparing those to the discount rates selected by management.
Earnings multiples, including testing the underlying source information and mathematical accuracy of the calculations, and evaluating the appropriateness of the Company’s selection
of companies in its industry comparable groups.
• We performed sensitivity analyses with regard to forecasted revenue and the discount rate to evaluate the changes in the fair value of the redeemable non-controlling interest in Contrail
Aviation Support, LLC, that would result from changes in those significant assumptions.
• We evaluated whether the business and valuation assumptions used were consistent with evidence obtained in other areas of the audit.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
June 27, 2023
We have served as the Company's auditor since 2018.
38
(In thousands, except per share data)
Operating Revenues:
Overnight air cargo
Ground equipment sales
Commercial jet engines and parts
Corporate and other
Operating Expenses:
Overnight air cargo
Ground equipment sales
Commercial jet engines and parts
General and administrative
Depreciation and amortization
Inventory write-down
Impairment of long-lived assets
Loss on sale of property and equipment
Operating (Loss) Income
Non-operating (Expense) Income:
Interest expense, net
Gain on forgiveness of PPP
Income from equity method investments
Other
(Loss) Income before income taxes
Income Tax Expense
Net (Loss) Income
Net Income Attributable to Non-controlling Interests
Net (Loss) Income Attributable to Air T, Inc. Stockholders
(Loss) Income per share (Note 23)
Basic
Diluted
Weighted Average Shares Outstanding:
Basic
Diluted
See notes to consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Year Ended March 31,
2023
2022
$
$
$
$
$
$
$
$
90,543
48,485
101,737
6,558
247,323
79,720
39,328
75,288
45,384
4,162
7,324
516
8
251,730
(4,407)
(7,935)
—
1,460
(471)
(6,946)
(11,353)
432
(11,785)
(510)
(12,295)
(4.32)
(4.32)
2,847
2,847
74,409
42,239
57,689
2,740
177,077
65,694
33,538
36,603
29,817
1,860
768
37
5
168,322
8,755
(4,948)
8,331
37
1,221
4,641
13,396
1,169
12,227
(1,299)
10,928
3.79
3.78
2,880
2,888
39
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net (Loss) Income
Other Comprehensive Income:
Foreign currency translation income (loss)
Unrealized gain on interest rate swaps, net of tax of $332 and $294
Reclassification of interest rate swaps into earnings
Total Other Comprehensive Income
Total Comprehensive (Loss) Income
Comprehensive Income Attributable to Non-controlling Interests
Year Ended March 31,
2023
2022
$
(11,785) $
12,227
4
998
77
1,079
(10,706)
(510)
(549)
929
41
421
12,648
(1,299)
11,349
Comprehensive (Loss) Income Attributable to Air T, Inc. Stockholders
$
(11,216) $
See notes to consolidated financial statements.
40
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
Current Assets:
Cash and cash equivalents
Marketable securities
Restricted cash
Restricted investments
Accounts receivable, net of allowance for doubtful accounts of $1,160 and $1,368
Income tax receivable
Inventories, net
Employee retention credit receivable
Other current assets
Total Current Assets
Assets on lease or held for lease, net of accumulated depreciation of $223 and $780
Property and equipment, net of accumulated depreciation of $6,624 and $5,405
Intangible assets, net of accumulated amortization of $4,191 and $2,947
Right-of-use assets
Equity method investments
Goodwill
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable
Income tax payable
Accrued expenses and other (Note 12)
Current portion of long-term debt
Short-term lease liability
Total Current Liabilities
Long-term debt
Deferred income tax liabilities, net
Long-term lease liability
Other non-current liabilities
Total Liabilities
Redeemable non-controlling interest
Commitments and contingencies (Note 24)
Equity:
Air T, Inc. Stockholders' Equity:
Preferred stock, $1.00 par value, 2,000,000 shares authorized
Common stock, $0.25 par value; 4,000,000 shares authorized, 3,026,495 shares issued, 2,818,374 and 2,866,418 shares outstanding
Treasury stock, 208,121 at $19.62 and 156,327 shares at $19.20
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total Air T, Inc. Stockholders' Equity
Non-controlling Interests
Total Equity
Total Liabilities and Equity
See notes to consolidated financial statements.
41
March 31, 2023
March 31, 2022
$
$
5,806
—
1,284
2,161
27,218
536
71,125
940
7,487
116,557
83
21,439
12,103
11,666
13,230
10,563
3,921
189,562
10,449
304
13,133
38,736
1,664
64,286
86,349
2,417
10,771
47
163,870
12,710
—
757
(4,083)
728
13,686
816
11,904
1,078
12,982
189,562
$
$
5,616
859
2,752
1,691
19,684
3,230
75,167
9,138
10,106
128,243
14,509
21,212
13,260
7,354
9,864
10,126
3,031
207,599
9,397
194
13,391
6,482
1,443
30,907
129,326
2,812
6,734
1,342
171,121
10,761
—
756
(3,002)
393
26,729
(263)
24,613
1,104
25,717
207,599
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Year Ended March 31,
2023
2022
$
(11,785)
$
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Depreciation and amortization
Gain on forgiveness of PPP loan
Income from equity method of investments
Inventory write-down
Impairment of long-lived assets
Other
Change in operating assets and liabilities:
Accounts receivable
Inventories
Accounts payable
Accrued expenses
Employee retention credit receivable
Other
Total adjustments
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities
Acquisition of businesses, net of cash acquired
Investment in unconsolidated entities
Acquisition of assets
Capital expenditures related to property & equipment
Capital expenditures related to assets on lease or held for lease
Other
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit
Payments on lines of credit
Proceeds from term loan
Payments on term loan
Proceeds received from issuance of TruPs
Other
Net cash (used in) provided by financing activities
Effect of foreign currency exchange rates on cash and cash equivalents
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Equipment leased or held for lease transferred to inventory
Equipment in inventory transferred to assets on lease
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Operating cash payments for operating leases
Cash paid during the year for interest
Cash paid during the year for income taxes
See notes to consolidated financial statements.
42
4,162
—
(1,460)
7,324
516
769
(6,290)
10,163
992
(893)
8,198
5,213
17,383
16,909
—
(2,498)
(3,064)
—
(1,178)
—
572
(6,168)
139,329
(132,958)
10,627
(27,850)
—
(1,528)
(12,380)
361
(1,278)
8,368
7,090
12,700
33
1,881
5,867
1,026
$
$
12,227
1,860
(8,331)
(37)
768
37
876
(12,654)
(17,602)
1,050
(485)
(9,138)
(1,655)
(40,484)
(33,084)
815
(12,804)
(6,797)
(13,408)
(1,530)
(28)
364
(33,388)
99,363
(84,551)
34,232
(3,813)
11,278
2,745
59,254
(341)
(7,559)
15,927
8,368
12
13,100
1,824
1,523
429
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Common Stock
Treasury Stock
Balance, March 31, 2021
Net income*
Repurchase of common stock
Stock compensation expense
Foreign currency translation loss
Adjustment to fair value of
redeemable non-controlling interest
Unrealized gain of interest rate
swaps, net of tax
Put option issued to co-investor
in CAM (Note 24)
Reclassification of interest rate
swaps into earnings
Shares
3,023
Amount
756
$
Share
141
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15
—
—
—
—
—
—
Additional
Paid-In
Capital
Amount
$
(2,617)
$
—
(385)
—
—
—
—
—
—
—
—
—
393
—
—
—
—
—
Retained
Earnings
$
16,270
10,928
—
—
—
531
—
(1,000)
—
Accumulated
Other
Comprehensive
Income (Loss)
$
(684)
Non-
controlling
Interests*
Total
Equity
$
989
$
14,714
—
—
—
(549)
—
929
—
41
115
11,043
—
—
—
—
—
—
—
(385)
393
(549)
531
929
(1,000)
41
Balance, March 31, 2022
3,023
$
756
156
$
(3,002)
$
393
$
26,729
$
(263)
$
1,104
$
25,717
(In thousands)
Common Stock
Treasury Stock
Balance, March 31, 2022
Net loss*
Repurchase of common stock
Exercise of stock options
Stock compensation expense
Foreign currency translation loss
Adjustment to fair value of redeemable
non-controlling interest
Unrealized gain on interest rate swaps,
net of tax
Reversal of Put option issued to co-
investor in CAM (Note 24)
Reclassification of interest rate swaps
into earnings
Share
3,023 $
Amount
756
Share
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-controlling
Interests*
Total
Equity
156 $
(3,002) $
393 $
26,729 $
(263) $
1,104 $
25,717
—
—
4
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
52
—
—
—
—
—
—
—
—
(1,081)
—
—
—
—
—
—
—
—
20
315
—
—
—
—
—
(12,295)
—
—
—
—
(1,748)
—
1,000
—
—
—
—
—
4
—
998
—
77
(26)
(12,321)
—
—
—
—
—
—
—
—
(1,081)
21
315
4
(1,748)
998
1,000
77
Balance, March 31, 2023
3,027 $
757
208 $
(4,083) $
728 $
13,686 $
816 $
1,078 $
12,982
*Excludes amount attributable to redeemable non-controlling interest in Contrail and Shanwick.
See notes to consolidated financial statements.
43
AIR T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2023 AND 2022
Air T, Inc. (the "Company,” "Air T,” "we” or "us” or "our”) is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversify Air T’s
earnings power and compound the growth of free cash flow per share over time.
We currently operate in four industry segments:
• Overnight air cargo, which operates in the air express delivery services industry;
• Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial
customers;
•
•
Commercial aircraft, engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft
disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and;
Corporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other is also comprised of insignificant businesses that do
not pertain to other reportable segments.
Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income
(loss) and Adjusted EBITDA.
44
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as well as its non-wholly owned subsidiaries, Contrail,
Shanwick and Delphax. All intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the prior period amounts to conform to the current
presentation.
Accounting Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts of assets and liabilities and amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Future economic developments such as inflation and increased interest rates as well as further business issues such as supply chain issues present uncertainty and risk with respect to our financial
condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 and economic and business issues but we still experienced disruptions, and
we experienced a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flows and
could operate at a loss from time to time beyond fiscal 2023. We expect that issues caused by the pandemic and other economic and business issue will continue to some extent. The fluidity of this
situation precludes any prediction as to the ultimate adverse impact these issues on economic and market conditions and our businesses in particular, and, as a result, presents material uncertainty and
risk with respect to us and our results of operations. The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable
based on the information available as of March 31, 2023, however; uncertainty over the ultimate direct and indirect impact COVID-19 will have on the global economy generally, and the Company’s
business in particular, makes any estimates and assumptions as of March 31, 2023 inherently less certain than they would be absent the current and potential impacts of COVID-19.
Segments - The Company has four reportable operating segments: overnight air cargo, ground equipment sales, commercial jet engine and parts and corporate and other. The Company assesses the
performance of these segments on an individual basis (see Note 22).
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. The Company’s Chief Executive Officer
reviews financial information by business segment for purposes of allocating resources and evaluating financial performance. Each business segment has separate management teams and infrastructures
that offer different products and services. We evaluate the performance of our business segments based on operating income (loss) and Adjusted EBITDA.
Variable Interest Entities – In accordance with the applicable accounting guidance for the consolidation of variable interest entities, the Company analyzes its variable interests to determine if an entity in
which we have a variable interest is a variable interest entity. Our analysis includes both quantitative and qualitative reviews to determine if we must consolidate a variable interest entity as its primary
beneficiary.
Business Combinations – The Company accounts for business combinations in accordance with Financial Accounting Standards Board ("FASB”) Accounting Standards Codification ("ASC”) 805,
Business Combinations. Consistent with ASC 805, the Company accounts for each business combination by applying the acquisition method. Under the acquisition method, the Company records the
identifiable assets acquired and liabilities assumed at their respective fair values on the acquisition date. Goodwill is recognized for the excess of the purchase consideration over the fair value of
identifiable net assets acquired. Included in purchase consideration is the estimated acquisition date fair value of any earn-out obligation incurred. For business combinations where non-controlling
interests remain after the acquisition, assets (including goodwill) and liabilities of the acquired business are recorded at the full fair value and the portion of the acquisition date fair value attributable to
non-controlling interests is recorded as a separate line item within the equity section or, as applicable to redeemable non-controlling interests, between the liabilities and equity sections of the
Company’s consolidated balance sheets.
The acquisition method permits the Company a period of time after the acquisition date during which the Company may adjust the provisional amounts recognized in a business combination. This period
of time is referred to as the "measurement period”. The measurement period provides an acquirer with a reasonable time to obtain the information necessary to identify and measure the assets acquired
and liabilities assumed. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports in its consolidated
financial statements provisional amounts for the items for which the accounting is incomplete. Accordingly, the Company is required to recognize adjustments to the provisional amounts, with a
corresponding adjustment to goodwill, in the reporting period in which the adjustments to the provisional amounts are determined. Thus, the Company would adjust its consolidated financial statements
as needed, including recognizing in its current-period earnings the full effect of changes in depreciation, amortization, or other income effects, by line item, if any, as a result of the change to the
provisional amounts calculated as if the accounting had been completed at the acquisition date.
Income statement activity of an acquired business is reflected within the Company’s consolidated statements of income (loss) commencing with the date of acquisition. Amounts for pre-acquisition
periods are excluded.
Acquisition-related costs are costs the Company incurs to affect a business combination. Those costs may include such items as finder’s fees, advisory, legal, accounting, valuation, and other
professional or consulting fees, and general administrative costs. The Company accounts for such acquisition-related costs as expenses in the period in which the costs are incurred and the services are
received.
Changes in estimates of the fair value of earn-out obligations subsequent to the acquisition date are not accounted for as part of the acquisition, rather, they are recognized directly in earnings.
45
Cash and Cash Equivalents – Cash equivalents consist of liquid investments with maturities of three months or less when purchased.
Financial Instruments Designated for Trading – Except for short sales of equity securities, the Company accounts for all other financial instruments (including derivative instruments) designated for
trading in accordance with ASC 815. All changes in the fair value of the financial instruments designated for trading are recognized in earnings as they occur. Further, all gains and losses on derivative
instruments designated for trading are presented net on the consolidated Statements of Income (Loss). The fair value of derivative instruments designated for trading in a gain position are recorded in
Other Current Assets and the fair value of derivative instruments designated for trading in a loss position are recorded in Accrued Expenses and Other on the consolidated Balance Sheets.
The Company accounts for short sales of equity securities in accordance with ASC 942 and ASC 860. The obligations incurred in short sales are reported in Accrued Expenses and Other on the
consolidated Balance Sheets. They are subsequently measured at fair value through the income statement at each reporting date with gains and losses on securities. Interest on the short positions are
accrued periodically and reported as interest expense. The market value of the Company’s equity securities and cash held by the broker are used as collateral against any outstanding margin account
borrowings for purposes of short selling equities. This collateral is recorded in Other Current Assets on the consolidated Balance Sheets.
The Company reports all cash receipts and payments resulting from the purchases and sales of securities, loans, and other assets that are acquired specifically for resale as operating cash flows.
Inventories – Inventories are carried at the lower of cost or net realizable value. When finished goods units are leased to customers under operating leases, the units are transferred to Assets on Lease or
Held For Lease. The classification of cash flows associated with the purchase and sale of finished goods is based on the activity that is likely to be the predominant source or use of cash flows for the
items. Consistent with aviation industry practice, the Company includes expendable aircraft parts and supplies in current assets, although a certain portion of these inventories may not be used or sold
within one year.
The Company periodically evaluates the carrying value of inventory. In these evaluations, the Company is required to make estimates regarding the net realizable value, which includes the consideration
of sales patterns and expected future demand. Any slow moving, obsolete or damaged inventory and inventory with costs exceeding net realizable value are evaluated for write-downs. These estimates
could vary significantly from actual amounts based upon future economic conditions, customer inventory levels, or competitive factors that were not foreseen or did not exist when the estimated write-
downs were made.
In accordance with industry practice, all inventories are classified as a current asset including portions with long production cycles, some of which may not be realized within one year.
Investments under the Equity Method – The Company utilizes the equity method to account for investments when the Company possesses the ability to exercise significant influence, but not control,
over the operating and financial policies of the investee. The Company applies the equity method to investments in common stock and to other investments when such other investments possess
substantially identical subordinated interests to common stock. For investments that have a different fiscal year-end, if the difference is not more than three months, the Company elects a 3-month lag to
record the change in the investment.
The Company assesses the carrying value of its investments whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The recoverability is measured by
comparing the carrying amount of the investment to the estimated future undiscounted cash flows of the investment, which take into account current, and expectations for future, market conditions and
the Company’s intent with respect to holding or disposing of the investment. Changes in economic and operating conditions, including those occurring as a result of the impact of the COVID-19
pandemic, that occur subsequent to a current impairment analysis and the Company’s ultimate use of the investment could impact the assumptions and result in future impairment losses to the
investments. If the Company’s analysis indicates that the carrying value is not recoverable on an undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which
the carrying value exceeds the fair value. The fair value is determined through quoted prices in active markets or various valuation techniques, including internally developed discounted cash flow
models or comparable market transactions.
Goodwill - The Company evaluates goodwill on an annual basis or anytime events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying
value.
The Company is permitted to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than
its carrying value, including goodwill. In qualitatively evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company assesses relevant
events and circumstances such as macroeconomic conditions, industry and market developments, cost factors, and the overall financial performance of the reporting unit. If, after assessing these events
and circumstances, it is determined that there may be an impairment, then a quantitative analysis is performed. In the first step of the quantitative method, recoverability of goodwill is evaluated by
estimating the fair value of the reporting unit’s goodwill using multiple techniques, including a discounted cash flow model income approach and a market approach. The estimated fair value is then
compared to the carrying value of the reporting unit. The Company will recognize an impairment charge for the amount by which the carrying value of the reporting unit exceeds its fair value, if any.
46
Goodwill consisted of the following (in thousands):
Year Ended March 31,
2023
2022
Goodwill, at original cost
Accumulated impairment
Goodwill, net of impairment
$
$
10,939 $
(376)
10,563 $
10,502
(376)
10,126
As of March 31, 2023, $4.2 million of the goodwill balance is attributable to the acquisition of Contrail and included within the Commercial Jet Engines and Parts segment. $6.3 million of the goodwill
balance is attributable to the acquisition of Shanwick in February 2022, and included within the Corporate and Other segment. $0.1 million of the goodwill balance is attributable to the acquisition of
WASI in January 2023, and included within the Overnight Air Cargo segment.
We performed our annual impairment assessment for goodwill of our reporting units at March 31, 2023. In the fiscal year 2023, COVID-19 continued to have some impact on the macroeconomic
conditions and the outlook of the airline industry. Due to this, the Company performed a quantitative analysis using a combination of the income approach, utilizing a discounted cash flow analysis, and
the market approach, utilizing the guideline public company method. Our discounted cash flow analysis requires significant management judgment with respect to forecasts of revenue, operating
margins, capital expenditures, and the selection and use of an appropriate discount rate. The forecasts and assumptions are based on our annual and long-term business plans. The market approach
requires management to make significant assumptions related to market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating characteristics as our
reporting units.
Based on the results of our annual quantitative assessment conducted as of March 31, 2023, the fair value of our reporting units exceeded their carrying values, and management concluded that no
impairment charge was warranted.
Intangible Assets – Amortizable intangible assets consist of acquired patents, tradenames, customer relationships, and other finite-lived identifiable intangibles. Such intangibles are initially recorded at
fair value and subsequently subject to amortization. Amortization is recorded using the straight-line method over the estimated useful lives of the assets. In accordance with the applicable accounting
guidance, the Company evaluates the recoverability of amortizable intangible assets whenever events occur that indicate potential impairment. In doing so, the Company assesses whether the carrying
amount of the asset is unrecoverable by estimating the sum of the future cash flows expected to result from the asset, undiscounted and without interest charges. If the carrying amount is more than the
recoverable amount, an impairment charge must be recognized based on the estimated fair value of the asset.
The estimated amortizable lives of the intangible assets are as follows:
Purchased software
Internally developed software
In-place lease and other intangibles
Trade names
Certification
Non-compete
License
Patents
Customer relationships
Years
3
10-15
Over lease term
5
5
5
5
9
10-15
Property and Equipment and Assets on Lease or Held for Lease – Property and equipment is stated initially at cost, or fair value if purchased as part of a business combination. Depreciation and
amortization are provided on a straight-line basis over the asset’s useful life. Equipment leased to customers is depreciated using the straight line method. Useful lives range from three years for
computer equipment, seven years for flight equipment, ten years for deicers and other equipment leased to customers and thirty years for buildings.
Engine assets on lease or held for lease are stated at cost, less accumulated depreciation. Certain costs incurred in connection with the acquisition of engine assets are capitalized as part of the cost of
such assets. If assets are not actively being leased (i.e. held for lease), then they are not being depreciated. Major overhauls which improve functionality or extend original useful life are capitalized and
depreciated over the engine assets' useful life to a residual value. The Company depreciates the engines on a straight-line basis over the assets' useful life from the acquisition date to a residual value.
The Company adjusts its estimates annually for these older generation assets, including updating estimates of an engine’s or aircraft’s remaining operating life. The Company believes this methodology
accurately reflects the typical holding period for the assets and that the residual value assumption, which is dependent on the Company's eventual plan for the engine assets (i.e. whole asset sale, part-
out, etc.), reasonably approximates the selling price of the assets.
When engine assets are committed for sales, the assets are transferred to Inventory. The classification of cash flows associated with the purchase and sale of engine assets is based on the activity that
is likely to be the predominant source or use of cash flows for the items.
47
The Company assesses long-lived assets for impairment when events and circumstances indicate the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets
are less than their carrying amount. When evaluating the future cash flows that an asset will generate, we make assumptions regarding the lease market for specific engine models, including estimates of
market lease rates and future demand. These assumptions are based upon lease rates that we are obtaining in the current market as well as our expectation of future demand for the specific engine/aircraft
model. We determine fair value of the assets by reference to independent appraisals, quoted market prices (e.g., an offer to purchase) and other factors such as current data from manufacturers as well as
specific market sales. In the event it is determined that the carrying values of long-lived assets are in excess of the estimated undiscounted cash flows from those assets, the Company then will write-
down the value of the assets by the excess of carrying value over fair value.
Accounting for Debt - Trust Preferred Securities and Warrant Liability – On June 10, 2019, the Company issued an aggregate of 1.6 million TruPs in the amount of $4.0 million in a non-cash transaction. In
connection with the issuance of these TruPs, the Company also issued an aggregate of 8.4 million warrants (representing warrants to purchase $21.0 million in stated value of TruPs). A warrant for
mandatorily redeemable shares conditionally obligates the issuer to ultimately transfer assets—the obligation is conditioned only on the warrant's being exercised because the shares will be redeemed.
Thus, warrants for mandatorily redeemable shares are liabilities under ASC 480. In total, 5.3 million Warrants were exercised and the remaining 3.1 million Warrants expired on August 30, 2021.
On May 14, 2021, the Company entered into an At the Market Offering Agreement (the "ATM Agreement”) with Ascendiant Capital Markets, LLC (the "sales agent” or "Ascendiant”), pursuant to
which it may sell and issue its TruPs having an aggregate offering price of up to $8.0 million from time to time. The Company has no obligation to sell any TruPs, and may at any time suspend offers
under the ATM Agreement or terminate the ATM Agreement.
These TruPs are mandatorily redeemable preferred security obligations of the Company. In accordance with ASC 480, the Company presented mandatorily redeemable preferred securities that do not
contain a conversion option as a liability on the balance sheet. Further, as the redemption date and the redemption amount are both fixed, in accordance with ASC 825, we measured these TruPs at the
present value of the amount to be paid at settlement, discounted by using the implicit rate at inception.
Income Taxes – Income taxes have been provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized
in income in the period that includes the enactment date.
A valuation allowance against net deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized. Tax credits are accounted for as a reduction of income taxes in
the year in which the credit originates. All deferred income taxes are classified as non-current in the consolidated balance sheets. The Company recognizes the benefit of a tax position taken on a tax
return, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. An uncertain income tax position is not recognized if it has a less than a 50%
likelihood of being sustained.
Accounting for Redeemable Non-Controlling Interest – In 2016, in connection with the Company's acquisition of Contrail, Contrail entered into an Operating Agreement (the "Operating Agreement”)
with the Seller providing for the governance of and the terms of membership interests in Contrail. The Operating Agreement includes put and call options ("Contrail Put/Call Option”) with regard to the
21% non-controlling interest retained by the Seller. The Seller is the founder of Contrail and its current Chief Executive Officer. The Contrail Put/Call Option permits the Seller to require Contrail to
purchase all of the Seller’s equity membership interests in Contrail commencing on the fifth anniversary of the acquisition, which was on July 18, 2021. Per the agreement, the price is to be agreed upon
by the parties or, failing such agreement, to be determined pursuant to third-party appraisals in a process specified in the agreement.
In February 2022, in connection with the Company's acquisition of GdW, a consolidated subsidiary of Shanwick, the Company entered into a shareholder agreement with the 30% non-controlling interest
owners of Shanwick, providing for the governance of and the terms of membership interests in Shanwick. The shareholder agreement includes put and call options ("Shanwick Put/Call Option”) with
regard to the 30% non-controlling interest. The non-controlling interest holders are the executive management of the underlying business. The Shanwick Put/Call Option grants the Company an option
to purchase the 30% interest at the call option price ("Call Option") that equals to the average EBIT over the 3 Financial Years prior to the exercise of the Call Option multiplied by 8. In addition, the
Shanwick Put/Call Option also grants the non-controlling interest owners an option ("Put Option") to require Air T to purchase from them their respective ownership interests at the Put Option price,
that is equal to the average EBIT over the 3 Financial Years prior to the exercise of the Put Option multiplied by 7.5. The Call Option and the Put Option may be exercised at any time from the fifth
anniversary of the shareholder agreement and then only at the end of each fiscal year of Air T.
Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price
on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer. As a result of this feature, the Company recorded
the non-controlling interests as redeemable and classified them in temporary equity within its Consolidated Balance Sheets initially at their acquisition-date estimated redemption value or fair value.
Per the Operating Agreement, the Contrail's non-controlling interest is redeemable at fair value, which is determined using a combination of the income approach, utilizing a discounted cash flow
analysis, and the market approach, utilizing the guideline public company method. Contrail's discounted cash flow analysis requires significant management judgment with respect to forecasts of
revenue, operating margins, capital expenditures, and the selection and use of an appropriate discount rate. The
48
forecasts and assumptions are based on our annual and long-term business plans. Contrail’s market approach requires management to make significant assumptions related to market multiples of
earnings derived from comparable publicly-traded companies with similar operating characteristics as Contrail. The Contrail's non-controlling interest is adjusted each reporting period for income (or
loss) attributable to the non-controlling interest as well as any applicable distributions made. A measurement period adjustment, if any, is then made to adjust the non-controlling interest to the higher of
the redemption value (fair value) or carrying value each reporting period. These fair value adjustments are recognized through retained earnings and are not reflected in the Company's Consolidated
Statements of Income (Loss). When calculating earnings per share attributable to the Company, the Company adjusts net income attributable to the Company for the measurement period adjustment to
the extent the redemption value exceeds the fair value of the non-controlling interest on a cumulative basis. As of March 31, 2023, the fair value of the Contrail's redeemable non-controlling interest is
$8.0 million. See Note 24, Commitments and Contingencies.
The Shanwick's non-controlling interest is redeemable at established multiples of EBIT and, as such, is considered redeemable at other than fair value. It is recorded on our consolidated balance sheets at
estimated redemption value within redeemable non-controlling interests, and changes in its estimated redemption value are recorded on our consolidated statements of operations within non-controlling
interests. As of March 31, 2023, the estimated redemption value of Shanwick's redeemable non-controlling interest is $4.7 million. See Note 24, Commitments and Contingencies.
Revenue Recognition – Substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less. As a result, the Company has applied the practical
expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of
unsatisfied performance obligations.We evaluate gross versus net presentation on revenues from products or services purchased and resold in accordance with the revenue recognition criteria outlined
in ASC 606-10, Principal Agent Considerations.
The Company, under the terms of its overnight air cargo dry-lease service contracts, passes through to its air cargo customer certain cost components of its operations without markup. The cost of fuel,
landing fees, outside maintenance, parts and certain other direct operating costs are included in operating expenses and billed to the customer, at cost, and included in overnight air cargo revenue on the
accompanying statements of income (loss). These pass-through costs totaled $29.2 million and $23.0 million for the years ended March 31, 2023 and 2022, respectively.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update provide
optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain
criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued
because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after
December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging
relationship. In December 2022, the FASB issued ASU 2022-06- Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this Update defer the implementation
deadline of Topic 848 from December 31, 2022, to December 31, 2024. The Company is currently in the process of converting our LIBOR-based contracts, hedging relationships, and other transactions to
other reference rates. We anticipate to be completed by September 30, 2023.
49
2. ACQUISITIONS
Worldwide Aviation Services, Inc.
On January 31, 2023, the Company acquired Worldwide Aircraft Services, Inc. ("WASI"), a Kansas corporation that services the aircraft industry across the United States and internationally through the
operation of a repair station which is located in Springfield, Missouri at the Branson National Airport. The acquisition was was funded with cash and the loans described in Note 14 of this report. WASI
is included within the Overnight air cargo segment.
The acquisition date's fair value of the consideration is summarized in the table below (in thousands):
Cash consideration
Seller's Note
Total consideration
$
$
$
January 31, 2023
1,628
1,370
2,998
The transaction was accounted for as a business combination in accordance with ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying
consolidated balance sheet at their fair values as of January 31, 2023, with the excess of total consideration above fair value of net assets acquired recorded as goodwill. The following table outlines the
consideration transferred and purchase price allocation at the respective fair values as of January 31, 2023 (in thousands):
ASSETS
Accounts receivable
Inventory
Other current assets
Property, plant and equipment, net
Intangible -Trade Name
Intangible - Non-competition Agreement
Intangible - Customer Relationships
Other assets
Total assets
LIABILITIES
Accounts payable
Accrued expenses and deferred revenue
Total liabilities
Net assets acquired
Consideration paid
Less: Cash acquired
Less: Net assets acquired
Goodwill
January 31, 2023
1,037
517
97
403
342
19
683
20
3,118
61
635
696
2,422
2,998
(500)
(2,422)
76
$
$
$
$
$
As of March 31, 2023, the purchase price allocation is final.
The following table sets forth the revenue and expenses of WASI that are included in the Company’s condensed consolidated statement of income for the fiscal year ended March 31, 2023 (in
thousands):
50
Revenue
Cost of Sales
Operating Expenses
Operating Loss
Non-operating expense
Net loss
Income Statement
Post-Acquisition
929
676
425
(172)
(22)
(194)
$
$
Pro forma financial information is not presented as the results are not material to the Company’s consolidated financial statements.
Wolfe Lake HQ, LLC
On December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St. Louis Park, Minnesota
pursuant to a real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company (an unaffiliated third-party) dated October 11, 2021. The real estate purchased consists of a 2-
story office building, asphalt-paved driveways and parking areas, and landscaping. The building was constructed in 2004 with an estimated 54,742 total square feet of space. The real estate purchased is
where Air T's Minnesota executive office is currently located. With this purchase, the Company assumed 11 leases from existing tenants occupying the building.
The total amount recorded for the real estate was $13.4 million, which included the purchase price of $13.2 million and total direct capitalized acquisition costs of $0.2 million. The consideration paid for
the real estate consisted of approximately $3.3 million in cash and a new secured loan from Bridgewater Bank ("Bridgewater") with an aggregate principal amount of $9.9 million and a fixed interest rate of
3.65% which matures on December 2, 2031. See Note 14.
In accordance with ASC 805, the purchase price consideration was allocated as follows (in thousands):
Land
Building
Site Improvements
Tenant Improvements
In-place lease and other intangibles
$
$
2,794
8,439
798
269
1,108
13,408
GdW Beheer B.V.
On February 10, 2022, the Company acquired GdW, a Dutch holding company in the business of providing global aviation data and information. The acquisition was completed through a wholly-owned
subsidiary of the Company, Air T Acquisition 22.1, LLC ("Air T Acquisition 22.1"), a Minnesota limited liability company, through its Dutch subsidiary, Shanwick, and was funded with cash, investment
by executive management of the underlying business, and the loans described in Note 14. As part of the transaction, the executive management of the underlying business purchased 30.0% of Shanwick.
Air T Acquisition 22.1 and its consolidated subsidiaries are included within the Corporate and other segment.
Subsequent to the acquisition date, the Company made certain measurement period adjustments to the preliminary purchase price allocation, which resulted in an increase to goodwill of $0.3 million. The
increase is attributable to a measurement period adjustment of $0.3 million related to certain intangible assets acquired and related deferred tax liabilities assumed due to clarification of information utilized
to determine fair value during the measurement period. As of June 30, 2022, the measurement period was completed and all adjustments are reflected in the tables below.
Total consideration is summarized in the table below (in thousands):
Consideration paid
Less: Cash acquired
Less: Net assets acquired
Goodwill
$
$
February 10, 2022
15,256
(2,452)
(6,520)
6,284
51
The transaction was accounted for as a business combination in accordance with ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying
consolidated balance sheet at their fair values as of February 10, 2022, with the excess of total consideration over fair value of net assets acquired recorded as goodwill. The following table outlines the
consideration transferred and purchase price allocation at the respective fair values as of February 10, 2022 (in thousands):
ASSETS
Accounts Receivable
Other current assets
Property, plant and equipment, net
Intangible - Proprietary Database
Intangible - Customer Relationships
Total assets
LIABILITIES
Accounts payable
Accrued expenses and deferred revenue
Deferred income tax liabilities, net
Total liabilities
Net assets acquired
February 10, 2022
715
67
40
2,576
7,267
10,665
15
1,670
2,460
4,145
6,520
$
$
The following table sets forth the revenue and expenses of GdW, prior to intercompany eliminations, that are included in the Company’s condensed consolidated statement of income for the fiscal year
ended March 31, 2022 (in thousands):
Revenue
Cost of Sales
Operating Expenses
Operating Income
Non-operating income
Net income
Income Statement
Post-Acquisition
887
145
701
41
19
60
$
$
Pro forma financial information is not presented as the results are not material to the Company’s consolidated financial statements.
52
3. MAJOR CUSTOMER
Approximately 36% and 41% of the Company’s consolidated revenues were derived from services performed for FedEx Corporation in fiscal 2023 and 2022, respectively. Approximately 16% and 15% of
the Company’s consolidated accounts receivable at March 31, 2023 and 2022, respectively, were due from FedEx Corporation.
53
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures and reports financial assets and liabilities at fair value. Fair value measurement is classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Assets Measured and Recorded at Fair Value on a Recurring Basis
The following consolidated balance sheet items are measured at fair value on a recurring basis (in thousands):
Marketable securities (including restricted investments) (Level 1)
Interest rate swaps (Level 2)
Contrail's redeemable non-controlling interest (Level 3)
Fair Value Measurements at March 31,
2023
2022
$
$
2,161
2,420
7,972
$
$
2,550
889
7,178
The fair values of our interest rate swaps are based on the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments.
The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves. Since these inputs are observable in active markets over the
terms that the instruments are held, the derivatives are classified as Level 2 in the hierarchy. See Note 9.
The fair value of Contrail's redeemable non-controlling interest is based on a combination of market approach and income approach and is classified as Level 3 in the hierarchy. See Note 24.
The fair value measurements which use significant observable inputs (Level 3), changed due to the following (in thousands):
Beginning Balance as of April 1, 2022
Contribution from non-controlling member
Distribution to non-controlling member
Net loss attributable to non-controlling interests
Fair value adjustment - Contrail (Note 24)
Ending Balance as of March 31, 2023
Contrail's Redeemable Non-
Controlling
Interest
7,178
—
—
(954)
1,748
7,972
$
$
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, notes receivable and accounts payable approximate their fair
values at March 31, 2023 and 2022.
Assets Measured and Recorded at Fair Value on a Nonrecurring Basis
The Company determines fair value of engine assets on lease or held for lease by reference to independent appraisals, quoted market prices (e.g. an offer to purchase) and other factors such as current
data from manufacturers as well as specific market sales. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. The Company used Level 2 inputs to measure write-
downs of engine assets on lease or held for lease. As of March 31, 2023, as a result of our year-end valuation, we did not identify any impairment on our engine assets on lease or held for lease.
54
5. INVENTORIES
Inventories consisted of the following (in thousands):
Overnight air cargo:
Finished goods
Ground equipment manufacturing:
Raw materials
Work in process
Finished goods
Corporate and other:
Raw materials
Finished goods
Commercial jet engines and parts:
Whole engines available for sale or tear-down
Parts
Total inventories
Reserves
Total inventories, net of reserves
Year Ended March 31,
2023
2022
546
4,589
153
6,976
794
726
10,141
50,813
74,738
(3,613)
71,125 $
28
4,688
2,437
9,264
705
728
15,403
45,036
78,289
(3,122)
75,167
$
A write-down of $7.3 million was recorded on the inventory of the commercial jet engines and parts segment during the fiscal year ended March 31, 2023, of which, $5.4 million was due to a management
decision to monetize three engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds. The remainder of the write-down was attributable to our evaluation of the
carrying value of inventory as of March 31, 2023, where we compared its cost to its net realizable value and considered factors such as physical condition, sales patterns and expected future demand to
estimate the amount necessary to write down any slow moving, obsolete or damaged inventory.
55
6. LESSOR ARRANGEMENTS
Assets on lease
The Company leases equipment to third parties, primarily through Contrail which leases engines to aviation customers with lease terms between 1 and 3 years under operating lease agreements. For the
assets currently on lease, there are no options for the lessees to purchase the assets at the end of the leases. The Company depreciates the engines on a straight-line basis over the assets' useful life
from the acquisition date to a residual value. Depreciation expense relating to engines on lease was $1.6 million and $0.3 million for the fiscal years ended March 31, 2023 and 2022, respectively.
Future minimum rental payments to be received do not include contingent rentals that may be received under certain leases because amounts are based on usage. Contingent rent earned totaled
approximately $0 and $0.1 million for the fiscal years ended March 31, 2023 and 2022, respectively. As of March 31, 2023, future minimum rental payments to be received under non-cancelable leases are
as follows (in thousands):
Year ended March 31,
2024
2025
2026
2027
2028
Thereafter
Total
$
$
94
83
7
—
—
—
184
As of March 31, 2023, Contrail has received its return-to-condition compensation ("engine compensation") in the amount of $4.6 million on a previously leased engine that terminated in December 2022.
Office leases
The Company, through its wholly owned subsidiary, Wolfe Lake, leases offices to third parties with lease terms between 5 and 29 years under operating lease agreements. For the offices currently on
lease, there are no options for the lessees to purchase the spaces at the end of the leases. The Company depreciates the assets on a straight-line basis over the assets' useful life. Depreciation expense
relating to office leases was $0.3 million and $0.1 million for the fiscal years ended March 31, 2023 and 2022, respectively.
We recognized rental and other revenues related to operating lease payments of $1.4 million and $0.4 million, respectively, of which variable lease payments were $0.6 million and $0.2 million during the
fiscal years ended March 31, 2023 and 2022, respectively. Future minimum rental payments to be received do not include variable lease payments that may be received under certain leases because
amounts are based on usage. The following table sets forth the undiscounted cash flows for future minimum base rents to be received from customers for office leases in effect as of March 31, 2023:
Year ended March 31,
2024
2025
2026
2027
2028
Thereafter
Total
$
$
921
863
852
839
727
3,139
7,341
56
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
Furniture, fixtures and equipment
Leasehold improvements
Building
Accumulated depreciation
Property and equipment, net
Year Ended March 31,
2023
2022
6,547 $
7,666
13,850
28,063
(6,624)
21,439 $
6,470
6,297
13,850
26,617
(5,405)
21,212
$
$
57
8. INTANGIBLES
Intangibles consisted of the following (in thousands):
Purchased software
Internally developed software
In-place lease and other intangibles
Customer relationships
Patents
Other
Accumulated amortization
In-process software
Intangible assets, total
Year Ended March 31,
2023
2022
544 $
3,672
1,094
8,050
1,112
1,782
16,254
(4,191)
12,063
40
12,103 $
447
4,112
1,108
7,694
1,112
1,391
15,864
(2,947)
12,917
343
13,260
$
$
In the fiscal year ended March 31, 2023, the Company impaired $0.3 million of previously capitalized costs related to a software project that was deemed no longer probable to be completed and placed in
service.
The components of purchased intangible assets for WASI were as follows (in thousands):
Average Remaining Amortization Period Gross Carrying Amount
March 31, 2023
Accumulated Amortization
Net Amount
Customer relationships
$
8 years, 10 months
14 years, 4 months
10 years, 9 months
$
683 $
361
1,044 $
13
17 $
4
670
357
1,027
Based on the intangible assets recorded at March 31, 2023 and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is
expected to be as follows:
(In thousands)
2024
2025
2026
2027
2028
Thereafter
Amortization
1,236
1,165
1,081
1,025
976
6,580
12,063
$
$
58
9. INVESTMENTS IN SECURITIES AND DERIVATIVE INSTRUMENTS
As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise
from rising variable interest rate costs associated with existing borrowings (Air T - Term Note A and Air T - Term Note D). To meet these objectives, the Company entered into interest rate swaps with
notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028.
On August 31, 2021, Air T and MBT refinanced Term Note A and fixed its interest rate at 3.42%. As a result of this refinancing, the Company determined that the interest rate swap on Term Note A was
no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income (loss) associated with Term Note A at the
time of de-designation into earnings over the remainder of its term. In addition, any changes in the fair value of Term Note A's swap after August 31, 2021 are recognized directly into earnings. The
remaining swap contract associated with Term Note D is designated as an effective cash flow hedging instrument in accordance with ASC 815.
On January 7, 2022, Contrail completed an interest rate swap transaction with Old National Bank ("ONB") with respect to the $43.6 million loan made to Contrail in November 2020 pursuant to the Main
Street Priority Loan Facility as established by the U.S. Federal Reserve ("Contrail - Term Note G"). The purpose of the floating-to-fixed interest rate swap transaction was to effectively fix the loan interest
rate at 4.68%. As of February 24, 2022, this swap contract has been designated as a cash flow hedging instrument and qualified as an effective hedge in accordance with ASC 815. During the period
between January 7, 2022 and February 24, 2022, the Company recorded a loss of approximately $0.1 million in the consolidated statement of income (loss) due to the changes in the fair value of the
instrument prior to the designation and qualification of this instrument as an effective hedge. After it was deemed an effective hedge, the Company recorded changes in the fair value of the instrument in
the consolidated statement of comprehensive income (loss). On March 30, 2023, Contrail made a prepayment of $6.7 million on Contrail - Term Note G. As a result of this prepayment, the Company
determined that the interest rate swap on Contrail - Term Note G was no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated
other comprehensive income (loss) associated with Contrail - Term Note G at the time of de-designation into earnings over the remainder of its term. In addition, any changes in the fair value of Contrail -
Term Note G's swap after March 30, 2023 are recognized directly into earnings.
For the swaps related to Air T Term Note D and Contrail - Term Note G (prior to March 30, 2023), the effective portion of changes in the fair value on these instruments is recorded in other
comprehensive income (loss) and is reclassified into the consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transactions affect earnings. The
interest rate swaps are considered Level 2 fair value measurements. As of March 31, 2023 and March 31, 2022, the fair value of the interest-rate swap contracts was an asset of $2.4 million and $0.9 million,
respectively, which is included within other assets in the consolidated balance sheets. During the years ended March 31, 2023 and 2022, the Company recorded a gain of approximately $1.0 million and
$0.9 million, net of tax, respectively, in the consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.
The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies. Management uses derivative financial instruments to execute
those strategies, which may include options, and futures contracts. These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements.
During the fiscal year ended March 31, 2023, the Company recorded no gain and $0.3 million loss related to these derivative instruments. During the fiscal year ended March 31, 2022, the Company did
not record any gain or loss related to these derivative instruments.
The following table presents these derivative instruments at fair value in the condensed consolidated balance sheets as of March 31, 2023 and March 31, 2022 (in thousands):
(In thousands)
Assets:
Exchange-traded options & futures
Other current assets
Total assets
Liabilities:
Exchange-traded options & futures
Accrued Expenses and other
Total liabilities
March 31, 2023
March 31, 2022
$
$
179 $
179
2
2 $
—
—
—
—
The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at
fair value, with changes in fair market value included in the determination of net income (loss). The fair market value of marketable equity securities is determined based on quoted market prices in active
markets. During the fiscal year ended March 31, 2023, the Company had a gross unrealized gain aggregating to $0.5 million and a gross unrealized loss aggregating to $0.9 million. During the fiscal year
ended March 31, 2022, the Company had a gross unrealized gain aggregating to $2.8 million and a gross unrealized loss aggregating to $2.4 million. These unrealized gains and losses are included in
Other income (loss) on the consolidated statement of income (loss).
The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings. As of March 31, 2023 and 2022,
the Company had $0.1 million and $0 of outstanding borrowings under its margin account, respectively. As of March 31, 2023 and 2022, the Company had cash margin balances related to exchange-
traded equity securities and securities sold short of $0.2 million and $0, respectively, which is reflected in other current assets on the consolidated balance sheets. The interest rate on margin account
borrowings was 6.33% as of March 31, 2023.
59
10. EQUITY METHOD INVESTMENTS
The Company’s investment in Insignia is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. As of March 31, 2023,
the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 27% of the outstanding shares. During the fiscal year ended March 31, 2021, due to loss attributions
and impairments taken in prior fiscal years, the Company's net investment basis in Insignia was reduced to $0. On August 23, 2021, Insignia restated its 10-K for the fiscal year ended December 31, 2020
and its 10-Q for the quarter ended March 31, 2021. The Company evaluated these restatements and determined that they would not result in any additional impact on the Company's condensed
consolidated financial statements. During the three months ended September 30, 2022, Insignia recorded net income of $11.8 million, which was primarily driven by a gain on litigation settlement of
$12.0 million. During the fiscal year ended March 31, 2023, the Company's share of Insignia's net income for twelve months ended December 31, 2022 was $3.1 million. The Company applied $1.4 million to
offset the cumulative value of unrecorded share of losses, resulting in net income recognition of $1.7 million. As of March 31, 2023, the Company's net investment basis in Insignia is $1.7 million.
The Company's 20.1% investment in CCI is accounted for under the equity method of accounting. Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI
investment at cost, with a basis difference of $0.3 million. For the fiscal year ended March 31, 2023, the Company recorded income of $0.8 million as its share of CCI's net income for the twelve months
ended December 31, 2022, along with a basis difference adjustment of $50.0 thousand. The Company's net investment basis in CCI is $3.1 million as of March 31, 2023. During the quarter ended December
31, 2022, the Company also paid off the $2.0 million promissory note payable to CCI. See Note 14.
Summarized audited financial information for the Company's equity method investees for the twelve months ended December 31, 2022 and December 31, 2021 are as follows (in thousands):
Revenue
Gross Profit
Operating income (loss)
Net income (loss)
Net income (loss) attributable to Air T, Inc. stockholders
Twelve Months Ended
December 31, 2022
Twelve Months Ended
December 31, 2021
$
$
146,399 $
20,668
16,631
14,256
2,473 $
115,051
5,642
(9,627)
(7,473)
(815)
60
11. EMPLOYEE RETENTION CREDIT
The ERC, as originally enacted on March 27, 2020 by the CARES Act, is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to
employees after March 12, 2020, and before January 1, 2021. The Taxpayer Certainty and Disaster Tax Relief Act (the "Relief Act”), enacted on December 27, 2020, amended, and extended the ERC. The
Relief Act extended and enhanced the ERC for qualified wages paid after December 31, 2020 through June 30, 2021. Under the Relief Act, eligible employers may claim a refundable tax credit against
certain employment taxes equal to 70% of the qualified wages an eligible employer pays to employees after December 31, 2020 through June 30, 2021. Under the American Rescue Plan Act of 2021
("ARPA"), which was signed into law on March 11, 2021, the ERC was further extended through December 31, 2021. The purpose of the ERC is to encourage employers to keep employees on the payroll,
even if they are not working during the covered period because of the COVID-19 outbreak.
The Company qualified for federal government assistance through the ERC provisions for the period between January 1, 2021 and September 30, 2021. As of March 31, 2022, we recognized the one-time
refunds totaling $9.1 million which was included on the Consolidated Balance Sheets as an Employee Retention Credit receivable, as well as on the Consolidated Statements of Income (Loss) as an offset
to the related employee expenses within general and administrative expenses in the fiscal year ended March 31, 2022. During the fiscal year ended March 31, 2023, the Company received $8.2 million of
the total refunds, leaving $0.9 million in the Employee Retention Credit receivable.
61
12. ACCRUED EXPENSES
(In thousands)
Salaries, wages and related items
Profit sharing and bonus
Other deposits
Other
Total
Year ended March 31,
2023
4,748
1,672
2,560
4,153
13,133
$
$
2022
4,232
1,365
2,948
4,846
13,391
$
$
62
13. LESSEE ARRANGEMENTS
The Company has operating leases for the use of real estate, machinery, and office equipment. The majority of our leases have a lease term of 2 to 5 years; however, we have certain leases with longer
terms of up to 30 years. Many of our leases include options to extend the lease for an additional period.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease, plus any additional periods covered by either a Company option to extend the lease that the Company is
reasonably certain to exercise, or an option to extend the lease controlled by the lessor that is considered likely to be exercised.
Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments. Variable payments are typically operating costs associated with the underlying asset and
are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Our leases do not contain residual value guarantees.
The Company has elected to combine lease and non-lease components as a single component and not to recognize leases on the balance sheet with an initial term of one year or less.
The interest rate implicit in lease contracts is typically not readily determinable, and as such the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to
borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The components of lease cost for the fiscal years ended March 31, 2023 and 2022 are as follows (in thousands):
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Twelve Months Ended March 31, 2023 Twelve Months Ended March 31, 2022
2,102
$
603
722
3,427
2,078 $
730
625
3,433 $
$
Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the fiscal years ended March 31, 2023 and 2022 were as follows (in thousands):
Operating leases
Operating lease ROU assets
Operating lease liabilities
Weighted-average remaining lease term
Operating leases
Weighted-average discount rate
Operating leases
March 31, 2023
March 31, 2022
$
$
11,666 $
12,435 $
7,354
8,177
12 years, 10 months
13 years, 5 months
4.95 %
4.33 %
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of the fiscal year ended March 31, 2023 are as follows (in thousands):
Operating Leases
2,265
2,112
1,827
1,674
1,202
8,944
18,024
(4,698)
(891)
12,435
2024$
2025
2026
2027
2028
Thereafter
Total undiscounted lease payments
Interest
Discount
Total lease liabilities $
63
14. FINANCING ARRANGEMENTS
Borrowings of the Company and its subsidiaries are summarized below at March 31, 2023 and March 31, 2022, respectively.
On June 9, 2022, the Company, Jet Yard and MBT entered into Amendment No. 1 to Third Amended and Restated Credit Agreement ("Amendment”) and a related Overline Note ("Overline Note”) in the
original principal amount of $5.0 million. The Amendment and Note memorialize an increase to the amount that may be drawn by the Company on the MBT revolving credit agreement from $17.0 million to
$22.0 million. The borrowing base calculation methodology remains unchanged.
The interest rate on borrowings under the facility that are less than $17.0 million remains at the greater of 2.50% or Prime minus 1.00%. The interest rate applicable to borrowings under the facility that
exceed $17.0 million is the greater of 2.50% or Prime plus 0.50%. The commitment fee on unused borrowings below $17.0 million remains at 0.11%. The commitment fee on unused borrowings above
$17.0 million is 0.20%. The Amendment also includes an additional covenant to the credit agreement, namely the requirement that the Company provide inventory appraisals for AirCo, AirCo Services
and Worthington to MBT twice a year.
Each of the Company subsidiaries that has guaranteed the MBT revolving facility executed a guaranty acknowledgment in which they agreed to guaranty the Overline Note and acknowledged, among
other things, that the Overline Note would not impair the lenders rights under the previously executed guaranty or security agreement.
The Overline Note and commitment matures on the earlier of March 31, 2023 or the date on which the Company receives all funds from the Company’s Employee Retention Credit ("ERC") application
(estimated at approximately $9.1 million) plus the full receipt of the Company’s carryback tax refund for the year (estimated at approximately $2.6 million). As of March 31, 2023, the Overline Note was paid
in full and terminated.
On September 30, 2022, the Company executed a promissory note payable to CCI ("Promissory Note - CCI") for $2.0 million that bears interest at 10.00% per annum and matured on December 30, 2022. As
of December 31, 2022, this note has been repaid without penalty.
On November 8, 2022, Contrail entered into the Second Amendment to Master Loan Agreement (the "Amendment”) with ONB. The Amendment amends the Master Loan Agreement dated as of June 24,
2019, as amended. The principal revisions made in the Amendment are: (i) the tangible net worth covenant was revised to require that Contrail maintain a tangible net worth of at least $12.0 million at all
times prior to March 31, 2024 and $15.0 million at all times on or following March 31, 2024; and, (ii) that all proceeds from certain asset sales during the period beginning on October 1, 2022 and ending on
March 31, 2023 be applied as prepayments on Term Loan G. Contrail executed a Collateral Assignment of two Aircraft engines in connection with the Amendment.
On January 31, 2022 the Company funded the WASI acquisition through (i) a promissory note to Worldwide Aviation, LLC, (ii) cash, and (iii) an additional secured loan from MBT. The promissory note
to Worldwide Aviation, LLC in the amount of $1.5 million bears a fixed interest rate of 6.00% and is payable via periodic payments up to the January 1, 2026 maturity date. In connection with the
acquisition, the Company and Jet Yard entered Amendment No. 2 to the Third Amended and Restated Credit Agreement ("Amendment No. 2”) with MBT. Amendment No. 2 amends the Third Amended
and Restated Credit Agreement dated as of August 31, 2021 as amended by that certain Amendment No. 1 to the Third Amended and Restated Credit Agreement dated June 9, 2022. Amendment No. 2
provides for a new term loan ("Term Loan F”) in the amount of $1.0 million to help finance a portion of the consideration paid by the Company for WASI. Pursuant to the amendment, the Company
executed Term Note F in favor of MBT in the original principal amount of $1.0 million. The note bears interest at a rate equal to the greater of six percent (6.00%) or the prime rate plus one percent (1.00%).
The note obligates the Company to make monthly payments of principal plus accrued interest commencing March 1, 2023. The note may be prepaid, in whole or part, at any time without penalty and final
payment of all amounts due under the note is due January 31, 2028.
On March 22, 2023, Contrail entered into the First Amendment to Second Amendment to Master Loan Agreement and Third Amendment to Master Loan Agreement ("the Amendment") with ONB. The
Amendment amends the Master Loan Agreement dated June 24, 2019 with principal revisions to: (i) Section 3 of the Second Amendment was revised so that exclusion of certain gains and losses from
the definition of "net income” applies through September 30, 2023, not March 31, 2023; (ii) Section 5 of the Second Amendment relating to prepayment of Term Loan G was amended to eliminate the
requirement that all asset sales during the period beginning with October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G; instead, the Amendment provision now
reflects the agreement that voluntary payments totaling $20.0 million would be made by the borrower on Term Loan G no later than September 30, 2023; and, (iii) a revolving note resting period covenant
was added to the Amendment whereby the outstanding principal balance on the revolving note would be paid to zero (0) for at least thirty (30) consecutive days during each annual period ending on the
anniversary date of the revolving note, provided the borrower has not achieved a debt service coverage ratio of 1.10:1. As mentioned in Note 9, during the quarter ended March 31, 2023, Contrail made a
prepayment of $6.7 million on Term Loan G without penalty.
The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of March 31, 2023 and 2022:
(In Thousands)
Air T Debt
Revolver - MBT
Overline Note - MBT
Term Note A - MBT
Term Note B - MBT
Term Note D - MBT
Term Note E - MBT
Term Note F - MBT
Promissory Note - CCI
Debt - Trust Preferred Securities
Total
AirCo 1 Debt
Term Loan - Park State Bank ("PSB")
Total
Jet Yard Debt
Term Loan - MBT
Total
Contrail Debt
Revolver - ONB
Term Loan G - ONB
Term Loan H - ONB
Total
Delphax Solutions Debt
Canadian Emergency Business Account Loan
Total
Wolfe Lake Debt
Term Loan - Bridgewater
Total
Air T Acquisition 22.1
Term Loan - Bridgewater
Term Loan A - ING
Term Loan B - ING
Total
WASI Debt
Promissory Note - Seller's Note
Total
Total Debt
Unamortized Debt Issuance Costs
Total Debt, net
March 31, 2023
March 31, 2022
Maturity Date
Interest Rate
Unused commitments
2
8/31/2023
3
3/31/2023
8/31/2031
8/31/2031
1/1/2028
6/25/2025
1/31/2028
12/30/2022
6/7/2049
Greater of 2.50% or Prime - 1.00% $
Greater of 2.50% or Prime + 0.50%
3.42%
3.42%
1-month LIBOR + 2.00%
Greater of LIBOR + 1.50% or 2.50%
Greater of 6.00% or Prime + 1.00%
10.00%
8.00%
8,258
12/11/2025
4
3-month LIBOR + 3.00%
8/31/2031
4.14%
9/5/2023
11/24/2025
8/18/2023
12/31/2025
12/2/2031
2/8/2027
2/1/2027
5/1/2027
1/1/2026
5
1-month LIBOR + 3.45%
6
1-month LIBOR + 3.00%
Wall Street Journal (WSJ) Prime
Rate + 0.75%
12,559
5.00%
3.65%
4.00%
3.50%
4.00%
6.00%
$
8,742 $
—
7,762
2,740
1,338
800
983
—
25,598
47,963
6,393
6,393
1,844
1,844
12,441
38,180
—
50,621
30
30
9,586
9,586
4,500
2,610
1,088
8,198
1,279
1,279
10,969
—
8,542
3,014
1,405
2,316
—
—
25,567
51,813
6,393
6,393
1,943
1,943
3,843
44,918
8,698
57,459
32
32
9,837
9,837
5,000
3,341
1,114
9,455
—
—
125,914
136,932
$
(829)
125,085 $
(1,124)
135,808
Fiscal 2023's weighted average interest rate on short term borrowings outstanding was 7.77% . The weighted average interest rate on short term borrowings outstanding as of March 31, 2022 was 3.90%.
The Air T revolving credit facility and the Contrail revolving credit facility contain affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to,
among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its
business, and engage in transactions with affiliates.
The obligations of Contrail under the Contrail Credit Agreement with ONB are secured by a first-priority security interest in substantially all of the assets of Contrail. The obligations of Contrail under the
Contrail Credit Agreement are also guaranteed by the Company, up to a maximum of $1.6 million, plus costs of collection. The Company is not liable for any other assets or liabilities of Contrail and there
are no cross-default provisions with respect to Contrail’s debt in any of the Company’s debt agreements with MBT.
At March 31, 2023, our contractual financing obligations, including payments due by period, are as follows (in thousands):
Fiscal year ended
Amount
2024 $
2025
2026
2027
2028
Thereafter
Unamortized Debt Issuance Costs
$
38,736
10,878
27,034
5,538
4,016
39,712
125,914
(829)
125,085
The Company assumes various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash
payments that the Company is required to make under existing contractual arrangements such as debt and lease agreements.
Fair Value of Debts - As of March 31, 2023 and 2022, the carrying amounts reported in the consolidated balance sheets for the Company’s debt instruments approximate the fair values. Estimated fair
values are determined by comparing current borrowing rates and risk spreads offered in the market (Level 2 fair value measures) or quoted market prices (Level 1 fair value measures), when available, to
the stated interest rates and spreads on the Company’s debts.
Interest Expense, net - The components of net interest expense during the years ended March 31, 2023 and March 31, 2022 are as follows (in thousands):
Contractual interest
Amortization of deferred financing costs
Interest income
Total
March 31, 2023
March 31, 2022
$
$
7,932 $
331
(328)
7,935 $
4,808
367
(227)
4,948
2
On June 23, 2023, the Company and MBT entered into amendments to the MBT revolving credit agreement and related promissory note. The amendments extended the maturity date of the credit
facility to August 31, 2024, among other changes. See Note 26.
3
Earlier of 3/31/23 or the date on which Air T has received the payment from the federal income tax refunds in the amount of approximately $2.6 million and Employee Retention Tax Credits in an amount
not less than $9.1 million. As of March 31, 2023, the Overline Note was paid in full and terminated.
4
On May 26, 2023, AirCo 1 executed an Amendment to Main Street Priority Loan Agreement with PSB. The Amendment replaces the three-month LIBOR benchmark applicable to the loan with a three-
month SOFR based rate, which is defined as the three-month SOFR rate plus 3.26%. See Note 26.
5
Effective May 26, 2023, Contrail amended the Promissory Note Revolving Note with ONB to replace the LIBOR based interest rate with a one-month SOFR based rate. The applicable interest rate is now
the one-month SOFR-based rate, as defined in the loan agreement, plus 3.56%. See Note 26.
6
Effective May 26, 2023, Contrail amended the Promissory Note Term Note G with ONB to replace the one-month LIBOR based interest rate with a one-month SOFR-based rate. The principal amount of
the loan was $38.2 million on the effective date of the amended documents and the applicable interest rate is now the one-month SOFR based rate, as defined in the loan agreement, plus 3.11%. See Note
26.
64
15. RELATED PARTY MATTERS
Contrail leases its corporate and operating facilities at Verona, Wisconsin from Cohen Kuhn Properties, LLC, a limited liability company whose membership interests are owned by Mr. Joseph Kuhn,
Contrail's Chief Executive Officer and Mrs. Miriam Cohen-Kuhn, Contrail's Chief Financial Officer, equally. The facility consists of approximately 21,000 square feet of warehouse and office space. The
Company paid aggregate rental payments of approximately $0.2 million to Cohen Kuhn Properties, LLC pursuant to such lease during the period from April 1, 2022 through March 31, 2023. This lease
expires on July 17, 2026. The lease agreement provides that the Company shall be responsible for maintenance of the leased facilities and for utilities, taxes and insurance. The Company believes that the
terms of such leases are no less favorable to the Company than would be available from an independent third party.
Gary S. Kohler, a director of the Company, entered into an employment agreement with Blue Clay Capital Management, a wholly-owned subsidiary of the Company, in the Corporate and other segment,
to serve as its Chief Investment Officer in return for an annual salary of $51.5 thousand plus variable compensation based on the management and incentive fees to be paid to the subsidiary by certain of
these investment funds and eligibility to participate in discretionary annual bonuses.
Nick Swenson, CEO of the Company, is also the majority shareholder of CCI. As of March 31, 2023, Mr. Swenson owned 69.9% of ownership interests in CCI. Under the VIE model, Mr. Swenson is the
primary beneficiary of CCI due to the high extent of his ownership relative to other shareholders of CCI, and the lack of shared power between Mr. Swenson and the Company ("the related party group")
to direct the activities of CCI that most significantly impact CCI’s economic performance.
Air T Acquisition 22.1's term loan with Bridgewater is secured by a first lien on all of the assets of the Subsidiary, a pledge of $5.0 million, 8.0% TruPs, and a personal guaranty of the Company’s
Chairman, President and Chief Executive Officer Nicholas Swenson.
In November 2021, Air T engaged Thomas Funds Americas, LLC ("TFA") to perform certain investment consultation services for the Company. Manit Rye, an employee of Air T, is the managing member
of TFA. As of March 31, 2023, the Company has paid approximately $0.1 million to TFA to compensate for services rendered.
65
16. EMPLOYEE AND NON-EMPLOYEE STOCK OPTIONS
Air T, Inc. maintains two stock option plans for the benefit of certain eligible employees and directors. The first Air T stock option plan is the 2012 Stock Option Plan. The second Air T stock option plan
is the 2020 Omnibus Stock and Incentive Plan. In addition, Delphax maintains a number of stock option plans. Compensation expense is recognized over the requisite service period for stock options
which are expected to vest based on their grant-date fair values. The Company uses the Black-Scholes option pricing model to value stock options granted under the Air T, Inc. plans and the Delphax
plans. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate and dividend yield. Many of these assumptions are judgmental
and highly sensitive in the determination of compensation expense.
Air T's 2012 Stock Option Plan
No options were granted under Air T, Inc.’s 2012 Stock Option Plan during the fiscal years ended March 31, 2023 and 2022. No stock-based compensation expense with respect to this plan was
recognized for the year ended March 31, 2023 and 2022, respectively. At March 31, 2023, there was no unrecognized compensation expense related to the Air T's 2012 stock options.
In Fiscal 2023, 3,750 options were exercised under the Air T's 2012 Stock Option Plan at $5.75 per share, which was disclosed within our condensed consolidated statement of equity. 7,500 unexpired
options remain outstanding under this plan as of March 31, 2023.
Option activity during the fiscal years ended March 31, 2022 and 2023 is summarized below (in thousands, except for shares):
Outstanding at March 31, 2021
Granted
Exercised
Forfeited
Repurchased
Outstanding at March 31, 2022
Granted
Exercised
Forfeited
Repurchased
Outstanding at March 31, 2023
Exercisable at March 31, 2023
Air T's 2020 Omnibus Stock and Incentive Plan
Shares
Weighted
Average
Exercise Price
Per Share
Weighted
Average
Remaining
Life (Years)
11,250 $
—
—
—
—
11,250
—
(3,750)
—
—
7,500
7,500 $
6.61
—
—
—
—
6.61
—
5.75
—
—
7.04
7.04
Aggregate
Intrinsic
Value
2.07 $
193,000
1.07
182,000
0.40
0.40 $
135,000
135,000
On December 29, 2020, the Company’s Board of Directors unanimously approved the 2020 Omnibus Stock and Incentive Plan (the "Plan"), which was subsequently approved by the Company's
stockholders at the August 18, 2021 Annual Meeting of Stockholders. The total number of shares authorized under the Plan is 420,000. Among other instruments, the Plan permits the Company to grant
stock option awards. Through March 31, 2023, options to purchase up to 326,000 shares have been granted under the Plan. Vesting of options is based on the grantee meeting specified service
conditions. Furthermore, the number of vested options that a grantee is able to exercise, if any, is based on the Company’s stock price as of the vesting dates specified in the respective option grant
agreements. As of the first vesting date on June 30, 2022, 32,600 shares did not meet the stock price condition and therefore, could not be exercised. As of March 31, 2023, the remaining number of
options that grantees are able to exercise is 293,400. The Company uses the Black-Scholes option pricing model to value stock options granted under the Air T's 2020 Omnibus Stock and Incentive Plan.
We determined that the fair value of the Plan at inception was $1.3 million.
The key assumptions used in the Plan's Black-Scholes option pricing model are as follows:
Risk-free interest rate
Expected dividend yield
Expected term
Expected volatility
0.94 %
—
10 years
44.29 %
We do not anticipate significant forfeitures and elected to account for forfeitures as they occur. During fiscal years ended March 31, 2023 and 2022, total compensation cost recognized under the Plan
was $0.3 million and $0.4 million, respectively. The unrecognized compensation cost related to nonvested awards is $0.6 million, which is expected to be recognized over a weighted average period of 8.25
years.
66
17. REVENUE RECOGNITION
Performance Obligations
Substantially all of the Company’s non-lease revenue is derived from contracts with an initial expected duration of one year or less. As a result, the Company has applied the practical expedient to
exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied
performance obligations.
The following is a description of the Company’s performance obligations as of March 31, 2023:
Type of Revenue
Product Sales
Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, printing equipment, jet engines, airframes, and scrap metal to
its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a
customer represents a performance obligation.
Support Services
The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control
is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the
Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price
less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected
incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed
upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue.
The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service
agreement or by the contract.
The Company provides a variety of support services such as aircraft maintenance, printer maintenance, and short-term repair services to its customers. Additionally, the
Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer.
For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This
revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s
analysis.
For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is
appropriate as the Company is performing labor hours and installing parts to enhance an asset that the customer controls. The vast majority of repair-services are short
term in nature and are typically billed upon completion of the service.
Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of
these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds
directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of
consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a
monthly basis.
In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight,
Management Fees, etc.) which are immaterial for disclosure under Topic 606.
67
The following table summarizes disaggregated revenues by type (in thousands):
Year Ended March 31, 2023
Year Ended March 31,
2022
Product Sales
Air Cargo
Ground equipment sales
Commercial jet engines and parts
Corporate and other
Support Services
Air Cargo
Ground equipment sales
Commercial jet engines and parts
Corporate and other
Leasing Revenue
Air Cargo
Ground equipment sales
Commercial jet engines and parts
Corporate and other
Other
Air Cargo
Ground equipment sales
Commercial jet engines and parts
Corporate and other
$
$
29,493
47,100
89,700
266
60,857
587
9,539
4,328
—
154
2,365
1,582
193
644
133
382
23,011
40,676
49,356
285
51,344
518
7,049
1,167
—
383
1,156
571
54
662
128
717
Total
$
247,323
$
177,077
See Note 21 for the Company's disaggregated revenues by geographic region and Note 22 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from
contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Contract Balances and Costs
Contract liabilities relate to deferred revenue, our unconditional right to receive consideration in advance of performance with respect to subscription revenue and advanced customer deposits with
respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2022 and March 31, 2023 and the amount of contract liabilities that were recognized as revenue during
the year ended March 31, 2023 (in thousands):
As of March 31, 2023
As of April 1, 2022
For the Year ended March 31, 2023
Outstanding Contract Liabilities
$
5,000
4,727
$
Outstanding Contract Liabilities
Recognized as Revenue
(3,984)
68
18. EMPLOYEE BENEFITS
The Company has a 401(k) defined contribution plan covering domestic employees and an 1165(e) defined contribution plan covering Puerto Rico based employees ("Plans”). All employees of the
Company are immediately eligible to participate in the Plans. The Company’s contribution to the Plans for the years ended March 31, 2023 and 2022 was approximately $0.7 million and $0.6 million,
respectively, and was recorded in the consolidated statements of income (loss).
The Company, in each of the past three years, has paid a discretionary profit sharing bonus in which all employees have participated. Profit sharing expense in fiscal 2023 and 2022 was approximately
$2.4 million and $2.0 million, respectively, and was recorded in general and administrative expenses in the consolidated statements of income (loss).
69
19. INCOME TAXES
Income tax expense (benefit) attributable to (loss) income from continuing operations consists of (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total
Year Ended March 31,
2023
2022
$
$
46 $
150
845
1,041
29
(442)
(196)
(609)
432 $
1,358
44
134
1,536
(507)
140
—
(367)
1,169
Income tax expense attributable to income (loss) from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate of 21.0% to pretax income (loss) from
continuing operations as follows (in thousands):
Expected Federal income tax expense (benefit) U.S. statutory rate
State income taxes, net of federal benefit
Permanent Items
Micro-captive insurance benefit
Change in valuation allowance
Income attributable to minority interest - Contrail
Write-off Delphax Tech SAS
PPP Loan Forgiveness
Other differences, net
Income tax expense (benefit)
Year Ended March 31,
2023
2022
$
$
(2,384)
(558)
28
(274)
3,149
190
—
—
281
432
21.0 % $
4.9 %
-0.2 %
2.4 %
-27.7 %
-1.7 %
0.0 %
0.0 %
-2.5 %
-3.8 % $
2,813
177
(165)
(233)
(2,251)
(174)
2,225
(1,650)
427
1,169
21.0 %
1.3 %
-1.2 %
-1.8 %
-16.8 %
-1.3 %
16.6 %
-12.3 %
3.2 %
8.7 %
The Company did not record any liabilities for uncertain tax positions for the fiscal years ended March 31, 2023 and March 31, 2022.
The Company (exclusive of Delphax which has a full valuation allowance) has federal gross operating losses of $1.7 million and state gross operating losses of $9.4 million at March 31, 2023. These net
operating losses will begin to expire in tax year 2031. The Company has foreign tax credits of $0.4 million that will begin to expire in tax year 2029.
DSI and Delphax (collectively known as the "Delphax entities”) are not included in Air T’s consolidated tax return. During the year ended March 31, 2023, DSI and Delphax accounted for $0.3 million and
$0.0 million, respectively, of fiscal year 2023's valuation allowance effect. During the year ended March 31, 2022, each entity, respectively, accounted for $ 0.2 million and $(2.2) million of the fiscal year
2022's valuation allowance effect.
Deferred tax assets and liabilities were comprised of the following (in thousands):
Net operating loss & attribute carryforwards
Unrealized losses on investments
Inventory reserve
Accrued vacation
Foreign tax credit
Accounts and notes receivable
Interest rate swaps
Investment in partnerships
Lease liabilities
Other deferred tax assets
Bargain purchase gain
Property and equipment
Right-of-use assets
Capital gain deferment
Foreign intangible assets
Other deferred tax liabilities
2023
2022
$
Total deferred tax assets
Total deferred tax liabilities
5,968 $
1,740
851
421
391
182
77
1,723
3,000
115
14,468
(191)
(1,804)
(2,815)
(1,799)
(2,159)
(110)
(8,878)
Net deferred tax assets $
5,590 $
Less valuation allowance
(8,007)
Net deferred tax liabilities $
(2,417) $
3,794
1,669
682
327
263
235
138
671
1,691
286
9,756
(447)
(1,532)
(1,511)
(1,696)
(2,572)
(36)
(7,794)
1,962
(4,774)
(2,812)
Delphax entities
Effective on November 24, 2015, Air T, Inc. purchased interests in Delphax. With an equity investment level by the Company of approximately 67%, Delphax is required to continue filing a separate
United States corporate tax return. Furthermore, Delphax historically had foreign subsidiaries located in France, Canada and the United Kingdom; all of which file(d) tax returns in those jurisdictions.
With few exceptions, Delphax, is no longer subject to examinations by income tax authorities for tax years before 2016.
Delphax maintains a September 30 fiscal year end and DSI maintains a March 31 fiscal year end. The returns for the fiscal years ended September 30, 2022 and March 31, 2023 have not yet been filed. The
gross deferred tax balances related to the Delphax entities includes estimated foreign, U.S. federal and U.S. state loss carryforwards of $5.4 million, $8.4 million and $2.2 million, respectively. The net
operating losses expire in varying amounts beginning in the tax year 2027.
The provisions of ASC 740 require an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets will be recovered. In accounting for
the Delphax entities' tax attributes, the Company has established a full valuation allowance of $3.4 million at March 31, 2023, and $3.1 million at March 31, 2022. The cumulative tax losses incurred by the
Delphax entities in recent years was the primary basis for the Company’s determination that a full valuation allowance should be established against the Delphax entities’ net deferred tax assets.
The Company continues to assert that it will permanently reinvest any foreign earnings of DSI in a foreign country and will not repatriate those earnings back to the U.S. As a result of its permanent
reinvestment assertion, the Company has not recorded deferred taxes related to DSI under the indefinite exception.
Valuation Allowance
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant
piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended March 31, 2023. Such objective evidence limits the ability to consider other subjective
evidence, such as our projections for future growth.
On the basis of this evaluation, as of March 31, 2023, a valuation allowance of $8.0 million (inclusive of the Delphax entities’ valuation allowances that were discussed above) has been recorded to
recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future
taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective
evidence such as our projections for growth.
70
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per share data)
2023
Operating Revenues
Operating (Loss) Income, net of tax
Less: (Income) Loss attributable to non-controlling interests
Loss attributable to Air T, Inc. Stockholders
Basic Loss per share
Diluted Loss per share
Antidilutive shares excluded from computation of income (loss) per share
2022
Operating Revenues
Operating Income (Loss), net of tax
Less: Income attributable to non-controlling interests
Income (Loss) attributable to Air T, Inc. Stockholders
Basic Income (Loss) per share
Diluted Income (Loss) per share
Antidilutive shares excluded from computation of income (loss) per share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
50,862 $
(802)
(631)
(1,433)
(0.50) $
(0.50) $
7
36,968
327
(38)
289
0.10 $
0.10 $
—
60,688 $
(1,336)
104
(1,232)
(0.43) $
(0.43) $
4
43,238
8,003
(448)
7,555
2.62 $
2.60 $
—
61,396 $
108
(698)
(590)
(0.21) $
(0.21) $
5
45,433
(1,189)
(73)
(1,262)
(0.44) $
(0.44) $
11
74,377
(9,755)
715
(9,040)
(3.15)
(3.15)
5
51,438
5,086
(740)
4,346
1.51
1.51
—
71
21. GEOGRAPHICAL INFORMATION
Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company's country of domicile, and similar tangible long-lived assets, net of accumulated depreciation,
held outside the United States are summarized in the following table as of March 31, 2023 and March 31, 2022 (in thousands):
United States
Foreign
Total tangible long-lived assets, net
March 31, 2023
March 31, 2022
$
$
21,433 $
89
21,522 $
34,067
1,654
35,721
The Company’s tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent primarily engines on lease or held for lease at March 31, 2023. The net book value
located within each individual country at March 31, 2023 is listed below (in thousands):
Country
Macau
Other
Total tangible long-lived assets, net
March 31, 2023
March 31, 2022
—
89
89
$
$
1,351
303
1,654
$
$
Total revenue, located in the United States, and outside the United States is summarized in the following table as of March 31, 2023 and March 31, 2022 (in thousands):
United States
Foreign
Total revenue
March 31, 2023
March 31, 2022
$
$
199,572 $
47,751
247,323 $
142,898
34,179
177,077
72
22. SEGMENT INFORMATION
The Company has four reportable segments: overnight air cargo, ground equipment sales, commercial jet engine and parts and corporate and other. Segment data is summarized as follows (in
thousands):
(In Thousands)
Operating Revenues:
Overnight Air Cargo:
Domestic
International
Total Overnight Air Cargo
Ground Equipment Sales:
Domestic
International
Total Ground Equipment Sales
Commercial Jet Engines and Parts:
Domestic
International
Total Commercial Jet Engines and Parts
Corporate and Other:
Domestic
International
Total Corporate and Other
Total
Operating (Loss) Income:
Overnight Air Cargo
Ground Equipment Sales
Commercial Jet Engines and Parts
Corporate and Other
Total
Capital Expenditures:
Overnight Air Cargo
Ground Equipment Sales
Commercial Jet Engines and Parts
Corporate and Other
Total
Depreciation and Amortization:
Overnight Air Cargo
Ground Equipment Sales
Commercial Jet Engines and Parts
Corporate and Other
Total
Year Ended March 31,
2023
2022
$
$
90,370 $
173
90,543
38,652
9,833
48,485
67,599
34,138
101,737
2,952
3,606
6,558
247,323
4,047
3,141
(957)
(10,638)
(4,407)
307
35
572
293
1,207
115
164
2,382
1,501
4,162 $
65,441
8,968
74,409
35,089
7,150
42,239
40,798
16,891
57,689
1,571
1,169
2,740
177,077
2,794
3,220
3,619
(878)
8,755
148
156
1,204
50
1,558
58
234
965
603
1,860
The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA by reportable segment for the fiscal year ended March 31, 2023 and 2022 (in thousands):
Fiscal year 2023
Overnight Air
Cargo
$
Ground Equipment
Sales
$
Commercial Jet
Engines and Parts
$
Corporate and
Other
$
Operating income (loss) from continuing operations
Depreciation and amortization (excluding leased engines depreciation)
Asset impairment, restructuring or impairment charges
Loss (Gain) on sale of property and equipment
Securities expenses
Operating income (loss) from continuing operations
Depreciation and amortization (excluding leased engines depreciation)
Asset impairment, restructuring or impairment charges
Loss on sale of property and equipment
Securities expenses
4,047
115
342
1
—
4,505
2,794
58
—
2
—
2,854
3,141
164
—
9
—
3,314
3,220
234
—
1
—
3,455
(957)
745
7
7,319
(2)
—
7,105
3,619
694
885
2
—
5,200
(10,638)
1,501
179
—
63
(8,895)
(878)
603
(80)
—
252
(103)
$
$
$
$
Total
(4,407)
2,525
7,840
8
63
6,029
Total
8,755
1,589
805
5
252
11,406
Overnight Air
Cargo
$
Ground Equipment
Sales
$
Commercial Jet
Engines and Parts
$
Corporate and
Other
$
Fiscal year 2022
Adjusted EBITDA
$
$
$
$
7
Included in the asset impairment, restructuring or impairment charges for the fiscal year ended March 31, 2023 was a write-down of $7.3 million on the commercial jet engines and parts segment's
inventory, of which, $5.4 million was due to a management decision to monetize three engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds. The remainder of
the write-down was attributable to our evaluation of the carrying value of inventory as of March 31, 2023, where we compared its cost to its net realizable value and considered factors such as physical
condition, sales patterns and expected future demand to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory.
73
Adjusted EBITDA
$
$
$
$
23. EARNINGS PER COMMON SHARE
Basic earnings per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period.
For purposes of calculating diluted earnings per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless
they were anti-dilutive.
The computation of earnings per common share is as follows (in thousands, except per share data):
Net (loss) income from operations
Net income from operations attributable to non-controlling interests
Net (loss) income from operations attributable to Air T, Inc. Stockholders
(Loss) income from operations per share:
Basic
Diluted
Antidilutive shares excluded from computation of (loss) income per share
Weighted Average Shares Outstanding:
Basic
Diluted
24. COMMITMENTS AND CONTINGENCIES
Year Ended March 31,
2023
2022
$
$
$
(11,785) $
(510)
(12,295)
(4.32) $
(4.32) $
5
2,847
2,847
12,227
(1,299)
10,928
3.79
3.78
—
2,880
2,888
Contrail Put/Call Option
Contrail entered into an Operating Agreement in connection with the acquisition of Contrail providing for the governance of and the terms of membership interests in Contrail and including put and call
options with the Seller of Contrail. The Contrail Put/Call Option permits the Seller to require Contrail to purchase all of the Seller’s equity membership interests in Contrail commencing on the fifth
anniversary of the acquisition, which was on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail between the liabilities and equity sections of the
accompanying consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the
instrument to equal the redemption value at the end of each reporting period. The Contrail RNCI is a Level 3 fair value measurement that is valued at $8.0 million as of March 31, 2023. The change in the
redemption value compared to March 31, 2022 is an increase of $0.8 million. The increase was driven by $1.8 million of the net change in fair value, offset by $1.0 million of net loss attributable to the non-
controlling interest. As of the date of this filing, neither the Seller nor Air T has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates
that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided
by operations.
Contrail Asset Management, LLC and CJVII, LLC
On May 5, 2021, the Company formed an aircraft asset management business called Contrail Asset Management, LLC ("CAM”), and an aircraft capital joint venture called CJVII, LLC ("CJVII”). The new
ventures focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. The joint venture, CJVII, was formed as a series LLC ("CJVII Series"). It consists of several
individual series that target investments in current generation narrow-body aircraft and engines, building on Contrail’s origination and asset management expertise. CAM was formed to serve two
separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII Series as governed by the Management Agreement between CJVII and CAM
("Asset Management Function”), and 2) to directly invest into CJVII Series alongside other institutional investment partners ("Investment Function”).
CAM has two classes of equity interests: 1) common interests and 2) investor interests. Neither interest votes as the entity is operated by a Board of Directors. The common interests of CAM relate to
its Asset Management Function. The investor interests of CAM relate to the Company’s and Mill Road Capital’s ("MRC”) investments through CAM into CJVII (the Investment Function) and
ultimately into the individual CJVII Series. With regard to CAM’s common interests, the Company
74
currently owns 90% of the economic common interests in CAM, and MRC owns the remaining 10%. MRC invested $1.0 million directly into CAM in exchange for 10% of the common interests. For the
Asset Management Function, CAM receives origination fees, management fees, consignment fees (where applicable) and a carried interest from the direct investors into each CJVII Series. Such fee
income and carried interest will be distributed to the Company and MRC in proportion to their respective common interests.
For its Investment Function, CAM’s initial commitment to CJVII was approximately $51.0 million. The Company and MRC have commitments to CAM in the respective amounts of $7.0 million and $44.0
million. These represent the investor interests of CAM, separate and distinct from the common interests. Any investment returns on CAM’s investor interests are shared pro-rata between the Company
and MRC for each individual investment at the CJVII Series. As of March 31, 2023, Air T has fulfilled its Investment Function initial commitment to CAM.
Per its Operating Agreement, CAM is comprised of only two Series: the Onshore and the Offshore Series. Participation in each is determined solely based on whether a potential investment at the CJVII
Series is a domestic (Onshore) or international (Offshore) investment. As of March 31, 2023, for its Investment Function, the Company has contributed $6.9 million to CAM’s Offshore Series and $0.6
million to CAM’s Onshore Series.
The Company determined that CAM is a variable interest entity and that the Company is not the primary beneficiary. This is primarily the result of the Company's conclusion that it does not control
CAM’s Board of Directors, which has the power to direct the activities that most significantly impact the economic performance of CAM. Accordingly, the Company does not consolidate CAM and has
determined to account for this investment using equity method accounting. As of March 31, 2023, the Company's net investment basis in CAM is $5.7 million.
In connection with the formation of CAM, MRC has a fixed price put option of $1.0 million to sell its common equity in CAM to Air T at each of the first three (3) anniversary dates. At the later of (a) five
(5) years after execution of the agreement and (b) distributions to MRC per the waterfall equal to their capital contributions, Air T has a call option and MRC has a put option on the MRC common
interests in CAM. If either party exercises the option, the exercise price will be fair market value if Air T pays in cash at closing or 112.5% of fair market value if Air T opts to pay in three (3) equal annual
installments after exercise. The Company previously recognized $1.0 million within "Other non-current liabilities” with an offset to equity as of March 31, 2022. We subsequently reviewed this
accounting treatment and determined that there was no loss contingency that existed under ASC 450 as we did not expect the $1.0 million put option to be exercised in the money to MRC. As such, as of
March 31, 2023, the Company reversed the $1.0 million previously recorded. This matter was not material to our consolidated financial statements for any quarterly or annual periods. With respect to the
secondary put and call option, as it is priced at fair value, the Company also determined that there is no potential loss or gain upon exercise that would need to be recognized.
Shanwick Put/Call Option
In February 2022, in connection with the Company's acquisition of GdW, a consolidated subsidiary of Shanwick, the Company entered into a shareholder agreement with the 30% non-controlling interest
owners of Shanwick, providing for the governance of and the terms of membership interests in Shanwick. The shareholder agreement includes the Shanwick Put/Call Option with regard to the 30% non-
controlling interest. The non-controlling interest holders are the executive management of the underlying business. The Shanwick Put/Call Option grants the Company an option to purchase the 30%
interest at the call option price that equals to the average EBIT over the 3 Financial Years prior to the exercise of the Call Option multiplied by 8. In addition, the Shanwick Put/Call Option also grants the
non-controlling interest owners an option to require Air T to purchase from them their respective ownership interests at the Put Option price, that is equal to the average EBIT over the 3 Financial Years
prior to the exercise of the Put Option multiplied by 7.5. The Call Option and the Put Option may be exercised at any time from the fifth anniversary of the shareholder agreement and then only at the end
of each fiscal year of Air T.
The Company has presented this redeemable non-controlling interest in Shanwick between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition,
the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the estimated redemption value at the end of
each reporting period. As the Shanwick RNCI will be redeemed at established multiples of EBIT, it is considered redeemable at other than fair value. Changes in its estimated redemption value are
recorded on our consolidated statements of operations within non-controlling interests. The Shanwick RNCI's estimated redemption value is $4.7 million as of March 31, 2023, which was comprised of the
following (in thousands):
75
Beginning Balance as of April 1, 2022
Contribution from non-controlling members
Distribution to non-controlling members
Net income attributable to non-controlling interests
Redemption value adjustments
Ending Balance as of March 31, 2023
$
$
Shanwick's Redeemable
Non-Controlling
Interest
3,584
—
(336)
189
1,301
4,738
25. SHARES REPURCHASE
On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 (retrospectively adjusted to 1,125,000 after the stock split on June 10, 2019)
shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period. During the year ended
March 31, 2023, the Company repurchased 51,794 shares at an aggregate cost of $1.1 million, in which all were recorded as treasury shares. The Company has a total of 208,121 treasury shares as of
March 31, 2023.
On August 16, 2022, President Biden signed the Inflation Reduction Act ("IRA") into law. The IRA enacted a 15% corporate minimum tax rate (subject to certain thresholds being met) that will be
applicable to the Company beginning in its Fiscal 2024, a 1% excise tax on share repurchases made after December 31, 2022, and created and extended certain tax-related energy incentives. The Company
does not currently expect that the tax-related provisions of the IRA will have a material impact on its consolidated financial statements.
As a result of the IRA's enactment into law, the Company is now subject to a 1% excise tax on share repurchases, effective for share repurchases made after December 31, 2022. This excise tax may be
reduced for the value of certain share issuances. The excise tax incurred in connection with the Company's stock repurchases during the fourth quarter of Fiscal 2023 was not material.
26. SUBSEQUENT EVENTS
Amendment of ONB loans
Effective May 26, 2023, Contrail entered into the Fourth Amendment to Master Loan Agreement and the Amended and Restated Promissory Note Term Note G with ONB. The purpose of the amended
documents was to replace the one-month LIBOR based interest rate with a one-month SOFR-based rate. All other material terms of the obligations remain the same. The principal amount of the loan was
$38.2 million on the effective date of the amended documents and the applicable interest rate is now the one-month SOFR based rate, as defined in the loan agreement, plus 3.11%.
Effective May 26, 2023, Contrail entered into the First Amendment to Supplement #8 to Master Loan Agreement, the Fifth Amendment to Supplement #2 to the Master Loan Agreement and the Fourth
Amended and Restated Promissory Note Revolving Note with ONB. The purpose of the amended documents was to replace the LIBOR based interest rate with a one-month SOFR based rate. All other
material terms of the obligation remain the same. The maximum principal amount of the revolving note remains at $25.0 million and the applicable interest rate is now the one-month SOFR-based rate, as
defined in the loan agreement, plus 3.56%.
Amendment of PSB Loan Agreement
On May 26, 2023, AirCo 1 executed an Amendment to Main Street Priority Loan Facility Term Loan Agreement with PSB. The Amendment replaces the three-month LIBOR benchmark applicable to the
loan with a three-month SOFR based rate, which is defined as the three-month SOFR rate plus 3.26%. The principal amount of the loan was $6.4 million on the effective date of the amended agreement.
The interest rate is to be determined on the 11th day of each month on the amounts that remain outstanding, commencing June 11, 2023.
76
Amendment of MBT Revolving Credit Agreement
On June 23, 2023, the Company and MBT entered into amendments to the MBT revolving credit agreement and related promissory note. The amendments extended the maturity date of the credit facility
to August 31, 2024 and include the following changes:
1.
A $2.0 million seasonal increase in the maximum amount available under the facility. The maximum amount of the facility will now increase to $19.0 million between May 1 and November 30 of
each year and will decrease to $17.0 million between December 1 and April 30 of each year;
2. The reference rate for the interest rate payable on the revolving facility will change from Prime to SOFR, plus a spread. The exact spread over SOFR will change every September 30 and March 31
based on the Company calculated funded debt leverage ratio (defined as total debt divided by EBITDA). Depending on the result of the calculation, the interest rate spread applicable to the
facility will range between 2.25% and 3.25%;
3. The unused commitment fee on the revolving credit facility will increase from 0.11% to 0.15%; and,
4. The covenant restricting the Company’s use of funds for "Other Investments” was revised to limit the Company to $5.0 million of "Other Investments” per year.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Disclosure Controls
Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures
that are designed to ensure that information relating to the Company required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and
communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Certifying
Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange
Act of 1934) as of March 31, 2023. Our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2023, the Company’s disclosure controls and procedures were effective. In
addition, we believe that the consolidated financial statements in this annual report fairly present, in all material respects, the Company’s consolidated financial condition as of March 31, 2023, and
consolidated results of its operations and cash flows for the year then ended, in conformity with U.S. GAAP.
Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, is a process designed by, or under the supervision of, the Company's Chief
Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by the Company's board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's
management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining policies and procedures designed to maintain the
adequacy of the Company's internal control over financial reporting, including those policies and procedures that:
(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial
statements.
77
The Company's management has evaluated the effectiveness of the Company's internal control over financial reporting as of March 31, 2023 based on the criteria established in a report entitled Internal
Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment and those criteria, the Company's management has
concluded that the Company's internal control over financial reporting was effective at the reasonable assurance level as of March 31, 2023.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during
fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Item 1.01 Entry into a Material Definitive Agreement.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On June 23, 2023, the Company and MBT entered into amendments to the MBT revolving credit agreement and related promissory note. The amendments extended the maturity date of the credit facility
to August 31, 2024 and include the following changes:
1.
A $2.0 million seasonal increase in the maximum amount available under the facility. The maximum amount of the facility will now increase to $19.0 million between May 1 and November 30 of
each year and will decrease to $17.0 million between December 1 and April 30 of each year;
2. The reference rate for the interest rate payable on the revolving facility will change from Prime to SOFR, plus a spread. The exact spread over SOFR will change every September 30 and March 31
based on the Company calculated funded debt leverage ratio (defined as total debt divided by EBITDA). Depending on the result of the calculation, the interest rate spread applicable to the
facility will range between 2.25% and 3.25%;
3. The unused commitment fee on the revolving credit facility will increase from 0.11% to 0.15%; and,
4. The covenant restricting the Company’s use of funds for "Other Investments” was revised to limit the Company to $5.0 million of "Other Investments” per year.
The foregoing summary of the terms of Amended and Restated Revolving Credit Note and Amendment No. 3 to Third Amended and Restated Credit Agreement are qualified in their entirety by reference
to the amendment and promissory note filed as Exhibits 10.15, and 10.26 herewith. The changes to the revolving credit facility and related promissory note were acknowledged and agreed to by the non-
borrower guarantor entities.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not Applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information contained under the headings "Proposal 1 - Election of Directors,” "Executive Officers,” " Committees of the Board of Directors,” and "Delinquent Section 16(a) Reports” in our Proxy
Statement to be filed within 120 days of our fiscal year end, is incorporated herein by reference.
Audit Committee Report
The Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting
process.
In this context, the Audit Committee has reviewed and discussed with management and the independent registered public accounting firm the audited financial statements as of and for the year ended
March 31, 2023. The Audit Committee has
78
discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committee, as adopted by the Public
Company Accounting Oversight Board and currently in effect. In addition, the Audit Committee discussed with the independent registered public accounting firm the written disclosures and letter
required by Public Company Accounting Oversight Board Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, regarding the independent registered
public accounting firm’s communication with the Audit Committee concerning independence and discussed with them their independence from the Company and its management. The Audit Committee
also has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company is compatible with their independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report
on Form 10-K for the year ended March 31, 2023 for filing with the Securities and Exchange Commission.
June 27, 2023
AUDIT COMMITTEE
Travis Swenson, Chair
Peter McClung
Ray Cabillot
Code of Ethics
The Company has adopted a code of ethics applicable to its executive officers and other employees. A copy of the code of ethics is available on the Company’s internet website at http://www.airt.net.
The Company intends to post waivers of and amendments to its code of ethics applicable to its principal executive officer, principal financial officer, principal accounting officer or controller or persons
performing similar functions on its Internet website.
Item 11. Executive Compensation.
The information contained under the heading "Executive Compensation,” "Base Salary,” "Incentive and Bonus Compensation,” "Retirement and Other Benefits,” "Executive Compensation Tables,”
"Employment Agreement and Retirement Savings Plan” and "Director Compensation” in our Proxy Statement to be filed within 120 days of our fiscal year end, is incorporated herein by reference..
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information contained under the heading "Certain Beneficial Owners of Common Stock,” "Director and Executive Officer Stock Ownership,” in our Proxy Statement to be filed within 120 days of our
fiscal year end, is incorporated herein by reference.
79
Equity Compensation Plan Information
The following table provides information as of March 31, 2023, regarding shares outstanding and available for issuance under Air T, Inc.’s existing equity compensation plans.
Plan Category
Equity compensation plans approved by security holders:
Air T 2012 Stock Option Plan
Air T 2020 Omnibus Stock Option Plan
Equity compensation plans not approved by security holders:
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
listed in first column)
7,500 $
293,400
—
300,900 $
7.04
N/A
—
7.04
—
94,000
—
94,000
Item 13. Certain Relationships and Related Transactions and Director Independence.
The information contained under the heading "Director Independence” and "Certain Transactions” in our Proxy Statement to be filed within 120 days of our fiscal year end, is incorporated herein by
reference.
Item 14. Principal Accountant Fees and Services.
Information about aggregate fees billed to us by our principal accountant, Deloitte & Touche LLP (PCAOB ID No. 34) will be presented under the caption "Audit Committee Pre-approval of Auditor
Engagements” and "Audit Fees” in our Proxy Statement to be filed within 120 days of our fiscal year end, is incorporated herein by reference.
PART IV
80
Item 15. Exhibits and Financial Statement Schedules.
1.
Financial Statements
a. The following are incorporated herein by reference in Item 8 of Part II of this report:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Report of Independent Registered Public Accounting Firm – Deloitte & Touche LLP
Consolidated Balance Sheets as of March 31, 2023 and 2022.
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended March 31, 2023 and 2022.
Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2023 and 2022.
Consolidated Statements of Cash Flows for the years ended March 31, 2023 and 2022.
Notes to Consolidated Financial Statements.
2.
No.
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Description
Restated Certificate of Incorporation dated October 30, 2001, Certificate of Amendment to Certificate of Incorporation dated September 25, 2008, Certificate of Designation dated March 26,
2012, and Certificate of Designation dated December 15, 2014, incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the period ended
December 31, 2014 (Commission File No. 001-35476)
Exhibits
Certificate of Amendment to Certificate of Incorporation dated August 18, 2021 (filed herewith)
Amended and Restated By-laws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated November 21, 2012 (Commission File No.
001-35476)
Specimen Common Stock Certificate of Air T, Inc., incorporated by reference to Exhibit 4.1 of the Company’s Amended Registration Statement on Form S-1/A dated January 22, 2019
(Registration Number 333-228485)
Description of Registered Securities, incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2022
Form of Capital Securities Certificate of Air T Funding, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed June 13, 2019 (Commission File No. 001-
35476)
Indenture for the Debentures dated as of June 10, 2019, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed June 13, 2019 (Commission File No. 001-
35476)
Second Amendment to the Air T Funding Amended and Restated Trust Agreement dated as of March 3, 2021, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed March 5, 2021 (Commission File No. 001-35476)
Supplemental Indenture dated as of March 3, 2021, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed March 5, 2021 (Commission File No. 001-
35476)
Debenture dated as of June 10, 2019, incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K filed June 13, 2019 (Commission File No. 001-35476)
Common Securities Certificate of Air T Funding issued to Air T, Inc. dated as of June 10, 2019, incorporated by reference to Exhibit 4.7 to the Company’s Current Report on Form 8-K filed
June 13, 2019 (Commission File No. 001-35476)
Interim Trust Agreement, incorporated by reference to Exhibit 4.11 of the Company’s Registration Statement on Form S-1 filed November 20, 2018 (Registration Number 333-228485)
10.1
Premises and Facilities Lease dated November 16, 1995 between Global TransPark Foundation, Inc. and Mountain Air Cargo, Inc., incorporated by reference to Exhibit 10.5 to Amendment
No. 1 on Form 10-Q/A to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 1995 (Commission File No. 001-35476)
81
Second Amendment to Premises and Facilities Lease dated as of October 15, 2015 between Global TransPark Foundation, Inc. and Mountain Air Cargo, Inc., incorporated by reference to
Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 (Commission File No. 001-35476)
Air T, Inc. 2005 Equity Incentive Plan, incorporated by reference to Annex C to the Company’s proxy statement on Schedule 14A for its annual meeting of stockholders on September 28,
2005, filed with the SEC on August 12, 2005 (Commission File No. 001-35476)*
Form of Air T, Inc. Director Stock Option Agreement (2005 Equity Incentive Plan), incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal
year ended March 31, 2006 (Commission File No. 001-35476)*
Air T, Inc. 2020 Omnibus Stock and Incentive Plan , incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q dated February 12, 2021 (Commission File
No. 001-35476)*
Form of Non-Qualified Stock Option Award Agreement under 2020 Omnibus Stock and Incentive Plan, incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on
Form 10-Q dated February 12, 2021 (Commission File No. 001-35476)*
Employment Agreement dated as of March 26, 2014 between the Company and Nicholas J. Swenson, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K dated March 26, 2014 (Commission File No. 001-35476)*
Employment Agreement between Air T, Inc. and Brian Ochocki dated June 12, 2019, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 18,
2019 (Commission File No. 001-35476)
Form of Air T, Inc. Term Note A in the principal amount of $10,000,000 to Minnesota Bank & Trust, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K
dated December 18, 2017 (Commission File No. 001-35476)
Amended and Restated Term Note A of Air T, Inc. in the principal amount of $9,000,000 in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit
10.3 to the Company’s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
Form of Air T, Inc. Term Note B in the principal amount of $5,000,000 to Minnesota Bank & Trust, incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K
dated December 18, 2017 (Commission File No. 001-35476)
Amended and Restated Term Note B of Air T, Inc. in the principal amount of $3,166,666.52 in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit
10.4 to the Company’s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
Form of Air T, Inc. Revolving Credit Note in the principal amount of $10,000,000 to Minnesota Bank & Trust dated December 21, 2017, incorporated by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K dated December 18, 2017 (Commission File No. 001-35476)
Form of Air T, Inc. Amended and Restated Revolving Credit Note in the principal amount of $13,000,000 to Minnesota Bank & Trust dated November 12, 2018, incorporated by reference to
Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2018 (Commission File No. 001-35476)
Form of Amended and Restated Revolving Credit Note in the principal amount of $17,000,000 to Minnesota Bank & Trust dated March 28, 2019, incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K dated April 4, 2019 (Commission File No. 001-35476)
Amended and Restated Revolving Credit Agreement, in the principal amount of $17,000,000, dated as of June 26, 2020, by and between Air T, Inc., and Minnesota Bank & Trust,
incorporated by reference to Exhibit 10.101 to the Company’s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)
82
Amended and Restated Revolving Credit Note of Air T, Inc. to Minnesota Bank & Trust in the amount of $17,000,000 dated August 31, 2021, incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
Amended and Restated Revolving Credit Note of Air T, Inc. to Minnesota Bank & Trust dated as of June 23, 2023.
Form of Credit Agreement between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated December 18,
2017 (Commission File No. 001-35476)
Form of Amendment No. 1 to Credit Agreement between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated February 20, 2018 (Commission File No. 001-35476)
Form of Amendment No. 2 to Credit Agreement between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form
10-Q for the period ended September 30, 2018 (Commission File No. 001-35476)
Form of Amended and Restated Credit Agreement between Air T, Inc. and Minnesota Bank & Trust dated March 28, 2019, incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated April 4, 2019) (Commission File No. 001-35476)
Amendment No. 1 to Amended and Restated Credit Agreement, dated September 24, 2019 by and between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to Exhibit
10.38 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
Form of Amendment No. 2 to Amended and Restated Credit Agreement, dated December 31, 2019 by and between Air T, Inc. and Minnesota Bank & Trust, incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K dated January 7, 2020 (Commission File No. 001-35476)**
Form of Second Amended and Restated Credit Agreement, dated as of June 26, 2020, by and between Air T, Inc., and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.99
to the Company’s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)
Third Amended and Restated Credit Agreement between Air T, Inc. and Minnesota Bank & Trust dated as of August 31, 2021, without exhibits or schedules, incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
Amendment No. 1 to Third Amended and Restated Credit Agreement by and between Air T, Inc, Jet Yard, LLC and Minnesota Bank & Trust dated June 9, 2022, incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K dated June 14, 2022 (Commission file No. 001-35476).
Form of Amendment No. 2 to Third Amended and Restated Credit Agreement between Air T, Inc., Jet Yard, LLC and MBT dated as of January 31, 2023, incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated January 31, 2023(Commission file No. 001-35476).
From of Amendment No. 3 to Third Amended and Restated Credit Agreement between Air T, Inc., Jet Yard, LLC and MBT dated as of June 23, 2023.
Form of Security Agreement, incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K dated December 18, 2017 (Commission file No. 001-35476).
Form of Amended and Restated Security Agreement in favor of Minnesota Bank & Trust dated March 28, 2019, incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K dated April 4, 2019 (Commission File No. 001-35476)
Amended and Restated Security Agreement by and amount Air T, Inc., the guarantors listed and Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.7
to the Company’s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
83
Form of Air T, Inc. Term Note D in the principal amount of $1,680,000 to Minnesota Bank & Trust, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K
dated February 20, 2018 (Commission File No. 001-35476)
Promissory Note and Business Loan Agreement executed as of March 7, 2018 between Contrail Aviation Support, LLC as Borrower, and Old National Bank as the Lender, incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 8, 2018) (Commission File No. 001-35476)
Form of Second Amended and Restated Promissory Note Revolving Note, dated January 24, 2020 in the principal amount of $40,000,000 to Old National Bank, incorporated by reference to
Exhibit 10.5 to the Company’s Current Report on Form 8-K dated June 24, 2019 (Commission File No. 001-35476)
Third Amended and Restated Promissory Note Revolving Note of Contrail Aviation Support, LLC to Old National Bank dated September 2, 2021, incorporated by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K dated September 2, 2021 (Commission File No. 001-35476)
Fourth Amended and Restated Promissory Note Revolving Note executed by Contrail Aviation Support, LLC in favor of Old National Bank dated May 26, 2023. (incorporated by reference
to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated June 2, 2023) (Commission File No. 001-35476)
Form of Amended and Restated Guaranty in favor of Minnesota Bank & Trust dated March 28, 2019, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-
K dated April 4, 2019 (Commission File No. 001-35476)
Amended and Restated Guaranty of various Air T subsidiaries in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.10 to the Company’s
Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
Guarantee Acknowledgment dated June 9, 2022, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K dated June 14, 2022 (Commission file No. 001-
35476).
Form of Amended and Restated Security Agreement in favor of Minnesota Bank & Trust dated April 3, 2019, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on
Form 8-K dated April 9, 2019 (Commission File No. 001-35476)
Form of Subordination Agreement among AirCo 1, LLC, Air T, Inc. and Minnesota Bank & Trust dated April 3, 2019, incorporated by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K dated April 9, 2019 (Commission File No. 001-35476)
Form of Loan Agreement between AirCo 1, LLC and Minnesota Bank & Trust dated April 3, 2019, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
dated April 9, 2019 (Commission File No. 001-35476)
Form of Amendment No. 1 to Loan Agreement, dated February 25, 2020 by and between AirCo 1, LLC and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K dated February 25, 2020 (Commission File No. 001-35476)
Agreement as to Expenses dated as of June 10, 2019, incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K dated June 13, 2019 (Commission File No. 001-
35476)
Form of Capital Securities Certificate of Air T Funding, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated June 13, 2019 (Commission File No.
001-35476)
Capital Securities Guarantee dated as of June 10, 2019, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K dated June 13, 2019 (Commission File No. 001-
35476)
Amendment to Capital Securities Guarantee Agreement, effective as of March 31, 2021, dated as of March 31, 2021, by and between Air T, Inc. and Delaware Trust Company incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 31, 2021 (Commission File Nos. 001-35476 and 001-38928)
84
Indenture for the Debentures dated as of June 10, 2019, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K dated June 13, 2019 (Commission File No.
001-35476)
Supplemental Indenture dated as of March 3, 2021, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated March 3, 2021 (Commission File No. 001-
35476)
Debenture dated as of June 10, 2019, incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K dated June 13, 2019 (Commission File No. 001-35476)
Common Securities Certificate of Air T Funding issued to Air T, Inc. dated as of June 10, 2019, incorporated by reference to Exhibit 4.7 to the Company’s Current Report on Form 8-K dated
June 13, 2019 (Commission File No. 001-35476)
Interim Trust Agreement, incorporated by reference to Exhibit 4.11 of the Company’s Registration Statement on Form S-1 dated November 20, 2018 (Registration Number 333-228485)
Second Amended and Restated Trust Agreement dated as of June 23, 2021, incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K dated June 25, 2021
(Commission File No. 001-35476)
Certificate of Interim Trust dated September 28, 2018, incorporated by reference to Exhibit 4.14 of the Company’s Registration Statement on Form S-1 dated November 20, 2018 (Registration
Number 333-228485)
Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)
First Amendment to Master Loan Agreement, dated November 24, 2020 between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by
reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated December 11, 2020 (Commission File No. 001-35476)
Second Amendment to Master Loan Agreement, dated November 10,2022 between Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC and Old National Bank,
incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2022 (Commission File No. 001-35476)
First Amendment to Second Amendment to Master Loan Agreement and Third Amendment to Master Loan Agreement, dated March 22, 2023 between Contrail Aviation Support, LLC and
Contrail Aviation Leasing, LLC and Old National Bank. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated March 22, 2023)
(Commission File No. 001-35476)
Fourth Amendment to Master Loan Agreement by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank dated May 26, 2023. (incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated June 2, 2023) (Commission File No. 001-35476)
Supplement #1 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank. incorporated by
reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)
Supplement #2 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, and Old National Bank. incorporated by reference to Exhibit 10.5 to the
Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)
Form of First Amendment to Supplement #2 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC and Old National Bank, incorporated by
reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated June 24, 2019 (Commission File No. 001-35476)
Form of Second Amendment to Supplement #2 to Master Loan Agreement, dated January 24, 2020 by and between Contrail Aviation Support, LLC and Old National Bank, incorporated by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated June 24, 2019 (Commission File No. 001-35476)
85
Form of Third Amendment to Supplement #2 to Master Loan Agreement with Exhibit A, dated September 25, 2020 by and between Contrail Aviation Support, LLC and Old National Bank
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 30, 2020) (Commission File No. 001-35476)
Fourth Amendment to Supplement #2 to Master Loan Agreement between Contrail Aviation Support, LLC and Old National Bank effective September 2, 2021, incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 2, 2021 (Commission File No. 001-35476)
Fifth Amendment to Supplement #2 to Master Loan Agreement between Contrail Aviation Support, LLC and Old National Bank dated May 26, 2023. (incorporated by reference to Exhibit
10.4 to the Company’s Current Report on Form 8-K dated June 2, 2023) (Commission File No. 001-35476)
Air T, Inc. Continuing Guaranty in favor of Old National Bank, dated June 24, 2019, incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the
period ended September 30, 2019 (Commission File No. 001-35476)**
Contrail Aviation Leasing, LLC Continuing Guaranty in favor of Old National Bank, dated June 24, 2019, incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on
Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
Supplement #3 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by
reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
Supplement #4 to Master Loan Agreement, dated August 16, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated by
reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC Term Note C in the principal amount of $13,000,594.00 to Old National Bank, incorporated by reference to Exhibit 10.11
to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
Trustee Aircraft Security Agreement, dated August 16, 2019 by and between Wells Fargo Trust Company, National Association, Contrail Aviation Support, LLC, Contrail Aviation
Leasing, LLC, and Old National Bank, incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019
(Commission File No. 001-35476)**
Beneficial Interest Pledge Agreement, dated August 16, 2019 by and between Contrail Aviation Leasing, LLC, and Old National Bank, incorporated by reference to Exhibit 10.13 to the
Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
Form of Declaration of Trust (MSN 29922), dated June 26, 2019 by and between Contrail Aviation Leasing, LLC, Wilmington Trust SP Services (Dublin) Limited, and Contrail Aviation
Support, LLC, incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-
35476)**
Supplement #5 to Master Loan Agreement, dated October 30, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated
by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
Trustee Aircraft Security Agreement, dated October 30, 2019 by and between Wilmington Trust SP Services (Dublin) Limited, Contrail Aviation Support, LLC, Contrail Aviation Leasing,
LLC, and Old National Bank, incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission
File No. 001-35476)**
Beneficial Interest Pledge Agreement, dated October 30, 2019 by and between Contrail Aviation Leasing, LLC and Old National Bank, incorporated by reference to Exhibit 10.24 to the
Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
86
Third Trust Assignment and Assumption Agreement, dated July 26, 2019 by and between Sapphire Finance I Holding Designated Activity Company and Contrail Aviation Leasing, LLC,
incorporated by reference to Exhibit 10.35 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
Amendment Number Five to Aircraft Lease Agreement, dated June 20, 2019 by and between Wells Fargo Trust Company, National Association and Sun Country, Inc. d/b/a Sun Country
Airlines, incorporated by reference to Exhibit 10.37 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (Commission File No. 001-35476)**
Form of Master Short-Term Engine Lease Agreement, IATA Document No. 5016-01, dated October 2012, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on
Form 8-K dated December 9, 2019 (Commission File No. 001-35476)**
Purchase Agreement, dated December 13, 2019 by and between Wilmington Trust Services (Dublin) Limited and KG Aircraft Rotables Co., Ltd., incorporated by reference to Exhibit 10.1 of
the Company’s Current Report on Form 8-K dated December 19, 2019 (Commission File No. 001-35476)**
Deed of Lease Novation, dated December 20, 2019 by and between Leasing Ireland DAC, CRO No. 662616, MAM Seldon Aviation 2 Designated Activity Company, and SmartLynx
Airlines Estonia Oü, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476)**
Form of Supplement #6 to Master Loan Agreement, dated December 19, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, Contrail Aviation Leasing
Ireland DAC, CRO No. 662616 and Old National Bank, incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K dated December 26, 2019
(Commission File No. 001-35476)**
Form of Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, and Contrail Aviation Leasing Ireland DAC, CRO No. 662616 Term Note E in the principal amount of $6,894,790.00
to Old National Bank, incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476)**
Form of Aircraft Security Agreement, dated December 19, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, Contrail Aviation Leasing Ireland DAC,
CRO No. 662616, and Old National Bank, incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K dated December 26, 2019 (Commission File No.
001-35476)**
Form of Air T, Inc. Amendment to Continuing Guaranty in favor of Old National Bank, incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K dated
December 26, 2019 (Commission File No. 001-35476)**
Form of Indemnity and Guaranty Agreement, dated December 19, 2019 by and between Contrail Aviation Support, LLC and Contrail Aviation Leasing Ireland DAC, CRO No. 662616,
incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476)**
Form of Collateral Account Agreement, dated December 31, 2019, by and between Air T OZ 1, LLC and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.3 of the
Company’s Current Report on Form 8-K dated January 7, 2020 (Commission File No. 001-35476)**
Form of Collateral Account Agreement, dated December 31, 2019, by and between Air T OZ 2, LLC and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.4 of the
Company’s Current Report on Form 8-K dated January 7, 2020 (Commission File No. 001-35476)**
Form of Collateral Account Agreement, dated December 31, 2019, by and between Air T OZ 3, LLC and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.5 of the
Company’s Current Report on Form 8-K dated January 7, 2020 (Commission File No. 001-35476)**
Form of Supplement #7 to Master Loan Agreement, dated February 3, 2020 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank,
incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 3, 2020 (Commission File No. 001-35476)
87
Form of Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC Term Note F, dated February 3, 2020 in the principal amount of $8,500,000 to Old National Bank, incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated February 3, 2020 (Commission File No. 001-35476)
Form of Aircraft Assets Security Agreement, dated February 3, 2020 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank, incorporated
by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated February 3, 2020 (Commission File No. 001-35476)
Form of Air T, Inc. Promissory Note, in the principal amount of $8,215,000 in favor of Minnesota Bank & Trust, dated April 10, 2020, incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated April 10, 2020 (Commission File No. 001-35476)
Term Note E, in the principal amount of $9,463,000, dated as of June 26, 2020, by and between Air T, Inc., and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.100 to the
Company’s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)
Amended and Restated Term Note E of Air T, Inc. in the principal amount of $3,655,819.22 in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit
10.5 to the Company’s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
"Jet Yard Collateral Account Agreements” dated as of June 26, 2020, by and between Jet Yard, LLC, and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.102 to the
Company’s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)
Amended and Restated Collateral Account Agreement between Jet Yard, LLD and Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.12 to the
Company’s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
"Ambry Hill Collateral Account Agreements” dated as of June 26, 2020, by and between Jet Yard, LLC, and Minnesota Bank & Trust, incorporated by reference to Exhibit 10.103 to the
Company’s Annual Report on Form 10-K dated June 26, 2020 (Commission File No. 001-35476)
Amended and Restated Collateral Account Agreement between Ambry Hill Technologies, LLC and Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit
10.11 to the Company’s Current Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
Supplement #8 to Master Loan Agreement dated November 24, 2020 between Borrowers Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC and Lender Old National Bank
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 11, 2020) (Commission File No. 001-35476)
First Amendment to Supplement #8 to Master Loan Agreement between Contrail Aviation Support, LLC and Old National Bank dated May 26, 2023. (incorporated by reference to Exhibit
10.3 to the Company’s Current Report on Form 8-K dated June 2, 2023) (Commission File No. 001-35476)
$43,598,000 Promissory Note – Term Note G of Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC in favor of Old National Bank dated November 24, 2020. (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 11, 2020) (Commission File No. 001-35476)
Amended and Restated Promissory Note Term Note G executed by Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC in favor of Old National Bank dated May 26, 2023.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 2, 2023) (Commission File No. 001-35476)
Commercial Security Agreement of Contrail Aviation Support, LLC dated November 24, 2020, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated
December 11, 2020 (Commission File No. 001-35476)
Commercial Security Agreement of Contrail Aviation Leasing, LLC dated November 24, 2020., incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated
December 11, 2020 (Commission File No. 001-35476)
88
Term Loan Agreement for Mail Street Priority Loan Facility by and between Park State Bank and AirCo 1, LLC dated as of December 11, 2020, incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K dated December 23, 2020 (Commission File No. 001-35476)
Amendment to Main Street Priority Loan Facility Term Loan Agreement by and between Airco 1, LLC and Park State Bank dated May 26, 2023. (incorporated by reference to Exhibit 10.6 to
the Company’s Current Report on Form 8-K dated June 2, 2023) (Commission File No. 001-35476)
$6,200,000 Main Street Priority Loan Facility Term of AirCo 1, LLC in favor of Park State Bank dated December 11, 2020, incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated December 23, 2020) (Commission File No. 001-35476)
Security Agreement of AirCo 1, LLC dated as of December 11, 2020, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 23, 2020)
(Commission File No. 001-35476)
Pledge Agreement by and between AirCo, LLC and Park State Bank dated as of December 11, 2020, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
dated December 23, 2020 (Commission File No. 001-35476)
At the Market Offering Agreement dated as of May 14, 2021, by and among the Air T, Inc., Air T Funding and Ascendiant Capital Markets, LLC, incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K dated May 14, 2021 (Commission File No. 001-35476)
First Amendment to At the Market Offering Agreement, dated November 18, 2021, by and between Air T, Inc., Air T Funding and Ascendiant Capital Markets, LLC, incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 18, 2021 (Commission File No. 001-35476)
Form of Contrail Asset Management, LLC Amended and Restated Limited Liability Company Agreement dated May 5, 2021, by and among the Members listed therein, incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 5, 2021 (Commission File No. 001-35476)*
Form of Engine Purchase Agreement, dated December 23, 2020, by and between Equipment Lease Finance Corporation and Contrail Aviation Leasing, LLC, incorporated by reference to
Exhibit 4.2 to the Company’s Current Report on Form 8-K dated March 26, 2021 (Commission File No. 001-35476)*
Form of Assignment, Assumption and Amendment Agreement dated March 30, 2021, by and among Engine Lease Finance Corporation, Companhia de Transportes Aereos Air Macau,
SARL, and Contrail Aviation Leasing, LLC, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated March 26, 2021 (Commission File No. 001-
35476)*
Aircraft dry lease and services agreement between FedEx and CSA Air, Inc. dated June 1, 2021, incorporated by reference to Exhibit 10.97 to the Company’s Annual Report on Form 10-K
dated June 25, 2021 (Commission File No. 001-35476)
Aircraft dry lease and services agreement between FedEx and Mountain Air Cargo, Inc. dated June 1, 2021, incorporated by reference to Exhibit 10.98 to the Company’s Annual Report on
Form 10-K dated June 25, 2021 (Commission File No. 001-35476)
Joinder to Security Agreement between Minnesota Bank & Trust and Air'Zona Aircraft Services, Inc. dated June 23, 2021, incorporated by reference to Exhibit 10.99 to the Company’s
Annual Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)
Joinder to Guaranty of Air'Zona Aircraft Services, Inc. in favor of Minnesota Bank & Trust dated June 23, 2021, incorporated by reference to Exhibit 10.100 to the Company’s Annual
Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)
Joinder to Security Agreement between Minnesota Bank & Trust and Jet Yard Solutions, LLC dated June 23, 2021, incorporated by reference to Exhibit 10.101 to the Company’s Annual
Report on Form 10-K dated June 25, 2021 (Commission File No. 001-35476)
89
Joinder to Guaranty of Jet Yard Solutions, LLC in favor of Minnesota Bank & Trust dated June 23, 2021, incorporated by reference to Exhibit 10.102 to the Company’s Annual Report on
Form 10-K dated June 25, 2021 (Commission File No. 001-35476)
Air T, Inc. 2020 Omnibus Stock and Incentive Plan**, incorporated by reference to the Company's Definitive Proxy Statement as Appendix A on Form DEF 14A dated July 19, 2021
(Commission File No. 001-35476)
Jet Yard Term Note in the principal amount of $2,000,000 in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.6 to the Company’s Current
Report on Form 8-K dated August 31, 2021 (Commission File No. 001-35476)
Guaranty of Jet Yard, LLC in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K dated
August 31, 2021 (Commission File No. 001-35476)
Guaranty of Air T, Inc. in favor of Minnesota Bank & Trust dated August 31, 2021, incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K dated August
31, 2021 (Commission File No. 001-35476)
Cooperation Agreement by and among Insignia Systems, Inc., Nicholas J. Swenson, Air T, Inc., Groveland Capital LLC; AO Partners I, L.P.; AO Partners, LLC and Glenhurst Co., dated
October 11, 2021, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 11, 2021 (Commission File No. 001-35476)
Real Estate Purchase Agreement between Air T, Inc. and WLPC East, LLC dated October 11, 2021, without exhibits, incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated October 14, 2021 (Commission File No. 001-35476)
Opinion of Winthrop & Weinstine, P.A. incorporated by reference to Exhibit 5.1 to the Company's Current Report on Form 8-K dated November 19, 2021 (Commission file No. 001-35476).
Promissory Note with Bridgewater Bank dated December 2, 2021 in the principal amount of $9,900,000, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form
8-K dated December 2, 2021 (Commission File No. 001-35476)
Combination Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement with Bridgewater Bank dated December 2, 2021, incorporated by reference
to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 2, 2021 (Commission File No. 001-35476)
International Swaps and Derivatives Association, Inc. 2002 Master Agreement dated as of December 28, 2021 between Old National Bank and Contrail Aviation Support, LLC & Contrail
Aviation Leasing, LLC., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 7, 2022 (Commission File No. 001-35476)
Schedule to the 2002 Master Agreement dated as of December 28, 2021 between Old National Bank and Contrail Aviation Support, LLC & Contrail Aviation Leasing, LLC, including Swap
Transaction Confirmation dated January 7, 2022, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 7, 2022 (Commission File
No. 001-35476)
Form of Engine Sale Agreement between Finnair Aircraft Finance Oy and Contrail Aviation Support, LLC dated January 19, 2022.*, incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated January 19, 2022 (Commission File No. 001-35476)
Form of Agreement for the Sale and Purchase of Shares in the share capital of GdW Beheer B.V. Between Mr G. de Wit (as the Seller), Decision Company B.V. and Ubi Concordia B.V. (as
the Warrantors) And Shanwick B.V. (as the Purchaser) dated February 10, 2022, without exhibits or schedules (English Translation), incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K dated February 8, 2022 (Commission File No. 001-35476)
Form of Loan Agreement between Air T Acquisition 22.1, LLC and Bridgewater Bank dated February 8, 2022, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K dated February 8, 2022 (Commission File No. 001-35476)
90
Form of Air T Acquisition 22.1, LLC $5,000,000 Promissory Note to Bridgewater Bank dated February 8, 2022, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on
Form 8-K dated February 8, 2022 (Commission File No. 001-35476)
Supplement #9 to Master Loan Agreement dated June 24, 2019 by and between CAS and Old National Bank dated February 18, 2022, without exhibits, incorporated by reference to Exhibit
10.3 to the Company’s Current Report on Form 8-K dated February 15, 2022 (Commission File No. 001-35476)
Promissory Note Term Note H in the principal amount of $14,875,000 from CAS to Old National Bank dated February 18, 2022, incorporated by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K dated February 15, 2022 (Commission File No. 001-35476)
Form of Security Agreement from CAS to Old National Bank dated February 18, 2022, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated
February 15, 2022 (Commission File No. 001-35476)
Form of Overline Promissory Note dated June 9, 2022, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated June 14, 2022 (Commission file No. 001-
35476).
Form Promissory Note dated September 30, 2022, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 4, 2022 (Commission file No. 001-
35476).
Form of Term Note F dated January 31, 2023, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on January 31, 2023 (Commission file No. 001-
35476).
The Company's Quarterly Report on Form 10-Q dated August 12, 2022 (Commission File No. 001-35476)
The Company’s Quarterly Report on Form 10-Q dated November 10, 2022 (Commission File No. 001-35476)
The Company’s Quarterly Report on Form 10-Q dated February 10, 2023 (Commission File No. 001-35476)
List of subsidiaries of the Company (filed herewith)
Consent of Deloitte & Touche LLP (filed herewith)
Power of Attorney (filed herewith)
Section 302 Certification of Chief Executive Officer (filed herewith)
Section 302 Certification of Chief Financial Officer (filed herewith)
Section 1350 Certification of Chief Executive Officer (filed herewith)
Section 1350 Certification of Chief Financial Officer (filed herewith)
The following financial information from the Annual Report on Form 10-K for the year ended March 31, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) the
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss), (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the
Consolidated Statements of Stockholders Equity, and (v) the Notes to the Consolidated Financial Statements (filed herewith).
* Management compensatory plan or arrangement required to be filed as an exhibit to this report.
91
** Certain information has been omitted from this exhibit pursuant to the request for confidential treatment submitted to the Securities and Exchange Commission. The omitted information has
been separately filed with the Securities and Exchange Commission.
92
Item 16. Form 10-K Summary
We have chosen not to include an optional summary of the information required by this Form 10-K. For a reference to the information in this Form 10-K, investors should refer to the Table of Contents to
this Form 10-K.
93
duly
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
authorized.
SIGNATURES
AIR T, INC.
/s/ Nick Swenson
Nick Swenson, Chairman, President and
Chief Executive Officer and Director (Principal Executive Officer)
/s/ Brian Ochocki
Brian Ochocki, Chief Financial Officer
(Principal Financial Officer)
/s/ Raymond Cabillot
Raymond Cabillot, Director
/s/ William R. Foudray
William R. Foudray, Director
/s/ Gary S. Kohler
Gary S. Kohler, Director
/ s/ Peter McClung
Peter McClung, Director
/s/ Travis Swenson
Travis Swenson, Director
By:
By:
By:
By:
By:
By:
By:
Date: June 27, 2023
Date: June 27, 2023
Date: June 27, 2023
Date: June 27, 2023
Date: June 27, 2023
Date: June 27, 2023
Date: June 27, 2023
St a t e of De l a wa r e Se c r e t a r y of St a t e Di vi s i on of Cor por a t i ons De l i ve r e d 02 : 34 PM 03/ 10/ 2022 FI LED 02: 34 PM 03/ 10/ 2022 SR 20220955287 - FI l e Num be r 903055 CERTI FI CATE OF AM ENDM ENT TO THE CERTI FI CATE OF I NCORPORATI ON OF AI R T, I NC. The unde r s i gne d a ut hor i z e d of f i c e r of Ai r T, I nc . ( t he " Cor por a t i on" ) , a c or por a t i on or ga ni z e d a nd e xi s t i ng unde r a nd by vi r t ue of t he Ge ne r a l Cor por a t i on La w of t he St a t e of De l a wa r e ( t he " DGCL" ) , he r e by c e r t i f i e s a s f ol l ows e f f e c t i ve a s of Augus t 18, 2021: FI RST: The na m e of t he Cor por a t i on i s : Ai r T, I nc . SECOND: The s t oc khol de r s a nd boa r d of di r e c t or s of t he Cor por a t i on pr ope r l y a dopt e d a nd a ppr ove d t he f ol l owi ng a m e ndm e nt t o t he Ce r t i f i c a t e of I nc or por a t i on of t he Com pa ny ( t he " Ce r t i f i c a t e " ) i n a c c or da nc e wi t h t he pr ovi s i ons of Se c t i on 242 of t he DGCL. THI RD: Pa r a gr a ph ( b) of Ar t i c l e 4 of t he Ce r t i f i c a t e s ha l l be a m e nde d a nd r e s t a t e d i n i t s e nt i r e t y a nd s ha l l r e a d a s f ol l ows : " ( b) The t ot a l num be r of s ha r e s of unde s i gna t e d pr e f e r r e d s t oc k t ha t t he c or por a t i on s ha l l ha ve a ut hor i t y t o i s s ue i s t wo
m i l l i on ( 2, 000, 000) a nd t he pa r va l ue of e a c h of s uc h s ha r e s i s One Dol l a r ( $1. 00) a m ount i ng i n t he a ggr e ga t e t o Two M i l l i on Dol l a r s ( $2, 000, 000) i n one or m or e s e r i e s , wi t h s uc h vot i ng powe r s , de s i gna t i ons , pr e f e r e nc e s a nd r e l a t i ve , pa r t i c i pa t i ng, opt i ona l or ot he r s pe c i a l r e s ol ut i on or r e s ol ut i ons pr ovi di ng f or t he c r e a t i on a nd i s s ua nc e of a ny s uc h s e r i e s a dopt e d by t he boa r d of di r e c t or s pr i or t o t he i s s ua nc e of a ny s ha r e s of s uc h s e r i e s , pur s ua nt t o a ut hor i t y e xpr e s s l y ve s t e d i n t he boa r d. " FOURTH: Al l ot he r pr ovi s i ons of t he Ce r t i f i c a t e s ha l l r e m a i n unc ha nge d a nd s ha l l c ont i nue i n f ul l f or c e a nd e f f e c t . [ Si gna t ur e Pa ge t o Fol l ow. ]
I NW I TNESS W HEREOF, t he Cor por a t i on ha s c a us e d t hi s Ce r t i f i c a t e of Am e ndm e nt t o t he Ce r t i f i c a t e of I nc or por a t i on t o be e xe c ut e d by t he unde r s i gne d a ut hor i z e d of f i c e r e f f e c t i ve a s of t he da t e f i r s t s e t f or t h a bove . AI R T, I NC. M a r k J undt Ge ne r a l Couns e l a nd Cor por a t e Se c r e t a r y 22131615v2 SI GNATURE PAGE TO CERTI FI CATE OF AM ENDM ENT TO THE CERTI FI CATE OF I NCORPORATI ON OF AI RT, I NC.
EXHIBIT 4.2
Description of the Registrant’s Securities
Registered Pursuant to Section 12 of the
Securities Exchange Act of 1934, as Amended
Description of Capital Stock
The following is a brief summary of the terms of the capital stock of Air T, Inc. (the "Company,” "we,” "our,” or "us”) which is based upon the Company’s Restated
Certificate of Incorporation dated October 30, 2001 (as amended from time to time, the "Certificate of Incorporation”) and Amended and Restated By-laws dated November 21,
2012 (the "Bylaws”). Our Common Stock (as defined below) is registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act”). The
summary is not complete and is qualified by reference to our Certificate of Incorporation and our Bylaws, which are filed as exhibits to this Form 10-K and are incorporated by
reference herein. We encourage you to read our Certificate of Incorporation, our Bylaws and the applicable provisions of the Delaware General Corporation Law (the "DGCL”)
for additional information.
As of May 1, 2021, our capital stock consists of the following:
•
•
•
•
4,000,000 authorized shares of common stock, par value $0.25 (the "Common Stock”).
50,000 authorized shares of preferred stock, par value $1.00 (the "Preferred Stock”). The Preferred Stock is not registered under Section 12 of the Exchange
Act.
4,000,000 authorized shares of Alpha Income Trust Preferred Securities, par value $25.00 (the "AIPs”).
1
8,400,000 warrants (the "Warrants”) to purchase the AIPs.
2
Currently, the Common Stock is publicly listed and traded on the NASDAQ Stock Market (the "NASDAQ”) under the symbol "AIRT.” And the AIPs and Warrants are
publicly listed and traded on the NASDAQ under the symbols "AIRTP” and "AIRTW,” respectively.
Common Stock
The number of authorized shares of Common Stock may be increased or decreased by the vote of a majority of the holders of the voting power of that class of capital
stock who are
1
The AIPs are issued by Air T Funding ("Air T Funding”), a statutory business trust formed under the laws of the State of Delaware.
2
The Warrants are issued by Air T Funding, and the AIPs are purchasable upon the exercise of the Warrants issued in connection therewith. Contemporaneously with the filing of Form 424B1 filed by
the Company effective as of June 10, 2019, the Company issued 1,600,000 AIPs to the holders of its Common Stock as a dividend. As a result of the Reverse Split, these holders now collectively hold an
aggregate of 160,000 AIPs.
1
entitled to vote generally in the election of directors, in accordance with Section 242(b)(2) of the DGCL or any equivalent provision enacted.
Voting Rights. The holders of Common Stock are entitled to one vote per share, and each stockholder shall at every meeting of the stockholder be entitled to vote such
number of share then held by such stockholder in person or by proxy, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period.
Holders of all classes of capital stock of the Company are entitled to vote together as a single class on all matters presented to the stockholders for their vote or approval, except
for the election and the removal of directors as discussed below, or otherwise as required by applicable law.
Dividends. Dividends upon the capital stock of the Company, if any, may be declared by the Board at any regular or special meeting, pursuant to the DGCL. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to the discretion of the Board. As of the date hereof, the Company has not paid a dividend since 2014.
Holders of Common Stock are entitled to receive dividends at the same rate whenever dividends are declared by the Board out of assets legally available for their
payment, after payment of any dividends required to be paid on shares of Preferred Stock outstanding, as set forth in the Certificate of Incorporation.
Before payment of any dividend, there may be set aside out of any funds of the Company available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Company, or
for such other purpose as the directors shall think conducive to the interest of the Company, and the directors may modify or abolish any such reserve in the manner in which it was
created.
Conversion. Common Stock has no conversion rights.
Liquidation. If we liquidate, any assets remaining after (i) payment of our debts and other liabilities (ii) setting aside sufficient amounts for any payment due to any holders
of Preferred Stock, will be distributable ratably among the holders of the Common Stock treated as a single class.
The holders of Common Stock are not entitled to preemptive rights.
AIPs and Warrants
As a result of one-for-ten reverse split (the "Reverse Split”) of the AIPs effective January 14, 2020, each Warrant entitles the holder to purchase one-tenth of one (1/10) AIP
for $2.40 per share, at any time, which price represents a 4% discount to the $2.50 face value for 1/10 of an AIP. Pursuant to the filing of that certain Current Report on Form 8-
K filed by the Company on January 11, 2021, the Warrants will expire on August 30, 2021, unless redeemed at an earlier date thereto.
2
Air T Funding exists for the sole purpose of issuing the AIPs and investing the proceeds thereof in 8% Junior Subordinated Debentures (the "Debentures”) to be issued by
the Company. The AIPs represent undivided beneficial interests in Air T Funding’s assets, which will consist solely of the Debentures and payments thereunder.
Distributions. The distributions payable on each AIP will be fixed at a rate per annum of 8% of the liquidation amount of $25.00 per AIP (the "Liquidation Amount”), will be
cumulative, will accrue from the date of issuance of the AIPs, and will be payable quarterly in arrears on the 15th day of February, May, August and November of each year,
commencing on August 15, 2019 (subject to possible deferral as described in Form 424B5 filed by the Company effective as of May 14, 2021). The amount of each distribution
due with respect to the AIPs will include amounts accrued through the date the distribution payment is due. Additionally, from time to time the Board may, in its sole discretion,
declare distributions in addition to the distributions equal to the 8.0% per annum Liquidation Amount.
Redemption.
The AIPs are subject to mandatory redemption at any time on or after June 7, 2024. Upon the repayment or redemption at any time, in whole or in part, of any Debenture,
the proceeds from such repayment or redemption shall be applied to redeem a like amount of the AIP as set forth in Form 424B5 filed by the Company effective as of May 14,
2021. If less than all of the Debentures are to be repaid or redeemed, then the proceeds from such repayment or redemption shall be allocated to the redemption of the AIPs pro
rata. Additionally, the AIPs may be subject to a mandatory redemption upon certain tax, investment company or capital treatment events, as further described in Form 424B5 filed
by the Company effective as of May 14, 2021.
Voting Rights. The holders of the AIPs will generally have no voting rights except for in limited circumstances relating only to the modification of the AIPs, the dissolution,
winding-up or termination of Air T Funding. Any required approval of holders of the AIPs may be given at a meeting of holders of AIPs convened for such purpose or pursuant to
written consent. The property trustee of Air T Funding will cause a notice of any meeting at which holders of the AIPs are entitled to vote, or of any matter upon which action by
written consent of such holders is to be taken, to be given to each holder of record of the AIPs in the manner set forth in the Trust Agreement of Air T Funding. No vote or
consent of the holders of the AIPs will be required for Air T Funding to redeem and cancel the AIPs in accordance with the Trust Agreement.
3
Notwithstanding that holders of the AIPs are entitled to vote or consent under any of the circumstances described above, any of the AIPs that are owned by the Company,
the trustees of Air T Funding or any affiliate of the Company or any such trustees, shall, for purposes of such vote or consent, be treated as if they were not outstanding.
3
The term "Trust Agreement” as used herein means the Interim Trust Agreement dated as of September 28, 2018, among the Company, as Depositor, Delaware Trust Company, as Delaware Trustee and
the individual Operating Trustees, as superseded and replaced by the Trust Agreement dated as of June 10, 2019, as further amended and supplemented from time to time, among the Company, as
Depositor, Delaware Trust Company, as Property Trustee, Delaware Trust Company, as Delaware Trustee and the individual Administrative Trustees.
3
Exercise of the Warrants. Each Warrant entitles the holder to purchase one-tenth of one (1/10) AIP for $2.40 per share, at any time following the registration of the
Warrants pursuant to Form 424B1 filed by the Company effective as of June 10, 2019, and with such price representing a discount to the $2.50 face value for 1/10 of an AIP.
The Warrants expired on August 30, 2021, unless redeemed at an earlier date thereto.
Liquidation. The Company will have the right, at any time, to terminate Air T Funding and cause the Debentures to be distributed to the holders of the AIPs thereupon.
Such right is subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve.
In addition, Air T Funding shall automatically terminate upon expiration of its term or shall earlier terminate on the first to occur of certain events as set forth in the Trust Agreement.
If an early termination of Air T Funding occurs, Air T Funding shall be liquidated by its trustees as expeditiously as such trustees determine to be possible by distributing,
after satisfaction of liabilities to creditors of Air T Funding as provided by applicable law, to the holders of AIPs and Air T Funding common securities (the "Common Securities”)
a like amount of the Debentures, unless such distribution is determined by the Property Trustee of Air T Funding not to be practical. In such an event, such AIP and Common
Security holders will be entitled to receive out of the assets of Air T Funding available for distribution to holders, after satisfaction of liabilities to creditors of Air T Funding as
provided by applicable law, an amount equal to, in the case of holders of AIPs, the aggregate of the Liquidation Amount of $25.00 per AIP plus accrued and unpaid distributions
thereon to the date of payment (such amount being the "Liquidation Distribution”).
If such Liquidation Distribution can be paid only in part because Air T Funding has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the
amounts payable directly by Air T Funding on the AIPs shall be paid on a pro rata basis. The holder(s) of the Common Securities will be entitled to receive distributions upon any
such liquidation pro rata with the holders of the AIPs, except that if a Debenture "Event of Default” (as that term is defined in Form 424B5 filed by the Company effective as of
May 14, 2021) has occurred and is continuing, the AIPs shall have a priority over the Common Securities.
21842572v2
4
084126\ 050\ 6335984. v3 AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE U. S. $19, 000, 000. 00 Da t e d a s of J une 23, 2023 M i nne t onka , M i nne s ot a FOR VALUE RECEI VED, on t he Re vol vi ng Cr e di t Te r m i na t i on Da t e ( a s de f i ne d i n t he Cr e di t Agr e e m e nt he r e i na f t e r de f i ne d) t he unde r s i gne d, AI R T, I NC. , a De l a wa r e c or por a t i on ( t he " Bor r owe r ” ) , pr om i s e s t o pa y t o t he or de r of M I NNESOTA BANK & TRUST, a di vi s i on of HTLF Ba nk, s uc c e s s or by m e r ge r t o M i nne s ot a Ba nk a nd Tr us t ( t he " Le nde r ” ) , t he pr i nc i pa l s um of NI NETEEN M I LLI ON AND NO/ 100THS DOLLARS ( U. S. $19, 000, 000. 00) or , i f l e s s , t he a ggr e ga t e unpa i d pr i nc i pa l a m ount of a l l Re vol vi ng Cr e di t Loa ns ( a s he r e i na f t e r de f i ne d) m a de by t he Le nde r t o t he Bor r owe r pur s ua nt t o t he Cr e di t Agr e e m e nt . VARI ABLE I NTEREST RATE. The i nt e r e s t r a t e on t hi s Not e i s s ubj e c t t o c ha nge f r om t i m e t o t i m e a nd i nt e r e s t s ha l l a c c r ue on t he out s t a ndi ng a m ount s unde r t hi s Not e a t t he gr e a t e r of : ( a ) f i ve pe r c e nt ( 5. 0% ) or ( b) t he f ol l owi ng f l oa t i ng r a t e of i nt e r e s t pe r a nnum ( t he " I nde x” ) : a n a dj us t e d r a t e ( t he " Adj us t e d
Te r m SOFR Ra t e ” ) t ha t i s e qua l t o: ( 1) t he gr e a t e r of ( A) z e r o pe r c e nt ( 0. 0% ) ( t he " Fl oor ” ) a nd ( B) t he f or wa r d- l ooki ng t e r m r a t e ba s e d on SOFR f or a one m ont h pe r i od ( t o t he e xt e nt t ha t s uc h t e nor i s a va i l a bl e t o Le nde r a nd Le nde r ha s de t e r m i ne d i t c a n be a dm i ni s t e r e d) , a s quot e d by Le nde r ba s e d on t he we bs i t e of t he CM E Gr oup Be nc hm a r k Adm i ni s t r a t i on Li m i t e d ( CBA) ( or a s uc c e s s or a dm i ni s t r a t or of t he Te r m SOFR Ra t e s e l e c t e d by Le nde r ( t he " Te r m SOFR Adm i ni s t r a t or ” ) ) ( " Te r m SOFR” ) , ba s e d on t he a ppl i c a bl e Te r m SOFR r a t e a s de t e r m i ne d by Le nde r a nd a s i n e f f e c t on e a c h a ppl i c a bl e da t e of de t e r m i na t i on, i n e a c h c a s e , a s s uc h Te r m SOFR r a t e c ha nge s a nd i s r e c a l c ul a t e d f r om t i m e t o t i m e i n a c c or da nc e wi t h t he t e r m s be l ow, a nd a s a dj us t e d f or a l l a ppl i c a bl e r e s e r ve r e qui r e m e nt s a nd a ny c os t s a r i s i ng f r om t i m e t o t i m e i n c onne c t i on wi t h a c ha nge i n gove r nm e nt r e gul a t i on a s r e a s ona bl y de t e r m i ne d by Le nde r ( s uc h hi ghe r a m ount , t he " Te r m SOFR Ra t e ” ) , pl us ( 2) t he Appl i c a bl e M a r gi n ( a s s uc h t e r m i s de f i ne d i n t he
Cr e di t Agr e e m e nt , he r e i na f t e r de f i ne d) ; pr ovi de d, t ha t i n t he e ve nt Bor r owe r e nt e r s i nt o a n i nt e r e s t s wa p wi t h Le nde r wi t h r e s pe c t t o i nt e r e s t a c c r ui ng unde r t hi s Not e , t he Fl oor wi l l a ut om a t i c a l l y be de e m e d not t o a ppl y t o t he pr i nc i pa l por t i on of t hi s Not e t ha t i s s o he dge d f or t he dur a t i on of s uc h i nt e r e s t r a t e s wa p t r a ns a c t i on a nd t he f or e goi ng i s l i m i t e d s ol e l y t o a n i nt e r e s t r a t e s wa p t r a ns a c t i on wi t h t he Le nde r a nd s ha l l not a ppl y t o a ny ot he r de r i va t i ve pr oduc t , s uc h a s i n i nt e r e s t r a t e c a p or c ol l a r . I nt e r e s t a c c r ue d dur i ng e a c h c a l e nda r m ont h s ha l l be due a nd pa ya bl e on t he f i r s t da y of t he f ol l owi ng c a l e nda r m ont h, wi t h t he f i r s t s uc h i nt e r e s t pa ym e nt due on J ul y 1, 2023. Subj e c t t o t he t e r m s of t hi s Not e , s o l ong a s t he a m ount s out s t a ndi ng unde r t hi s Not e a r e a c c r ui ng i nt e r e s t a t t he Adj us t e d Te r m SOFR Ra t e , t he n t he Te r m SOFR Ra t e wi l l be r e s e t on e a c h Bus i ne s s Da y ( t he " Re s e t Da t e ” ) us i ng t he Te r m SOFR Ra t e a s de t e r m i ne d t wo U. S. Gove r nm e nt Se c ur i t i e s Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE Pa ge 2 U. S. $19, 000, 000. 00 J une 23, 2023 Bus i ne s s Da ys pr e c e di ng t he a ppl i c a bl e Re s e t Da t e ( t he " Da i l y Re f e r e nc e Da t e ” ) ; pr ovi de d, t ha t i n t he e ve nt Bor r owe r e nt e r s i nt o a n i nt e r e s t r a t e he dge , s wa p, c ol l a r or ot he r s i m i l a r de r i va t i ve t r a ns a c t i on wi t h Le nde r wi t h r e s pe c t t o i nt e r e s t a c c r ui ng unde r t hi s Not e , t he Te r m SOFR Ra t e wi l l be r e s e t on t he f i r s t ( 1s t ) da y or t he f i f t e e nt h ( 15t h) da y of e a c h m ont h, a s a ppl i c a bl e , us i ng t he Te r m SOFR Ra t e a s de t e r m i ne d t wo U. S. Gove r nm e nt Se c ur i t i e s Bus i ne s s Da ys pr e c e di ng s uc h a ppl i c a bl e da y of t he m ont h ( t he " M ont hl y Re f e r e nc e Da t e ” ) ; pr ovi de d, f ur t he r , t ha t i f Te r m SOFR f or a one m ont h i nt e r e s t pe r i od i s not publ i s he d f or a ny a ppl i c a bl e Da i l y Re f e r e nc e Da t e or M ont hl y Re f e r e nc e Da t e , a nd Le nde r de t e r m i ne s i n i t s s ol e di s c r e t i on t ha t s uc h f a i l ur e i s t e m por a r y, t he a ppl i c a bl e Te r m SOFR Ra t e s ha l l be t he Te r m SOFR Ra t e f or a one m ont h pe r i od a s publ i s he d on t he m os t r e c e nt a ppl i c a bl e Bus i ne s s Da y t ha t Le nde r de t e r m i ne s s uc h Te r m SOFR Ra t e
wa s a va i l a bl e pr i or t o t he a ppl i c a bl e Da i l y Re f e r e nc e Da t e or M ont hl y Re f e r e nc e Da t e . The t e r m " Bus i ne s s Da y" m e a ns a ny da y t ha t i s not a Sa t ur da y, Sunda y or ot he r da y t ha t i s a l e ga l hol i da y unde r t he l a ws of t he St a t e of Ne w Yor k or i s a da y on whi c h ba nki ng i ns t i t ut i ons i n s uc h s t a t e a r e a ut hor i z e d or r e qui r e d by l a w t o c l os e . The t e r m " U. S. Gove r nm e nt Se c ur i t i e s Bus i ne s s Da y” m e a ns a ny da y e xc e pt f or a Sa t ur da y, a Sunda y or a da y on whi c h t he Se c ur i t i e s I ndus t r y a nd Fi na nc i a l M a r ke t s As s oc i a t i on r e c om m e nds t ha t t he f i xe d i nc om e de pa r t m e nt s of i t s m e m be r s be c l os e d f or t he e nt i r e da y f or pur pos e s of t r a di ng i n U. S. Gove r nm e nt Se c ur i t i e s . The t e r m " Fe de r a l Re s e r ve Boa r d” m e a ns t he Boa r d of Gove r nor s of t he Fe de r a l Re s e r ve Sys t e m of t he Uni t e d St a t e s . The t e r m " SOFR” m e a ns a r a t e e qua l t o t he s e c ur e d ove r ni ght f i na nc i ng r a t e a s a dm i ni s t e r e d by t he SOFR Adm i ni s t r a t or . FOR REFERENCE ONLY, on t he da t e he r e of , t he Te r m SOFR Ra t e i s 5. 08923% pe r a nnum a nd t he Adj us t e d Te r m SOFR Ra t e i s 5. 08923% . The Te r m SOFR Ra t e i s
a n i nde x us e d by Le nde r f or t he de t e r m i na t i on of i nt e r e s t a nd Te r m SOFR Ra t e a nd t he Adj us t e d Te r m SOFR Ra t e a r e not ne c e s s a r i l y t he l owe s t i nt e r e s t r a t e s c ha r ge d by Le nde r on ot he r l oa ns t o ot he r c us t om e r s . Bor r owe r unde r s t a nds a nd a gr e e s t ha t Le nde r m a y m a ke l oa ns t o ot he r c us t om e r s ba s e d on ot he r r a t e s of i nt e r e s t a s we l l . Le nde r wi l l i nf or m Bor r owe r of t he c ur r e nt Adj us t e d Te r m SOFR Ra t e f r om t i m e t o t i m e upon r e que s t by Bor r owe r . I NTEREST CALCULATI ON M ETHOD. I nt e r e s t on t hi s Not e i s c om put e d on a 365/ 360 ba s i s ; t ha t i s , by a ppl yi ng t he r a t i o of t he a ppl i c a bl e i nt e r e s t r a t e ove r a ye a r of 360 da ys , m ul t i pl i e d by t he out s t a ndi ng pr i nc i pa l ba l a nc e , m ul t i pl i e d by t he a c t ua l num be r of da ys t he pr i nc i pa l ba l a nc e i s out s t a ndi ng. Al l i nt e r e s t pa ya bl e unde r t hi s Not e i s c om put e d us i ng t hi s m e t hod. Thi s c a l c ul a t i on m e t hod r e s ul t s i n a hi ghe r e f f e c t i ve i nt e r e s t r a t e t ha n t he num e r i c i nt e r e s t r a t e s t a t e d i n t hi s Not e . The Te r m SOFR Ra t e s ha l l be de t e r m i ne d by Le nde r i n a c c or da nc e wi t h t he t e r m s he r e of , a nd s uc h
de t e r m i na t i on s ha l l be c onc l us i ve a bs e nt m a ni f e s t e r r or . CONFORM I NG CHANGES ADJ USTM ENT. I n c onne c t i on wi t h t he us e or a dm i ni s t r a t i on of Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE Pa ge 3 U. S. $19, 000, 000. 00 J une 23, 2023 Te r m SOFR, t he Te r m SOFR Ra t e a nd Adj us t e d Te r m SOFR Ra t e , Le nde r wi l l ha ve t he r i ght t o m a ke Conf or m i ng Cha nge s f r om t i m e t o t i m e a nd, not wi t hs t a ndi ng a nyt hi ng t o t he c ont r a r y i n t hi s Not e or i n a ny ot he r pr om i s s or y not e s , l oa n doc um e nt s or s e c ur i t y doc um e nt s , or ot he r a gr e e m e nt s be t we e n Bor r owe r a nd Le nde r ( e a c h a " Loa n Doc um e nt ” ) , a nd a ny a m e ndm e nt s i m pl e m e nt i ng s uc h Conf or m i ng Cha nge s wi l l be c om e e f f e c t i ve wi t hout a ny f ur t he r a c t i on or c ons e nt of a ny ot he r pa r t y t o t hi s Not e or a ny ot he r Loa n Doc um e nt . Le nde r wi l l not i f y Bor r owe r f r om t i m e t o t i m e of t he e f f e c t i ve ne s s of a ny Conf or m i ng Cha nge s i n c onne c t i on wi t h t he us e or a dm i ni s t r a t i on of Te r m SOFR, t he Te r m SOFR Ra t e or Adj us t e d Te r m SOFR Ra t e . The t e r m " Conf or m i ng Cha nge s ” m e a ns , wi t h r e s pe c t t o e i t he r t he us e or a dm i ni s t r a t i on of Te r m SOFR, t he Te r m SOFR Ra t e or t he Adj us t e d Te r m SOFR Ra t e or t he us e , a dm i ni s t r a t i on, a dopt i on or i m pl e m e nt a t i on of a ny Be nc hm a r k
( a s de f i ne d be l ow) r e pl a c e m e nt , a ny t e c hni c a l , a dm i ni s t r a t i ve or ope r a t i ona l c ha nge s ( i nc l udi ng c ha nge s t o t he de f i ni t i on of " Bus i ne s s Da y” ) , t i m i ng a nd f r e que nc y of de t e r m i ni ng r a t e s a nd m a ki ng pa ym e nt s of i nt e r e s t , t i m i ng of bor r owi ng r e que s t s or pr e pa ym e nt , c onve r s i on or c ont i nua t i on not i c e s , t he a ppl i c a bi l i t y a nd l e ngt h of l ookba c k pe r i ods , a nd ot he r t e c hni c a l , a dm i ni s t r a t i ve or ope r a t i ona l m a t t e r s ) t ha t Le nde r de c i de s m a y be a ppr opr i a t e t o r e f l e c t t he a dopt i on a nd i m pl e m e nt a t i on of a ny s uc h r a t e or t o pe r m i t t he us e a nd a dm i ni s t r a t i on t he r e of by Le nde r i n a m a nne r s ubs t a nt i a l l y c ons i s t e nt wi t h m a r ke t pr a c t i c e ( or , i f Le nde r de c i de s t ha t a dopt i on of a ny por t i on of s uc h m a r ke t pr a c t i c e i s not a dm i ni s t r a t i ve l y f e a s i bl e or i f Le nde r de t e r m i ne s t ha t no m a r ke t pr a c t i c e f or t he a dm i ni s t r a t i on of a ny s uc h r a t e e xi s t s , i n s uc h ot he r m a nne r of a dm i ni s t r a t i on a s Le nde r de c i de s i s r e a s ona bl y ne c e s s a r y i n c onne c t i on wi t h t he a dm i ni s t r a t i on of t hi s Not e a nd t he ot he r Loa n Doc um e nt s ) . UNAVAI LABI LI TY OF SOFR/ BENCHM ARK
REPLACEM ENT. Subj e c t t o t he Be nc hm a r k Re pl a c e m e nt pr ovi s i ons be l ow, i f , i n c onne c t i on wi t h t he i m pl e m e nt a t i on a nd us e of t he Te r m SOFR Ra t e : ( a ) Le nde r de t e r m i ne s ( whi c h de t e r m i na t i on s ha l l be c onc l us i ve a nd bi ndi ng a bs e nt m a ni f e s t e r r or ) t ha t t he " Te r m SOFR Ra t e ” c a nnot be de t e r m i ne d pur s ua nt t o t he de f i ni t i on t he r e of , ( b) Le nde r r e a s ona bl y de t e r m i ne s t ha t t he Adj us t e d Te r m SOFR Ra t e doe s not a de qua t e l y a nd f a i r l y r e f l e c t t he c os t t o Le nde r , or ( c ) Le nde r de t e r m i ne s t ha t a ny a ppl i c a bl e l a w ha s m a de i t unl a wf ul , or t ha t a ny gove r nm e nt a l a ut hor i t y ha s a s s e r t e d t ha t i t i s unl a wf ul , f or Le nde r or i t s a ppl i c a bl e l e ndi ng of f i c e t o m a ke , m a i nt a i n or f und l oa ns or a dva nc e s whos e i nt e r e s t i s de t e r m i ne d by r e f e r e nc e t o SOFR, Te r m SOFR, or t he Te r m SOFR Ra t e , or t o de t e r m i ne or c ha r ge i nt e r e s t r a t e s ba s e d upon SOFR, Te r m SOFR, or t he Te r m SOFR Ra t e ; t he n upon not i c e of a ny s uc h oc c ur r e nc e or de t e r m i na t i on by Le nde r t o Bor r owe r , a ny obl i ga t i on of Le nde r t o m a ke a va i l a bl e t he Adj us t e d Te r m SOFR Ra t e , a nd a ny r i ght of Bor r owe r
t o us e t he Adj us t e d Te r m SOFR Ra t e , s ha l l be s us pe nde d unt i l Le nde r r e voke s s uc h not i c e . Upon r e c e i pt of s uc h not i c e , a l l a m ount s out s t a ndi ng unde r t hi s Not e wi l l be de e m e d t o a c c r ue a t t he Be nc hm a r k Re pl a c e m e nt r a t e , i f a ppl i c a bl e , or i f s uc h Be nc hm a r k Re pl a c e m e nt r a t e i s not a va i l a bl e or doe s not a de qua t e l y a nd f a i r l y r e f l e c t t he c os t t o Le nde r , a t t he Adj us t e d Pr i m e Ra t e . The t e r m " Adj us t e d Pr i m e Ra t e ” Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE Pa ge 4 U. S. $19, 000, 000. 00 J une 23, 2023 m e a ns a va r i a bl e r a t e of i nt e r e s t t ha t i s e qua l t o: ( 1) t he gr e a t e r of ( A) f i ve pe r c e nt ( 5. 0% ) , a nd ( B) t he r a t e l a s t quot e d by The W a l l St r e e t J our na l a s t he " Pr i m e Ra t e ” i n t he Uni t e d St a t e s or , i f The W a l l St r e e t J our na l c e a s e s t o quot e s uc h r a t e , t he hi ghe s t pe r a nnum i nt e r e s t r a t e publ i s he d by t he Fe de r a l Re s e r ve Boa r d i n Fe de r a l Re s e r ve St a t i s t i c a l Re l e a s e H. 15 ( 519) ( Se l e c t e d I nt e r e s t Ra t e s ) a s t he " ba nk pr i m e l oa n” r a t e or , i f s uc h r a t e i s no l onge r quot e d t he r e i n, a ny s i m i l a r r a t e quot e d t he r e i n ( a s de t e r m i ne d by Le nde r ) or a ny s i m i l a r r e l e a s e by t he Fe de r a l Re s e r ve Boa r d ( a s de t e r m i ne d by Le nde r ) ( s uc h hi ghe r a m ount , t he " Pr i m e Ra t e ” ) , pl us ( 2) a n a ppl i c a bl e pe r c e nt a ge s e l e c t e d by Le nde r , t a ki ng i nt o c ons i de r a t i on a ny s e l e c t i on or r e c om m e nda t i on of a r e pl a c e m e nt r a t e by a ny r e l e va nt a ge nc y or a ut hor i t y, a nd e vol vi ng or pr e va i l i ng m a r ke t pr a c t i c e , t o r e a s ona bl y a ppr oxi m a t e t he Adj us t e d Te r m SOFR Ra t e or ot he r wi s e a de qua t e l y a nd
f a i r l y r e f l e c t t he c os t t o Le nde r , a s de t e r m i ne d i n i t s di s c r e t i on ( t he " Pr i m e M a r gi n” ) . BENCHM ARK REPLACEM ENT. ( a ) Be nc hm a r k Re pl a c e m e nt . Not wi t hs t a ndi ng a nyt hi ng t o t he c ont r a r y, i f Le nde r ha s de t e r m i ne d i n i t s s ol e di s c r e t i on t ha t ( i ) t he a dm i ni s t r a t or of Te r m SOFR, or a ny r e l e va nt a ge nc y or a ut hor i t y f or s uc h a dm i ni s t r a t or , of Te r m SOFR ( or a ny s ubs t i t ut e i nde x whi c h r e pl a c e s t he Te r m SOFR ( Te r m SOFR or s uc h r e pl a c e m e nt , t he " Be nc hm a r k” ) ) ha s a nnounc e d t ha t s uc h Be nc hm a r k wi l l no l onge r be pr ovi de d, ( i i ) a ny r e l e va nt a ge nc y or a ut hor i t y ha s a nnounc e d t ha t s uc h Be nc hm a r k i s no l onge r r e pr e s e nt a t i ve , or ( i i i ) a ny s i m i l a r c i r c um s t a nc e e xi s t s s uc h t ha t s uc h Be nc hm a r k ha s be c om e pe r m a ne nt l y una va i l a bl e or c e a s e d t o e xi s t ( e a c h a " Be nc hm a r k Tr a ns i t i on Eve nt ” ) , t he n Le nde r s ha l l ( x) r e pl a c e s uc h Be nc hm a r k wi t h a r e pl a c e m e nt r a t e or ( y) i f one or m or e s uc h c i r c um s t a nc e s a ppl y t o f e we r t ha n a l l t e nor s of s uc h Be nc hm a r k us e d f or de t e r m i ni ng a n I nt e r e s t Pe r i od he r e unde r , di s c ont i nue t he a va i l a bi l i t y of t he a f f e c t e d
i nt e r e s t pe r i ods . W i t h r e s pe c t t o Te r m SOFR, s uc h r e pl a c e m e nt r a t e wi l l be Da i l y Si m pl e SOFR unl e s s Le nde r r e a s ona bl y de t e r m i ne s t ha t Da i l y Si m pl e SOFR i s not r e a di l y a va i l a bl e or s ha l l ot he r wi s e r e a s ona bl y de t e r m i ne t ha t a di f f e r e nt r a t e ha s be e n r e c om m e nde d a s a r e pl a c e m e nt be nc hm a r k r a t e f or de t e r m i ni ng s uc h a r a t e by t he by t he Fe de r a l Re s e r ve Boa r d or t he Fe de r a l Re s e r ve Ba nk of Ne w Yor k, or a c om m i t t e e of f i c i a l l y e ndor s e d or c onve ne d by t he Fe de r a l Re s e r ve Boa r d or t he Fe de r a l Re s e r ve Ba nk of Ne w Yor k, or a ny s uc c e s s or t he r e t o ( t he " Re l e va nt Gove r nm e nt a l Body” ) . I n t he c a s e of a r e pl a c e m e nt r a t e ot he r t ha n Te r m SOFR, Le nde r m a y a dd a s pr e a d a dj us t m e nt s e l e c t e d by Le nde r , t a ki ng i nt o c ons i de r a t i on a ny s e l e c t i on or r e c om m e nda t i on of a r e pl a c e m e nt r a t e by a ny r e l e va nt a ge nc y or a ut hor i t y, a nd e vol vi ng or pr e va i l i ng m a r ke t pr a c t i c e . Suc h r e pl a c e m e nt r a t e s f or t he Be nc hm a r k a s a ppl i c a bl e , e a c h a " Be nc hm a r k Re pl a c e m e nt ” . The t e r m " Da i l y Si m pl e SOFR” m e a ns a da i l y r a t e ba s e d on SOFR a nd de t e r m i ne d by Le nde r i n
a c c or da nc e wi t h t he c onve nt i ons f or s uc h r a t e s e l e c t e d by Le nde r . ( b) Not i c e s ; St a nda r ds f or De c i s i ons a nd De t e r m i na t i ons . Le nde r wi l l not i f y Bor r owe r of ( i ) Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE Pa ge 5 U. S. $19, 000, 000. 00 J une 23, 2023 t he i m pl e m e nt a t i on of a ny Be nc hm a r k Re pl a c e m e nt a nd ( i i ) t he e f f e c t i ve ne s s of a ny Conf or m i ng Cha nge s i n c onne c t i on wi t h t he us e , a dm i ni s t r a t i on, a dopt i on or i m pl e m e nt a t i on of a Be nc hm a r k Re pl a c e m e nt . Le nde r wi l l not i f y Bor r owe r of t he r e m ova l or r e i ns t a t e m e nt of a ny t e nor of a Be nc hm a r k pur s ua nt t o c l a us e ( a ) a bove . Any de t e r m i na t i on, de c i s i on or e l e c t i on t ha t m a y be m a de by Le nde r pur s ua nt t o t hi s pr ovi s i on, i nc l udi ng a ny de t e r m i na t i on wi t h r e s pe c t t o a t e nor , r a t e or a dj us t m e nt or of t he oc c ur r e nc e or non- oc c ur r e nc e of a n e ve nt , c i r c um s t a nc e or da t e a nd a ny de c i s i on t o t a ke or r e f r a i n f r om t a ki ng a ny a c t i on or a ny s e l e c t i on, wi l l be c onc l us i ve a nd bi ndi ng a bs e nt m a ni f e s t e r r or a nd m a y be m a de i n i t s s ol e di s c r e t i on a nd wi t hout c ons e nt f r om a ny ot he r pa r t y t o t hi s Not e or a ny ot he r Loa n Doc um e nt s , e xc e pt , i n e a c h c a s e , a s e xpr e s s l y r e qui r e d pur s ua nt t o t hi s pr ovi s i on. Pa ym e nt s . Bot h pr i nc i pa l a nd i nt e r e s t a r e pa ya bl e i n l a wf ul
m one y of t he Uni t e d St a t e s of Am e r i c a t o t he Le nde r a t 9800 Br e n Roa d Ea s t , Sui t e 200, M i nne t onka , M N 55343 ( or ot he r l oc a t i on s pe c i f i e d by t he Le nde r ) i n i m m e di a t e l y a va i l a bl e f unds . By i t s e xe c ut i on of t hi s Not e , t he Bor r owe r a ut hor i z e s t he Le nde r t o c ha r ge f r om t i m e t o t i m e a ga i ns t a ny of Bor r owe r ’ s de pos i t or y a c c ount s m a i nt a i ne d wi t h t he Le nde r a ny s uc h pa ym e nt s whe n due a nd t he Le nde r wi l l us e i t s r e a s ona bl e e f f or t s t o not i f y t he Bor r owe r of s uc h c ha r ge s . Pr e pa ym e nt ; M i ni m um I nt e r e s t Cha r ge . I n a ny e ve nt , e ve n upon f ul l pr e pa ym e nt of t hi s Not e , Bor r owe r unde r s t a nds t ha t Le nde r i s e nt i t l e d t o a m i ni m um i nt e r e s t c ha r ge of $15. 00. Ot he r t ha n Bor r owe r ’ s obl i ga t i ons t o pa y a ny m i ni m um i nt e r e s t c ha r ge , Bor r owe r m a y pa y wi t hout pe na l t y a l l or a por t i on of t he a m ount e a r l i e r t ha n i t i s due . Ea r l y pa ym e nt s wi l l not , unl e s s a gr e e d t o by Le nde r i n wr i t i ng, r e l i e ve Bor r owe r of Bor r owe r ’ s obl i ga t i on t o c ont i nue t o m a ke pa ym e nt s of a c c r ue d unpa i d i nt e r e s t . Ra t he r , e a r l y pa ym e nt wi l l r e duc e t he pr i nc i pa l ba l a nc e due .
Bor r owe r a gr e e s not t o s e nd Le nde r pa ym e nt s m a r ke d " pa i d i n f ul l ” , " wi t hout r e c our s e ” , or s i m i l a r l a ngua ge . I f Bor r owe r s e nds s uc h a pa ym e nt , Le nde r m a y a c c e pt i t wi t hout l os i ng a ny of Le nde r ’ s r i ght s unde r t hi s Not e , a nd Bor r owe r wi l l r e m a i n obl i ga t e d t o pa y a ny f ur t he r a m ount owe d t o Le nde r . Al l wr i t t e n c om m uni c a t i ons c onc e r ni ng di s put e d a m ount s , i nc l udi ng a ny c he c k or ot he r pa ym e nt i ns t r um e nt t ha t i ndi c a t e s t ha t t he pa ym e nt c ons t i t ut e s " pa ym e nt i n f ul l ” of t he a m ount owe d or t ha t i s t e nde r e d wi t h ot he r c ondi t i ons or l i m i t a t i ons or a s f ul l s a t i s f a c t i on of a di s put e d a m ount m us t be m a i l e d or de l i ve r e d t o: M i nne s ot a Ba nk & Tr us t , 9800 Br e n Roa d Ea s t , Sui t e 200, M i nne t onka , M N 55343. La t e Cha r ge . I f a pa ym e nt due he r e unde r i s not m a de wi t hi n s e ve n da ys a f t e r t he da t e whe n due , Bor r owe r s ha l l pa y t o Le nde r a l a t e pa ym e nt c ha r ge of 5% of t he a m ount of t he ove r due pa ym e nt t o c om pe ns a t e Le nde r f or a por t i on of t he c os t r e l a t e d t o ha ndl i ng t he ove r due pa ym e nt . I nt e r e s t Af t e r De f a ul t . Upon t he oc c ur r e nc e a nd dur i ng
t he c ont i nua nc e of a n Eve nt of De f a ul t , Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE Pa ge 6 U. S. $19, 000, 000. 00 J une 23, 2023 i nc l udi ng f a i l ur e t o pa y upon f i na l m a t ur i t y, t he i nt e r e s t r a t e on t hi s Not e s ha l l be i nc r e a s e d by a ddi ng a n a ddi t i ona l 3. 000 pe r c e nt a ge poi nt m a r gi n ove r t he i nt e r e s t r a t e t ha t woul d ot he r wi s e be i n e f f e c t he r e unde r ( s uc h i nc r e a s e d r a t e of i nt e r e s t be i ng, t he " De f a ul t Ra t e ” ) . Howe ve r , i n no e ve nt wi l l t he i nt e r e s t r a t e e xc e e d t he m a xi m um i nt e r e s t r a t e l i m i t a t i ons unde r a ppl i c a bl e l a w. Cr e di t Agr e e m e nt . Thi s Not e i s t he Re vol vi ng Cr e di t Not e r e f e r r e d t o i n, a nd i s e nt i t l e d t o t he be ne f i t s of , t he Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d a s of Augus t 31, 2021 ( a s a m e nde d, m odi f i e d, s uppl e m e nt e d or r e s t a t e d f r om t i m e t o t i m e be i ng t he " Cr e di t Agr e e m e nt ” ; c a pi t a l i z e d t e r m s not ot he r wi s e de f i ne d he r e i n be i ng us e d he r e i n a s t he r e i n de f i ne d) by a nd a m ong t he Bor r owe r , J e t Ya r d, LLC, a n Ar i z ona l i m i t e d l i a bi l i t y c om pa ny, a nd t he Le nde r . The Cr e di t Agr e e m e nt , a m ong ot he r t hi ngs , ( i ) pr ovi de s f or t he m a ki ng of Re vol vi ng Cr e di t Loa ns
( t he " Re vol vi ng Cr e di t Loa ns ” ) by t he Le nde r t o t he Bor r owe r f r om t i m e t o t i m e i n a n a ggr e ga t e a m ount not t o e xc e e d a t a ny t i m e out s t a ndi ng t he dol l a r a m ount f i r s t a bove m e nt i one d, t he i nde bt e dne s s of t he Bor r owe r r e s ul t i ng f r om e a c h s uc h Re vol vi ng Cr e di t Loa n be i ng e vi de nc e d by t hi s Not e ; ( i i ) c ont a i ns pr ovi s i ons f or a c c e l e r a t i on of t he m a t ur i t y he r e of upon t he ha ppe ni ng of c e r t a i n s t a t e d e ve nt s pr i or t o t he m a t ur i t y he r e of upon t he t e r m s a nd c ondi t i ons t he r e i n s pe c i f i e d; a nd ( i i i ) c ont a i ns pr ovi s i ons f or t he m a nda t or y pr e pa ym e nt he r e of upon c e r t a i n c ondi t i ons . Se c ur i t y Agr e e m e nt . Thi s Not e i s s e c ur e d by, a m ong ot he r t hi ngs , t ha t c e r t a i n Se c ur i t y Agr e e m e nt da t e d Augus t 31, 2021, e xe c ut e d by t he Bor r owe r a nd c e r t a i n of i t s Subs i di a r i e s i n f a vor of t he Le nde r . W a i ve r of Pr e s e nt m e nt a nd De m a nd f or Pa ym e nt ; Et c . Bor r owe r a nd a ny e ndor s e r s or gua r a nt or s he r e of s e ve r a l l y wa i ve pr e s e nt m e nt a nd de m a nd f or pa ym e nt , not i c e of i nt e nt t o a c c e l e r a t e m a t ur i t y, pr ot e s t or not i c e of pr ot e s t a nd non- pa ym e nt , br i ngi ng of s ui t a nd
di l i ge nc e i n t a ki ng a ny a c t i on t o c ol l e c t a ny s um s owi ng he r e unde r or i n pr oc e e di ng a ga i ns t a ny of t he r i ght s a nd pr ope r t i e s s e c ur i ng pa ym e nt he r e unde r , a nd e xpr e s s l y a gr e e t ha t t hi s Not e , or a ny pa ym e nt he r e unde r , m a y be e xt e nde d f r om t i m e t o t i m e , a nd c ons e nt t o t he a c c e pt a nc e of f ur t he r s e c ur i t y or t he r e l e a s e of a ny s e c ur i t y f or t hi s Not e , a l l wi t hout i n a ny wa y a f f e c t i ng t he l i a bi l i t y of Bor r owe r a nd a ny e ndor s e r s or gua r a nt or s he r e of . No e xt e ns i on of t i m e f or t he pa ym e nt of t hi s Not e , or a ny i ns t a l l m e nt t he r e of , m a de by a gr e e m e nt by Le nde r wi t h a ny Pe r s on now or he r e a f t e r l i a bl e f or t he pa ym e nt of t hi s Not e , s ha l l a f f e c t t he or i gi na l l i a bi l i t y unde r t hi s Not e of t he unde r s i gne d, e ve n i f t he unde r s i gne d i s not a pa r t y t o s uc h a gr e e m e nt . Eve nt of De f a ul t . Any " Eve nt of De f a ul t ” ( a s de f i ne d i n t he Cr e di t Agr e e m e nt ) s ha l l c ons t i t ut e a n Eve nt of De f a ul t unde r t hi s Not e . Upon t he oc c ur r e nc e of a n Eve nt of De f a ul t , i n a ddi t i on t o a ny ot he r r i ght s or r e m e di e s Le nde r m a y ha ve a t l a w or i n e qui t y or unde r t he Cr e di t Agr e e m e nt
or unde r a ny ot he r Loa n Doc um e nt , Le nde r m a y, a t i t s opt i on, wi t hout not i c e t o Bor r owe r , de c l a r e Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE Pa ge 7 U. S. $19, 000, 000. 00 J une 23, 2023 i m m e di a t e l y due a nd pa ya bl e t he e nt i r e unpa i d pr i nc i pa l s um he r e of , t oge t he r wi t h a l l a c c r ue d a nd unpa i d i nt e r e s t t he r e on pl us a ny ot he r s um s owi ng a t t he t i m e of s uc h Eve nt of De f a ul t pur s ua nt t o t hi s Not e , t he Se c ur i t y Agr e e m e nt or a ny ot he r Loa n Doc um e nt . The f a i l ur e t o e xe r c i s e t he f or e goi ng or a ny ot he r opt i ons s ha l l not c ons t i t ut e a wa i ve r of t he r i ght t o e xe r c i s e t he s a m e or a ny ot he r opt i on a t a ny s ubs e que nt t i m e i n r e s pe c t of t he s a m e e ve nt or a ny ot he r e ve nt . The a c c e pt a nc e by t he hol de r of a ny pa ym e nt he r e unde r whi c h i s l e s s t ha n pa ym e nt i n f ul l of a l l a m ount s due a nd pa ya bl e a t t he t i m e of s uc h pa ym e nt s ha l l not c ons t i t ut e a wa i ve r of t he r i ght t o e xe r c i s e a ny of t he f or e goi ng opt i ons a t t ha t t i m e or a t a ny s ubs e que nt t i m e . Expe ns e Re i m bur s e m e nt . Bor r owe r a gr e e s t o pa y a l l e xpe ns e s f or t he pr e pa r a t i on of t hi s Not e , a s s e t f or t h i n t he Cr e di t Agr e e m e nt , i nc l udi ng e xhi bi t s , a nd a ny a m e ndm e nt s t o t hi s Not e a s m a y f r om t i m e
t o t i m e he r e a f t e r be r e qui r e d, a nd t he r e a s ona bl e a t t or ne ys ’ f e e s a nd l e ga l e xpe ns e s of c ouns e l f or Le nde r f r om t i m e t o t i m e i nc ur r e d i n c onne c t i on wi t h t he pr e pa r a t i on a nd e xe c ut i on of t hi s Not e a nd a ny doc um e nt r e l e va nt t o t hi s Not e , a ny a m e ndm e nt s he r e t o or t he r e t o, a nd t he c ons i de r a t i on of l e ga l que s t i ons r e l e va nt he r e t o a nd t he r e t o. Bor r owe r a gr e e s t o r e i m bur s e Le nde r upon de m a nd f or a l l r e a s ona bl e out - of - poc ke t e xpe ns e s ( i nc l udi ng a t t or ne ys ’ f e e s a nd l e ga l e xpe ns e s ) i n c onne c t i on wi t h Le nde r ’ s e nf or c e m e nt of t he obl i ga t i ons of t he Bor r owe r he r e unde r or unde r t he Se c ur i t y Agr e e m e nt or a ny ot he r c ol l a t e r a l doc um e nt , whe t he r or not s ui t i s c om m e nc e d i nc l udi ng, wi t hout l i m i t a t i on, a t t or ne ys ’ f e e s a nd l e ga l e xpe ns e s i n c onne c t i on wi t h a ny a ppe a l of a l owe r c our t ’ s or de r or j udgm e nt . The obl i ga t i ons of t he Bor r owe r unde r t hi s pa r a gr a ph s ha l l s ur vi ve a ny t e r m i na t i on of t he Cr e di t Agr e e m e nt , t hi s Not e , t he Se c ur i t y Agr e e m e nt , a nd a ny ot he r Loa n Doc um e nt . Suc c e s s or s a nd As s i gns . Thi s Not e s ha l l be bi ndi ng upon a nd s ha l l
i nur e t o t he be ne f i t of t he pa r t i e s he r e t o a nd t he i r r e s pe c t i ve s uc c e s s or s a nd a s s i gns e xc e pt t ha t Bor r owe r m a y not a s s i gn or t r a ns f e r i t s r i ght s he r e unde r wi t hout t he pr i or wr i t t e n c ons e nt of Le nde r , whi c h c ons e nt m a y be wi t hhe l d i n Le nde r ’ s s ol e di s c r e t i on. I n c onne c t i on wi t h t he a c t ua l or pr os pe c t i ve s a l e by t he Le nde r of a ny i nt e r e s t or pa r t i c i pa t i on i n t he l oa n obl i ga t i on e vi de nc e d by t hi s Not e , Bor r owe r he r e by a ut hor i z e s t he Le nde r t o f ur ni s h a ny i nf or m a t i on c onc e r ni ng t he Bor r owe r or a ny of i t s a f f i l i a t e s , howe ve r a c qui r e d, t o a ny Pe r s on or e nt i t y. Us ur y. Bor r owe r a nd Le nde r a gr e e t ha t no pa ym e nt of i nt e r e s t or ot he r c ons i de r a t i on m a de or a gr e e d t o be m a de by Bor r owe r t o Le nde r pur s ua nt t o t hi s Not e s ha l l , a t a ny t i m e , be i n e xc e s s of t he m a xi m um r a t e of i nt e r e s t pe r m i s s i bl e by l a w. I n t he e ve nt s uc h pa ym e nt s of i nt e r e s t or ot he r c ons i de r a t i on pr ovi de d f or i n t hi s Not e s ha l l r e s ul t i n a n e f f e c t i ve r a t e of i nt e r e s t whi c h, f or a ny pe r i od of t i m e , i s i n e xc e s s of t he l i m i t of t he us ur y or a ny ot he r l a w a ppl i c a bl e t o t he
l oa n e vi de nc e d he r e by, a l l s um s i n e xc e s s of t hos e l a wf ul l y c ol l e c t i bl e a s i nt e r e s t f or t he pe r i od i n que s t i on s ha l l , wi t hout f ur t he r a gr e e m e nt or not i c e be t we e n or by a ny pa r t y he r e t o, be a ppl i e d t o Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE Pa ge 8 U. S. $19, 000, 000. 00 J une 23, 2023 t he unpa i d pr i nc i pa l ba l a nc e a nd not t o t he pa ym e nt of i nt e r e s t ; i f a s ur pl us r e m a i ns a f t e r f ul l pa ym e nt of pr i nc i pa l a nd l a wf ul i nt e r e s t , t he s ur pl us s ha l l be r e m i t t e d by Le nde r t o Bor r owe r , a nd Bor r owe r he r e by a gr e e s t o a c c e pt s uc h r e m i t t a nc e . Thi s pr ovi s i on s ha l l c ont r ol e ve r y ot he r obl i ga t i on of t he Bor r owe r a nd Le nde r r e l a t i ng t o t hi s Not e . Bus i ne s s Pur pos e Loa n. The Loa n i s a bus i ne s s l oa n. Bor r owe r he r e by r e pr e s e nt s t ha t t hi s l oa n i s f or c om m e r c i a l us e a nd not f or pe r s ona l , f a m i l y or hous e hol d pur pos e s . The Bor r owe r a gr e e s t ha t t he Loa n e vi de nc e d by t hi s Not e i s a n e xe m pt e d t r a ns a c t i on unde r t he Tr ut h I n Le ndi ng Ac t , 15 U. S. C. , §1601, e t s e q. Gove r ni ng La w. THE VALI DI TY, CONSTRUCTI ON AND ENFORCEABI LI TY OF THI S NOTE SHALL BE GOVERNED BY THE I NTERNAL LAW S OF THE STATE OF M I NNESOTA, W I THOUT GI VI NG EFFECT TO CONFLI CT OF LAW S PRI NCI PLES THEREOF. W AI VER OF DEFENSES. OTHER THAN CLAI M S BASED UPON THE FAI LURE OF THE LENDER TO ACT I N A
COM M ERCI ALLY REASONABLE M ANNER, THE BORROW ER W AI VES EVERY PRESENT AND FUTURE DEFENSE ( OTHER THAN THE DEFENSE OF PAYM ENT I N FULL OR THAT NO EVENT OF DEFAULT EXI STED) , CAUSE OF ACTI ON, COUNTERCLAI M OR SETOFF W HI CH THE BORROW ER M AY NOW HAVE OR HEREAFTER M AY HAVE TO ANY ACTI ON BY THE LENDER I N ENFORCI NG THI S NOTE OR ANY OF THE LOAN DOCUM ENTS. THI S PROVI SI ON I S A M ATERI AL I NDUCEM ENT FOR THE LENDER GRANTI NG ANY FI NANCI AL ACCOM M ODATI ON TO THE BORROW ER. W a i ve r of Ri ght t o J ur y Tr i a l ; Ve nue . BORROW ER W AI VES ANY RI GHT I T M AY HAVE TO A TRI AL BY J URY I N ANY ACTI ON RELATI NG TO OR ARI SI NG FROM THI S NOTE. AT THE OPTI ON OF LENDER, THI S NOTE M AY BE ENFORCED I N ANY UNI TED STATES DI STRI CT COURT FOR THE DI STRI CT OF M I NNESOTA OR THE STATE COURT SI TTI NG I N HENNEPI N OR RAM SEY COUNTY, M I NNESOTA. BORROW ER CONSENTS TO THE J URI SDI CTI ON AND VENUE OF ANY SUCH COURT AND W AI VES ANY ARGUM ENT THAT VENUE I N SUCH FORUM S I S NOT PROPER OR CONVENI ENT. I N THE EVENT AN ACTI ON I S COM M ENCED I N ANOTHER J URI SDI CTI ON OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARI SI NG DI RECTLY OR I NDI RECTLY FROM THE RELATI ONSHI P CREATED BY THI S NOTE, LENDER, AT I TS OPTI ON, SHALL BE ENTI TLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE J URI SDI CTI ONS AND VENUES ABOVE DESCRI BED, OR I F SUCH TRANSFER CANNOT BE ACCOM PLI SHED UNDER APPLI CABLE LAW , TO HAVE SUCH CASE DI SM I SSED Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE Pa ge 9 U. S. $19, 000, 000. 00 J une 23, 2023 W I THOUT PREJ UDI CE. Am e ndm e nt a nd Re s t a t e m e nt . Thi s Not e i s be i ng e xe c ut e d a nd de l i ve r e d i n a m e ndm e nt a nd r e s t a t e m e nt of , but not i n pa ym e nt of , t ha t c e r t a i n Am e nde d a nd Re s t a t e d Re vol vi ng Cr e di t Not e da t e d Augus t 31, 2021, m a de by t he Bor r owe r pa ya bl e t o t he or de r of t he Le nde r i n t he or i gi na l pr i nc i pa l a m ount of $17, 000, 000. 00 ( t he " Exi s t i ng Not e ” ) ; pr ovi de d, howe ve r , t ha t i nt e r e s t a c c r ue d on t he Exi s t i ng Not e t hr ough t he da t e he r e of s ha l l be due a nd pa ya bl e on J ul y 1, 2023. Thi s Not e i s gi ve n i n s ubs t i t ut i on f or , but not i n pa ym e nt of , t he Exi s t i ng Not e . The e xe c ut i on a nd de l i ve r y of t hi s Not e doe s not c ons t i t ut e pa ym e nt , c a nc e l l a t i on, s a t i s f a c t i on, di s c ha r ge , r e l e a s e or nova t i on of t he Exi s t i ng Not e . De l i ve r y a nd a c c e pt a nc e of t hi s Not e s ha l l not e vi de nc e r e pa ym e nt of or a nova t i on wi t h r e s pe c t t o t he Exi s t i ng Not e or a ny r e m a i ni ng i nde bt e dne s s unde r t he Exi s t i ng Not e , whi c h i nde bt e dne s s r e m a i ns out s t a ndi ng a nd s ha l l be e vi de nc e d by t hi s
Not e . Count e r pa r t s . Thi s Not e m a y be e xe c ut e d i n a ny num be r of c ount e r pa r t s , e a c h of whi c h s ha l l be de e m e d a n or i gi na l a nd a l l of whi c h t oge t he r c ons t i t ut e a f ul l y e xe c ut e d Not e e ve n t hough a l l s i gna t ur e s do not a ppe a r on t he s a m e doc um e nt . Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
AM ENDED AND RESTATED REVOLVI NG CREDI T NOTE Pa ge 10 U. S. $19, 000, 000. 00 I N W I TNESS W HEREOF, t hi s Am e nde d a nd Re s t a t e d Re vol vi ng Cr e di t Not e ha s be e n e xe c ut e d t o be e f f e c t i ve a s of t he da t e s e t f or t h a bove . BORROW ER: AI R T, I NC. , a De l a wa r e c or por a t i on By: Na m e : Br i a n Oc hoc ki I t s : Chi e f Fi na nc i a l Of f i c e r LENDER: M I NNESOTA BANK & TRUST, a di vi s i on of HTLF Ba nk, s uc c e s s or by m e r ge r t o M i nne s ot a Ba nk a nd Tr us t By: _________________________________ Na m e : Di a nne W e gs c he i d Ti t l e : Se ni or Vi c e Pr e s i de nt Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 AM ENDM ENT NO. 3 TO THI RD AM ENDED AND RESTATED CREDI T AGREEM ENT Thi s AM ENDM ENT NO. 3 TO THI RD AM ENDED AND RESTATED CREDI T AGREEM ENT da t e d a s of J une 23, 2023 ( t he " Am e ndm e nt ” ) , be t we e n Ai r T, I nc . , a De l a wa r e c or por a t i on ( t oge t he r wi t h i t s s uc c e s s or s a nd a s s i gns , " Ai r T” ) , J e t Ya r d, LLC, a n Ar i z ona l i m i t e d l i a bi l i t y c om pa ny ( t oge t he r wi t h i t s s uc c e s s or s a nd a s s i gns , " J e t Ya r d” ; a nd t oge t he r wi t h Ai r T be i ng s om e t i m e s c ol l e c t i ve l y r e f e r r e d t o he r e i n a s t he " Bor r owe r s ” a nd i ndi vi dua l l y a s a " Bor r owe r ” ) , a nd M i nne s ot a Ba nk & Tr us t , a di vi s i on of HTLF Ba nk, s uc c e s s or by m e r ge r t o M i nne s ot a Ba nk a nd Tr us t ( t he " Le nde r ” ) . RECI TALS: A. The Bor r owe r s a nd t he Le nde r a r e pa r t i e s t o t ha t c e r t a i n Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d a s of Augus t 31, 2021, a s a m e nde d by t ha t c e r t a i n Am e ndm e nt No. 1 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d J une 9, 2022, a nd by t ha t c e r t a i n Am e ndm e nt No. 2 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d J a nua r y 31, 2023 ( t he " Or i gi na l
Agr e e m e nt ” ) , pur s ua nt t o whi c h Le nde r ha s a gr e e d t o e xt e nd c r e di t t o t he Bor r owe r s unde r t he t e r m s a nd c ondi t i ons s e t f or t h t he r e i n. B. The Bor r owe r s ha ve r e que s t e d t ha t t he Le nde r a gr e e t o ( 1) e xt e nd t he Re vol vi ng Cr e di t Te r m i na t i on Da t e t o Augus t 31, 2024, a nd ( 2) pr ovi de f or a s e a s ona l i nc r e a s e i n t he Re vol vi ng Cr e di t Com m i t m e nt . C. Subj e c t t o t he t e r m s a nd c ondi t i ons of t hi s Am e ndm e nt , t he Le nde r wi l l a gr e e t o t he f or e goi ng r e que s t of t he Bor r owe r s . NOW , THEREFORE, t he pa r t i e s a gr e e a s f ol l ows : 1. De f i ne d Te r m s . Al l c a pi t a l i z e d t e r m s us e d i n t hi s Am e ndm e nt s ha l l , e xc e pt whe r e t he c ont e xt ot he r wi s e r e qui r e s , ha ve t he m e a ni ngs s e t f or t h i n t he Or i gi na l Agr e e m e nt a s a m e nde d he r e by. 2. Am e ndm e nt s . ( a ) The de f i ni t i on of t he t e r m s " Re vol vi ng Cr e di t Com m i t m e nt ” , " Re vol vi ng Cr e di t Not e ” a nd " Re vol vi ng Cr e di t Te r m i na t i on Da t e ” , a ppe a r i ng i n Se c t i on Ar t i c l e I of t he Or i gi na l Agr e e m e nt a r e he r e by a m e nde d i n t he i r r e s pe c t i ve e nt i r e t i e s t o r e a d a s f ol l ows : " ‘ Re vol vi ng Cr e di t Com m i t m e nt ’ m e a ns t he obl i ga t i on of t he Le nde r
t o m a ke Re vol vi ng Cr e di t Loa ns t o Ai r T a nd i s s ue Le t t e r s of Cr e di t f or t he a c c ount of Ai r T i n a n a ggr e ga t e pr i nc i pa l a m ount not t o e xc e e d ( a ) $19, 000, 000 dur i ng t he pe r i od c om m e nc i ng on M a y 1 a nd e ndi ng on Nove m be r 30 of e a c h ye a r , or ( b) $17, 000, 000 a t a l l ot he r t i m e s , a s t he s a m e m a y be c ha nge d f r om t i m e t o t i m e pur s ua nt t o t he t e r m s he r e of . Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
2 084126. 039 | 6467377v4 ‘ Re vol vi ng Cr e di t Not e ’ m e a ns t he Am e nde d a nd Re s t a t e d Re vol vi ng Cr e di t Not e i n t he or i gi na l pr i nc i pa l a m ount of $19, 000, 000. 00, da t e d J une 23, 2023, i n t he f or m pr ovi de d by Le nde r , m a de by Ai r T pa ya bl e t o t he or de r of t he Le nde r , a s s uc h pr om i s s or y not e m a y be a m e nde d, m odi f i e d or s uppl e m e nt e d f r om t i m e t o t i m e , a nd s uc h t e r m s ha l l i nc l ude a ny s ubs t i t ut i ons f or , or r e ne wa l s of , s uc h pr om i s s or y not e . ‘ Re vol vi ng Cr e di t Te r m i na t i on Da t e ’ m e a ns t he e a r l i e s t t o oc c ur of ( a ) Augus t 31, 2024, ( b) t he da t e t he Re vol vi ng Cr e di t Com m i t m e nt i s pe r m a ne nt l y r e duc e d t o z e r o pur s ua nt t o Er r or ! Re f e r e nc e s our c e not f ound. , a nd ( c ) t he t e r m i na t i on of t he Re vol vi ng Cr e di t Com m i t m e nt pur s ua nt t o Se c t i on 8. 02. ” ( b) Ar t i c l e I of t he Or i gi na l Agr e e m e nt i s f ur t he r a m e nde d by i ns e r t i ng de f i ni t i ons of t he f ol l owi ng t e r m s i n t he a ppr opr i a t e a l pha be t i c a l or de r : " ‘ Appl i c a bl e M a r gi n’ m e a ns , a t a ny da t e of de t e r m i na t i on, t he pe r c e nt a ge i ndi c a t e d be l ow i n a c c or da nc e wi t h t he Tot a l Funde d De bt Le ve r a ge Ra t i o a t s uc h
da t e : Tot a l Funde d De bt Le ve r a ge Ra t i o Appl i c a bl e M a r gi n Le s s t ha n t o 2. 00: 1. 00 2. 25% Gr e a t e r t ha n or e qua l t o 2. 00: 1. 00 but l e s s t ha n 2. 75: 1. 00 2. 50% Gr e a t e r t ha n or e qua l t o 2. 75: 1. 00 but l e s s t ha n 3. 25: 1. 00 2. 75% Gr e a t e r t ha n or e qua l t o 3. 25: 1. 00 3. 25% The Appl i c a bl e M a r gi n on t he Thi r d Am e ndm e nt Ef f e c t i ve Da t e i s 3. 25% a nd t he Appl i c a bl e M a r gi n s ha l l c ont i nue a t s uc h pe r c e nt a ge unt i l c ha nge d i n a c c or da nc e wi t h t he t e r m s of t hi s de f i ni t i on. The Tot a l Funde d De bt Le ve r a ge Ra t i o a nd t he Appl i c a bl e M a r gi n wi l l be de t e r m i ne d a t e a c h Appl i c a bl e M a r gi n De t e r m i na t i on Da t e , c om m e nc i ng wi t h t he Se pt e m be r 30, 2023 Appl i c a bl e M a r gi n De t e r m i na t i on Da t e , a s c a l c ul a t e d f r om t he f i na nc i a l s t a t e m e nt s de l i ve r e d by t he Bor r owe r s f or Ai r T’ s f i s c a l qua r t e r e ndi ng on s uc h Appl i c a bl e M a r gi n De t e r m i na t i on Da t e pur s ua nt t o Se c t i on 6. 01( b) of t hi s Agr e e m e nt . Any i nc r e a s e or de c r e a s e i n: ( a ) t he Appl i c a bl e M a r gi n s ha l l a ppl y t o a l l t he n e xi s t i ng or t he r e a f t e r a r i s i ng Re vol vi ng Cr e di t Loa ns ; a nd ( b) t he Appl i c a bl e M a r gi n s ha l l be c om e
e f f e c t i ve a s of t he f i r s t da y of t he f i r s t m ont h f ol l owi ng t he da t e on whi c h t he Bor r owe r s de l i ve r Ai r T’ s f i na nc i a l s t a t e m e nt s t o t he Le nde r i n a c c or da nc e wi t h Se c t i on 6. 01( b) s howi ng t ha t t he Tot a l Funde d De bt Le ve r a ge Ra t i o a s c a l c ul a t e d f or a n Appl i c a bl e M a r gi n De t e r m i na t i on Da t e r e qui r e d a c ha nge i n t he Appl i c a bl e M a r gi n, a nd s ha l l c ont i nue t o be e f f e c t i ve unt i l s ubs e que nt l y c ha nge d i n a c c or da nc e wi t h t hi s de f i ni t i on; pr ovi de d, t ha t , i f t he f i na nc i a l s t a t e m e nt s r e qui r e d by Se c t i on 6. 01( b) a r e not de l i ve r e d i n t he t i m e pe r i ods pr ovi de d t he r e i n, t he n t he Tot a l Funde d De bt Le ve r a ge Ra t i o wi l l be de e m e d t o be gr e a t e r t ha n 3. 25 t o 1. 0. Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
3 084126. 039 | 6467377v4 ‘ Appl i c a bl e M a r gi n De t e r m i na t i on Da t e ’ m e a ns t he l a s t da y of e a c h of Ai r T’ s f i s c a l qua r t e r s t ha t e nd on M a r c h 31 or Se pt e m be r 30 of e a c h ye a r . ‘ Thi r d Am e ndm e nt ’ m e a ns t ha t c e r t a i n Am e ndm e nt No. 3 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d a s of J une 23, 2023, a m e ndi ng t hi s Agr e e m e nt . ‘ Thi r d Am e ndm e nt Ef f e c t i ve Da t e ’ m e a ns t he ‘ Ef f e c t i ve Da t e ’ of t he Thi r d Am e ndm e nt , a s s uc h t e r m i s t he r e i n de f i ne d. ‘ Tot a l Funde d De bt ’ m e a ns , a t a ny Appl i c a bl e M a r gi n De t e r m i na t i on Da t e , a l l De bt f or bor r owe d m one y ( i nc l udi ng t he Loa ns ) , a l l I nde bt e dne s s e vi de nc e d by not e s , bonds , de be nt ur e s , or s i m i l a r i ns t r um e nt s , a nd a l l Ca pi t a l Le a s e Obl i ga t i ons , a nd a l s o i nc l udi ng I nde bt e dne s s c ons i s t i ng of gua r a nt i e s of Tot a l Funde d De bt of ot he r Pe r s ons . ‘ Tot a l Funde d De bt Le ve r a ge Ra t i o’ m e a ns , a t a ny Appl i c a bl e M a r gi n De t e r m i na t i on Da t e , t he pe r i od of t we l ve ( 12) c ons e c ut i ve m ont hs e ndi ng on s uc h da t e , t he r a t i o of ( a ) Tot a l Funde d De bt , t o ( b) EBI TDA. ” ( c ) Se c t i on 2. 11 of t he Or i gi na l Agr e e m e nt i s
he r e by a m e nde d i n i t s e nt i r e t y t o r e a d a s f ol l ows : " Se c t i on 2. 11. Re vol vi ng Cr e di t Com m i t m e nt Fe e . Ai r T s ha l l pa y t o t he Le nde r a f e e ( t he " Re vol vi ng Cr e di t Com m i t m e nt Fe e ” ) i n a n a m ount de t e r m i ne d by a ppl yi ng a r a t e of ( a ) 0. 11 % pe r a nnum a t a l l da t e s pr i or t o J une 23, 2023 a nd ( b) 0. 15% pe r a nnum on J une 23, 2023 a nd a l l s ubs e que nt da t e s , t o t he a ve r a ge da i l y e xc e s s of t he Re vol vi ng Cr e di t Com m i t m e nt ove r t he out s t a ndi ng pr i nc i pa l ba l a nc e of t he Re vol vi ng Cr e di t Loa ns . Suc h Re vol vi ng Cr e di t Com m i t m e nt Fe e s ha l l be pa ya bl e t o t he Le nde r i n a r r e a r s on t he l a s t da y of e a c h c a l e nda r m ont h. ” ( d) Se c t i on 7. 04( f ) of t he Or i gi na l Agr e e m e nt i s he r e by a m e nde d i n i t s e nt i r e t y t o r e a d a s f ol l ows : " ( f ) Onl y s o l ong a s no De f a ul t or Eve nt of De f a ul t ha s oc c ur r e d a nd i s c ont i nui ng e i t he r be f or e or f ol l owi ng t he m a ki ng of a ny s uc h I nve s t m e nt , Ai r T m a y m a ke ot he r I nve s t m e nt s ( " Ot he r I nve s t m e nt s ” ) not ot he r wi s e pe r m i t t e d unde r t hi s Se c t i on; pr ovi de d, t ha t , t he a ggr e ga t e a m ount of s uc h Ot he r I nve s t m e nt s s ha l l not e xc e e d
$5, 000, 000 i n a ny of Ai r T’ s f i s c a l ye a r s . ” ( e ) Se c t i on 8. 01( k) of t he Or i gi na l Agr e e m e nt i s he r e by a m e ndi ng by r e pl a c i ng t he r e f e r e nc e i n s uc h Se c t i on t o t he t e r m " Col l a t e r a l Ac c ount ” i s r e pl a c e d wi t h " Col l a t e r a l Ac c ount Agr e e m e nt ” . ( f ) The Or i gi na l Agr e e m e nt i s f ur t he r a m e nde d by i ns e r t i ng a ne w Se c t i on 9. 16 i m m e di a t e l y f ol l owi ng e xi s t i ng Se c t i on 9. 15 t o r e a d a s f ol l ows : Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
4 084126. 039 | 6467377v4 " Se c t i on 9. 16 Ar bi t r a t i on. ( a ) Di s put e s . Le nde r a nd e a c h pa r t y t o t hi s a gr e e m e nt he r e by a gr e e t ha t a l l di s put e s , c l a i m s a nd c ont r ove r s i e s be t we e n t he m whe t he r i ndi vi dua l or j oi nt i n na t ur e , whe t he r a r i s i ng f r om t he a gr e e m e nt , or a ny r e l a t e d not e or a gr e e m e nt , whe t he r i n t or t , c ont r a c t or e qui t a bl e , a nd now e xi s t i ng or he r e a f t e r a r i s i ng ( c ol l e c t i ve l y, " Di s put e s ” ) s ha l l be a r bi t r a t e d pur s ua nt t o t he Rul e s of t he Am e r i c a n Ar bi t r a t i on As s oc i a t i on i n e f f e c t a t t he t i m e t he c l a i m i s f i l e d, upon r e que s t of e i t he r pa r t y. The Fe de r a l Ar bi t r a t i on Ac t s ha l l a ppl y t o t he c ons t r uc t i on, i nt e r pr e t a t i on, a nd e nf or c e m e nt of t hi s a r bi t r a t i on pr ovi s i on. The Ar bi t r a t i on pr ovi s i on i s a m a t e r i a l i nduc e m e nt f or t he pa r t i e s e nt e r i ng i nt o t he t r a ns a c t i ons r e l a t i ng t o t hi s a gr e e m e nt . Any pa r t y who f a i l s or r e f us e s t o s ubm i t t o a r bi t r a t i on f ol l owi ng a de m a nd by a ny ot he r pa r t y s ha l l be a r a l l c os t s a nd e xpe ns e s i nc ur r e d by s uc h ot he r pa r t y i n c om pe l l i ng a r bi t r a t i on. DI SPUTES SUBM I TTED TO ARBI TRATI ON ARE NOT RESOLVED I N COURT BY
A J UDGE OR J URY. TO THE EXTENT ALLOW ED BY APPLI CABLE LAW , THE PARTI ES I RREVOCABLY AND VOLUNTARI LY W AI VE ANY RI GHT THEY M AY HAVE TO A TRI AL BY J URY W I TH RESPECT TO ANY DI SPUTE ARBI TRATED PURSUANT TO ARBI TRATI ON. No pa r t y he r e t o s ha l l be e nt i t l e d t o j oi n or c ons ol i da t e Di s put e s by or a ga i ns t ot he r s i n a ny a r bi t r a t i on, or t o i nc l ude i n a ny a r bi t r a t i on a ny Di s put e a s a r e pr e s e nt a t i ve or m e m be r of a c l a s s , or t o a c t i n a ny a r bi t r a t i on i n t he i nt e r e s t of t he ge ne r a l publ i c or i n a pr i va t e a t t or ne y ge ne r a l c a pa c i t y. ( b) Gove r ni ng Rul e s . I f a Di s put e c a nnot be s e t t l e d t hr ough ne got i a t i on, t he pa r t i e s a gr e e f i r s t t o t r y i n good f a i t h t o s e t t l e t he Di s put e by m e di a t i on a dm i ni s t e r e d by t he Am e r i c a n Ar bi t r a t i on As s oc i a t i on unde r i t s Com m e r c i a l M e di a t i on Pr oc e dur e s be f or e r e s or t i ng t o a r bi t r a t i on, l i t i ga t i on, or s om e ot he r Di s put e r e s ol ut i on pr oc e dur e . Any a r bi t r a t i on pr oc e e di ng i n whi c h t he a m ount i n c ont r ove r s y i s : ( i ) a t l e a s t $1, 000, 000. 00 s ha l l be c onduc t e d i n a c c or da nc e wi t h t he AAA’ s opt i ona l pr oc e dur e s f or l a r ge , c om pl e x
c om m e r c i a l Di s put e s ; ( i i ) $5, 000, 000. 00 or l e s s wi l l be de c i de d by a s i ngl e a r bi t r a t or who s ha l l not r e nde r a n a wa r d of gr e a t e r t ha n $5, 000, 000. 00; a nd ( i i i ) $5, 000, 000. 00 or m or e s ha l l be de c i de d by m a j or i t y vot e of a pa ne l of t hr e e a r bi t r a t or s ; pr ovi de d howe ve r , t ha t a l l t hr e e a r bi t r a t or s m us t a c t i ve l y pa r t i c i pa t e i n a l l he a r i ngs a nd de l i be r a t i ons . Eve r y a r bi t r a t or s ha l l be a ne ut r a l pr a c t i c i ng a t t or ne y or a r e t i r e d m e m be r of t he s t a t e or f e de r a l j udi c i a r y, i n e i t he r c a s e wi t h a m i ni m um of t e n ye a r s ’ e xpe r i e nc e i n t he s ubs t a nt i ve l a w a ppl i c a bl e t o t he s ubj e c t m a t t e r of t he Di s put e . No a r bi t r a t or or ot he r pa r t y t o a n a r bi t r a t i on pr oc e e di ng m a y di s c l os e t he e xi s t e nc e , c ont e nt or r e s ul t s t he r e of , e xc e pt f or di s c l os ur e s of i nf or m a t i on by a pa r t y r e qui r e d i n t he or di na r y c our s e of i t s bus i ne s s or by a ppl i c a bl e l a w or r e gul a t i on. The Ar bi t r a t i on pr ovi s i on s ha l l s ur vi ve t he r e pa ym e nt of t he Not e s a nd t he t e r m i na t i on, a m e ndm e nt , or e xpi r a t i on of a ny of t he doc um e nt s or a ny r e l a t i ons hi p be t we e n t he pa r t i e s . The s t a t ut e of
l i m i t a t i ons , e s t oppe l , wa i ve r , l a c he s , a nd s i m i l a r doc t r i ne s whi c h woul d Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
5 084126. 039 | 6467377v4 ot he r wi s e be a ppl i c a bl e i n a n a c t i on br ought by a pa r t y s ha l l be a ppl i c a bl e i n a ny a r bi t r a t i on pr oc e e di ng, a nd t he c om m e nc e m e nt of a n a r bi t r a t i on pr oc e e di ng s ha l l be de e m e d t he c om m e nc e m e nt of a n a c t i on f or t he s e pur pos e s . J udgm e nt upon a ny a wa r d r e nde r e d by a ny a r bi t r a t or m a y be e nt e r e d i n a ny c our t ha vi ng j ur i s di c t i on. ( c ) Se l f He l p, Pr ovi s i ona l Re m e di e s a nd For e c l os ur e . No a c t i on by a ny pa r t y t o t a ke or di s pos e of a ny c ol l a t e r a l s ha l l c ons t i t ut e a wa i ve r of t hi s a r bi t r a t i on a gr e e m e nt or be pr ohi bi t e d by t hi s a r bi t r a t i on a gr e e m e nt . Thi s i nc l ude s , wi t hout l i m i t a t i on, obt a i ni ng i nj unc t i ve r e l i e f or a t e m por a r y r e s t r a i ni ng or de r ; f or e c l os i ng a ga i ns t r e a l pr ope r t y, i nvoki ng a powe r of s a l e unde r a ny de e d of t r us t or m or t ga ge ; obt a i ni ng a wr i t of a t t a c hm e nt or i m pos i t i on of a r e c e i ve r ; or e xe r c i s i ng a ny r i ght s r e l a t i ng t o pe r s ona l pr ope r t y, i nc l udi ng t a ki ng or di s pos i ng of s uc h pr ope r t y wi t h or wi t hout j udi c i a l pr oc e s s pur s ua nt t o Ar t i c l e 9 of t he Uni f or m Com m e r c i a l Code . ( d) Sm a l l Cl a i m s Cour t . Any
pa r t y m a y r e qui r e t ha t a Di s put e be r e s ol ve d i n Sm a l l Cl a i m s Cour t i f t he Di s put e a nd r e l a t e d c l a i m s a r e f ul l y wi t hi n t ha t c our t ’ s j ur i s di c t i on. ( e ) Re a l Pr ope r t y Col l a t e r a l . Not wi t hs t a ndi ng a nyt hi ng he r e i n t o t he c ont r a r y, no Di s put e s ha l l be s ubm i t t e d t o a r bi t r a t i on i f t he Di s put e c onc e r ns i nde bt e dne s s s e c ur e d di r e c t l y or i ndi r e c t l y, i n whol e or i n pa r t , by a ny r e a l pr ope r t y l oc a t e d i n a s t a t e whi c h r e c ogni z e s a one a c t i on r ul e unl e s s a ny c ondi t i ons f or a r bi t r a t i on t ha t a r e s e t f or t h i n t he m or t ga ge or de e d of t r us t a r e s a t i s f i e d; i f a ny s uc h Di s put e s a r e not r e f e r r e d t o a r bi t r a t i on, t he n a ny pr ovi s i on i n t he m or t ga ge or de e d of t r us t pr ovi di ng f or t he r e f e r r a l of Di s put e s t o a r e f e r e e or m a s t e r s ha l l be a ppl i c a bl e t o s uc h Di s put e s . ( f ) Se l f He l p, Pr ovi s i ona l Re m e di e s a nd For e c l os ur e . No a c t i on by a ny pa r t y t o t a ke or di s pos e of a ny c ol l a t e r a l s e c ur i ng a ny Not e s ha l l c ons t i t ut e a wa i ve r of t hi s a r bi t r a t i on a gr e e m e nt or be pr ohi bi t e d by t hi s a r bi t r a t i on a gr e e m e nt . Thi s i nc l ude s , wi t hout l i m i t a t i on, obt a i ni ng i nj unc t i ve r e l i e f or
a t e m por a r y r e s t r a i ni ng or de r ; i nvoki ng a powe r of s a l e unde r a ny de e d of t r us t or m or t ga ge ; f or e c l os i ng a ga i ns t r e a l pr ope r t y; obt a i ni ng a wr i t of a t t a c hm e nt or i m pos i t i on of a r e c e i ve r ; or e xe r c i s i ng a ny r i ght s r e l a t i ng t o pe r s ona l pr ope r t y, i nc l udi ng t a ki ng or di s pos i ng of s uc h pr ope r t y wi t h or wi t hout j udi c i a l pr oc e s s pur s ua nt t o Ar t i c l e 9 of t he Uni f or m Com m e r c i a l Code . Any di s put e s , c l a i m s , or c ont r ove r s i e s c onc e r ni ng t he l a wf ul ne s s or r e a s ona bl e ne s s of a ny a c t , or e xe r c i s e of a ny r i ght , c onc e r ni ng a ny c ol l a t e r a l s e c ur i ng a ny Not e , i nc l udi ng a ny c l a i m t o r e s c i nd, r e f or m , or ot he r wi s e m odi f y a ny a gr e e m e nt r e l a t i ng t o t he c ol l a t e r a l s e c ur i ng a ny Not e , s ha l l a l s o be a r bi t r a t e d, pr ovi de d howe ve r t ha t no a r bi t r a t or s ha l l ha ve t he r i ght or t he powe r t o e nj oi n or r e s t r a i n a ny a c t of a ny pa r t y. ” ( g) The f or m of Bor r owi ng Ba s e Ce r t i f i c a t e a t t a c he d a s Exhi bi t B t o t he Or i gi na l Agr e e m e nt i s a m e nde d i n i t s e nt i r e t y t o c onf or m wi t h t he f or m of Bor r owi ng Ba s e Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
6 084126. 039 | 6467377v4 Ce r t i f i c a t e ( Am e nde d 6/ 2023) a t t a c he d a s Exhi bi t B t o t hi s Am e ndm e nt . ( h) The f or m of Com pl i a nc e Ce r t i f i c a t e a t t a c he d a s Exhi bi t C t o t he Or i gi na l Agr e e m e nt i s a m e nde d i n i t s e nt i r e t y t o c onf or m wi t h t he f or m of Com pl i a nc e Ce r t i f i c a t e ( Am e nde d 6/ 2023) a t t a c he d a s Exhi bi t C t o t hi s Am e ndm e nt . 3. Condi t i ons t o Ef f e c t i ve ne s s . Thi s Am e ndm e nt s ha l l be c om e e f f e c t i ve on t he da t e ( t he " Ef f e c t i ve Da t e ” ) whe n, a nd onl y whe n, t he Le nde r s ha l l ha ve r e c e i ve d: ( a ) t hi s Am e ndm e nt , dul y e xe c ut e d by a Re s pons i bl e Of f i c e r of e a c h Bor r owe r ; ( b) a n Am e nde d a nd Re s t a t e d Re vol vi ng Cr e di t Not e ( t he " A& R Re vol vi ng Cr e di t Not e ” ) , i n t he f or m pr ovi de d by Le nde r , dul y e xe c ut e d by Ai r T; ( c ) a c e r t i f i c a t e of t he s e c r e t a r y of e a c h Bor r owe r i n t he f or m pr ovi de d by t he Le nde r , a ppr opr i a t e l y c om pl e t e d a nd dul y e xe c ut e d by s uc h Bor r owe r ’ s s e c r e t a r y; ( d) a n Ac knowl e dgm e nt a nd Agr e e m e nt , i n t he f or m pr ovi de d by t he Le nde r , dul y e xe c ut e d by e a c h Gua r a nt or t ha t i s not a Bor r owe r ; ( e ) a n Ac knowl e dgm e nt a nd Agr e e m e nt , i n t he
f or m pr ovi de d by t he Le nde r , dul y e xe c ut e d by J e t Ya r d; ( f ) a non- r e f unda bl e a m e ndm e nt f e e i n t he a m ount of $10, 000, pa ya bl e i n i m m e di a t e l y a va i l a bl e f unds ; a nd ( g) s uc h ot he r doc um e nt s a s t he Le nde r m a y r e a s ona bl y r e que s t . 4. Re pr e s e nt a t i ons a nd W a r r a nt i e s . To i nduc e t he Le nde r t o e nt e r i nt o t hi s Am e ndm e nt , t he Bor r owe r s j oi nt l y a nd s e ve r a l l y r e pr e s e nt a nd wa r r a nt t o t he Le nde r a s f ol l ows : ( a ) The e xe c ut i on, de l i ve r y a nd pe r f or m a nc e by t he Bor r owe r s of t hi s Am e ndm e nt , t he A& R Re vol vi ng Cr e di t Not e a nd a ny ot he r Loa n Doc um e nt t o whi c h e i t he r or bot h Bor r owe r s i s a pa r t y ha ve be e n dul y a ut hor i z e d by a l l ne c e s s a r y c or por a t e , or a s t he c a s e m a y be , l i m i t e d l i a bi l i t y c om pa ny, a c t i on, do not r e qui r e a ny a ppr ova l or c ons e nt of , or a ny r e gi s t r a t i on, qua l i f i c a t i on or f i l i ng wi t h, a ny gove r nm e nt a ge nc y or a ut hor i t y or a ny a ppr ova l or c ons e nt of a ny ot he r pe r s on ( i nc l udi ng, wi t hout l i m i t a t i on, a ny s ha r e hol de r ) , do not a nd wi l l not c onf l i c t wi t h, r e s ul t i n a ny vi ol a t i on of or c ons t i t ut e a ny de f a ul t unde r , a ny pr ovi s i on of e i t he r
Bor r owe r ’ s f or m a t i on or gove r na nc e doc um e nt s , a ny a gr e e m e nt bi ndi ng on or a ppl i c a bl e t o e i t he r Bor r owe r or e i t he r Bor r owe r ’ s pr ope r t y, or a ny l a w or gove r nm e nt a l r e gul a t i on or c our t de c r e e or or de r , bi ndi ng upon or a ppl i c a bl e t o e i t he r Bor r owe r or of a ny of e i t he r Bor r owe r ’ s pr ope r t y a nd wi l l not r e s ul t i n t he c r e a t i on or i m pos i t i on of a ny s e c ur i t y i nt e r e s t or ot he r l i e n or e nc um br a nc e i n or on a ny of i t s pr ope r t y pur s ua nt t o t he pr ovi s i ons of a ny a gr e e m e nt a ppl i c a bl e t o e i t he r Bor r owe r or e i t he r Bor r owe r ’ s pr ope r t y; ( b) The r e pr e s e nt a t i ons a nd wa r r a nt i e s c ont a i ne d i n t he Or i gi na l Agr e e m e nt a r e Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
7 084126. 039 | 6467377v4 t r ue a nd c or r e c t a s of t he da t e he r e of a s t hough m a de on t ha t da t e e xc e pt : ( i ) t o t he e xt e nt t ha t s uc h r e pr e s e nt a t i ons a nd wa r r a nt i e s r e l a t e s ol e l y t o a n e a r l i e r da t e ; a nd ( i i ) t ha t t he r e pr e s e nt a t i ons a nd wa r r a nt i e s s e t f or t h i n Se c t i on 5. 04 of t he Or i gi na l Agr e e m e nt t o t he a udi t e d a nnua l f i na nc i a l s t a t e m e nt s a nd i nt e r na l l y- pr e pa r e d i nt e r i m f i na nc i a l s t a t e m e nt s of Ai r T s ha l l be de e m e d t o be a r e f e r e nc e t o t he a udi t e d f i na nc i a l s t a t e m e nt s a nd i nt e r i m f i na nc i a l s t a t e m e nt s , a s t he c a s e m a y be , of Ai r T m os t r e c e nt l y de l i ve r e d t o t he Le nde r pur s ua nt t o Se c t i on 6. 01( a ) or 6. 01( b) of t he Or i gi na l Agr e e m e nt ; ( c ) No e ve nt s ha ve t a ke n pl a c e a nd no c i r c um s t a nc e s e xi s t a t t he da t e he r e of whi c h woul d gi ve e i t he r or bot h Bor r owe r s t he r i ght t o a s s e r t a de f e ns e , of f s e t or c ount e r c l a i m t o a ny c l a i m by t he Le nde r f or pa ym e nt of t he Obl i ga t i ons ; ( d) The Or i gi na l Agr e e m e nt , a s a m e nde d by t hi s Am e ndm e nt , t he A& R Re vol vi ng Cr e di t Not e a nd e a c h ot he r Loa n Doc um e nt t o whi c h a ny Bor r owe r i s a pa r t y a r e t he l e ga l ,
va l i d a nd bi ndi ng obl i ga t i ons of s uc h Loa n Pa r t y a nd a r e e nf or c e a bl e i n a c c or da nc e wi t h t he i r r e s pe c t i ve t e r m s , s ubj e c t onl y t o ba nkr upt c y, i ns ol ve nc y, r e or ga ni z a t i on, m or a t or i um or s i m i l a r l a ws , r ul i ngs or de c i s i ons a t t he t i m e i n e f f e c t a f f e c t i ng t he e nf or c e a bi l i t y of r i ght s of c r e di t or s ge ne r a l l y a nd t o ge ne r a l e qui t a bl e pr i nc i pl e s whi c h m a y l i m i t t he r i ght t o obt a i n e qui t a bl e r e m e di e s ; a nd ( e ) Bot h be f or e a nd a f t e r gi vi ng e f f e c t t o t hi s Am e ndm e nt , t he r e doe s not e xi s t a ny De f a ul t or Eve nt of De f a ul t . 5. Re l e a s e . The Bor r owe r s he r e by j oi nt l y a nd s e ve r a l l y r e l e a s e a nd f or e ve r di s c ha r ge t he Le nde r a nd i t s s uc c e s s or s , a s s i gns , di r e c t or s , of f i c e r s , a ge nt s , e m pl oye e s a nd pa r t i c i pa nt s f r om a ny a nd a l l a c t i ons , c a us e s of a c t i on, s ui t s , pr oc e e di ngs , de bt s , s um s of m one y, c ove na nt s , c ont r a c t s , c ont r ove r s i e s , c l a i m s a nd de m a nds , a t l a w or i n e qui t y, whi c h e i t he r or bot h Bor r owe r s e ve r ha d or now ha s a ga i ns t t he Le nde r or i t s s uc c e s s or s , a s s i gns , di r e c t or s , of f i c e r s , a ge nt s , e m pl oye e s or pa r t i c i pa nt s by vi r t ue of t he Le nde r ’ s
r e l a t i ons hi p t o t he Bor r owe r s i n c onne c t i on wi t h t he Loa n Doc um e nt s a nd t he t r a ns a c t i ons r e l a t e d t he r e t o 6. Re f e r e nc e t o a nd Ef f e c t on t he Loa n Doc um e nt s . ( a ) Fr om a nd a f t e r t he da t e of t hi s Am e ndm e nt , e a c h r e f e r e nc e i n: ( i ) t he Or i gi na l Agr e e m e nt t o " t hi s Agr e e m e nt ” , " he r e unde r ” , " he r e of ” , " he r e i n” or wor ds of l i ke i m por t r e f e r r i ng t o t he Or i gi na l Agr e e m e nt , a nd e a c h r e f e r e nc e t o t he " Cr e di t Agr e e m e nt ” , t he " Cr e di t Agr e e m e nt ” , " t he r e unde r ” , " t he r e of ” , " t he r e i n” or wor ds of l i ke i m por t r e f e r r i ng t o t he Or i gi na l Agr e e m e nt i n a ny ot he r Loa n Doc um e nt s ha l l m e a n a nd be a r e f e r e nc e t o t he Or i gi na l Agr e e m e nt a s a m e nde d he r e by; a nd e xc e pt a s s pe c i f i c a l l y s e t f or t h a bove , t he Or i gi na l Agr e e m e nt r e m a i ns i n f ul l f or c e a nd e f f e c t a nd i s he r e by r a t i f i e d a nd c onf i r m e d; a nd ( i i ) a ny Loa n Doc um e nt t o t he " Re vol vi ng Cr e di t Not e ” , " t he r e unde r ” , " t he r e of ” , " t he r e i n” or wor ds of l i ke i m por t r e f e r r i ng t o t he Re vol vi ng Cr e di t Not e s ha l l m e a n a nd be a r e f e r e nc e t o t he A& R Re vol vi ng Cr e di t Not e e xe c ut e d a nd de l i ve r e d pur s ua nt t o t hi s l e t t e r
a m e ndm e nt . Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
8 084126. 039 | 6467377v4 ( b) The e xe c ut i on, de l i ve r y a nd e f f e c t i ve ne s s of t hi s Am e ndm e nt s ha l l not , e xc e pt a s e xpr e s s l y pr ovi de d he r e i n, ope r a t e a s a wa i ve r of a ny r i ght , powe r or r e m e dy of t he Le nde r unde r t he Agr e e m e nt or a ny ot he r Loa n Doc um e nt , nor c ons t i t ut e a wa i ve r of a ny pr ovi s i on of t he Agr e e m e nt or a ny s uc h ot he r Loa n Doc um e nt . 7. Cos t s , Expe ns e s a nd Ta xe s . The Bor r owe r s j oi nt l y a nd s e ve r a l l y a gr e e t o pa y on de m a nd a l l c os t s a nd e xpe ns e s of t he Le nde r i n c onne c t i on wi t h t he pr e pa r a t i on, r e pr oduc t i on, e xe c ut i on a nd de l i ve r y of t hi s Am e ndm e nt a nd t he ot he r doc um e nt s t o be de l i ve r e d he r e unde r or t he r e unde r , i nc l udi ng t he i r r e a s ona bl e a t t or ne ys ’ f e e s a nd l e ga l e xpe ns e s . I n a ddi t i on, t he Bor r owe r s s ha l l pa y a ny a nd a l l s t a m p a nd ot he r t a xe s a nd f e e s pa ya bl e or de t e r m i ne d t o be pa ya bl e i n c onne c t i on wi t h t he e xe c ut i on a nd de l i ve r y, f i l i ng or r e c or di ng of t hi s Am e ndm e nt a nd t he ot he r i ns t r um e nt s a nd doc um e nt s t o be de l i ve r e d he r e unde r a nd a gr e e s t o s a ve t he Le nde r ha r m l e s s f r om a nd a ga i ns t a ny a nd a l l l i a bi l i t i e s wi t h
r e s pe c t t o, or r e s ul t i ng f r om , a ny de l a y i n t he Bor r owe r s ’ pa yi ng or om i s s i on t o pa y, s uc h t a xe s or f e e s . 8. Gove r ni ng La w. THE VALI DI TY, CONSTRUCTI ON AND ENFORCEABI LI TY OF THI S AM ENDM ENT SHALL BE GOVERNED BY THE I NTERNAL LAW S OF THE STATE OF M I NNESOTA, W I THOUT GI VI NG EFFECT TO CONFLI CT OF LAW S PRI NCI PLES THEREOF. 9. He a di ngs . Se c t i on he a di ngs i n t hi s Am e ndm e nt a r e i nc l ude d he r e i n f or c onve ni e nc e of r e f e r e nc e onl y a nd s ha l l not c ons t i t ut e a pa r t of t hi s Am e ndm e nt f or a ny ot he r pur pos e . 10. Count e r pa r t s . Thi s Am e ndm e nt m a y be e xe c ut e d i n c ount e r pa r t s a nd by s e pa r a t e pa r t i e s i n s e pa r a t e c ount e r pa r t s , e a c h of whi c h s ha l l be a n or i gi na l a nd a l l of whi c h t a ke n t oge t he r s ha l l c ons t i t ut e one a nd t he s a m e doc um e nt . Re c e i pt by t e l e c opy, pdf f i l e or ot he r e l e c t r oni c m e a ns of a ny e xe c ut e d s i gna t ur e pa ge t o t hi s Am e ndm e nt s ha l l c ons t i t ut e e f f e c t i ve de l i ve r y of s uc h s i gna t ur e pa ge . 11. Re c i t a l s . The Re c i t a l s he r e t o a r e i nc or por a t e d he r e i n by r e f e r e nc e a nd c ons t i t ut e a pa r t of t hi s Am e ndm e nt . [ SI GNATURE PAGE FOLLOW S] Doc uSi gn
Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 I N W I TNESS W HEREOF, t he pa r t i e s he r e t o ha ve c a us e d t hi s Am e ndm e nt t o be e xe c ut e d a s of t he da t e f i r s t a bove . Ai r T, I nc . , a De l a wa r e c or por a t i on By: Na m e : Br i a n Oc hoc ki Ti t l e : Chi e f Fi na nc i a l Of f i c e r J e t Ya r d, LLC, a n Ar i z ona l i m i t e d l i a bi l i t y c om pa ny By: St r a t us Ae r o Pa r t ne r s , LLC I t s : Sol e M e m be r By: Ai r T, I nc . , a De l a wa r e c or por a t i on I t s : M a na ge r By: Na m e : Br i a n Oc hoc ki I t s : Chi e f Fi na nc i a l Of f i c e r M i nne s ot a Ba nk & Tr us t , a di vi s i on of HTLF Ba nk, s uc c e s s or by m e r ge r t o M i nne s ot a Ba nk a nd Tr us t By_____________________ Na m e : Di a nne W e gs c he i d Ti t l e : Se ni or Vi c e Pr e s i de nt / Com m e r c i a l Te a m Le a d [ Si gna t ur e pa ge Am e ndm e nt No. 3 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt ] Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 EXHI BI T B For m of Bor r owi ng Ba s e Ce r t i f i c a t e ( Am e nde d 6/ 2023) M i nne s ot a Ba nk & Tr us t 9800 Br e n Roa d Ea s t , Sui t e 200 M i nne t onka , M N 55343 At t e nt i on: M s . Di a nne W e gs c he i d, SVP Com put e d a s of : _______________________ Re por t Num be r : _______ The unde r s i gne d i s t he Bor r owe r unde r t ha t c e r t a i n Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt , da t e d a s of Augus t 31, 2021 ( s uc h Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt , a s a m e nde d t o da t e a nd a s i t m a y be f ur t he r a m e nde d, m odi f i e d, s uppl e m e nt e d or r e s t a t e d f r om t i m e t o t i m e be i ng t he " Cr e di t Agr e e m e nt ” ; c a pi t a l i z e d t e r m s not ot he r wi s e de f i ne d he r e i n be i ng us e d a s t he r e i n de f i ne d) be t we e n AI R T, I NC. ( t he " Bor r owe r ” ) a nd M I NNESOTA BANK & TRUST ( t he " Le nde r ” ) . The Bor r owe r he r e by r e a f f i r m s a l l r e pr e s e nt a t i ons a nd wa r r a nt i e s t o t he Cr e di t Agr e e m e nt a nd c e r t i f i e s a nd wa r r a nt s t ha t t he Bor r owe r a nd t he ot he r Loa n Pa r t i e s hol d, s ubj e c t t o t he s e c ur i t y i nt e r e s t of t he Le nde r unde r t he Agr e e m e nt , a nd t he ot he r Loa n Doc um e nt s , t he f ol l owi ng Col l a t e r a l c om put e d
on a c ons ol i da t e d ba s i s a s of _____________ __, 202_. A. ACCOUNTS RECEI VABLE 1. Ac c ount s Re c e i va bl e Ba l a nc e a s of pe r i od e ndi ng a bove $__________ 2. Le s s : I ne l i gi bl e Ac c ount s a . Re c e i va bl e s ove r 120 da ys pa s t i nvoi c e da t e $___________ b. 10% r e dl i ne r ul e $ c . I ns ol ve nt $ d. For e i gn $ e . Af f i l i a t e d $ f . Cont r a s $ g. U. S. Gove r nm e nt $ h. Bonde d $ i . St a t e , c ount y, m uni c i pa l i t y $ j . Cus t om e r de pos i t s $_____________ k. Exc e s s of c onc e nt r a t i on l i m i t f or a c c ount de bt or $_____________ l . Ot he r m i s c e l l a ne ous $____________ 3. TOTAL I ne l i gi bl e s ( $__________) 4. Tot a l El i gi bl e Ac c ount s ( Li ne A. 1 – Li ne A. 3) $___________ 5. El i gi bl e Ac c ount s Loa n Va l ue a t 75% of Li ne A. 4. $___________ Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 B. I NVENTORY Re por t da t e d ( s e e a t t a c he d) 1. Ra w M a t e r i a l s a nd Fi ni s he d Goods I nve nt or y $ 2. Le s s : a . Di s c ont i nue d $_______________ b. St or e d a t a l oc a t i on w/ out a ppr opr i a t e l a ndl or d/ ba i l e e / wa r e hous e m a n’ s wa i ve r $_______________ c . Cons i gne d t o a Loa n Pa r t y d. I nve nt or y c ons i gne d by a Loa n Pa r t y t ha t doe s not c om pl y wi t h a l l Cons i gne d I nve nt or y Re qui r e m e nt s $_______________ 3. Tot a l I ne l i gi bl e s $_____________ 4. Tot a l El i gi bl e Ra w M a t e r i a l s a nd Fi ni s he d Goods I nve nt or y ( Li ne B. 1- Li ne B. 3) $______________ 5. El i gi bl e Ra w M a t e r i a l s a nd Fi ni s he d Goods I nve nt or y Loa n Va l ue @ 50% of Li ne B. 4 $______________ 6. GGS Ti t l e d Ve hi c l e s I nve nt or y $____________ 7. Le s s : a . Di s c ont i nue d $_______________ b. St or e d a t a l oc a t i on w/ out a ppr opr i a t e l a ndl or d/ ba i l e e / wa r e hous e m a n’ s wa i ve r $_______________ c . Cons i gne d t o a Loa n Pa r t y d. I nve nt or y c ons i gne d by a Loa n Pa r t y t ha t doe s not c om pl y wi t h a l l Cons i gne d I nve nt or y Re qui r e m e nt s $_______________ 8. Tot a l I ne l i gi bl e GGS Ti t l e d Ve hi c l e s I nve nt or y $_____________ 9. Tot a l
El i gi bl e GGS Ti t l e d Ve hi c l e s I nve nt or y ( Li ne B. 6- Li ne B. 8) $______________ 10. El i gi bl e GGS Ti t l e d Ve hi c l e s I nve nt or y Loa n Va l ue @ 40% of Li ne B. 4 $______________ 11. El i gi bl e I nve nt or y Loa n Va l ue ( Li ne B5 + B. 10) 1 1 Not t o e xc e e d 75% of Tot a l Bor r owi ng Ba s e Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 C. Bor r owi ng Ba s e : 1. ( Li ne A. 4 + Li ne B. 11) $______________ D. Ava i l a bi l i t y/ Am ount t o be Re pa i d: 1. Tot a l Us a ge ( Out s t a ndi ng pr i nc i pa l ba l a nc e of Re vol vi ng Loa ns + Le t t e r of Cr e di t Obl i ga t i ons ) $_______________ 2. Re vol vi ng Cr e di t Com m i t m e nt $17, 000, 0002 3. Bor r owi ng Ba s e ( Li ne C. 1. ) 4A. Ava i l a bi l i t y ( Am ount by whi c h t he l e s s e r of [ Li ne D. 2 a nd Li ne D. 3] e xc e e ds Li ne D. 1) $_______________ 4B. Am ount t o be r e pa i d a nd Le t t e r s of Cr e di t t o be c a s h c ol l a t e r a l i z e d ( Am ount by whi c h Li ne D. 1 e xc e e ds t he l e s s e r of [ Li ne D. 2 a nd Li ne D. 3] ) $_______________ The unde r s i gne d f ur t he r c e r t i f i e s a nd wa r r a nt s t ha t ( a ) t he Bor r owe r ha s r e c e i ve d f e de r a l i nc om e t a x r e f unds i n t he a m ount of $___________ dur i ng t he c ur r e nt Fi s c a l Ye a r , ( b) t he Bor r owe r ha s be e n a wa r de d Em pl oye e Re t e nt i on Ta x Cr e di t s i n t he a ggr e ga t e a m ount of $_____________ dur i ng t he c ur r e nt Fi s c a l Ye a r , a nd ( c ) no Eve nt of De f a ul t i s e xi s t i ng a s of t he da t e he r e of a nd, t o t he be s t knowl e dge a nd be l i e f of t he of f i c e r of Ai r T e xe c ut i ng t hi s Bor r owi ng Ba s e
Ce r t i f i c a t e , t he r e ha s not be e n ( e xc e pt a s m a y ot he r wi s e i ndi c a t e d be l ow) a ny c ha nge t o t he i nf or m a t i on s e t f or t h a bove s i nc e t he c om put a t i on da t e s pe c i f i e d a bove whi c h woul d m a t e r i a l l y r e duc e t he a m ount s s hown i f s uc h a m ount s we r e c om put e d a s of t he da t e of t hi s Bor r owi ng Ba s e Ce r t i f i c a t e a nd a l l of t he i nf or m a t i on pr ovi de d on: ( a ) t he I nve nt or y r e por t a t t a c he d a s Sc he dul e A t o t hi s Bor r owi ng Ba s e Ce r t i f i c a t e a nd ( b) t he Ot he r I nve s t m e nt s r e por t a t t a c he d a s Sc he dul e B t o t hi s Bor r owi ng Ba s e Ce r t i f i c a t e , i s t r ue a nd c or r e c t a s of t he da t e he r e of . AI R T, I NC. By Ti t l e : Da t e : _________ 2 $19, 000, 000 dur i ng t he pe r i od c om m e nc i ng on M a y 1 a nd e ndi ng on Nove m be r 30 of e a c h ye a r Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 Sc he dul e A t o Bor r owi ng Ba s e Ce r t i f i c a t e I nve nt or y Re por t a s of _________________ [ s e e a t t a c he d] Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 Sc he dul e B t o Bor r owi ng Ba s e Ce r t i f i c a t e Ot he r I nve s t m e nt s Re por t a s of _________________ [ s e e a t t a c he d] Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 EXHI BI T C FORM OF COM PLI ANCE CERTI FI CATE ( Am e nde d 6/ 2023) M i nne s ot a Ba nk & Tr us t 9800 Br e n Roa d Ea s t , Sui t e 200 M i nne t onka , M N 55343 At t e nt i on: M s . Di a nne W e gs c he i d, SVP The unde r s i gne d i s a Bor r owe r unde r t ha t c e r t a i n Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt , da t e d a s of Augus t 31, 2021 ( a s t he s a m e m a y be a m e nde d, m odi f i e d or s uppl e m e nt e d f r om t i m e t o t i m e , he r e i n c a l l e d t he " Agr e e m e nt ; ” c a pi t a l i z e d t e r m s not ot he r wi s e de f i ne d he r e i n be i ng us e d a s t he r e i n de f i ne d) be t we e n AI R T, I NC. , a De l a wa r e c or por a t i on, J e t Ya r d, LLC, a n Ar i z ona l i m i t e d l i a bi l i t y c om pa ny ( t he " Bor r owe r s ” ) , a nd M I NNESOTA BANK & TRUST ( t he " Le nde r ” ) . Pur s ua nt t o Se c t i on 6. 02( b) of t he Agr e e m e nt , t he unde r s i gne d c e r t i f i e s t o t he Le nde r a s f ol l ows : The c ons ol i da t e d f i na nc i a l s t a t e m e nt s of Ai r T a nd i t s Subs i di a r i e s a t t a c he d he r e t o f or t he pe r i od e ndi ng ______________, 202__ ( t he " Fi na nc i a l St a t e m e nt s ” ) ha ve be e n pr e pa r e d i n a c c or da nc e wi t h GAAP ( e xc e pt , i n t he c a s e of t he i nt e r i m una udi t e d f i na nc i a l s t a t e m e nt s , f or
t he a bs e nc e of f oot not e s a nd s ubj e c t t o c us t om a r y ye a r e nd a dj us t m e nt s ) . 1. The r e pr e s e nt a t i ons a nd wa r r a nt i e s c ont a i ne d i n Ar t i c l e V of t he Cr e di t Agr e e m e nt a r e t r ue a nd c or r e c t a s of t he da t e he r e of a s t hough m a de on t ha t da t e e xc e pt t o t he e xt e nt t ha t s uc h r e pr e s e nt a t i ons a nd wa r r a nt i e s e xpr e s s l y r e l a t e t o a n e a r l i e r da t e a nd e xc e pt t ha t t he r e pr e s e nt a t i ons a nd wa r r a nt i e s s e t f or t h i n Se c t i on 5. 04 of t he Cr e di t Agr e e m e nt t o t he f i na nc i a l s t a t e m e nt s of Ai r T s ha l l be de e m e d a r e f e r e nc e t o t he a udi t e d a nd una udi t e d c ons ol i da t e d f i na nc i a l s t a t e m e nt s of Ai r T a nd i t s Subs i di a r i e s , t he n m os t r e c e nt l y de l i ve r e d t o t he Le nde r pur s ua nt t o Se c t i on 6. 01( a ) or ( b) of t he Cr e di t Agr e e m e nt , a s t he c a s e m a y be . 2. As of _________, 202__, ( t he " M e a s ur e m e nt Da t e ” ) no De f a ul t or Eve nt of De f a ul t ha s oc c ur r e d a nd i s c ont i nui ng [ e xc e pt ( de s c r i be he r e a ny De f a ul t or Eve nt of De f a ul t a nd t he a c t i on whi c h t he unde r s i gne d pr opos e s t o t a ke wi t h r e s pe c t t he r e t o. ) ] . Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 3. Se c t i on 7. 13( a ) . As of t he M e a s ur e m e nt Da t e , t he m i ni m um r e qui r e d De bt Se r vi c e Cove r a ge Ra t i o f or t he M e a s ur e m e nt Pe r i od e ndi ng on t he M e a s ur e m e nt Da t e wa s 1. 25 t o 1. 00 a nd t he a c t ua l De bt Se r vi c e Cove r a ge Ra t i o wa s ___ t o 1. 00, a s c a l c ul a t e d i n a c c or da nc e wi t h t he Cr e di t Agr e e m e nt a s s e t f or t h on t he s pr e a ds he e t a t t a c he d he r e t o a s Sc he dul e I a nd i nc or por a t e d he r e i n by r e f e r e nc e . 4. Se c t i on 7. 13( b) . As of t he M e a s ur e m e nt Da t e , t he m i ni m um pe r m i t t e d As s e t Cove r a ge Ra t i o wa s 1. 50 t o 1. 00 a nd t he Bor r owe r ’ s a c t ua l Le ve r a ge Ra t i o wa s ___ t o 1. 00, a s c a l c ul a t e d i n a c c or da nc e wi t h t he Cr e di t Agr e e m e nt a s s e t f or t h on t he s pr e a ds he e t a t t a c he d he r e t o a s Sc he dul e I a nd i nc or por a t e d he r e i n by r e f e r e nc e . 5. Tot a l Funde d De bt Le ve r a ge Ra t i o f or pur pos e of de t e r m i ni ng Appl i c a bl e M a r gi n [ Onl y i f t he M e a s ur e m e nt Da t e i s M a r c h 31 or Se pt e m be r 30] . As of t he M e a s ur e m e nt Da t e t he Bor r owe r ’ s Tot a l Funde d De bt Le ve r a ge Ra t i o wa s ____ t o 1. 00, a s c a l c ul a t e d i n a c c or da nc e wi t h t he Cr e di t Agr e e m e nt a s s e t f or t h on
t he s pr e a ds he e t a t t a c he d he r e t o a s Sc he dul e I a nd i nc or por a t e d he r e i n by r e f e r e nc e . AI R T, I NC. By Ti t l e : Da t e : Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126. 039 | 6467377v4 Sc he dul e I t o Com pl i a nc e Ce r t i f i c a t e Cove na nt Ca l c ul a t i ons [ s e e a t t a c he d] Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
ACKNOW LEDGM ENT AND AGREEM ENT Da t e d: J une 23, 2023. Ea c h of t he unde r s i gne d ha s ( a ) gua r a nt e e d t he pa ym e nt a nd pe r f or m a nc e of a l l obl i ga t i ons of Ai r T, I nc . , a De l a wa r e c or por a t i on ( t oge t he r wi t h i t s s uc c e s s or s a nd a s s i gns , " Ai r T” ) , a nd J e t Ya r d, LLC, a n Ar i z ona l i m i t e d l i a bi l i t y c om pa ny ( t oge t he r wi t h i t s s uc c e s s or s a nd a s s i gns , " J e t Ya r d” ; a nd t oge t he r wi t h Ai r T be i ng s om e t i m e s c ol l e c t i ve l y r e f e r r e d t o he r e i n a s t he " Bor r owe r s ” a nd i ndi vi dua l l y a s a " Bor r owe r ” ) , t o M i nne s ot a Ba nk & Tr us t , a di vi s i on of HTLF Ba nk, s uc c e s s or by m e r ge r t o M i nne s ot a Ba nk a nd Tr us t ( t he " Le nde r ” ) , pur s ua nt t o t he t e r m s of a n Am e nde d a nd Re s t a t e d Gua r a nt y da t e d a s of Augus t 31, 2021 ( t he " Gua r a nt y” ) , j oi nt l y a nd s e ve r a l l y m a de by t he unde r s i gne d i n f a vor of t he Le nde r , whi c h obl i ga t i ons i nc l ude , wi t hout l i m i t a t i on, a l l " Obl i ga t i ons ” ( a s de f i ne d i n t he Or i gi na l Agr e e m e nt de s c r i be d be l ow) of t he Bor r owe r s t o t he Le nde r pur s ua nt t o t ha t c e r t a i n Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d a s of Augus t 31, 2021, a s a m e nde d by t ha t c e r t a i n
Am e ndm e nt No. 1 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d J une 9, 2022, a nd by t ha t c e r t a i n Am e ndm e nt No. 2 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d J a nua r y 31, 2023 ( a s s o a m e nde d, t he " Or i gi na l Agr e e m e nt ” ) , be t we e n t he Bor r owe r s a nd t he Le nde r , a nd ( b) gr a nt e d a f i r s t pr i or i t y s e c ur i t y i nt e r e s t i n i t s a s s e t s t o t he Le nde r a s c ol l a t e r a l f or s uc h Obl i ga t i ons pur s ua nt t o t he t e r m s of t ha t c e r t a i n Am e nde d a nd Re s t a t e d Se c ur i t y Agr e e m e nt da t e d a s of Augus t 31, 2021 ( t he " Se c ur i t y Agr e e m e nt ” ) . Ea c h of t he unde r s i gne d a c knowl e dge s t ha t i t ha s r e c e i ve d a c opy of t he pr opos e d Am e ndm e nt No. 3 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d t o be e f f e c t i ve a s of J une 23, 2023 ( t he " Am e ndm e nt ” ) pr ovi di ng f or a s e a s ona l i nc r e a s e i n t he Re vol vi ng Cr e di t Com m i t m e nt on t he " Ef f e c t i ve Da t e ” of t he Am e ndm e nt , a nd a m e ndi ng c e r t a i n ot he r t e r m s of t he Or i gi na l Agr e e m e nt . Ea c h of t he unde r s i gne d ( a ) c onf i r m s t ha t bot h t he Gua r a nt y a nd t he Se c ur i t y Agr e e m e nt r e m a i n i n f ul l f or c e a nd e f f e c t , ( b) a gr e e s
a nd a c knowl e dge s t ha t t he Am e ndm e nt s ha l l not i n a ny wa y i m pa i r or l i m i t t he r i ght s of t he Le nde r unde r t he Gua r a nt y or unde r t he Se c ur i t y Agr e e m e nt , a nd ( c ) he r e by a c knowl e dge s a nd a gr e e s t ha t ( i ) pur s ua nt t o t he Gua r a nt y, t he Gua r a nt or s j oi nt l y a nd s e ve r a l l y gua r a nt y t he pa ym e nt a nd pe r f or m a nc e of a l l Obl i ga t i ons unde r t he Or i gi na l Agr e e m e nt a s a m e nde d by t he Am e ndm e nt , a nd ( i i ) pur s ua nt t o t he Se c ur i t y Agr e e m e nt e a c h of t he unde r s i gne d c ont i nue s t o gr a nt a s e c ur i t y i nt e r e s t t o t he Le nde r i n t he " Col l a t e r a l ” c ove r e d t he r e by t o s e c ur e a l l Obl i ga t i ons of t he Bor r owe r s t o t he Le nde r , i nc l udi ng, wi t hout l i m i t a t i on, a l l Loa ns now or he r e a f t e r m a de by t he Le nde r unde r t he Or i gi na l Agr e e m e nt a s a m e nde d by t he Cr e di t Agr e e m e nt . Ea c h of t he unde r s i gne d a gr e e s t ha t e a c h r e f e r e nc e t o t he " Cr e di t Agr e e m e nt ” , t he " Loa n Agr e e m e nt ” , " t he r e i n” , " t he r e of ” , " t he r e by” or wor ds of s i m i l a r e f f e c t r e f e r r i ng t o t he Cr e di t Agr e e m e nt i n a ny Loa n Doc um e nt t o whi c h s uc h unde r s i gne d i s a pa r t y s ha l l m e a n a nd be a r e f e r e nc e t o t he Or i gi na l
Agr e e m e nt , a s a m e nde d by t he Am e ndm e nt . Ea c h of t he unde r s i gne d: ( a ) r e pr e s e nt s a nd wa r r a nt s t o t he Le nde r t ha t no e ve nt s ha ve t a ke n pl a c e a nd no c i r c um s t a nc e s e xi s t a t t he da t e he r e of whi c h woul d gi ve s uc h unde r s i gne d t he r i ght t o a s s e r t a de f e ns e , of f s e t or c ount e r c l a i m t o a ny c l a i m by t he Le nde r f or pa ym e nt of t he Obl i ga t i ons gua r a nt e e d by s uc h unde r s i gne d or f or t he e nf or c e m e nt of t he Gua r a nt y; a nd ( b) he r e by r e l e a s e s a nd f or e ve r di s c ha r ge s t he Le nde r a nd i t s s uc c e s s or s , a s s i gns , di r e c t or s , of f i c e r s , a ge nt s , Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
e m pl oye e s a nd pa r t i c i pa nt s f r om a ny a nd a l l a c t i ons , c a us e s of a c t i on, s ui t s , pr oc e e di ngs , de bt s , s um s of m one y, c ove na nt s , c ont r a c t s , c ont r ove r s i e s , c l a i m s a nd de m a nds , a t l a w or i n e qui t y, whi c h s uc h unde r s i gne d e ve r ha d or now ha s a ga i ns t t he Le nde r or i t s s uc c e s s or s , a s s i gns , di r e c t or s , of f i c e r s , a ge nt s , e m pl oye e s or pa r t i c i pa nt s by vi r t ue of t he i r r e l a t i ons hi p t o t he Bor r owe r s or a ny of t he unde r s i gne d i n c onne c t i on wi t h t he Loa n Doc um e nt s a nd t he t r a ns a c t i ons r e l a t e d t he r e t o. Not hi ng i n t hi s Ac knowl e dgm e nt a nd Agr e e m e nt r e qui r e s t he Le nde r t o obt a i n t he c ons e nt of a ny of t he unde r s i gne d t o a ny f ut ur e a m e ndm e nt , m odi f i c a t i on or wa i ve r t o t he Or i gi na l Agr e e m e nt , a s a m e nde d by t he Am e ndm e nt , or a ny ot he r Loa n Doc um e nt t o whi c h s uc h unde r s i gne d i s a pa r t y e xc e pt a s e xpr e s s l y r e qui r e d by t he t e r m s of t he Loa n Doc um e nt s t o whi c h s uc h unde r s i gne d i s a pa r t y. Thi s Ac knowl e dgm e nt a nd Agr e e m e nt m a y be e xe c ut e d i n c ount e r pa r t s a nd by s e pa r a t e pa r t i e s i n s e pa r a t e c ount e r pa r t s , e a c h of whi c h s ha l l be a n or i gi na l a nd a l l of
whi c h t a ke n t oge t he r s ha l l c ons t i t ut e one a nd t he s a m e doc um e nt . The de l i ve r y of a f a c s i m i l e , pdf or ot he r di gi t a l c opy of a n e xe c ut e d c ount e r pa r t of t hi s Ac knowl e dgm e nt a nd Agr e e m e nt s ha l l be de e m e d t o be va l i d e xe c ut i on a nd de l i ve r y of t hi s Ac knowl e dgm e nt a nd Agr e e m e nt . [ SI GNATURE PAGES FOLLOW ] Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
[ Gua r a nt or Ac knowl e dgm e nt a nd Agr e e m e nt Si gna t ur e Pa ge ] Ea c h of t he unde r s i gne d ha s e xe c ut e d t hi s Ac knowl e dgm e nt a nd Agr e e m e nt t o be e f f e c t i ve a s of t he f i r s t da t e s e t f or t h a bove . AI RCO, LLC By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y AI R T GLOBAL LEASI NG, LLC By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y AI RCO SERVI CES, LLC By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y AI RCO 2, LLC By: AI RCO, LLC I t s : Sol e M e m be r By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
[ Gua r a nt or Ac knowl e dgm e nt a nd Agr e e m e nt Si gna t ur e Pa ge ] Ai r ’ Zona Ai r c r a f t Se r vi c e s , LLC By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y CSA AI R, I NC. By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y GLOBAL GROUND SUPPORT, I NC. By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y J ET YARD SOLUTI ONS, LLC By: St r a t us Ae r o Pa r t ne r s , LLC I t s : Sol e M e m be r By: Ai r T, I nc . , a De l a wa r e c or por a t i on I t s : M a na ge r By: Na m e : M a r k J undt I t s : Se c r e t a r y M OUNTAI N AI R CARGO, I NC. By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
[ Gua r a nt or Ac knowl e dgm e nt a nd Agr e e m e nt Si gna t ur e Pa ge ] SPACE AGE I NSURANCE COM PANY By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y STRATUS AERO PARTNERS, LLC By: Ai r T, I nc . , a De l a wa r e c or por a t i on I t s : M a na ge r By: Na m e : M a r k J undt I t s : Se c r e t a r y W ORLDW I DE AI RCRAFT SERVI CES, I NC. By: Na m e : M a r k J undt I t s : Se c r e t a r y W ORTHI NGTON AVI ATI ON, LLC By: Na m e : M a r k J undt I t s : Se c r e t a r y Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126\ 039\ 6308466. v2 ACKNOW LEDGM ENT AND AGREEM ENT Da t e d: J une 23, 2023. The unde r s i gne d, J e t Ya r d, LLC, a n Ar i z ona l i m i t e d l i a bi l i t y c om pa ny ( t he " Gua r a nt or ” ) ha s ( a ) gua r a nt e e d t he pa ym e nt a nd pe r f or m a nc e of a l l obl i ga t i ons of i t s a f f i l i a t e , Ai r T, I nc . , a De l a wa r e c or por a t i on ( t oge t he r wi t h i t s s uc c e s s or s a nd a s s i gns , " Ai r T” ) , t o M i nne s ot a Ba nk & Tr us t , a di vi s i on of HTLF Ba nk, s uc c e s s or by m e r ge r t o M i nne s ot a Ba nk a nd Tr us t ( t he " Le nde r ” ) , pur s ua nt t o t he t e r m s of a Gua r a nt y da t e d a s of Augus t 31, 2021 ( t he " Gua r a nt y” ) e xe c ut e d by t he Gua r a nt or i n f a vor of t he Le nde r , whi c h obl i ga t i ons i nc l ude , wi t hout l i m i t a t i on, a l l " Obl i ga t i ons ” ( a s de f i ne d i n t he Or i gi na l Agr e e m e nt de s c r i be d be l ow) of Ai r T t o t he Le nde r pur s ua nt t o t ha t c e r t a i n Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d a s of Augus t 31, 2021, a s a m e nde d by t ha t c e r t a i n Am e ndm e nt No. 1 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d J une 9, 2022, a nd by t ha t c e r t a i n Am e ndm e nt No. 2 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d J a nua r y 31,
2023 ( a s s o a m e nde d, t he " Or i gi na l Agr e e m e nt ” ) , be t we e n t he Gua r a nt or a nd Ai r T a s t he " Bor r owe r ” pa r t i e s a nd t he Le nde r , a nd ( b) gr a nt e d a f i r s t pr i or i t y s e c ur i t y i nt e r e s t i n i t s a s s e t s t o t he Le nde r a s c ol l a t e r a l f or s uc h Obl i ga t i ons pur s ua nt t o t he t e r m s of t ha t c e r t a i n Am e nde d a nd Re s t a t e d Se c ur i t y Agr e e m e nt da t e d a s of Augus t 31, 2021 ( t he " Se c ur i t y Agr e e m e nt ” ) . The Gua r a nt or a c knowl e dge s t ha t i t ha s r e c e i ve d a c opy of t he pr opos e d Am e ndm e nt No. 3 t o Thi r d Am e nde d a nd Re s t a t e d Cr e di t Agr e e m e nt da t e d t o be e f f e c t i ve a s of J une 23, 2023 ( t he " Am e ndm e nt ” ) pr ovi di ng f or a s e a s ona l i nc r e a s e i n t he Re vol vi ng Cr e di t Com m i t m e nt on t he " Ef f e c t i ve Da t e ” of t he Am e ndm e nt , a nd a m e ndi ng c e r t a i n ot he r t e r m s of t he Or i gi na l Agr e e m e nt . The Gua r a nt or ( a ) c onf i r m s t ha t bot h t he Gua r a nt y a nd t he Se c ur i t y Agr e e m e nt r e m a i n i n f ul l f or c e a nd e f f e c t , ( b) a gr e e s a nd a c knowl e dge s t ha t t he Am e ndm e nt s ha l l not i n a ny wa y i m pa i r or l i m i t t he r i ght s of t he Le nde r unde r t he Gua r a nt y or unde r t he Se c ur i t y Agr e e m e nt , a nd ( c ) he r e by
a c knowl e dge s a nd a gr e e s t ha t ( i ) pur s ua nt t o t he Gua r a nt y, t he Gua r a nt or gua r a nt e e s t he pa ym e nt a nd pe r f or m a nc e of a l l Obl i ga t i ons unde r t he Or i gi na l Agr e e m e nt , a s a m e nde d by t he Am e ndm e nt , a nd ( i i ) pur s ua nt t o t he Se c ur i t y Agr e e m e nt t he Gua r a nt or c ont i nue s t o gr a nt a s e c ur i t y i nt e r e s t t o t he Le nde r i n t he " Col l a t e r a l ” c ove r e d t he r e by t o s e c ur e a l l Obl i ga t i ons unde r t he Or i gi na l Agr e e m e nt , a s a m e nde d by t he Cr e di t Agr e e m e nt , i nc l udi ng, wi t hout l i m i t a t i on, t he r e pa ym e nt of Te r m Loa n F a nd a l l ot he r Loa ns he r e a f t e r m a de by t he Le nde r unde r t he Or i gi na l Agr e e m e nt a s a m e nde d by t he Cr e di t Agr e e m e nt . The Gua r a nt or a gr e e s t ha t e a c h r e f e r e nc e t o t he " Cr e di t Agr e e m e nt ” , t he " Loa n Agr e e m e nt ” , " t he r e i n” , " t he r e of ” , " t he r e by” or wor ds of s i m i l a r e f f e c t r e f e r r i ng t o t he Cr e di t Agr e e m e nt i n a ny Loa n Doc um e nt t o whi c h t he Gua r a nt or i s a pa r t y s ha l l m e a n a nd be a r e f e r e nc e t o t he Or i gi na l Agr e e m e nt , a s a m e nde d by t he Am e ndm e nt . The Gua r a nt or : ( a ) r e pr e s e nt s a nd wa r r a nt s t o t he Le nde r t ha t no e ve nt s ha ve t a ke n pl a c e a nd no
c i r c um s t a nc e s e xi s t a t t he da t e he r e of whi c h woul d gi ve t he Gua r a nt or a ny r i ght t o a s s e r t a de f e ns e , of f s e t or c ount e r c l a i m t o a ny c l a i m by t he Le nde r f or pa ym e nt of t he Obl i ga t i ons gua r a nt e e d by t he Gua r a nt or or f or t he e nf or c e m e nt of t he Gua r a nt y; a nd ( b) he r e by r e l e a s e s a nd f or e ve r di s c ha r ge s t he Le nde r a nd i t s s uc c e s s or s , a s s i gns , di r e c t or s , of f i c e r s , a ge nt s , e m pl oye e s a nd pa r t i c i pa nt s f r om a ny a nd a l l a c t i ons , c a us e s of a c t i on, s ui t s , pr oc e e di ngs , de bt s , s um s of m one y, c ove na nt s , c ont r a c t s , c ont r ove r s i e s , c l a i m s a nd de m a nds , a t l a w or i n e qui t y, whi c h t he Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
Gua r a nt or e ve r ha d or now ha s a ga i ns t t he Le nde r or i t s s uc c e s s or s , a s s i gns , di r e c t or s , of f i c e r s , a ge nt s , e m pl oye e s or pa r t i c i pa nt s by vi r t ue of t he i r r e l a t i ons hi p t o Ai r T or t he Gua r a nt or i n c onne c t i on wi t h t he Loa n Doc um e nt s a nd t he t r a ns a c t i ons r e l a t e d t he r e t o. Not hi ng i n t hi s Ac knowl e dgm e nt a nd Agr e e m e nt r e qui r e s t he Le nde r t o obt a i n t he c ons e nt of t he Gua r a nt or t o a ny f ut ur e a m e ndm e nt , m odi f i c a t i on or wa i ve r t o t he Or i gi na l Agr e e m e nt , a s a m e nde d by t he Am e ndm e nt , or a ny ot he r Loa n Doc um e nt t o whi c h t he Gua r a nt or i s a pa r t y e xc e pt a s e xpr e s s l y r e qui r e d by t he t e r m s of t he Loa n Doc um e nt s t o whi c h t he Gua r a nt or i s a pa r t y. The de l i ve r y of a f a c s i m i l e , pdf or ot he r di gi t a l c opy of a n e xe c ut e d c ount e r pa r t of t hi s Ac knowl e dgm e nt a nd Agr e e m e nt s ha l l be de e m e d t o be va l i d e xe c ut i on a nd de l i ve r y of t hi s Ac knowl e dgm e nt a nd Agr e e m e nt . [ SI GNATURE PAGE FOLLOW S] Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
[ Gua r a nt or Ac knowl e dgm e nt a nd Agr e e m e nt Si gna t ur e Pa ge ] The Gua r a nt or ha s e xe c ut e d t hi s Ac knowl e dgm e nt a nd Agr e e m e nt t o be e f f e c t i ve a s of t he f i r s t da t e s e t f or t h a bove . J ET YARD, LLC, a n Ar i z ona l i m i t e d l i a bi l i t y c om pa ny By: St r a t us Ae r o Pa r t ne r s , LLC I t s : Sol e M e m be r By: Ai r T, I nc . , a De l a wa r e c or por a t i on I t s : M a na ge r By: Na m e : Br i a n Oc hoc ki I t s : Chi e f Fi na nc i a l Of f i c e r Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126\ 039\ 6308420. v2 SECRETARY’ S CERTI FI CATE Da t e : J une 23, 2023. The unde r s i gne d he r e by c e r t i f i e s t o M i nne s ot a Ba nk & Tr us t , a di vi s i on of HTLF Ba nk, s uc c e s s or by m e r ge r t o M i nne s ot a Ba nk a nd Tr us t ( t he " Le nde r ” ) t ha t : ( a ) I a m t he Se c r e t a r y of AI R T, I NC. , a De l a wa r e c or por a t i on, t he m a na ge r of STRATUS AERO PARTNERS, LLC, a De l a wa r e l i m i t e d l i a bi l i t y c om pa ny ( t he " M a na ge r ” ) , t he s ol e m e m be r ( t he " M e m be r ” ) of J ET YARD, LLC, a l i m i t e d l i a bi l i t y c om pa ny or ga ni z e d a nd e xi s t i ng i n good s t a ndi ng unde r t he l a ws of t he St a t e of Ar i z ona ( t he " Com pa ny” ) ; ( b) t he Re s ol ut i ons a t t a c he d a s Exhi bi t A t o t ha t c e r t a i n Se c r e t a r y’ s Ce r t i f i c a t e r e ga r di ng t he Com pa ny a nd s i gne d a nd de l i ve r e d t o t he Le nde r on or a bout Augus t 31, 2021 ( t he " Or i gi na l Ce r t i f i c a t e ” ) , r e m a i n i n f ul l f or c e a nd e f f e c t a s of t he da t e he r e of a nd ha ve not i n a ny wa y be e n a m e nde d, m odi f i e d or r e s c i nde d; ( c ) t he Com pa ny’ s Ar t i c l e s of Or ga ni z a t i on pr e vi ous l y de l i ve r e d t o t he Le nde r a s a n Exhi bi t t o t he Or i gi na l Ce r t i f i c a t e r e m a i n i n f ul l f or c e a nd e f f e c t a s of t he
da t e he r e of a nd ha ve not i n a ny wa y be e n a m e nde d, m odi f i e d or r e s c i nde d; ( d) t he Com pa ny ha s no ope r a t i ng or l i m i t e d l i a bi l i t y c om pa ny a gr e e m e nt ; ( d) t he i ndi vi dua l s whos e s i gna t ur e s pe c i m e ns we r e i nc l ude d i n t he Se c r e t a r y’ s Ce r t i f i c a t e de l i ve r e d t o t he Le nde r on or a bout J une 26, 2020, c ont i nue t o s e r ve t he Cor por a t i on i n s uc h c a pa c i t i e s on t he da t e of t hi s Se c r e t a r y’ s Ce r t i f i c a t e . [ s i gna t ur e pa ge f ol l ows ] Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
I N W I TNESS W HEREOF, I ha ve e xe c ut e d t hi s Se c r e t a r y’ s Ce r t i f i c a t e a s of da t e f i r s t s e t f or t h a bove . STRATUS AERO PARTNERS, LLC, t he s ol e m e m be r of J e t Ya r d, LLC By: Ai r T, I nc . , a De l a wa r e c or por a t i on I t s : M a na ge r By: Na m e : M a r k J undt Ti t l e : Se c r e t a r y Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
084126\ 039\ 6308439. v2 SECRETARY’ S CERTI FI CATE Da t e : J une 23, 2023. The unde r s i gne d he r e by c e r t i f i e s t o M i nne s ot a Ba nk & Tr us t , a M i nne s ot a s t a t e ba nki ng c or por a t i on ( t he " Le nde r ” ) t ha t : ( a ) I a m t he Se c r e t a r y of Ai r T, I nc . , a c or por a t i on or ga ni z e d, e xi s t i ng a nd i n good s t a ndi ng i n t he St a t e of De l a wa r e ( t he " Cor por a t i on” ) , a nd t ha t I a m a ut hor i z e d t o e xe c ut e t hi s Ce r t i f i c a t e on be ha l f of t he Cor por a t i on; ( b) The Ce r t i f i c a t e of I nc or por a t i on of t he Com pa ny a t t a c he d a s Exhi bi t A t o t he Se c r e t a r y’ s Ce r t i f i c a t e r e ga r di ng t he Cor por a t i on a nd s i gne d a nd de l i ve r e d t o t he Le nde r on or a bout J une 9, 2022, r e m a i n i n f ul l f or c e a nd e f f e c t a s of t he da t e he r e of a nd ha ve not i n a ny wa y be e n a m e nde d, m odi f i e d or r e s c i nde d. As of t he da t e of t hi s Ce r t i f i c a t e , no a c t i on by t he Com pa ny i s pe ndi ng whi c h woul d a m e nd, a l t e r , r e s c i nd or r e pe a l s a i d Ce r t i f i c a t e of I nc or por a t i on. ( c ) t he Re s ol ut i ons a t t a c he d a s Exhi bi t A t o t ha t c e r t a i n Se c r e t a r y’ s Ce r t i f i c a t e r e ga r di ng t he Cor por a t i on a nd s i gne d a nd de l i ve r e d t o t he Le nde r on or a bout Augus t 31, 2021
( t he " Or i gi na l Ce r t i f i c a t e ” ) , r e m a i n i n f ul l f or c e a nd e f f e c t a s of t he da t e he r e of a nd ha ve not i n a ny wa y be e n a m e nde d, m odi f i e d or r e s c i nde d; ( c ) t he Cor por a t i on’ s Byl a ws pr e vi ous l y de l i ve r e d t o t he Le nde r a s Exhi bi t C t o t he Or i gi na l Ce r t i f i c a t e r e m a i n i n f ul l f or c e a nd e f f e c t a s of t he da t e he r e of a nd ha ve not i n a ny wa y be e n a m e nde d, m odi f i e d or r e s c i nde d; a nd ( e ) t he i ndi vi dua l s whos e s i gna t ur e s pe c i m e ns we r e i nc l ude d i n t he Se c r e t a r y’ s Ce r t i f i c a t e de l i ve r e d t o t he Le nde r on or a bout J une 26, 2020, c ont i nue t o s e r ve t he Cor por a t i on i n s uc h c a pa c i t i e s on t he da t e of t hi s Se c r e t a r y’ s Ce r t i f i c a t e . [ s i gna t ur e pa ge f ol l ows ] Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
I N W I TNESS W HEREOF, I ha ve he r e unde r s ubs c r i be d m y na m e t o be e f f e c t i ve a s of t he da t e f i r s t s e t f or t h a bove . . By: Na m e : M a r k J undt I t s : Cor por a t e Se c r e t a r y Doc uSi gn Enve l ope I D: 69945E55- E085- 477C- 94DE- 5F8DF61BA41E
EXHIBIT 21.1
AIR T, INC.
LIST OF SUBSIDIARIES AND CONSOLIDATED VARIABLE INTEREST ENTITIES
Air T Global Leasing, LLC, a North Carolina limited liability company
CSA Air, Inc., a North Carolina corporation
Global Ground Support, LLC, a North Carolina limited liability company
Mountain Air Cargo, Inc., a North Carolina corporation
Space Age Insurance Company, a Utah corporation
Stratus Aero Partners LLC, a Delaware limited liability company
Jet Yard, LLC, an Arizona limited liability company
Jet Yard Solutions, LLC, an Arizona limited liability company
AirCo, LLC, a North Carolina limited liability company
AirCo 1, LLC, a Delaware limited liability company
AirCo Services, LLC, a North Carolina limited liability company
Contrail Aviation Support, LLC, a North Carolina limited liability company
Contrail Aviation Leasing, LLC, a Wisconsin limited liability company
BCCM Inc, a Delaware Corporation
BCCM Advisors, LLC, a Delaware limited liability company
BCCM Services, LLC, a Delaware limited liability company
Graphoptix, LLC, a Minnesota limited liability company
Delphax Solutions, Inc., an Ontario Corporation
Delphax Technologies Inc., a Minnesota Corporation
Worthington Aviation, LLC, a North Carolina limited liability company
Ambry Hills Technologies, LLC, a Minnesota limited liability company
Air'Zona Acquisition, LLC, an Arizona limited liability company
Air'Zona Aircraft Services, Inc., an Arizona Corporation
Air T Ag Lending, LLC, a Minnesota limited liability company
Farmland Credit FR, LLC, a Minnesota limited liability company
Farmland Credit AV, LLC, a Minnesota limited liability company
Giant Jump, LLC, a Minnesota limited liability company
Wolfe Lake HQ, LLC, a Minnesota limited liability company
Air T Acquisition 22.1, LLC
Shanwick B.V., a Dutch holding company
Worldwide Aircraft Services, Inc., a Kansas corporation
*
Percent ownership assumes conversion by Air T of all shares of Series B Preferred Stock
of Delphax Technologies Inc. into shares of common stock of Delphax Technologies Inc.
Percent
Ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
79%
100%
100%
100%
100%
100%
100%
67%*
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
70%
100%
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
W e consent to the incorporation by reference in Registration Statement No. 333-135338 on Form S-8 and Registration Statement No. 333-254110 on Form S-3 of our
report dated June 27, 2023, relating to the financial statements of Air T, Inc. appearing in this Annual Report on Form 10-K for the year ended March 31, 2023.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
June 27, 2023
POWER OF ATTORNEY
(FORM 10-K)
Exhibit 24
AIR T, INC., a Delaware corporation (the "Company”), and each of the undersigned directors of the Company, hereby constitutes and appoints Nick Swenson and Brian
Ochocki and each of them (with full power to each of them to act alone) its/his/her true and lawful attorney-in-fact and agent, for it/him/her and on its/his/her behalf and in its/his/her
name, place and stead, in any and all capacities to sign, execute, affix its/his/her seal thereto and file the Annual Report on Form 10-K for the year ended March 31, 2023 under
the Securities Exchange Act of 1934, as amended, with any amendment or amendments thereto, with all exhibits and any and all documents required to be filed with respect
thereto with any regulatory authority.
There is hereby granted to said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in
respect of the foregoing as fully as it/he/she or itself/himself/herself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents,
or any of them, may lawfully do or cause to be done by virtue hereof.
This Power of Attorney may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same
instrument and any of the undersigned directors may execute this Power of Attorney by signing any such counterpart.
Air T, Inc. has caused this Power of Attorney to be executed in its name by its Chairman, President and Chief Executive Officer on the 22nd day of June, 2023.
AIR T, INC.
By
/s/ Nick Swenson
Nick Swenson
Chairman, President and Chief Executive Officer
The undersigned, directors of Air T, Inc., have hereunto set their hands as of the 27th day of June, 2023.
By:
/s/ Nick Swenson
Nick Swenson, Chairman, President and
Chief Executive Officer and Director (Principal Executive Officer)
By:
By:
By:
By:
/s/ Raymond Cabillot
Raymond Cabillot, Director
/s/ William R. Foudray
William R. Foudray, Director
/s/ Gary S. Kohler
Gary S. Kohler, Director
/ s/ Peter McClung
Peter McClung, Director
By:
/s/ Travis Swenson
Travis Swenson, Director
26549708v1
Date: June 27, 2023
Date: June 27, 2023
Date: June 27, 2023
Date: June 27, 2023
Date: June 27, 2023
Date: June 27, 2023
Exhibit 31.1
SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I. Nick Swenson, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Air T, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: June 27, 2023
/s/ Nick Swenson
Nick Swenson
Chief Executive Officer
Exhibit 31.2
SECTION 302 CERTIFICATION OF INTERIM CHIEF FINANCIAL OFFICER
I. Brian Ochocki, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Air T, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: June 27, 2023
/s/ Brian Ochocki
Brian Ochocki
Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Air T, Inc. (the "Company”) Annual Report on Form 10-K for the year ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the
"Report”), I, Nick Swenson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: June 27, 2023
/s/ Nick Swenson
Nick Swenson, Chief Executive Officer
Exhibit 32.2
CERTIFICATION OF INTERIM CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Air T, Inc. (the "Company”) Annual Report on Form 10-K for the year ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the
"Report”), I, Seth Barkett, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: June 27, 2023
/s/ Brian Ochocki
Brian Ochocki, Chief Financial Officer