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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 001-35476
Air T, Inc.

(Exact name of registrant as specified in its charter)
Delaware 52-1206400
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)

5930 Balsom Ridge Road, Denver, North Carolina 28037
(Address of principal executive offices, including zip code)
(828) 464 – 8741
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading
Symbol(s)
Name of each exchange on which registered
Common Stock AIRT NASDAQ Stock Market
Alpha Income Preferred Securities (also referred to as 8% Cumulative Capital Securities) ("AIP")* AIRTP NASDAQ Stock Market
Warrant to Purchase AIP* AIRTW NASDAQ Stock Market
*Issued by Air T Funding
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
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 ☒
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 ☒ 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 ☒ 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 Accelerated Filer              
Non-accelerated Filer Smaller reporting company
Emerging growth company
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. ☐.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of September 30, 2020 (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, 2020 was approximately $11,799,796.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock Common Shares, par value of $.25 per share
Outstanding Shares at May 31, 2021
2,881,853

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive proxy statement for its 2021 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.
2



AIR T, INC. AND SUBSIDIARIES
2021 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

Page
4
9
Item 1B.
19
19
20
20
20
[Reserved]
20
20
Item 7A.
30
31
72
72
72
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
73
73
73
74
74
74
74
82
Interactive Data Files

3


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 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.
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.
On September 30, 2019, we completed the sale of 100% of the equity ownership in the Company's wholly-owned subsidiary, Global Aviation Services, LLC ("GAS"), which previously constituted the ground support services segment. See Note 2, Discontinued Operations, 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 and Adjusted EBITDA.
Certain financial data with respect to the Company’s geographic areas and segments is set forth in Notes 20 and 21 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 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.
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.
Acquisitions.
Cadillac Casting, Inc. On November 8, 2019, the Company made an investment of $2.8 million to purchase a 19.9% ownership stake in CCI. The Company determined that CCI 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 have the power to direct the activities that most significantly impact the economic performance of CCI. Accordingly, the Company does not consolidate CCI and has determined to account for this investment using equity method accounting. See Notes 10 and 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

4


Overnight Air Cargo.
The Company’s Overnight Air Cargo segment is operated through MAC and CSA. MAC and CSA have a relationship with FedEx spanning over 40 years and represent two of seven companies in the U.S. that have North American feeder airlines under contract with FedEx. MAC and CSA operate and maintain Cessna Caravan, 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, 2015, 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 was increased from the prior dry-lease service contracts to reflect 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, 2021, MAC and CSA had an aggregate of 66 aircraft under its dry-lease agreements with FedEx.  Included within the 66 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 37% and 30% of the Company’s consolidated revenue for the fiscal years ended March 31, 2021 and 2020, 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. 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, 2021:
Type of Aircraft Model Year Form of Ownership Number
of
Aircraft
Cessna Caravan 208B (single turbo prop) 1985-1996 Dry lease 49
ATR-42 (twin turbo prop) 1992 Dry lease 8
ATR-72 (twin turbo prop) 1992 Dry lease 9
66
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.
MAC and CSA operate in a niche market within a highly competitive contract cargo carrier market. MAC and CSA are two of seven 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.
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, 2021, sales of deicing equipment accounted for approximately 94% of GGS’s revenues, compared to 89% 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 efforts to reduce GGS’s seasonal fluctuation in revenues and earnings by broadening its international and domestic customer base and its product line.

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In July 2009, GGS was awarded a new contract to supply deicing trucks to the USAF. Per the contract, GGS has to provide pricing that will be contractual for each one-year period within the years that the contract is awarded. 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. This contract expired on July 13, 2020, and GGS has submitted its bid for contract renewal. As of March 31, 2021, the USAF has not yet responded to the bid.
GGS sold a total of 47 and 26 deicers under this contract with the USAF including both GL 1800 and ER 2875 models during fiscal years ended March 31, 2021 and March 31, 2020, respectively and all of the units were accepted by the USAF. GGS also completed and delivered an additional USAF delivery order for both GL 1800 and ER 2875 models during the first quarter of fiscal year 2022.

Commercial Jet Engines and Parts.
Contrail Aviation Support and Jet Yard (acquired during fiscal year 2017), AirCo (formed in May 2017), Worthington (acquired in May 2018), and Jet Yard Solutions (formed in January 2021) comprise the commercial jet engines and parts segment of the Company’s operations. Contrail Aviation Support 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 Aviation Support acquires commercial aircraft, jet engines and components for the purposes of sale, trading, leasing and disassembly/overhaul. Contrail Aviation holds an ASA-100 accreditation from the Aviation Suppliers Association. As of March 31, 2021 and March 31, 2020, Contrail contributed approximately 18% and 31% of the Company's total consolidated revenue for the years then ended, respectively.
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.

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, 2021, GGS’s backlog of orders was $10.3 million, all of which GGS expects to be filled in the fiscal year ending March 31, 2022. At March 31, 2020, GGS’s backlog of orders was $51.5 million. Backlog is not meaningful for the Company’s other business segments.
Governmental Regulation.
The Company and its subsidiaries are subject to regulation by various governmental agencies.
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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 and AirCo, 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.
As of March 31, 2021, the Company and its subsidiaries had 452 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.

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Item 1A.    Risk Factors.
General Business Risks
The novel coronavirus (COVID-19) and other possible pandemics and similar outbreaks could result in material adverse effects on our business, financial position, results of operations and cash flows.

The outbreak of the COVID-19 virus in the United States and elsewhere created considerable instability and disruption in the U.S. and world economies. Substantial uncertainty still surrounds COVID-19 and its potential effects, as well as the extent and effectiveness of any responses taken on a national and local level. Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures and other restrictions on travel, congregation and business operations resulted in significant negative impacts in the United States and world economies and in relation to our business. The long-term impact of COVID-19 on the U.S. and world economies remains uncertain and the duration and scope of the world-wide economic downturn cannot currently be predicted. The extent to which our financial condition, results of operations and overall value will continue to be affected by the COVID-19 pandemic will largely depend on future developments, which are highly uncertain and cannot be accurately predicted, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic, containment and the effectiveness of vaccine measures, among others.

As a result of measures taken to limit the impact of COVID-19, self-quarantines or actual viral health issues, we initially experienced a substantial number of disruptions, and experienced a reduction in demand for commercial aircraft, jet engines and parts which negatively affected our sales and materially and adversely affected the financial performance and value of our inventory. All of the markets in which our businesses are located were subject to some level of restrictions on business operations. Even as travel advisories and restrictions are modified or lifted, demand for air travel could remain weak or not recover to pre-pandemic levels for a significant length of time, which may be a function of continued concerns over safety, unwillingness to travel, and decreased consumer spending due to economic conditions, including job losses. We cannot predict if and when the demand for our commercial aircraft, jet engines and parts will return to pre-outbreak levels of volume and pricing. The market and economic challenges created by the COVID-19 pandemic, and measures implemented to prevent its spread, adversely affected, and could continue to adversely affect our returns and profitability. As a result, the COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial condition and results of operations. In addition, if in the future there is an outbreak of another highly infectious or contagious disease or other health concern, our company may be subject to similar risks as posed by COVID-19.

Market fluctuations may affect our operations.

Market fluctuations may affect our ability to obtain necessary funds 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 prior to the COVID-19 virus outbreak 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.

Labor inflation could impact our profitability.

The Company operates in industries that are heavily impacted by the workforce’s labor rates. Significant examples include mechanics and pilots, both of which expose the Company to the possibility of material increases in labor costs.

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.

Our business may be adversely affected by information technology disruptions.

Our business may be impacted by information technology disruptions, including information technology attacks. Cybersecurity attacks, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data (our own or that of third parties). Although we have adopted certain measures to mitigate potential risks to our systems from information technology-related disruptions, given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the
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compromising of confidential or otherwise protected information, misappropriation, destruction or corruption of data, security breaches, other manipulation or improper use of our systems or networks, financial losses from remedial actions, loss of business or potential liability, and/or damage to our reputation, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The failure of our information technology systems could adversely impact our reputation and financial performance.

We operate in businesses that are dependent on information systems and technology. Our information systems and technology may not continue to be able to accommodate our growth, and/or the cost of maintaining such systems may increase from its current level. Either scenario could have a material adverse effect on us. We rely on third-party service providers to manage certain aspects of our business, including for certain information systems and technology, data processing systems, and the secure processing, storage and transmission of information. Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair the quality of our operations and could adversely affect our business and reputation.

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 business as our key employees have knowledge of our industry and customers that would be difficult to replace.

Risks Related to Our Segment Operations

The operating results of our four segments may fluctuate, particularly our commercial jet engine and parts segment.

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:
a.the economic health of the economy and the aviation industry in general;
b.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 accumulated;
d.the termination or announced termination of production of particular aircraft and engine types;
e.the retirement or announced retirement of particular aircraft models by aircraft operators;
f.the operating history of any particular engine, aircraft or engine or aircraft model;
g.the length of our operating leases; and
h.the timing of necessary overhauls of engines and aircraft.

These risks may reduce our 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, 2021, 37% of our consolidated operating revenues, and 99% 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
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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.

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, 2020. These risks include but are not limited to the following:

a.The negative effect of the COVID-19 pandemic;
b.Economic conditions and anti-trade measures/trade policies and relations in the global markets in which it operates;
c.Dependence on its strong reputation and value of its brand;
d.Potential disruption to operations resulting from a significant data breach or other disruption to FedEx’s technology infrastructure;
e.The failure to efficiently integrate the business and operations of FedEx Express and TNT Express;
f.The price and availability of fuel;
g.FedEx's ability to manage capital and its assets, including aircraft, to match shifting and future shipping volumes;
h.Changes in international trade policies and relations could significantly reduce the volume of goods transported globally;
i.Intense competition from other providers of transportation and business services;
j.Changes in governmental regulations that may affect its business;
k.FedEx's ability to operate, integrate, leverage and grow acquired businesses;
l.Adverse changes in regulations and interpretations and challenges to its tax positions;
m.Failure to attract and maintain employee talent or maintain company culture and its ability to maintain good relationships with its employees and prevent attempts by labor organizations to organize groups of its employees;
n.Disruptions or modifications in service by the United States Postal Service, a significant customer and vendor of FedEx;
o.The continued classification of owner-operators in its ground delivery business as independent contractors rather than as employees;
p.The impact of proposed pilot flight and duty time regulations;
q.The impact of the United Kingdom's withdrawal from the European Union;
r.The impact of terrorist activities including the imposition of stricter governmental security requirements;
s.Regulatory actions affecting global aviation rights or a failure to obtain or maintain aviation rights in important international markets;
t.Global climate change or legal, regulatory or market responses to such change;
u.Adverse weather or localized natural or man-made disasters in key locations, including its Memphis, Tennessee super-hub;
v.Constraints, volatility or disruption in the capital markets and any failure to maintain credit ratings and to meet credit agreement covenants; and
w.Widespread outbreak of an illness or other communicable disease or any other public health crisis.

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.

Sales of deicing equipment can be affected by weather conditions.

Our 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.

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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.a grounding of the related engine or aircraft;
b.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;
c.a need to incur additional costs and devote resources to recreate the records prior to the sale or lease of the engine or aircraft;
d.a decline in the market value of the aircraft or engine resulting in lower revenues upon a subsequent lease or sale;
e.loss of lease revenue while we perform refurbishments or repairs and recreate records; and
f.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.

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
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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.

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
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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.

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
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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.

Risks Related to Our Structure and Financing/Liquidity Risks

Our holding company structure may increase risks related to our operations.

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 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, 2021, our three largest stockholders beneficially owned or had the ability to direct the voting of shares of our common stock representing approximately 62% 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.

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.
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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 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, 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:
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.

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 - certain of which mature in the next twelve months. 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.

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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 will occur over the course of the next few years. The Federal Reserve Bank of New York and various other authorities have commenced the publication of reforms and actions relating to alternatives to U.S. dollar LIBOR. The full impact of such reforms and actions, together with any transition away from LIBOR remains unclear. These changes 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.

Despite our substantial indebtedness, we might 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.

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 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, adequate insurance coverage and certain credit ratings. 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 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 and other operations. 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.

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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.

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 substantial expansion at our commercial jet engines and parts segment and the establishment of a large aircraft asset management business and a new 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.


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Risks Related to Our Investments in Securities

Our results of operations may be affected by the value of securities we hold for investment and we may be unable to liquidate our investments in a timely manner or at full value.

We invest a significant portion of our capital not needed for operations in marketable securities, including equity securities of publicly-traded companies. At March 31, 2021, the fair value of these marketable securities was approximately $2.9 million. The value of our investment portfolio fluctuates and we have sustained losses in our investment portfolio in the past and could in the future. Such declines in value of available-for-sale securities will be recognized as losses upon the sale of such securities or if such declines are deemed to be other than temporary. Our results of operations may be affected by gains or losses recognized upon such a decline in value of our investments or the sale of these investments and the Company may not be able to realize the fair value of such investments under then-market conditions if liquidation is necessary in a short period of time.


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.
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 2023, with the option to extend the lease for four 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 foot production facility in Olathe, Kansas. The facility is leased from a third party under a lease agreement, which expires in August 2024.
As of March 31, 2021, the Company leased hangar, maintenance and office space from third parties at a variety of other locations, at prevailing market terms.
Contrail Aviation leases a 21,000 square foot facility in Verona, Wisconsin. This is a lease from a related party. See Note 14 “Related Party Matters” of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report. As of March 31, 2021, Contrail has executed the option to extend this lease for an additional period of five years on the same terms and conditions. The new lease expires on July 17, 2026. Contrail also leases a 1,453 square foot office space in Denver, Colorado. The lease is a 37 month lease that commenced on January 1, 2019.
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. As of March 31, 2021, Jet Yard has 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, 2023. The lease required Air T to deposit six months' rent as a cash deposit.

AirCo and Worthington began work in mid-2019 to consolidate back office operations. This process began with the move of AirCo’s inventory from Wichita to Eagan MN. In parallel to this, Worthington worked with the landlord and property manager on a tenant expansion project to add an additional 2,546 square feet of office space and 11,214 square feet of warehouse to the Eagan MN facility to consolidate inventory and support operations into one facility. AirCo Services occupied the Wichita facility through the end of the lease on April 30, 2020 at which time the Repair Station moved to Eagan, MN.
 
Worthington and AirCo lease a 41,280 square-foot facility in Eagan, Minnesota. The lease for this facility expires in December 2027. In addition, Worthington also leases a 12,000 square-foot storage facility in Hastings, Minnesota. The lease for this facility expires in July 2022. Worthington has two leases in Tulsa, Oklahoma. One lease is 22,582 square feet and expires in January 2022. The other lease is 10,000 square feet and expires in September 2020. 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.

19


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.
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, 2021, the approximate number of holders of record of the Company’s Common Stock was 160.
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 did not repurchase any shares pursuant to this authorization during the fiscal year ended March 31, 2021.
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”.
As of March 31, 2021, the Company did not sell any securities within the past three years that were not registered under the Securities Act.
Item 6.    [Reserved]
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.
On September 30, 2019, we completed the sale of 100% of the equity ownership in GAS, which previously constituted the ground support services segment. See Note 2, Discontinued Operations 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 and Adjusted EBITDA.
20


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 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;
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;
Mild winter weather conditions reducing the demand for deicing equipment;
Market acceptance and operational success of the Company’s new aircraft asset management business and related new aircraft capital joint venture; and
The length and severity of the COVID-19 pandemic.
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.
21


Results of Operations
Due to insignificance, the Company combined the previous printing and equipment segment into corporate and other. We have presented prior periods based on the current presentation.
Outlook
COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas 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 but we still experienced a substantial number of disruptions, and we experienced and continue to experience 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 flow and may operate at a loss during at least the first half of fiscal 2022. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions and our business in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.
Fiscal 2021 vs. 2020
Consolidated revenue decreased by $61.7 million (26%) to $175.1 million for the fiscal year ended March 31, 2021 compared to the prior fiscal year. Following is a table detailing revenue (after elimination of intercompany transactions), in thousands:

Year ended March 31, Change
2021 2020
Overnight Air Cargo $ 66,251  $ 75,275  $ (9,024) (12) %
Ground Equipment Sales 60,679  59,156  1,523  %
Commercial Jet Engines and Parts 46,793  101,284  (54,491) (54) %
Corporate and Other 1,398  1,070  328  31  %
Total $ 175,121  $ 236,785  $ (61,664) (26) %
Revenues from the air cargo segment decreased by $9.0 million (12%) compared to the prior fiscal year, principally attributable to lower sales to maintenance customers outside of FedEx as a result of COVID-19 and lower admin fees from FedEx due to fewer operating aircraft (66 aircraft in fiscal 2021 compared to 69 aircraft in fiscal 2020). Pass-through costs under the dry-lease agreements with FedEx totaled $19.9 million and $23.7 million for the years ended March 31, 2021 and 2020, respectively.
The ground equipment sales segment contributed approximately $60.7 million and $59.2 million to the Company’s revenues for the fiscal periods ended March 31, 2021 and 2020, respectively, representing a $1.5 million (3%) increase in the current year. The increase was primarily driven by a higher volume of truck sales to the USAF. At March 31, 2021, the ground equipment sales segment’s order backlog was $10.3 million compared to $51.5 million at March 31, 2020.
The commercial jet engines and parts segment contributed $46.8 million of revenues in fiscal year ended March 31, 2021 compared to $101.3 million in the prior fiscal year which is a decrease of $54.5 million (54%). The decrease is primarily attributable to the fact that all the companies within this segment had lower engine and component sales and lease income due to the impact of COVID-19 on the aviation industry as a whole.
Following is a table detailing operating (loss) income by segment, net of intercompany during Fiscal 2021 and Fiscal 2020 (in thousands):

Year ended March 31, Change
2021 2020
Overnight Air Cargo $ 2,178  $ 749  $ 1,429 
Ground Equipment Sales 8,948  7,302  1,646 
Commercial Jet Engines and Parts (10,882) 8,322  (19,204)
Corporate and Other (9,419) (9,082) (337)
Total $ (9,175) $ 7,291  $ (16,466)
Consolidated operating loss for the fiscal year ended March 31, 2021 was $9.2 million compared to consolidated operating income of $7.3 million in the prior fiscal year.
Operating income for the air cargo segment increased by $1.4 million in the current fiscal year, due primarily to having lower pilot and staff salaries as well as contract labor.
The ground equipment sales segment operating income increased by $1.6 million from $7.3 million in the prior year to $8.9 million in the current year. This increase was primarily attributable to the increased sales noted in the segment revenue discussion above as well as better operating margin as a result of having a more profitable mix of products sold.
Operating loss of the commercial jet engines and parts segment was $10.9 million compared to operating income of $8.3 million in the prior year. The change was primarily attributable to the decreased aircraft engines and component sales as well as reduced lease income due to COVID-19 at the companies within this segment as explained in the segment revenue discussion above. This segment's current year operating loss was also further increased due to inventory write-down of $6.4 million.
Following is a table detailing consolidated non-operating expenses, net of intercompany during Fiscal 2021 and Fiscal 2020 (in thousands):

Year Ended March 31, Change
2021 2020
Other-than-temporary impairment loss on investments $ —  $ (2,305) $ 2,305 
Interest expense, net (4,624) (4,692) 68 
Gain on settlement of bankruptcy —  4,527  (4,527)
Loss from equity method investments (723) (910) 187 
Other 2,741  (1,287) 4,028 
$ (2,606) $ (4,667) $ 2,061 

The Company had net non-operating expenses of $2.6 million for the year ended March 31, 2021, a decrease of $2.1 million from $4.7 million in the prior year. The decrease was primarily due to the prior-year's impairment loss on the investment of Insignia of $2.3 million that did not recur in the current-year as well as an increase of $4.0 million in other income, driven by $2.1 million of investment income and realized gain on sale of securities in the current-year. The decrease was partially offset by the prior-year's gain on settlement of bankruptcy proceedings related to Dephax Canada and UK of $4.5 million that did not recur in the current-year.

During the year ended March 31, 2021, the Company recorded $3.4 million of income tax benefit related to continuing operations, which yielded an effective rate of 28.8%. 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, 2021 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 Aviation Support, LLC, state income tax expense, the rate differential for the NOL carryback claim 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.

During the fiscal year ended March 31, 2020, the Company recorded $0.5 million of income tax benefit related to continuing operations at an effective tax rate of -20.7%. 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, 2020 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 Aviation Support, LLC as well as state income tax expense, and changes in the valuation allowance. The change in the valuation allowance is primarily due to unrealized losses on investments, utilization of capital loss carryforwards, and attribute reduction incurred by Delphax related to cancellation of debt income and dissolution of its Canadian and UK subsidiaries.

22



Market Outlook

COVID-19 and its impact on the financial, economic and capital markets environment, and future developments in these and other areas 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 but we still experienced a substantial number of disruptions, and a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. We currently expect that many of our businesses may continue to generate reduced operating cash flow and may operate at a loss during at least the first half of fiscal 2022. We expect that these impacts will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and our results of operations.

The outbreak of the COVID-19 virus in the United States and elsewhere created considerable instability and disruption in the U.S. and world economies. Uncertainty still surrounds COVID-19 and its potential effects, as well as the extent and effectiveness of any responses taken on a national and local level. Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures and other restrictions on travel, congregation and business operations resulted in significant negative impacts in the United States and world economies and in relation to our business. The long-term impact of COVID-19 on the U.S. and world economies remains uncertain and the duration and scope of the world-wide economic downturn cannot currently be predicted. The extent to which our financial condition, results of operations and overall value will continue to be affected by the COVID-19 pandemic will largely depend on future developments, which are highly uncertain and cannot be accurately predicted, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic, containment and the effectiveness of vaccine measures, among others.
23


Liquidity and Capital Resources

As of March 31, 2021, the Company held approximately $15.9 million in cash and cash equivalents and restricted cash, $4.7 million of which related to restricted cash collateralized for three Opportunity Zone fund investments. The Company also held $1.5 million in restricted investments held as statutory reserve of SAIC. The Company also has approximately $1.4 million of marketable securities.
As of March 31, 2021, the Company’s working capital amounted to $77.6 million, an increase of $46.9 million compared to March 31, 2020, primarily driven by a decrease in short-term borrowings of $37.0 million. See Note 13 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report for a summary of “Financing Arrangements” as of March 31, 2021.
The Company’s Credit Agreement with Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”) (the Air T debt in Note 13 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report) includes several covenants that are measured once a year at 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 13 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report) contains an affirmative covenant relating to collateral valuation. As of March 31, 2021, the Company and AirCo 1 were in compliance with all financial covenants.

The Contrail Credit Agreement (the Contrail debt in Note 13 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 $15 million.

On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with Old National Bank ("ONB"). The material changes within the Third Amendment were: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to zero for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.

Due primarily to the impact of COVID-19 on its business, as of March 31, 2021, Contrail was not in compliance with maintaining the minimum TNW of $15 million. As of the issuance date of this report, pursuant to the existing terms of the Contrail Credit Agreement, the Company and the non-controlling interest owner of Contrail made total capital contributions to Contrail in the amount of $1.4 million, which had the effect of curing this financial covenant non-compliance. Contrail and ONB are also in discussions to reduce the minimum TNW to $8 million, in exchange for certain amendments to its credit agreement, including renewing its revolving line of credit at a lower amount than the current agreement. However, there is no assurance that Contrail will be successful in reducing the minimum TNW financial covenant.

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. In the possible absence of Contrail’s operation as a going concern, the Company believes it, along with the rest of its businesses, will continue to operate as a going concern, given the maximum guarantee of Contrail’s obligations of $1.6 million.

On November 24, 2020, Contrail and ONB entered into Supplement #8 to Master Loan Agreement and related documentation for a loan in the aggregate amount of $43.6 million for which ONB served as lender pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve ("the Fed"). The Contrail Main Street Loan was approved by the Fed and completed by December 8, 2020. The proceeds were used to pay down the Contrail Revolver. The loan proceeds are also to be used as working capital to support the operations of Contrail in the ordinary course of business, which includes the acquisition from time to time of aircraft and engines. The indebtedness incurred is subject to the terms and provisions of the Master Loan Agreement. The principal terms of the Contrail Main Street Loan are detailed in Note 13 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

On December 11, 2020, AirCo 1 and Park State Bank ("PSB") entered into a loan in the aggregate amount of $6.2 million for which PSB served as lender pursuant to the Main Street Priority Loan Facility as established by the Fed. The AirCo 1 Main Street Loan was approved by the Fed and completed by December 22, 2020. The loan proceeds were used to pay off the AirCo 1 revolving line of credit with MBT. The principal terms of the Term Loan - PSB are detailed in Note 13 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

The revolving line of credit at Air T with MBT has a due date or expires within the next twelve months. We are currently seeking to refinance this obligation prior to August 31, 2021; 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.

In April 2020, the Company obtained loans under the Payroll Protection Program ("PPP loan"), as authorized by the CARES Act, of $8.2 million to help pay for payroll costs, mortgage interest, rent and utility costs. The Company has applied to MBT for forgiveness of the PPP Loan; however, forgiveness is not fully assured.

As mentioned in Note 1 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, in 2016, Contrail Aviation 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 Aviation and its current Chief Executive Officer. The Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on the fifth anniversary of the acquisition, which is on July 18, 2021. As of the date of issuance, neither the Seller nor Air T has indicated the intent to exercise its put and call options on July 18, 2021. If either side were to exercise its option, the Company anticipates that the price would approximate the fair value of the Redeemable Non-Controlling Interest, as determined on the transaction date, based on the methodology in Note 1 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report. The Company currently expects that it would fund any required payment from cash provided by operations.

The Company believes it is probable that the cash on hand (including that obtained from the PPP and other current financings), net cash provided by operations from its remaining operating segments, together with its current revolving lines of credit, as amended or replaced, 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.


24


Cash Flows
Following is a table of changes in cash flow from continuing operations for the respective years ended March 31, 2021 and 2020 (in thousands):

Year Ended March 31,
2021 2020 Change
Net Cash Used in Operating Activities $ (1,823) $ (26,231) $ 24,408 
Net Cash Provided by (Used in) Investing Activities 2,516  (11,568) 14,084 
Net Cash Provided by Financing Activities 71  19,240  (19,169)
Effect of foreign currency exchange rates (412) 260  (672)
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash $ 352  $ (18,299) $ 18,651 

Cash used in operating activities was $1.8 million in fiscal year 2021 compared to cash used in operating activities of $26.2 million in fiscal year 2020. During fiscal year 2020, the Company's purchase of engines and components received into inventory exceeded amounts spent in fiscal year 2021 by $23.7 million. Further, more cash was collected this year compared to the prior year as accounts receivable decreased by $6.6 million. The decrease in cash usage was offset by a decrease in net income of $11.6 million due to reduced operations as a result of COVID-19.
Cash provided by investing activities for fiscal year 2021 was $2.5 million compared to cash used in investing activities for the prior fiscal year of $11.6 million. This difference was primarily driven by a net decrease of $32.7 million in capital expenditures, partially offset by $22.5 million less proceeds from sale of assets on lease in fiscal year 2021 compared to fiscal year 2020.
Cash provided by financing activities for fiscal year 2021 was $19.2 million less compared to the prior fiscal year. This was primarily due to decreased net proceeds from lines of credit of $65.9 million, offset by increased net proceeds from term loans of $51.7 million.
25


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.
Impact of Inflation
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.
26


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 $1.9 million and $4.4 million for the fiscal year ended March 31, 2021 and 2020.

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 from continuing operations, the most directly comparable amounts reported under GAAP.

The table below provides a reconciliation of operating income from continuing operations to Adjusted EBITDA for the fiscal year ended March 31, 2021 and 2020 (in thousands):

Twelve Months Ended
March 31, 2021 March 31, 2020
Operating (loss) income from continuing operations $ (9,175) $ 7,291 
Depreciation and amortization (excluding leased engines depreciation) 1,231  1,329 
Asset impairment, restructuring or impairment charges 6,592  18 
Gain on sale of property and equipment (10) (37)
Security issuance expenses 32  363 
Adjusted EBITDA $ (1,330) $ 8,964 

Included in the asset impairment, restructuring or impairment charges for the fiscal year ended March 31, 2021 was a write-down of $6.4 million on the commercial jet engines and parts segment's inventory. Of the total write-down, $0.5 million was driven by a management decision to monetize two engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds during the quarter ended September 30, 2020. The remaining write-down was attributable to our evaluation of the carrying value of inventory as of March 31, 2021, 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.

The table below provides Adjusted EBITDA by segment for the fiscal year ended March 31, 2021 and 2020 (in thousands):

Twelve Months Ended
March 31, 2021 March 31, 2020
Overnight Air Cargo $ 2,248  $ 821 
Ground Equipment Sales 9,132  7,588 
Commercial Jet Engines and Parts (3,933) 8,718 
Corporate and Other (8,777) (8,163)
Adjusted EBITDA $ (1,330) $ 8,964 

27


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.
28


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:
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 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 interest involve judgment and complexity, specifically on the classification of the non-controlling interest in the Company’s consolidated balance sheet. 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 the redeemable non-controlling interest. The fair value of the 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.
29


Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not Applicable.
30


Item 8.    Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
32
34
35
36
37
38
39

31


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, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the two years in the period ended March 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2021, 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 Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Redeemable non-controlling interest – valuation of Contrail Aviation Support, LLC — Refer to Notes 1 and 5 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.

This arrangement is recorded and disclosed as a redeemable non-controlling interest at fair value of $6.6 million as of March 31, 2021. 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.

32


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.

Inventories, net – valuation of inventories– Refer to Notes 1 and 6 to the financial statements

Critical Audit Matter Description

Inventories are carried at the lower of cost or net realizable value. In its periodic evaluation of the carrying value of these inventories, the Company is required to make estimates regarding the net realizable value, which includes the consideration of sales patterns and expected future demand. Changes in these assumptions could have a significant impact on the valuation of certain inventory held by the Company’s Commercial Jet Engines and Parts operating segment.

We identified the valuation of certain inventory held by the Company’s Commercial Jet Engines and Parts operating segment as a critical audit matter. Given the magnitude of the inventories at certain business units, coupled with the significant judgments necessary to project sales patterns and expected future demand, as well as changes in economic and market conditions brought on by COVID-19, auditing such estimates required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the sales patterns and expected future demand, used by management to determine the valuation of inventories, included the following, among others:

We evaluated the reasonableness of the sales patterns and expected future demand, and related inputs used by management, by comparing the information to:
Historical results of those business units.
Forecasted sales based on recent quote and sales information for similar parts within the Company’s inventory.
Market data and forecasts with regard to the recovery of the airline industry from the impacts of COVID-19.
We involved our fair value specialists to assist in the evaluation of:
The methodology used by, and the qualifications of, the Company’s third-party specialist.
The key assumptions underlying the valuation of a representative sample of inventories including recent quotes, number of vendors, number of components, and component condition.
We held discussions with various members of management to understand the status of any plans to monetize certain inventories at less than carrying value to meet cash flow demands and evaluated whether the determination of net realizable value for those inventories reflects the status of management’s plans.


/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
June 25, 2021

We have served as the Company's auditor since 2018.
33


AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31,
(In thousands, except per share data) 2021 2020
Operating Revenues:
Overnight air cargo $ 66,251  $ 75,275 
Ground equipment sales 60,679  59,156 
Commercial jet engines and parts 46,793  101,284 
Corporate and other 1,398  1,070 
175,121  236,785 
Operating Expenses:
Overnight air cargo 58,351  67,391 
Ground equipment sales 45,282  46,472 
Commercial jet engines and parts 36,710  70,188 
General and administrative 34,264  39,781 
Depreciation and amortization 3,107  5,681 
Write-down of inventory 6,405  — 
Impairment of property and equipment 187  18 
Gain on sale of property and equipment (10) (37)
184,296  229,494 
Operating (Loss) Income from continuing operations (9,175) 7,291 
Non-operating Income (Expense):
Other-than-temporary impairment loss on investments —  (2,305)
Interest expense, net (4,624) (4,692)
Gain on settlement of bankruptcy —  4,527 
Loss from equity method investments (723) (910)
Other 2,741  (1,287)
(2,606) (4,667)
(Loss) Income from continuing operations before income taxes (11,781) 2,624 
Income Tax Benefit (3,387) (544)
Net (Loss) Income from continuing operations (8,394) 3,168 
Loss from discontinued operations, net of tax —  (114)
Gain on sale of discontinued operations, net of tax 8,179 
Net (Loss) Income (8,390) 11,233 
Net Loss (Income) Attributable to Non-controlling Interests 1,113  (3,577)
Net (Loss) Income Attributable to Air T, Inc. Stockholders $ (7,277) $ 7,656 
Loss from continuing operations per share (Note 22)
Basic $ (2.53) $ (0.15)
Diluted $ (2.53) $ (0.15)
Income from discontinued operations per share (Note 22)
Basic $ —  $ 2.89 
Diluted $ —  $ 2.88 
(Loss) Income per share (Note 22)
Basic $ (2.53) $ 2.74 
Diluted $ (2.53) $ 2.73 
Weighted Average Shares Outstanding:
Basic 2,882  2,791 
Diluted 2,882  2,798 
See notes to consolidated financial statements.
34


AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended March 31,
(In thousands) 2021 2020
Net (Loss) Income $ (8,390) $ 11,233 
Other Comprehensive Income:
Foreign currency translation (loss) gain (409) 212 
Unrealized gain/(loss) on interest rate swaps, net of tax of $78 and $157
262  (529)
Reclassification of interest rate swaps into earnings (18) — 
Total Other Comprehensive Loss (165) (317)
Total Comprehensive (Loss) Income (8,555) 10,916 
Comprehensive Loss (Income) Attributable to Non-controlling Interests 1,113  (3,592)
Comprehensive (Loss) Income Attributable to Air T, Inc. Stockholders $ (7,442) $ 7,324 
See notes to consolidated financial statements.
35


AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands) March 31, 2021 March 31, 2020
ASSETS
Current Assets:
Cash and cash equivalents $ 10,996  $ 5,952 
Marketable securities 1,407  1,677 
Restricted cash 4,931  9,619 
Restricted investments 1,507  1,085 
Accounts receivable, less allowance for doubtful accounts of $1,177 and $680
6,505  13,077 
Income tax receivable 4,389  1,174 
Inventories, net 71,971  60,623 
Other current assets 4,068  5,279 
Total Current Assets 105,774  98,486 
Assets on lease or held for lease, net of accumulated depreciation of $436 and $6,526
2,131  27,945 
Property and equipment, net of accumulated depreciation of $4,510 and $4,319
8,519  5,272 
Right-of-use assets 7,757  8,116 
Equity method investments 4,475  5,208 
Goodwill 4,227  4,227 
Other assets 7,867  2,173 
Total Assets $ 140,750  $ 151,427 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,344  10,864 
Income tax payable 39  — 
Accrued expenses and other (Note 11) 12,787  13,024 
Current portion of long-term debt 5,639  42,684 
Short-term lease liability 1,370  1,174 
Total Current Liabilities 28,179  67,746 
Long-term debt 81,857  43,136 
Long-term lease liability 7,075  7,473 
Deferred income tax liabilities, net 595  579 
Other non-current liabilities 1,732  1,402 
Total Liabilities 119,438  $ 120,336 
Redeemable non-controlling interest 6,598  6,080 
Commitments and contingencies (Note 23)
Equity:
Air T, Inc. Stockholders' Equity:
Preferred stock, $1.00 par value, 50,000 shares authorized
—  — 
Common stock, $0.25 par value; 4,000,000 shares authorized, 3,022,745 shares issued and 2,881,853 shares outstanding
756  756 
Treasury stock, 140,892 shares at $18.58
(2,617) (2,617)
Additional paid-in capital —  2,636 
Retained earnings 16,270  23,768 
Accumulated other comprehensive loss (684) (537)
Total Air T, Inc. Stockholders' Equity 13,725  24,006 
Non-controlling Interests 989  1,005 
Total Equity 14,714  25,011 
Total Liabilities and Equity $ 140,750  $ 151,427 
See notes to consolidated financial statements.

36


AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
(In thousands) 2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (8,390) $ 11,233 
Loss from discontinued operations, net of income tax —  114 
Gain on sale of discontinued operations, net of income tax (4) (8,179)
Net (loss) income from continuing operations (8,394) 3,168 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and  amortization 3,107  5,712 
Impairment of investment —  2,305 
Profit from sale of assets on lease and held for lease (1,473) (5,277)
Gain on settlement of bankruptcy —  (4,509)
Write-down of inventory 6,405  — 
Other 1,019  1,112 
Change in operating assets and liabilities:
Accounts receivable 6,074  (2,242)
Inventories (129) (29,614)
Accounts payable (2,521) 1,512 
Accrued expenses (341) 2,145 
Other (5,570) (543)
Total adjustments (2,487) (28,742)
Net cash used in operating activities - continuing operations (1,823) (26,231)
Net cash provided by operating activities - discontinued operations 1,157 
Net cash used in operating activities (1,819) (25,074)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of marketable securities (659) (626)
Sale of marketable securities 2,452  239 
Proceeds from sale of assets on lease and held for lease 8,183  30,688 
Acquisition of businesses, net of cash acquired (536) (500)
Investment in unconsolidated entities —  (2,812)
Capital expenditures related to property & equipment (3,899) (2,439)
Capital expenditures related to assets on lease or held for lease (2,106) (36,253)
Other (919) 135 
Net cash provided by (used in) investing activities - continuing operations 2,516  (11,568)
Net cash provided by investing activities - discontinued operations —  20,173 
Net cash provided by investing activities 2,516  8,605 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit 66,383  174,647 
Payments on lines of credit (105,552) (147,881)
Proceeds from term loan 59,278  35,949 
Payments on term loan (27,275) (47,438)
Proceeds from PPP loan 8,215  — 
Proceeds received from issuance of Trust Preferred Securities ("TruPs") 1,341  8,522 
Other (2,319) (4,559)
Net cash provided by financing activities - continuing operations 71  19,240 
Effect of foreign currency exchange rates on cash and cash equivalents (412) 260 
NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 356  3,031 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 15,571  12,540 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD 15,927  15,571 
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Non-cash capital expenditures related to property & equipment 31  — 
Equipment leased or held for lease to customers transferred to Inventory 19,623  4,932 
Equipment in Inventory transferred to Assets on Lease —  501 
Issuance of Debt - Trust Preferred Securities —  4,000 
Issuance of warrant liability —  840 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Operating cash payments for operating leases 1,683  1,485 
Cash paid during the year for interest 2,732  3,310 
Cash paid during the year for income taxes 477  1,485 

See notes to consolidated financial statements.
37


AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY


(In thousands) Common Stock Treasury Stock
Share Amount Share Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-controlling
Interests*
Total
Equity
Balance, March 31, 2019 2,023  $ 506  —  $ —  $ 2,867  $ 21,191  $ (205) $ (1,001) $ 23,358 
Net income* 7,656 1,991 9,647
Stock Split 1,010 252 (252) — 
Repurchase of common stock (10) (2) 141 (2,617) (198) (2,817)
Issuance of Debt - Trust Preferred Securities (4,000) (4,000)
Issuance of Warrants (840) (840)
Adoption of ASC 842 - Leasing (41) (41)
Foreign currency translation gain 197  15  212 
Adjustment to fair value of redeemable non-controlling interest 21  21 
Unrealized loss of interest rate swaps, net of tax (529) (529)
Balance, March 31, 2020 3,023  $ 756  141  $ (2,617) $ 2,636  $ 23,768  $ (537) $ 1,005  $ 25,011 



(In thousands) Common Stock Treasury Stock
Share Amount Share Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-controlling
Interests*
Total
Equity
Balance, March 31, 2020 3,023  $ 756  141  $ (2,617) $ 2,636  $ 23,768  $ (537) $ 1,005  $ 25,011 
Net loss* (7,277) (16) (7,293)
Foreign currency translation loss (409) (409)
Adjustment to fair value of redeemable non-controlling interest (2,636) (221) (2,857)
Unrealized gain on interest rate swaps, net of tax 262  262 
Balance, March 31, 2021 3,023  $ 756  141  $ (2,617) $ —  $ 16,270  $ (684) $ 989  $ 14,714 
*Excludes amount attributable to redeemable non-controlling interest in Contrail Aviation.
See notes to consolidated financial statements.

38


AIR T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2021 AND 2020
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 and Adjusted EBITDA.
Discontinued Operations

On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS"). The results of operations of GAS are reported as discontinued operations in the consolidated statements of operations for the fiscal years ended March 31, 2021 and 2020. Refer to Footnote 2 - "Discontinued Operations" for additional information.

Unless otherwise indicated, the disclosures accompanying the consolidated financial statements reflect the Company's continuing operations.
39


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 Aviation 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.
COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas 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 but we still experienced a number of disruptions, and we experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. We currently expect that many of our businesses may continue to generate reduced operating cash flow and may operate at a loss during at least the first half of fiscal 2022 and potentially even longer. We expect that these impacts will continue to some extent if the outbreak persists. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present 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, 2021, however; uncertainty over the ultimate 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, 2021 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 21).
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.
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.
40


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 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 estimate 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.
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
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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 ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. 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.
Goodwill consisted of the following (in thousands):

Year Ended March 31,
2021 2020
Goodwill, at original cost $ 4,603  $ 4,603 
Less accumulated impairment (376) (376)
Goodwill, net of impairment $ 4,227  $ 4,227 

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As of March 31, 2021, the entire $4.2 million goodwill balance is attributable to the acquisition of Contrail Aviation and included within the Commercial Jet Engines and Parts segment. We performed our annual impairment assessment for goodwill of the Contrail reporting unit at March 31, 2021. In the fiscal year 2021, COVID-19 greatly impacted 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. 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 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 revenue and earnings derived from comparable publicly-traded companies with similar operating characteristics as Contrail.
Based on the results of our annual quantitative assessment conducted as of March 31, 2021, the fair value of our Contrail reporting unit exceeded its carrying value, 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:

Years
Software 3
Trade names 5
Certification 5
Non-compete 5
License 5
Patents 9
Customer relationship 10
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.

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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.
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. 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. In connection with the issuance of the 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. Accordingly, the Warrants are recorded within "Other non-current liabilities" on our consolidated balance sheets. As of March 31, 2021, the Warrants are recorded at fair value. Fair value measurement was based on quoted price for a similar asset or liability as observed on the NASDAQ Global Market. The liability is classified as Level 2 in the hierarchy. See Note 5.
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 Aviation, Contrail Aviation entered into an Operating Agreement (the “Operating Agreement”) with the Seller providing for the governance of and the terms of membership interests in Contrail Aviation. The Operating Agreement includes put and call options (“Put/Call Option”) with regard to the 21% non-controlling interest retained by the Seller. The Seller is the founder of Contrail Aviation and its current Chief Executive Officer. The Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on the fifth anniversary of the acquisition, which is 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. 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.

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As a result of this feature, the Company recorded the non-controlling interest as redeemable and classified it in temporary equity within its Consolidated Balance Sheets initially at its acquisition-date fair value. The 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. 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. The fair value of the 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. The 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.
As of March 31, 2021, the fair value of the redeemable non-controlling interest is $6.6 million. The net change in the redemption value compared to March 31, 2020 is an increase of $0.5 million. The increase was driven by $2.9 million related to the net change in fair value during the fiscal year ended March 31, 2021, which is reflected on our consolidated statements of equity, partially offset by net loss attributable to and distributions made to the non-controlling interest. See Note 5. The fair value increase is primarily attributable to the value associated with Contrail's potential investment in an aircraft asset management joint venture, which subsequently closed on May 5, 2021. See Note 24.
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. These pass-through costs totaled $19.9 million and $23.7 million for the years ended March 31, 2021 and 2020, respectively.

Liquidity – The Company’s Credit Agreement with MBT (the Air T debt in Note 13) includes several covenants that are measured once a year at March 31, including, but not limited to, a financial covenant requiring a debt service coverage ratio of 1.25. The AirCo 1 Credit Agreement (the AirCo 1 debt in Note 13) contains an affirmative covenant relating to collateral valuation. As of March 31, 2021, the Company and AirCo 1 were in compliance with all financial covenants.

The Contrail Credit Agreement (the Contrail debt in Note 13) 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 TNW of $15 million.

On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with Old National Bank ("ONB"). The material changes within the Third Amendment were: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to zero for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required
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quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.

Due primarily to the impact of COVID-19 on its business, as of March 31, 2021, Contrail was not in compliance with maintaining the minimum TNW of $15 million. As of the issuance date of this report, pursuant to the existing terms of the Contrail Credit Agreement, the Company and the non-controlling interest owner of Contrail made total capital contributions to Contrail in the amount of $1.4 million, which had the effect of curing this financial covenant non-compliance. Contrail and ONB are also in discussions to reduce the minimum TNW to $8 million, in exchange for certain amendments to its credit agreement, including renewing its revolving line of credit at a lower amount than the current agreement. However, there is no assurance that Contrail will be successful in reducing the minimum TNW financial covenant.

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. In the possible absence of Contrail’s operation as a going concern, the Company believes it, along with the rest of its businesses, will continue to operate as a going concern, given the maximum guarantee of Contrail’s obligations of $1.6 million.

On November 24, 2020, Contrail and ONB entered into Supplement #8 to Master Loan Agreement and related documentation for a loan in the aggregate amount of $43.6 million for which ONB served as lender pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve. The Contrail Main Street Loan was approved by the Fed and completed by December 8, 2020. The proceeds were used to pay down the Contrail Revolver. The loan proceeds are also to be used as working capital to support the operations of Contrail in the ordinary course of business, which includes the acquisition from time to time of aircraft and engines. The indebtedness incurred is subject to the terms and provisions of the Master Loan Agreement. The principal terms of the Contrail Main Street Loan are detailed in Note 13.

On December 11, 2020, AirCo 1 and PSB entered into a loan in the aggregate amount of $6.2 million for which PSB served as lender pursuant to the Main Street Priority Loan Facility as established by the Fed. The AirCo 1 Main Street Loan was approved by the Fed and completed by December 22, 2020. The loan proceeds were used to pay off the AirCo 1 revolving line of credit with MBT. The principal terms of the Term Loan - PSB are detailed in Note 13.

The revolving line of credit at Air T with MBT has a due date or expires within the next twelve months. We are currently seeking to refinance this obligation prior to August 31, 2021; 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.

In April 2020, the Company obtained loans under the Payroll Protection Program ("PPP loan"), as authorized by the CARES Act, of $8.2 million to help pay for payroll costs, mortgage interest, rent and utility costs. The Company has applied to MBT for forgiveness of the PPP Loan; however, forgiveness is not fully assured.

The Company believes it is probable that the cash on hand (including that obtained from the PPP and other current financings), net cash provided by operations from its remaining operating segments, together with its current revolving lines of credit, as amended or replaced, 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.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables. The standard requires an entity to estimate its lifetime “expected credit loss” for such assets at inception, and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The Company adopted this standard on April 1, 2020. As of March 31, 2021, the standard did not have a material impact on the Company's consolidated financial statements and disclosures.
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In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step Two from the goodwill impairment test. Step Two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this standard, an entity will recognize an impairment charge for the amount by which the carrying value of a reporting unit exceeds its fair value. The Company adopted this amendment on April 1, 2020. As of March 31, 2021, the amendment did not have a material impact on the Company's consolidated financial statements and disclosures.

In October 2018, the FASB updated the Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities of the Accounting Standards Codification. The amendments in this update affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall. Indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The Company adopted this amendment on April 1, 2020. As of March 31, 2021, the amendment did not have a material impact on the Company's consolidated financial statements and disclosures.

In December 2019, the FASB updated the Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes of the Accounting Standards Codification. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments in this Update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income), among other changes. The Company early adopted this amendment as of April 1, 2020. The amendment resulted in an immaterial impact to its consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

In January 2020, the FASB updated the Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.

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. Further, in accordance with the amendments in this Update, an entity may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.

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2.    DISCONTINUED OPERATIONS

On September 30, 2019, the Company completed the sale of 100% of the equity ownership in the Company’s wholly-owned subsidiary, GAS to PrimeFlight Aviation Services, Inc., a Delaware corporation. The agreement included a purchase price of $21 million as well as an earn-out provision of $4 million if certain performance metrics were achieved by March 31, 2020. Those metrics were not achieved per the final settlement statement received during the second quarter ended September 30, 2020. The Company received approximately $20.5 million of total proceeds at closing after the initial net working capital adjustment. The Company recognized a pre-tax gain on the sale of GAS of approximately $10.5 million with a tax impact of $2.3 million for a net of tax gain of $8.2 million.

Summarized results of operations of GAS for the year ended March 31, 2021 and 2020 through the date of disposition are as follows (in thousands):


Year ended March 31,
March 31, 2021 March 31, 2020
Net sales $ —  $ 16,637 
Operating Income (Expense) (17,319)
Gain/(Loss) from discontinued operations before income taxes (682)
Income tax benefit —  (568)
Income/(Loss) from discontinued operations, net of tax $ $ (114)


The following table presents capital expenditures, depreciation and amortization and other significant operating non-cash items of our discontinued operations for fiscal 2021 and 2020 (in thousands):

Fiscal year
2021 2020
Capital expenditures —  82 
Depreciation and amortization —  165 
Goodwill and asset impairments —  405 

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3.    MAJOR CUSTOMER
Approximately 37% and 30% of the Company’s consolidated revenues were derived from services performed for FedEx Corporation in fiscal 2021 and 2020, respectively. Approximately 35% and 16% of the Company’s consolidated accounts receivable at March 31, 2021 and 2020, respectively, were due from FedEx Corporation.
4.    VARIABLE INTEREST ENTITIES
A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under ASC 810 - Consolidation, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:
the power to direct the activities that most significantly impact the economic performance of the VIE; and 
the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.
The Company concluded that its investments in Delphax’s equity and debt, and its investment in the Delphax warrant, each constituted a variable interest. In addition, the Company concluded that it became the primary beneficiary of Delphax on November 24, 2015. The Company consolidated Delphax in its consolidated financial statements beginning on that date. Delphax is included within our Corporate and other segment.

Upon petition by the Company, on August 8, 2017 the Ontario Superior Court of Justice in Bankruptcy and Insolvency adjudged Delphax Canada to be bankrupt. As a result, Delphax Canada ceased to have capacity to deal with its property, which then vested in the trustee in bankruptcy of Delphax Canada subject to the rights of secured creditors. As of June 30, 2019, the bankruptcy proceedings were finalized in accordance with Canadian law and, therefore, Delphax Canada was legally discharged of its liabilities.

The conclusion of the bankruptcy proceedings also resulted in the dissolution of Delphax Canada. In addition, on June 11, 2019, the Company also fully dissolved Delphax UK. As such, the only Delphax entity that remains in existence as of March 31, 2021 is Delphax France. The Company extinguished the assets and liabilities of Delphax Canada and Delphax UK during the quarter ended June 30, 2019 and recognized a gain on dissolution of entities of $4.5 million.

Delphax had total assets and liabilities with carrying values of $8.0 thousand and $0.5 million, as of March 31, 2021 and $11.0 thousand and $0.5 million, as of March 31, 2020.

Delphax’s components of net income (loss) are included in our consolidated statements of income and comprehensive income herein. For the fiscal years ended March 31, 2021 and 2020, Delphax did not recognize any revenue, respectively. For the fiscal year ended March 31, 2021, Delphax recorded net loss and operating loss of $48.0 thousand. For the fiscal year ended March 31, 2020, Delphax recorded net income of $6.1 million, broken out between an operating loss of $0.2 million and non-operating income of $6.3 million, the majority of which was the result of the gain on dissolution of entities of $4.5 million.

5.    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).
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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):

Fair Value Measurements at March 31,
2021 2020
Marketable securities (Level 1) $ 2,914  $ 3,240 
Interest rate swaps (Level 2) $ 593  $ 914 
Debt - Trust Preferred Securities (Level 2) $ 14,289  12,877 
Warrants Liability (Level 2) $ 414  485 
Redeemable non-controlling interest (Level 3) $ 6,598  $ 6,080 
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 the Debt - Trust Preferred Securities was based on quoted prices as observed on the NASDAQ Global Market. The fair value of the Warrants was derived from quoted prices for a similar asset or liability as observed on the NASDAQ Global Market. Both of these items are classified as Level 2 in the hierarchy.
The fair value of the redeemable non-controlling interest is based on a combination of market approach and income approach and is classified as Level 3 in the hierarchy.
The fair value measurements which use significant observable inputs (Level 3), changed due to the following (in thousands):

Redeemable Non-
Controlling
Interest
Beginning Balance as of April 1, 2020 $ 6,080 
Contribution from non-controlling member — 
Distribution to non-controlling member (1,244)
Net loss attributable to non-controlling interests (1,095)
Fair value adjustment 2,857 
Ending Balance as of March 31, 2021 $ 6,598 

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, 2021 and 2020.
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, 2021, as a result of our year-end valuation, we did not identify any impairment on our engine assets on lease or held for lease.
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6.    INVENTORIES
Inventories consisted of the following (in thousands):

Year Ended March 31,
2021 2020
Ground equipment manufacturing:
Raw materials 4,695  4,192 
Work in process 5,820  2,731 
Finished goods 1,691  1,725 
Corporate and Other:
Raw materials 462  464 
Finished goods 889  910 
Commercial jet engines and parts: 60,516  51,084 
Total inventories 74,073  61,106 
Reserves (2,102) (483)
Total, net of reserves $ 71,971  $ 60,623 

A write-down of $6.4 million was recorded on the inventory of the commercial jet engines and parts segment during the fiscal year ended March 31, 2021. Of the total write-down, $0.5 million was driven by a management decision to monetize two engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds during the quarter ended September 30, 2020. The remaining write-down was attributable to our evaluation of the carrying value of inventory as of March 31, 2021, 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.
7.    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 $1.9 million and $4.4 million for the fiscal years ended March 31, 2021 and 2020, 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 $4.9 thousand and $3.7 million for the fiscal years ended March 31, 2021 and 2020, respectively. As of March 31, 2021, future minimum rental payments to be received under non-cancelable leases are as follows (in thousands):

Year ended March 31,
2022 $ 825 
2023 4,262 
2024 73 
2025 — 
2026 — 
Thereafter — 
Total $ 5,160 

As of March 31, 2021, Contrail has one engine on lease that is due a return-to-condition compensation ("engine compensation") upon the lease termination in December 2022. The engine compensation is determined as the sum of $3.6 million, plus a variable component calculated based on various escalation factors, including usage of flight hours and consumption of material, labor and utility. The Company estimated the engine compensation as of March 31, 2021 to be $4.1 million, which was recorded within "Other Assets" on our consolidated balance sheets. $3.6 million of the engine compensation is fixed, and thus is included within the $4.3 million of future rental payments to be received during the fiscal year ended March 31, 2023.
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8.    PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):

Year Ended March 31,
2021 2020
Furniture, fixtures and equipment $ 4,852  $ 5,243 
Leasehold improvements 5,541  2,390 
Building 2,636  1,958 
13,029  9,591 
Less accumulated depreciation (4,510) (4,319)
Property and equipment, net $ 8,519  $ 5,272 




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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 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. As of August 1, 2018, these swap contracts are designated as effective cash flow hedging instruments in accordance with ASC 815. The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the consolidated statement of income as interest expense in the same period in which the underlying hedged transaction affects earnings. The interest rate swaps are considered Level 2 fair value measurements. As of March 31, 2021 and March 31, 2020, the fair value of the interest-rate swap contracts was a liability of $0.6 million and $0.9 million, respectively, which is included within Other Non-Current Liabilities in the consolidated balance sheets. During the twelve months ended March 31, 2021 and 2020, the Company recorded a loss of approximately $0.3 million and a gain of $0.5 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, 2021, related to these derivative instruments, the Company had a gross gain aggregating to $0.8 million and a gross loss aggregating to $23.7 thousand. During the fiscal year ended March 31, 2020, related to these derivative instruments, the Company had a gross gain aggregating to $1.7 thousand and a gross loss aggregating to $0.3 million.

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. 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, 2021, the Company had a gross unrealized gain aggregating to $1.2 million and a gross unrealized loss aggregating to $1.2 million. During the fiscal year ended March 31, 2020, the Company had a gross unrealized gain aggregating to $8.4 thousand and a gross unrealized loss aggregating to $0.5 million. These unrealized gains and losses are included in Other Income (Loss) on the consolidated Statement of Income.

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, 2021 and 2020, the Company had outstanding borrowings of $0 and $0.4 million under its margin account, respectively, which is reflected in accrued expenses and other on the consolidated balance sheets. As of March 31, 2021 and 2020, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $0.9 million and $1.3 million, respectively, which is reflected in other current assets on the consolidated balance sheets. The interest rate on margin account borrowings was 9.4% as of March 31, 2021.
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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. On December 31, 2020, Insignia effected a seven-for-one reverse stock split of its outstanding common stock. As such, as of March 31, 2021, the number of Insignia's shares owned by the Company was adjusted to 0.5 million, representing approximately 28% of the outstanding shares. For the fiscal years ended March 31, 2021 and 2020, the Company recorded approximately $1.2 million and $1.5 million as its share of Insignia’s net loss for the twelve months ended December 31, 2020 and 2019, respectively, along with a basis difference adjustment of approximately $96.1 thousand. In addition to the current year's loss attribution, the previous impairments taken in prior fiscal years have accelerated the Company's net investment basis in Insignia to be zero as of March 31, 2021.
On November 8, 2019, the Company made an investment of $2.8 million to purchase a 19.90% ownership stake in CCI, subsequently reduced to a 18.98% ownership stake as of September 30, 2020. The Company accounts for this investment 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, 2021, the Company recorded a gain of $0.4 million as its share of CCI's net income for the twelve months ended December 31, 2020, along with a basis difference adjustment of $49.9 thousand. The Company's net investment basis in CCI is $3.8 million as of March 31, 2021.
Summarized audited financial information for the Company's equity method investees for the twelve months ended December 31, 2020 and December 31, 2019 are as follows (in thousands):

Twelve Months Ended
December 31, 2020
Twelve Months Ended December 31, 2019
Revenue $ 91,245  $ 108,751 
Gross Profit 4,589  7,570 
Operating loss (10,551) (2,653)
Net loss (1,960) (3,645)
Net loss attributable to Air T, Inc. stockholders $ (760) $ (887)


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11.     ACCRUED EXPENSES


Year ended March 31,
(In thousands) 2021 2020
Salaries, wages and related items $ 5,427  $ 3,616 
Profit sharing and bonus 2,706 3,349
Other deposits 1,251 1,722
Other 3,403 4,337
Total $ 12,787  $ 13,024 

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12.    LEASE 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 twelve months ended March 31, 2021 and 2020 are as follows (in thousands):


Twelve Months Ended March 31, 2021 Twelve Months Ended March 31, 2020
Operating lease cost $ 2,134  $ 2,093 
Short-term lease cost 316  439 
Variable lease cost 760  342 
Total lease cost $ 3,210  $ 2,874 

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the years ended March 31, 2021 and 2020 were as follows (in thousands):

March 31, 2021 March 31, 2020
Operating leases
Operating lease ROU assets $ 7,757  $ 8,116 
Operating lease liabilities 8,445  8,647 
Weighted-average remaining lease term
Operating leases 13 years, 9 months 14 years, 4 months
Weighted-average discount rate
Operating leases 4.37  % 4.50  %

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of the year ended March 31, 2021 are as follows (in thousands):


Operating Leases
2022 $ 1,814 
2023 1,680
2024 1,316
2025 1,013
2026 712
Thereafter 5,893
Total undiscounted lease payments 12,428
Less: Interest (3,439)
Less: Discount (544)
Total lease liabilities $ 8,445 


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13.    FINANCING ARRANGEMENTS
Borrowings of the Company and its subsidiaries are summarized below at March 31, 2021 and March 31, 2020, respectively.

On April 13, 2020, the Company entered into a loan with MBT in a principal amount of $8.2 million pursuant to a PPP Loan under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note (“Note”). The Note provides for customary events of default including, among other things, cross-defaults on any other loan with MBT. The PPP Loan may be accelerated upon the occurrence of an event of default.

The PPP Loan is unsecured and guaranteed by the United States Small Business Administration ("SBA"). The Company has applied to MBT for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the 24-week period beginning on April 13, 2020, calculated in accordance with the terms of the CARES Act. The PPP Loan bears interest at a fixed annual rate of one percent (1%). Once the forgiveness determination is made, the Company will be required to make repayments plus interest on any unforgiven amount. As of March 31, 2021, the Company has used the funds received from the PPP loan on eligible expenses as outlined in the CARES Act.

On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with ONB. The material changes within the Third Amendment are: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to zero for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.

On November 24, 2020, Contrail and ONB entered into Supplement #8 to Master Loan Agreement and related documentation for a loan in the aggregate amount of $43.6 million for which ONB served as lender pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve. The Contrail Main Street Loan was approved by the Fed and completed by December 8, 2020. The proceeds were used to pay down the Contrail Revolver. The loan proceeds are also to be used as working capital to support the operations of Contrail in the ordinary course of business, which includes the acquisition from time to time of aircraft and engines. The indebtedness incurred is subject to the terms and provisions of the Master Loan Agreement.

The principal terms of the Contrail Main Street Loan ("Term Note G") are: (a) interest on the loan accrues at a floating rate of LIBOR plus 3.00% and interest is payable commencing November 24, 2021; (b) 15% principal payments plus 15% of the amount of capitalized interest are due on November 24, 2023 and 2024, with the remainder due on the loan maturity date – November 24, 2025; (c) the loan is not guaranteed; and, (d) a 2% origination fee was paid on funding of the loan. The loan contains affirmative covenants as to cash flow coverage and tangible net worth. The terms of the loan provide for customary events of default, including, among others, those relating to a failure to make payment, breaches of representations and covenants, and the occurrence of certain events. The loan is secured by a security interest in the assets of Contrail.

On December 11, 2020, AirCo 1 and PSB entered into a loan in the aggregate amount of $6.2 million for which PSB served as lender pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve. The AirCo 1 Main Street Loan was approved by the Fed and completed by December 22, 2020. The loan proceeds were used to pay off the AirCo 1 revolving line of credit with MBT.

The principal terms of the Term Loan - PSB are: (a) interest on the loan accrues at a floating rate of 3-month LIBOR plus 3.00% and interest is payable commencing December 11, 2021; (b) 15% principal payments (including any capitalized interest accrued thereon) are due on December 11, 2023, and 2024, with the remainder due on the loan maturity date – December 11, 2025; (c) the loan is not guaranteed; and, (d) a 2% origination fee was paid on funding of the loan. The loan contains an affirmative covenant relating to collateral valuation. The terms of the loan provide for customary events of default, including, among others, those relating to a failure to make payment, breaches of representations and covenants, and the occurrence of certain events. The loan is secured by a security interest in the assets of AirCo 1 and a pledge of AirCo’s membership interest in AirCo 1.

The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of March 31, 2021 and 2020:

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March 31, 2021 March 31, 2020 Maturity Date Interest Rate Unused commitments
Air T Debt
Revolver - MBT $ —  $ —  8/31/21
Greater of 2.5% or Prime - 1%
$ 17,000 
Supplemental Revolver - MBT —  9,550  6/30/20
Greater of 1-month LIBOR + 1.25% or 3%
Term Note A - MBT 6,750  7,750  1/1/28
1-month LIBOR + 2%
Term Note B - MBT 3,375  3,875  1/1/28 4.50%
Term Note D - MBT 1,472  1,540  1/1/28
1-month LIBOR + 2%
Term Note E - MBT 4,706  —  6/25/25
Greater of LIBOR + 1.5% or 2.5%
Debt - Trust Preferred Securities 14,289  12,877  6/7/49 8%
PPP Loan 8,215  —  12/24/221 1%
Total 38,807  35,592 
AirCo 1 Debt
Revolver - MBT —  8,335  8/31/212
Greater of 6.5% or Prime + 2%
— 
Term Loan - PSB 6,200  —  12/11/25
3-month LIBOR + 3%
Total 6,200  8,335 
Contrail Debt
Revolver - ONB —  21,284  9/5/21
1-month LIBOR + 3.45%
40,000 
Term Loan A - ONB —  6,285  1/26/21
1-month LIBOR + 3.75%
Term Loan E - ONB —  6,320  12/1/22
1-month LIBOR + 3.75%
Term Loan F - ONB —  8,358  5/1/25
1-month LIBOR + 3.75%
Term Loan G - ONB 43,598  —  11/24/25
1-month LIBOR + 3.00%
Total 43,598  42,247 
Delphax Solutions Debt
Canadian Emergency Business Account Loan 32  —  12/31/25 5%
32  — 
Total Debt 88,637  86,174 
Less: Unamortized Debt Issuance Costs (1,141) (354)
Total Debt, net $ 87,496  $ 85,820 
Fiscal 2021's weighted average interest rate on short term borrowings outstanding was 0.0% due to the fact that all short-term borrowings outstanding as of March 31, 2021 have zero balances. The weighted average interest rate on short term borrowings outstanding as of March 31, 2020 was 3.7%.
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.
1 Pursuant to The Paycheck Protection Flexibility Act of 2020, P.L. 116-142, the SBA extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to MBT or (2) if Air T did not apply for loan forgiveness, 10 months after the end of Air T’s loan forgiveness covered period, which is December 24, 2022. SBA does not require a formal modification to the original promissory note agreement.
2 The AirCo 1 Revolver was paid off and closed as of December 31, 2020.
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At March 31, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands):

Fiscal year ended Amount
2022 $ 5,639 
2023 5,711 
2024 9,037 
2025 9,037 
2026 41,163 
Thereafter 18,050 
88,637 
Less: Unamortized Debt Issuance Costs (1,141)
$ 87,496 
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, 2021 and 2020, 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, 2021 and March 31, 2020 are as follows (in thousands):

March 31, 2021 March 31, 2020
Contractual interest 4,352  4,458 
Amortization of deferred financing costs 288  237 
Interest income (16) (3)
Total 4,624  4,692 

Other - On June 10, 2019, the Company completed a transaction with all holders of the Company’s Common Stock to receive a special, pro-rata distribution of the securities enumerated below:

A dividend of one additional share for every two shares already held (a 50% stock dividend, or the equivalent of a 3-for-2 stock split). See Note 22.
The Company issued and distributed to existing common shareholders, via a non-cash transaction from equity, an aggregate of 1.6 million trust preferred capital security shares (aggregate $4.0 million stated value) and an aggregate of 8.4 million warrants (representing warrants to purchase $21.0 million in stated value of TruPs).

On January 14, 2020, Air T effected a one-for-ten reverse split of its TruPs. As a result of the reverse split, the stated value of the TruPs currently is $25.00 per share. Further, each Warrant conferred upon its holder the right to purchase one-tenth of a share of TruPs for $2.40, representing a 4% discount to the new stated value of $2.50 for one-tenth of a share.

As of March 31, 2021, approximately 4.1 million Warrants have been exercised. As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $14.3 million as of March 31, 2021.

At March 31, 2021, the Company had Warrants outstanding and exercisable to purchase approximately 4.3 million shares of its TruPs at an exercise price of $2.40 per one-tenth of a share. The Warrants will expire on August 30, 2021 or earlier upon redemption or liquidation.
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14.    RELATED PARTY MATTERS
Contrail Aviation Support, LLC 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, 2020 through March 31, 2021. The lease for this facility originally was to expire on June 30, 2021, however; in April 2021, the Company executed the option to renew the lease for an additional period of 5 years on the same terms. 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 $50.0 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, 2021, Mr. Swenson owned 66.7% 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.
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15.    EMPLOYEE AND NON-EMPLOYEE STOCK OPTIONS
Air T, Inc. maintains a stock option plan for the benefit of certain eligible employees and directors. 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. plan 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.
No options were granted under Air T, Inc.’s stock option plan during the fiscal years ended March 31, 2021 and 2020. No stock-based compensation expense with respect to this plan was recognized for the year ended March 31, 2021 and 2020, respectively. At March 31, 2021, there was no unrecognized compensation expense related to the Air T Inc. stock options.
There was no activity during the fiscal years ended March 31, 2021 and 2020 under the Delphax option plans. Option activity during the fiscal years ended March 31, 2020 (retrospectively adjusted to account for the stock split on June 10, 2019) and 2021 is summarized below: 

Shares
Weighted
Average
Exercise Price
Per Share
Weighted
Average
Remaining
Life (Years)
Aggregate
Intrinsic
Value
Outstanding at March 31, 2019 11,250  $ 6.61  4.07 $ 152,075 
Granted —  — 
Exercised —  — 
Forfeited —  — 
Repurchased —  — 
Outstanding at March 31, 2020 11,250  6.61  3.07 66,388 
Granted —  — 
Exercised —  — 
Forfeited —  — 
Repurchased —  — 
Outstanding at March 31, 2021 11,250  $ 6.61  2.07 $ 193,063 
Exercisable at March 31, 2021 11,250  $ 6.61  2.07 $ 193,063 

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16.    REVENUE RECOGNITION
Performance Obligations
The following is a description of the Company’s performance obligations as of March 31, 2021:

Type of Revenue Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
Product Sales
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.
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.
Support Services 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. In the current fiscal year, the Company also generated revenue from the sale of assets on lease or held for lease.
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The following table summarizes disaggregated revenues by type (in thousands):

Year Ended
March 31, 2021 March 31, 2020
Product Sales
Air Cargo $ 19,892  $ 23,690 
Ground equipment sales 59,794  58,082 
Commercial jet engines and parts 40,066  86,625 
Corporate and other 327  261 
Support Services
Air Cargo 46,330  51,469 
Ground equipment sales 291  485 
Commercial jet engines and parts 4,743  3,675 
Corporate and other 132  146 
Leasing Revenue
Air Cargo —  — 
Ground equipment sales 149  189 
Commercial jet engines and parts 1,730  10,797 
Corporate and other 136  152 
Other
Air Cargo 29  116 
Ground equipment sales 445  400 
Commercial jet engines and parts 254  187 
Corporate and other 803  511 
Total $ 175,121  $ 236,785 

See Note 20 for the Company's disaggregated revenues by geographic region and Note 21 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 and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2020 and March 31, 2021 and the amount of contract liabilities that were recognized as revenue during the year ended March 31, 2021 (in thousands):

Outstanding Contract Liabilities Outstanding Contract Liabilities
Recognized as Revenue
As of March 31, 2021 $ 1,358 
As of April 1, 2020 $ 1,853 
For the year ended March 31, 2021 $ 777 

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17.    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, 2021 and 2020 was approximately $0.5 million and $0.6 million, respectively, and was recorded in the consolidated statements of income.
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 2021 and 2020 was approximately $1.5 million and $3.5 million, respectively, and was recorded in general and administrative expenses in the consolidated statements of income.
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18.    INCOME TAXES
Income tax expense (benefit) attributable to (loss) income from continuing operations consists of (in thousands):

Year Ended March 31,
2021 2020
Current:
Federal $ (3,330) $ 43 
State 130  (8)
Foreign 39  — 
Total current (3,161) 35 
Deferred:
Federal 91  (481)
State (317) (98)
Total deferred (226) (579)
Total $ (3,387) $ (544)


Income tax expense attributable to (loss) income from continuing operations differed from the amounts computed by applying the U.S. Federal income tax rate of 21% to pretax (loss) income from continuing operations as follows (in thousands):

Year Ended March 31,
2021 2020
Expected Federal income tax (benefit)/ expense U.S. statutory rate $ (2,472) 21.0  % $ 551  21.0  %
State income taxes, net of federal benefit (271) 2.3  % (519) -19.8  %
Nontaxable cancellation of debt income —  0.0  % (1,331) -50.7  %
Micro-captive insurance benefit (217) 1.8  % (172) -6.6  %
Change in valuation allowance 621  -5.3  % (7,789) -296.8  %
Income attributable to minority interest - Contrail 247  -2.1  % (325) -12.4  %
Write-off Delphax tax attributes —  0.0  % 9,353  356.4  %
Acquired Net Operating Loss ("NOL") carrybacks; CARES Act —  0.0  % (363) -13.8  %
NOL Carryback - Rate Differential (1,468) 12.5  % —  0.0  %
Other differences, net 173  -1.4  % 51  1.9  %
Income tax benefit $ (3,387) 28.8  % $ (544) -20.7  %

The Company did not record any liabilities for uncertain tax positions for the fiscal years ended March 31, 2021 and March 31, 2020.

During the fiscal period ended March 31, 2020, the Company sold GAS. See Note 2. The tax benefit related to this entity allocated to discontinued operations for March 31, 2020 was $0.6 million. In addition, a gain on the sale of discontinued operations was recognized, resulting in a net of tax gain of $8.2 million.

The Company has state gross operating losses of $6.4 million at March 31, 2021. These net operating losses will begin to expire in tax year 2030. The Company has foreign tax credits of $0.5 million that will begin to expire in tax year 2026.

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, 2021, DSI and Delphax accounted for $0.3 million and $(0.1) million, respectively, of fiscal year 2021's valuation allowance effect. During the year ended March 31, 2020, each entity, respectively, accounted for $0.2 million and $(8.9) million of the fiscal year 2020's valuation allowance effect. The valuation allowance release in March 31, 2020 relates to attribute reduction for cancellation of debt income and dissolution of the Canadian and UK subsidiaries (See Note 4). Impairment on investments and changes in unrealized losses related to available-for-sale securities and foreign tax credits accounted for the remaining valuation allowance effect for each year.

65


In March of 2020, the CARES Act was enacted and made significant changes to federal tax laws, including certain changes that were retroactive to the March 31, 2020 tax year. Changes in tax laws are accounted for in the period of enactment and the retroactive effects are recognized in these financial statements. Of the changes impactful to the Company, the CARES act permits favorable treatment of deductible interest expense as well as the ability to carryback tax losses incurred in the March 31, 2021 fiscal year up to 5 years and recoup previously paid federal income taxes; under which the Company was subject to a higher federal tax rate. The benefit of the recoupment of these taxes are included in these consolidated financial statements and the Company expects to receive a refund of $3.4 million.

Deferred tax assets and liabilities were comprised of the following (in thousands):

2021 2020
Net operating loss & attribute carryforwards $ 4,094  $ 3,524 
Unrealized losses on investments 1,504  1,693 
Investment in foreign subsidiaries 1,331  1,369 
Investment in partnerships 821  840 
Lease liabilities 1,999  1,909 
Other deferred tax assets 1,991  1,019 
Total deferred tax assets 11,740  10,354 
Bargain purchase gain (470) (385)
Property and equipment (1,184) (485)
Right-of-use assets (1,838) (1,791)
Capital gain deferment (1,782) (1,700)
Other deferred tax liabilities (35) (167)
Total deferred tax liabilities (5,309) (4,528)
Net deferred tax asset $ 6,431  $ 5,826 
Less valuation allowance (7,026) (6,405)
Net deferred tax liability $ (595) $ (579)

Delphax entities

As described in Note 4, effective on November 24, 2015, Air T, Inc. purchased interests in Dephax. 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 has foreign subsidiaries located in France, and historically had foreign subsidiaries located in 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 2015.

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, 2020 and March 31, 2021 have not yet been filed. Included in the deferred tax balances above and related to the Delphax entities are estimated foreign and U.S. federal loss carryforwards of $6.1 million and $8.5 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 $5.0 million at March 31, 2021, and $4.8 million at March 31, 2020. 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.


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19.    QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per share data)

First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
2021
Operating Revenues $ 36,970  $ 35,604  $ 55,819  $ 46,728 
(Loss) Income from continuing operations, net of tax (956) (3,357) 1,763  (5,844)
Less: Loss attributable to non-controlling interests 115  433  335  230 
(Loss) Income from continuing operations attributable to Air T, Inc. Stockholders (841) (2,924) 2,098  (5,614)
Income from discontinued operations, net of tax —  —  — 
Basic (Loss) Income per share from continuing operations (0.29) (1.01) 0.73  (1.96)
Basic Income (Loss) per share from discontinued operations —  —  —  — 
Basic (Loss) Income per share (0.29) (1.01) 0.73  (1.96)
Diluted (Loss) Income per share from continuing operations (0.29) (1.01) 0.73  (1.96)
Diluted Income (loss) per share from discontinued operations —  —  —  — 
Diluted Loss per share $ (0.29) $ (1.01) $ 0.73  $ (1.96)
Antidilutive shares Excluded from Computation of income (loss) per share from continuing operations (in shares) — 
Antidilutive shares Excluded from Computation of income (loss) per share from discontinued operations (in shares) —  —  —  — 
Antidilutive shares Excluded from Computation of income (loss) per share (in shares) — 
2020
Operating Revenues $ 47,188  $ 50,693  $ 73,300  $ 65,604 
Income (Loss) from continuing operations, net of tax 3,991  (2,122) 581  718 
Less: Net (Income) Loss attributable to non-controlling interests (2,373) (287) (789) (128)
Income (Loss) from continuing operations attributable to Air T, Inc. Stockholders 1,618  (2,409) (208) 590 
Income (Loss) from discontinued operations, net of tax 165  8,124  (222) (2)
Basic Income (loss) per share from continuing operations 0.72  (0.80) (0.07) 0.20 
Basic Income (Loss) per share from discontinued operations 0.07  2.69  (0.07) — 
Basic Income (Loss) per share 0.79  1.89  (0.14) 0.20 
Diluted Income (Loss) per share from continuing operations 0.72  (0.80) (0.07) 0.20 
Diluted Income (loss) per share from discontinued operations 0.07  2.68  (0.07) — 
Diluted Income (Loss) per share $ 0.79  $ 1.88  $ (0.14) $ 0.20 
Antidilutive shares Excluded from Computation of income (loss) per share from continuing operations (in shares) —  — 
Antidilutive shares Excluded from Computation of income (loss) per share from discontinued operations (in shares) —  — 
Antidilutive shares Excluded from Computation of income (loss) per share (in shares) —  —  — 

67


20.    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, 2021 and March 31, 2020 (in thousands):

March 31,
2021
March 31,
2020
United States $ 8,632  $ 19,086 
Foreign 2,018  14,131 
Total tangible long-lived assets, net $ 10,650  $ 33,217 

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, 2021. The net book value located within each individual country at March 31, 2021 is listed below (in thousands):

Country March 31, 2021 March 31, 2020
Netherlands —  4,778 
Estonia —  7,408 
Macau 1,896  — 
Mexico —  1,845 
Other 122  100 
$ 2,018  $ 14,131 

Total revenue, located in the United States, and outside the United States is summarized in the following table as of March 31, 2021 and March 31, 2020 (in thousands):

March 31,
2021
March 31,
2020
United States $ 147,010  $ 187,710 
Foreign 28,111  49,075 
Total revenue $ 175,121  $ 236,785 

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21.    SEGMENT INFORMATION
The Company has four reportable segments: overnight air cargo, ground equipment sales, commercial jet engine and parts and corporate and other. Due to insignificance, the Company combined the previous printing and equipment segment into corporate and other. We have presented prior periods based on the current presentation. Segment data is summarized as follows (in thousands):

Year Ended March 31,
2021 2020
Operating Revenues:
Overnight Air Cargo $ 66,251  $ 75,275 
Ground Equipment Sales:
Domestic 51,558  54,108 
International 9,121  5,048 
Total Ground Equipment Sales 60,679  59,156 
Commercial Jet Engines and Parts
Domestic 28,235  57,528 
International 18,558  43,756 
Total Commercial Jet Engines and Parts 46,793  101,284 
Corporate and Other
Domestic 967  799 
International 431  271 
Total Corporate and Other 1,398  1,070 
Total $ 175,121  $ 236,785 
Operating Income (Loss):
Overnight Air Cargo $ 2,178  $ 749 
Ground Equipment Sales 8,948  7,302 
Commercial Jet Engines and Parts (10,882) 8,322 
Corporate and Other (9,419) (9,082)
Total $ (9,175) $ 7,291 
Capital Expenditures:
Overnight Air Cargo $ 74  $ 299 
Ground Equipment Sales 124  881 
Commercial Jet Engines and Parts 5,774  34,873 
Corporate and Other 33  1,096 
Total $ 6,005  $ 37,149 
Depreciation and Amortization:
Overnight Air Cargo $ 66  $ 72 
Ground Equipment Sales 184  261 
Commercial Jet Engines and Parts 2,438  4,771 
Corporate and Other 419  577 
Total $ 3,107  $ 5,681 

22.    EARNINGS PER COMMON SHARE
69


Basic earnings per share has been calculated by dividing net income 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):

Year Ended March 31,
2021 2020
Net (loss) income from continuing operations $ (8,394) $ 3,168 
Net loss (income) from continuing operations attributable to non-controlling interests 1,113  (3,577)
Net loss from continuing operations attributable to Air T, Inc. Stockholders (7,281) (409)
Loss from continuing operations per share:
Basic $ (2.53) $ (0.15)
Diluted $ (2.53) $ (0.15)
Antidilutive shares Excluded from Computation of loss per share from continuing operations 6 7
Loss from discontinued operations, net of tax —  (114)
Gain on sale of discontinued operations, net of tax 8,179 
Gain from discontinued operations attributable to Air T, Inc. stockholders 8,065 
Income from discontinued operations per share:
Basic $ —  $ 2.89 
Diluted $ —  $ 2.88 
Antidilutive shares Excluded from Computation of income per share from discontinued operations —  — 
(Loss) Income per share:
Basic $ (2.53) $ 2.74 
Diluted $ (2.53) $ 2.73 
Antidilutive shares Excluded from Computation of (loss) income per share — 
Weighted Average Shares Outstanding:
Basic 2,882  2,791 
Diluted 2,882  2,798 

23.     COMMITMENTS AND CONTINGENCIES

Impact of COVID-19 — As further discussed in Note 1, the full extent and duration of the impact of COVID-19 on the U.S. and world economies generally, and the Company’s business in particular, is uncertain. As of March 31, 2021, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of COVID-19, however, the global pandemic could have long-term impacts on the Company’s financial condition, results of operations, and cash flows and the pandemic could once again worsen in the future. Refer to Note 1 for further discussion of COVID-19.



70




24.    SUBSEQUENT EVENTS
Aircraft capital joint venture
On May 6, 2021, the Company announced the May 5, 2021 formation of a new aircraft asset management business called Contrail Asset Management, LLC (“CAM”), and a new aircraft capital joint venture called Contrail JV II LLC (“CJVII”). The new joint venture was formed as a scalable asset management platform to complement the Company’s existing operating businesses. The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail Aviation’s origination and asset management expertise.
CJVII will initially be capitalized with up to $408 million of equity from Air T and three institutional investor partners, consisting of $108 million in initial commitments and $300 million in upsize capacity, contingent on underwriting and transaction appeal. The three investor partners bring significant aviation experience to the joint venture.
The Company and Mill Road Capital (“MRC”) have agreed to became common members in CAM, the aircraft asset management business. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII (“Asset Management Function”), and 2) to directly invest into CJVII alongside other institutional investment partners (“Investment Function”). The Company and its affiliates will perform the services required for the Asset Management Function in exchange for 90% of the economic interest derived therefrom. For the Asset Management Function, CAM will receive origination fees, management fees, consignment fees (where applicable) and a carried interest.
For its Investment Function, CAM has an initial commitment to CJVII of approximately $53 million, which is comprised of an $8 million initial commitment from the Company and an approximately $45 million initial commitment from MRC. Any investment returns will be shared pro-rata between the Company and MRC.
The CAM LLC Agreement provides that the limited liability company and each series will continue for a period of seven (7) years from the closing date, provided that the term of the company and each series may be extended for two (2) consecutive one-year periods after the initial term.
At the Market Offering

On May 14, 2021, the Company and Air T Funding (the “Trust”) entered into an At the Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which the Trust may sell and issue its Alpha Income Preferred Securities having an aggregate offering price of up to $8 million (the “Capital Securities”) from time to time through Ascendiant, as the Trust’s sales agent (the “ATM Offering”). The Trust has no obligation to sell any of the Capital Securities, and may at any time suspend offers under the ATM Agreement or terminate the ATM Agreement.
Sales of the Capital Securities, if any, under the ATM Agreement may be made in transactions that are deemed to be “at-the-market” equity offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including on the NASDAQ Stock Market. Subject to the terms and conditions of the ATM Agreement, the sales agent will use its reasonable efforts to sell the Capital Securities from time to time based upon the Trust’s instructions (including any price, time, or size limits or other parameters or conditions the Trust may impose). The Trust or the Company will pay the sales agent a commission of up to 3.0% of the gross sales price of any Capital Securities sold under the ATM Agreement. The Trust has also provided the sales agent with customary indemnification rights.
The Capital Securities will be offered and sold pursuant to the Company’s and the Trust’s shelf registration statement on Form S-3 (File Nos. 333-254110-01 and 333-254110). On May 14, 2021, the Company and the Trust filed a prospectus supplement relating to the ATM Offering with the Securities and Exchange Commission.
Under the terms of the ATM Agreement, the Trust may also sell Capital Securities to Ascendiant as principal for its own account at a price agreed upon at the time of the sale, subject to the Trust entering into a separate terms agreement with Ascendiant for any such sale.

71


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, 2021. Our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2021, 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, 2021, and consolidated results of its operations and cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles (“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.
The Company's management has evaluated the effectiveness of the Company's internal control over financial reporting as of March 31, 2021 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, 2021.
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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.    Other Information.
(a) Other Information
72


The Company and the Trust entered into the Second Amended and Restated Trust Agreement on June 23, 2021 and the document is filed as exhibit 10.31 hereto. The trust amendment updates and makes some clarifying changes to the trust agreement.
The Company and MBT entered into the Joinder Security Agreements on June 23, 2021, which are filed as exhibit 10.99 and exhibit 10.101 hereto. The loan amendments add Air'Zona Aircraft Services, Inc. and Jet Yard Solutions, LLC as guarantors to the Second Amended and Restated Credit Agreement.
The foregoing summary of the terms of the transaction documents do not purport to be complete and is qualified in its entirety by reference to the the documents which are filed as Exhibits 10.31, 10.99, 10.100, 10.101, and 10.102 respectively hereto and are incorporated by reference herein.
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, 2021. The Audit Committee has 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, 2021 for filing with the Securities and Exchange Commission.
June 25, 2021
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.
73


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.
Equity Compensation Plan Information
The following table provides information as of March 31, 2021, regarding shares outstanding and available for issuance under Air T, Inc.’s existing equity compensation plans.
Plan Category 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)
Equity compensation plans approved by security holders 11,250  $ 6.61  — 
Equity compensation plans not approved by security holders —  —  — 
Total 11,250  $ 6.61  — 

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.
The information contained under the heading “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
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)Report of Independent Registered Public Accounting Firm – Deloitte & Touche LLP
(ii)Consolidated Balance Sheets as of March 31, 2021 and 2020.
(iii)Consolidated Statements of Income and Comprehensive Income for the years ended March 31, 2021 and 2020.
(iv)Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2021 and 2020.
(v)Consolidated Statements of Cash Flows for the years ended March 31, 2021 and 2020.
(vi)Notes to Consolidated Financial Statements.
3.    Exhibits
No.
Description
74


3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
75


10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
76


10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
77


10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
78


10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
10.67
10.68
10.69
10.70
10.71
79


10.72
10.73
10.74
10.75
10.76
10.77
10.78
10.79
10.80
10.81
10.82
10.83
10.84
10.85
10.86
80


10.87
10.88
10.89
10.90
10.91
10.92
10.93
10.94
10.95
10.96
10.97
10.98
10.99
10.100
10.101
10.102
21.1
23.1
31.1
31.2
32.1
32.2
81


101
The following financial information from the Annual Report on Form 10-K for the year ended March 31, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income and Comprehensive Income, (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.
** 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.
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.
82


SIGNATURES
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 duly authorized.
AIR T, INC.
By: /s/ Nick Swenson
Nick Swenson, Chairman, President and
Chief Executive Officer and Director (Principal Executive Officer)
Date: June 25, 2021
By: /s/ Brian Ochocki
Brian Ochocki, Chief Financial Officer
(Principal Financial Officer)
Date: June 25, 2021
By: /s/ Raymond Cabillot
Raymond Cabillot, Director Date: June 25, 2021
By: /s/ William R. Foudray
William R. Foudray, Director Date: June 25, 2021
By: /s/ Gary S. Kohler
Gary S. Kohler, Director Date: June 25, 2021
By: / s/ Peter McClung
Peter McClung, Director Date: June 25, 2021
By: /s/ Travis Swenson
Travis Swenson, Director Date: June 25, 2021



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.3 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.

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

Execution Copy
 
 
 
 
 
 
 
 
 
 
Air T Funding
 
 
 
 
SECOND AMENDED AND RESTATED
TRUST AGREEMENT
 
 
 
 
among
 
Air T, Inc., as Depositor
 
DELAWARE TRUST COMPANY, as Property Trustee
 
DELAWARE TRUST COMPANY, as Delaware Trustee
 
AND
 
The Administrative Trustees Named Herein
 
 
 
Dated as of June 23, 2021
 
 
 
 
 
 
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TABLE OF CONTENTS
 
Page
 
4821-9020-5592, v. 11


ARTICLE I. – DEFINED TERMS 2
SECTION 101.  DEFINITIONS 2
   
ARTICLE II. – ESTABLISHMENT OF THE TRUST 10
SECTION 201.  NAME 10
SECTION 202.  OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS 10
SECTION 203.  INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES 11
SECTION 204.  ISSUANCE OF THE CAPITAL SECURITIES 11
SECTION 205.  ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF JUNIOR SUBORDINATED DEBENTURES 11
SECTION 206.  DECLARATION OF TRUST 12
SECTION 207.  AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS 12
SECTION 208.  ASSETS OF TRUST 15
SECTION 209.  TITLE TO TRUST PROPERTY 15
   
ARTICLE III. – PAYMENT ACCOUNT 16
SECTION 301.  PAYMENT ACCOUNT 16
   
ARTICLE IV. – DISTRIBUTIONS; REDEMPTION 16
SECTION 401.  DISTRIBUTIONS 16
SECTION 402.  REDEMPTION 17
SECTION 403.  SUBORDINATION OF COMMON SECURITIES 19
SECTION 404.  PAYMENT PROCEDURES 19
SECTION 405.  TAX RETURNS AND REPORTS 20
SECTION 406.  PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST 20
SECTION 407.  PAYMENTS UNDER INDENTURE 20
   
ARTICLE V. – TRUST SECURITIES CERTIFICATES 20
SECTION 501.  INITIAL OWNERSHIP 20
SECTION 502.  THE TRUST SECURITIES CERTIFICATES 20
SECTION 503.  EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES 21
SECTION 504.  REGISTRATION OF TRANSFER AND EXCHANGE OF CAPITAL SECURITIES CERTIFICATES 21
SECTION 505.  MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES 23
SECTION 506.  PERSONS DEEMED SECURITYHOLDERS 23
SECTION 507.  ACCESS TO LIST OF SECURITYHOLDERS’ NAMES AND ADDRESSES 23
 
 
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4821-9020-5592, v. 11


SECTION 508.  MAINTENANCE OF OFFICE OR AGENCY 24
SECTION 509.  APPOINTMENT OF PAYING AGENT 24
SECTION 510.  OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR 24
SECTION 511.  BOOK-ENTRY CAPITAL SECURITIES CERTIFICATES; COMMON SECURITIES CERTIFICATE 25
SECTION 512.  NOTICES TO CLEARING AGENCY 26
SECTION 513.  DEFINITIVE CAPITAL SECURITIES CERTIFICATES 26
SECTION 514.  RIGHTS OF SECURITYHOLDERS 27
   
ARTICLE VI. – ACTS OF SECURITYHOLDERS; MEETINGS; VOTING 28
SECTION 601.  LIMITATIONS ON VOTING RIGHTS 28
SECTION 602.  NOTICE OF MEETINGS 29
SECTION 603.  MEETINGS OF HOLDERS OF CAPITAL SECURITIES 29
SECTION 604.  VOTING RIGHTS 29
SECTION 605.  PROXIES, ETC. 29
SECTION 606.  SECURITYHOLDER ACTION BY WRITTEN CONSENT 30
SECTION 607.  RECORD DATE FOR VOTING AND OTHER PURPOSES 30
SECTION 608.  ACTS OF SECURITYHOLDERS 30
SECTION 609.  INSPECTION OF RECORDS 31
   
ARTICLE VII. – REPRESENTATIONS AND WARRANTIES 31
SECTION 701.  REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE PROPERTY TRUSTEE 31
SECTION 702.  REPRESENTATIONS AND WARRANTIES OF THE DELAWARE BANK AND THE DELAWARE TRUSTEE 32
SECTION 703.  REPRESENTATIONS AND WARRANTIES OF DEPOSITOR 33
   
ARTICLE VIII. – THE TRUSTEES 34
SECTION 801.  CERTAIN DUTIES AND RESPONSIBILITIES 34
SECTION 802.  CERTAIN NOTICES 36
SECTION 803.  CERTAIN RIGHTS OF PROPERTY TRUSTEE 36
SECTION 804.  NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES 38
SECTION 805.  MAY HOLD SECURITIES 38
SECTION 806.  COMPENSATION; INDEMNITY; FEES 39
SECTION 807.  CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES 40
SECTION 808.  CONFLICTING INTERESTS 40
SECTION 809.  CO-TRUSTEES AND SEPARATE TRUSTEE 40
SECTION 810.  RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR 42
SECTION 811.  ACCEPTANCE OF APPOINTMENT BY SUCCESSOR 43
SECTION 812.  MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS 44
 
ii
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4821-9020-5592, v. 11


SECTION 813.  PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST 44
SECTION 814.  REPORTS BY PROPERTY TRUSTEE 44
SECTION 815.  REPORTS TO THE PROPERTY TRUSTEE 45
SECTION 816.  EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT 45
SECTION 817.  NUMBER OF TRUSTEES 45
SECTION 818.  DELEGATION OF POWER 45
SECTION 819.  VOTING 46
   
ARTICLE IX. – TERMINATION, LIQUIDATION AND MERGER 46
SECTION 901.  DISSOLUTION, TERMINATION UPON EXPIRATION DATE 46
SECTION 902.  EARLY TERMINATION 46
SECTION 903.  TERMINATION 46
SECTION 904.  LIQUIDATION 47
SECTION 905.  MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST 48
   
ARTICLE X. – MISCELLANEOUS PROVISIONS 49
SECTION 1001.  LIMITATION OF RIGHTS OF SECURITYHOLDERS 49
SECTION 1002.  AMENDMENT 49
SECTION 1003.  SEPARABILITY 50
SECTION 1004.  GOVERNING LAW 51
SECTION 1005.  PAYMENTS DUE ON NON-BUSINESS DAY 51
SECTION 1006.  SUCCESSORS 51
SECTION 1007.  HEADINGS 51
SECTION 1008.  REPORTS, NOTICES AND DEMANDS 51
SECTION 1009.  AGREEMENT NOT TO PETITION 52
SECTION 1010.  TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT 52
SECTION 1011.  ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE 53
 
Exhibit A     Certificate of Trust
Exhibit B     Form of Common Securities Certificate
Exhibit C     Form of Expense Agreement
Exhibit D     Form of Capital Securities Certificate
 
 
iii
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CROSS-REFERENCE TABLE
 
4821-9020-5592, v. 11


SECTION OF SECTION OF
TRUST INDENTURE ACT TRUST
OF 1939, AS AMENDED AGREEMENT
   
310(a)(1) 807
310(a)(2) 807
310(a)(3) 807
310(a)(4) 207(a)(ii)
310(b) 808
311(a) 813
311(b) 813
312(a) 507
312(b) 507
312(c) 507
313(a) 814(a)
313(a)(4) 814(b)
313(b) 814(b)
313(c) 108
313(d) 814(c)
314(a) 815
314(b) Not Applicable
314(c)(1) 816
314(c)(2) 816
314(c)(3) Not Applicable
314(d) Not Applicable
314(e) 101, 816
315(a) 801(a), 803(a)
315(b) 802, 108
315(c) 801(a)
315(d) 801, 803
315(e) Not Applicable
316(a) Not Applicable
316(a)(1)(A) Not Applicable
316(a)(1)(B) Not Applicable
316(a)(2) Not Applicable
316(b) Not Applicable
316(c) 607
317(a)(1) Not Applicable
317(a)(2) Not Applicable
317(b) 509
318(a) 1010
 
iv
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4821-9020-5592, v. 11


THIS SECOND AMENDED AND RESTATED TRUST AGREEMENT, dated as of June 21, 2021, among (i) Air T, Inc., a Delaware corporation (including any successors or assigns, the “Depositor”), (ii) Delaware Trust Company, a Delaware state chartered trust company duly organized and existing under the laws of the State of Delaware, as property trustee (the “Property Trustee”), (iii) Delaware Trust Company, a Delaware state chartered trust company duly organized and existing under the laws of the State of Delaware, as Delaware trustee (the “Delaware Trustee,” and (iv) Mark Jundt, an individual, and Brian Ochocki, an individual, each of whose address is c/o Air T, Inc. (each an “Administrative Trustee” and collectively the “Administrative Trustees”) (the Property Trustee, the Delaware Trustee and the Administrative Trustees referred to collectively as the “Trustees”).
 
W I T N E S S E T H:
 
WHEREAS, the Depositor, the Delaware Trustee, and the Administrative Trustees have heretofore duly declared and established a statutory trust pursuant to the Delaware Statutory Trust Act by the entering into of that certain Interim Trust Agreement, dated as of September 28, 2018 (the “Original Trust Agreement”), and by the execution and filing by the Delaware Trustee, the Depositor and the Administrative Trustees with the Secretary of State of the State of Delaware of the Certificate of Trust, filed on September 28, 2018, the form of which is attached as Exhibit A;
 
WHEREAS, the Original Trust Agreement was amended by Amended and Restated Trust Agreement dated June 10, 2019 (the “Amended and Restated Trust Agreement”);

WHEREAS, the Amended and Restated Trust Agreement was further amended with the consent of the Securityholders by an Amendment to the Air T Funding Amended and Restated Trust Agreement dated January 6, 2020 (the “First Amendment”);

WHEREAS, the Amended and Restated Trust Agreement was further amended with the consent of the Securityholders by a Second Amendment to the Air T Funding Amended and Restated Trust Agreement dated March 3, 2021 (the “Second Amendment” and the Amended and Restated Trust Agreement, as amended by the First Amendment and the Second Amendment, the “Amended Trust Agreement”);

WHEREAS, pursuant to Section 1002(a)(ii) of the Amended Trust Agreement, the Administrative Trustees and the Depositors have the authority to amend the Amended Trust Agreement to cure any ambiguity, correct or supplement any provision therein which may be inconsistent with any other provision therein, or to make any other provisions with respect to matters or questions arising under the Amended Trust Agreement, that shall not be inconsistent with the other provisions of the Amended Trust Agreement;

WHEREAS, the Administrative Trustees and the Depositor desire to amend and restate the Amended Trust Agreement in its entirety as set forth herein to, among other things, incorporate the changes made by the First Amendment and Second Amendment into a single instrument, cure certain ambiguities and correct or supplement certain provisions that are inconsistent with the intent of the First Amendment and the Second Amendment, and to resolve certain questions arising based on such inconsistencies and ambiguities in a manner consistent with the intent of the parties, as set forth herein;
 
NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders, hereby amends and restates the Amended Trust Agreement in its entirety in the form of this Second Amended and Restated Trust Agreement and agrees as follows:
 
 
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4821-9020-5592, v. 11


ARTICLE I.

DEFINED TERMS
 
SECTION 1. DEFINITIONS.
 
For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires:
 
(a)     the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
 
(b)     all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
 
(c)     unless the context otherwise requires, any reference to an “Article” or a “Section” refers to an Article or a Section, as the case may be, of this Trust Agreement; and
 
(d)     the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision.
 
“2020 Reverse Split” means the one-for-ten reverse split of the Capital Securities that was effective on January 14, 2020.

“Act” has the meaning specified in Section 608.
 
“Additional Amount” means, with respect to Trust Securities of a given Liquidation Amount and/or a given period, the amount of additional interest accrued on interest in arrears and paid by the Depositor on a Like Amount of Junior Subordinated Debentures for such period.
 
“Additional Sums” has the meaning specified in Section 2.5 of the Indenture.
 
“Administrative Trustee” means each of Mark Jundt and Brian Ochocki, solely in such person’s capacity as Administrative Trustee of the Trust and not in such person’s individual capacity, or such Administrative Trustee’s successor in interest in such capacity, or any successor Administrative Trustee appointed as herein provided.
 
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Amended Trust Agreement” has the meaning set forth in the recitals to this Second Amended and Restated Trust Agreement.

“Amended and Restated Trust Agreement” has the meaning set forth in the recitals to this Trust Agreement.

 
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“Bankruptcy Event” means, with respect to any Person:
4821-9020-5592, v. 11


 
(a)     the entry of a decree or order by a court having jurisdiction in the premises adjudging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking liquidation or reorganization of or in respect of such Person under the Federal Bankruptcy Code or any other similar applicable Federal or State law, and the continuance of any such decree or order unvacated and unstayed for a period of 120 days; or the commencement of an involuntary case under the Federal Bankruptcy Code in respect of such Person, which shall continue undismissed for a period of 120 days or entry of an order for relief in such case; or the entry of a decree or order of a court having jurisdiction in the premises for the appointment on the ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee or assignee in bankruptcy or insolvency of such Person or of its property, or for the winding up or liquidation of its affairs, and such decree or order shall have remained in force unvacated and unstayed for a period of 120 days; or
 
(b)     the institution by such Person of proceedings to be adjudicated a voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy proceeding against it, or the filing by such Person of a petition or answer or consent seeking liquidation or reorganization under the Federal Bankruptcy Code or other similar applicable Federal or State law, or the consent by such Person to the filing of any such petition or to the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of such Person or of its property, or such Person shall make a general assignment for the benefit of creditors.
 
“Bankruptcy Laws” has the meaning specified in Section 1009.
 
“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor’s Board of Directors, or such committee of the Board of Directors or officers of the Depositor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the appropriate Trustee.
 
“Book-Entry Capital Securities Certificates” means certificates representing Capital Securities issued in global, fully registered form to the Clearing Agency as described in Section 511.
 
“Business Day” means a day other than (a) a Saturday or Sunday, (b) a day on which banking institutions in the State of Minnesota are authorized or required by law or executive order to remain closed, or (c) a day on which the Property Trustee’s Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business.
 
“Capital Securities” means an undivided beneficial interest in the assets of the Trust, designated “8.0% Cumulative Capital Securities” (also referred to as the “Alpha Income Trust Preferred Securities”) having a Liquidation Amount of $25.00 (as adjusted pursuant to the 2020 Reverse Split) in the aggregate amounts specified in Sections 204 and 205(b) and (c) of this Agreement and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. For the avoidance of doubt, the Common Securities issued hereunder are not deemed Capital Securities.
 
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“Capital Securities Certificate” means a certificate evidencing ownership of Capital Securities, substantially in the form attached as Exhibit D.
 .
 
“Certificate of Trust” means the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, as amended or restated from time to time.
 
4821-9020-5592, v. 11


“Clearing Agency” means an organization registered as a “clearing agency” pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. The Depository Trust Company will be the initial Clearing Agency.
 
“Clearing Agency Participant” means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency.
 
“Closing Date” means the date of execution and delivery of the Original Trust Agreement.
 
“Code” means the Internal Revenue Code of 1986, as amended.
 
“Commission” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time after the execution of this Trust Agreement such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
 
“Common Security” means a common undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $2.50 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. For purposes of clarification, the Common Securities were not adjusted or affected by the 2020 Reverse Split.
 
“Common Securities Certificate” means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit B.
 
“Corporate Trust Office” means the principal corporate trust office of the Property Trustee located at 251 Little Falls Drive, Wilmington, Delaware 19808, Attn: Corporate Trust.
 
“Debenture Event of Default” means an “Event of Default” as defined in the Indenture.
 
“Debenture Redemption Date” means, with respect to any Junior Subordinated Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture.
 
4
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“Debenture Trustee” means Delaware Trust Company, a state chartered trust company, organized under the laws of the State of Delaware and any successor thereto, as trustee under the Indenture.
 
“Definitive Capital Securities Certificates” means either or both (as the context requires) of (a) Capital Securities Certificates issued as Book-Entry Capital Securities Certificates as provided in Section 511(a), and (b) Capital Securities Certificates issued in certificated, fully registered form as provided in Section 513.
 
“Delaware Statutory Trust Act” means Chapter 38 of Title 12 of the Delaware Code, 12 Delaware Code Sections 3801 et seq as it may be amended from time to time.
 
“Delaware Trustee” means the commercial bank or trust company identified as the “Delaware Trustee” in the preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor Delaware Trustee appointed as herein provided.
 
“Depositor” has the meaning specified in the preamble to this Second Amended and Restated Trust Agreement.
4821-9020-5592, v. 11


 
“Distribution Date” has the meaning specified in Section 401(a).
 
“Distributions” means amounts payable in respect of the Trust Securities as provided in Section 401.
 
“Event of Default” means any one of the following events shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
 
(a)     the occurrence of a Debenture Event of Default; or
 
(b)     default by the Trust in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or
 
(c)     default by the Trust in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or
 
(d)     default in the performance, or breach, in any material respect, of any covenant or warranty of the Property Trustee in this Trust Agreement (other than a covenant or warranty, a default in the performance of which or the breach of which is dealt with in clause (b) or (c), above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Property Trustee by the Holders of at least 25% in aggregate Liquidation Amount of the Outstanding Capital Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or
 
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(e)     the occurrence of a Bankruptcy Event with respect to the Property Trustee and the failure by the Depositor to appoint a successor Property Trustee within 60 days thereof.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Expense Agreement” means the Agreement as to Expenses and Liabilities between the Depositor and the Trust, substantially in the form attached as Exhibit C, as amended from time to time.
 
“Expiration Date” has the meaning specified in Section 901.
 
“Extension Period” means the “Extended Interest Payment Period” as defined in the Indenture.

“First Amendment” has the meaning ascribed in the recitals to this Second Amended and Restated Trust Agreement.
 
“Global Subordinated Debenture” has the meaning specified in the Indenture.
 
“Guarantee” means the Capital Securities Guarantee Agreement executed and delivered by the Depositor and Wilmington Trust Company as trustee, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the holders of the Capital Securities, as amended from time to time.
 
“Holder” means a Securityholder.
 
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“Indenture” means the Subordinated Indenture, dated as of June 10, 2019, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time.
 
“Investment Company Act” means the Investment Company Act of 1940, as amended.
 
“Investment Company Event” means the receipt by the Depositor and the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a “Change in Investment Company Act Law”), the Trust is or will be considered an “investment company” that is required to be registered under the Investment Company Act, which Change in Investment Company Act Law becomes effective on or after the date of original issuance of the Capital Securities under this Trust Agreement.
 
“Issuance Date” means the date on which the Capital Securities are issued hereunder
 
“Junior Subordinated Debentures” means up to $100,000,000 aggregate principal amount of the Depositor’s 8.0% Junior Subordinated Debentures, issued pursuant to the Indenture.
 
“Lien” means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever.
 
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“Like Amount” means (a) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Junior Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture and the proceeds of which will be used to pay the Redemption Price of such Trust Securities and (b) with respect to a distribution of Junior Subordinated Debentures to Holders of Trust Securities in connection with a termination or liquidation of the Trust, Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Junior Subordinated Debentures are distributed.
 
“Liquidation Amount” means with respect to the Common Securities, $2.50 per Common Security, and with respect to the Capital Securities, $25.00 per Capital Security (following the one-for-ten reverse split implemented pursuant to the 2020 Reverse Split), in either case, subject to further adjustment as provided in this Second Amended and Restated Trust Agreement.
 
“Liquidation Date” means the date on which Junior Subordinated Debentures are to distributed to Holders of Trust Securities in connection with a termination and liquidation of the Trust pursuant to Section 904(a).
 
“Liquidation Distribution” has the meaning specified in Section 904(d).
 
“Officers’ Certificate” means a certificate signed by the President or a Vice President and by the Chief Financial Officer or the Controller or an Assistant Controller or the Secretary or an Assistant Secretary, of the Depositor, and delivered to the appropriate Trustee. One of the officers signing an Officers’ Certificate given pursuant to Section 816 shall be the principal executive, financial or accounting officer of the Depositor. Any Officers’ Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include:
 
(a)     a statement that each officer signing the Officers’ Certificate has read the covenant or condition and the definitions relating thereto;
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(b)     a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers’ Certificate;
 
(c)     a statement that each such officer has made such examination or investigation as, in such officer’s opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and
 
(d)     a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with.
 
“Opinion of Counsel” means a written opinion of counsel, who may be counsel for the Trust, the Property Trustee, the Delaware Trustee or the Depositor, but not an employee of any thereof, and who shall be reasonably acceptable to the Property Trustee.
 
“Outstanding”, when used with respect to Capital Securities, means, as of the date of determination, all Capital Securities theretofore executed and delivered under this Trust Agreement, except:
 
(a)     Capital Securities theretofore cancelled by the Property Trustee or delivered to the Property Trustee for cancellation;
 
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(b)     Capital Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent for the Holders of such Capital Securities; provided that, if such Capital Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; and
 
(c)     Capital Securities which have been paid or in exchange for or in lieu of which other Capital Securities have been executed and delivered pursuant to Sections 504, 505, 511 and 513; provided, however, that in determining whether the Holders of the requisite Liquidation Amount of the Outstanding Capital Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Capital Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee shall be disregarded and deemed not to be Outstanding, except that (i) in determining whether any Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Capital Securities that such Trustee knows to be so owned shall be so disregarded and (ii) the foregoing shall not apply at any time when all of the Outstanding Capital Securities are owned by the Depositor, one or more of the Trustees and/or any such Affiliate. Capital Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Administrative Trustees the pledgee’s right as to such Capital Securities so owned.
 
“Original Trust Agreement” has the meaning specified in the recitals to this Second Amended and Restated Trust Agreement.
 
“Owner” means each Person who is the beneficial owner of a Book-Entry Capital Securities Certificate as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the Owner, then as reflected in the records of a Person maintaining an account with such Clearing Agency (directly or indirectly, in accordance with the rules of such Clearing Agency).
 
“Paying Agent” means any paying agent or co-paying agent appointed pursuant to Section 509 and shall initially be American Stock Transfer.
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“Payment Account” means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with American Stock Transfer in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Junior Subordinated Debentures will be held and from which the Property Trustee, or the Paying Agent on its behalf, shall make payments to the Securityholders in accordance with Sections 401 and 402.
 
“Person” means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof.
 
“Property Trustee” means the commercial bank or trust company identified as the “Property Trustee” in the preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust heretofore formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor Property Trustee appointed as herein provided.
 
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“Redemption Date” means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Junior Subordinated Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
 
“Redemption Price” means, with respect to any Trust Security to be redeemed, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions thereon to the Redemption Date allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities to be redeemed.
 
“Relevant Trustee” shall have the meaning specified in Section 810.
 
“Responsible Officer” means, with respect to the Property Trustee, any officer within the Corporate Trust Office of the Property Trustee, including, vice president, assistant vice president or trust officer or any other officer customarily performing functions similar to those performed by any of the above designated officers, in all cases having direct responsibility for the administration of the Trust, and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject.
“Second Amendment” has the meaning set forth in the recitals to this Second Amended and Restated Trust Agreement.
 
“Second Amended and Restated Trust Agreement” means this Trust Agreement.

“Securities Register” and “Securities Registrar” have the respective meanings specified in Section 504.
 
“Securityholder” means a Person in whose name a Trust Security or Securities is registered in the Securities Register; any such Person is a beneficial owner within the meaning of the Delaware Statutory Trust Act.
 
“Tax Event” means the receipt by the Depositor or the Trust of an Opinion of Counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Capital Securities under this Trust Agreement, or the Junior Subordinated Debentures under the Indenture, as the case may be, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days after the date of such Opinion of Counsel, subject to United States federal income
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tax with respect to income received or accrued on the Junior Subordinated Debentures, (ii) interest payable by the Depositor on the Junior Subordinated Debentures is not, or within 90 days after the date of such Opinion of Counsel will not be, deductible by the Depositor, in whole or in part, for United States federal income tax purposes or (iii) the Trust is, or will be within 90 days after the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges.
 
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“Trust” means the Delaware statutory trust created and continued hereby and identified on the cover page to this Trust Agreement.
 
“Trust Agreement” means this Second Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including all exhibits hereto, including, for all purposes of this Second Amended and Restated Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Second Amended and Restated Trust Agreement and any such modification, amendment or supplement, respectively.
 
“Trust Indenture Act” means the Trust Indenture Act of 1939 as in force at the date as of which this Trust Agreement was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, “Trust Indenture Act” means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
 
“Trust Property” means (a) the Junior Subordinated Debentures, (b) any cash on deposit in, or owing to, the Payment Account and (d) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to the trusts of this Trust Agreement.
 
“Trust Security” means any one of the Common Securities or the Capital Securities.
 
“Trust Securities Certificate” means any one of the Common Securities Certificates or the Capital Securities Certificates.
 
“Trustees” means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees.
 
“Warrants” has the meaning assigned to such term in Section 205(b).
 
“Warrant Agency Agreement” means that certain agreement, by and between the Trust and American Stock & Trust Transfer Company, LLC, a New York limited liability trust company, with respect to the Warrants.
 
 
ARTICLE II.
ESTABLISHMENT OF THE TRUST
 
SECTION 201. NAME.
 
The Trust created hereby shall be known as “Air T Funding,” as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders of Trust Securities and the other Trustees, in which name the Trustees may engage in the transactions contemplated hereby, make and execute contracts and other instruments on behalf of the Trust and sue and be sued.
 
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SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS.
 
The address of the Delaware Trustee in the State of Delaware is Delaware Trust Company, 251 Little Falls Drive, Wilmington, Delaware 19808, Attn: Corporate Trust, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Depositor. The principal executive office of the Trust is c/o Air T, Inc., 5930 Balsom Ridge Road, Denver, North Carolina, 28037.
 
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SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES.
 
The Trustees acknowledge receipt in trust from the Depositor in connection with the Original Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses.
 
SECTION 204. ISSUANCE OF THE CAPITAL SECURITIES.
 
The Depositor, on behalf of the Trust and pursuant to the Original Trust Agreement, arranged for the distribution of 1,600,000 Capital Securities with an aggregate Liquidation Amount of $4,000,000 to holders of the Depositor’s common stock. Contemporaneously with the execution and delivery of the Amended and Restated Trust Agreement, an Administrative Trustee, on behalf of the Trust, executed in accordance with Section 502 and delivered Capital Securities Certificates, registered in such names as are instructed by the Depositor, in an aggregate amount of 1,600,000 Capital Securities.  As permitted by Section 3802(a) of the Delaware Statutory Trust Act, the holders of the Capital Securities or Warrants issued on the date of the Amended and Restated Agreement were not obligated to make a contribution to the Trust in consideration of the Capital Securities Certificates or Warrants being delivered to them. Effective January 14, 2020, pursuant to the 2020 Reverse Split, the number of such originally issued Capital Securities outstanding was reduced to 160,000, less any reduction of such number that resulted from the payment of cash in lieu of fractional Capital Securities.
 
SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF JUNIOR SUBORDINATED DEBENTURES; ADDITIONAL CAPITAL SECURITIES.
 
(a)     Contemporaneously with the execution and delivery of the Amended and Restated Trust Agreement, an Administrative Trustee, on behalf of the Trust, executed in accordance with Section 502 and delivered to the Depositor Common Securities Certificates, registered in the name of the Depositor, evidencing 1,600,000 Common Securities having an aggregate Liquidation Amount of $4,000,000, against delivery by the Depositor of $4,000,000 in principal amount of Junior Subordinated Debentures. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, subscribed to and purchased from the Depositor Junior Subordinated Debentures, registered in the name of “Delaware Trust Company, not in its individual capacity but solely as Property Trustee of Air T Funding” on behalf of the Trust and having an aggregate principal amount equal to $4,000,000, and, in satisfaction of the purchase price for such Junior Subordinated Debentures, the Property Trustee, on behalf of the Trust, delivered to the Depositor the sum of $4,000,000 in the form of subordinated note (the “Trust Note”). The Depositor forgave the Trust Note upon receipt.
 
(b)     Contemporaneously with the execution and delivery of the Amended and Restated Trust Agreement, the Trust issued warrants representing the right to purchase up to another 8,400,000 Capital Securities (pre-split) having an aggregate liquidation amount of $21,000,000 in the form of Exhibit 1 to the Warrant Agency Agreement (the “Warrants”). On the date of the Amended and Restated Trust Agreement, an Administrative Trustee delivered the Warrants to the Depositor in connection with the distribution of the Warrants to the stockholders of Depositor, as
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authorized by the Board of Directors of Depositor. The number of Capital Securities that were issued pursuant to the exercise of the Warrants and were outstanding on the date of the 2020 Reverse Split were reduced to one-tenth of the amount of Capital Securities previously outstanding, less any reduction of such number that resulted from the payment of cash in lieu of fractional Capital Securities. Pursuant to the terms of the Warrants, upon consummation of the 2020 Reverse Split, the number of Capital Securities issuable upon exercise of each outstanding Warrant was adjusted to one-tenth of the number of Capital Securities that had previously been issuable under such Warrant (as further adjusted so that no fractional Capital Securities would be issuable). When the Warrants are exercised, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of Common Securities having an aggregate Liquidation Amount of $21,000,000 against delivery by the Depositor of an additional $21,000,000 in principal amount of Junior Subordinated Debentures. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor Junior Subordinated Debentures, registered in the name of “Delaware Trust Company, not in its individual capacity but solely as Property Trustee of Air T Funding” on behalf of the Trust and having an aggregate principal amount equal to $21,000,000, and, in satisfaction of the purchase price for such Junior Subordinated Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of $21,000,000 in the form of subordinated note (the “Trust Note”). The Depositor agrees to forgive the Trust Note upon receipt.

(c)    As of the date of this Second Amended and Restated Trust Agreement, the Trust is authorized to issue up to a maximum of 4,000,000 Capital Securities, representing up to an aggregate Liquidation Amount of $100,000,000, including the number of Capital Securities already issued and outstanding on the date hereof. Any authorized but unissued Capital Securities may be issued from time to time as directed by either Administrative Trustee, after the Administrative Trustees, acting jointly, have authorized the issuance; provided that the total number of Capital Securities issued and outstanding shall not at any time exceed the maximum number of Capital Securities then authorized pursuant to the Trust Agreement.

(d) In all cases when additional Capital Securities are issued, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor additional Junior Subordinated Debentures, registered in the name of “Delaware Trust Company, not in its individual capacity but solely as Property Trustee of Air T Funding” on behalf of the Trust, having the same principal amount as the aggregate Liquidation Amount of such additional Capital Securities then being issued, and, in satisfaction of the purchase price for such Junior Subordinated Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the amount of the purchase price received by the Trust for such additional Capital Securities.
 
 
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SECTION 206. DECLARATION OF TRUST.
 
The exclusive purposes and functions of the Trust are (a) to issue Trust Securities and Warrants and to acquire the Junior Subordinated Debentures, and (b) to engage in those activities necessary, convenient or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it will hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Property Trustee or the Administrative Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Statutory Trust Act.
 
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SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS.
 
(a)     The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section and Article VIII, and in accordance with the following provisions (i) and (ii), the Administrative Trustees shall have the authority to enter into all transactions and agreements determined by the Administrative Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Administrative Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following:
 
(i)     As among the Trustees, each Administrative Trustee, acting singly or jointly, shall have the power and authority to act on behalf of the Trust with respect to the following matters:
 
(A)     the issuance, execution and delivery of the Trust Securities (including the Trust Securities issuable on exercise of the Warrants) and the Warrants;
 
(B)     to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Expense Agreement, the Warrant Agency Agreement and such other agreements or documents as may be necessary or desirable in connection with the purposes and function of the Trust;
 
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(C)     assisting in the registration, as required, of the Capital Securities under the Securities Act of 1933, as amended, and under state securities or blue sky laws, and the qualification of this Trust Agreement as a trust indenture under the Trust Indenture Act;
 
(D)     assisting in the listing of the Capital Securities upon the Nasdaq National Market or such securities exchange or exchanges as shall be determined by the Depositor and, if required, the registration of the Capital Securities under the Securities Exchange Act of 1934, as amended, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing;
 
(E)     the sending of notices (other than notices of default) and other information regarding the Trust Securities and the Junior Subordinated Debentures to the Securityholders in accordance with this Trust Agreement;
 
(F)     the appointment of a Paying Agent, authenticating agent and Securities Registrar in accordance with this Trust Agreement;
 
(G)     to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware;
 
(H)     to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust’s valid existence, rights, franchises and privileges as a statutory trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Capital Securities or to enable the Trust to effect the purposes for which the Trust was created; and
 
(I)     the taking of any action incidental to the foregoing as the Administrative Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust
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Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder).
 
(ii)     As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters:
 
(A)     the establishment of the Payment Account;
 
(B)     the receipt of the Junior Subordinated Debentures;
 
(C)     the collection of interest, principal and any other payments made in respect of the Junior Subordinated Debentures in the Payment Account;
 
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(D)     the distribution of amounts owed to the Securityholders in respect of the Trust Securities in accordance with the terms of this Trust Agreement;
 
(E)     the exercise of all of the rights, powers and privileges of a holder of the Junior Subordinated Debentures;
 
(F)     the sending of notices of default and other information regarding the Trust Securities and the Junior Subordinated Debentures to the Securityholders in accordance with this Trust Agreement;
 
(G)     the distribution of the Trust Property in accordance with the terms of this Trust Agreement;
 
(H)     to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust;
 
(I)     after an Event of Default the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and protect and conserve the Trust Property for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); and
 
(J)     except as otherwise provided in this Section 207(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 207(a)(i).
 
(b)     So long as this Trust Agreement remains in effect, the Trust (and the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not (i) acquire any investments or engage in any activities not authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein, (iii) take any action that would cause the Trust to fail or cease to qualify as a “grantor trust” for United States federal income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders.
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(c)     In connection with the issue and sale of the Capital Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects):
 
(i)     the preparation and filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on the appropriate form in relation to the Capital Securities and the Junior Subordinated Debentures, including any amendments thereto;
 
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(ii)     the determination of the states in which to take appropriate action to qualify or register for sale all or part of the Capital Securities and to do any and all such acts, other than actions which must be taken by or on behalf of the Trust, and advise the Trustees of actions they must take on behalf of the Trust, and prepare for execution and filing any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such states;
 
(iii)     the preparation for filing by the Trust and execution on behalf of the Trust of an application to the Nasdaq National Market or a national stock exchange or other organizations for listing upon notice of issuance of any Capital Securities and to file or cause an Administrative Trustee to file thereafter with such exchange or organization such notifications and documents as may be necessary from time to time;
 
(iv)     if required, the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on Form 8-A relating to the registration of the Capital Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; and
 
(vi)     the taking of any other actions necessary or desirable to carry out any of the foregoing activities.
 
(d)     Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an “investment company” required to be registered under the Investment Company Act, will be classified as a “grantor trust” and not as an association taxable as a corporation for United States federal income tax purposes and so that the Junior Subordinated Debentures will be treated as indebtedness of the Depositor for United States federal income tax purposes. In this connection, subject to Section 1002, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law or this Trust Agreement, that each of the Depositor and the Administrative Trustees determines in their discretion to be necessary or desirable for such purposes.
 
SECTION 208. ASSETS OF TRUST.
 
The assets of the Trust shall consist of the Trust Property.
 
SECTION 209. TITLE TO TRUST PROPERTY.
 
Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Securityholders in accordance with this Trust Agreement.


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Section 210. SPLITS AND REVERSE SPLITS OF SECURITIES.

(a) If requested in writing by the Depositor, the Administrative Trustees shall effect a split or reverse split of the Trust Securities (either the Capital Securities or the Common Securities or both) as of a record date set by the Administrative Trustees in accordance with procedures determined by the Administrative Trustees. In the event of any split or reverse split, the Liquidation Amount of the Trust Securities subject to the split or reverse split shall be adjusted proportionately so that the aggregate Liquidation Amount of the Trust Securities subject to the split or reverse split remains unchanged. No consent, authorization or approval of the Securityholders shall be necessary in connection with any such split or reverse split. The Administrative Trustees shall provide notice to the Securityholders (which may be effected through an appropriate filing with the Securities and Exchange Commission) following the consummation of such split or reverse split; provided that the failure to give such notice shall not affect the validity of the split or reverse split.. Upon consummation of the split or reverse split, unless and until surrendered for reissuance, each Capital Securities Certificate that is issued and outstanding shall automatically and without any further action be deemed to evidence the new number of Capital Securities into which the Capital Securities previously evidenced by such Capital Securities have been transformed by virtue of such split or reverse split, having the same aggregate Liquidation Amount as the number of Capital Securities originally evidenced by such Capital Securities Certificate.

(b) The Administrative Trustees are not required to distribute any fraction of a Trust Security in connection with a split or reverse split of the Trust Securities. The Administrative Trustees may sell the aggregated fractions of Trust Securities that would otherwise be distributed in a split or reverse split of the Trust Securities, or liquidate the amount of Trust Property that would be represented by those Trust Securities and distribute the cash equivalent received from such liquidation to the Securityholders in proportion to their fractional Securities. The amount of Trust Property represented by each Trust Security shall be adjusted as appropriate as of the open of business on the Business Day following the record date for a split or reverse split of the Trust Securities.
 
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ARTICLE III.
PAYMENT ACCOUNT
 
SECTION 301. PAYMENT ACCOUNT.
 
(a)     On or prior to the Closing Date, the Property Trustee established the Payment Account with the Paying Agent. The Property Trustee and any agent of the Property Trustee, which shall include the Paying Agent, shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including (and subject to) any priority of payments provided for herein.
 
(b)     The Paying Agent shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Junior Subordinated Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof.
 
 
ARTICLE IV.
DISTRIBUTIONS; REDEMPTION
 
SECTION 401. DISTRIBUTIONS.
 
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(a)     Distributions on the Trust Securities shall be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accumulate from the Issuance Date of any Trust Securities, and, except during any Extension Period with respect to the Junior Subordinated Debentures, shall be payable quarterly in arrears on the 15th day of February, May, August, and November in each year, commencing on the first such payment date that is at least 90 days after the Issuance Date. The amount of each distribution due with respect to the Capital Securities will include amounts accrued through the date the distribution payment is due. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date (each date on which distributions are payable in accordance with this Section 401(a) a “Distribution Date”).
 
(b)     The Trust Securities represent undivided beneficial interests in the Trust Property, and the Distributions on the Trust Securities shall be payable at an interest rate of 8.0% per annum on the Liquidation Amount of the Trust Securities. The amount of Distributions payable for any full period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. Additionally, from time to time the Board may in its sole discretion may declare Distributions in addition to the Distributions equal to the 8.0% per annum Liquidation Amount of the Trust Securities. During any Extension Period with respect to the Junior Subordinated Debentures, Distributions on the Capital Securities will be deferred for a period equal to the Extension Period. The amount of Distributions payable for any period shall include the Additional Amounts, if any.
 
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(c)     Distributions on the Trust Securities shall be made by the Paying Agent solely from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then on hand and immediately available in the Payment Account for the payment of such Distributions.
 
(d)     Distributions on the Trust Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be one Business Day prior to such Distribution Date; provided, however, that in the event that the Capital Securities do not remain in book-entry-only form, the relevant record date shall be the 1st day of the month in which the relevant Distribution Date occurs.
 
SECTION 402. REDEMPTION.
 
(a)     On each Debenture Redemption Date and on the stated maturity of the Junior Subordinated Debentures, the Trust will be required to redeem a Like Amount of Capital Securities at the Redemption Price.
 
(b)     Notice of redemption shall be given by the Paying Agent by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Capital Securities to be redeemed, at such Holder’s address appearing in the Securities Register. The Property Trustee shall have no responsibility for the accuracy of any CUSIP number contained in such notice. All notices of redemption shall state:
 
(i)     the Redemption Date;
 
(ii)     the Redemption Price;
 
(iii)     the CUSIP number;
 
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(iv)     if less than all the Outstanding Capital Securities are to be redeemed, the identification and the aggregate Liquidation Amount of the particular Capital Securities to be redeemed; and
 
(v)     that on the Redemption Date the Redemption Price will become due and payable upon each such Trust Security to be redeemed and that distributions thereon will cease to accumulate on and after said date.
 
(c)     The Capital Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Junior Subordinated Debentures. Redemptions of the Capital Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has immediately available funds then on hand and available in the Payment Account for the payment of such Redemption Price.
 
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(d)     If the Paying Agent gives a notice of redemption in respect of any Capital Securities, then, by 12:00 noon, Minneapolis time, on the Redemption Date, subject to Section 402(c), the Paying Agent will, so long as the Capital Securities are in book-entry-only form, deposit with the Clearing Agency for the Capital Securities funds sufficient to pay the applicable Redemption Price and will give such Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the holders thereof. If the Capital Securities are no longer in book-entry-only form, the Property Trustee, subject to Section 402(c), will deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and will give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders thereof upon surrender of their Capital Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Capital Securities called for redemption shall be payable to the Holders of such Capital Securities as they appear on the Securities Register for the Capital Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of Securityholders holding Capital Securities so called for redemption will cease, except the right of such Securityholders to receive the Redemption Price, but without interest on such Redemption Price, and such Capital Securities will cease to be Outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case, with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Capital Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Capital Securities will continue to accumulate, at the then applicable rate, from the Redemption Date originally established by the Trust for such Capital Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price.
 
(e)     Payment of the Redemption Price on the Capital Securities shall be made to the record holders thereof as they appear on the Securities Register for the Capital Securities on the relevant record date, which shall be one Business Day prior to the relevant Redemption Date; provided, however, that in the event that the Capital Securities do not remain in book-entry-only form, the relevant record date shall be the date fifteen days prior to the relevant Redemption Date.
 
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(f)     Subject to Section 403(a), if less than all the Outstanding Capital Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Capital Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the Common Securities and the Capital Securities. The particular Capital Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Paying Agent from the outstanding Capital Securities not previously called for redemption, by such method (including, without limitation, by lot) as the Paying Agent shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25.00 or an integral multiple of $25.00 in excess thereof, as adjusted by any split or reverse split occurring after the date of this Second Amended and Restated Trust Agreement) of the Liquidation Amount of Capital Securities of a denomination larger than $25.00. The Paying Agent shall promptly notify the Securities Registrar in writing of the Capital Securities selected for redemption and, in the case of any Capital Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Capital Securities shall relate, in the case of any Capital Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Capital Securities which has been or is to be redeemed.
 
SECTION 403. SUBORDINATION OF COMMON SECURITIES.
 
(a)     Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 402(f), pro rata among the Common Securities and the Capital Securities based on the Liquidation Amount of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date any Event of Default resulting from a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution (including Additional Amounts, if applicable) on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including Additional Amounts, if applicable) on all Outstanding Capital Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Capital Securities then called for redemption, shall have been made or provided for, and all funds immediately available to the Paying Agent shall first be applied to the payment in full in cash of all Distributions (including Additional Amounts, if applicable) on, or the Redemption Price of, Capital Securities then due and payable.
 
(b)     In the case of the occurrence of any Event of Default resulting from a Debenture Event of Default, the Holder of Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Capital Securities shall have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Capital Securities shall have been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Capital Securities and not the Holder of the Common Securities, and only the Holders of the Capital Securities will have the right to direct the Property Trustee to act on their behalf.
 
SECTION 404. PAYMENT PROCEDURES.
 
Payments of Distributions (including Additional Amounts, if applicable) in respect of the Capital Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register or, if the Capital Securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds, which shall credit the relevant Persons’ accounts at such Clearing Agency on the applicable Distribution Dates. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Common Securityholder.
 
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SECTION 405. TAX RETURNS AND REPORTS.
 
The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor’s expense, and file all United States federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service Form required to be filed in respect of the Trust in each taxable year of the Trust and (b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the appropriate Internal Revenue Service form required to be furnished to such Securityholder or the information required to be provided on such form. The Administrative Trustees shall provide the Depositor with a copy of all such returns and reports promptly after such filing or furnishing. The Paying Agent shall comply with United States federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities.
 
SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST.
 
Upon receipt under the Junior Subordinated Debentures of Additional Sums, the Property Trustee, at the written direction of an Administrative Trustee or the Depositor, shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority.
 
SECTION 407. PAYMENTS UNDER INDENTURE.
 
Any amount payable hereunder to any Holder of Capital Securities shall be reduced by the amount of any corresponding payment such Holder (or any Owner related thereto) has directly received under the Indenture pursuant to Section 514(b) or (c) hereof.
 
ARTICLE V.
TRUST SECURITIES CERTIFICATES
 
SECTION 501. INITIAL OWNERSHIP.
 
Upon the creation of the Trust and the contribution by the Depositor pursuant to Section 203 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust.
 
SECTION 502. THE TRUST SECURITIES CERTIFICATES.
 
Following the 2020 Reverse Split and subject to adjustment pursuant to any future split or reverse split, the Capital Securities Certificates shall be issued in minimum denominations of $25.00 Liquidation Amount and integral multiples of $25.00 in excess thereof, and the Common Securities Certificates shall be issued in denominations of $2.50 Liquidation Amount and integral multiples of $2.50 in excess thereof (given that the Common Securities were not adjusted by the 2020 Reverse Split). The Trust Securities Certificates shall be executed on behalf of the Trust by manual signature of at least one Administrative Trustee. Trust Securities Certificates bearing the manual signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee’s name pursuant to Sections 504, 511 and 513.
 
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SECTION 503. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES.
 
On each date upon which Trust Securities are issued, the Administrative Trustees shall cause Trust Securities Certificates evidencing such Trust Securities to be executed on behalf of the Trust by at least one of the Administrative Trustees and delivered to or upon the written order of the Depositor, signed by its President, any Vice President or the Chief Financial Officer without further corporate action by the Depositor, in authorized denominations.  Upon the execution and delivery of Trust Securities Certificates pursuant to this Section 503 in accordance with Sections 204 or 205, as applicable, and Section 502, such Trust Securities Certificates shall be duly and validly issued and fully paid and non-assessable.  Except to the extent expressly set forth in this Agreement, no holder of a Trust Securities Certificate, in its capacity as a beneficial owner, will have any further obligation to make a contribution to the Trust.
 
SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF CAPITAL SECURITIES CERTIFICATES.
 
The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 508, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Capital Securities Certificates (herein referred to as the “Securities Register”) in which the registrar designated by the Depositor (the “Securities Registrar”), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Capital Securities Certificates and Common Securities Certificates (subject to Section 510 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Capital Securities Certificates as herein provided. American Stock Transfer shall be the initial Securities Registrar.
 
Upon surrender for registration of transfer of any Capital Securities Certificate at the office or agency maintained pursuant to Section 508, the Administrative Trustees or any one of them shall execute and deliver, in the name of the designated transferee or transferees, one or more new Capital Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. The Securities Registrar shall not be required to register the transfer of any Capital Securities that have been called for redemption. At the option of a Holder, Capital Securities Certificates may be exchanged for other Capital Securities Certificates in authorized denominations of the same class and of a like aggregate Liquidation Amount upon surrender of the Capital Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 508.
 
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Every Capital Securities Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Securities Registrar duly executed by the Holder or such Holder’s attorney duly authorized in writing. Each Capital Securities Certificate surrendered for registration of transfer or exchange shall be cancelled and subsequently disposed of by the Securities Registrar in accordance with its customary practice. The Trust shall not be required to (i) issue, register the transfer of, or exchange any Capital Securities during a period beginning at the opening of business 15 calendar days before the date of mailing of a notice of redemption of any Capital Securities called for redemption and ending at the close of business on the day of such mailing or (ii) register the transfer of or exchange any Capital Securities so selected for redemption, in whole or in part, except the unredeemed portion of any such Capital Securities being redeemed in part.
 
No service charge shall be made for any registration of transfer or exchange of Capital Securities Certificates, but the Securities Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Capital Securities Certificates.
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If at any time the Depositor or any of its Affiliates (in either case, a “Depositor Affiliated Owner”) is the Holder of any Capital Securities, such Depositor Affiliated Owner shall have the right to deliver to the Property Trustee all or such portion of its Capital Securities as it elects and receive, in exchange therefor, Junior Subordinated Debentures with a principal amount equal to the aggregate liquidation amount of the Capital Securities to be so exchanged. Such election (i) shall be exercisable effective by such Depositor Affiliated Owner delivering to the Property Trustee a written notice of such election (A) specifying the liquidation amount of the Capital Securities with respect to which such election is being made and (B) the date on which such exchange shall occur, which date shall not be less than three (3) Business Days after the receipt by the Property Trustee of such election notice, and which may be any date other than the record date for any Distribution or a date from such record date to and including the Distribution Date for such Distribution and (ii) shall be conditioned upon such Depositor Affiliated Owner having delivered or caused to be delivered to the Property Trustee or its designee the Capital Securities which are the subject of such election by 10:00 A.M. New York City time, on the date on which such exchange is to occur. After the exchange, such Capital Securities will be cancelled and will no longer be deemed to be outstanding and all rights of the Depositor or its Affiliate(s) with respect to such Capital Securities will cease, including accumulated but unpaid Distributions thereon. In the event such Capital Securities are Book-Entry Capital Securities Certificates, upon such exchange the Securities Registrar shall cause an annotation to be made on the Book-Entry Capital Securities Certificate or Certificates evidencing such Book-Entry Capital Securities to evidence the reduction in the liquidation amount thereof resulting from such cancellation.
 
Notwithstanding anything else in this Agreement to the contrary, in order to effectuate the exchanges contemplated by this Section, the Trust is hereby authorized to execute, deliver and perform, and the Depositor, the Property Trustee, any Administrative Trustee or the Securities Registrar, on behalf of the Trust, acting singly or collectively, is hereby authorized to execute and deliver on behalf of the Trust, an exchange agreement, cancellation letter, and any and all other documents, agreements, or certificates contemplated by or related to the exchanges made pursuant to this Section, in each case without further vote or approval of any other Person.
 
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SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES.
 
If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a protected purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Securities Certificate under this Section, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time.
 
SECTION 506. PERSONS DEEMED SECURITY HOLDERS.
 
The Trustees, the Paying Agent and the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate
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for the purpose of receiving Distributions and for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary.
 
SECTION 507. ACCESS TO LIST OF SECURITY HOLDERS’ NAMES AND ADDRESSES.
 
At any time when the Property Trustee is not also acting as the Securities Registrar, the Administrative Trustees or the Depositor shall furnish or cause to be furnished to the Property Trustee (a) semi-annually on or before January 1 and July 1 in each year, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Securityholders as of the most recent Record Date and (b) promptly after receipt by any Administrative Trustee or the Depositor of a request therefor from the Property Trustee, such other information as the Property Trustee may reasonably require in order to enable the Property Trustee to discharge its obligations under this Trust Agreement, in each case to the extent such information is in the possession or control of the Administrative Trustees or the Depositor and is not identical to a previously supplied list or has not otherwise been received by the Property Trustee in its capacity as Securities Registrar, if applicable. The rights of Securityholders to communicate with other Securityholders with respect to their rights under this Trust Agreement or under the Trust Securities, and the corresponding rights of the Trustee shall be as provided in the Trust Indenture Act. Each Holder, by receiving and holding a Trust Securities Certificate, and each Owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived.
 
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SECTION 508. MAINTENANCE OF OFFICE OR AGENCY.
 
The Administrative Trustees shall maintain an office or offices or agency or agencies where Capital Securities Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustees in respect of the Trust Securities Certificates may be served. The Administrative Trustees initially designate the principal corporate trust office of American Stock Transfer & Stock Company, LLC, 6201 15th Avenue Suite 3k, Brooklyn, NY 11219, as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency.
 
SECTION 509. APPOINTMENT OF PAYING AGENT.
 
The Paying Agent shall make distributions to Securityholders from the Payment Account and shall report the amounts of such distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. The Paying Agent shall initially be American Stock Transfer, and any co-paying agent chosen by the Property Trustee, and acceptable to the Administrative Trustees and the Depositor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 90 days’ written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that American Stock Transfer shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor that is acceptable to the Property Trustee and the Depositor to act as Paying Agent (which shall be a bank or trust company). The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property
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Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 801, 803 and 806 shall apply to any other paying agent appointed hereunder. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise.
 
SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR.
 
On the Closing Date, the Depositor acquired and shall retain beneficial and record ownership of the Common Securities. To the fullest extent permitted by law, any attempted transfer of the Common Securities (other than a transfer in connection with a merger or consolidation of the Depositor into another corporation pursuant to Section 12.1 of the Indenture) shall be void. The Administrative Trustees at all times shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating “THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT TO THE DEPOSITOR OR AN AFFILIATE OF THE DEPOSITOR IN COMPLIANCE WITH APPLICABLE LAW AND SECTION 510 OF THE TRUST AGREEMENT AND ONLY IN CONNECTION WITH A SIMULTANEOUS DELEGATION AND ASSIGNMENT OF THE EXPENSE AGREEMENT REFERRED TO THEREIN”.
 
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SECTION 511. BOOK-ENTRY CAPITAL SECURITIES CERTIFICATES; COMMON SECURITIES CERTIFICATE.
 
(a)     The Capital Securities Certificates, upon each original issuance of Capital Securities, will be issued in the form of a typewritten Capital Securities Certificate or Certificates representing Book-Entry Capital Securities Certificates, to be delivered to or held on behalf of The Depository Trust Company, the initial Clearing Agency, by, or on behalf of, the Trust, for so long as the Capital Trust Certificates are maintained in a book-entry system with the Clearing Agency. Such Book-Entry Capital Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of Cede & Co., the nominee of the initial Clearing Agency. No beneficial owner will receive a Definitive Capital Securities Certificate representing such beneficial owner’s interest in such Capital Securities, except as provided in Section 513. Unless and until Definitive Capital Securities Certificates have been issued to beneficial owners pursuant to Section 513:
 
(i)     the provisions of this Section 511(a) shall be in full force and effect;
 
(ii)     the Securities Registrar, the Paying Agent and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Trust Agreement relating to the Book-Entry Capital Securities Certificates (including the payment of the Liquidation Amount of and Distributions on the Book-Entry Capital Securities) as the sole Holder of Book-Entry Capital Securities and shall have no obligations to the Owners thereof;
 
(iii)     to the extent that the provisions of this Section 511 conflict with any other provisions of this Trust Agreement, the provisions of this Section 511 shall control; and
 
(iv)     the rights of the Owners of the Book-Entry Capital Securities Certificates shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Owners and the Clearing Agency and/or the Clearing Agency Participants. Unless and until Definitive Capital Securities Certificates are issued pursuant to Section 513, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and will receive and transmit payments on the Capital Securities to such Clearing Agency Participants. Any Clearing Agency designated pursuant hereto will not be deemed an agent of the Trustees for any purpose.
 
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(b)     A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate.
 
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SECTION 512. NOTICES TO CLEARING AGENCY.
 
To the extent that a notice or other communication to the Owners is required under this Trust Agreement, unless and until Definitive Capital Securities Certificates shall have been issued to Owners pursuant to Section 513, the Trustees shall give all such notices and communications specified herein to be given to Owners to the Clearing Agency, and shall have no obligations to the Owners.
 
SECTION 513. DEFINITIVE CAPITAL SECURITIES CERTIFICATES.
 
If (a) the Depositor advises the Trustees in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Capital Securities Certificates, and the Depositor is unable to locate a qualified successor, (b) the Depositor at its option advises the Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency, or (c) after the occurrence of a Debenture Event of Default, Owners of Capital Securities Certificates representing beneficial interests aggregating at least a majority of the Liquidation Amount advise the Property Trustee in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Owners of Capital Securities Certificates, then the Property Trustee shall notify the Clearing Agency, and the Clearing Agency shall notify all Owners of Capital Securities Certificates, of the occurrence of any such event and of the availability of the Definitive Capital Securities Certificates to Owners of such class or classes, as applicable, requesting the same. Upon surrender to the Securities Registrar of the typewritten Capital Securities Certificate or Certificates representing the Book-Entry Capital Securities Certificates by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees, or any one of them, shall execute the Definitive Capital Securities Certificates in accordance with the instructions of the Clearing Agency. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Capital Securities Certificates, the Trustees shall recognize the holders of the Definitive Capital Securities Certificates as Securityholders. The Definitive Capital Securities Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by the execution thereof by the Administrative Trustees or any one of them.
 
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SECTION 514. RIGHTS OF SECURITY HOLDERS.
 
(a)     The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 209, and the Securityholders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights. When issued and delivered to Holders of the Capital Securities against payment of the purchase price therefor, the Capital Securities will be fully paid and nonassessable, beneficial interests in the Trust. The Holders of the Capital Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware.
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(b)     For so long as any Capital Securities remain Outstanding, if, upon a Debenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Junior Subordinated Debentures fail to declare the principal of all of the Junior Subordinated Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Capital Securities then Outstanding shall have such right by a notice in writing to the Depositor and the Debenture Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Junior Subordinated Debentures shall become immediately due and payable, provided that the payment of principal and interest on such Junior Subordinated Debentures shall remain subordinated to the extent provided in the Indenture. If, as a result of a Debenture Event of Default, the Debenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Junior Subordinated Debentures have declared the Junior Subordinated Debentures due and payable and if such default has been cured and a sum sufficient to pay all matured installments due (otherwise than by acceleration) under the Junior Subordinated Debentures has been deposited with the Debenture Trustee, then (if the holders of not less than a majority in aggregate outstanding principal amount of Junior Subordinated Debentures have not annulled such declaration and waived such default) the holders of a majority in aggregate Liquidation Amount of the Capital Securities may annul such declaration and waive such default.
 
(c)     For so long as any Capital Securities remain outstanding, upon a Debenture Event of Default arising from the failure to pay interest or principal on the Junior Subordinated Debentures, the Holders of any Capital Securities then Outstanding shall, to the fullest extent permitted by law, have the right to directly institute proceedings for enforcement of payment to such Holders of principal of or interest on the Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Capital Securities of such Holders.
 
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ARTICLE VI.
ACTS OF SECURITY HOLDERS; MEETINGS; VOTING
 
SECTION 601. LIMITATIONS ON VOTING RIGHTS.
 
(a)     Except as provided in this Section, in Sections 514, 810 and 1002 and in the Indenture and as otherwise required by law, no Holder of Capital Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association.
 
(b)     So long as any Junior Subordinated Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Debenture Trustee with respect to such Junior Subordinated Debentures, (ii) waive any past default which is waivable under Article VII of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Junior Subordinated Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Junior Subordinated Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Capital Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of outstanding Junior Subordinated Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each Holder of Capital Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Outstanding Capital Securities, except by a subsequent vote of the Holders of the Outstanding Capital Securities. The Property Trustee shall notify each Holder of the Outstanding Capital Securities of any notice of default received from the Debenture Trustee with respect to the Junior Subordinated Debentures. In addition to obtaining the foregoing approvals of the Holders of the Capital Securities,
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prior to taking any of the foregoing actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that the Trust will continue to be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes on account of such action.
 
(c)     If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Capital Securities, whether by way of amendment to the Trust Agreement or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Capital Securities as a class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Capital Securities. No amendment to this Trust Agreement may be made if, as a result of such amendment, the Trust would cease to be classified as a grantor trust or would be classified as an association taxable as a corporation for United States federal income tax purposes.
 
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SECTION 602. NOTICE OF MEETINGS.
 
Notice of all meetings of the Holders of Capital Securities, stating the time, place and purpose of the meeting, shall be given by the Securities Registrar pursuant to Section 1008 to each Holder of Capital Securities of record, at and Securityholder’s registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice.
 
SECTION 603. MEETINGS OF HOLDERS OF CAPITAL SECURITIES.
 
No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Securityholders to vote on any matter upon the written request of the Holders of 25% of the Outstanding Capital Securities (based upon their aggregate Liquidation Amount) and the Administrative Trustees may, at any time in their discretion, call a meeting of Capital Securityholders to vote on any matters as to which the Capital Securityholders are entitled to vote.
 
Holders of record of 50% of the Outstanding Capital Securities (based upon their aggregate Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders.
 
If a quorum is present at a meeting, an affirmative vote by the Holders of record present, in person or by proxy, holding a majority of the Capital Securities (based upon their aggregate Liquidation Amount) held by the Holders of Capital Securities of record present, either in person or by proxy, at such meeting shall constitute the action of the Securityholders, unless this Trust Agreement requires a greater number of affirmative votes.
 
SECTION 604. VOTING RIGHTS.
 
Securityholders holding Common Securities shall be entitled to one vote for each $2.50 of Liquidation Amount represented by their Trust Securites in respect of any matter as to which such Securityholders are entitled to vote, and Securityholders holding Capital Securities shall be entitled to one vote for each $2.50 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. For purposes of clarification, following the 2020 Reverse Split, each outstanding Capital Security (currently representing $25.00 in Liquidation Amount as of the date of this Second Amended and Restated Trust Agreement) currently has ten votes in each matter as to which Securityholders shall be entitle to vote.

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SECTION 605. PROXIES, ETC.
 
At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. When Trust Securities are held jointly by several Persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and, the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution.
 
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SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT.
 
Any action which may be taken by Securityholders at a meeting may be taken without a meeting and without prior notice if Securityholders holding a majority of all Outstanding Trust Securities (based upon their aggregate Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing (based upon their aggregate Liquidation Amount).
 
SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES.
 
For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any Distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of Distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes.
 
SECTION 608. ACTS OF SECURITY HOLDERS.
 
Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders or Owners in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Securityholders or Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 801) conclusive in favor of the Trustees, if made in the manner provided in this Section.
 
The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him or her the execution thereof. Where such execution is by a signer acting in a capacity other than such signer’s individual capacity, such certificate or affidavit shall also constitute sufficient proof of such signer’s authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient.
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The ownership of Capital Securities shall be proved by the Securities Register.
 
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Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security.
 
Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount.
 
SECTION 609. INSPECTION OF RECORDS.
 
Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection by Securityholders during normal business hours for any purpose reasonably related to such Securityholder’s interest as a Securityholder.
 
 
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES
 
SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY TRUSTEE.
 
The Property Trustee, as of the date hereof, and each Successor Property Trustee at the time of the Successor Property Trustee’s acceptance of its appointment as Property Trustee hereunder hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that:
 
(a)     the Property Trustee is a state chartered trust company duly organized, validly existing and in good standing under the laws of the State of Delaware;
 
(b)     the Property Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement;
 
(c)     this Trust Agreement has been duly authorized, executed and delivered by the Property Trustee and constitutes the valid and legally binding agreement of the Property Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles;
 
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(d)     the execution, delivery and performance by each of the Property Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Property Trustee and does not
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require any approval of the stockholders of the Property Trustee and such execution, delivery and performance will not (i) violate the Property Trustee’s charter or by-laws, (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking or trust powers or the Property Trustee, as the case may be, or any order, judgment or decree applicable to the Property Trustee;
 
(e)     neither the authorization, execution or delivery by the Property Trustee of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to, any governmental authority or agency under any existing law of the State of Delaware governing the banking or trust powers of the Property Trustee; and
 
(f)     there are no proceedings pending or, to the best of the Property Trustee’s knowledge, threatened against or affecting the Property Trustee, as the case may be, in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Property Trustee, as the case may be, to enter into or perform its obligations as one of the Trustees under this Trust Agreement.
 
SECTION 702. REPRESENTATIONS AND WARRANTIES OF THE DELAWARE TRUSTEE.
 
The Delaware Trustee, each severally on behalf of and as to itself, as of the date hereof, and each Successor Delaware Trustee at the time of the Successor Delaware Trustee’s acceptance of its appointment as Delaware Trustee hereunder, hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that:
 
(a)     the Delaware Trustee is a state chartered trust company duly organized, validly existing and in good standing under the laws of the State of Delaware and has its principal place of business in the State of Delaware as required by Section 3807(a) of the Delaware Statutory Trust Act;
 
(b)     the Delaware Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement;
 
(c)     this Trust Agreement has been duly authorized, executed and delivered by the Delaware Trustee and constitutes the valid and legally binding agreement of each of the Delaware Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles;
 
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(d)     the execution, delivery and performance by the Delaware Trustee of this Trust Agreement have been duly authorized by all necessary corporate or other action on the part of the Delaware Trustee and does not require any approval of the stockholders of the Delaware Trustee and such execution, delivery and performance will not (i) violate the Delaware Trustee’s charter or by-laws, (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Delaware Trustee is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking or trust
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powers of the Delaware Trustee, as the case may be, or any order, judgment or decree applicable to the Delaware Trustee;
 
(e)     neither the authorization, execution or delivery by the Delaware Trustee of this Trust Agreement nor the consummation of any of the transactions by the Delaware Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to, any governmental authority or agency under any existing law of the State of Delaware governing the banking or trust powers of the Delaware Trustee, as the case may be; and
 
(f)     there are no proceedings pending or, to the best of the Delaware Trustee’s knowledge, threatened against or affecting the Delaware Trustee, in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Delaware Trustee, as the case may be, to enter into or perform its obligations as the Delaware Trustee under this Trust Agreement.
 
SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR.
 
The Depositor hereby represents and warrants for the benefit of the Securityholders that:
 
(a)     the Trust Securities Certificates issued on the Closing Date and on each date thereafter upon which Trust Securties are issued on behalf of the Trust have been duly authorized and will have been duly and validly executed, issued and delivered by the Administrative Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders acquiring such Trust Certificates on the date of such issuance will be, as of such date, entitled to the benefits of this Trust Agreement; and
 
(b)     there are no taxes, fees or other governmental charges payable by the Trust (or the Trustees on behalf of the Trust) under the laws of the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance by the Property Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement.
 
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ARTICLE VIII.
THE TRUSTEES
 
SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES.
 
(a)     The Trustees undertake to perform such duties and only such duties as are specifically set forth in this Agreement and no implied covenant or obligations shall be read into this Trust Agreement against the Trustees. The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. No Administrative Trustee nor the Delaware Trustee shall be liable for such Trustee’s acts or omissions hereunder except as a result of such Trustee’s own gross negligence or willful misconduct. The Property Trustee’s liability shall be determined under the Trust Indenture Act. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section. To the extent that, at law or in equity, a Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, such Trustee shall not be liable to the Trust or to any Securityholder for such Trustee’s good faith reliance on the
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provisions of this Trust Agreement. To the fullest extent permitted by law, the provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Trustees.
 
(b)     All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Securityholder, by such Securityholder’s acceptance of a Trust Security, agrees that such Securityholder will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to such Securityholder as herein provided and that the Trustees are not personally liable to such Securityholder for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 801(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act.
 
(c)     No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that:
 
(i)     the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was grossly negligent in ascertaining the pertinent facts;
 
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(ii)     the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement;
 
(iii)     the Property Trustee’s sole duty with respect to the custody, safe keeping and physical preservation of the Subordinated Debentures and the Payment Account shall be to deal with such Property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act;
 
(iv)     the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Depositor and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 301 and except to the extent otherwise required by law;
 
(v)     the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement or the failure of such parties to perform their respective duties, nor shall the Property Trustee be liable for the negligence, default or misconduct of the Administrative Trustees or the Depositor;
 
(vi)      the Property Trustee shall not be deemed to have knowledge or notice of any fact or event unless a Responsible Officer of the Property Trustee has actual knowledge thereof or unless written notice of such fact or event is received by a Responsible Officer and such notice references the fact or event;
 
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(vii)     the Property Trustee shall not be liable or responsible for delays or failures in the performance of its obligations hereunder arising out of or caused, directly or indirectly, by circumstances beyond its control (such acts include but are not limited to acts of God, strikes, lockouts, riots, acts of war and interruptions, losses or malfunctions of utilities, computer (hardware or software) or communications services); it being understood that the Property Trustee shall use commercially reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as reasonably practicable under the circumstances; and
 
(viii)     the Property Trustee shall not be required to take any action hereunder or under any related document if the Property Trustee shall have reasonably determined by consultation with counsel pursuant to Section 803(f) hereof that such action is contrary to the terms hereof or is otherwise contrary to law.
 
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SECTION 802. CERTAIN NOTICES.
 
(a)     Within 5 Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 1008, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless such Event of Default shall have been cured or waived. For purposes of this Section the term “Event of Default” means any event that is, or after notice or lapse of time or both would become, an Event of Default.
 
(b)     The Administrative Trustees shall transmit, to the Securityholders in the manner and to the extent provided in Section 1008, notice of the Depositor’s election to begin or further extend an Extension Period on the Junior Subordinated Debentures (unless such election shall have been revoked) within the time specified for transmitting such notice to the holders of the Junior Subordinated Debentures pursuant to the Indenture as originally executed.
 
SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE.
 
Subject to the provisions of Section 801:
 
(a)     the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Property Trustee need not investigate any factual matter stated in any such document, including verifying the correctness of any numbers or calculations;
 
(b)     if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with other provisions contained herein or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Capital Securityholders are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, by the Depositor; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within ten Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than two Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in
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which event the Property Trustee shall have no liability except for its own bad faith, gross negligence or willful misconduct;
 
(c)     any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers’ Certificate;
 
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(d)     whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer’s Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees;
 
(e)     the Property Trustee shall have no duty to see to any recording, preparation, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof or otherwise to perfect or maintain the perfection of any ownership or security interest or lien or to prepare or file any tax, qualification to do business or securities law filing or report, or to monitor or enforce the satisfaction of any risk retention requirements;
 
(f)     the Property Trustee may consult with counsel of its choice and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice (such counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees); the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction;
 
(g)     the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
 
(h)     the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Securityholders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit;
 
(i)     the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own gross negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder;
 
(j)     whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions;
 
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(k)     except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty;
 
(l)     notwithstanding anything contained herein to the contrary, the Property Trustee shall not be required to take any action in any jurisdiction other than in the State of Delaware if the taking of such action will (i) require the registration with, licensing by or the taking of any other similar action in respect of, any state or other governmental authority or agency of any jurisdiction other than the State of Delaware by or with respect to the Property Trustee; (ii) result in any fee, tax or other governmental charge under the laws of any jurisdiction or any political subdivisions thereof in existence on the date hereof other than the State of Delaware becoming payable by the Property Trustee; or (iii) subject the Property Trustee to personal jurisdiction in any jurisdiction other than the State of Delaware for causes of action arising from acts unrelated to the consummation of the transactions by the Property Trustee contemplated hereby. If the Property Trustee’s determination regarding the consequences described in clauses (i), (ii) and (iii) of the preceding sentence is based on the advice of counsel pursuant to Section 803(f) (which advice shall be an expense of the Trust) and said counsel advises the Property Trustee that such action will result in such consequences, the Property Trustee may, or if instructed to do so by the Depositor, shall appoint an additional trustee pursuant to Section 8.09 hereof to proceed with such action; and
 
(m)      in no event shall the Property Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective and regardless of whether the Property Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
 
SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
 
The recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Junior Subordinated Debentures.
 
SECTION 805. MAY HOLD SECURITIES.
 
Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 808 and 813 and except as provided in the definition of the term “Outstanding” in Article I, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent.
 
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SECTION 806. COMPENSATION; INDEMNIFICATION; FEES.
 
The Depositor agrees:
 
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(a)     to pay to the Trustees from time to time reasonable compensation for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
 
(b)     except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to such Trustee’s gross negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such expense, disbursement or advance as may be attributable to its, his or her gross negligence, bad faith or willful misconduct); and
 
(c)     to indemnify each of the Trustees or any predecessor Trustee for, and to hold the Trustees harmless against, any loss, damage, claim, liability, penalty or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Trust Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder (including reasonable legal fees and expenses in connection with the enforcement of their indemnification rights hereunder), except any such cost or expense as may be attributable to such Trustee’s gross negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such cost or expense as may be attributable to its, his or her gross negligence, bad faith or willful misconduct).
 
No Trustee may claim any Lien on any Trust Property as a result of any amount due pursuant to this Section 806.
 
The Property Trustee may earn compensation in the form of short-term interest on items like uncashed distribution checks (from the date issued until the date cashed), funds that the Property Trustee is directed not to invest, deposits awaiting investment direction or received too late to be invested overnight in previously directed investments.
 
The Depositor's payment obligations pursuant to this Section shall survive the termination of this Trust Agreement, or the resignation or removal of the Property Trustee or Delaware Trustee or the termination for any reason of this Trust Agreement.  No Holder or Owner of Capital Securities, by reason of its ownership of Capital Securities, shall have any obligation to pay compensation to any Trustee, to reimburse any Trustee for expenses or disbursements or advancements or to indemnify any Trustee.
 
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SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES.
 
(a)     There shall at all times be a Property Trustee hereunder with respect to the Trust Securities. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
 
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(b)     There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity.
 
(c)     There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity.
 
SECTION 808. CONFLICTING INTERESTS.
 
If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement.
 
SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE.
 
Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor and the Administrative Trustees shall have power to appoint, and upon the written request of the Property Trustee, the Depositor and the Administrative Trustees shall for such purpose join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Property Trustee either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Depositor and the Administrative Trustees do not join in such appointment within 15 days after the receipt by them of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity.
 
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Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged, and delivered by the Depositor.
 
Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely:
 
(a)     The Trust Securities shall be executed and delivered and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee.
 
(b)     The rights, powers, duties and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall
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be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee.
 
(c)     The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section 809.
 
(d)     No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder.
 
(e)     The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee.
 
(f)     Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee.
 
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SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
 
No resignation or removal of any Trustee (the “Relevant Trustee”) and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 811.
 
Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time with respect to the Trust Securities by giving written notice thereof to the Property Trustee and the Depositor. If the instrument of acceptance by the successor Trustee required by Section 811 shall not have been delivered to the Relevant Trustee within 90 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Depositor, any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities.
 
Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securityholder. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Capital Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). An Administrative Trustee may be removed by the Common Securityholder at any time. In no event will the Holders of the Capital Securities have the right to vote to appoint, remove or replace the Administrative Trustees.
 
If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees with respect to the Trust Securities and the Trust, and the successor Trustee shall comply with the applicable requirements of Section 811. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the Property Trustee or
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the Delaware Trustee, as the case may be, at a time when a Debenture Event of Default shall have occurred and is continuing, the Capital Securityholders, by Act of the Securityholders of a majority in Liquidation Amount of the Capital Securities then Outstanding delivered to the retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees with respect to the Trust Securities and the Trust, and such successor Trustee shall comply with the applicable requirements of Section 811. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when a Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to an Administrative Trustee, shall promptly appoint a successor Administrative Trustee or Administrative Trustees with respect to the Trust Securities and the Trust, and such successor Administrative Trustee or Administrative Trustees shall comply with the applicable requirements of Section 811. If no successor Relevant Trustee with respect to the Trust Securities shall have been so appointed by the Common Securityholder or the Capital Securityholders and accepted appointment in the manner required by Section 811, any Securityholder who has been a Securityholder of Trust Securities on behalf of such Securityholder and all others similarly situated may petition a court of competent jurisdiction for the appointment Trustee with respect to the Trust Securities.
 
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The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 1008 and shall give notice to the Depositor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust office if it is the Property Trustee.
 
Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of remaining Administrative Trustees if there are at least two of them or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees set forth in Section 807).
 
SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
 
In case of the appointment hereunder of a successor Relevant Trustee with respect to the Trust Securities and the Trust, the retiring Relevant Trustee (if requested by the Depositor) and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an instrument hereto wherein each successor Relevant Trustee shall accept such appointment and which shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and upon the execution and delivery of such instrument the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust.
 
Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the immediately preceding paragraph, as the case may be.
 
No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article.
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SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
 
Any Person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee that is not a natural person may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided such Person shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto.
 
SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST.
 
If and when the Property Trustee or the Delaware Trustee shall be or become a creditor of the Depositor or the Trust (or any other obligor upon the Junior Subordinated Debentures or the Trust Securities), the Property Trustee or the Delaware Trustee, as the case may be, shall be subject to and shall take all actions necessary in order to comply with the provisions of the Trust Indenture Act regarding the collection of claims against the Depositor or Trust (or any such other obligor, if and to the extent required under Section 313(a) of the Trust Indenture Act).
 
SECTION 814. REPORTS BY PROPERTY TRUSTEE.
 
(a)     Not later than July 15 of each year commencing with July 15, 2019, the Property Trustee shall transmit to all Securityholders in accordance with Section 1008, and to the Depositor, a brief report dated as of the preceding December 31 with respect to:
 
(i)     its eligibility under Section 807 or, in lieu thereof, if to the best of its knowledge it has continued to be eligible under said Section, a written statement to such effect; and
 
(ii)     any change in the property and funds in its possession as Property Trustee since the date of its last report and any action taken by the Property Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Trust Securities.
 
(b)     In addition, the Property Trustee shall transmit to Securityholders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto.
 
(c)     A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with each national securities exchange or other organization upon which the Trust Securities may be listed, with the Commission and with the Depositor.
 
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SECTION 815. REPORTS TO THE PROPERTY TRUSTEE.
 
The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act.
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SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
 
Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with the conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers’ Certificate.
 
SECTION 817. NUMBER OF TRUSTEES.
 
(a)     The number of Trustees shall be five, provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same Person.
 
(b)     If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 817(a), or if the number of Trustees is increased pursuant to Section 817(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 810.
 
(c)     The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 810, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement.
 
SECTION 818. DELEGATION OF POWER.
 
(a)     Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 207(a); and
 
(b)     The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein.
 
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SECTION 819. VOTING.
 
Except as otherwise provided in this Trust Agreement, the consent or approval of the Administrative Trustees shall require consent or approval by not less than a majority of the Administrative Trustees, unless there are only two, in which case both must consent.
 
 
ARTICLE IX.
DISSOLUTION, TERMINATION, LIQUIDATION AND MERGER
 
SECTION 901. DISSOLUTION UPON EXPIRATION DATE.
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Unless earlier dissolved, the Trust shall automatically dissolve on June 7, 2049 (the “Expiration Date”).
 
SECTION 902. EARLY TERMINATION.
 
The first to occur of any of the following events is an “Early Termination Event,” the occurrence of which shall cause the Trust to dissolve:
 
(a)     the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Depositor;
 
(b)     delivery of written direction to the Property Trustee by the Depositor at any time (which direction is wholly optional and within the discretion of the Depositor) to dissolve the Trust and, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, distribute the Junior Subordinated Debentures to Securityholders in exchange for the Capital Securities in accordance with Section 904;
 
(c)     the redemption of all of the Capital Securities in connection with the redemption of all of the Junior Subordinated Debentures; and
 
(d)     an order for dissolution of the Trust shall have been entered by a court of competent jurisdiction.
 
SECTION 903. TERMINATION.
 
The respective obligations and responsibilities of the Trustees and the Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 904, or upon the redemption of all of the Trust Securities pursuant to Section 402, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders, and (d) the filing of a certificate of cancellation by the Administrative Trustees under the Delaware Statutory Trust Act.
 
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SECTION 904. LIQUIDATION.
 
(a)     Upon notification by any one or all of the Administrative Trustees of an Early Termination Event specified in clause (a), (b), or (d) of Section 902 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Junior Subordinated Debentures, subject to Section 904(d). Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not later than 30 nor more than 60 days prior to the Liquidation Date, as determined by any one or all of the Administrative Trustees to each Holder of Trust Securities at such Holder’s address appearing in the Securities Register. All notices of liquidation shall:
 
(i)     state the Liquidation Date;
 
(ii)     state that from and after the Liquidation Date, the Trust Securities will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Junior Subordinated Debentures; and
 
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(iii)     provide such information with respect to the mechanics by which Holders may exchange Trust Securities certificates for Junior Subordinated Debentures, or if Section 904(d) applies receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate.
 
(b)     Except where Section 902(c) or 904(d) applies, in order to effect the liquidation of the Trust and distribution of the Junior Subordinated Debentures to Securityholders, the Property Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Junior Subordinated Debentures in exchange for the Outstanding Trust Securities Certificates.
 
(c)     Except where Section 902(c) or 904(d) applies, after the Liquidation Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii) certificates (or, at the election of the Depositor a Global Subordinated Debenture, subject to the provisions of the Indenture) representing a Like Amount of Junior Subordinated Debentures will be issued to holders of Trust Securities Certificates upon surrender of such certificates to the Administrative Trustees or their agent for exchange, (iii) the Depositor shall use its reasonable efforts to have the Junior Subordinated Debentures listed on the Nasdaq National Market or on such other securities exchange or other organization as the Capital Securities may then be listed or traded, (iv) any Trust Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Junior Subordinated Debentures, accruing interest at the rate provided for in the Junior Subordinated Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to holders of Trust Securities Certificates with respect to such Junior Subordinated Debentures) and (v) all rights of Securityholders holding Trust Securities will cease, except the right of such Securityholders to receive Junior Subordinated Debentures upon surrender of Trust Securities Certificates.
 
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(d)     In the event that, notwithstanding the other provisions of this Section 904, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Junior Subordinated Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be wound-up by the Property Trustee at the written direction of the Administrative Trustees in such manner as the Administrative Trustees determine. In such event, Securityholders will be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the “Liquidation Distribution”). If, upon any such winding-up, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common Securities will be entitled to receive Liquidation Distributions upon any such winding-up pro rata (determined as aforesaid) with Holders of Capital Securities, except that, if a Debenture Event of Default has occurred and is continuing, the Capital Securities shall have a priority over the Common Securities.
 
SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST.
 
The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except pursuant Article IX. At the request of the Depositor, with the consent of the Administrative Trustees and without the consent of the holders of the Capital Securities, the Property Trustee or the Delaware Trustee, the Trust may merge with or into,
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consolidate, amalgamate, be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any state; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the Capital Securities or (b) substitutes for the Capital Securities other securities having substantially the same terms as the Capital Securities (the “Successor Securities”) so long as the Successor Securities rank the same as the Capital Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Depositor expressly appoints a trustee of such successor entity possessing substantially the same powers and duties as the Property Trustee as the holder of the Junior Subordinated Debentures, (iii) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Capital Securities (including any Successor Securities) in any material respect, (iv) such successor entity has a purpose substantially identical to that of the Trust, (v) the Successor Securities will be listed or traded on any national securities exchange or other organization on which the Capital Securities may then be listed, (vi) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel experienced in such matters to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Capital Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an “investment company” under the Investment Company Act and (vii) the Depositor owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the Capital Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it, if such consolidation, amalgamation, merger or replacement would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes.
 
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ARTICLE X.
MISCELLANEOUS PROVISIONS
 
SECTION 1001. LIMITATION OF RIGHTS OF SECURITY HOLDERS.
 
The death, bankruptcy, termination, dissolution or incapacity of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor dissolve, terminate or annul the Trust, nor entitle the legal representatives or heirs of such Person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding-up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them.
 
SECTION 1002. AMENDMENT.
 
(a)     This Trust Agreement may be amended from time to time by the Administrative Trustees and the Depositor, without the consent of any Securityholders, (i) as provided in Section 811 with respect to acceptance of appointment by a successor Trustee, (ii) to cure any ambiguity, correct or supplement any provision herein or therein which may be inconsistent with any other provision herein or therein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, that shall not be inconsistent with the other provisions of this Trust Agreement, or (iii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are Outstanding or to ensure that the Trust will not be required to register as an “investment company” under the Investment Company Act; provided, however, that in the case of
4821-9020-5592, v. 11


clause (ii), such action shall not adversely affect in any material respect the interests of any Securityholder, and any such amendments of this Trust Agreement shall become effective when notice thereof is given to the Securityholders.
 
49
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(b)     Except as provided in Section 601(c) or Section 1002(c) hereof, any provision of this Trust Agreement may be amended by the Administrative Trustees and the Depositor (i) with the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding and (ii) upon receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect the Trust’s status as a grantor trust for United States federal income tax purposes or the Trust’s exemption from status of an “investment company” under the Investment Company Act.
 
(c)     In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder, this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date; notwithstanding any other provision herein, without the unanimous consent of the Securityholders, this paragraph (c) of this Section 1002 may not be amended.
 
(d)     Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an “investment company” under the Investment Company Act or to fail or cease to be classified as a grantor trust for United States federal income tax purposes.
 
(e)     Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor.
 
(f)     In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment.
 
(g)     No amendment of this Trust Agreement that affects the Property Trustee’s or the Delaware Trustee’s own rights, duties or immunities under this Trust Agreement shall be effective without obtaining the prior written consent of the Property Trustee or the Delaware Trustee, as the case maybe. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers’ Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement and all conditions precedent to the execution of such amendment have been met.
 
SECTION 1003. SEPARABILITY.
 
In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
 
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SECTION 1004. GOVERNING LAW.
 
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITY HOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES).
 
SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY.
 
If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day which is a Business Day (except as otherwise provided in Sections 401(a) and 402(d)), with the same force and effect as though made on the date fixed for such payment, and no distribution shall accumulate thereon for the period after such date.
 
SECTION 1006. SUCCESSORS.
 
This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Trust or the Relevant Trustee(s), including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article Twelve of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor’s obligations hereunder, the Depositor shall not assign its obligations hereunder.
 
SECTION 1007. HEADINGS.
 
The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement.
 
SECTION 1008. REPORTS, NOTICES AND DEMANDS.
 
Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Securityholder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or electronic transmission, in each case, addressed, (a) in the case of a Capital Securityholder, to such Capital Securityholder as such Securityholder’s name and address may appear on the Securities Register; and (b) in the case of the Common Securityholder or the Depositor, to Air T, Inc., 5930 Balsom Ridge Road, Denver, North Carolina, 28037.Any notice to Capital Securityholders shall also be given to such owners as have, within two years preceding the giving of such notice, filed their names and addresses with the Property Trustee for that purpose. Such notice, demand or other communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission.
 
Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (a) with respect to the Property Trustee, at its Corporate Trust Office; (b) with respect to the Delaware Trustee, Delaware Trust Company, 251 Little Falls Drive, Wilmington, Delaware 19808, Attn: Corporate Trust; and (c) with respect to the Administrative Trustees, to them at the address above for notices to the Depositor, marked “Attention: Administrative Trustees of Air T Funding.” Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee.
 
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SECTION 1009. AGREEMENT NOT TO PETITION.
 
Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and one day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States Bankruptcy Code) (collectively, “Bankruptcy Laws”) or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 1009, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor (which expense shall be paid prior to the filing), it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor against the Trust or the commencement of such action and raise the defense that the Depositor has agreed in writing not to take such action and should be stopped and precluded therefrom. The provisions of this Section 1009 shall survive the termination of this Trust Agreement.
 
SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT.
 
(a)     This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions.
 
(b)     The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act.
 
(c)     If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or to be excluded, as the case may be.
 
(d)     The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust.
 
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SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE.
 
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.
 
[Signature Page Follows]

4821-9020-5592, v. 11


[Signature Page to Second Amended and Restated Trust Agreement]


Pursuant to the authority set forth in Section 1002(a)(ii) of the Amended Trust Agreement, the Depositor and the Administrative Trustees hereby execute this Second Amended and Restated Trust Agreement as of this 26th day of May, 2021.


 
AIR T, INC.,
as Depositor
 
       
  By:    
  Name:    
  Title:    
 
       
       
 

 
   
 
 
 
Mark Jundt, As Administrative Trustee

 
     
     
     
 
 
 
  Brian Ochocki, As Administrative Trustee  
 

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EXHIBITS

Exhibits A, B, C and D to the Amended and Restated Trust Agreement are incorporated herein by reference.





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JOINDER TO SECURITY AGREEMENT
This JOINDER TO SECURITY AGREEMENT ("Joinder Agreement"), dated as of June 23, 2021 is made by AIR’ZONA AIRCRAFT SERVICES, INC., an Arizona corporation, with its chief executive office at 7100 Flightline Drive  Kingman AZ  86401 (the "Joining Grantor"), and delivered to MINNESOTA BANK & TRUST, a Minnesota state banking corporation (the “Lender”), under that certain Amended and Restated Security Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Agreement"; capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement), dated as of March 28, 2019, executed by certain Subsidiaries of AIR T, INC., a Delaware corporation (the “Borrower”), in favor of the Lender.
WHEREAS, the Joining Grantor is a Subsidiary of the Borrower and required by the terms of the Loan Agreement to become a Guarantor (as defined in the Loan Agreement) and be joined as a party to the Security Agreement as a Grantor; and
WHEREAS, this Joinder Agreement supplements the Security Agreement and is delivered by the Joining Grantor pursuant to Section 6.10(a)(vi) of that certain Second Amended and Restated Credit Agreement dated as of June 26, 2020, by and between the Borrower and the Lender (the “Credit Agreement”; capitalized terms not otherwise defined herein being used herein as therein defined); and
WHEREAS, the Joining Grantor will materially benefit directly and indirectly from the Loans made available and to be made available to the Borrower by the Lender under the Loan Agreement; and
NOW THEREFORE, the Joining Grantor hereby agrees as follows with the Lender:
1.Joinder. The Joining Grantor hereby irrevocably, absolutely and unconditionally becomes a party to the Security Agreement as a Grantor and agrees to be bound by all the terms, conditions, covenants, obligations, liabilities and undertakings of each Grantor or to which each Grantor is subject thereunder, all with the same force and effect as if the Joining Grantor were a signatory to the Security Agreement. Without limiting the generality of the foregoing, the Joining Grantor hereby pledges and grants to the Lender, as collateral security for the payment and performance in full of all the Secured Obligations, a first priority Lien on and security interest in and to all of its right, title and interest in, to and under the Collateral owned by it, wherever located, and whether now existing or hereafter arising or acquired from time to time and expressly assumes all obligations and liabilities of a Grantor thereunder.
2.Affirmations. The Joining Grantor hereby makes each of the representations and warranties and agrees to each of the covenants applicable to the Grantors contained in the Security Agreement. The Joining Grantor also represents and warrants to the Lender that




(a) it has the limited liability company power and authority, and the legal right, to make, deliver and perform this Joinder Agreement and has taken all necessary limited liability company action to authorize the execution, delivery and performance of this Joinder Agreement, (b) no consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person that has not been obtained, made or completed is required in connection with the execution, delivery and performance, validity or enforceability of this Joinder Agreement, (c) this Joinder Agreement has been duly executed and delivered on behalf of the Joining Grantor and (d) this Joinder Agreement constitutes a legal, valid and binding obligation of the Joining Grantor enforceable against such Joining Grantor in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.
3.Supplemental Schedules. Attached to this Joinder Agreement are duly completed schedules (the "Supplemental Schedules") supplementing the respective Schedules to the Security Agreement. The Joining Grantor represents and warrants that the information contained on each of the Supplemental Schedules with respect to such Joining Grantor and its properties is true, complete and accurate as of the date hereof. Such Supplemental Schedules shall be deemed to be part of the Security Agreement.
4.Severability. The provisions of this Joinder Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision hereof, but this Joinder Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein.
5.Counterparts. This Joinder Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Joinder Agreement by facsimile or in electronic (i.e., "pdf" or "tif") format shall be effective as delivery of a manually executed counterpart of this Joinder Agreement.
6.Delivery. The Joining Grantor hereby irrevocably waives notice of acceptance of this Joinder Agreement and acknowledges that the Secured Obligations are incurred, and credit extensions under the Loan Agreement and the other Loan Documents made and maintained, in reliance on this Joinder Agreement and the Joining Grantor's joinder as a party to the Security Agreement as herein provided.
7.Governing Law; Venue; Waiver of Jury Trial. This Joinder Agreement and the other Loan Documents and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Joinder
2



Agreement or any other Loan Document (except, as to any other Loan Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by and construed in accordance with the laws of the State of Minnesota. The provisions of Sections 16 and 17 of the Security Agreement are hereby incorporated by reference as if fully set forth herein.



[SIGNATURE PAGE FOLLOWS]
3





IN WITNESS WHEREOF, the parties hereto have caused this Joinder Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
Air’zona Aircraft Services, Inc., an Arizona corporation
By:    /s/ Mark Harris        
Name:     Mark Harris
Its:     President

AGREED TO AND ACCEPTED:

Minnesota Bank & Trust, a Minnesota state banking corporation
By: /s/ Dianne Wegscheid    
Name: Dianne Wegscheid
Title: Senior Vice President




SCHEDULE A

Commercial Tort Claims in Excess of $50,000


None.




EXHIBIT A

[FORM OF]

IRREVOCABLE STOCK POWER


    FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to __________________ the following Equity Interests of _____________________________________, a ___________ _________________:
    
            No. of Shares                Certificate No.



and irrevocably appoints __________________________________ its agent and attorney-in-fact to transfer all or any part of such Equity Interests and to take all necessary and appropriate action to effect any such transfer. The agent and attorney-in-fact may substitute and appoint one or more persons to act for him.

AIR’ZONA AIRCRAFT SERVICES, INC.

By:                    
Name:                    
Title:                    



EXHIBIT B

[FORM OF]

NOTICE
OF
GRANT OF SECURITY INTEREST
IN
COPYRIGHTS

United States Copyright Office
Ladies and Gentlemen:

    Please be advised that pursuant to the Amended and Restated Security Agreement dated as of March 28, 2019 (as amended, modified, extended, restated, renewed, replaced, or supplemented from time to time, the “Agreement”) by and among the Grantors party thereto (each a “Grantor” and collectively, the “Grantors”) and MINNESOTA BANK & TRUST, as Secured Party (the “Secured Party”), the undersigned Grantor has granted a continuing security interest in and continuing lien upon the copyrights and copyright applications shown on Schedule 1 attached hereto to the Secured Party for the ratable benefit of the Secured Parties.

The undersigned Grantor and the Secured Party, hereby acknowledge and agree that the security interest in the foregoing copyrights and copyright applications (a) may only be terminated in accordance with the terms of the Agreement and (b) is not to be construed as an assignment of any copyright or copyright application.

[signature page follows]






                        Very truly yours,

                        AIR’ZONA AIRCRAFT SERVICES, INC.

                        By:                    
                        Name:                    
                        Title:                    


Acknowledged and Accepted:

MINNESOTA BANK & TRUST,
as Secured Party

By:                    
Name:                    
Title:                    



EXHIBIT C

[FORM OF]

NOTICE
OF
GRANT OF SECURITY INTEREST
IN
PATENTS


United States Patent and Trademark Office
Ladies and Gentlemen:

    Please be advised that pursuant to the Amended and Restated Security Agreement dated as of March 28, 2019 (as amended, modified, extended, restated, renewed, replaced, or supplemented from time to time, the “Agreement”) by and among the Grantors party thereto (each a “Grantor” and collectively, the “Grantors”) and MINNESOTA BANK & TRUST, as Secured Party (the “Secured Party”), the undersigned Grantor has granted a continuing security interest in and continuing lien upon the patents and patent applications shown on Schedule 1 attached hereto to the Secured Party for the ratable benefit of the Secured Parties.

    The undersigned Grantor and the Secured Party, hereby acknowledge and agree that the security interest in the foregoing patents and patent applications (a) may only be terminated in accordance with the terms of the Agreement and (b) is not to be construed as an assignment of any patent or patent application.

[signature page follows]






                        Very truly yours,

                        AIR’ZONA AIRCRAFT SERVICES, INC.

                        By:                    
                        Name:                    
                        Title:                    

Acknowledged and Accepted:

MINNESOTA BANK & TRUST,
as Secured Party

By:                    
Name:                    
Title:                    



EXHIBIT D

[FORM OF]
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
TRADEMARKS

United States Patent and Trademark Office
Ladies and Gentlemen:

    Please be advised that pursuant to the Amended and Restated Security Agreement dated as of March 28, 2019 (as amended, modified, extended, restated, renewed, replaced, or supplemented from time to time, the “Agreement”) by and among the Grantors party thereto (each a “Grantor” and collectively, the “Grantors”) and MINNESOTA BANK & TRUST, as Secured Party (the “Secured Party”), the undersigned Grantor has granted a continuing security interest in and continuing lien upon the trademarks and trademark applications shown on Schedule 1 attached hereto to the Secured Party for the benefit of the Secured Party.

The undersigned Grantor and the Secured Party, hereby acknowledge and agree that the security interest in the foregoing trademarks and trademark applications (a) may only be terminated in accordance with the terms of the Agreement and (b) is not to be construed as an assignment of any trademark or trademark application.


[signature page follows]






                        Very truly yours,

AIR’ZONA AIRCRAFT SERVICES, INC., an Arizona corporation

                        By:                    
                        Name:                    
                        Title:                    

Acknowledged and Accepted:

MINNESOTA BANK & TRUST,
as Secured Party

By:                    
Name:                    
Title:                    



JOINDER TO GUARANTY

Dated to be effective as of: June 23, 2021

The undersigned, AIR’ZONA AIRCRAFT SERVICES, INC., an Arizona corporation (the “Additional Guarantor”), hereby joins in the Amended and Restated Guaranty dated as of March 28, 2019 (such Guaranty as amended to date and as it may be further amended, modified, supplemented or restated from time to time being the “Guaranty”) made by certain “Subsidiary” signatories thereto (collectively the “Other Guarantors”) in favor of MINNESOTA BANK & TRUST, a Minnesota state banking corporation (the “Bank”), pursuant to which such Other Guarantors jointly and severally guaranty the payment and performance of all “Obligations” of AIR T, INC., a Delaware corporation (the “Borrower”), to the Bank, which Obligations include, without limitation, all “Obligations” under that certain Second Amended and Restated Credit Agreement, dated as of June 26, 2020, by and between the Borrower and the Bank (such Second Amended and Restated Credit Agreement, as it may be amended, modified, supplemented or restated from time to time being the “Credit Agreement;” capitalized terms not otherwise defined herein being used herein as therein defined), and as a result of such joinder, the undersigned Additional Guarantor, together with the Other Guarantors, jointly and severally guaranties the payment and performance of such Obligations in accordance with the terms of the Guaranty.

Without limiting the generality of the foregoing, the undersigned Additional Guarantor agrees with the Bank that, as long as any portion of the Obligations shall be outstanding, it shall perform and observe the affirmative and negative covenants respectively set forth in Articles 6 and 7 of the Credit Agreement that apply to the undersigned as a Subsidiary of the Borrower or as a Loan Party and that such covenants are incorporated herein by reference as though fully set forth herein.

The undersigned Additional Guarantor represents and warrants to the Bank that each of the representations and warranties in the Credit Agreement applicable to it as a Subsidiary of the Borrower or as a Loan Party or words of like import referring to such undersigned are true and correct as of the date hereof.


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
084126\039\5860599.v1


IN WITNESS WHEREOF, the undersigned has caused this Joinder to Guaranty to be duly executed as of the date first set forth above.



AIR’ZONA AIRCRAFT SERVICES, INC., an Arizona corporation
By:    /s/ Mark Harris        
Name:     Mark Harris
Its:     President                





AGREED TO AND ACCEPTED:

Minnesota Bank & Trust, a Minnesota state banking corporation
By: /s/ Dianne Wegscheid    
Name: Dianne Wegscheid
Title: Senior Vice President



JOINDER TO SECURITY AGREEMENT
This JOINDER TO SECURITY AGREEMENT ("Joinder Agreement"), dated as of June 23, 2021 is made by JET YARD SOLUTIONS, LLC, an Arizona limited liability company, with its chief executive office at 25233 E Pinal Airpark Road, #101, Marana, AZ, 85653 (the "Joining Grantor"), and delivered to MINNESOTA BANK & TRUST, a Minnesota state banking corporation (the “Lender”), under that certain Amended and Restated Security Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Agreement"; capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement), dated as of March 28, 2019, executed by certain Subsidiaries of AIR T, INC., a Delaware corporation (the “Borrower”), in favor of the Lender.
WHEREAS, the Joining Grantor is a Subsidiary of the Borrower and required by the terms of the Loan Agreement to become a Guarantor (as defined in the Loan Agreement) and be joined as a party to the Security Agreement as a Grantor; and
WHEREAS, this Joinder Agreement supplements the Security Agreement and is delivered by the Joining Grantor pursuant to Section 6.10(a)(vi) of that certain Second Amended and Restated Credit Agreement dated as of June 26, 2020, by and between the Borrower and the Lender (the “Credit Agreement”; capitalized terms not otherwise defined herein being used herein as therein defined); and
WHEREAS, the Joining Grantor will materially benefit directly and indirectly from the Loans made available and to be made available to the Borrower by the Lender under the Loan Agreement; and
NOW THEREFORE, the Joining Grantor hereby agrees as follows with the Lender:
1.Joinder. The Joining Grantor hereby irrevocably, absolutely and unconditionally becomes a party to the Security Agreement as a Grantor and agrees to be bound by all the terms, conditions, covenants, obligations, liabilities and undertakings of each Grantor or to which each Grantor is subject thereunder, all with the same force and effect as if the Joining Grantor were a signatory to the Security Agreement. Without limiting the generality of the foregoing, the Joining Grantor hereby pledges and grants to the Lender, as collateral security for the payment and performance in full of all the Secured Obligations, a first priority Lien on and security interest in and to all of its right, title and interest in, to and under the Collateral owned by it, wherever located, and whether now existing or hereafter arising or acquired from time to time and expressly assumes all obligations and liabilities of a Grantor thereunder.




2.Affirmations. The Joining Grantor hereby makes each of the representations and warranties and agrees to each of the covenants applicable to the Grantors contained in the Security Agreement. The Joining Grantor also represents and warrants to the Lender that (a) it has the limited liability company power and authority, and the legal right, to make, deliver and perform this Joinder Agreement and has taken all necessary limited liability company action to authorize the execution, delivery and performance of this Joinder Agreement, (b) no consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person that has not been obtained, made or completed is required in connection with the execution, delivery and performance, validity or enforceability of this Joinder Agreement, (c) this Joinder Agreement has been duly executed and delivered on behalf of the Joining Grantor and (d) this Joinder Agreement constitutes a legal, valid and binding obligation of the Joining Grantor enforceable against such Joining Grantor in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.
3.Supplemental Schedules. Attached to this Joinder Agreement are duly completed schedules (the "Supplemental Schedules") supplementing the respective Schedules to the Security Agreement. The Joining Grantor represents and warrants that the information contained on each of the Supplemental Schedules with respect to such Joining Grantor and its properties is true, complete and accurate as of the date hereof. Such Supplemental Schedules shall be deemed to be part of the Security Agreement.
4.Severability. The provisions of this Joinder Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision hereof, but this Joinder Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein.
5.Counterparts. This Joinder Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Joinder Agreement by facsimile or in electronic (i.e., "pdf" or "tif") format shall be effective as delivery of a manually executed counterpart of this Joinder Agreement.
6.Delivery. The Joining Grantor hereby irrevocably waives notice of acceptance of this Joinder Agreement and acknowledges that the Secured Obligations are incurred, and credit extensions under the Loan Agreement and the other Loan Documents made and maintained, in reliance on this Joinder Agreement and the Joining Grantor's joinder as a party to the Security Agreement as herein provided.
2



7.Governing Law; Venue; Waiver of Jury Trial. This Joinder Agreement and the other Loan Documents and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Joinder Agreement or any other Loan Document (except, as to any other Loan Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by and construed in accordance with the laws of the State of Minnesota. The provisions of Sections 16 and 17 of the Security Agreement are hereby incorporated by reference as if fully set forth herein.



[SIGNATURE PAGE FOLLOWS]
3





IN WITNESS WHEREOF, the parties hereto have caused this Joinder Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
Jet Yard Solutions, LLC, an Arizona limited liability company
By:    /s/ Dave Bixler        
Name:     Dave Bixler
Its:     President                

AGREED TO AND ACCEPTED:

Minnesota Bank & Trust, a Minnesota state banking corporation
By: /s/ Dianne Wegscheid    
Name: Dianne Wegscheid
Title: Senior Vice President




SCHEDULE A

Commercial Tort Claims in Excess of $50,000


None.




EXHIBIT A

[FORM OF]

IRREVOCABLE STOCK POWER


    FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to __________________ the following Equity Interests of _____________________________________, a ___________ _________________:
    
            No. of Shares                Certificate No.



and irrevocably appoints __________________________________ its agent and attorney-in-fact to transfer all or any part of such Equity Interests and to take all necessary and appropriate action to effect any such transfer. The agent and attorney-in-fact may substitute and appoint one or more persons to act for him.

JET YARD SOLUTIONS, LLC

By:                    
Name:                    
Title:                    



EXHIBIT B

[FORM OF]

NOTICE
OF
GRANT OF SECURITY INTEREST
IN
COPYRIGHTS

United States Copyright Office
Ladies and Gentlemen:

    Please be advised that pursuant to the Amended and Restated Security Agreement dated as of March 28, 2019 (as amended, modified, extended, restated, renewed, replaced, or supplemented from time to time, the “Agreement”) by and among the Grantors party thereto (each a “Grantor” and collectively, the “Grantors”) and MINNESOTA BANK & TRUST, as Secured Party (the “Secured Party”), the undersigned Grantor has granted a continuing security interest in and continuing lien upon the copyrights and copyright applications shown on Schedule 1 attached hereto to the Secured Party for the ratable benefit of the Secured Parties.

The undersigned Grantor and the Secured Party, hereby acknowledge and agree that the security interest in the foregoing copyrights and copyright applications (a) may only be terminated in accordance with the terms of the Agreement and (b) is not to be construed as an assignment of any copyright or copyright application.

[signature page follows]






                        Very truly yours,

                        JET YARD SOLUTIONS, LLC

                        By:                    
                        Name:                    
                        Title:                    


Acknowledged and Accepted:

MINNESOTA BANK & TRUST,
as Secured Party

By:                    
Name:                    
Title:                    



EXHIBIT C

[FORM OF]

NOTICE
OF
GRANT OF SECURITY INTEREST
IN
PATENTS


United States Patent and Trademark Office
Ladies and Gentlemen:

    Please be advised that pursuant to the Amended and Restated Security Agreement dated as of March 28, 2019 (as amended, modified, extended, restated, renewed, replaced, or supplemented from time to time, the “Agreement”) by and among the Grantors party thereto (each a “Grantor” and collectively, the “Grantors”) and MINNESOTA BANK & TRUST, as Secured Party (the “Secured Party”), the undersigned Grantor has granted a continuing security interest in and continuing lien upon the patents and patent applications shown on Schedule 1 attached hereto to the Secured Party for the ratable benefit of the Secured Parties.

    The undersigned Grantor and the Secured Party, hereby acknowledge and agree that the security interest in the foregoing patents and patent applications (a) may only be terminated in accordance with the terms of the Agreement and (b) is not to be construed as an assignment of any patent or patent application.

[signature page follows]






                        Very truly yours,

                        JET YARD SOLUTIONS, LLC

                        By:                    
                        Name:                    
                        Title:                    

Acknowledged and Accepted:

MINNESOTA BANK & TRUST,
as Secured Party

By:                    
Name:                    
Title:                    



EXHIBIT D

[FORM OF]
NOTICE
OF
GRANT OF SECURITY INTEREST
IN
TRADEMARKS

United States Patent and Trademark Office
Ladies and Gentlemen:

    Please be advised that pursuant to the Amended and Restated Security Agreement dated as of March 28, 2019 (as amended, modified, extended, restated, renewed, replaced, or supplemented from time to time, the “Agreement”) by and among the Grantors party thereto (each a “Grantor” and collectively, the “Grantors”) and MINNESOTA BANK & TRUST, as Secured Party (the “Secured Party”), the undersigned Grantor has granted a continuing security interest in and continuing lien upon the trademarks and trademark applications shown on Schedule 1 attached hereto to the Secured Party for the benefit of the Secured Party.

The undersigned Grantor and the Secured Party, hereby acknowledge and agree that the security interest in the foregoing trademarks and trademark applications (a) may only be terminated in accordance with the terms of the Agreement and (b) is not to be construed as an assignment of any trademark or trademark application.


[signature page follows]






                        Very truly yours,

JET YARD SOLUTIONS, LLC, an Arizona limited liability company

                        By:                    
                        Name:                    
                        Title:                    

Acknowledged and Accepted:

MINNESOTA BANK & TRUST,
as Secured Party

By:                    
Name:                    
Title:                    



JOINDER TO GUARANTY

Dated to be effective as of: June 23, 2021

The undersigned, JET YARD SOLUTIONS, LLC, an Arizona limited liability company (the “Additional Guarantor”), hereby joins in the Amended and Restated Guaranty dated as of March 28, 2019 (such Guaranty as amended to date and as it may be further amended, modified, supplemented or restated from time to time being the “Guaranty”) made by certain “Subsidiary” signatories thereto (collectively the “Other Guarantors”) in favor of MINNESOTA BANK & TRUST, a Minnesota state banking corporation (the “Bank”), pursuant to which such Other Guarantors jointly and severally guaranty the payment and performance of all “Obligations” of AIR T, INC., a Delaware corporation (the “Borrower”), to the Bank, which Obligations include, without limitation, all “Obligations” under that certain Second Amended and Restated Credit Agreement, dated as of June 26, 2020, by and between the Borrower and the Bank (such Second Amended and Restated Credit Agreement, as it may be amended, modified, supplemented or restated from time to time being the “Credit Agreement;” capitalized terms not otherwise defined herein being used herein as therein defined), and as a result of such joinder, the undersigned Additional Guarantor, together with the Other Guarantors, jointly and severally guaranties the payment and performance of such Obligations in accordance with the terms of the Guaranty.

Without limiting the generality of the foregoing, the undersigned Additional Guarantor agrees with the Bank that, as long as any portion of the Obligations shall be outstanding, it shall perform and observe the affirmative and negative covenants respectively set forth in Articles 6 and 7 of the Credit Agreement that apply to the undersigned as a Subsidiary of the Borrower or as a Loan Party and that such covenants are incorporated herein by reference as though fully set forth herein.

The undersigned Additional Guarantor represents and warrants to the Bank that each of the representations and warranties in the Credit Agreement applicable to it as a Subsidiary of the Borrower or as a Loan Party or words of like import referring to such undersigned are true and correct as of the date hereof.


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084126\039\5722308.v1


IN WITNESS WHEREOF, the undersigned has caused this Joinder to Guaranty to be duly executed as of the date first set forth above.



JET YARD SOLUTIONS, LLC, an Arizona limited liability company
By:    /s/ Dave Bixler        
Name:     Dave Bixler
Its:     President





AGREED TO AND ACCEPTED:

Minnesota Bank & Trust, a Minnesota state banking corporation
By: /s/ Dianne Wegscheid    
Name: Dianne Wegscheid
Title: Senior Vice President



EXHIBIT 21.1
AIR T, INC.

LIST OF SUBSIDIARIES AND CONSOLIDATED VARIABLE INTEREST ENTITIES
 
 
Percent
Ownership
Air T Global Leasing, LLC, a North Carolina limited liability company   100%
CSA Air, Inc., a North Carolina corporation   100%
Global Ground Support, LLC, a North Carolina limited liability company   100%
Mountain Air Cargo, Inc., a North Carolina corporation   100%
Space Age Insurance Company, a Utah corporation   100%
Stratus Aero Partners LLC, a Delaware limited liability company   100%
Jet Yard, LLC, an Arizona limited liability company   100%
Jet Yard Solutions, LLC, an Arizona limited liability company 100%
AirCo, LLC, a North Carolina limited liability company   100%
AirCo 1, LLC, a Delaware limited liability company   100%
AirCo Services, LLC, a North Carolina limited liability company   100%
Contrail Aviation Support, LLC, a North Carolina limited liability company   79%
Contrail Aviation Leasing, LLC, a Wisconsin limited liability company   100%
BCCM Inc, a Delaware Corporation   100%
BCCM Advisors, LLC, a Delaware limited liability company   100%
BCCM Services, LLC, a Delaware limited liability company   100%
Graphoptix, LLC, a Minnesota limited liability company   100%
Delphax Solutions, Inc., an Ontario Corporation   100%
Delphax Technologies Inc., a Minnesota Corporation   67%*
Delphax Technologies S.A.S., a France joint stock company     **
Worthington Aviation, LLC, a North Carolina limited liability company   100%
Ambry Hills Technologies, LLC, a Minnesota limited liability company   100%
Air'Zona Acquisition, LLC, an Arizona limited liability company 100%
Air'Zona Aircraft Services, Inc., an Arizona Corporation 100%
Air T Ag Lending, LLC, a Minnesota limited liability company 100%
Farmland Credit FR, LLC, a Minnesota limited liability company 100%
Farmland Credit AV, LLC, a Minnesota limited liability company 100%
 
* 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.
** Wholly owned subsidiary of Delphax Technologies Inc.

19373247v2




CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We 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 25, 2021, relating to the financial statements of Air T, Inc. appearing in this Annual Report on Form 10-K for the year ended March 31, 2021.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota  
June 25, 2021  





Exhibit 31.1
SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I.Nick Swenson, certify that:
1.I have reviewed this annual report on Form 10-K of Air T, Inc.;
2.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;
3.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;
4.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 25, 2021
/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.I have reviewed this annual report on Form 10-K of Air T, Inc.;
2.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;
3.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;
4.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 25, 2021
/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, 2021 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 25, 2021
/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, 2021 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 25, 2021
/s/ Brian Ochocki
Brian Ochocki, Chief Financial Officer