Air Transport Services Group, Inc. (Form: 10-K, Received: 03/04/2013 17:20:42)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

Commission file number 000-50368

________________________________________________________________

(Exact name of registrant as specified in its charter)

________________________________________________________________



Delaware		26-1631624
(State of Incorporation)		(I.R.S. Employer Identification No.)

145 Hunter Drive, Wilmington, OH 45177

(Address of principal executive offices)

937-382-5591

(Registrant’s telephone number, including area code)

________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, Par Value $.01 per share

Preferred Stock Purchase Rights

(Title of class)

Name of each exchange on which registered: NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

________________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o		Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter: $275,383,113 . As of March 4, 2013 , 64,130,056 shares of the registrant’s common stock, par value $0.01, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders scheduled to be held May 10, 2013 are incorporated by reference into Part III.

FORWARD LOOKING STATEMENTS

Statements contained in this annual report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Item 7, that are not historical facts are considered forward-looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995). Words such as “projects,” “believes,” “anticipates,” “will,” “estimates,” “plans,” “expects,” “intends” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are based on expectations, estimates and projections as of the date of this filing, and involve risks and uncertainties that are inherently difficult to predict. Actual results may differ materially from those expressed in the forward-looking statements for any number of reasons, including those described in “Risk Factors” starting on page 10 and in “Results of Operations” starting on page 22.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

2012 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS




		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	Mine Safety Disclosures	17

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Consolidated Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 8.	Financial Statements and Supplementary Data	42
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	74
Item 9A.	Controls and Procedures	74
Item 9B.	Other Information	76

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	76
Item 11.	Executive Compensation	77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	77
Item 13.	Certain Relationships and Related Transactions, and Director Independence	77
Item 14.	Principal Accounting Fees and Services	77

PART IV
Item 15.	Exhibits and Financial Statement Schedules	77
SIGNATURES		83

Table of Contents

PART I

ITEM 1. BUSINESS

General Development of Business

Air Transport Services Group, Inc. (“ATSG”), provides airline operations, aircraft leases, aircraft maintenance and other support services primarily to the cargo transportation and package delivery industries. Through the Company's subsidiaries, we offer a range of complementary services to delivery companies, freight forwarders, airlines and government customers. (When the context requires, we may use the terms “Company” and “ATSG” in this report to refer to the business of ATSG and its subsidiaries on a consolidated basis.) Our services are summarized below:

Aircraft leasing : The Company's aircraft leasing subsidiary, Cargo Aircraft Management, Inc. (“CAM”), services global demand for medium range and medium capacity airlift by offering Boeing 767 and 757 aircraft leases. CAM is able to provide competitive lease rates by monitoring the related passenger aircraft sale markets, acquiring passenger aircraft based on projected into-service costs and rate of return targets, then managing the modification of passenger aircraft into freighters. As the result, the converted freighters can be deployed into regional markets more economically than larger capacity aircraft or competing alternatives. CAM leases cargo aircraft internally to ATSG airlines, and to external customers, typically under multi-year agreements.

ACMI Services : The Company's airlines provide Boeing 767 and Boeing 757 freighter aircraft and McDonnell Douglas DC-8 "combi" aircraft (which are capable of carrying passengers and cargo containers on the main flight deck), typically under contracts supplying a combination of aircraft, crews and maintenance services for customers. Our airlines are ABX Air, Inc. (“ABX”), Air Transport International, Inc. (“ATI”), and Capital Cargo International Airlines, Inc. (“CCIA”), each independently certificated by the U.S. Department of Transportation.

Support services: We offer a range of complementary solutions to shippers, freight forwarders and other airlines that provides us with a competitive advantage for growth and diversification. Customers who lease our aircraft typically need related services, such as scheduled aircraft maintenance, line maintenance and crew training which our subsidiaries can provide. Our businesses and subsidiaries providing support services are summarized below.


•	ABX provides flight crew training, flight simulator rental and aircraft maintenance services;


•	Airborne Maintenance and Engineering Services, Inc. (“AMES”), an aircraft maintenance, repair and overhaul business;


•	AMES Material Services, Inc. ("AMS"), reseller and broker of aircraft parts;


•	LGSTX Services, Inc. (“LGSTX”), provides facility maintenance and ground equipment rentals for aircraft support;


•	LGSTX Distribution Services, Inc. ("LDS"), operates mail sorting centers for the U.S Postal Service ("USPS");


•	Global Flight Source ("GFS"), provides aircraft dispatch and flight tracking services.

Customer revenues for 2012 are summarized as follows (in thousands):



	ACMI Services	Aircraft leasing	Support services

External revenue (in thousands)	$477,722	$74,599	$55,117
Subsidiaries	ABX, ATI, CCIA	CAM	ABX, AMES, AMS, GFS, LDS, LGSTX
Subsidiaries	ABX, ATI, CCIA	CAM	ABX, AMES, AMS, GFS, LDS, LGSTX

Airborne Global Solutions, Inc. ("AGS") is a subsidiary that assists our businesses in achieving their sales and marketing plans. AGS provides sales leads to our subsidiaries by identifying customers' business and operational requirements and leveraging the capabilities of our subsidiaries and other third party service providers to develop a customized air cargo solution that meets their customers' needs.

ATSG is incorporated in Delaware and its headquarters is in Wilmington, Ohio. The Company's common shares are publicly traded on the NASDAQ Stock Market under the symbol ATSG. ATSG was formed on December 31, 2007, from the reorganization of ABX for the purpose of creating a holding company structure. Between 1980 and August 2003, ABX was an affiliate of Airborne, Inc. (“Airborne”), a publicly traded, integrated delivery service provider. On August 15, 2003, ABX was separated from Airborne and became an independent publicly traded company, in conjunction with the acquisition of Airborne by an indirect wholly-owned subsidiary of DHL Worldwide Express, B.V. ATSG acquired CAM, ATI and CCIA on December 31, 2007. ATI, based in Little Rock, Arkansas, began operations in 1979 and was an affiliate of BAX Global, Inc. (“BAX/Schenker”) prior to 2006. ATI operates McDonnell Douglas DC-8 and Boeing 767 aircraft and provides airlift to the U.S. Military, DHL and various other customers. CCIA obtained its airline operating certificate in 1996 and operates Boeing 757 aircraft, primarily providing air freight transportation for DHL.

Description of Business

The Company has two reportable segments,“ACMI Services" and "CAM." Due to the similarities among the Company's airline operations, the airline operations are aggregated into a single reportable segment - ACMI Services. The Company’s other business operations, including aircraft maintenance and modification services, aircraft part sales, equipment leasing and maintenance and mail handling for the USPS do not constitute reportable segments due to their size. Financial information about our segments and geographical revenues is presented in Note N to the accompanying consolidated financial statements.

DHL Network Operations (USA), Inc. and its affiliates (individually and collectively, "DHL"), is the Company's largest customer, totaling 53% of the Company's consolidated revenues in 2012, while the U.S. Military comprised 16% of the Company's consolidated revenues in 2012. During 2011, BAX/Schenker totaled 26% of the Company's consolidated revenues. However, on July 22, 2011, BAX/Schenker announced its decision to phase out its dedicated air cargo network in North America, which was supported by the Company through 2011. Instead of a dedicated aircraft network, BAX/Schenker began to utilize DHL and other delivery services for its air transportation delivery requirements. We provided limited airlift directly to BAX/Schenker through the peak delivery season, until late December 2011. Beginning in January 2012, the Company contracted with DHL to supplement DHL's U.S. air network to service BAX/Schenker's freight volumes on DHL's expanded air network.

CAM

CAM’s fleet of 48 serviceable aircraft as of December 31, 2012, consists of Boeing 767, Boeing 757 and McDonnell Douglas DC-8 aircraft. A list of the Company's aircraft is included in Item 2, Properties.

CAM leases aircraft to ATSG airlines and to external customers, including DHL, usually under multi-year contracts with a schedule of fixed monthly payments. Under a typical lease arrangement, the customer maintains the aircraft in serviceable condition at its own cost. At the end of the lease term, the customer is typically required to return the aircraft in approximately the same maintenance condition as it was in at the inception of the lease, as measured by airframe and engine time, until the next scheduled maintenance event. CAM examines the credit worthiness of potential customers, their short and long term growth prospects, their financial condition and backing, the experience of their management and the impact of governmental regulation when determining the lease rate that is offered to the customer. In addition, CAM monitors the customer’s business and financial status throughout the term of the lease.

Through CAM, we have expanded in recent years the Company's combined fleet of Boeing 767 and 757 aircraft and retired less efficient Boeing 727 and McDonnell Douglas DC-8 freighter aircraft. CAM anticipates demand for cargo airlift based on input from customers, the volume of bids requested by the U.S. Military, management's interface with customer planning personnel and aircraft utilization trends. During 2013, we expect to complete the modification and certification of seven more aircraft and place them into service. Information about the Company's open commitments for aircraft expenditures is included in Note G to the accompanying consolidated financial statements.

ACMI Services

Through the Company's three airline subsidiaries, we provide airline operations to DHL, other airlines, freight forwarders and the U.S. Military. A typical operating agreement requires the ATSG airline to supply, at a specific rate per block hour and/or per month, the aircraft, crew, maintenance and insurance ("ACMI") for specified cargo operations,

while the customer is responsible for substantially all other aircraft operating expenses, including fuel, landing fees, parking fees and ground and cargo handling expenses. However, some charter agreements, including with the U.S. Military, require the airline to provide full service, including fuel and other operating expenses, in addition to aircraft, crew, maintenance and insurance for a fixed, all-inclusive price.

Demand for air cargo services correlates closely with general economic conditions and the level of commercial activity in a geographic area. Stronger general economic conditions and growth in a region typically increase the need for product transportation. Historically, the cargo industry has experienced higher volumes during the fourth calendar quarter of each year due to increased shipments during the holiday season. Generally, time-critical delivery needs, such as just-in-time inventory management, increase the demand for air cargo delivery, while higher costs of aviation fuel generally reduces the demand for air delivery services. When aviation fuel prices increase, shippers will consider using ground transportation if the delivery time allows.

The Company, through ABX, has had long term contracts with DHL since August 15, 2003. Beginning in August 2003, ABX operated primarily under two commercial agreements with DHL; an aircraft, crew, maintenance and insurance agreement (“DHL ACMI agreement”) and a hub services agreement (“Hub Services agreement”), both of which had become effective in conjunction with DHL's acquisition of Airborne. Under these agreements, ABX and DHL generally operated under a cost-plus pricing structure. ABX provided staff to conduct package sorting, as well as airport, facilities and equipment maintenance services for DHL under the Hub Services agreement. In 2008, DHL began to restructure its U.S. operations. Pursuant to its restructuring plan, DHL discontinued intra-U.S. domestic pickup and delivery services and now provides only international services to and from the U.S. In the third quarter of 2009, ABX ceased all remaining sort operations for DHL and the Hub Services agreement expired. Additionally, in the third quarter of 2009, DHL assumed the management of aircraft fuel services for its U.S. network that were previously provided by ABX.

ABX continued to provide airlift for DHL’s international delivery services in the U.S. through ABX’s Boeing 767 aircraft under the DHL ACMI agreement until March 2010. At that point, the Company and DHL terminated the DHL ACMI agreement and executed new follow-on agreements. Under the agreements, DHL committed to lease 13 Boeing 767 freighter aircraft from CAM, each for a term of seven years. ABX was separately contracted to operate those aircraft for DHL under a five year crew, maintenance and insurance agreement ("CMI agreement"). As of December 31, 2012, DHL was leasing 13 aircraft from CAM, all of which ABX operates for DHL under the CMI agreement.

ATI provides airlift to the Air Mobility Command ("AMC"), through contracts awarded by the U.S. Transportation Command ("USTC"), both of which are organized under the U.S. Military. ATI contracts its unique fleet of McDonnell Douglas DC-8 "combi" aircraft,which are capable of simultaneously carrying passengers and cargo containers on the main flight deck for the AMC. The USTC awards flights to U.S. certificated airlines through annual contracts. During 2012, USTC awarded ATI three international routes for combi aircraft through September of 2014. These routes are not based on or related to the current conflicts in the Middle East. Additionally, ATI often operates temporary "expansion" routes for the U.S Military using its McDonnell Douglas DC-8 combi and Boeing 767 freighter aircraft.

The Company has limited exposure to fluctuations in the price of aviation fuel under contracts with our customers. DHL, like most of our ACMI customers, procures the aircraft fuel and fueling services necessary for their flights. The charter agreements with the U.S. Military are based on a preset pegged fuel price and include a subsequent true-up to the actual fuel prices.

Aircraft Maintenance and Modification Services

We provide aircraft maintenance and modification services to other airlines through our ABX and AMES subsidiaries. ABX and AMES have technical expertise related to aircraft modifications as a result of ABX’s long history in aviation. They own many Supplemental Type Certificates (“STCs”). An STC is granted by the FAA and represents an ownership right, similar to an intellectual property right, which authorizes the alteration of an airframe, engine or component.

AMES operates a Federal Aviation Administration (“FAA”) certificated 145 repair station, in Wilmington, Ohio, including hangars, a component shop and engineering capabilities. AMES is AS9100 quality certified for the aerospace industry. AMES markets its capabilities by identifying aviation-related maintenance and modification opportunities and matching them to its capabilities. AMES’ marketable capabilities include the installation of avionics systems and

flat panel displays for Boeing 757 and Boeing 767 aircraft. The flat panel display modernizes aircraft avionics equipment and reduces maintenance costs by combining multiple display units into a single instrumentation panel. AMES has the capability to perform line maintenance and airframe maintenance on McDonnell Douglas DC-9, MD-80, Boeing 767, 757, 737 and 727 aircraft. AMES also has the capability to refurbish airframe components, including approximately 60% of the components for Boeing 767 aircraft.

DHL contracts with the Company to provide scheduled airframe maintenance for the 13 Boeing 767 aircraft that it leases from CAM. The Company also provides scheduled maintenance for four DHL-owned aircraft operated by ABX under the CMI agreement.

Aircraft Parts Sales and Brokerage

AMS is an Aviation Suppliers Association 100 Certified reseller and broker of aircraft parts. AMS carries an inventory of Boeing 767, DC-9 and DC-8 spare parts and also maintains inventory on consignment from original equipment manufacturers, resellers, lessors and other airlines. AMS' customers include the commercial air cargo industry, passenger airlines, aircraft manufacturers and contract maintenance companies serving the commercial aviation industry, as well as other resellers.

Equipment and Facility Maintenance

LGSTX provides contract maintenance services for aviation ground support equipment and facility services throughout the U.S. LGSTX has a large inventory of ground support equipment, such as power units, airstarts, deicers and pushback vehicles that it rents to airports, airlines and other customers. LGSTX is also licensed to resell aircraft fuel. LGSTX arranges fueling services for customers and can provide fuel for aircraft charter customers.

U.S. Postal Service

Since September 2004, we have provided mail sorting services under contracts with the USPS. Our subsidiary, LDS, manages USPS mail sort centers in Indianapolis, Dallas and Memphis. Under each of these three contracts, we are compensated at a firm price for fixed costs and an additional amount based on the volume of mail handled at each sort center. The contracts for these three USPS facilities were renewed in 2012 with similar economic terms through September 2014. LDS also provides labor for load transfer services to the USPS at two facilities under short term contracts.

Flight Support

ABX is FAA-certificated to offer flight crew training to customers and rent usage of its flight simulators for outside training programs. ABX has three flight simulators in operation. ABX’s Boeing 767 and DC-9 flight simulators are level C certified. The level C flight simulators allow ABX to qualify flight crewmembers under FAA requirements without performing check flights in an aircraft. The DC-8 simulator is level B certified, which allows ABX to qualify flight crewmembers by performing a minimum number of flights in an aircraft.

The Company's GFS business provides aircraft dispatch and flight monitoring to supplemental air carriers.

Discontinued operations

Discontinued operations are a result of DHL's decision in 2008 to restructure its U.S. operations. Pursuant to its restructuring plan, DHL discontinued intra-U.S. domestic pickup and delivery services and now provides only international services to and from the U.S. In the third quarter of 2009, ABX ceased all remaining sort operations for DHL. Additionally, in the third quarter of 2009, DHL assumed management of aircraft fuel services for its U.S. network previously provided by ABX. The results of discontinued operations for 2012 and 2011 primarily reflect pension expense for the former hub employees and costs related to legal claims involving ABX's use of temporary workers in its hub services operation (See Item 3, Legal Proceedings).

Competitive Conditions

Our airline subsidiaries compete with other cargo airlines to place aircraft under ACMI arrangements and charter contracts. Other cargo airlines include Amerijet International, Inc., Atlas Air Worldwide Holdings, Inc., Evergreen International Aviation, Inc., National Air Cargo Group, Inc., Southern Air Inc. and World Airways, Inc. The primary competitive factors in the air cargo industry are price, fuel efficiency, geographic coverage, aircraft range, aircraft reliability and capacity. Cargo airlines also compete for cargo volumes with passenger airlines that have substantial belly cargo capacity. The air cargo industry is capital intensive and highly competitive, especially during periods of excess capacity of aircraft compared to cargo volumes.

The scheduled delivery industry is dominated by integrated door-to-door carriers including DHL, TNT Holdings B.V., the USPS, FedEx Corporation and United Parcel Service, Inc. Although the volume of our business is impacted by competition among these integrated carriers, we do not usually compete directly with them.

Competition for aircraft lease placements is generally affected by aircraft type, aircraft availability and lease rates. We target our leases to cargo airlines and delivery companies seeking medium widebody airlift. The Airbus A300-600 and A330 aircraft can provide capabilities similar to the Boeing 767 for medium widebody airlift.

The aircraft maintenance industry is labor intensive and typically competes based on cost, capabilities and reputation for quality. U.S. airlines may contract for aircraft maintenance with maintenance and repair organizations ("MROs") in other countries or geographies with a lower labor wage base, making the industry highly cost competitive.

Airline Operations

Flight Operations and Control

Each of the Company's airline operations are conducted pursuant to authority granted to them by the FAA. Airline flight operations, including aircraft dispatching, flight tracking and crew scheduling, are planned and controlled by personnel within each airline. The Company staffs aircraft dispatching and flight tracking 24 hours per day, 7 days per week.

Aircraft Maintenance

Our airlines’ operations are regulated by the FAA for aircraft safety and maintenance. Each airline performs routine inspections and airframe maintenance, including Airworthiness Directive and Service Bulletin compliance on all of their aircraft. The airlines’ maintenance and engineering personnel coordinate routine and non-routine maintenance requirements. Each airline’s maintenance program includes tracking the maintenance status of each aircraft, consulting with manufacturers and suppliers about procedures to correct irregularities and training maintenance personnel on the requirements of its FAA-approved maintenance program. The airlines contract with MROs, including AMES, to perform heavy airframe maintenance on airframes and engines. Each airline owns and maintains an inventory of spare aircraft engines, auxiliary power units, aircraft parts and consumable items. The number of spare items maintained is based on the fleet size, engine type operated and the reliability history of the item types.

Insurance

Our airline subsidiaries are required by the Department of Transportation (“DOT”) to carry a minimum amount of aircraft liability insurance. Their aircraft leases, loan agreements and ACMI agreements also require them to carry such insurance. The Company currently maintains public liability and property damage insurance, and our airline subsidiaries currently maintain aircraft hull and liability insurance and war risk insurance for their respective aircraft fleets in amounts consistent with industry standards. CAM’s customers are also required to maintain similar insurance coverage.

Employees

As of December 31, 2012, the Company had approximately 1,900 employees, including 1,655 full-time employees and 245 part-time employees. The Company employed approximately 460 flight crewmembers, 910 aircraft maintenance technicians and flight support personnel, 265 warehousing, sorting and logistics personnel, 75 employees for airport maintenance and logistics, 20 employees for sales and marketing and 170 employees for administrative functions. On December 31, 2011, the Company had approximately 2,010 employees.

Labor Agreements

The Company’s flight crewmembers are unionized employees. The table below summarizes the representation of the Company’s flight crewmembers at December 31, 2012.



Airline	Labor Agreement Unit	Contract Amendable Date	Percentage of the Company’s Employees
ABX	International Brotherhood of Teamsters	12/31/2014	14.3%
ATI	Airline Pilots Association	5/28/2014	5.9%
CCIA	Airline Pilots Association	7/31/2013	4.1%

Under the Railway Labor Act (“RLA”), as amended, the crewmember labor agreements do not expire, so the existing contract remains in effect throughout any negotiation process. If required, mediation under the RLA is conducted by the National Mediation Board, which has the sole discretion as to how long mediation can last and when it will end. In addition to direct negotiations and mediation, the RLA includes a provision for potential arbitration of unresolved issues and a 30-day “cooling-off” period before either party can resort to self-help, including, but not limited to, a work stoppage.

We began to merge the airline operations of ATI and CCIA during 2012. In September 2012, ATI and CCIA flight crewmembers, as represented by the Air Line Pilots Association International ("ALPA") ratified a collective bargaining agreement which allows for an integrated seniority list. The airlines and ALPA completed the integration of the seniority lists by the end of 2012. We expect to complete the merger of ATI and CCIA's airline operations in the first quarter of 2013.

Training

The flight crewmembers are required to be licensed in accordance with Federal Aviation Regulations (“FARs”), with specific ratings for the aircraft type to be flown, and to be medically certified as physically fit to operate aircraft. Licenses and medical certifications are subject to recurrent requirements as set forth in the FARs, to include recurrent training and minimum amounts of recent flying experience.

The FAA mandates initial and recurrent training for most flight, maintenance and engineering personnel. Mechanics and quality control inspectors must also be licensed and qualified to perform maintenance on Company operated and maintained aircraft. Our airline subsidiaries pay for all of the recurrent training required for their flight crewmembers and provide training for their ground service and maintenance personnel. Their training programs have received all required FAA approvals.

Intellectual Property

The Company owns a small number of U.S. patents that have a nominal commercial value. The Company also owns many STCs issued by the FAA. The Company uses these STCs mainly in support of its own fleets; however, AMES has marketed certain STCs to other airlines.

Information Systems

The Company has invested significant management and financial resources in the development of information systems to facilitate flight and maintenance operations. We utilize systems to maintain records about the maintenance status and history of each major aircraft component, as required by FAA regulations. Using the systems, we track and control inventories and costs associated with each maintenance task, including the personnel performing those tasks. In addition, the Company’s flight operations systems coordinate flight schedules and crew schedules. We have developed and procured systems to track crewmember flight and duty times, and crewmember training status.

Regulation

Our subsidiaries’ airline operations are generally regulated by the DOT, the FAA and the Transportation Security Administration (“TSA”). Those operations must comply with numerous security and environmental laws, ordinances

and regulations. In addition, they must also comply with various other federal, state, local and foreign laws and regulations.

Environment

Under current federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or clean-up of hazardous or toxic substances on, under, or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of contamination from hazardous or toxic substances, or the failure to properly clean up such contaminated property, may adversely affect the ability of the owner of the property to use such property as collateral for a loan or to sell such property. Environmental laws also may impose restrictions on the manner in which a property may be used or transferred or in which a business located thereon may be operated and may impose remediation or compliance costs. Under its former air park sublease with DHL, ABX and DHL are required to defend, indemnify and hold each other harmless from and against certain environmental claims associated with the Air Park in Wilmington, Ohio.

Our subsidiaries’ aircraft currently meet all known requirements for engine emission levels. However, under the Clean Air Act, individual states or the U.S. Environmental Protection Agency may adopt regulations requiring reductions in emissions for one or more localities based on the measured air quality at such localities. Such regulations may seek to limit or restrict emissions by restricting the use of emission-producing ground service equipment or aircraft auxiliary power units. Further, the U.S. Congress has, in the past, considered legislation that would regulate greenhouse gas emissions and some form of federal climate change legislation is possible in the future.

In addition, the European Commission has approved the extension of the European Union Emissions Trading Scheme ("ETS") for greenhouse gas emissions to the airline industry. Beginning in 2012, all Company airline subsidiary flights to and from any airport in any member state of the European Union are covered by the ETS requirements, and each year we are now required to submit emission allowances in an amount equal to the carbon dioxide emissions from such flights. In November 2012, the European Commission proposed to defer airlines' compliance obligations for non-European flights and suspended related non-compliance sanctions until after the 38th ICAO Assembly to be held in late September and early October of 2013. The European Commission has taken this action to give the process at ICAO, which is considering international treaties or other actions focusing on reducing greenhouse gas emissions from aviation, time to come to a conclusion. Under the European Commission proposal, airlines will not face enforcement action if they do not surrender allowances for their emissions related to flights operated to and from non-EU destinations; however, all intra-EU flights on any carrier (based in the EU or not) will still have to comply with the requirements of the ETS. Legislation is required to implement this proposed change and a co-decision by both the EU Member States and the European Parliament on this change is necessary. A decision is expected before April 2013. Further, at the end of November 2012, the United States government enacted legislation exempting U.S. airlines from the ETS. ABX currently operates intra-EU flights, and both ABX and ATI operated intra-EU flights during 2012. Management believes that ABX's and ATI's intra-EU flights were operated in compliance with ETS requirements.

The federal government generally regulates aircraft engine noise at its source. However, local airport operators may, under certain circumstances, regulate airport operations based on aircraft noise considerations. The Airport Noise and Capacity Act of 1990 provides that, in the case of Stage 3 aircraft (all of our operating aircraft satisfy Stage 3 noise compliance requirements), an airport operator must obtain the carriers’ consent to, or the government’s approval of, the rule prior to its adoption. We believe the operation of our airline subsidiaries’ aircraft either complies with or is exempt from compliance with currently applicable local airport rules. However, some airport authorities have adopted local noise regulations, and, to the extent more stringent aircraft operating regulations are adopted on a widespread basis, our airline subsidiaries may be required to spend substantial funds, make schedule changes or take other actions to comply with such local rules.

The U.S. government, working through the International Civil Aviation Organization, has in the past adopted more stringent aircraft engine emissions regulations with regard to newly certificated engines and aircraft noise regulations applicable to newly certificated aircraft. Although these rules will not apply to any of our airline subsidiaries’ existing aircraft, additional rules could be adopted in the future that would either apply these more stringent noise and emissions standards to aircraft already in operation or require that some portion of the fleet be converted over time to comply with these new standards.

Department of Transportation

The DOT maintains authority over certain aspects of domestic air transportation, such as requiring a minimum level of insurance and the requirement that a person be “fit” to hold a certificate to engage in air transportation. In addition, the DOT continues to regulate many aspects of international aviation, including the award of international routes. The DOT has issued ABX a Domestic All-Cargo Air Service Certificate for air cargo transportation between all points within the U.S., the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The DOT has issued ATI certificate authority to engage in scheduled interstate air transportation, which is currently limited to all-cargo operations. ATI's DOT certificate authority also authorizes it to engage in interstate and foreign charter air transportation of persons, property and mail. CCIA holds DOT certificate authority to engage in interstate all-cargo air transportation and DOT certificate authority to engage in foreign charter air transportation of property and mail. Additionally, the DOT has issued ABX, CCIA and ATI Certificates of Public Convenience and Necessity authorizing each of them to engage in scheduled foreign air transportation of cargo and mail between the U.S. and all current and future U.S. open-skies partner countries, which currently consists of over 100 foreign countries. ABX also holds exemption authorities issued by DOT to conduct scheduled all-cargo operations between the U.S. and certain foreign countries with which the U.S. does not have an open-skies air transportation agreement.

By maintaining these certificates, the Company, through its airline subsidiaries, can conduct all-cargo charter operations worldwide. Prior to issuing such certificates, and periodically thereafter, the DOT examines a company’s managerial competence, financial resources and plans, compliance, disposition and citizenship in order to determine whether the carrier is fit, willing and able to engage in the transportation services it has proposed to undertake.

The DOT has the authority to impose civil penalties, or to modify, suspend or revoke our certificates for cause, including failure to comply with federal laws or DOT regulations. A corporation holding the above-referenced certificates must qualify as a citizen of the United States, which, pursuant to federal law, requires that (1) it be organized under the laws of the U.S. or a state, territory or possession thereof, (2) that its president and at least two-thirds of its Board of Directors and other managing officers be U.S. citizens, (3) that less than 25% of its voting interest be owned or controlled by non-U.S. citizens, and (4) that it not otherwise be subject to foreign control. We believe our airline subsidiaries possess all necessary DOT-issued certificates and authorities to conduct our current operations and continue to qualify as a citizen of the United States.

Federal Aviation Administration

The FAA regulates aircraft safety and flight operations generally, including equipment, ground facilities, maintenance, flight dispatch, training, communications, the carriage of hazardous materials and other matters affecting air safety. The FAA issues operating certificates and operations specifications to carriers that possess the technical competence to conduct air carrier operations. In addition, the FAA issues certificates of airworthiness to each aircraft that meets the requirements for aircraft design and maintenance. ABX, CCIA and ATI believe they hold all airworthiness and other FAA certificates and authorities required for the conduct of their business and the operation of their aircraft, although the FAA has the power to suspend, modify or revoke such certificates for cause, or to impose civil penalties for any failure to comply with federal laws and FAA regulations.

The FAA has the authority to issue airworthiness directives and other mandatory orders relating to, among other things, the inspection and maintenance of aircraft and the replacement of aircraft structures, components and parts, based on the age of the aircraft and other factors. For example, the FAA has required ABX to perform inspections of its Boeing 767 aircraft to determine if certain of the aircraft structures and components meet all aircraft certification requirements. If the FAA were to determine that the aircraft structures or components are not adequate, it could order operators to take certain actions, including but not limited to, grounding aircraft, reducing cargo loads, strengthening any structure or component shown to be inadequate, or making other modifications to the aircraft. New mandatory directives could also be issued requiring the Company’s airline subsidiaries to inspect and replace aircraft components based on their age or condition. As a routine matter, the FAA issues airworthiness directives applicable to the aircraft operated by our airline subsidiaries, and our airlines comply, sometimes at considerable cost, as part of their aircraft maintenance program. In addition to the FAA practice of issuing Airworthiness Directives as conditions warrant, the FAA has adopted new policies to address issues involving older, but still economically viable, aircraft on a more systematic basis. FAA regulations mandate that aircraft manufacturers establish limits on aircraft flight cycles before which widespread fatigue damage might occur. The Boeing Company has provided its recommendation to the FAA, which is reviewing those limits. Once these limits are approved by the FAA, carriers must then incorporate them into

their maintenance programs over time. After the limits are reached, airlines will be unable to continue to operate the aircraft without the FAA first granting an extension of time to the operator. As the FAA has not yet set the new limits, the Company cannot yet estimate the impact of the new rule on any of its airline subsidiaries.

The FAA has adopted a policy regarding the proper application of airport rates and charges imposed on airlines. The policy provides greater flexibility to airport operators to impose charges that would expressly allow for the imposition of “congestion fees” rather than uniform airport fees. If airports in the U.S. seek to use the flexibility offered by this policy, it could have an impact on the cost of conducting our flight operations.

The FAA requires each of the airline subsidiaries to implement a drug and alcohol testing program with respect to all employees that engage in safety sensitive functions. Each of the airlines comply with these regulations.

Transportation Security Administration

The TSA, an administration within the Department of Homeland Security, is responsible for the screening of passengers, baggage and cargo and the security of aircraft and airports. Our airline subsidiaries comply with all applicable aircraft and cargo security requirements. The TSA has adopted cargo security-related rules that have imposed additional burdens on our airlines and our customers. Among other things, the TSA requires each airline to perform criminal history background checks on all employees. In addition, we may be required to reimburse the TSA for the cost of security services it may provide to the Company’s airline subsidiaries in the future.

Department of Defense

ABX and ATI participate in the Department of Defense ("DOD") Civil Reserve Air Fleet ("CRAF") program. Our participation in the CRAF program allows the DOD to requisition specified aircraft for military use during a national defense emergency. The DOD compensates us for the use of aircraft under the CRAF program. In addition, participation in CRAF entitles our airlines to bid for military cargo charter operations.

International Regulations

When operating in other countries, our airlines are subject to aviation agreements between the U.S. and the respective countries or, in the absence of such an agreement, by principles of reciprocity. International aviation agreements are periodically subject to renegotiation, and changes in U.S. or foreign governments could result in the alteration or termination of the agreements affecting our international operations. Commercial arrangements such as ACMI agreements, between our airlines and our customers in other countries, may require the approval of foreign governmental authorities. Foreign authorities may limit or restrict the use of our aircraft in certain countries. Also, foreign government authorities often require licensing and business registration before beginning operations.

Other Regulations

Various regulatory authorities have jurisdiction over significant aspects of our business, and it is possible that new laws or regulations or changes in existing laws or regulations or the interpretations thereof could have a material adverse effect on our operations. In addition to the above, other laws and regulations to which we are subject, and the agencies responsible for compliance with such laws and regulations, include the following:


•	The labor relations of our airline subsidiaries are generally regulated under the Railway Labor Act, which vests in the National Mediation Board certain regulatory powers with respect to disputes between airlines and labor unions arising under collective bargaining agreements;


•	The Federal Communications Commission regulates our airline subsidiaries’ use of radio facilities pursuant to the Federal Communications Act of 1934, as amended;


•	U.S. Customs and Border Protection inspects cargo imported from our subsidiaries’ international operations;


•	Our airlines must comply with U.S. Citizenship and Immigration Services regulations regarding the citizenship of our employees;


•	The Company and its subsidiaries must comply with wage, work conditions and other regulations of the Department of Labor regarding our employees.

Security and Safety

Security

The Company’s subsidiaries have instituted various security procedures and protocols to comply with FAA and TSA regulations. The airline subsidiaries’ customers are required to inform them in writing of the nature and composition of any freight which is classified as “Dangerous Goods” by the DOT. In addition, the Company and its subsidiaries conduct background checks on our respective employees, restrict access to aircraft, inspect aircraft for suspicious persons or cargo, and inspect all dangerous goods. Notwithstanding these procedures, our airline subsidiaries could unknowingly transport contraband or undeclared hazardous materials for customers, which could result in fines and penalties and possible damage to the aircraft.

Safety and Inspections

Management is committed to the safe operation of its aircraft. In compliance with FAA regulations, our subsidiaries’ aircraft are subject to various levels of scheduled maintenance or “checks” and periodically go through phased overhauls. In addition, a comprehensive internal audit and evaluation program is in place and active. Our subsidiaries’ aircraft maintenance efforts are monitored closely by the FAA. They also conduct extensive safety checks on a regular basis.

Available Information

Our filings with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, are available free of charge from our website at www.atsginc.com as soon as reasonably practicable after filing with the SEC. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements and other information regarding Air Transport Services Group, Inc. at www.sec.gov .

ITEM 1A. RISK FACTORS

The risks described below could adversely affect our financial condition or results of operations. The risks below are not the only risks that the Company faces. Additional risks that are currently unknown to us or that we currently consider immaterial or unlikely could also adversely affect the Company.

The economic conditions in the U.S. and throughout the globe may negatively impact the demand for the Company’s aircraft and services.

Air cargo transportation volumes are strongly correlated to general economic conditions, including the price of aviation fuel. An economic downturn could reduce the demand for delivery services offered by DHL and other delivery businesses, in particular expedited services shipped via aircraft. Accordingly, an economic downturn could reduce the demand for airlift and cargo aircraft leases. Further, during an economic slowdown, customers generally prefer to use ground-based or marine delivery services instead of more expensive air delivery services. Additionally, if the price of aviation fuel rises significantly, the demand for cargo aircraft and air delivery services may decline below expectations. During periods of downward economic trends and uncertainty, freight forwarders and integrated delivery businesses are more likely to defer market expansion plans. As a result, we may experience delays in the deployment of available aircraft with customers under lease, ACMI or charter arrangements.

The Company continues to make significant investments in additional aircraft which may impact the Company’s operating results and financial condition.

During 2013, we plan to make capital investments to complete the modification of Boeing 767 and Boeing 757 freighter aircraft and Boeing 757 combi aircraft. The actual demand for the Boeing 767 and 757 may be less than we anticipate. The actual lease rates for newly modified aircraft may be less than we projected, or new leases may start later than we expect. Further, other airlines and lessors may be willing to offer aircraft to the market under terms more favorable to lessees.

The Company's future operating results and financial condition will depend in part on our subsidiaries’ ability to successfully deploy these aircraft in operations that provide a positive return on investment. Our success will depend, in part, on their ability to secure additional cargo volumes from customers, in both U.S. and international markets. Deploying aircraft in international markets can pose additional risks, regulatory requirements and costs.

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Our costs incurred in providing airline services could be more than the contractual revenues generated.

Each airline develops business plans for ACMI, charter and other operating contracts by projecting operating costs, crew productivity and maintenance expenses. Projections contain key assumptions, including flight hours, aircraft reliability, crewmember productivity and crewmember compensation and benefits. We may overestimate revenues, the level of crewmember productivity, and/or underestimate the actual costs of providing services when preparing for new business opportunities. If actual costs are higher than projected or aircraft reliability is less than expected, future operating results may be negatively impacted.

The Company’s airlines rely on flight crews that are unionized. If collective bargaining agreements increase our costs and we cannot recover such increases, it may be necessary for us to terminate customer contracts or curtail planned growth. If disagreements arise, airline operations could be interrupted and business could be adversely affected until agreements are reached with the crewmembers.

To further streamline the operations impacted by the loss of the BAX/Schenker business, we intend to complete the merger of the airline operations of ATI and CCIA in the first quarter of 2013, with ATI being the surviving corporation. The merger will require the FAA to amend ATI's operations specifications to include all CCIA aircraft to be operated by ATI after the merger. The DOT may also conduct a fitness review of ATI as a result of the merger. The merger of ATI and CCIA's operations could result in restructuring costs, contract termination costs and other charges. The execution of the merger plan could be delayed due to regulatory requirements or business reasons, which could increase expected costs and have an adverse effect on future operating results.

Our airline operating agreements include on-time reliability requirements which can impact the Company's operating results and financial condition.

Our airline operating agreements may contain monthly incentive payments for reaching specific on-time reliability thresholds. Additionally, our airline operating agreements may contain monetary penalties if aircraft reliability falls below certain monthly thresholds. As a result, our operating revenues may vary from period to period depending on the achievement of monthly incentives or the imposition of penalties. Further, an airline could be found in default of an agreement if it does not maintain minimum thresholds over an extended period of time.

If ABX fails to maintain aircraft reliability above a minimum threshold in DHL's U.S. domestic network for two consecutive calendar months or three months in a rolling twelve month period, ABX would be in default of the CMI agreement with DHL. In that event, DHL may elect to terminate the CMI agreement, unless ABX maintains the minimum reliability threshold during a 60-day cure period. If DHL terminates the CMI agreement due to an ABX event of default, ABX would be subject to a monetary penalty payable to DHL. The penalty through the remaining initial term of the CMI agreement would be $10 million.

Under provisions of the CMI and lease agreements with DHL, DHL can terminate the CMI or lease agreements subject to early termination provisions.

DHL may terminate the CMI agreement for convenience at any time during the initial five-year term (through March 30, 2015) on the date that it ceases operating or causing to be operated the aircraft on air routes for which the origin and destination are within the United States, subject to providing six months notice and paying to ABX a termination fee. The termination fee started at $70 million on March 31, 2011, and amortizes to zero during the remaining four year initial term of the CMI agreement. DHL may terminate one or more of the aircraft leases for convenience at any time after the first 24 months of the respective terms thereof, upon providing six months' notice and paying to CAM a lump sum amount equal to six months' rent. DHL may also terminate one or more aircraft leases at any time after the first 54 months of the term of the CMI agreement, in the event that DHL desires to transfer operational control of such aircraft, but is restricted from doing so by the terms of the collective bargaining agreement between ABX and its pilots' union providing that members of the pilots' union have the right to follow the aircraft to another operator, subject to providing six months' notice and paying to CAM a lump sum amount equal to two months rent.

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The U.S. Military may not renew our contracts or may reduce the number of routes that we operate.

Our contracts with the U.S. Military are typically for one year and are not required to be renewed. The U.S. Military may terminate the contracts for convenience or in the event we were to default for failure to satisfy reliability requirements or for other reasons. The number and frequency of routes is sensitive to changes in military priorities and U.S. defense budgets.

Our business could be negatively impacted by adverse audit findings by the U.S. Government.

Our U.S. Military contracts are subject to audit by government agencies, including with respect to performance, costs, internal controls and compliance with applicable laws and regulations. If an audit uncovers improprieties, we may be subject to civil or criminal penalties, including termination of such contracts, forfeiture of profits, fines and suspension from doing business with the U.S. Military.

Proposed rules from the DOT, FAA and TSA could increase the Company's operating costs and reduce customer utilization of airfreight.

In December 2011, the FAA finalized new rules for Flightcrew Member Duty and Rest Requirements (FMDRR) for passenger airlines. If applied to cargo carriers, the new rules would require a pilot to have nine hours for the opportunity to rest before reporting to flight duty and place other restrictions on the number of duty hours in particular time periods. In May 2012, the FAA indicated that it would reconsider its initial decision to exclude cargo pilots from these new requirements. While not currently required for the Company's cargo operations, if such rest requirements and restrictions were imposed on our cargo operations, these rules could have a significant impact on the costs incurred by ATSG airlines. The airlines would attempt to pass such additional costs onto their customers in the form of price increases. Customers, as a result, may seek to reduce their utilization of aircraft in favor of less expensive transportation alternatives. The ATSG airlines are each monitoring the rules and evaluating the effect that the rules could have on their flight resources and costs.

The concentration of aircraft types and engines in the Company's airlines could adversely affect our operating and financial results.

The combined aircraft fleet is concentrated in three aircraft types. If any of these aircraft types encounter technical difficulties that resulted in significant FAA Airworthiness Directives or grounding, our ability to lease the aircraft would be adversely impacted, as would our airlines' operations. The market growth in demand for the Boeing 767 and 757 aircraft types and configurations may be less than we anticipate. Customers may develop preferences for the Airbus A300-600 and A330 aircraft, which provide capabilities similar to the Boeing 767 aircraft.

The cost of aircraft repairs and unexpected delays in the time required to complete aircraft maintenance could negatively affect our operating results.

Our aircraft provide ACMI services throughout the world, sometimes operating in remote regions. Our aircraft may experience maintenance events in locations that do not have the necessary repair capabilities or are difficult to reach. As a result, we may incur additional expenses and lose billable revenues that we would have otherwise earned. Under the CMI agreement with DHL, AMES provides scheduled airframe maintenance for the 13 Boeing 767 aircraft that DHL leases from CAM and we are required to provide a spare aircraft while the scheduled maintenance is completed. If delays occur in the completion of aircraft maintenance, we may incur additional expense to provide airlift capacity and forego revenues.

We rely on third parties to modify aircraft and provide aircraft and engine maintenance.

We rely on certain third party aircraft modification service providers and aircraft and engine maintenance service providers that have expertise or resources that we do not have. Third party service providers may seek to impose price increases that could negatively affect our competitiveness in the airline markets. An unexpected termination or delay involving service providers could have a material adverse effect on our operations and financial results. A delay in an aircraft modification could adversely impact our revenues and our ability to place the aircraft in the market. We must manage third party service providers to meet schedules and turntimes and to control costs in order to remain competitive to our customers.

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The Company's operating results could be negatively impacted by disruptions of its information technology and communication systems.

Our businesses depend heavily on information technology and computerized systems to communicate and operate effectively. The Company's systems and technologies, or those of third party's on which we rely, could fail or become unreliable due to equipment failures, software viruses, cyberattacks, natural disasters, power failures or other causes. Certain disruptions could prevent our airlines from flying as scheduled, possibly for an extended period of time, which could have a negative impact on our operating results and reliability. We continually monitor the risks of disruption, take preventative measures, develop backup plans and maintain redundancy capabilities. However, the measures we use may not prevent the causes of disruptions we could experience or help us recover failed systems quickly.

The costs incurred in expanding our aircraft maintenance facilities could negatively impact our financial results.

We have agreed to a long term lease of a new 100,000 square foot maintenance hangar, in Wilmington, Ohio that is currently under construction and expected to be completed in 2014. The new hangar is being built in anticipation of additional aircraft maintenance contracts, including the ability to house Boeing 747 and 777 aircraft. As construction agent, we are responsible for managing the construction costs of the project. Additionally, we could incur incremental operating costs associated with the new hangar, including costs associated with employing additional aircraft maintenance personnel, before it is completed. Further, we will need to grow the Company's aircraft maintenance revenues utilizing the expanded capabilities by securing additional business. Those anticipated level of revenues may not coincide with our costs of operating the new facility.

The Company could violate debt covenants.

The Senior Credit Agreement contains covenants including, among other requirements, limitations on certain additional indebtedness and guarantees of indebtedness. The Senior Credit Agreement is collateralized by certain of the Company's Boeing 767 and 757 aircraft that are not collateralized under aircraft loans. Under the terms of the Senior Credit Agreement, the Company is required to maintain aircraft collateral coverage equal to 150% of the outstanding balance of the term loan and the maximum capacity of the revolving credit facility. The Senior Credit Agreement stipulates events of default, including unspecified events that may have material adverse effects on the Company. The Senior Credit Agreement and aircraft loans cross default. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement and loans. In such an event, the Company’s cost of borrowings could increase, and our ability to modify and deploy aircraft could be limited as a result.

The Company's existing sources of liquidity may not be sufficient for our planned fleet expansion.

As of December 31, 2012, the Company's liquidity included $15.4 million of cash balances, $70.9 million available under the revolving credit facility and a $50 million accordion feature through the Senior Credit Agreement subject to lender consent. Our fleet expansion plan for 2013 involves the acquisition of two Boeing 757 aircraft and the modification of Boeing 767 and Boeing 757 aircraft which we expect to finance through the Senior Credit Agreement and cash generated from operations. The existing sources of liquidity may not be sufficient to support our planned fleet expansion. We may need additional sources of credit to complete the fleet expansion. If such additional sources of credit are not available when we need the funds, the fleet expansion could be delayed. Further, such sources of credit would likely result in an increase in our borrowing costs and additional covenant requirements.

Operating results may be affected by fluctuations in interest rates.

Effective March 31, 2011, in conjunction with our decision to refinance the unsubordinated term loan, the Company ceased hedge accounting for certain interest rates swaps which it continues to hold. In addition to these interest rate swaps, the Company's Senior Credit Agreement requires the Company to maintain derivative instruments for fluctuating interest rates for at least 50% of the outstanding balance of the new unsubordinated term loan. Accordingly, in July 2011, the Company entered into new derivative instruments. The Company did not designate the derivative instruments as hedges. Future fluctuations in LIBOR interest rates will result in the recording of gains and losses on interest rate derivatives that the Company holds.

The Company sponsors defined benefit pension plans and post-retirement healthcare plans for certain eligible employees. The Company's related pension expense and funding requirements are sensitive to changes in interest rates used to discount the estimated future benefits payments that have been earned by participants in the plans. The annual pension expense is recalculated at the beginning of each calendar year using market interest rates at that point in time.

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Future fluctuations in interest rates could result in the recording of additional expense for pension and other post-retirement healthcare plans.

The ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes may be further limited.

Limitations imposed on the ability to use net operating losses (“NOLs”) to offset future taxable income could cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs. Similar rules and limitations may apply for state income tax purposes.

Changes in the ownership of the Company on the part of significant shareholders could limit our ability to use NOLs to offset future taxable income. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of significant stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years).

Operating results and cash flows will be impacted by the sales value of Boeing 727 and DC-8 aircraft, engines and related parts.

As of December 31, 2012, the Company has approximately $3.4 million of Boeing 727 and DC-8 freighter aircraft, engines and related parts. Although we are marketing the Boeing 727 and DC-8 aircraft, engines and related parts to other airlines and parts dealers, management cannot predict when the assets will be sold. The market value of the assets could decline before we are able to sell them, resulting in additional impairment charges. Further, assets may be sold for an amount that is less than their carrying value at the time of sale, resulting in losses.

We may need to reduce the carrying value of the Company’s assets.

The Company owns a significant amount of aircraft, aircraft parts and related equipment. Additionally, the balance sheet reflects assets for income tax carryforwards and other deferred tax assets. The removal of aircraft from service or continual losses from aircraft operations could require us to evaluate the recoverability of the carrying value of those aircraft, related parts and equipment and record an impairment charge through earnings to reduce the carrying value.

We have recorded significant amounts of goodwill and other intangible assets related to acquisitions. If we are unable to achieve the projected levels of operating results, it may be necessary to record an impairment charge to reduce the carrying value of goodwill and related intangible assets. Similarly, if we were to lose a key customer or one of our airlines were to lose its authority to operate, it could be necessary to record an impairment charge.

If the Company incurs operating losses or our estimates of expected future earnings indicate a decline, it may be necessary to reassess the need for a valuation allowance for some or all of the Company’s net deferred tax assets.

Penalties, fines and sanctions levied by governmental agencies or the costs of complying with government regulations could negatively affect our results of operations.

The operations of the Company’s subsidiaries are subject to complex aviation, transportation, security, environmental, labor, employment and other laws and regulations. These laws and regulations generally require our subsidiaries to maintain and comply with a wide variety of certificates, permits, licenses and other approvals. Their inability to maintain required certificates, permits or licenses, or to comply with applicable laws, ordinances or regulations could result in substantial fines or, in the case of DOT and FAA requirements, possible suspension or revocation of their authority to conduct operations.

The costs of maintaining our aircraft in compliance with government regulations could negatively affect our results of operations.

All aircraft in the Company’s fleet were manufactured prior to 1995. Manufacturer Service Bulletins and FAA Airworthiness Directives issued under its “Aging Aircraft” program cause operators of such aged aircraft to be subject to extensive aircraft examinations and require such aircraft to undergo structural inspections and modifications to address problems of corrosion and structural fatigue at specified times. The FAA may issue Airworthiness Directives that could require significant inspections and major modifications to such aircraft. The FAA may issue Airworthiness Directives that could limit the usability of certain aircraft types. In 2012, the FAA issued an Airworthiness Directive

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that requires the replacement of the aft pressure bulkhead on Boeing 767-200 aircraft based on a certain number of landing cycles. As a result, we expect that most of the Boeing 767-200 aircraft in the Company's fleet will be affected. The cost of compliance is estimated to be $0.5 to $0.7 million per aircraft over the next ten years.

In addition, FAA regulations require that aircraft manufacturers establish limits on aircraft flight cycles to address issues involving older, but still economically viable, aircraft, as described in Item 1 of this report, under "Federal Aviation Administration." These regulations may increase our maintenance costs and eventually limit the use of our aircraft.

Failure to maintain the operating certificates and authorities of our airlines would adversely affect our business.

The airline subsidiaries have the necessary authority to conduct flight operations pursuant to the economic authority issued by the DOT and the safety based authority issued by the FAA. The continued effectiveness of such authority is subject to their compliance with applicable statutes and DOT, FAA and TSA rules and regulations, including any new rules and regulations that may be adopted in the future. The loss of such authority by an airline subsidiary could cause a default of covenants within the Senior Credit Agreement and would materially and adversely affect its airline operations, effectively eliminating the airline's ability to operate air services.

The Company may be affected by global climate change or by legal, regulatory or market responses to such potential climate change.

The Company is subject to the regulations of the U.S. Environmental Protection Agency and state and local governments regarding air quality and other matters. In part, because of the highly industrialized nature of many of the locations where the Company operates, there can be no assurance that we have discovered all environmental contamination or other matters for which the Company may be responsible.

Concern over climate change, including the impact of global warming, has led to significant federal, state and international legislative and regulatory efforts to limit greenhouse gas emissions. The European Commission has mandated the extension of the European Union Emissions Trading Scheme ("ETS") for greenhouse gas emissions to the airline industry. Beginning in 2012, all Company airline subsidiary flights to and from any airport in any member state of the European Union is covered by the ETS requirements, and each year we are required to submit emission allowances in an amount equal to the carbon dioxide emissions from such flights. Exceedance of the airlines' emission allowances would require the airlines to purchase additional emission allowances on the open market. In November 2012, the European Commission proposed to defer airlines' compliance obligations for non-European flights and suspended related non-compliance sanctions until after the 38th ICAO Assembly to be held in late September and early October of 2013. The European Commission has taken this action to give the process at ICAO, which is considering international treaties or other actions focusing on reducing greenhouse gas emissions from aviation, time to come to a conclusion. Under the European Commission proposal, airlines will not face enforcement action if they do not surrender allowances for their emissions related to flights operated to and from non-EU destinations; however, all intra-EU flights on any carrier (based in the EU or not) will still have to comply with the requirements of the ETS. Legislation is required to implement this proposed change and a co-decision by both the EU Member States and the European Parliament on this change is necessary. A decision is expected before April 2013. Further, at the end of November 2012, the United States government enacted legislation exempting U.S. airlines from the ETS.

The U.S. Congress and certain states have also considered the regulation of greenhouse gas emissions. In addition, the U.S. Environmental Protection Agency could regulate greenhouse gas emissions, especially aircraft engine emissions. The cost to comply with potential new laws and regulations could be substantial for the Company. These costs could include an increase in the cost of the fuel and capital costs associated with updating aircraft. Until the timing, scope and extent of any future regulation becomes known, we cannot predict its effect on the Company’s cost structure or operating results.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company leases portions of the air park in Wilmington, Ohio, under a lease agreement with a regional port authority, the term of which expires in May of 2019. The lease includes corporate offices, 210,000 square feet of maintenance hangars and a 100,000 square foot component repair shop at the air park. ABX also has the non-exclusive right to use the airport, which includes one active runway, taxi ways and ramp space.

As of December 31, 2012, the Company and its subsidiaries' in-service aircraft fleet consisted of 48 owned aircraft and six leased aircraft, on an operating basis, for a total of 54 aircraft. The aircraft were all formerly passenger aircraft that have been modified for standard cargo operations, except for four DC-8 combi aircraft. The aircraft are generally described as having mid size to medium wide-body cargo capabilities. The cargo aircraft carry gross payloads ranging from approximately 67,000 to 125,000 pounds. These aircraft are well suited for intra-continental flights and medium range inter-continental flights. Because an airline's flight operations can be hindered by inclement weather, sophisticated landing systems and other equipment are utilized to minimize the effect that weather may have on flight operations. For example, ABX’s Boeing 767-200 and 767-300 aircraft are operated for Category III landings. This allows their crews to land under weather conditions with runway visibility of only 600 feet at airports with Category III Instrument Landing Systems.

The table below shows the combined fleet of aircraft in service condition.



	In-service Aircraft as of December 31, 2012
Aircraft Type	Total	Owned	Operating Lease	Year of Manufacture	Gross Payload (Lbs.)	Still Air Range (Nautical Miles)

767-200 SF (1)	40	36	4	1982 - 1987	67,000 - 99,000	1,800 - 4,400
767-300 SF (1)	7	5	2	1988 - 1989	125,000	2,800 - 4,400
DC-8-CF (2)	4	4	-	1968 - 1970	80,000 - 85,000	1,800 - 4,400
757-200 SF (1)	3	3	-	1984 - 1991	68,000	2,700 - 4,000
Total in-service	54	48	6

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(1)	These aircraft are configured for standard cargo containers, including large standard main deck cargo doors.


(2)	These aircraft are configured as “combi” aircraft capable of carrying passenger and cargo containers on the main flight deck.

In addition, as of December 31, 2012, CAM had two Boeing 767-300 aircraft that were undergoing modification to a standard freighter configuration, one Boeing 757-200 aircraft that was undergoing modification to a standard freighter configuration and two Boeing 757-200 aircraft that were completing modification and certification as combi aircraft (capable of carrying passengers and cargo containers on the main flight deck). These aircraft are expected to be completed in 2013 and are not reflected in the table above. CAM also had one Boeing 767-200 passenger aircraft, currently in storage, not reflected in the table above. In January 2013, CAM purchased two more Boeing 757 combi aircraft which we expect to enter service in 2013.

We believe that our existing facilities, aircraft fleet and planned aircraft investments as further described in Note G to the accompanying financial statements, are appropriate for our current operations and growth plans. We may make additional investments in aircraft and facilities if we identify favorable opportunities in the markets that we serve.

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ITEM 3. LEGAL PROCEEDINGS

Civil Action Alleging Violations of Immigration Laws

On December 31, 2008, a former ABX employee filed a complaint against ABX, a total of four current and former executives and managers of ABX, Garcia Labor Company of Ohio, and three former executives of the Garcia Labor companies, in the U.S. District Court for the Southern District of Ohio. The case was filed as a putative class action against the defendants, and asserts violations of the Racketeer Influenced and Corrupt Practices Act (RICO). The complaint, which was later amended to include a second former employee plaintiff, seeks damages in an unspecified amount and alleges that the defendants engaged in a scheme to hire illegal immigrant workers to depress the wages paid to hourly wage employees during the period from December 1999 to January 2005.

On December 2, 2011, the parties agreed to settle this matter at a conference presided over by the Court. The settlement calls for ABX to pay to the plaintiffs a monetary amount, which management believes to be less than it would have cost for ABX to defend the case at trial. Once the plaintiffs have provided notice to the putative class members of the settlement, the Court will hold a hearing to consider any objections and seek final confirmation of the settlement.

Brussels Noise Ordinance

The Brussels Instituut voor Milieubeheer ("BIM"), a governmental authority in the Brussels-Capital Region of Belgium that oversees the enforcement of environmental matters, imposed four separate administrative penalties on ABX in the approximate aggregate amount of €0.4 million ($0.5 million) for numerous alleged violations of an ordinance limiting the noise caused by aircraft overflying the Brussels-Capital Region (which is located near the Brussels Airport) during the period from May 2009 through December 2010. ABX has exhausted its appeals with respect to the first administrative penalty, but is continuing to pursue the appeal of the remaining three.

The ordinance in question is controversial for the reason that it was adopted by the Brussels-Capital Region and is more restrictive than the noise limitations in effect in the Flemish Region, which is where the Brussels Airport is located. The ordinance is the subject of several court cases currently pending in the Belgian courts and numerous airlines have been levied fines thereunder.

Other

In addition to the foregoing matters, we are also currently a party to legal proceedings, including FAA enforcement actions, in various federal and state jurisdictions arising out of the operation of our business. The amount of alleged liability, if any, from these proceedings cannot be determined with certainty; however, we believe that our ultimate liability, if any, arising from the pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are probable of assertion, taking into account established accruals for estimated liabilities, should not be material to our financial condition or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

Our common stock is publicly traded on the NASDAQ Global Select Market under the symbol ATSG. The following table shows the range of high and low prices per share of our common stock for the periods indicated:



2012 Quarter Ended:	Low		High
December 31, 2012	$	3.38	$	4.56
September 30, 2012	$	3.88	$	5.75
June 30, 2012	$	4.67	$	5.88
March 31, 2012	$	4.71	$	6.88

2011 Quarter Ended:	Low		High
December 31, 2011	$	3.86	$	5.92
September 30, 2011	$	4.30	$	7.04
June 30, 2011	$	6.14	$	8.50
March 31, 2011	$	7.00	$	8.65

On March 4, 2013 , there were 1,732 stockholders of record of the Company’s common stock. The closing price of the Company’s common stock was $5.46 on March 4, 2013 .

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Performance Graph

The graph below compares the cumulative total stockholder return on a $100 investment in the Company’s common stock with the cumulative total return of a $100 investment in the NASDAQ Composite Index and the cumulative total return of a $100 investment in the NASDAQ Transportation Index for the period beginning on December 31, 2007 and ending on December 31, 2012.



	12/31/2007	12/31/2008	12/31/2009	12/31/2010	12/31/2011	12/31/2012
Air Transport Services Group, Inc.	100.00	4.31	63.16	189.00	112.92	95.93
NASDAQ Composite Index	100.00	59.03	82.25	97.32	98.63	110.78
NASDAQ Transportation Index	100.00	72.93	72.29	91.64	79.89	95.85

Dividends

The Company is restricted from paying dividends on its common stock in excess of $50.0 million during any calendar year under the provisions of its Senior Credit Agreement. Under the provisions of ABX's promissory note due to DHL, the Company is required to prepay the DHL note in the amount of $0.20 for each dollar of dividend distributed to the stockholders of ATSG. The same prepayment stipulation applies to stock repurchases. No cash dividends have been paid or declared and no stock repurchases have been made or declared.

Securities authorized for issuance under equity compensation plans

For the response to this Item, see Item 12.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto and the information contained in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected consolidated financial data and the consolidated operations data below are derived from the Company’s audited consolidated financial statements.



	As of and for the Years Ended December 31
	2012			2011			2010			2009			2008
	(In thousands, except per share data)
OPERATING RESULTS:
Continuing revenues	$	607,438		$	730,133		$	667,382		$	823,483		$	941,686
Operating expenses (1)	528,750			667,504			585,706			751,693			963,638
Net interest expense and other non operating charges (4)	12,368			21,769			18,359			26,432			34,667
Earnings (loss) from continuing operations before income taxes (1)	66,320			40,860			63,317			45,358			(56,619		)
Income tax expense	(24,672		)	(16,995		)	(23,413		)	(17,156		)	(6,229		)
Earnings (loss) from continuing operations	41,648			23,865			39,904			28,202			(62,848		)
Earnings (loss) from discontinued operations, net of taxes (2)	(774		)	(673		)	(70		)	6,247			6,858
Net earnings (loss)	$	40,874		$	23,192		$	39,834		$	34,449		$	(55,990	)
EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS:
Basic	$	0.66		$	0.38		$	0.64		$	0.45		$	(1.01	)
Diluted	$	0.65		$	0.37		$	0.62		$	0.44		$	(1.01	)
WEIGHTED AVERAGE SHARES:
Basic	63,461			63,284			62,807			62,674			62,484
Diluted	64,420			64,085			64,009			63,279			62,484
SELECTED CONSOLIDATED
FINANCIAL DATA:
Cash and cash equivalents	$	15,442		$	30,503		$	46,543		$	83,229		$	116,114
Deferred income tax asset	19,154			31,548			12,879			31,597			74,979
Property and equipment, net (1)	818,924			748,913			658,756			636,089			671,552
Goodwill and intangible assets (1)	92,126			93,376			99,036			99,890			100,777
Total assets	1,035,611			993,719			900,654			1,002,773			1,101,349
Post-retirement liabilities	187,533			188,110			119,746			155,720			299,964
Capital lease obligations (3)	—			—			6,103			12,918			72,282
Long term debt and current maturities, other than leases (3)	364,481			346,904			296,425			364,509			440,204
Deferred income tax liability	46,422			42,530			39,746			50,044			—
Stockholders’ equity	299,256			270,147			302,077			245,982			80,392

____________________


(1)	In the third quarter of 2011, the Company recorded an impairment charge of $22.1 million on aircraft, $2.8 million on goodwill and $2.3 million on acquired intangibles. (See Notes C and E to the accompanying consolidated financial statements.) In the fourth quarter of 2008, the Company recorded an impairment charge of $73.2 million on goodwill and $18.0 million on acquired intangibles.


(2)	In the third quarter of 2009, ABX ceased providing hub services and fuel services for DHL. Accordingly, these business activities are reflected as discontinued operations for all years presented.


(3)	Capital lease obligations reflects the assumption and extinguishment of aircraft lease obligations by DHL during 2009 totaling $45.7 million. Additionally, Long term debt reflects the extinguishment of $46.3 million of the DHL promissory note during 2009.

(4)

During 2011, in conjunction with the execution of the Senior Credit Agreement (see Note F to the accompanying consolidated financial statements) the Company terminated its previous credit agreement, which resulted in the write-off of $2.9 million of unamortized debt issuance costs associated with that credit agreement and recognized $3.9 million of losses for certain interest rate swaps previously designated as cash flow hedges of interest payments stemming from the former term loan.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis has been prepared with reference to the historical financial condition and results of operations of Air Transport Services Group, Inc., and its subsidiaries and should be read in conjunction with the “Risk Factors” in Item 1A of this report, our historical financial statements, and the related notes contained in this report.

BACKGROUND

The Company provides airline operations, aircraft leases, aircraft maintenance and other support services primarily to the cargo transportation and package delivery industries. Through the Company's subsidiaries, it offers a range of complementary services to delivery companies, freight forwarders, airlines and government customers. The Company's principal subsidiaries include three independently certificated airlines, ABX Air, Inc. (“ABX”), Capital Cargo International Airlines, Inc. (“CCIA”) and Air Transport International, Inc. (“ATI”), and an aircraft leasing company, Cargo Aircraft Management, Inc. (“CAM”).

At December 31, 2012, the Company owned 48 cargo aircraft in serviceable condition and leased six more under operating leases. The owned fleet consisted of thirty-six Boeing 767-200 aircraft, five Boeing 767-300 aircraft, three Boeing 757 and four McDonnell Douglas DC-8 "combi" aircraft. The combi aircraft are capable of simultaneously carrying passengers and cargo containers on the main flight deck. The Company's airline subsidiaries also leased four Boeing 767-200 freighter aircraft and two Boeing 767-300 freighter aircraft from third parties as of December 31, 2012.

In recent years we have modernized the Company's aircraft fleet, retiring less efficient Boeing 727 and DC-8 aircraft and adding Boeing 767-200, Boeing 767-300 and Boeing 757 aircraft to the fleet. During 2013 we plan to continue adding Boeing 767 and Boeing 757 aircraft to the fleet by modifying former passenger aircraft. As of December 31, 2012, the Company owned two Boeing 767-300 aircraft that were being modified from passenger configuration into a standard freighter configuration, one Boeing 757 aircraft undergoing standard freighter modification and two Boeing 757 aircraft being prepared for service as combi aircraft. Additionally, in January 2013, the Company purchased two more Boeing 757 combi aircraft that are in the process of obtaining airworthiness certification for their combi modification. We expect all seven of these aircraft to enter service during 2013.

The Company's largest customer is DHL Network Operations (USA), Inc. and its affiliates ("DHL"), which accounted for 53% of the Company's consolidated revenues in 2012 and 36% of the Company's consolidated revenues in both 2011 and 2010. The Company has had long term contracts with DHL since August 2003. Commencing March 31, 2010, the Company and DHL executed commercial agreements under which DHL leases 13 Boeing 767 freighter aircraft from CAM and contracted with ABX to operate those aircraft under a separate crew, maintenance and insurance (“CMI”) agreement. The CMI agreement pricing is based on pre-defined fees, scaled for the number of aircraft operated and the number of flight crews provided to DHL for its U.S. network. The initial term of the CMI agreement is five years and the terms of the aircraft leases are seven years, with early termination provisions. In addition to the 13 CAM-owned Boeing 767 aircraft, ABX also operates four DHL-owned Boeing 767 aircraft under the CMI agreement. We also provide two Boeing 757 aircraft to DHL under multi-year contracts. Additionally, during 2012 the Company's airlines provided eight other Boeing 767 aircraft and one Boeing 757 aircraft to DHL under contracts and arrangements having durations of one year or less.

The U.S. Military comprised 16% , 12% and 14% of the Company's consolidated revenues during the years ended December 31, 2012, 2011 and 2010, respectively. The Company's airlines con tract their services to the Air Mobility Command ("AMC"), through the U.S. Transportation Command ("USTC") both of which are organized under the U.S. Military.

A substantial portion of the Company’s revenues and cash flows have historically been derived from providing airlift in North America to BAX Global, Inc., an affiliate of DB Schenker ("BAX/Schenker"). BAX/Schenker is a specialized heavy weight, business to business shipper. In July 2011, BAX/Schenker announced its plans to adopt a new operating model that phased out the dedicated air cargo network in North America supported by the Company. In September 2011, BAX/Schenker ceased air cargo operations at its air hub in Toledo, Ohio and began to conduct air operations from the Cincinnati/Northern Kentucky airport, utilizing DHL's U.S. air hub. Instead of dedicated aircraft, BAX/Schenker now utilizes DHL and other delivery services for its air transportation delivery requirements.

The Company ceased providing services to BAX/Schenker as of the end of 2011. The Company's revenues from

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the services performed for BAX/Schenker, derived primarily by providing Boeing 727 and DC-8 airlift, were $187.0 million and $194.3 million for the years ended December 31, 2011 and 2010, respectively. The Company's revenues from BAX/Schenker comprised approximately 26% and 29% of the Company's total revenues during the years ended December 31, 2011 and 2010, respectively, ( 15% and 18% of total revenues, excluding directly reimbursable revenues).

The Company has two reportable segments: ACMI Services, which primarily includes the cargo transportation operations of its three airlines and the CAM segment. The Company's other business operations, which primarily provide support services to the transportation industry, include aircraft maintenance, aircraft parts sales, ground equipment leasing and mail handling services. These operations do not constitute reportable segments due to their size.

RESULTS OF OPERATIONS

Summary

The consolidated net earnings from continuing operations were $41.6 million and $23.9 million for 2012 and 2011, respectively. The pre-tax earnings from continuing operations were $66.3 million and $40.9 million for 2012 and 2011, respectively. The increase in earnings from continuing operations in 2012 as compared to 2011 was primarily due to the 2011 recognition of asset impairment charges of $27.1 million, interest rate derivative losses of $4.9 million and the write-off of $2.9 million of unamortized debt issuance related to the refinancing of the Company's debt in 2011. Adjusted pre-tax earnings from continuing operations, a non-GAAP measure (a definition and reconciliation of adjusted pre-tax earnings is shown below), after removing impairment charges, net derivative gains or losses and charges related to debt refinancing was $64.4 million for 2012 compared to $75.8 million for 2011. The adjusted pre-tax earnings in 2012 compared to 2011 was bolstered by increased operations for the Company's Boeing 767 and Boeing 757 aircraft, but were negatively impacted by the discontinuation of the BAX/Schenker North American air network in the fourth quarter of 2011.

Total customer revenues from continuing operations decreased by $122.7 million to $607.4 million during 2012 compared to 2011. The decline reflects $187.0 million of revenues during 2011 from services for the BAX/Schenker air network which was discontinued. Revenues from reimbursed fuel and other reimbursed operating expenses declined by $85.7 million during 2012 compared to 2011. These declines were also primarily due to the discontinuation of the BAX/Schenker air network. Excluding directly reimbursed revenues, customer revenues decreased by $37.0 million during 2012 compared to 2011. Revenue from the deployment of additional Boeing 767 and Boeing 757 aircraft by ACMI Services during 2012, was more than offset by the revenue decline from the discontinuation of the BAX/Schenker air network.

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A summary of our revenues and pre-tax earnings from continuing operations is shown below (in thousands):



	Years Ending December 31
	2012			2011			2010
Revenues from Continuing Operations:
CAM	$	154,565		$	140,469		$	101,375
ACMI Services
Airline services	404,053			444,778			432,082
Reimbursable	74,940			160,683			143,330
DHL S&R activities	—			—			4,000
Total ACMI Services	478,993			605,461			579,412
Other Activities	112,343			105,284			87,660
Total Revenues	745,901			851,214			768,447
Eliminate internal revenues	(138,463		)	(121,081		)	(101,065		)
Customer Revenues	$	607,438		$	730,133		$	667,382


Pre-Tax Earnings from Continuing Operations:
CAM, inclusive of interest expense and impairment charges	$	68,499		$	53,221		$	41,586
ACMI Services
Airline services	(14,503		)	6,576			17,339
Asset impairment charges	—			(20,383		)	—
DHL S&R activities	—			—			3,549
Total ACMI Services	(14,503		)	(13,807		)	20,888
Other Activities	11,650			11,331			8,017
Net unallocated interest expense	(1,205		)	(2,118		)	(7,174		)
Net gain (loss) on derivative instruments	1,879			(4,881		)	—
Write-off of unamortized debt issuance costs	—			(2,886		)	—
Pre-Tax Earnings from Continuing Operations	66,320			40,860			63,317
Add Asset impairment charges	—			27,144			—
Less Net (gain) loss on derivative instruments	(1,879		)	4,881			—
Add Write-off of unamortized debt issuance costs	—			2,886			—
Less DHL Severance and Retention activities	—			—			(3,549		)
Adjusted Pre-Tax Earnings	$	64,441		$	75,771		$	59,768

Reimbursable revenues include certain operating costs that are reimbursed to the airlines by their customers. Such costs include fuel expense, landing fees and certain aircraft maintenance expenses. The types of costs that are reimbursed varies by customer operating agreement.

Adjusted pre-tax earnings, a non-GAAP measure, is pre-tax earnings excluding asset impairment charges, interest rate derivative gains and losses, the write-off of debt issuance costs and earnings from the termination of the severance and retention agreement ("S&R agreement") with DHL in March 2010. Management uses adjusted pre-tax earnings to compare the performance of core operating results between periods. Adjusted pre-tax earnings, should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

CAM

Through the CAM subsidiary, we offer aircraft leasing to external customers and also lease aircraft internally to the Company's airlines. Aircraft leases normally cover a term of five to seven years. In a typical leasing agreement, customers pay rent and maintenance deposits on a monthly basis.

As of December 31, 2012 , CAM had 48 aircraft in serviceable condition, 28 of them leased internally to the Company's airlines. CAM's revenues grew $14.1 million during 2012 compared to 2011, as a result of additional aircraft leases over the last two years. During 2012, CAM completed the modification of one Boeing 767-200 freighter aircraft and three Boeing 767-300 freighter aircraft, and placed those aircraft under leases with internal customers. As of December 31, 2012 and 2011, CAM leased 20 and 21 aircraft to external customers, respectively. Revenues from

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external customers accounted for $6.8 million of the increased revenue for 2012, due primarily to four additional aircraft leases placed with external customers throughout 2011. During the fourth quarter of 2012, a regional carrier returned a Boeing 767-200 aircraft to CAM before the end of the original lease term. The aircraft is being prepared for redeployment in ACMI services.

CAM's revenues from the Company's airlines totaled $80.0 million during 2012, compared to $72.7 million for 2011. CAM's revenues from internal leases of Boeing 727 and DC-8 freighter aircraft for 2012 declined $15.0 million compared to 2011 due to the retirement of Boeing 727 and DC-8 aircraft previously operated for BAX/Schenker, but the decline was more than offset by the additional Boeing 767 aircraft leases.

CAM's pre-tax earnings, inclusive of an interest expense allocation and a $6.8 million charge for aircraft impairment in 2011, were $68.5 million and $53.2 million during 2012 and 2011, respectively. CAM's pre-tax earnings, excluding the aircraft impairment charges, increased by $8.5 million for 2012 compared to 2011. Improved earnings reflected additional Boeing 767 aircraft placed under leases during 2011 and 2012. CAM's pre-tax earnings for 2012 do not reflect $0.9 million of unpaid rents related to Boeing 767 aircraft under lease with a regional airline. Those amounts will be recognized as we receive payment from the carrier. Management and the lessee are discussing the timing of future payments which could result in the early return of a leased Boeing 767-200 aircraft in 2013.

During 2013, we expect CAM to deploy two more Boeing 767-300 and five 757-200 aircraft that are being prepared for future deployment, as discussed further below under "Fleet Summary 2012." The reputation of the Boeing 767 and Boeing 757 aircraft for reliability and cost effectiveness in medium range markets remains strong. The placement of additional aircraft under long term leases, however, could be affected by economic conditions and market uncertainty.

ACMI Services Segment

The ACMI Services segment provides airline operations to its customers, typically under contracts providing for a combination of aircraft, crews, maintenance and insurance ("ACMI"). Our customers are usually responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses, such as landing fees, ramp expenses and certain aircraft maintenance expenses. Aircraft charter agreements, including those for the U.S. Military, usually require the airline to provide full service, including fuel and other operating expenses for a fixed, all-inclusive price. As of December 31, 2012 , ACMI Services included 47 in-service aircraft, including 28 leased internally from CAM, six leased from external providers and 13 CAM-owned freighter aircraft which are under lease to DHL and operated by ABX under the CMI agreement.

Revenues from ACMI Services were $479.0 million and $605.5 million during 2012 and 2011, respectively. The decrease of $126.5 million is primarily the result of the discontinuation of services for BAX/Schenker's North American air network. Since June 30, 2011, we have retired all of our Boeing 727 and DC-8 freighter aircraft in response to the discontinuation of BAX/Schenker's North American air network in 2011. Airline services revenues, which do not include revenues for the reimbursement of fuel and certain operating expenses, declined 9% during 2012 compared to 2011, reflecting the loss of BAX/Schenker revenues of $85.7 million during 2011. During 2011, ACMI Services revenues also included $100.9 million for the reimbursement of fuel and other operating expenses for the BAX/Schenker air network.

Revenue declines from BAX/Schenker were partially offset by revenues from additional Boeing 767 aircraft added to the ACMI Services fleet since December 31, 2011. Since December 31, 2011, ACMI Services has added two Boeing 767-200 and four Boeing 767-300 aircraft into the operating fleet. Airline service revenues, excluding those from BAX/Schenker, increased $44.9 million during 2012 compared to 2011, driven by these additional Boeing 767 aircraft. Aircraft block hours flown for customers other than BAX/Schenker increased 9% during 2012, compared to 2011.

ACMI Services incurred pre-tax losses of $14.5 million during 2012, compared to pre-tax losses of $13.8 million for 2011. Excluding asset impairment charges of $20.4 million incurred during 2011, ACMI Services achieved pre-tax earnings of $6.6 million in 2011. The operating results during 2012 were negatively impacted by the discontinuation of BAX/Schenker's North American air network, the cost of training flight crew members for the Boeing 767 aircraft, increased pension expenses, higher engine maintenance expenses and delays in placing aircraft into revenue service. While ATI and CCIA reduced the number of crew members and other employees in the ACMI Services segment due to the termination of the BAX/Schenker network, salaries and benefits expenses during 2012 included the costs of training senior, former DC-8 and Boeing 727 crewmembers for the Boeing 767 aircraft the Boeing 757 aircraft.

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During 2012, four Boeing 767-300 aircraft and two Boeing 767-200 aircraft were added into the ACMI Services in-service fleet. Due to sluggish economic conditions, initial deployment and redeployment of aircraft into incremental revenue generating services were delayed, thereby adversely impacting operating results for 2012. In December 2012, DHL discontinued an ACMI contract for a Boeing 767 on a transatlantic flight. However, in January 2013, we reached agreements to operate three more Boeing 767-200 aircraft and a Boeing 757 aircraft for DHL's U.S. network. These aircraft replace the Boeing 727 aircraft that were retired at the end of 2012.

ATI operates four DC-8 combi aircraft for the U.S. Military. In July 2012, the U.S. Military's Air Mobility Command notified ATI that it was awarded a two-year agreement to continue the combi aircraft flights through September 2014. ATI intends to service the award with its DC-8 combi aircraft and phase-in more modern Boeing 757 combi aircraft starting in the second quarter of 2013.

To further streamline the operations impacted by the loss of the BAX/Schenker business, we began to merge the airline operations of ATI and CCIA during 2012. In September 2012, ATI and CCIA flight crewmembers, as represented by the Air Line Pilots Association International ("ALPA"), ratified a collective bargaining agreement which allows for an integrated seniority list. The airlines and ALPA completed the integration of the seniority lists in 2012, to be effective beginning in March of 2013. We expect to complete the merger of ATI and CCIA's airline operations in the first quarter of 2013. The combined operation will benefit from the standardized fleet, two person flight crew, common pilot type rating and improved reliability of the Boeing 767 and Boeing 757 aircraft compared to the Boeing 727 and DC-8 freighter aircraft formerly operated by the airlines.

Revenue for ACMI Services depends on a number of key factors including regulatory approvals, the cost competitiveness of the airlines, aircraft reliability, market preferences for the type of aircraft that we operate and general economic conditions. Continued stagnant economic conditions and market uncertainty may continue to slow the pace by which we deploy aircraft into incremental revenue operations. We may further reduce staff levels as required to match with customer demand and aircraft utilization levels.

When new deployments of aircraft begin, typically start-up expenses are incurred, including those for proving flights, route authorities, overfly rights, travel and other activities which may impact future operating results. Revenue-generating service may begin sometime later; however, depending on the satisfaction of a number of conditions, including international regulations and laws, contract negotiations, flight crew availability, and arranging resources for aircraft handling.

Other Activities

The Company sells aircraft parts and provides aircraft maintenance and modification services to other airlines. The Company also operates five U.S. Postal Service (“USPS”) sorting facilities and provides ground support equipment, related maintenance, leasing and facility maintenance services, including fuel services. Other activities also include the management of workers' compensation claims under an agreement with DHL and gains from the reduction in employee post-retirement obligations.

External customer revenues from all other activities were $55.1 million and $57.4 million for 2012 and 2011, respectively. Revenues from services provided to the USPS increased $2.1 million during 2012 primarily due to two additional USPS facilities that we started in mid 201l. Increased revenues from the USPS, however, were more than offset by lower aircraft maintenance revenues from external customers, which declined $4.2 million. Maintenance services revenues for external customers declined during 2012 compared to 2011 because the Company's aircraft maintenance and repair business, Airborne Maintenance and Engineering Services, Inc. ("AMES"), has limited hangar facilities and used those facilities for more internal contracts for the Company's own airlines and CAM instead of external customer projects during 2012.

The pre-tax earnings from other activities were $11.7 million and $11.3 million for 2012 and 2011, respectively. The increase of $0.4 million of pre-tax earnings for 2012 compared to 2011 primarily reflects process streamlining initiatives at the sorting facilities.

In 2013, the Company, as construction agent for the Clinton County Port Authority ("CCPA") in Wilmington, Ohio, began construction of a 100,000 square foot aircraft hangar facility adjacent to the existing aircraft maintenance facility currently utilized by AMES. While the current facility houses aircraft as large as the Boeing 767, the new facility will provide AMES the capability of servicing aircraft as large as a Boeing 747 and the Boeing 777. The hangar is anticipated

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to cost approximately $15.7 million and is expected to take approximately 12 to 14 months to complete. The Company will lease the facility from the CCPA and begin to make related rent payments beginning in 2014. We could incur incremental costs associated with the new hangar, including the costs of aircraft maintenance personnel before the hangar is completed. Further, we will need to grow aircraft maintenance revenues utilizing the expanded hangar capabilities by expanding business with current customers and contracting with new customers. Our future operating results could be adversely impacted if anticipated revenues do not coincide with our costs of operating the new facility.

Discontinued Operations

Discontinued operations are a result of DHL's decision in 2008 to restructure its U.S. operations. DHL discontinued intra-U.S. domestic pickup and delivery services and now provides only international services to and from the U.S. In the third quarter of 2009, ABX ceased all remaining hub and parcel sorting operations for DHL. Additionally, in the third quarter of 2009, DHL assumed management of aircraft fuel services for its U.S. network previously provided by ABX.

Pre-tax losses related to the former sorting operations were $1.2 million for 2012 compared to $1.1 million for 2011. The results of discontinued operations primarily contain pension expense for former employees that supported sort operations under a hub services agreement with DHL and expenses for certain legal matters associated with those former sorting operations. During 2011, the Company recorded $0.9 million of charges related to a civil action alleging that ABX violated immigration labor laws while managing the sort operations in Wilmington, Ohio. The matter is described further under Item 3, Legal Proceedings, of this report. During 2013, pension expense for discontinued operations is expected to decrease approximately $1.2 million due primarily to the effects of recent investment returns used to actuarially calculate the Company's annual pension expense.

Fleet Summary 2012

The Company’s aircraft fleet is summarized below as of December 31, 2012 ($'s in thousands):



	ACMI Services	CAM	Total
In-service aircraft
Aircraft owned
Boeing 767-200	16	20	36
Boeing 767-300	5	—	5
Boeing 757	3	—	3
DC-8 combi	4	—	4
Total	28	20	48
Carrying value			$	656,388
Operating lease
Boeing 767-200	4	—	4
Boeing 767-300	2	—	2
Total	6	—	6
Carrying value			$	1,134
Aircraft for freighter and combi modification
Boeing 767-300	—	2	2
Boeing 757	—	3	3
Total	—	5	5
Carrying value			$	108,697

As of December 31, 2012 , ACMI Services leased 28 of its in-service aircraft internally from CAM. As of December 31, 2012 , 13 of CAM's 20 Boeing 767-200 aircraft shown above were leased to DHL and operated by ABX and CAM leased the other seven Boeing 767-200 aircraft to external airlines.

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Aircraft fleet activity during 2012 is summarized below:

- CAM completed the standard freighter modification of one Boeing 767-200 aircraft and leased the aircraft internally to an airline affiliate.

- A Boeing 767-200 passenger aircraft was placed in temporary storage when its airframe maintenance cycle expired. The aircraft will remain in storage until it enters the freighter modification process or is prepped for service.

- ABX began to lease a Boeing 767-300 aircraft from an external lessor.

- CAM purchased two Boeing 767-300 passenger aircraft for modification into standard freighter aircraft.

- CAM completed the freighter modification of three Boeing 767-300 aircraft and leased the aircraft internally to an airline affiliate.

- CAM received a Boeing 767-200 aircraft, returned from a lessee, and placed the aircraft internally with an airline affiliate.

- CAM purchased a Boeing 757 combi aircraft that is completing the process for obtaining its airworthiness certificate.

- We removed three DC-8 freighter aircraft and four Boeing 727 aircraft from the in-service fleet.

In 2013, CAM purchased two more Boeing 757 combi aircraft that are completing the process for airworthiness certification. We expect to place four Boeing 757 combi aircraft into service for the U.S. Military during the first half of 2013. We also expect to complete the modification of one Boeing 757 freighter and place it into service for DHL during the first half of 2013. Additionally, we expect to complete the modification of two Boeing 767-300 aircraft during the first half of 2013.

As of December 31, 2012 , the Company had Boeing 727 and DC-8 airframes and engines with a carrying value of $3.4 million that were available for sale. This carrying value is based on fair market values less the estimated costs to sell the airframes, engines and parts.

Expenses from Continuing Operations

Salaries, wages and benefits expense decreased $4.2 million during 2012 compared to 2011. Reductions in the number of employees, including Boeing 727 and DC-8 crew members, since 2011 were partially offset by costs of additional crew members for the expanded number of Boeing 767 aircraft operated by the Company and by increased pension expense compared to 2011. Pension expense for continuing operations increased $5.7 million during 2012 when compared to 2011 due to the effects of lower discount rates used to actuarially calculate the Company's annual pension expense.

Fuel expense decreased by $96.1 million during 2012 compared to 2011. The decrease occurred in conjunction with BAX/Schenker's discontinuation of its North American air network in the fourth quarter of 2011. During 2011, while under contract with BAX/Schenker, ATI provided aviation fuel for the BAX/Schenker air network and was reimbursed by BAX/Schenker for the costs of fuel. The Company is no longer incurring aviation fuel expenses or recording a related reimbursable revenue for the BAX/Schenker network. Fuel expense during 2012 primarily reflects the costs of fuel to operate U.S. Military charters, position aircraft for service and for maintenance purposes.

Maintenance, materials and repairs expense increased by $10.6 million during 2012 compared to 2011. During 2012, maintenance expense reductions stemming from the discontinuation of Boeing 727 aircraft and DC-8 freighter aircraft since 2011 were offset by higher maintenance expenses to support the larger fleet of Boeing 767 and 757 aircraft. The Company expensed 20 and 14 scheduled airframe heavy maintenance events during 2012 and 2011, respectively, We expect aircraft maintenance expenses to increase in 2013 due to higher costs for aircraft parts and rate increases under certain maintenance agreements.

Depreciation and amortization expense decreased $6.6 million during 2012 compared to 2011. The decline in depreciation expense reflects the removal of the Boeing 727 aircraft and the DC-8 freighter aircraft from service, offset by incremental depreciation expense for four Boeing 767 aircraft added to the in-service fleet since December 2011. The Boeing 727 aircraft and DC-8 freighter aircraft were removed from service in conjunction with BAX/Schenker's

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discontinuation of its North American air network in 2011.

Travel expense decreased by $5.7 million during 2012 compared to 2011. The decrease is a result of the discontinuation of the BAX/Schenker North American air network in the fourth quarter of 2011.

Rent expense increased by $0.8 million during 2012 compared to 2011. Rent expense increased primarily due to the lease of an additional Boeing 767-300 aircraft beginning in May 2012. Rent expense was not significantly affected by the discontinuation of the BAX/Schenker North American air network because the Company did not lease the aircraft used in that network.

Landing and ramp expense, which includes the cost of deicing chemicals, decreased by $6.7 million during 2012 compared to 2011. The decrease during 2012 reflects the discontinuation of the BAX/Schenker North American air network in the fourth quarter of 2011.

Insurance expense decreased by $1.6 million during 2012 compared to 2011, primarily due to the reduction in Boeing 727 and DC-8 aircraft during 2012 and the fourth quarter of 2011.

Other operating expenses include professional fees, navigational services, employee training, utilities and the cost of parts sold to customers. Other operating expenses decreased by $2.2 million during 2012 compared to 2011. During 2012, increased expenses for international aircraft operations were offset by lower costs stemming from the discontinuation of the BAX/Schenker North American air network.

Interest expense increased by $0.2 million during 2012 compared to 2011. Interest expense was higher in 2012 compared to 2011 primarily due to an increase in the amount of borrowings under the revolving credit loan offset by lower interest rates. Interest rates on the Company’s variable interest, unsubordinated term loan decreased to 2.47% at December 31, 2012 from 2.58% at December 31, 2011. We expect interest expense to increase during 2013 due to a higher level of debt which is being used to expand the Company's aircraft fleet.

During 2012, the Company recorded pre-tax net gains on derivatives of $1.9 million compared to pre-tax net losses on derivatives of $4.9 million during 2011, reflecting the impact of higher market interest rates since December 31, 2011 on the interest rate swaps held by the Company at December 31, 2012.

In 2011, the Company executed a Senior Credit Agreement replacing its previous credit agreement. During 2011, the Company wrote off $2.9 million of unamortized debt issuance costs associated with the former credit agreement. During 2011, the Company terminated its hedge accounting of interest rate swaps related to the former term loan, which resulted in the recognition of $3.9 million of pre-tax losses which had previously been reflected in other comprehensive income.

The effective tax rate from continuing operations for the year ended December 31, 2012 was 37.2% compared to 41.6% for 2011. The effective tax rate from continuing operations in 2011 was affected by impairment charges that are not deductible for federal income tax purposes. The Company's effective tax rate from continuing operations was approximately 39% for the year ended December 31, 2011 after adjusting for $2.8 million of non-deductible impairment charges. The decline in the effective tax rate from continuing operations for 2012 compared to 2011 was also a result of decreased state income taxes for 2012 as a result of the the discontinuation of services for BAX/Schenker's North American air network during 2011.

We estimate that the Company's effective tax rate for 2013 will be approximately 37.5%. As of December 31, 2012, the Company had operating loss carryforwards for U.S. federal income tax purposes of approximately $93.4 million, which will begin to expire in 2024 if not utilized before then. We expect to utilize the loss carryforwards to offset federal income tax liabilities in the future. As a result, we do not expect to pay federal income taxes through 2014 or later. The Company may, however, be required to pay alternative minimum taxes and certain state and local income taxes before then. The Company's taxable income earned from international flights are primarily sourced to the United States under international aviation agreements and treaties. If we begin to operate in countries without such agreements, the Company could incur additional foreign income taxes.

2011 compared to 2010

Summary

The consolidated net earnings from continuing operations were $23.9 million and $39.9 million for 2011 and 2010, respectively. The pre-tax earnings from continuing operations for 2011 were $40.9 million, inclusive of asset impairment

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charges and interest rate derivative losses during 2011, compared to pre-tax earnings of $63.3 million in 2010, in which no impairment charges or derivative losses were recorded. The decline in earnings from continuing operations in 2011 as compared to 2010 resulted primarily from the recognition of asset impairment charges of $27.1 million, interest rate derivative losses of $4.9 million and the write-off of $2.9 million of unamortized debt issuance costs related to the refinancing of the Company's debt in 2011. Adjusted pre-tax earnings from continuing operations, a non-GAAP measure (see reconciliation table below), after removing impairment charges, net derivative losses and charges related to debt refinancing was $75.8 million for 2011 compared to $59.8 million for 2010 after removing pre-tax earnings related to DHL's restructuring. The improved earnings, as adjusted, over 2010, was driven primarily by CAM, which placed five additional aircraft under external customer leases since December 31, 2010.

The Company provided limited airlift directly to BAX/Schenker from September 2011 through the peak delivery season, until late December 2011. Beginning in January 2012, DHL contracted with the Company's airlines to supplement DHL's U.S. air network to service BAX/Schenker freight volumes on its expanded air network without use of the Company's DC-8 aircraft and with only limited use of Boeing 727 aircraft. The Company's impairment charges in 2011 stemming from BAX/Schenker's 2011 transition to a new U.S. business model are described below:

- $22.1 million ($13.7 million after income tax benefit) to write-down Boeing 727 and DC-8 freighters, engines and related parts to their appraised fair values. In light of BAX/Schenker's decision to phase-out its dedicated air network in the U.S. and after evaluating business prospects for these aircraft, management has decided to discontinue the service of Boeing 727 and DC-8 freighters sooner than previously expected.

- $2.3 million ($1.4 million after income tax benefit) to write-down customer relationship intangible assets, reflecting the closure of BAX/Schenker's dedicated air network.

- $2.8 million ($2.8 million after income tax benefit) to write-down goodwill acquired when the Company purchased ATI, which operated the DC-8 aircraft for BAX/Schenker. The write-down reflects the lower forecasted cash flows in the near term as ATI re-fleets by replacing the DC-8 aircraft operated for BAX/Schenker with more efficient Boeing 767 and 757 aircraft to be operated for other customers.

During 2011, the Company executed a Senior Credit Agreement with a consortium of banks. The Senior Credit Agreement refinanced the Company's previous term loan and provides liquidity to expand the Company's aircraft fleet through April 2016. The Senior Credit Agreement includes a term loan of $150 million and a $175 million revolving credit facility, of which the Company has drawn $106 million, net of repayments. In conjunction with the execution of the Senior Credit Agreement, the Company terminated its previous credit agreement, which resulted in the write-off of $2.9 million of unamortized debt issuance costs associated with that credit agreement and the recognition of $3.9 million of losses for certain interest rate swaps previously designated as cash flow hedges of interest payments stemming from the former term loan. These charges, which totaled $6.8 million before income tax effects, were recorded in March 2011.

Customer revenues from continuing operations increased by $62.8 million to $730.1 million during 2011 compared to 2010. Excluding directly reimbursed revenues, customer revenues increased by $45.4 million during 2011 compared to 2010. Revenue growth during 2011 compared to 2010 reflects additional external aircraft leases by CAM, up $24.5 million, additional Boeing 767 aircraft operations being performed under the ACMI Services segment, up $12.7 million, and increased aircraft maintenance services, up $9.9 million, which is reflected under other activities. Revenue growth comparisons to 2010 are affected by the termination of the DHL ACMI agreement and S&R agreement with DHL in March 2010. Under the S&R agreement, DHL compensated and reimbursed ABX for its management and costs associated with DHL's network restructuring starting in May 2008 and continuing through March 2010. Revenues from the S&R agreement were $4.0 million in the first quarter of 2010.

CAM

The Company offers aircraft leasing through its CAM subsidiary. Aircraft leases normally cover a term of five to seven years. In a typical leasing agreement, customers pay rent and a maintenance deposit on a monthly basis.

CAM's revenues for 2011 grew to $140.5 million compared to $101.4 million during 2010. Revenues from external customers accounted for $24.5 million of the increased revenue for 2011. Since December 31, 2010, CAM has leased five more Boeing 767-200 aircraft to external customers. CAM's revenues from the Company's airlines totaled $72.7 million during 2011, compared to $58.1 million for 2010.

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As of December 31, 2011, CAM had 52 aircraft that were under lease, 31 of them internally to ATSG airlines. CAM's pre-tax earnings, inclusive of an interest expense allocation and $6.8 million for aircraft impairment charges, were $53.2 million and $41.6 million, during 2011 and 2010, respectively. CAM's pre-tax earnings, excluding the aircraft impairment charges, increased by $18.4 million for 2011 compared to 2010. Improved earnings reflected five more Boeing 767 freighter aircraft under lease since December 31, 2010. During 2011, CAM completed the freighter modification of two Boeing 767-200 aircraft and leased them to a Brazilian airline under long term leases. Also during 2011, CAM leased two additional Boeing 767-200 aircraft to DHL, fulfilling its commitment from March 2010 to lease 13 aircraft to DHL under long term leases. CAM also leased one additional Boeing 767-200 freighter aircraft to a Miami, Florida, based operator in 2011. During 2011, CAM completed the modification of its first two Boeing 767-300 freighter aircraft and leased the aircraft internally to its affiliate, ATI, which began to operate the aircraft for customers under ACMI agreements.

ACMI Services Segment

As of December 31, 2011, ACMI Services included 49 in-service aircraft, including 31 leased internally from CAM, five leased from external providers and 13 CAM-owned freighter aircraft which were under lease to DHL and operated by ABX under the CMI agreement. During 2011, ABX began to lease and operate two more DHL-owned aircraft, bringing to four the number of DHL-owned aircraft that ABX leases from DHL and operates under the CMI agreement. During 2011, ATI leased two Boeing 767-300 aircraft from CAM and began to operate the aircraft under ACMI agreements. Also in December 2011, CCIA began to operate a Boeing 757 aircraft under an ACMI agreement.

ACMI Services revenues were $605.5 million and $579.4 million during 2011 and 2010, respectively. Revenues from airline services increased 3% during 2011 compared to 2010, driven by higher block hours flown for customers. Aircraft block hours flown for customers increased 2% during the year, however, block hours for customers other than BAX/Schenker increased 11% in 2011 compared to 2010. This increase in block hours reflects the additional Boeing 767 aircraft placed into service during 2011, as described above. Reimbursable revenues increased $17.4 million during 2011, compared to 2010. The comparison of airline services revenues and reimbursable revenues to 2010 reflects the new commercial agreements between ABX and DHL which became effective in April 2010. Airline services revenues for the first quarter of 2010 included compensation based on aircraft depreciation and certain maintenance expenses under the former cost-plus DHL ACMI agreement. Beginning in April 2010, lease revenues for the DHL network aircraft have been reflected in CAM's revenues, while compensation for certain aircraft related maintenance costs have been reflected as reimbursable revenues. Revenues from activities under the S&R agreement declined by $4.0 million during 2011 compared to 2010, due to the termination of the S&R agreement in March 2010.

ACMI Services incurred a pre-tax loss of $13.8 million during 2011 due to asset impairment charges of $20.4 million. The pre-tax earnings for ACMI Services, excluding asset impairment charges, were $6.6 million from airline services for 2011 compared to $17.3 million from airline services during 2010. Operating results during 2011 were negatively impacted by the phase-out of BAX/Schenker's North American air network, unscheduled aircraft downtime, start-up costs for new Boeing 767 passenger operations and reductions in revenues from U.S. Military charters. As a result of unscheduled aircraft maintenance events, revenue flights were missed and higher operating expenses were incurred during the aircraft downtime. Some of the downtime affected DC-8 combi aircraft and Boeing 767 freighters operating in remote regions that were difficult to service. Revenues from the U.S. Military declined $2.6 million during 2011 compared to 2010 due to maintenance related cancellations and contractual rate reductions. The results for 2011 were impacted by start-up costs incurred by ATI in order for it to gain passenger authority and operate passenger routes under an ACMI agreement with a tourist operator beginning in April 2011. This agreement was primarily for the purpose of allowing ATI to build 12 months of passenger operating experience on the Boeing 767 aircraft, which is required in order to transport passengers for the U.S. Military on such aircraft. Additionally, ATI incurred higher crew training costs in 2011 to support the addition of its first two Boeing 767-300 aircraft during the year and transition DC-8 crews to the Boeing 767 aircraft.

Revenues from DHL, BAX/Schenker and other customers included the reimbursement of certain expenses. Excluding these reimbursable revenues, DHL, BAX/Schenker and the U.S. Military accounted for 37%, 19% and 20%, respectively, of ACMI Services revenues during 2011. Excluding reimbursable revenues, DHL, BAX/Schenker and the U.S. Military accounted for 39%, 22% and 21% of ACMI Services revenues for 2010.

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Fleet Summary 2011

The Company’s aircraft fleet is summarized below as of December 31, 2011 ($'s in thousands):



	ACMI Services	CAM	Total
In-service aircraft
Aircraft owned
Boeing 767-200	15	21	36
Boeing 767-300	2	—	2
Boeing 757	3	—	3
Boeing 727	4	—	4
DC-8	7	—	7
Total	31	21	52
Carrying value			$	617,373
Operating lease
Boeing 767-200	4	—	4
Boeing 767-300	1	—	1
Total	5	—	5
Carrying value			$	419
Aircraft for freighter modification
Boeing 767-200	—	1	1
Boeing 767-300	—	3	3
Boeing 757	—	2	2

Total	—	6	6
Carrying value			$	101,700

As of December 31, 2011, ACMI Services was leasing 31 of its 36 in-service aircraft internally from CAM. ACMI Services operated 13 of the 21 Boeing 767-200 aircraft that CAM leases to external customers.

Aircraft fleet activity during 2011 is summarized below by fleet type:

CAM completed the freighter modification of five Boeing 767-200 aircraft and ABX returned a Boeing 767-200 aircraft to CAM. CAM leased five more Boeing 767-200 aircraft to external customers under long-term agreements, including two to DHL, bringing to 13 the total number of Boeing 767-200 aircraft leased to DHL.

CAM also leased one Boeing 767-200 aircraft internally to an airline affiliate. ABX began to lease and operate two DHL-owned aircraft, bringing to four the number of DHL-owned aircraft that ABX leases from DHL and operates under the CMI agreement.

CAM completed the freighter modification of its first two Boeing 767-300 aircraft and leased them internally to ATI, which is operating them under ACMI agreements. CAM purchased two more Boeing 767-300 passenger aircraft with the intent of modifying them into standard freighters.

CAM purchased three Boeing 757 passenger aircraft with the intent of modifying two of them into combi configured aircraft and the other into a standard freighter. CAM completed the freighter modification of one Boeing 757 aircraft and it was placed into service during the fourth quarter of 2011.

We reduced the in-service number of Boeing 727 and DC-8 aircraft in response to the phase-out of BAX/Schenker's North American network and diminished demand for these aircraft. The carrying value for all of the Company's Boeing 727 and DC-8 freighter aircraft, engines and aircraft parts totaled $12.5 million as of December 31, 2011. These aircraft were not collateral for the Company's Senior Credit Agreement.

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Other Activities

The Company sells aircraft parts and provides aircraft maintenance and modification services to other airlines. The Company also operates five U.S. Postal Service (“USPS”) sorting facilities. The Company provides ground equipment leasing and facility maintenance, including fuel services. Other activities also include the management of workers' compensation claims under an agreement with DHL and gains from the reduction in employee post-retirement obligations.

External customer revenues from all other activities were $57.4 million and $45.9 million for 2011 and 2010, respectively. The increase in other revenues during 2011 primarily reflects additional aircraft maintenance projects and additional services provided to the USPS beginning in April 2011.

The pre-tax earnings from other activities were $11.3 million and $8.0 million in 2011 and 2010, respectively. The increase of $3.3 million in pre-tax earnings for 2011 compared to 2010 reflects increased aircraft maintenance projects completed during 2011 and additional business with the USPS, offset by higher facility expenses for the other business segments, additional corporate expenses to support the subsidiaries and additional business development expenses to support the Company's growth.

Discontinued Operations

Pre-tax losses from former hub services operations were $1.1 million for 2011 compared to $0.1 million for 2010. During 2011, the results of discontinued operations primarily contain pension for former employees that supported sort operations under a hub services agreement with DHL and expenses for certain legal matters associated with those former sorting operations. During 2011, the Company recorded $0.9 million of charges related to a civil action alleging that ABX violated immigration labor laws while managing the sort operations in Wilmington, Ohio.

During 2010, the results of discontinued operations primarily contained pension expenses for former employees that supported sort operations and medical costs in excess of initially estimated accruals for former employees under severance benefit plans and COBRA.

Expenses from Continuing Operations

Salaries, wages and benefits expense increased by 7% during 2011 compared to 2010. The increase reflects an increase in the number of flight crew members employed during 2011 to support additional aircraft block hours and revenue growth. Additionally, labor expenses for customer aircraft maintenance projects increased during 2011, coinciding with the increase in aircraft maintenance revenues.

Fuel expense increased by $16.2 million during 2011 compared to 2010. The increase reflects the higher cost of aviation fuel which increased 38% during 2011 compared to 2010. The cost of fuel is generally reimbursed to our airlines under the operating agreements with their customers and are reflected as revenues. In conjunction with BAX/Schenker's phase-out of its dedicated North American air network in 2011, the Company no longer incurred fuel expenses or recording a related reimbursable revenue for the BAX/Schenker network.

Depreciation and amortization expense increased $3.5 million during 2011 compared to 2010. Depreciation expense increased during the year primarily due to the deployment of seven owned Boeing 767 aircraft since the beginning of 2011.

Maintenance, materials and repairs expense increased by $7.8 million during 2011 compared to 2010. The increase in maintenance expense was primarily a result of increased flight hours on the Company's Boeing 767-200 aircraft engines. The Company maintains the General Electric CF6 engines for its Boeing 767-200 aircraft through "power by the hour" agreements ("PBH agreements") with a major service provider. The Company incurs a fee under the PBH agreements for each flight hour operated. The Company has also arranged for CAM's external leasing customers to participate under its PBH arrangements. Engine maintenance expense increased due to the increase in hours flown by aircraft operated by the Company and an increase in hours flown by aircraft leased by CAM to external customers. During 2011 and 2010, the Company expensed 14 scheduled airframe heavy maintenance events. We experienced an increase in costs for parts during 2011 due to a declining supply of used Boeing 767 parts.

Landing and ramp expense, which includes the cost of deicing chemicals, decreased by $1.2 million during 2011 compared to 2010. The decrease during 2011 reflects reduced flying for BAX/Schenker and a milder winter in North America compared to 2010.

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Travel expense increased by $5.6 million during 2011 compared to 2010. The increase is a result of additional flying operations, particularly in the European and Asia-Pacific regions.

Rent expense increased by $9.9 million during 2011 compared to 2010. The increase primarily reflects five add itional Boeing 767 freighter aircraft that we have added to the Company's fleet since the fourth quarter of 2010 and an increase in the rental rates for the Company's facilities in Wilmington, Ohio, in conjunction with a new lease agreement executed with a regional port authority in May 2010. Four of the five aircraft leased by the Company are owned by DHL and operated by ABX under the CMI agreement.

Insurance expenses increased by $0.1 million during 2011 compared to 2010 due to the addition of Boeing 767 aircraft during the year.

Other operating expenses include professional fees, navigational services, employee training, utilities, and the cost of parts sold to customers. Other operating expenses increased by $0.8 million during 2011 compared to 2010, primarily due to additional aircraft operations during 2011.

Interest expense decreased by $4.5 million during 2011 compared to 2010. The decline in interest expense reflects the reduction in the level of the Company’s debt during the first four months of 2011, lower interest rates and an increase in capitalized interest for the aircraft undergoing freighter modification. Interest rates on the Company’s variable interest, unsubordinated term loan decreased from an average of approximately 2.9% in 2010 to approximately 2.4% in 2011.

During 2011, the Company recorded a pre-tax net loss on derivatives of $4.9 million, reflecting the impact of lower market interest rates at December 31, 2011 on the interest rate swaps held by the Company. During, 2011, in conjunction with the Senior Credit Agreement, the Company terminated its hedge accounting of interest rate swaps related to the former term loan, which resulted in the recognition of $3.9 million of losses that had previously been reflected in other comprehensive income. Additionally, the Senior Credit Agreement requires the Company to maintain interest rate derivative instruments for at least 50% of the outstanding balance of the new subordinated term loan. As a result, the Company entered into a new interest rate swap in July of 2011. The Company did not designate the recent interest rate swap as a hedge for accounting purposes. Accordingly, the effect of lower interest rates since the purchase of the interest rate swap resulted in a net unrealized loss for 2011.

During 2011, the Company wrote off $2.9 million of unamortized debt issuance costs associated with the former credit agreement.

The effective tax rate from continuing operations for the year ended December 31, 2011, was 41.6% compared to 37.0% for 2010. The effective tax rate from continuing operations in 2011 was affected by impairment charges that are not deductible for federal income tax purposes. The Company's effective tax rate from continuing operations was approximately 39% for the year ended December 31, 2011, after adjusting for $2.8 million of non-deductible impairment charges. The effective tax rate increased for 2011 due to proportionately higher level of non-deductible tax expenses in 2011 compared to 2010. The effective tax rate for 2010 was lower due to the recognition of a deferred tax benefit of $0.4 million in the third quarter of 2010. The deferred tax benefit in 2010 related to a previously unrecognized tax position under the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 740-10 Income Taxes. The statute of limitations for this item expired, resulting in the recording of the deferred tax benefit.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net cash generated from operating activities totaled $110.6 million , $136.1 million and $112.3 million in 2012, 2011 and 2010, respectively. Cash flows generated from operating activities decreased in 2012 compared to 2011 primarily reflecting payments to vendors associated with the wind-down of the BAX/Schenker operations, the timing of cash collections from customers and additional pension contributions. Cash outlays for pension contributions were $24.7 million , $18.0 million and $36.6 million in 2012, 2011 and 2010, respectively. During 2010, cash flows included the receipt from DHL of amounts in reimbursement for severance payments made to employees and costs incurred arising from the termination of ABX's former contracts with DHL.

Capital spending levels were primarily the result of aircraft modification costs and the acquisition of aircraft for

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freighter modification. Cash payments for capital expenditures were $155.2 million , $213.1 million and $110.7 million in 2012, 2011 and 2010, respectively. Capital expenditures in 2012 included $134.9 million for the acquisition of two Boeing 767-300 aircraft and one Boeing 757 aircraft and the costs of aircraft modifications, $11.3 million for required heavy maintenance and $9.0 million for other equipment costs. Our capital expenditures in 2011 included $184.3 million for the acquisition and modification of aircraft, $21.9 million for required heavy maintenance and $6.9 million for other equipment costs. Our capital expenditures in 2010 included $74.8 million for the acquisition and modification of aircraft, $29.9 million for required heavy maintenance and $6.0 million for other equipment costs.

Cash proceeds of $5.8 million , $11.1 million and $32.0 million were received in 2012, 2011 and 2010, respectively, for the sale of aircraft engines, airframes and parts. During 2010, we received proceeds from DHL to complete the sale of aircraft put to DHL under provisions of the former DHL ACMI agreement.

Net cash provided by financing activities was $23.8 million and $48.0 million in 2012 and 2011, respectively. Our borrowing activities were necessary to finance the our strategy to acquire and modify aircraft for deployment into the air cargo markets. During 2012, we drew $50.0 million from the revolving credit facility under the Senior Credit Agreement to fund capital spending and we made debt principal payments of $26.2 million . Additionally, $6.2 million of the principal balance of the DHL promissory note was extinguished during 2012, pursuant to the CMI agreement with DHL. During 2010, we made principal payments of $70.2 million and did not need to draw from the revolving credit facility.

Commitments

Through CAM, the Company continues to make investments in Boeing 767 and 757 aircraft. As these aircraft are modified, we will place them into service under dry leasing arrangements to external customers or ACMI operations using our airlines, depending on which alternative provides the best long term return and considering other factors, including geographical placement and customer diversification.

In August 2010, the Company entered into an agreement with M&B Conversions Limited and Israel Aerospace Industries Ltd. ("IAI"), for the conversion by IAI of up to ten Boeing 767-300 series passenger aircraft to a standard freighter configuration during the 10-year term of the agreement. As of December 31, 2012, five such aircraft have completed the modification process, one Boeing 767-300 aircraft was undergoing modification to a standard freighter configuration and one Boeing 767-300 aircraft was awaiting modification. If the Company were to cancel the conversion program as of December 31, 2012, it would owe IAI approximately $2.0 million associated with engineering efforts, and conversion part kits.

Since October 2010, the Company has entered into separate agreements with Precision Conversions, LLC (“Precision”) for the conversion of Boeing 757 passenger aircraft to standard freighter configuration and a combi aircraft variant. The Boeing 757 combi variant developed by Precision incorporates 10 full cargo pallet positions along with seating for up to 52 passengers. As of December 31, 2012, one Boeing 757 had completed, and another was undergoing, the modification process for standard freighter configuration and a third Boeing 757 aircraft was in the combi conversion process. If the Company were to cancel the conversion program as of December 31, 2012, it would owe Precision approximately $5.0 million associated with engineering efforts and conversion part kits.

In December 2012, the Company entered an agreement to purchase three Boeing 757 aircraft modified for combi service and a spare engine. The Company purchased one of the aircraft in 2012 while the other two and the spare engine were purchased in January of 2013.

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The table below summarizes the Company's contractual obligations and commercial commitments (in thousands) as of December 31, 2012.



	Payments Due By Period
Contractual Obligations	Total		Less Than 1 Year		2-3 Years		4-5 Years		After 5 Years
Long term debt, including interest payments	$	409,296	$	33,360	$	68,434	$	289,892	$	17,610
Operating leases	78,323		25,208		35,060		13,791		4,264
Hangar lease	18,303		—		1,194		1,666		15,443
Aircraft purchase and modification obligations	55,599		55,599		—		—		—
Total contractual cash obligations	$	561,521	$	114,167	$	104,688	$	305,349	$	37,317

The long term debt bears interest at 2.47% to 7.36% per annum.

In 2012, the Company entered into agreements with the CCPA to construct and lease an aircraft hangar in Wilmington, Ohio, adjacent to the existing aircraft maintenance facility currently leased by the Company. The Company acts as construction agent for the CCPA and began construction of a 100,000 square foot aircraft hangar in 2013. The hangar is projected to cost approximately $15.7 million and is expected to take approximately 12 to 14 months to complete. The CCPA is financing the construction of the hangar primarily through a State of Ohio bond program and a State of Ohio loan on incremental taxes. The table above does not include the costs to build the hangar because the projected costs will be reimbursed by the State of Ohio during the construction period. The costs incurred to build the hangar will be included in "Property and equipment" and the amounts that are reimbursed through the State of Ohio and the CCPA will be included in "Other liabilities" on the Company's balance sheet. We will begin to make lease payments for the hangar directly to the trustee for the State of Ohio beginning in 2014. The initial term of the hangar lease expires in 2036.

The Company provides defined benefit pension plans to certain employee groups. The table above does not include cash contributions for pension funding due to the absence of scheduled maturities. The timing of pension and post-retirement healthcare payments cannot be reasonably determined, except for $29.9 million expected to be paid in 2013.

We estimate that capital expenditures for 2013 will be $95 million for the acquisition of two Boeing 757 aircraft, related modification costs for Boeing 767-300 and Boeing 757 aircraft and other aircraft related expenditures. Also, capital expenditures for 2013 are expected to include an additional $15 million for the new hangar construction and other projects. Actual capital spending for any future period will be impacted by the progress in the aircraft modification process and hangar construction. We expect to finance the aircraft purchases and modifications from current cash balances, future operating cash flow and the Senior Credit Agreement.

Liquidity

The Company has a Senior Credit Agreement with a consortium of banks that includes an unsuborinated term loan of $144.4 million and a revolving credit facility from which the Company has drawn $143.0 million, net of repayments as of December 31, 2012. On July 20, 2012, the Company executed the first amendment to the Senior Credit Agreement ("Credit Amendment"). The Credit Amendment increased the amount available under the revolving credit facility by $50 million to $225 million, extended the maturity of the term loan and revolving credit facility to July 20, 2017, and provided for an accordion feature whereby the Company may draw up to an additional $50 million, subject to the lenders' consent. If the Company exercises the accordion feature, the same terms and conditions of the Senior Credit Agreement would apply to the accordion feature and additional collateral would need to be posted to maintain the 150% collateral coverage requirement. The additional debt may result in higher interest rates. Under the Senior Credit Agreement, interest rates are adjusted quarterly based on the prevailing LIBOR or prime rates and a ratio of the Company's outstanding debt level to earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"). At the Company's current debt-to-EBITDA ratio, the unsubordinated term loan and the revolving credit facility both bear a variable interest rate of 2.47%. The Credit Amendment did not affect the EBITDA based pricing or covenants of the Senior Credit Agreement.

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maintain collateral coverage equal to 150% of the outstanding balance of the term loan and the total revolving credit facility. Under the Senior Credit Agreement, the Company is subject to covenants and warranties that are usual and customary, including among other things, limitations on certain additional indebtedness, guarantees of indebtedness, as well as a total debt to EBITDA ratio and a fixed charge coverage ratio. The Senior Credit Agreement stipulates events of default including unspecified events that may have a material adverse effect on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement.

At December 31, 2012, the Company had $15.4 million of cash balances. The Company had $70.9 million available under the revolving credit facility, net of outstanding letters of credit, which totaled $11.1 million . In January 2013, the Company drew an additional $60.0 million through the revolving credit facility to finance aircraft acquisitions and related modification costs. If needed, the Company also expects to have available the $50 million accordion feature noted above. As specified under the terms of ABX's CMI agreement with DHL, the $14.0 million balance at December 31, 2012 of the unsecured note payable to DHL will be extinguished ratably without payment through March 31, 2015. We believe that the Company's current cash balances and forecasted cash flows provided from its operating agreements, combined with its Senior Credit Agreement, will be sufficient to fund operations, scheduled debt payments, required pension funding and planned capital expenditures for at least the next 12 months.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of December 31, 2012 and 2011, we were not involved in any material unconsolidated SPE transactions.

Certain of our operating leases and agreements contain indemnification obligations to the lessor or one or more other parties that are considered usual and customary (e.g. use, tax and environmental indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations may continue after the expiration of the respective lease or agreement. No amounts have been recognized in our financial statements for the underlying fair value of guarantees and indemnifications.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as certain disclosures included elsewhere in this report, are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to select appropriate accounting policies and make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. In certain cases, there are alternative policies or estimation techniques which could be selected. On an ongoing basis, we evaluate our selection of policies and the estimation techniques we use, including those related to revenue recognition, post-retirement liabilities, bad debts, self-insurance reserves, valuation of spare parts inventory, useful lives, salvage values and impairment of property and equipment, income taxes, contingencies and litigation. We base our estimates on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances. Those factors form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, as well as for identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. We believe the following significant and critical accounting policies involve the more significant judgments and estimates used in preparing the consolidated financial statements.

Revenue Recognition

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charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been completed. Revenues from the sale of aircraft parts are recognized when the parts are delivered. Revenues earned and expenses incurred in providing aircraft-related maintenance, repair or technical services are recognized in the period in which the services are completed and delivered to the customer. Revenues derived from transporting freight and sorting parcels are recognized upon delivery of shipments and completion of services. Aircraft lease revenues are recognized as operating lease revenue on a straight-line basis over the term of the applicable lease agreements.

Goodwill and Intangible Assets

In accordance with the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 350-20 Intangibles—Goodwill and Other , we assess in the fourth quarter of each year whether the Company’s goodwill acquired in acquisitions is impaired. Additional assessments may be performed on an interim basis whenever events or changes in circumstances indicate an impairment may have occurred. Indefinite-lived intangible assets are not amortized but are assessed for impairment annually, or more frequently if impairment indicators occur. Finite-lived intangible assets are amortized over their estimated useful economic lives and are periodically reviewed for impairment.

Application of the goodwill impairment test requires significant judgment, including the determination of the fair value of each reporting unit that has goodwill. The Company has two reporting units, ATI and CAM, that have goodwill. We estimate the fair value of ATI and CAM separately using a market approach and an income approach utilizing discounted cash flows applied to a market-derived rate of return. The market approach utilizes market multiples from comparable publicly traded companies. The market multiples include revenues, EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDAR (earnings before interest, taxes, depreciation, amortization and rent). We derive cash flow assumptions from many factors including recent market trends, expected revenues, cost structure, aircraft maintenance schedules and long term strategic plans for the deployment of aircraft. Key assumptions under the discounted cash flow models include projections for the number of aircraft in service, capital expenditures, long term growth rates, operating cash flows and market-derived discount rates.

The first step of the goodwill impairment test requires a comparison of the fair value of the reporting unit to its respective carrying value. If the carrying value of a reporting unit is less than its fair value, no indication of impairment exists and a second step is not performed. If the carrying amount of a reporting unit is higher than its fair value, there is an indication that an impairment may exist and a second step is performed. In the second step, fair values are assigned to all of the assets and liabilities of a reporting unit, including any unrecognized intangible assets, and the implied fair value of goodwill is calculated. If the implied fair value of goodwill is less than the recorded goodwill, an impairment loss is recorded for the difference and charged to operations.

We have used the assistance of an independent business valuation firm in estimating an expected market rate of return, and in the development of a market approach for ATI and CAM using multiples of EBITDAR, EBITDA, EBIT and revenues from comparable publicly traded companies. Based on our analysis, as of December 31, 2012, CAM's fair value exceeded its carrying value by more than 25% and ATI's fair value exceeded its carrying value by 7%.

The Company's key assumptions used for goodwill testing include uncertainties. Those uncertainties include the level of demand for cargo aircraft by shippers, the U.S. Military and freight forwarders and CAM's ability to lease aircraft near expected modification completion dates. We anticipate that CAM will successfully modify two Boeing 767 freighter aircraft over the next year and place them under long term lease agreements. We anticipate that CAM will successfully complete the modification of four Boeing 757 aircraft into combi configuration and one Boeing 757 aircraft to standard freighter configuration and that ATI will deploy them over the next year. We expect that ATI will operate four combi aircraft for the U.S. Military and that ATI will operate four Boeing 757 aircraft and eight Boeing 767 aircraft for DHL and other customers. The demand for customer airlift is projected based on input from customers, the volume of bids requested by the U.S. Military, management's interface with customer planning personnel and aircraft utilization trends. Certain events or changes in circumstances could negatively impact our key assumptions. Customer preferences for cargo aircraft may be impacted by changes in aviation fuel prices. Key customers, including the U.S. Military, may decide that they do not need as many aircraft as projected, or they may find alternative airlift.

The Company's finite lived intangible asset is for customer relationships acquired with ATI. This asset is amortized over the estimated useful economic life and reviewed for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. The fair value of the asset was derived using projected revenues from existing customers and related attrition rates using the guidance under FASB ASC Topic 360-10 Property, Plant

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and Equipment, and separately from a discounted cash flow model used for goodwill impairment. The projected net cash flows attributed to existing customers were discounted using an estimated cost of capital, based on market participant assumptions.

Long-lived assets

Aircraft and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Factors which may cause an impairment include termination of aircraft from a customer's network, extended operating cash flow losses from the assets and management's decisions regarding the future use of assets. To conduct impairment testing, the Company groups assets and liabilities at the lowest level for which identifiable cash are largely independent of cash flows of other assets and liabilities. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with an asset group is less than the carrying value. If impairment exists, an adjustment is made to write the assets down to fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined considering quoted market values, discounted cash flows or internal and external appraisals, as applicable.

Depreciation

Depreciation of property and equipment is provided on a straight-line basis over the lesser of an asset’s useful life or lease term. We periodically evaluate the estimated service lives and residual values used to depreciate our property and equipment. The acceleration of depreciation expense or the recording of significant impairment losses could result from changes in the estimated useful lives of our assets. We may change the estimated useful lives due to a number of reasons, such as the existence of excess capacity in our air networks, or changes in regulations grounding or limiting the use of aircraft.

Self-Insurance

We self-insure certain claims related to workers’ compensation, aircraft, automobile, general liability and employee healthcare. We record a liability for reported claims and an estimate for incurred claims that have not yet been reported. Accruals for these claims are estimated utilizing historical paid claims data and recent claims trends. Changes in claim severity and frequency could result in actual claims being materially different than the costs provided for in our results of operations. We maintain excess claim coverage with common insurance carriers to mitigate our exposure to large claim losses.

Contingencies

We are involved in legal matters that have a degree of uncertainty associated with them. We continually assess the likely outcomes of these matters and the adequacy of amounts, if any, provided for these matters. There can be no assurance that the ultimate outcome of these matters will not differ materially from our assessment of them. There also can be no assurance that we know all matters that may be brought against us at any point in time.

Income Taxes

We account for income taxes under the provisions of FASB ASC Topic 740-10 Income Taxes . The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of expected future tax consequences could materially impact the Company’s financial position or its results of operations.

The Company has significant deferred tax assets including net operating loss carryforwards (“NOL CFs”) for federal income tax purposes which begin to expire in 2024. Based upon projections of taxable income, we determined that it was more likely than not that the NOL CF’s will be realized prior to their expiration. Accordingly, we do not have an allowance against these deferred tax assets at this time.

We recognize the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

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Post-retirement Obligations

The Company sponsors qualified defined benefit pension plans for ABX’s flight crewmembers and other eligible employees. The Company also sponsors non-qualified, unfunded excess plans that provide benefits to executive management and crewmembers that are in addition to amounts permitted to be paid through our qualified plans under provisions of the tax laws. Employees are no longer accruing benefits under any of the defined benefit pension plans. The Company also sponsors unfunded post-retirement healthcare plans for ABX’s flight crewmembers and non-flight crewmember employees.

The accounting and valuation for these post-retirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long term nature of these benefit payouts increases the sensitivity of certain estimates on our post-retirement costs. In actuarially valuing our pension obligations and determining related expense amounts, assumptions we consider most sensitive are discount rates and expected long term investment returns on plan assets. Other assumptions concerning retirement ages and mortality also affect the valuations. Actual results and future changes in these assumptions could result in future costs that are materially different than those recorded in our annual results of operations.

Our actuarial valuation includes an assumed long term rate of return on pension plan assets of 6.75%. Our assumed rate of return is based on a targeted long term investment allocation of 50% equity securities, 45% fixed income securities and 5% real estate. The actual asset allocation at December 31, 2012 was 48% equities, 49% fixed income, 3% real estate and 0% cash. The pension trust includes $44.2 million of investments (6% of the plans' assets) whose fair values have been estimated in the absence of readily determinable fair values. Such investments include private equity, hedge fund investments and real estate funds. Management’s estimates are based on information provided by the fund managers or general partners of those funds.

In evaluating our assumptions regarding expected long term investment returns on plan assets, we consider a number of factors, including our historical plan returns in connection with our asset allocation policies, assistance from investment consultants hired to provide oversight over our actively managed investment portfolio and long term inflation assumptions. The selection of the expected return rate materially affects our pension costs. Our expected long term rate of return remained at 6.75% after analyzing expected returns on investment vehicles and considering our long term asset allocation expectations. If we were to lower our long term rate of return assumption by a hypothetical 100 basis points, expense in 2012 would be increased by approximately $6.8 million. We use a market value of assets as of the measurement date for determining pension expense.

In selecting the interest rate to discount estimated future benefit payments that have been earned to date to their net present value (defined as the projected benefit obligation), we match the plan’s benefit payment streams to high-quality bonds of similar maturities. The selection of the discount rate not only affects the reported funded status information as of December 31 (as s hown in Note H to the acco mpanying consolidated financial statements), but also affects the succeeding year’s pension and post-retirement healthcare costs. The discount rates selected for December 31, 2012, based on the method described above, were 4.25%. If we were to lower our discount rates by a hypothetical 50 basis points, pension expense in 2012 would be increased by approximately $5.5 million.

The assumed future increase in salaries and wages is no longer a significant estimate in determining pension costs because each defined benefit pension plan was frozen during 2009 with respect to additional benefit accruals.

The following table illustrates the sensitivity of the aforementioned assumptions on our pension expense, pension obligation and accumulated other comprehensive income (in thousands):



	Effect of change
			December 31, 2012
Change in assumption	2012 Pension expense		Pension obligation			Accumulated other comprehensive income (pre-tax)
100 basis point decrease in rate of return	$	6,813	$	—		$	—
50 basis point decrease in discount rate	5,498		(65,745		)	65,745
Aggregate effect of all the above changes	12,311		(65,745		)	65,745

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Discontinued Operations

In accordance with the guidance of FASB ASC Topic 205-20 Presentation of Financial Statements , a business component whose operations are discontinued is reported as discontinued operations if the cash flows of the component have been eliminated from the ongoing operations of the Company and the Company will no longer have any significant continuing involvement in the business component. The results of discontinued operations are aggregated and presented separately in the consolidated statement of operations. FASB ASC Topic 205-20 requires the reclassification of amounts presented for prior years to reflect their classification as discontinued operations.

Exit Activities

We account for the costs associated with exit activities in accordance with FASB ASC Topic 420-10 Exit or Disposal Cost Obligations . One-time, involuntary employee termination benefits are generally expensed when the Company communicates the benefit arrangement to the employee that it will no longer require the services of the employee beyond a minimum retention period. Liabilities for contract termination costs associated with exit activities are recognized in the period incurred and measured initially at fair value.

New Accounting Pronouncements

In December 2011, the FASB issued Accounting Standards Update No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities,” (“ASU 2011-11”). ASU 2011-11 enhances disclosures regarding financial instruments and derivative instruments. Entities are required to provide both net information and gross information for these assets and liabilities. This new guidance is to be applied retrospectively beginning in 2013. The Company anticipates that the adoption of this standard will expand its consolidated financial statement footnote disclosures.

In July 2012, the FASB issued Accounting Standards Update No. 2012-02, "Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment," ("ASU 2012-02"). ASU 2012-02 is a revised standard which provides entities with the option to first use an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If a conclusion is reached that the indefinite-lived intangible asset fair value is not more likely than not below carrying value, no further impairment testing is necessary. This revised guidance applies to fiscal years beginning after September 15, 2012, and the related interim and annual goodwill impairment tests. The Company does not believe this standard will have a material impact on the condensed consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk for changes in interest rates and changes in the price of jet fuel. The risk associated with jet fuel, however, is largely mitigated by reimbursement through the agreements with our customers.

On May 9, 2011, the Company executed a syndicated credit agreement ("Senior Credit Agreement"). The Senior Credit Agreement includes a term loan of $150 million. On July 20, 2012, the Company executed the first amendment to the Senior Credit Agreement (“Credit Amendment”). The Credit Amendment increased the amount available under the revolving credit loan by $50 million, extended the maturity of the term loan and revolving credit loan to July 20, 2017, and provided for an accordion feature whereby the Company may draw up to an additional $50.0 million, subject to the lenders' consent. Under the terms of the Senior Credit Agreement, interest rates will be adjusted quarterly based on the Company's earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"), its outstanding debt level and prevailing LIBOR o r prime rates (see Note F to the consolidated financial statements). The Company's Senior Credit Agreement requires the Company to maintain derivative instruments for fluctuating interest rates, for at least fifty percent of the outstanding balance of the new unsubordinated term loan. Accordingly, in July 2011, the Company entered into a new interest rate swap instrument. As a result, future fluctuations in LIBOR interest rates will result in the recording of unrealized gains and losses on interest rate derivatives held by the Company. The notional values were $72.2 million as of December 31, 2012. See Note J in the accompanying consolidated financial statements for a discussion of our accounting treatment for these hedging transactions.

As of December 31, 2012, the Company has $77.1 million of fixed interest rate debt and $287.4 million of variable interest rate debt outstanding. Variable interest rate debt exposes us to differences in future cash flows resulting from changes in market interest rates. Variable interest rate risk can be quantified by estimating the change in annual cash

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flows resulting from a hypothetical 20% increase in interest rates. A hypothetical 20% increase or decrease in interest rates would have resulted in a change in interest expense of approximately $1.3 million for the year ended December 31, 2012.

The debt issued at fixed interest rates is exposed to fluctuations in fair value resulting from changes in market interest rates. Fixed interest rate risk can be quantified by estimating the increase in fair value of our long term debt through a hypothetical 20% increase in interest rates. As of December 31, 2012, a 20% increase in interest rates would have decreased the fair value of our fixed interest rate debt by approximately $1.8 million.

The Company is exposed to concentration of credit risk primarily through cash deposits, cash equivalents, marketable securities and derivatives. As part of our risk management process, we monitor and evaluate the credit standing of the financial institutions with which we do business. The financial institutions with which we do business are generally highly rated. The Company is exposed to counterparty risk, which is the loss we could incur if a counterparty to a derivative contract defaulted.

At December 31, 2012, ABX's defined benefit pension plans had total investment assets of $682.6 million under investment managem ent. See Note H in the accompanying consolidated financial statements for further discussion of these assets.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements



	Page
Report of Independent Registered Public Accounting Firm	43
Consolidated Balance Sheets	44
Consolidated Statements of Operations	45
Consolidated Statements of Comprehensive Income	46
Consolidated Statements of Cash Flows	47
Consolidated Statements of Stockholders’ Equity	48
Notes to Consolidated Financial Statements	49

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Air Transport Services Group, Inc.

Wilmington, Ohio

We have audited the accompanying consolidated balance sheets of Air Transport Services Group, Inc. and subsidiaries (the "Company") as of December 31, 2012, and 2011, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in the Table of Contents at Item 15a(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note B to the consolidated financial statements, the Company's two principal customers account for a substantial portion of the Company's revenue. The Company's financial security is dependent on its ongoing relationship with its principal customers existing as of December 31, 2012.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2013 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Dayton, Ohio

March 4, 2013

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AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



	December 31,			December 31,
	2012			2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,442		$	30,503
Accounts receivable, net of allowance of $749 in 2012 and $434 in 2011	47,858			42,278
Inventory	9,430			8,906
Prepaid supplies and other	8,855			9,785
Deferred income taxes	19,154			31,548
Aircraft and engines held for sale	3,360			9,831
TOTAL CURRENT ASSETS	104,099			132,851
Property and equipment, net	818,924			748,913
Other assets	20,462			18,579
Intangibles	5,146			6,396
Goodwill	86,980			86,980
TOTAL ASSETS	$	1,035,611		$	993,719
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	36,521		$	48,360
Accrued salaries, wages and benefits	22,917			23,226
Accrued expenses	8,502			10,291
Current portion of debt obligations	21,265			13,223
Unearned revenue	10,311			12,487
TOTAL CURRENT LIABILITIES	99,516			107,587
Long term debt obligations	343,216			333,681
Post-retirement liabilities	185,097			185,562
Other liabilities	62,104			54,212
Deferred income taxes	46,422			42,530
TOTAL LIABILITIES	736,355			723,572
Commitments and contingencies (Note G)
STOCKHOLDERS’ EQUITY:
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock	—			—
Common stock, par value $0.01 per share; 75,000,000 shares authorized; 64,130,056 and 64,015,789 shares issued and outstanding in 2012 and 2011, respectively	641			640
Additional paid-in capital	523,087			520,613
Accumulated deficit	(107,185		)	(148,059		)
Accumulated other comprehensive loss	(117,287		)	(103,047		)
TOTAL STOCKHOLDERS’ EQUITY	299,256			270,147
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,035,611		$	993,719

See notes to consolidated financial statements.

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AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



	Year Ended December 31
	2012			2011			2010
REVENUES	$	607,438		$	730,133		$	667,382
OPERATING EXPENSES
Salaries, wages and benefits	184,644			188,884			176,988
Fuel	53,928			150,003			133,776
Maintenance, materials and repairs	97,540			86,929			79,143
Depreciation and amortization	84,477			91,063			87,594
Travel	22,683			28,335			22,709
Rent	25,970			25,201			15,339
Landing and ramp	15,973			22,630			23,782
Insurance	7,716			9,309			9,171
Impairment of goodwill	—			2,797			—
Impairment of acquired intangibles	—			2,282			—
Impairment of aircraft	—			22,065			—
Other operating expenses	35,819			38,006			37,204
	528,750			667,504			585,706
OPERATING INCOME	78,688			62,629			81,676
OTHER INCOME (EXPENSE)
Interest income	136			179			316
Interest expense	(14,383		)	(14,181		)	(18,675		)
Net gain (loss) on derivative instruments	1,879			(4,881		)	—
Write-off of unamortized debt issuance costs	—			(2,886		)	—
	(12,368		)	(21,769		)	(18,359		)

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	66,320			40,860			63,317
INCOME TAX EXPENSE	(24,672		)	(16,995		)	(23,413		)
EARNINGS FROM CONTINUING OPERATIONS	41,648			23,865			39,904
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES	(774		)	(673		)	(70		)
NET EARNINGS	$	40,874		$	23,192		$	39,834

BASIC EARNINGS PER SHARE
Continuing operations	$	0.66		$	0.38		$	0.64
Discontinued operations	(0.02		)	(0.01		)	(0.01		)
TOTAL BASIC EARNINGS PER SHARE	$	0.64		$	0.37		$	0.63

DILUTED EARNINGS PER SHARE
Continuing operations	$	0.65		$	0.37		$	0.62
Discontinued operations	(0.02		)	(0.01		)	—
TOTAL DILUTED EARNINGS PER SHARE	$	0.63		$	0.36		$	0.62

WEIGHTED AVERAGE SHARES
Basic	63,461			63,284			62,807
Diluted	64,420			64,085			64,009

See notes to consolidated financial statements.

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AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)



	Years Ended December 31
	2012			2011			2010
NET EARNINGS	$	40,874		$	23,192		$	39,834
OTHER COMPREHENSIVE INCOME (LOSS):
Defined Benefit Pension
Actuarial gain (loss) for retiree liabilities	(27,518		)	(91,715		)	(19,685		)
Reclassifications to net income	10,681			2,700			2,068
Income tax benefit	5,861			32,714			6,395
Defined Benefit Post-Retirement
Actuarial gain (loss) for retiree liabilities	168			192			22,659
Reclassifications to net income	(5,119		)	(5,341		)	(3,847		)
Income tax (expense) or benefit	1,724			1,892			(6,827		)
Gains and Losses on Derivatives
Unrealized gain (loss) for derivative instruments	—			631			(848		)
Reclassifications to net income	(57		)	3,709			(106		)
Income tax (expense) or benefit	20			(1,595		)	346

TOTAL COMPREHENSIVE INCOME (LOSS)	$	26,634		$	(33,621	)	$	39,989

See notes to consolidated financial statements.

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AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Years Ended December 31
	2012			2011			2010
OPERATING ACTIVITIES:
Net earnings from continuing operations	$	41,648		$	23,865		$	39,904
Net loss from discontinued operations	(774		)	(673		)	(70		)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Impairment of aircraft	—			22,065			—
Impairment of goodwill and acquired intangibles	—			5,079			—
Depreciation and amortization	84,477			91,063			87,594
Pension and post-retirement	5,562			(2,641		)	(1,990		)
Deferred income taxes	23,749			17,126			20,820
Amortization of stock-based compensation	3,231			2,877			1,720
Amortization of DHL promissory note	(6,200		)	(6,200		)	(4,650		)
Net (gain) loss on derivative instruments	(1,879		)	4,881			—
Write-off of unamortized debt issuance costs	—			2,886			—
Changes in assets and liabilities:
Accounts receivable	(4,328		)	1,980			41,529
Inventory and prepaid supplies	(1,759		)	(13		)	(6,253		)
Accounts payable	(5,688		)	(1,715		)	2,729
Unearned revenue	654			9,337			6,789
Accrued expenses, salaries, wages, benefits and other liabilities	4,898			(8,209		)	(44,648		)
Pension and post-retirement liabilities	(27,926		)	(23,159		)	(32,789		)
Other	(5,032		)	(2,443		)	1,578
NET CASH PROVIDED BY OPERATING ACTIVITIES	110,633			136,106			112,263
INVESTING ACTIVITIES:
Capital expenditures	(155,243		)	(213,083		)	(110,681		)
Proceeds from property and equipment	5,772			11,147			31,981
Proceeds from the redemption of interest-bearing investments	—			1,750			—
NET CASH (USED IN) INVESTING ACTIVITIES	(149,471		)	(200,186		)	(78,700		)
FINANCING ACTIVITIES:
Principal payments on long term obligations	(26,223		)	(214,424		)	(70,249		)
Proceeds from borrowings	50,000			265,000			—
Financing fees	—			(2,536		)	—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	23,777			48,040			(70,249		)

NET DECREASE IN CASH AND CASH EQUIVALENTS	(15,061		)	(16,040		)	(36,686		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	30,503			46,543			83,229
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	15,442		$	30,503		$	46,543

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amount capitalized	$	13,195		$	12,985		$	16,656
Federal alternative minimum and state income taxes paid	$	377		$	2,448		$	523
SUPPLEMENTAL NON-CASH INFORMATION:
Debt extinguished	$	6,200		$	6,200		$	4,650
Accrued capital expenditures	$	4,770		$	10,921		$	1,404

See notes to consolidated financial statements.

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AIR TRANSPORT SERVICES GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)



	Common Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
	Number		Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
BALANCE AT JANUARY 1, 2010	63,416,564		$	634		$	502,822		$	(211,085	)	$	(46,389	)	$	245,982
Stock-based compensation plans
Grant of restricted stock	367,200		4			(4		)							—
Withholdings of common shares, net of issuances	(95,736	)	(1		)	(958		)							(959		)
Forfeited restricted stock	(35,800	)	—			—									—
Tax benefit from common stock compensation						498									498
Amortization of stock awards and restricted stock						1,720									1,720
Debt extinguishment, net of tax						14,847									14,847
Total comprehensive income									39,834			155			39,989
BALANCE AT DECEMBER 31, 2010	63,652,228		$	637		$	518,925		$	(171,251	)	$	(46,234	)	$	302,077
Stock-based compensation plans
Grant of restricted stock	313,300		3			(3		)							—
Issuance of common shares, net of withholdings	161,161		1			(1,187		)							(1,186		)
Forfeited restricted stock	(110,900	)	(1		)	1									—
Amortization of stock awards and restricted stock						2,877									2,877
Total comprehensive income (loss)									23,192			(56,813		)	(33,621		)
BALANCE AT DECEMBER 31, 2011	64,015,789		$	640		$	520,613		$	(148,059	)	$	(103,047	)	$	270,147
Stock-based compensation plans
Grant of restricted stock	254,200		3			(3		)							—
Withholdings of common shares, net of issuances	(83,933	)	(1		)	(755		)							(756		)
Forfeited restricted stock	(56,000	)	(1		)	1									—
Amortization of stock awards and restricted stock						3,231									3,231
Total comprehensive income (loss)									40,874			(14,240		)	26,634
BALANCE AT DECEMBER 31, 2012	64,130,056		$	641		$	523,087		$	(107,185	)	$	(117,287	)	$	299,256

See notes to consolidated financial statements.

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AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A—SUMMARY OF FINANCIAL STATEMENT PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Air Transport Services Group, Inc. is a holding company whose principal subsidiaries include an aircraft leasing company and independently certificated airlines. The Company provides airline operations, aircraft leases, aircraft maintenance and other support services primarily to the cargo transportation and package delivery industries. Through the Company's subsidiaries, it offers a range of complementary services to delivery companies, freight forwarders, airlines and government customers.

The airlines, ABX Air, Inc. (“ABX”), Capital Cargo International Airlines, Inc. (“CCIA”) and Air Transport International, Inc. (“ATI”), each have the authority, through their separate U.S. Department of Transportation ("DOT") and Federal Aviation Administration ("FAA") certificates, to transport cargo worldwide. The Company's leasing subsidiary, Cargo Aircraft Management, Inc. (“CAM”), leases aircraft to each of the Company's airlines as well as to non-affiliated airlines and other lessees.

The Company provides aircraft and airline operations to its customers, typically under contracts providing for a combination of aircraft, crews, maintenance and insurance ("ACMI") services. The Company serves a base of concentrated customers who have a diverse line of international cargo traffic. DHL Network Operations (USA), Inc. and its affiliates, “DHL,” is the Company's largest customer. ATI provides passenger transportation, primarily to the U.S. Military, using "combi" aircraft, which are certified to carry passengers as well as cargo on the main deck.

In addition to its airline operations and aircraft leasing services, the Company sells aircraft parts, provides aircraft and equipment maintenance services, and operates mail sorting facilities for the U.S. Postal Service (“USPS”).

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Air Transport Services Group, Inc. and its wholly-owned subsidiaries. Inter-company balances and transactions have been eliminated. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Estimates and assumptions are used to record allowances for uncollectible amounts, self-insurance reserves, spare parts inventory, depreciation and impairments of property, equipment, goodwill and intangibles, post-retirement obligations, income taxes, contingencies and litigation. Changes in estimates and assumptions may have a material impact on the consolidated financial statements.

Cash and Cash Equivalents

The Company classifies short-term, highly liquid investments with maturities of three months or less at the time of purchase as cash and cash equivalents. These investments, consisting of money market funds, are recorded at cost, which approximates fair value. Substantially all deposits of the Company’s cash are held in accounts that exceed federally insured limits. The Company deposits cash in common financial institutions which management believes are financially sound.

Accounts Receivable and Allowance for Uncollectible Accounts

The Company's accounts receivable is primarily due from its significant customers (see Note B), other airlines, the USPS and freight forwarders. The Company performs a quarterly evaluation of the accounts receivable and the allowance for uncollectible accounts by reviewing specific customers' recent payment history, growth prospects,

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financial condition and other factors that may impact a customer's ability to pay. The Company establishes an allowance for uncollectible accounts for probable losses due to a customer's potential inability or unwillingness to make contractual payments. Account balances are written off against the allowance when the Company ceases collection efforts.

Inventory

The Company’s inventory is comprised primarily of expendable aircraft parts and supplies used for aircraft maintenance. Inventory is generally charged to expense when issued for use on a Company aircraft. The Company values its inventory of aircraft parts and supplies at weighted-average cost and maintains a related obsolescence reserve. The Company records an obsolescence reserve on a base stock of inventory for each fleet type. The amortization of base stock for the obsolescence reserve corresponds to the expected life of each fleet type. Additionally, the Company monitors the usage rates of inventory parts and segregates parts that are technologically outdated or no longer used in its fleet types. Slow moving and segregated items are actively marketed and written down to their estimated net realizable values based on market conditions.

Management analyzes the inventory reserve for reasonableness at the end of each quarter. That analysis includes consideration of the expected fleet life, amounts expected to be on hand at the end of a fleet life, and recent events and conditions that may impact the usability or value of inventory. Events or conditions that may impact the expected life, usability or net realizable value of inventory include additional aircraft maintenance directives from the FAA, changes in DOT regulations, new environmental laws and technological advances.

Goodwill and Intangible Assets

The Company assesses, during the fourth quarter of each year, the carrying value of goodwill. Finite-lived intangible assets are amortized over their estimated useful economic lives. The Company also conducts impairment assessments of goodwill, indefinite-lived intangible assets and finite-lived intangible assets whenever events or changes in circumstance indicate an impairment may have occurred.

Property and Equipment

Property and equipment held for use is stated at cost, net of any impairment recorded. The cost and accumulated depreciation of disposed property and equipment are removed from the accounts with any related gain or loss reflected in earnings from operations.

Depreciation of property and equipment is provided on a straight-line basis over the lesser of the asset’s useful life or lease term. Depreciable lives are summarized as follows:



DC-8 combi aircraft and flight equipment	1 year
Boeing 767 and 757 aircraft and flight equipment	10 to 20 years
Support equipment	5 to 10 years
Vehicles and other equipment	3 to 8 years

The Company periodically evaluates the useful lives, salvage values and fair values of property and equipment. Acceleration of depreciation expense or the recording of significant impairment losses could result from changes in the estimated useful lives of assets due to a number of reasons, such as excess aircraft capacity or changes in regulations governing the use of aircraft.

Aircraft and other long-lived assets are tested for impairment when circumstances indicate the carrying value of the assets may not be recoverable. To conduct impairment testing, the Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset group is less than the carrying value. If impairment exists, an adjustment is made to write the assets down to fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined considering quoted market values, discounted cash flows or internal and external appraisals, as applicable. For assets held for sale, impairment is recognized when the fair value less the cost to sell the asset is less than the carrying value.

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The Company’s accounting policy for major airframe and engine maintenance varies by subsidiary and aircraft type. The costs for ABX's Boeing 767-200 airframe maintenance, which is the majority of the Company's aircraft fleet, are expensed as they are incurred. The costs of major airframe maintenance for the Company's other aircraft are capitalized and amortized over the useful life of the overhaul. The Company's General Electric CF6 engines that power the Boeing 767-200 aircraft are maintained under “power by the hour” agreements with an engine maintenance provider. Under the power by the hour agreements, the engines are maintained by the service provider for a fixed fee per flight hour; accordingly, the cost of engine maintenance is generally expensed as flight hours occur. Maintenance for the airlines’ other aircraft engines, including those on the Boeing 767-300 and Boeing 757 aircraft, are typically contracted to service providers on a time and material basis and the costs of those engine overhauls are capitalized and amortized over the useful life of the overhaul.

Under certain leases, the Company is required to make periodic payments to the lessor for future maintenance events such as engine overhauls and major airframe maintenance. These payments are recorded as deposits until drawn for qualifying maintenance costs. The maintenance costs are expensed or capitalized in accordance with the airline's accounting policy for major airframe and engine maintenance. The Company evaluates at the balance sheet date, whether it is probable that an amount on deposit will be returned by the lessor to reimburse the costs of the maintenance activities. When an amount on deposit is less than probable of being returned, it is recognized as additional maintenance expense.

Capitalized Interest

Interest costs incurred while aircraft are being modified are capitalized as an additional cost of the aircraft until the date the asset is placed in service. Capitalized interest was $2.8 million , $2.2 million and $1.5 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Discontinued Operations

A business component whose operations are discontinued is reported as discontinued operations if the cash flows of the component have been eliminated from the ongoing operations of the Company, and the Company will no longer have any significant continuing involvement in the business component. The results of discontinued operations are aggregated and presented separately in the consolidated statements of operations.

The Company's results of discontinued operations consist primarily of pension expenses and other benefits for former employees previously associated with ABX's former freight sorting and aircraft fueling services provided to DHL. ABX is self insured for medical coverage and workers’ compensation, and may incur expenses and cash outlays in the future related to pension obligations, reserves for medical expenses and wage loss for former employees.

Exit Activities

The Company accounts for the costs associated with exit activities in accordance with FASB ASC Topic 420-10 Exit or Disposal Cost Obligations . One-time, involuntary employee termination benefits are generally expensed when the Company communicates the benefit arrangement to the employee that it will no longer require the services of the employee beyond a minimum retention period. Liabilities for contract termination costs associated with exit activities are recognized in the period incurred and measured initially at fair value.

Self-Insurance

The Company is self-insured for certain workers’ compensation, employee healthcare, automobile, aircraft, and general liability claims. The Company maintains excess claim coverage with common insurance carriers to mitigate its exposure to large claim losses. The Company records a liability for reported claims and an estimate for incurred claims that have not yet been reported. Accruals for these claims are estimated utilizing historical paid claims data and recent claims trends. Other liabilities included $31.6 million and $31.2 million at December 31, 2012 and December 31, 2011 , respectively, for self-insured reserves. Changes in claim severity and frequency could result in actual claims being materially different than the costs accrued.

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Income Taxes

Income taxes have been computed using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. 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.

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 benefit is not recognized if it has a less than a 50% likelihood of being sustained. The Company recognizes interest and penalties accrued related to uncertain tax positions in operating expense.

Comprehensive Income

Comprehensive income includes net earnings and other comprehensive income or loss. Other comprehensive income or loss results from certain changes in the Company’s liabilities for pension and other post retirement benefits and gains and losses associated with interest rate hedging instruments.

Fair Value Information

Assets or liabilities that are required to be measured at fair value are reported using the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC Topic 820-10 Fair Value Measurements and Disclosures establishes three levels of input that may be used to measure fair value:


•	Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.


•	Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


•	Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include items where the determination of fair value requires significant management judgment or estimation.

Revenue Recognition

Revenues generated from airline service agreements are typically recognized based on hours flown or the amount of aircraft and crew resources provided during a reporting period. Certain agreements include provisions for incentive payments based upon on-time reliability. These incentives are typically measured on a monthly basis and recorded to revenue in the corresponding month earned. Revenues for operating expenses that are reimbursed through customer agreements, including consumption of aircraft fuel, are generally recognized as the costs are incurred. Revenues from charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been completed. Aircraft lease revenues are recognized as operating lease revenues on a straight-line basis over the term of the applicable lease agreements. Revenues from the sale of aircraft parts and engines are recognized when the parts are delivered. Revenues earned and expenses incurred in providing aircraft-related maintenance, repair or technical services are recognized in the period in which the services are completed and delivered to the customer. Revenues derived from sorting parcels are recognized in the reporting period in which the services are performed.

New Accounting Pronouncements

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Company anticipates that the adoption of this standard will expand its consolidated financial statement footnote disclosures.

NOTE B—SIGNIFICANT CUSTOMERS

DHL

The Company's largest customer is DHL Network Operations (USA), Inc. and its affiliates ("DHL"). The Company has had long term contracts with DHL since August 2003. Revenues from continuing operations performed for DHL were approximately 53% , 36% and 36% of the Company's consolidated revenues from continuing operations for the years ended December 31, 2012, 2011 and 2010, respectively. The Company’s balance sheets include accounts receivable with DHL of $18.3 million and $9.8 million as of December 31, 2012 and December 31, 2011, respectively.

The Company leases Boeing 767 aircraft to DHL under long term lease agreements. Under a separate crew, maintenance and insurance (“CMI”) agreement, the Company operates Boeing 767 aircraft that DHL leases from the Company and Boeing 767 aircraft that DHL owns. Pricing for services provided through the CMI agreement is based on pre-defined fees, scaled for the number of aircraft operated and the number of flight crews provided to DHL for its U.S. network. The Company provides DHL with scheduled maintenance services for aircraft that DHL leases or owns. The Company also provides Boeing 767 and Boeing 757 air cargo transportation services for DHL through additional ACMI agreements in which the Company provides the aircraft, crews, maintenance and insurance under a single contract. Revenues generated from the ACMI agreements are typically based on hours flown. The Company also provides ground equipment, such as power units, and related maintenance services to DHL under separate agreements.

As of December 31, 2012, 26 of the 54 in service aircraft owned or leased by the Company, were under contract to DHL. In January 2013, the Company reached agreements to operate three more Boeing 767-200 aircraft and a Boeing 757 aircraft for DHL's U.S. network. These aircraft replace the Boeing 727 aircraft that were retired at the end of 2012.

BAX/Schenker

A significant portion of the Company’s revenues, and cash flows have historically been derived from providing airlift to BAX Global, Inc.'s network in North America ("BAX/Schenker"). CCIA and ATI each had contracts to provide airlift to BAX/Schenker. BAX/Schenker provided freight transportation and supply chain management services, specializing in the heavy freight market for business-to-business shipping.

On July 22, 2011, BAX/Schenker announced its plan to adopt a new operating model that phased-out the dedicated air cargo network in North America supported by the Company. To execute that plan, on September 2, 2011, BAX/Schenker ceased air cargo operations at its air hub in Toledo, Ohio and began to conduct air operations from the Cincinnati/Northern Kentucky airport, utilizing DHL's U.S. air hub. The Company provided limited airlift directly to BAX/Schenker through the peak delivery season, until late December 2011. Beginning in January 2012, DHL contracted with the Company's airlines to supplement DHL's U.S. air network to service BAX/Schenker freight volumes on its expanded air network without the use of ATI's DC-8 aircraft and with only limited use of CCIA's Boeing 727 aircraft.

No services were performed for Bax/Schenker during 2012. Revenues from the services performed for BAX/Schenker were approximately 26% and 29% of the Company’s total revenues from continuing operations for the years ended December 31, 2011 and 2010, respectively. The Company’s balance sheets had no accounts receivable with BAX/Schenker as of December 31, 2012, and included accounts receivable with BAX/Schenker of $5.5 million as of December 31, 2011, respectively.

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U.S. Military

A substantial portion of the Company's revenues are also derived from the U.S. Military. The U.S. Military awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Revenues from services performed for the U.S. Military were approximately 16% , 12% and 14% of the Company's total revenues from continuing operations for the years ended December 31, 2012 , 2011 and 2010, respectively. The Company's balance sheets included accounts receivable with the U.S. Military of $4.2 million and $5.2 million as of December 31, 2012 and December 31, 2011, respectively.

NOTE C—GOODWILL AND OTHER INTANGIBLES

The Company has two reporting units that have goodwill, ATI (a component of the ACMI Services segment) and CAM. In conjunction with the phase-out of BAX/Schenker's dedicated airlift in North America (see Note B), which relied on operations provided by the Company, the Company tested the carrying values of goodwill and related intangible assets as of July 31, 2011. The Company recognized an impairment charge in 2011 to reduce the value of the recorded goodwill and customer relationship intangible associated with ATI to $52.6 million and $2.5 million , respectively. The Company determined the fair values of ATI and CAM separately using industry market multiples and discounted cash flows utilizing a market-derived rate of return (level 3 fair value inputs). BAX/Schenker's decision to discontinue a dedicated U.S. air network using ATI's DC-8 aircraft was precipitated by prolonged recessionary conditions and trends toward higher fuel prices. ATI's goodwill and related intangible assets were not impaired further because of expected future net cash flows from its growing fleet of Boeing 767 aircraft and combi aircraft services that it provides to the U.S. Military.

The carrying amounts of goodwill by reportable segment, are as follows (in thousands):



	ACMI Services			CAM		Total
Carrying value as of December 31, 2010	$	55,382		$	34,395	$	89,777
Impairment	(2,797		)	—		(2,797		)
Carrying value as of December 31, 2011	$	52,585		$	34,395	$	86,980
Carrying value as of December 31, 2012	$	52,585		$	34,395	$	86,980

The Company's intangible assets relate to the ACMI Services segment and are as follows (in thousands):



	Customer			Airline
	Relationships			Certificates			Total
Carrying value as of December 31, 2010	$	5,259		$	4,000		$	9,259
Amortization	(581		)	—			(581		)
Impairment	(2,282		)	—			(2,282		)
Carrying value as of December 31, 2011	$	2,396		$	4,000		$	6,396
Amortization	(250		)	(1,000		)	(1,250		)
Carrying value as of December 31, 2012	$	2,146		$	3,000		$	5,146

The customer relationship intangible amortizes over eight more years. The Company recorded amortization expense for the customer relationship intangible asset of $0.3 million , $0.6 million and $0.8 million for the years ending December 31, 2012, 2011 and 2010, respectively. The airline certificate related to CCIA' s Boeing 727 aircraft operations amortized through December 31, 2012. The remaining airline certificates have an indefinite life and therefore are not amortized.

NOTE D—FAIR VALUE MEASUREMENTS

The Company’s money market funds and interest rate swaps are reported on the Company’s consolidated balance sheets at fair values based on market values from identical or comparable transactions. The fair value of the Company’s money market funds and interest rate swaps are based on observable inputs (Level 2) from comparable market transactions. The use of significant unobservable inputs (Level 3) was not necessary in determining the fair value of

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the Company’s financial assets and liabilities.

The following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):



As of December 31, 2012	Fair Value Measurement Using							Total
	Level 1		Level 2			Level 3		Total
Assets
Cash equivalents—money market	$	18	$	339		$	—	$	357
Total Assets	$	18	$	339		$	—	$	357
Liabilities
Interest rate swap	$	—	$	(3,146	)	$	—	$	(3,146	)
Total Liabilities	$	—	$	(3,146	)	$	—	$	(3,146	)



As of December 31, 2011	Fair Value Measurement Using							Total
	Level 1		Level 2			Level 3		Total
Assets
Cash equivalents—money market	$	10,002	$	11,541		$	—	$	21,543
Total Assets	$	10,002	$	11,541		$	—	$	21,543
Liabilities
Interest rate swap	$	—	$	(5,024	)	$	—	$	(5,024	)
Total Liabilities	$	—	$	(5,024	)	$	—	$	(5,024	)

As a result of lower market interest rates compared to the stated interest rates of the Company’s fixed and variable rate debt obligations, the fair value of the Company’s debt obligations, based on Level 2 observable inputs, was approximately $3.8 million more than the carrying value, which was $364.5 million at December 31, 2012 . The non-financial assets, including goodwill, intangible assets and property and equipment are measured at fair value on a non-recurring basis.

NOTE E—PROPERTY AND EQUIPMENT

The Company's property and equipment consists primarily of cargo aircraft, aircraft engines and flight equipment. Property and equipment, to be held and used, is summarized as follows (in thousands):



	December 31, 2012			December 31, 2011
Aircraft and flight equipment	$	1,148,781		$	1,012,000
Support equipment	52,209			51,297
Vehicles and other equipment	1,597			1,589
Leasehold improvements	814			714
	1,203,401			1,065,600
Accumulated depreciation	(384,477		)	(316,687		)
Property and equipment, net	$	818,924		$	748,913

CAM owned aircraft with a carrying value of $273.4 million and $316.4 million that were under leases to external customers as of December 31, 2012 and 2011, respectively. Minimum future lease payments for aircraft and equipment leased to external customers as of December 31, 2012 is scheduled to be $53.0 million , $52.4 million , $52.4 million , $45.0 million and $20.2 million for each of the next five years ending December 31, 2017.

Stagnant economic growth and higher fuel prices precipitated BAX/Schenker's decision to phase-out its North American air network in 2011 and diminished the demand for the Company's Boeing 727 and DC-8 freighter aircraft.

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These aircraft are less fuel efficient and generally require higher maintenance costs to maintain acceptable levels of reliability compared to more modern aircraft. As a result of these conditions and BAX/Schenker's decision in July 2011 to phase-out its North American air network, the Company decided to retire the Boeing 727 and DC-8 freighter fleets. The Company has marketed the aircraft engines, parts and airframes to other operators and aircraft parts dealers. During the third quarter of 2011, the Company recorded a pre-tax impairment charge totaling $22.1 million to reduce the carrying values of its Boeing 727 and DC-8 freighters, engines and related parts to their estimated fair value. The Company determined the fair values of these aircraft with the assistance of an independent appraiser using comparable market sales (level 2 fair value inputs). The carrying value of Boeing 727 and DC-8 freighter aircraft and engines available for sale totaled $3.4 million and $9.8 million as of December 31, 2012 and 2011, respectively.

Cash flows generated from sales of aircraft and engines totaled $5.8 million , $11.1 million and $32.0 million for the years ended December 31, 2012, 2011 and 2010, respectively. During the fourth quarter of 2011, the Company received $10.7 million from BAX/Schenker for the reimbursement of capitalized maintenance costs for aircraft removed from service. In May 2010, DHL paid the Company $29.7 million for the carrying value of the five Boeing 767 non-standard freighter aircraft and 26 DC-9 aircraft previously put to DHL under the terms of the DHL ACMI agreement. Gains or losses from the sale of aircraft and spare engines are recorded in other operating expenses on the statement of operations.

NOTE F—DEBT OBLIGATIONS

Long term obligations consisted of the following (in thousands):



	December 31,			December 31,
	2012			2011
Unsubordinated term loan	$	144,375		$	150,000
Revolving credit facility	143,000			106,000
Aircraft loans	63,156			70,754
Promissory note due to DHL, unsecured	13,950			20,150
Total long term obligations	364,481			346,904
Less: current portion	(21,265		)	(13,223		)
Total long term obligations, net	$	343,216		$	333,681

The Company executed a syndicated credit agreement ("Sen ior Credit Agreement") in May 2011 which includes an unsubordinated term loan and a revolving credit facility. In Ju ly 2012, the Company executed the first amendment to the Senior Credit Agreement (“Credit Amendment”). The Credit Amendment increased the amount available under the revolving credit facility by $50 million to $225.0 million , extended the maturity of the term loan and revolving credit facility to July 20, 2017, and provided for an accordion feature whereby the Company may draw up to an additional $50.0 million , subject to the lenders' consent.

Under the terms of the Senior Credit Agreement, interest rates are adjusted quarterly based on the Company's earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"), its outstanding debt level and prevailing LIBOR or prime rates. At the Company's current debt-to-EBITDA ratio, the LIBOR based financing for the unsubordinated term loan and revolving credit facility bear a variable interest rate of 2.47% and 2.47% , respectively. The Credit Amendment did not affect the EBITDA based pricing or covenants of the Senior Credit Agreement. The Senior Credit Agreement provides for the issuance of letters of credit on the Company's behalf. As of December 31, 2012, the unused revolving credit facility totaled $70.9 million , net of draws of $143.0 million and outstanding letters of credit of $11.1 million . In January 2013, the Company drew $60.0 million from the revolving credit facility to finance additional aircraft acquisitions and modification costs.

The aircraft loans are collateralized by six aircraft, and amortize monthly with a balloon payment of approximately 20% with maturities between 2016 and early 2018. Interest rates range from 6.74% to 7.36% per annum payable monthly.

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The scheduled annual principal payments on long term debt, as of December 31, 2012, for the next five years are as follows (in thousands):



	Principal Payments
2013	$	21,265
2014	23,721
2015	24,344
2016	33,865
2017	243,695
2018 and beyond	17,591
	$	364,481

The promissory note payable to DHL becomes due in August 2028 as a balloon payment, unless it is extinguished sooner under the terms of the CMI agreement. Beginning April 1, 2010 and extending through the term of the CMI agreement, the balance of the note is amortized ratably without cash payment in exchange for services provided and, thus, is expected to be completely amortized by April 2015. The promissory note bears interest at a rate of 5% per annum, and DHL reimburses ABX the interest expense from the note through the term of the CMI agreement.

The Senior Credit Agreement is collateralized by certain of the Company's Boeing 767 and 757 aircraft that are not collateralized under aircraft loans. Under the terms of the Senior Credit Agreement, the Company is required to maintain collateral coverage equal to 150% of the outstanding balance of the term loan and total capacity of the revolving credit facility. The Senior Credit Agreement contains covenants including, among other things, limitations on certain additional indebtedness, guarantees of indebtedness, as well as a total debt to EBITDA ratio and a fixed charge coverage ratio. The Senior Credit Agreement stipulates events of default, including unspecified events that may have material adverse effects on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement. The Company is currently in compliance with the financial covenants specified in the Senior Credit Agreement. The Senior Credit Agreement limits the amount of dividends the Company can pay and the amount of common stock it can repurchase to $50.0 million during any calendar year, provided the Company's total debt to EBITDA ratio is under two times, after giving effect to the dividend or repurchase. Under the provisions of its promissory note due to DHL, the Company is required to prepay the DHL note in the amount of $0.20 for each dollar of dividend distributed to its stockholders. The same prepayment stipulation applies to stock repurchases.

In conjunction with the execution of the Senior Credit Agreement in 2011, the Company terminated its previous credit agreement, which resulted in the write-off of unamortized debt issuance costs associated with that credit agreement and losses for certain interest rate swaps which had previously been designated as cash flow hedges of interest payments required by the former debt. These charges, which totaled $6.8 million before income taxes, were recorded in March 2011.

NOTE G—COMMITMENTS AND CONTINGENCIES

Leases Commitments

The Company leases six Boeing 767 aircraft, airport facilities, office space, maintenance facilities and certain equipment under operating leases. In December 2012, the Company entered into agreements with the Clinton County Port Authority ("CCPA") to construct and lease an aircraft hangar in Wilmington, Ohio, adjacent to the existing aircraft maintenance facility currently leased by the Company. The Company acts as construction agent for the CCPA and began construction of a 100,000 square foot aircraft hangar in 2013. While the current facility houses aircraft as large as the Boeing 767, the new hangar will provide the capability of servicing aircraft as large as a Boeing 747 and a Boeing 777. The hangar is anticipated to cost approximately $15.7 million and is expected to take 12 to 14 months to complete. The CCPA is financing the construction of the hangar primarily through a State of Ohio bond program and a State of Ohio loan on incremental taxes. The costs incurred to build the hangar will be included in "Property and equipment" and the amounts that are reimbursed through the State of Ohio and the CCPA will be included in "Other liabilities" on the Company's balance sheet. The Company will begin to make lease payments for the hangar directly to the trustee

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for the State of Ohio beginning in 2014.

The future minimum lease payments of the Company as of December 31, 2012 are scheduled below (in thousands):



	Operating Leases		Hangar Lease
2013	$	25,208	$	—
2014	22,477		592
2015	12,583		602
2016	8,922		832
2017	4,869		834
2018 and beyond	4,264		15,443
Total minimum lease payments	$	78,323	$	18,303

Aircraft Commitments

In August 2010, the Company entered into an agreement with M&B Conversions Limited and Israel Aerospace Industries Ltd. ("IAI"), for the conversion by IAI of up to ten Boeing 767-300 series passenger aircraft to a standard freighter configuration during the 10 -year term of the agreement. As of December 31, 2012, five such aircraft have completed the modification process, one Boeing 767-300 aircraft was undergoing modification to a standard freighter configuration and one Boeing 767-300 aircraft was awaiting modification. If the Company were to cancel the conversion program as of December 31, 2012, it would owe IAI approximately $2.0 million associated with engineering efforts and conversion part kits.

Since October 2010, the Company has entered into separate agreements with Precision Conversions, LLC (“Precision”) for the conversions of Boeing 757 passenger aircraft to standard freighter configuration and a combi aircraft variant. The Boeing 757 combi variant developed by Precision incorporates 10 full cargo pallet positions along with seating for up to 52 passengers. As of December 31, 2012, one Boeing 757 had completed the modification process for standard freighter configuration, one Boeing 757 aircraft was in the freighter conversion process and yet another one was in the combi conversion process. If the Company were to cancel the conversion program as of December 31, 2012, it would owe Precision approximately $5.0 million associated with engineering efforts and conversion part kits.

In December 2012, the Company entered an agreement to purchase three Boeing 757 aircraft modified for combi service and a spare engine. The Company purchased one of the aircraft in December 2012 and the other two aircraft and spare engine in January 2013.

Guarantees and Indemnifications

Certain leases and agreements of the Company contain guarantees and indemnification obligations to the lessor, or one or more other parties that are considered reasonable and customary (e.g. use, tax and environmental indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations may continue after expiration of the respective lease or agreement.

Civil Action Alleging Violations of Immigration Laws

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settlement.

Brussels Noise Ordinance

The Brussels Instituut voor Milieubeheer ("BIM"), a governmental authority in the Brussels-Capital Region of Belgium that oversees the enforcement of environmental matters, imposed four separate administrative penalties on ABX in the approximate aggregate amount of €0.4 million ( $0.5 million ) for numerous alleged violations of an ordinance limiting the noise caused by aircraft overflying the Brussels-Capital Region (which is located near the Brussels Airport) during the period from May 2009 through December 2010. ABX has exhausted its appeals with respect to the first administrative penalty, but is continuing to pursue the appeal of the remaining three.

Other

Employees Under Collective Bargaining Agreements

As of December 31, 2012 , the flight crewmember employees of ABX, ATI and CCIA were represented by the labor unions listed below:



Airline	Labor Agreement Unit	Percentage of the Company’s Employees
ABX	International Brotherhood of Teamsters	14.3%
ATI	Airline Pilots Association	5.9%
CCIA	Airline Pilots Association	4.1%

NOTE H—PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Defined Benefit and Post-retirement Healthcare Plans

ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined benefit pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements. ABX also sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans are unfunded. Employees are no longer accruing benefits under any of the defined benefit pension plans. ABX also sponsors a post-retirement healthcare plan for its ABX employees, which is unfunded.

The accounting and valuation for these post-retirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long term nature of these benefit payouts increases the sensitivity of certain estimates of our post-retirement costs. The assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and determining related expense amounts are discount rates and expected long term investment returns on plan assets. Additionally, other assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. Actual results and future changes in these assumptions could result in future costs significantly higher than those recorded in our results of operations.

ABX measures plan assets and benefit obligations as of December 31 of each year. Information regarding ABX’s

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sponsored defined benefit pension plans and post-retirement healthcare plans follow below. The accumulated benefit obligation reflects pension benefit obligations based on the actual earnings and service to-date of current employees.

Funded Status (in thousands):



	Pension Plans						Post-retirement Healthcare Plans
	2012			2011			2012			2011
Accumulated benefit obligation	$	860,463		$	772,612		$	8,781		$	9,275
Change in benefit obligation
Obligation as of January 1	$	772,612		$	694,548		$	9,275		$	10,135
Service cost	—			—			269			247
Interest cost	37,089			37,163			379			389
Curtailment gain	—			—			—			—
Special termination benefits	—			—			—			—
Plan amendment	—			—			(460		)	—
Plan transfers	1,657			871			—			—
Benefits paid	(26,130		)	(23,501		)	(974		)	(1,304		)
Actuarial (gain) loss	75,235			63,531			292			(192		)
Obligation as of December 31	$	860,463		$	772,612		$	8,781		$	9,275
Change in plan assets
Fair value as of January 1	$	594,697		$	588,494		$	—		$	—
Actual gain on plan assets	87,598			10,842			—			—
Plan transfers	1,657			871			—			—
Employer contributions	24,731			17,991			974			1,304
Benefits paid	(26,130		)	(23,501		)	(974		)	(1,304		)
Fair value as of December 31	$	682,553		$	594,697		$	—		$	—
Funded status
Recorded liabilities—net underfunded	$	(177,910	)	$	(177,915	)	$	(8,781	)	$	(9,275	)

Components of Net Periodic Benefit Cost

ABX’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for the years ended December 31, 2012, 2011 and 2010, are as follows (in thousands):



	Pension Plans									Post-Retirement Healthcare Plan
	2012			2011			2010			2012			2011			2010
Service cost	$	—		$	—		$	2,286		$	269		$	247		341
Interest cost	37,089			37,163			36,678			379			389			800
Expected return on plan assets	(39,882		)	(39,027		)	(35,600		)	—			—			—
Amortization of prior service cost	—			—			—			433			529			364
Amortization of net (gain) loss	10,681			2,700			2,069			(5,552		)	(5,552		)	(4,167		)
Net periodic benefit cost	$	7,888		$	836		$	5,433		$	(4,471	)	$	(4,387	)	$	(2,662	)

In 2010, the Company modified the post-retirement health plans for ABX employees. Benefits for covered individuals now terminates upon reaching age 65 under the modified post-retirement healthcare plans.

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Unrecognized Net Periodic Benefit Expense

The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit expense at December 31, 2012, are as follows (in thousands):



	Pension Plans				Post-Retirement Healthcare Plans
	2012		2011		2012			2011
Unrecognized prior service cost	$	—	$	—	$	(9,836	)	$	(14,929	)
Unrecognized net actuarial loss	182,342		165,505		2,920			3,061
Accumulated other comprehensive (income) loss	$	182,342	$	165,505	$	(6,916	)	$	(11,868	)

The following table sets forth the amounts of unrecognized net actuarial loss and (gain) recorded in accumulated other comprehensive loss that is expected to be recognized as components of net periodic benefit expense during 2013 (in thousands):



	Pension Plans		Post- Retirement Healthcare Plans
Amortization of actuarial loss	$	12,295	$	419
Prior Service Cost	—		(5,654		)

Assumptions

Assumptions used in determining ABX’s pension obligations at December 31 were as follows:



	Pension Plans
	2012	2011	2010
Discount rate - crewmembers	4.25%	5.10%	5.35%
Discount rate - non-crewmembers	4.25%	4.65%	5.55%
Expected return on plan assets	6.75%	6.75%	6.75%

Net periodic benefit cost was based on the discount rate assumptions at the end of the previous year.

The discount rate used to determine post-retirement healthcare obligations was 3.35% for pilots and 2.95% for non-pilots at December 31, 2012. The discount rate used to determine post-retirement healthcare obligations was 4.60% for pilots and 4.05% for non-pilots at December 31, 2011. The discount rate used to determine post-retirement healthcare obligations was 4.15% for pilots and 4.15% for non-pilots at December 31, 2010. Post-retirement healthcare plan obligations have not been funded. The Company's retiree healthcare contributions have been fixed for each participant, accordingly, healthcare cost trend rates do not effect the post-retirement healthcare obligations.

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Plan Assets

The weighted-average asset allocations by asset category are as shown below:



	Composition of Plan Assets as of December 31
Asset category	2012		2011
Cash	—	%	2	%
Equity securities	48	%	46	%
Fixed income securities	49	%	50	%
Real estate	3	%	2	%
	100	%	100	%

ABX uses an investment management firm to advise it in developing and executing an investment policy. The portfolio is managed with consideration for diversification, quality and marketability. The investment policy permits the following ranges of asset allocation: equities – 22.5% to 69.3% ; fixed income securities – 38.0% to 76.5% ; real estate – 3% to 7% ; cash – 0% to 10% . Except for U.S. Treasuries, no more than 10% of the fixed income portfolio and no more than 5% of the equity portfolio can be invested in securities of any single issuer.

An actuarial firm advised ABX in developing the overall expected long term rate of return on plan assets. The overall expected long term rate of return was developed using various market assumptions in conjunction with the plans’ targeted asset allocation. The assumptions were based on historical market returns.

Cash Flows

In 2012 and 2011, the Company made contributions to its defined benefit plans of $24.7 million and $18.0 million , respectively. The Company estimates that its contributions in 2013 will be approximately $27.7 million for its defined benefit pension plans and $1.1 million for its post-retirement healthcare plans.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid out of the respective plans as follows (in thousands):



	Pension Benefits		Post-retirement Healthcare Benefits
2013	$	28,810	$	1,105
2014	32,901		1,009
2015	32,166		922
2016	34,639		841
2017	36,711		823
Years 2018 to 2022	217,159		3,944

Fair Value Measurements

The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Temporary Cash Investment s —These investments consist of U.S. dollars and foreign currencies held in master trust accounts at The Northern Trust Company. Foreign currencies held are reported in terms of U.S. dollars based on currency exchange rates readily available in active markets. These temporary cash investments are classified as Level 1 investments.

Corporate Stock—This investment category consists of common and preferred stock issued by domestic and international corporations that are regularly traded on exchanges and price quotes for these shares are readily

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available. These investments are classified as Level 1 investments.

Common Trust Funds—Common trust funds are composed of shares or units in non-publicly traded funds whereby the underlying assets in these funds (cash, cash equivalents, fixed income securities and equity securities) are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. Holdings of common trust funds are classified as Level 2 investments.

Mutual Funds—Investments in this category include shares in registered mutual funds, unit trust and commingled funds. These funds consist of domestic equity, international equity and fixed income strategies. Investments in this category that are publicly traded on an exchange and have a share price published at the close of each business day are classified as Level 1 investments and holdings in the other mutual funds are classified as Level 2 investments.

Fixed Income Investments—Securities in this category consist of U.S. Government or Agency securities, state and local government securities, corporate fixed income securities or pooled fixed income securities. Securities in this category that are valued utilizing published prices at the close of each business day are classified as Level 1 investments. Those investments valued by bid data prices provided by independent pricing sources are classified as Level 2 investments.

Real Estate—The real estate investment in a commingled trust account consists of publicly traded real estate investment trusts and collateralized mortgage backed securities as well as private market direct property investments. The valuations for the holdings in these investments are not based on readily observable inputs and are classified as Level 3 investments.

Hedge Funds and Private Equity—These investments are not readily tradeable and have valuations that are not based on readily observable data inputs. The fair value of these assets is estimated based on information provided by the fund managers or the general partners. Therefore, these assets are classified as Level 3.

The pension plan assets measured at fair value on a recurring basis were as follows (in thousands):



As of December 31, 2012	Fair Value Measurement Using						Total
	Level 1		Level 2		Level 3		Total
Plan assets
Temporary cash investments	$	—	$	—	$	—	$	—
Common trust funds	—		5,720		—		5,720
Corporate stock	63,396		2,123		—		65,519
Mutual funds	96,008		138,846		—		234,854
Fixed income investments	5,832		326,478		—		332,310
Real estate	—		—		17,181		17,181
Hedge funds and private equity	—		—		26,969		26,969
Total plan assets	$	165,236	$	473,167	$	44,150	$	682,553

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As of December 31, 2011	Fair Value Measurement Using						Total
	Level 1		Level 2		Level 3		Total
Plan assets
Temporary cash investments	$	14	$	—	$	—	$	14
Common trust funds	—		17,495		—		17,495
Corporate stock	49,169		197		—		49,366
Mutual funds	73,910		125,027		—		198,937
Fixed income investments	17,009		271,560		—		288,569
Real estate	—		—		14,557		14,557
Hedge funds and private equity	—		—		25,759		25,759
Total plan assets	$	140,102	$	414,279	$	40,316	$	594,697

ABX’s pension investments include hedge funds, private equity and real estate funds whose fair values have been estimated in the absence of readily determinable fair values. Management’s estimates are based on information provided by the fund managers or general partners of those funds. The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant Level 3 unobservable inputs (in thousands):



	Hedge Funds & Private Equity			Real Estate Investments		Total
January 1, 2011	$	25,510		$	12,214	$	37,724
Unrealized gains	713			2,343		3,056
Purchases & settlements	(464		)	—		(464		)
December 31, 2011	$	25,759		$	14,557	$	40,316
Unrealized gains	3,612			2,624		6,236
Purchases & settlements	(2,402		)	—		(2,402		)
December 31, 2012	$	26,969		$	17,181	$	44,150

Defined Contribution Plans

The Company sponsors defined contribution capital accumulation plans (401k) that are funded by both voluntary employee salary deferrals and by employer contributions. ABX had also sponsored a defined contribution profit sharing plan, which was coordinated and used to offset obligations accrued under the qualified defined benefit plans. Contributions to this plan were discontinued in 2000 for all non-pilot participants and in 2009 for all pilot participants. Expenses for defined contribution retirement plans were as follows (in thousands):



	Years Ended December 31
	2012		2011		2010
Capital accumulation plans	$	5,300	$	4,938	$	4,527
Profit sharing plans	—		—		110
Total expense	$	5,300	$	4,938	$	4,637

NOTE I—INCOME TAXES

At December 31, 2012, the Company had cumulative net operating loss carryforwards (“NOL CFs”) for federal income tax purposes of approximately $93.4 million , which begin to expire in 2024 if not utilized before then. The deferred tax asset balance includes $1.1 million net of a $0.2 million valuation allowance related to state NOL CFs, which have remaining lives ranging from one to twenty years. During the second quarter of 2008, ABX recorded a valuation allowance against these state NOLs for potential changes in DHL's network operations. These NOL CFs are attributable to excess tax deductions related primarily to the accelerated tax depreciation of fixed assets.

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The significant components of the deferred income tax assets and liabilities as of December 31, 2012 and 2011 are as follows (in thousands):



	December 31
	2012			2011
Deferred tax assets:
Net operating loss carryforward and federal credits	$	34,401		$	35,814
Capital and operating leases	1,742			763
Post-retirement employee benefits	62,823			65,695
Employee benefits other than post-retirement	18,010			17,324
Inventory reserve	3,181			3,172
Deferred revenue	10,770			9,624
Other	458			221
Deferred tax assets	131,385			132,613
Deferred tax liabilities:
Accelerated depreciation	(147,282		)	(130,180		)
Partnership items	(9,418		)	(12,384		)
State taxes	(1,724		)	(802		)
Valuation allowance against deferred tax assets	(229		)	(229		)
Deferred tax liabilities	(158,653		)	(143,595		)
Net deferred tax (liability)	$	(27,268	)	$	(10,982	)

The following summarizes the Company’s income tax provisions (benefits) (in thousands):



	Years Ended December 31
	2012			2011			2010
Current taxes:
Federal	$	—		$	(950	)	$	1,275
Foreign	337			—			—
State	145			426			1,278
Deferred taxes:
Federal	23,454			15,968			20,452
Foreign	—			—			—
State	736			1,551			408
Total deferred tax expense	24,190			17,519			20,860
Total income tax expense from continuing operations	$	24,672		$	16,995		$	23,413
Income tax expense (benefit) from discontinued operations	$	(441	)	$	(393	)	$	(40	)
Income tax expense (benefit) for debt extinguishment	$	—		$	—		$	(14,847	)

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The reconciliation of income tax from continuing operations computed at the U.S. statutory federal income tax rates to effective income tax rates is as follows:



	Years Ended December 31
	2012		2011		2010
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
Foreign income taxes	0.3	%	—	%	—	%
State income taxes, net of federal tax benefit	0.9	%	3.1	%	1.7	%
Tax effect of non-deductible goodwill	—	%	2.4	%	—	%
Tax effect of other non-deductible expenses	1.1	%	1.7	%	0.9	%
Other	(0.1	)%	(0.6	)%	(0.6	)%
Effective income tax rate	37.2	%	41.6	%	37.0	%

The reconciliation of income tax from discontinued operations computed at the U.S. statutory federal income tax rates to effective income tax rates is as follows:



	Years Ended December 31
	2012		2011		2010
Statutory federal tax rate	(35.0	)%	(35.0	)%	(35.0	)%
State income taxes, net of federal tax benefit	(1.3	)%	(1.8	)%	(1.3	)%
Effective income tax rate	(36.3	)%	(36.8	)%	(36.3	)%

The Company files income tax returns in the U.S. federal jurisdiction and various international, state and local jurisdictions. The returns may be subject to audit by the Internal Revenue Service (“IRS”) and other jurisdictional authorities. International returns consist of disclosure returns where the Company is covered by the sourcing rules of U.S. international treaties. The Company recognizes the impact of an uncertain income tax position in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. During 2010, the statute of limitations expired on the remaining uncertain position items, accordingly, the Company reversed the remaining uncertain positions liability of $2.2 million , reduced tax expense by $0.4 million and restored the deferred tax asset by $1.7 million . Accrued interest and penalties on tax positions are recorded as a component of interest expense. Interest and penalties expense was immaterial for 2012, 2011 and 2010. Changes in unrecognized tax benefits are as follows (in thousands):



	2012		2011		2010
As of January 1	$	—	$	—	$	4,287
Expiration of uncertain tax positions	—		—		(4,287		)
As of December 31	$	—	$	—	$	—

The consolidated federal tax returns for the years 2003 through 2007 for ABX and the years 2001 through 2007 for CHI remain open to federal examination only to the extent of net operating loss carryforwards carried over from or utilized in those years. Effective in 2008, the Company began to file federal tax returns under the new common parent of the consolidated group that includes ABX, CHI and all the wholly-owned subsidiaries. All returns related to the current consolidated group remain open to examination with the exception of the 2008 Federal return. In 2010, the IRS concluded its examination of the 2008 federal return for the Company and issued a "no change" report in early 2011. State and local returns filed for 2005 through 2011 are generally also open to examination by their respective jurisdictions.

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NOTE J—DERIVATIVE INSTRUMENTS

In conjunction with the unsubordinated term loan under the former credit agreement, the Company entered into interest rate swaps in January 2008 to reduce the effects of fluctuating LIBOR-based interest rates on forecasted interest payments stemming from the scheduled repayment of the debt. Under the interest rate swap agreements, the Company paid a fixed rate of 3.105% and received a floating rate that reset quarterly based on LIBOR. The notional value of the interest rate swaps stepped downward through December 31, 2012. In accordance with FASB ASC Topic 815-30 Derivatives and Hedging , the Company accounted for the interest rate swaps as hedges of the forecasted cash flows. Accordingly, losses caused by lower floating interest rates had been recorded to accumulated other comprehensive income for the effective portion. Effective March 31, 2011, in conjunction with its decision to refinance the unsubordinated term loan, the Company ceased hedge accounting after determining that the forecasted interest payments would not occur near the time originally expected. As a result, the Company recorded a pre-tax charge of $3.9 million in the first quarter of 2011 based on the fair market value of the derivatives on March 31, 2011, to recognize the losses previously recorded in accumulated other comprehensive income.

In addition to the interest rate swaps noted above, the Company's Senior Credit Agreement requires the Company to maintain derivative instruments for protection from fluctuating interest rates, for at least fifty percent of the outstanding balance of term loan. As a result, the Company entered into an interest rate swap in July of 2011 having an initial notional value of $75.0 million and a forward start date of December 31, 2011. Under this swap, the Company pays a fixed rate of 2.02% and receives a floating rate that resets quarterly based on LIBOR. The Company did not designate the recent interest rate swap as a hedge for accounting purposes. The effects of future fluctuations in LIBOR interest rates on derivatives held by the Company will result in the recording of unrealized gains and losses into the statement of operations.

The Company recorded an unrealized gain on derivatives of $1.9 million and an unrealized loss on derivatives of $4.9 million for the years ending December 31, 2012 and 2011, respectively, to reflect the interest rate swaps at market value. The liability for outstanding derivatives is recorded in other liabilities and in accrued expenses. The table below provides information about the Company’s interest rate swaps (in thousands):



			December 31, 2012					December 31, 2011
Expiration Date	Stated Interest Rate		Notional Amount		Market Value (Liability)			Notional Amount		Market Value (Liability)
December 31, 2012	3.105	%	$	—	$	—		$	59,500	$	(1,394	)
December 31, 2012	3.105	%	—		—			35,000		(820		)
May 9, 2016	2.020	%	72,188		(3,146		)	75,000		(2,810		)

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NOTE K—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) includes the following items by components for the years ended December 31, 2012, 2011 and 2010 (in thousands):



	Defined Benefit Pension		Defined Benefit Post-Retirement		Gains and Losses on Derivative		Total
Balance as of January 1, 2010	(43,103	)	(1,224	)	(2,062	)	(46,389	)
Other comprehensive income (loss) before reclassifications:
Actuarial gain (loss) for retiree liabilities	(19,685	)	22,659		—		2,974
Unrealized gain (loss) for derivative instruments	—		—		(848	)	(848	)
Amounts reclassified from accumulated other comprehensive income:
Actuarial gain (loss)	2,068		321		—		2,389
Negative prior service cost	—		(4,168	)	—		(4,168	)
Hedging gain	—		—		(106	)	(106	)
Income Tax (Expense) or Benefit	6,395		(6,827	)	346		(86	)
Other comprehensive income (loss), net of tax	(11,222	)	11,985		(608	)	155
Balance as of December 31, 2010	(54,325	)	10,761		(2,670	)	(46,234	)
Other comprehensive income (loss) before reclassifications:
Actuarial gain (loss) for retiree liabilities	(91,715	)	192		—		(91,523	)
Unrealized gain (loss) for derivative instruments	—		—		631		631
Amounts reclassified from accumulated other comprehensive income:
Actuarial gain (loss)	2,700		211		—		2,911
Negative prior service cost	—		(5,552	)	—		(5,552	)
Hedging gain	—		—		(223	)	(223	)
Unrealized loss on derivative instruments	—		—		3,932		3,932
Income Tax (Expense) or Benefit	32,714		1,892		(1,595	)	33,011
Other comprehensive income (loss), net of tax	(56,301	)	(3,257	)	2,745		(56,813	)
Balance as of December 31, 2011	(110,626	)	7,504		75		(103,047	)
Other comprehensive income (loss) before reclassifications:
Actuarial gain (loss) for retiree liabilities	(27,518	)	168		—		(27,350	)
Amounts reclassified from accumulated other comprehensive income
Actuarial gain	10,681		433		—		11,114
Negative prior service cost	—		(5,552	)	—		(5,552	)
Hedging gain	—		—		(57	)	(57	)
Income Tax Benefit	5,861		1,724		20		7,605
Other comprehensive income (loss), net of tax	(10,976	)	(3,227	)	(37	)	(14,240	)
Balance as of December 31, 2012	(121,602	)	4,277		38		(117,287	)

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NOTE L—STOCK-BASED COMPENSATION

The Company's Board of Directors has granted stock incentive awards to certain employees and board members pursuant to a long term incentive plan which was approved by the Company's stockholders in May 2005. Employees have been awarded non-vested stock units with performance conditions, non-vested stock units with market conditions and non-vested restricted stock. The restrictions on the non-vested restricted stock awards lapse at the end of a specified service period, which is typically approximately three years from the date of grant. Restrictions could lapse sooner upon a business combination, death, disability or after an employee qualifies for retirement. The non-vested stock units will be converted into a number of shares of Company stock depending on performance and market conditions at the end of a specified service period, lasting approximately three years. The performance condition awards will be converted into a number of shares of Company stock based on the Company's average return on invested capital during the service period. Similarly, the market condition awards will be converted into a number of shares depending on the appreciation of the Company's stock compared to the NASDAQ Transportation Index. Board members were granted time-based awards with approximately a six -month vesting period, which will settle when the board member ceases to be a director of the Company. The Company expects to settle all of the stock unit awards by issuing new shares of stock. The table below summarizes award activity.



	Year Ended December 31
	2012				2011				2010
	Number of Awards		Weighted average grant-date fair value		Number of Awards		Weighted average grant-date fair value		Number of Awards		Weighted average grant-date fair value
Outstanding at beginning of period	1,458,037		$	5.77	1,514,300		$	3.55	1,505,550		$	3.07
Granted	601,647		5.93		555,237		8.72		804,400		4.37
Converted	(472,112	)	5.25		(443,300	)	2.45		(425,139	)	3.35
Expired	—		—		—		—		(298,911	)	3.77
Forfeited	(124,300	)	6.24		(168,200	)	4.22		(71,600	)	3.12
Outstanding at end of period	1,463,272		$	5.97	1,458,037		$	5.77	1,514,300		$	3.55
Vested	736,541		$	4.90	390,037		$	4.45	659,467		$	3.33

The average grant-date fair value of each performance condition award, non-vested restricted stock award and time-based award granted by the Company was $5.63 , $8.25 and $4.00 for 2012, 2011 and 2010, respectively, the fair value of the Company’s stock on the date of grant. The average grant-date fair value of each market condition award granted was $7.05 , $11.17 and $5.60 for 2012, 2011 and 2010, respectively. The market condition awards were valued using a Monte Carlo simulation technique based on volatility over three years for the awards granted in 2012, 2011 and 2010 using daily stock prices and using the following variables:



	2012	2011	2010
Risk-free interest rate	0.4%	1.3%	1.7%
Volatility	90.1%	125.0%	125.3%

For the years ended December 31, 2012, 2011 and 2010, the Company recorded expense of $3.2 million , $2.9 million and $1.7 million , respectively, for stock incentive awards. At December 31, 2012, there was $2.7 million of unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average period of 1.5 years. As of December 31, 2012, none of the awards were convertible, 423,672 units of the Board members time-based awards had vested and none of the outstanding shares of the restricted stock had vested. These awards could result in a maximum number of 1,797,872 additional outstanding shares of the Company’s common stock depending on service, performance and market results through December 31, 2014.

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NOTE M—EARNINGS PER SHARE

The calculation of basic and diluted earnings per common share follows (in thousands, except per share amounts):



	December 31
	2012		2011		2010
Earnings from continuing operations	$	41,648	$	23,865	$	39,904
Weighted-average shares outstanding for basic earnings per share	63,461		63,284		62,807
Common equivalent shares:
Effect of stock-based compensation awards	959		801		1,202
Weighted-average shares outstanding assuming dilution	64,420		64,085		64,009
Basic earnings per share from continuing operations	$	0.66	$	0.38	$	0.64
Diluted earnings per share from continuing operations	$	0.65	$	0.37	$	0.62

Basic weighted average shares outstanding for purposes of basic earnings per share are less than the shares outstanding due to 370,400 shares, 584,700 shares and 564,100 shares of restricted stock for 2012, 2011 and 2010, respectively, which are accounted for as part of diluted weighted average shares outstanding in diluted earnings per share. The number of equivalent shares that were not included in weighted average shares outstanding assuming dilution, because their effect would have been anti-dilutive, was 229,000 , 176,000 and 9,000 at December 31, 2012 , 2011 and 2010, respectively.

NOTE N—SEGMENT INFORMATION

The Company operates in two reportable segments, as described below. The CAM segment consists of the Company's aircraft leasing operations and its segment earnings includes an allocation of interest expense. The ACMI Services segment consists of the Company's airline operations, including the CMI agreement with DHL as well as ACMI and charter service agreements that the Company has with other customers. Due to the similarities among the Company's airline operations, the airline operations are aggregated into a single reportable segment, ACMI Services. The Company's other activities, which include contracts with the USPS, the sale of aircraft parts and maintenance services, facility and ground equipment maintenance services and management services for workers' compensation do not constitute reportable segments and are combined in “All other” with inter-segment profit eliminations. Inter-segment revenues are valued at arms-length, market rates. Cash, cash equivalents and deferred tax assets are reflected in Assets - All other below. The Company's segment information from continuing operations is presented below (in thousands):

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	Year Ended December 31
	2012			2011			2010
Total revenues:
CAM	$	154,565		$	140,469		$	101,375
ACMI Services	478,993			605,461			579,412
All other	112,343			105,284			87,660
Eliminate inter-segment revenues	(138,463		)	(121,081		)	(101,065		)
Total	$	607,438		$	730,133		$	667,382
Customer revenues:
CAM	$	74,599		$	67,791		$	43,294
ACMI Services	477,722			604,951			578,198
All other	55,117			57,391			45,890
Total	$	607,438		$	730,133		$	667,382
Depreciation and amortization expense:
CAM	$	59,351		$	54,897		$	40,215
ACMI Services	24,599			36,136			47,176
All other	527			30			203
Total	$	84,477		$	91,063		$	87,594
Impairment Charges
CAM - aircraft impairment	—			6,761			—
ACMI Services - aircraft impairment	—			15,304			—
ACMI Services - customer relationship impairment	—			2,282			—
ACMI Services - goodwill impairment	—			2,797			—
Total	$	—		$	27,144		$	—
Segment earnings (loss):
CAM	$	68,499		$	53,221		$	41,586
ACMI Services	(14,503		)	(13,807		)	20,888
All other	11,650			11,331			8,017
Net unallocated interest expense	(1,205		)	(2,118		)	(7,174		)
Net gain (loss) on derivative instruments	1,879			(4,881		)	—
Write-off of unamortized debt issuance costs	—			(2,886		)	—
Pre-tax earnings from continuing operations	$	66,320		$	40,860		$	63,317

The Company's assets are presented below by segment (in thousands):



	December 31,		December 31,		December 31,
	2012		2011		2010
Assets:
CAM	$	810,664	$	760,588	$	600,245
ACMI Services	161,650		137,640		198,024
Discontinued operations	—		—		5,015
All other	63,297		95,491		97,370
Total	$	1,035,611	$	993,719	$	900,654

Interest expense of $0.9 million , $1.2 million and $1.9 million for 2012, 2011 and 2010, respectively, was reimbursed

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through the commercial agreements with DHL and included in the ACMI Services segment earnings above. Interest expense allocated to CAM was $12.2 million , $10.7 million and $9.3 million for the years ending December 31, 2012 , 2011 and 2010, respectively.

During 2012, the Company had capital expenditures of $20.4 million and $126.5 million for the ACMI Services and CAM segments, respectively. The ACMI Services segment also includes impairment charges of $2.8 million on the goodwill, $2.3 million on its acquired intangibles and $15.3 million on its aircraft recorded in the third quarter of 2011. The CAM segment includes an impairment charge of $6.8 million on its aircraft recorded in the third quarter of 2011.

Entity-Wide Disclosures

The Company's international revenues were approximately $314.2 million , $291.3 million and $234.5 million for 2012, 2011 and 2010, respectively, derived primarily from international flights departing from or arriving in foreign countries. All revenues from the CMI agreement with DHL are attributed to U.S. operations.

The Company's external customers revenues from other activities for the years ended December 31, 2012, 2011 and 2010 are presented below (in thousands):



	December 31,
	2012		2011		2010
Aircraft maintenance and part sales	$	21,669	$	25,845	$	15,963
Mail handling services	23,671		21,613		19,386
Facility and ground equipment maintenance	8,304		8,465		8,868
Other	1,473		1,468		1,673
Total customer revenues	$	55,117	$	57,391	$	45,890

NOTE O—DISCONTINUED OPERATIONS

Discontinued operations are a result of DHL's decision in 2008 to restructure its U.S. operations due to continued losses. Pursuant to its restructuring plan, DHL discontinued intra-U.S. domestic pickup and delivery services and now provides only international services to and from the U.S. In the third quarter of 2009, ABX ceased any remaining sort operations for DHL and the related hub service agreement with DHL expired. Additionally, in the third quarter of 2009, DHL assumed management of aircraft fuel services for its U.S. network previously provided by ABX. The revenues and results of the DHL hub services operations and the aircraft fuel services are reported as discontinued operations. The results of discontinued operations for 2012, 2011 and 2010 primarily reflect pension for the former hub employees and costs related to legal claims concerning a civil action alleging that ABX violated immigration labor laws while managing the sort operations in Wilmington, Ohio.

ABX sponsors defined benefit plans for retirees that include the former employees of the hub operations. Additionally, ABX is self insured for medical coverage and workers' compensation. The Company may incur expenses and cash outlays in the future related to pension obligations, reserves for medical expenses and wage loss for former employees. Carrying amounts of significant assets and liabilities of the discontinued operations are below (in thousands):



	December 31
	2012		2011
Liabilities
Employee compensation and benefits	$	35,703	$	33,943
Post-retirement	36,887		39,658
Total Liabilities	$	72,590	$	73,601

The revenues and pre-tax earnings of the discontinued operations are below (in thousands):



	December 31
	2012			2011			2010
Pre-tax loss	$	(1,215	)	$	(1,066	)	$	(110	)

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NOTE P—QUARTERLY RESULTS (Unaudited)

The following is a summary of quarterly results of operations (in thousands, except per share amounts):



	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
2012
Revenues from continuing operations	$	145,506		$	153,554		$	153,826		$	154,552
Net earnings from continuing operations	6,662			11,219			11,556			12,211
Net loss from discontinued operations	(230		)	(160		)	(186		)	(198		)
Weighted average shares:
Basic	63,431			63,431			63,456			63,525
Diluted	64,374			64,393			64,667			64,244
Earnings per share from continuing operations
Basic	$	0.11		$	0.18		$	0.18		$	0.19
Diluted	$	0.10		$	0.17		$	0.18		$	0.19
2011
Revenues from continuing operations	$	175,127		$	193,061		$	195,480		$	166,465
Net earnings (loss) from continuing operations	2,881			12,280			(4,826		)	13,530
Net earnings (loss) from discontinued operations	(117		)	19			24			(599		)
Weighted average shares:
Basic	63,131			63,333			63,334			63,336
Diluted	63,936			64,172			63,334			64,109
Earnings (loss) per share from continuing operations
Basic	$	0.04		$	0.19		$	(0.08	)	$	0.21
Diluted	$	0.04		$	0.19		$	(0.08	)	$	0.21

The net loss from continuing operations during the third quarter of 2011 was a result of impairment charges for the Company's goodwill, other intangibles and aircraft.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

As of December 31, 2012 , the Company carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon the evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls

There were no changes in internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Management’s Annual Report on Internal Controls over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system is designed 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.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

Based on management’s assessment of those criteria, management believes that, as of December 31, 2012, the Company’s internal control over financial reporting was effective.

March 4, 2013

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Air Transport Services Group, Inc.

Wilmington, Ohio

We have audited the internal control over financial reporting of Air Transport Services Group, Inc. and subsidiaries (the "Company") as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, 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. A company's internal control over financial reporting includes 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.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2012 of the Company and our report dated March 4, 2013 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding the Company's two principal customers.

/s/ DELOITTE & TOUCHE LLP

Dayton, Ohio

March 4, 2013

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ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The response to this Item is incorporated herein by reference to the definitive Proxy Statement for the 2013 Annual Meeting of Stockholders under the captions “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Corporate Governance and Board Matters.”

Executive Officers

The following table sets forth information about the Company’s executive officers. The executive officers serve at the pleasure of the Company’s Board of Directors.



Name	Age	Information
Joseph C. Hete	58	President and Chief Executive Officer, Air Transport Services Group, Inc., since December 2007 and Chief Executive Officer, ABX Air, Inc., since August 2003. Mr. Hete was President of ABX Air, Inc. from January 2000 to February 2008. Mr. Hete was Chief Operating Officer of ABX Air, Inc. from January 2000 to August 2003. From 1997 until January 2000, Mr. Hete held the position of Senior Vice President and Chief Operating Officer of ABX Air, Inc. Mr. Hete served as Senior Vice President, Administration of ABX Air, Inc. from 1991 to 1997 and Vice President, Administration of ABX Air, Inc. from 1986 to 1991. Mr. Hete joined ABX Air, Inc. in 1980.
Quint O. Turner	50	Chief Financial Officer, Air Transport Services Group, Inc., since February 2008 and Chief Financial Officer, ABX Air, Inc. since December 2004. Mr. Turner was Vice President of Administration of ABX Air, Inc. from February 2002 to December 2004. Mr. Turner was Corporate Director of Financial Planning and Accounting of ABX Air, Inc. from 1997 to 2002. Prior to 1997, Mr. Turner held positions of Manager of Planning and Director of Financial Planning of ABX Air, Inc. Mr. Turner joined ABX Air, Inc. in 1988.
Richard F. Corrado	53	Chief Commercial Officer, Air Transport Services Group, Inc., and President of Cargo Aircraft Management, Inc. since April 2010. President of Airborne Global Solutions, Inc. since July 2010.
		Before joining ATSG, Mr. Corrado was President of Transform Consulting Group from July 2006 through March 2010 and Chief Operating Officer of AFMS Logistics Management from February 2008 through March 2010. He was Executive Vice President of Air Services and Business Development for DHL Express from September 2003 through June of 2006; and Senior Vice President of Marketing for Airborne Express from August 2000 through August 2003.
W. Joseph Payne	49	Senior Vice President, Corporate General Counsel and Secretary, Air Transport Services Group, Inc., since February 2008 and Vice President, General Counsel and Secretary ABX Air, Inc. since January 2004. Mr. Payne was Corporate Secretary/Counsel of ABX Air, Inc. from January 1999 to January 2004, and Assistant Corporate Secretary from July 1996 to January 1999. Mr. Payne joined ABX Air, Inc. in April 1995.

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The executive officers of the Company are appointed annually at the Board of Directors meeting held in conjunction with the annual meeting of stockholders. There are no family relationships between any directors or executive officers of the Company.

ITEM 11. EXECUTIVE COMPENSATION

The response to this Item is incorporated herein by reference to the definitive Proxy Statement for the 2013 Annual Meeting of Stockholders under the captions “Executive Compensation” and “Director Compensation.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The responses to this Item are incorporated herein by reference to the definitive Proxy Statement for the 2013 Annual Meeting of Stockholders under the captions “Equity Compensation Plan Information,” “Voting at the Meeting,” “Stock Ownership of Management” and “Common Stock Ownership of Certain Beneficial Owners.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The response to this Item is incorporated herein by reference to the definitive Proxy Statement for the 2013 Annual Meeting of Stockholders under the captions “Related Person Transactions” and “Independence.”

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The response to this Item is incorporated herein by reference to the definitive Proxy Statement for the 2013 Annual Meeting of Stockholders under the caption “Fees of the Independent Registered Public Accounting Firm.”

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


(a)	List of Documents filed as part of this report:


(1)	Consolidated Financial Statements

The following are filed in Part II, item 8 of this Form 10-K Annual Report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders’ Equity

Notes to Consolidated Financial Statements


(2)	Financial Statement Schedules

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Schedule II—Valuation and Qualifying Account



Description	Balance at beginning of period		Additions charged to cost and expenses		Deductions		Balance at end of period
Accounts receivable reserve:
Year ended:
December 31, 2012	$	433,671	$	347,686	$	32,428	$	748,929
December 31, 2011	1,090,042		316,873		973,244		433,671
December 31, 2010	1,288,043		573,858		771,859		1,090,042

All other schedules are omitted because they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes thereto.


(3)	Exhibits

The following exhibits are filed with or incorporated by reference into this report.



Exhibit No.	Description of Exhibit
	Articles of Incorporation

3.1	Certificate of Incorporation of Air Transport Services Group, Inc. (formerly known as ABX Holdings, Inc.). (7)

3.2	Bylaws of Air Transport Services Group, Inc. (formerly known as ABX Holdings, Inc.). (7)

	Instruments defining the rights of security holders

4.1	Preferred Stock Rights Agreement dated December 31, 2007, by and between Air Transport Services Group, Inc. (formerly known as ABX Holdings, Inc.) and National City Bank. (8)

4.2	First Amendment to Preferred Stock Rights Agreement, dated as of October 30, 2009. (23)

4.3	Second Amendment to Preferred Stock Rights Agreement, dated as of June 11, 2012. (23)



	Material Contracts

10.1	Director compensation fee summary. (14)



10.2	Aircraft Loan and Security Agreement and related promissory note, dated August 24, 2006, by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (2)

10.3	Aircraft Loan and Security Agreement and related promissory note, dated October 10, 2006, by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (3)

10.4	Aircraft Loan and Security Agreement and related promissory note, dated February 16, 2007, by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (4)

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10.5	Aircraft Loan and Security Agreement and related promissory note, dated April 25, 2007, by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (5)

10.6	Aircraft Loan and Security Agreement and related promissory note, dated July 18, 2007, by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (6)

10.7	Credit Agreement dated December 31, 2007, among ABX Holdings, Inc., ABX Air, Inc., CHI Acquisition Corp., SunTrust Bank as Administrative Agent, Regions Bank as Syndication Agent and the other lenders from time to time a party thereto. (8)

10.8	Guarantee and Collateral Agreement dated December 31, 2007, executed by ABX Holdings, Inc., ABX Air, Inc., CHI Acquisition Corp. and each direct and indirect subsidiary of ABX Holdings, Inc. (8)



10.9	Aircraft Loan and Security Agreement and related promissory note, dated October 26, 2007, by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (13)

10.10	Aircraft Loan and Security Agreement and related promissory note, dated December 19, 2007, by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (13)



10.11	First Amendment to Credit Agreement, dated January 18, 2008. (9)

10.12	Assignment Agreement, dated August 11, 2008, with SunTrust Bank and ABX Material Services, Inc. (10)

10.13	Assignment Agreement, dated August 11, 2008, with Regions Bank and ABX Material Services, Inc. (10)

10.14	Agreement dated September 9, 2008, between Israel Aerospace Industries Ltd. and Cargo Aircraft Management, Inc. for airline conversion. (11)

10.15	Amended and Restated First Non-Negotiable Promissory Note between ABX Air, Inc., as maker, and DHL Express (USA), Inc., as holder, dated May 8, 2009. (12)

10.16	Guaranty by Air Transport Services Group, Inc. in favor of DHL Express (USA), Inc., dated May 8, 2009. (12)

10.17	Lease Assumption and Option Agreement between DHL Network Operations (USA), Inc. and ABX Air, Inc., dated May 29, 2009. (12)

10.18	Air Transportation Services Agreement between DHL Network Operations (USA), Inc. and ABX Air, Inc, dated March 29, 2010. (15)

10.19	Mutual Termination Agreement and Release, made among DPWN Holdings (USA), Inc., DHL Network Operations (USA), Inc., DHL Express (USA), Inc., Air Transport Services Group, Inc., and ABX Air, Inc., dated March 29, 2010. (15)

10.20	Second Amendment to Lease Assumption and Option Agreement and Exercise of Lease Option, between DHL Network Operations (USA), Inc. and ABX Air, Inc., dated March 29, 2010. (15)

10.21	Form of Time-Based Restricted Stock Award Agreement under Air Transport Services Group, Inc. 2005 Amended and Restated Long-Term Incentive Plan. (16)

10.22	Form of Performance-Based Stock Unit Award Agreement under Air Transport Services Group, Inc. 2005 Amended and Restated Long-Term Incentive Plan. (16)

10.23	Form of Restricted Stock Unit Award Agreement under Air Transport Services Group, Inc. 2005 Amended and Restated Long-Term Incentive Plan. (16)

10.24	Aircraft Sale Agreements relating to three used Boeing 767-338ER aircraft between Cargo Aircraft Management, Inc. and Qantas Airways Limited, each dated June 15, 2010. (17)

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10.25	Lease Agreement (Wilmington Airpark) between Clinton County Port Authority and Air Transport Services Group, Inc., dated June 2, 2010. (18)

10.26	Air Transport Services Group, Inc. Executive Incentive Compensation Plan, last modified July 30, 2010. (18)

10.27	Conversion Agreement dated August 3, 2010, between Cargo Aircraft Management, Inc., M&B Conversions Limited and Israel Aerospace Industries Ltd. (19)

10.28	Letter Agreement, dated October 15, 2010, between Precision Conversions, LLC and Cargo Aircraft Management, Inc. (20)

10.29	Agreement to purchase one Boeing 757-200ER passenger aircraft between Cargo Aircraft Management, Inc., as Buyer, and Aircraft Lease Finance Corporation, as Seller, dated February 11, 2011. (21)

10.30	Credit Agreement, dated as of May 9, 2011, among Cargo Aircraft Management, Inc., as Borrower, Air Transport Services Group, Inc., the Lenders from time to time party thereto, SunTrust Bank, as Administrative Agent, Regions Bank and JPMorgan Chase Bank, N.A., as Syndication Agents, and Bank of America, N.A., as Documentation Agent. (22)

10.31	Guarantee and Collateral Agreement, dated as of May 9, 2011, made by Cargo Aircraft Management, Inc. and certain of its Affiliates in favor of SunTrust Bank, as Administrative Agent. (22)

10.32	Amendment to Confidentiality and Standstill Agreement, dated as of June 11, 2012, between Air Transport Services Group, Inc. and Red Mountain Capital Partners LLC. (23)

10.33	Form of amended and restated change-in-control agreement in effect between Air Transport Services Group, Inc. and its executive officers.(25)

10.34	Amendment to the Credit Agreement, dated July 20, 2012, among Cargo Aircraft Management, Inc., as Borrower, Air Transport Services Group, Inc., the Lenders from time to time party thereto, SunTrust Bank, as Administrative Agent, Regions Bank and JPMorgan Chase Bank, N.A., as Syndication Agents, and Bank of America, N.A., as Documentation Agent. (24)

10.35	Purchase and sale agreement, dated December 17, 2012, between Cargo Aircraft Management, Inc., and National Air Cargo Group, Inc. for the purchase of three Boeing 757-200 aircraft filed herewith. Those portions of the Agreement marked with an [*] have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.

10.36	Amended and Restated Lease Agreement, dated December 27, 2012, between Clinton County Port Authority and Air Transport Services Group, Inc., filed herewith.

10.37	Loan Agreement, Chapter 166, Ohio Revised Code, dated December 1, 2012, between the Director of Development Services Agency of Ohio and Clinton County Port Authority, filed herewith.

10.38	Guaranty Agreement, dated December 1, 2012, among Air Transport Services Group, Inc., Airborne Maintenance and Engineering Services, Inc., Air Transport International, LLC, Clinton County Port Authority, the Directory of Development Services Agency of Ohio, and the Huntington National Bank, filed herewith.

10.39	Lease Agreement for the Jump Hangar Facility, dated December 1, 2012, between Clinton County Port Authority and Air Transport International, LLC, filed herewith.

10.40	Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, dated December 1, 2012, among Air Transport International, LLC and the Director of Development Services Agency of Ohio filed herewith.

10.41	Bond Purchase Agreement, dated December 13, 2012, among the State of Ohio, acting by and through its Treasurer of State, the Development Services Agency of Ohio, acting by and through a duly authorized representative, Clinton County Port Authority, Air Transport International, LLC and Stifel, Niolaus & Company, Inc filed herewith.

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	Code of Ethics

14.1	Code of Ethics—CEO and CFO. (1)

	List of Significant Subsidiaries

21.1	List of Significant Subsidiaries of Air Transport Services Group, Inc., filed within.

	Consent of experts and counsel

23.1	Consent of independent registered public accounting firm, filed herewith.

	Certifications

31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.



101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Labels Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

____________________


(1)	The Company's Code of Ethics can be accessed from the Company's Internet website at www.atsginc.com.


(2)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 9, 2006.


(3)	Incorporated by reference to the Company’s Annual Report of Form 10-K/A filed on August 14, 2007 with the Securities and Exchange Commission.


(4)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A, filed with the Securities and Exchange Commission on August 14, 2007.


(5)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 14, 2007.


(6)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 14, 2007.


(7)	Incorporated by reference to the Form 8-A/A of ABX Holdings, Inc. filed with the Securities and Exchange on January 2, 2008.


(8)	Incorporated by reference to the Company’s 8-K/A, submitted for filing with the Securities and Exchange Commission on March 17, 2008.


(9)	Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange Commission on January 25, 2008.


(10)	Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange Commission on August 13, 2008.


(11)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on November 14, 2008.


(12)	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 10, 2009.


(13)	Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 17, 2008 with the

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Securities and Exchange Commission.


(14)	Incorporated by reference to the Company's Proxy Statement for the 2012 Annual Meeting of Stockholders, Corporate Governance and Board Matters, filed March 30, 2012 with the Securities and Exchange Commission.


(15)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2010. Those portions of the Agreement marked with an [*] have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.


(16)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2010.


(17)	Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2010. Those portions of the Agreement marked with an [*] have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.


(18)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 4, 2010.


(19)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 3, 2010. Those portions of the Agreement marked with an [*] have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.


(20)	Incorporated by reference to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 8, 2011. Those portions of the Agreement marked with an [*] have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.


(21)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2011. Those portions of the Agreement marked with an [*] have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.


(22)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 3, 2011.


(23)	Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on June 18, 2012.


(24)	Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on July 24, 2012.


(25)	Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 2, 2012.

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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 Transport Services Group, Inc.




Signature	Title	Date
/ S / J OSEPH C. H ETE	President and Chief Executive Officer (Principal Executive Officer)	March 4, 2013
Joseph C. Hete

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated:



Signature	Title	Date
/ S / J AMES H. C AREY	Director and Chairman of the Board	March 4, 2013
James H. Carey

/ S / R ICHARD M. B AUDOUIN	Director	March 4, 2013
Richard M. Baudouin

/ S / J AMES E. B USHMAN	Director	March 4, 2013
James E. Bushman

/ S / J OHN D. G EARY	Director	March 4, 2013
John D. Geary

/ S / J OSEPH C. H ETE	Director, President and Chief Executive Officer (Principal Executive Officer)	March 4, 2013
Joseph C. Hete

/ S / A RTHUR J. L ICHTE	Director	March 4, 2013
Arthur J. Lichte

/ S / R ANDY D. R ADEMACHER	Director	March 4, 2013
Randy D. Rademacher

/ S / J. C HRISTOPHER T EETS	Director	March 4, 2013
J. Christopher Teets

/ S / J EFFREY J. V ORHOLT	Director	March 4, 2013
Jeffrey J. Vorholt

/ S / Q UINT O. T URNER	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 4, 2013
Quint O. Turner

Exhibit 10.35

Those portions of this Agreement marked with an [*] have been omitted pursuant

to a request for confidential treatment and have been filed separately with the SEC.

PURCHASE AND SALE AGREEMENT

dated as of December 17 , 2012

by and between

NATIONAL AIR CARGO GROUP, INC.,

as Seller,

and

CARGO AIRCRAFT MANAGEMENT, INC.,

as Buyer

____________________

Three Boeing 757-200 aircraft, one spare engine, and certain ancillary equipment

{00278516.DOCX / }

Those portions of this Agreement marked with an [*] have been omitted pursuant

to a request for confidential treatment and have been filed separately with the SEC.

INDEX

Section Page

1 INTERPRETATION 1

1.1 DEFINITIONS 1

1.2 CONSTRUCTION 1

2 REPRESENTATIONS AND WARRANTIES 1

2.1 SELLER’S REPRESENTATIONS AND WARRANTIES 1

2.2 BUYER’S REPRESENTATIONS AND WARRANTIES 1

3 AGREEMENT TO SELL AND BUY 1

3.1 AGREEMENT 1

3.2 TRANSFER OF TITLE 2

3.3 DELIVERY DOCUMENTS 2

3.4 LIENS 2

3.5 RISK 2


3.6	MANNER OF SALE 2

4 CONDITIONS PRECEDENT 2

4.1 SELLER CONDITIONS 2

4.2 BUYER CONDITIONS 2

4.3 FAILURE TO SATISFY BUYER CONDITIONS 2

5 PURCHASE PRICE 2

5.1 AMOUNT OF PURCHASE PRICE 2

5.2 DEPOSIT 3

5.3 PAYMENTS AT CLOSING 3

5.4 TAXES 3

5.5 TIME OF THE ESSENCE 3

6 INSPECTION 4

7 DELIVERY 4

7.1 DELIVERY 4

7.2 DELIVERY DATE 4

7.3 TENDER AND ACCEPTANCE OF DELIVERY 5

7.4 REMOVAL OF TECHNICAL DOCUMENTS 5

8 CONDITION OF EQUIPMENT 5

8.1 SELLER’S DISCLAIMERS 5

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to a request for confidential treatment and have been filed separately with the SEC.

8.2 ASSIGNMENT OF WARRANTIES 5

8.3 ACCEPTANCE CERTIFICATE 6

8.4 SELLER’S UNDERTAKINGS AS TO MAINTENANCE PROVIDERS 6

9 INDEMNITIES; DEFENSE OF CLAIMS 6

9.1 GENERAL INDEMNITY 6

9.2 SURVIVAL 8

10 FURTHER PROVISIONS 8

10.1 BENEFIT OF AGREEMENT 8

10.2 FURTHER ASSURANCES 8

10.3 [RESERVED] 8

10.4 WAIVERS 8

10.5 VARIATION 9

10.6 NOTICES 9

10.7 INVALIDITY OF ANY PROVISION 9

10.8 ENTIRE AGREEMENT 10

10.9 COSTS AND EXPENSES 10

10.10 CONFIDENTIALITY 10

10.11 COUNTERPARTS 10

11 GOVERNING LAW AND JURISDICTION 10

11.1 GOVERNING LAW 10

11.2 SUBMISSION 10

11.3 WAIVERS. EACH OF THE PARTIES HERETO 11

12 INSURANCE 11

13 COVENANT NOT TO COMPETE 12

{00278516.DOCX / }

Those portions of this Agreement marked with an [*] have been omitted pursuant

to a request for confidential treatment and have been filed separately with the SEC.

SCHEDULE 1 EQUIPMENT DESCRIPTION 1-1

SCHEDULE 2 DEFINITIONS 2-1

SCHEDULE 3 CONDITIONS PRECEDENT 3-1

PART A SELLER CONDITIONS PRECEDENT 3-1

PART B BUYER CONDITIONS PRECEDENT 3-1

SCHEDULE 4 REPRESENTATIONS AND WARRANTIES 4-1

PART A SELLER’S REPRESENTATIONS AND WARRANTIES 4-1

PART B BUYER’S REPRESENTATIONS AND WARRANTIES 4-1

SCHEDULE 5 BILL OF SALE 5-1

SCHEDULE 6 ACCEPTANCE CERTIFICATE 6-1

SCHEDULE 7 DELIVERY CONDITION 7-1

SCHEDULE 8 MATERIAL STCs AND MASTER CHANGE 8-1

SCHEDULE 9 FORM OF DOCUMENT ESCROW LETTER 9-1

{00278516.DOCX / }

Those portions of this Agreement marked with an [*] have been omitted pursuant

to a request for confidential treatment and have been filed separately with the SEC.

Purchase and Sale Agreement

This Purchase and Sale Agreement is entered into as of December __, 2012, by and between National Air Cargo Group, Inc. ( “Seller” ), and Cargo Aircraft Management, Inc. ( “Buyer” ).

Seller owns the 757 aircraft, spare engine, and ancillary equipment described in this Agreement. Seller wants to sell that equipment to Buyer, and Buyer wants to buy that equipment from Seller.

Buyer and Seller agree as follows:

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Those portions of this Agreement marked with an [*] have been omitted pursuant

to a request for confidential treatment and have been filed separately with the SEC.


1	INTERPRETATION


1.1	Definitions. Words and phrases used herein that are defined in Schedule 2, when capitalized as therein, have the meanings set forth in Schedule 2.


1.2	Construction. Except where a contrary intention is stated:


(i)	a reference to a section (§) or a Schedule refers to a section of or a Schedule to this Agreement;


(ii)	any Law, or to any specified provision of any Law, is a reference to such Law or provision as amended, substituted, or re‑enacted;


(iii)	headings are to be ignored in construing this Agreement;


(iv)	“or” is copulative and not disjunctive; and


(v)	“including” means “including but not necessarily limited to”.


2	REPRESENTATIONS AND WARRANTIES


2.1	Seller’s Representations and Warranties. Seller represents and warrants to Buyer that the statements contained in Part A of Schedule 4 are true and accurate.


2.2	Buyer’s Representations and Warranties. Buyer represents and warrants to Seller that the statements contained in Part B of Schedule 4 are true and accurate.


3	AGREEMENT TO SELL AND BUY


3.1	Agreement. Seller agrees to sell each Item of Equipment to Buyer, and Buyer agrees to buy each Item of Equipment from Seller, on the Delivery Date for that Item, at the Delivery Location for that Item, on an “as is where is” basis.


3.2	Transfer of Title. Seller shall pass to Buyer, upon its Delivery, good and marketable title to each Aircraft and the Spare Engine, and good title to the Ancillary Equipment and the Technical Documents.


3.3	Delivery Documents. Upon Delivery of each Item of Equipment, Seller will deliver to Buyer the Bill(s) of Sale for that Item (duly executed by Seller). Full legal and beneficial title to each such Item will pass to Buyer on delivery of the related Warranty Bill of Sale.


3.4	Liens. Each Item of Equipment shall upon Delivery be free and clear of any Liens.


3.5	Risk. Upon Delivery, risk of loss of each Item of Equipment will pass from Seller to Buyer.


3.6	Manner of Sale. Seller’s agreement to sell shall mean that Seller agrees to sell or cause to be sold, and all related covenants, representations, and other undertakings shall be interpreted accordingly. For example (but without limiting the generality of this § 3.6), where this Agreement requires that Seller transfer good and marketable title to an Aircraft upon its

{00278516.DOCX / }

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to a request for confidential treatment and have been filed separately with the SEC.

Delivery, the requirement shall mean that Seller must transfer or cause to be transferred good and marketable title to that Aircraft upon its Delivery.


4	CONDITIONS PRECEDENT


4.1	Seller Conditions. Seller’s obligation to sell each Item of Equipment to Buyer is subject to fulfillment of the Seller Conditions Precedent on or before its Delivery Date.


4.2	Buyer Conditions. Buyer’s obligation to buy each Item of Equipment from Seller is subject to fulfillment of each of the Buyer Conditions Precedent on or before its Delivery Date.

4.3

Failure to Satisfy Buyer Conditions. If any of the Buyer Conditions is not satisfied or waived in writing by Buyer on or before January 14, 2013, with the exception of the provision by The Boeing Company of the FAA-approved Master Change concerning the weight upgrades for the Aircraft listed in Schedule 8 hereto, which may extend for a reasonable period of time beyond such date (provided that Buyer, acting reasonably and in good faith, determines that such Master Change will be provided within a reasonable period of time), then Buyer shall have the right to terminate this Agreement upon written notice to Seller, in which event (x) this Agreement shall terminate without any liability to either party, and each party shall be responsible for all of its own costs; and (y) the Deposit shall be returned to Buyer in conjunction with such termination.


5	PURCHASE PRICE


5.1	Amount of Purchase Price.


(a)	Subject to Section 5.1(b), the purchase price for each Item of Equipment (the “Purchase Price” ) is as follows:

Aircraft N151GX / 24451:     $ [*].
Aircraft N259CA / 26152:     $ [*].
Aircraft N763CA / 26154:     $ [*].
Spare Engine MSN 30594:    $ [*].
Ancillary Equipment:        as shown on Schedule 1.


(b)	The Purchase Price for the Aircraft set forth in Section 5.1(a) shall be increased in the amount of $[] for each such Aircraft that is delivered to Buyer prior to [].

5.2

Deposit. Before the date of this Agreement, Buyer deposited $[*] (the “Deposit” ) with Funds Escrow Agent pursuant to the Funds Escrow Agreement. The Deposit will be held and applied in accordance with the following: Thirty percent (30%) of the Deposit shall be applied to the Purchase Price for each Aircraft and the remaining ten percent (10%) shall be applied to the Purchase Price for the Spare Engine.


5.3	Payments at Closing. At least two (2) Business Days prior to the relevant Delivery Date for each Item of Equipment, the parties shall establish a document escrow pursuant to a Document Escrow Letter substantially in the form of Schedule 9 attached hereto. At least one (1) Business Day prior to the relevant Delivery Date for each Item of Equipment, (i)

{00278516.DOCX / }

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to a request for confidential treatment and have been filed separately with the SEC.

Buyer shall deposit with the Funds Escrow Agent the Purchase Price for that Item (less the portion of the Deposit to be applied to the Purchase Price for that Item); and (ii) Buyer and Seller, shall deposit with the Document Escrow Agent the documents required to be placed into escrow by them under the Document Escrow Letter. The Funds Escrow Agent shall promptly notify Seller when all funds have been deposited into the escrow account and will disburse such funds as provided in the Funds Escrow Agreement. Similarly, the Document Escrow Agent shall promptly notify Buyer and Seller when all documents have been deposited with the Document Escrow Agent and will distribute such documents as provided in the Document Escrow Letter.

5.4

Taxes. Buyer agrees to pay all taxes associated with this transaction, including sales/use taxes, excise taxes, value added taxes, transfer taxes or any other similar taxes (excluding taxes imposed upon the net or gross income of Seller) that are imposed upon Buyer. Seller shall be liable for all taxes imposed upon the net or gross income of Seller, as well as any franchise taxes or personal property taxes (for the avoidance of doubt, “personal property taxes” do not include sales and use taxes). In the event that either Buyer or Seller fails to pay the taxes specified above and such tax is levied upon, assessed against, collected from or otherwise imposed upon the other party, the party responsible for such taxes shall immediately indemnify, protect, defend and hold harmless the other party from and against all such indemnified taxes, including any interest or penalties associated with such taxes. Seller and Buyer will cooperate in seeking to minimize the tax liability associated with the transaction.


5.5	Time of the Essence. Time is of the essence for payments due under this Agreement.


6	INSPECTION

Buyer will be entitled to reasonably inspect each Item of Equipment and the Technical Documents associated therewith in order to verify that the condition of the Item and its Technical Documents complies with the Delivery Condition. Such inspection shall occur pursuant to a schedule mutually and reasonably agreed upon by Buyer and Seller prior to the Delivery of the relevant Item. Seller shall promptly correct or have corrected any discrepancies from the Delivery Condition which are observed during such inspection and are communicated in writing and reasonably agreed upon by both Buyer and Seller prior to Delivery. Seller will participate in the performance of such inspection by Buyer. Seller and Buyer may agree in writing that any discrepancies from the Delivery Condition which are not corrected prior to Delivery of an Item of Equipment to Buyer, may be corrected by Buyer or its designee, and Seller shall reimburse Buyer or its designee for all costs and expenses actually incurred in connection therewith (and without mark-up).


7	DELIVERY

7.1

Delivery. On the Delivery Date for each Item of Equipment, and subject to satisfaction (or waiver by Seller) of the Seller Conditions Precedent, Seller shall execute and deliver the Bill(s) of Sale for that Item, and transfer of legal and beneficial title to that Item shall be effected on its Delivery Date by the delivery of the Warranty Bill of Sale for that Item to Buyer. Simultaneously with delivery of the Warranty Bill of Sale for an Item of Equipment,

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to a request for confidential treatment and have been filed separately with the SEC.

any and all of Seller’s legal and beneficial title to and interest in the related Technical Documents shall pass from Seller to Buyer. The Bill(s) of Sale for each item of Equipment shall be delivered to Buyer while that item is at its Delivery Location.


7.2	Delivery Date. The Delivery Date for each Item of Equipment, on which Delivery of that Item occurs, shall be as follows, provided that, in each case, Buyer has been afforded a reasonable opportunity to inspect the Item in accordance with Section 6 prior to such Delivery Date:

(a) For Aircraft N151GX/24451: on the earliest practicable date after Buyer and Seller enter into this Agreement, it being understood that Buyer and Seller shall cooperate with each other and make commercially reasonable efforts to achieve the Delivery of such Aircraft on or before December 31, 2012;

(b) For Aircraft N259CA/26152 and Aircraft N763CA/26154: on the earliest practicable date after The Boeing Company has delivered the FAA-approved Master Change Number 0310MK5547 concerning the weight upgrades for each such Aircraft as set forth in Schedule 8, provided that in no event shall the Delivery Date for either such Aircraft be prior to January 2, 2013;

(d) For the Ancillary Equipment: mutually agreeable dates consistent with the delivery schedule for the Aircraft.


7.3	Tender and Acceptance of Delivery. On the Delivery Date for each Item of Equipment, Seller shall tender that Item for Delivery, and Buyer shall accept delivery of that Item by executing and delivering an Acceptance Certificate for it.


7.4	Removal of Technical Documents. Immediately after Delivery of each Item of Equipment, Buyer will remove the Technical Documents for that Item from Seller’s premises.


8	CONDITION OF EQUIPMENT


8.1	Seller’s Disclaimers.

(a) The Equipment, and each part of it and each interest in it, are being sold and delivered to Buyer “ as is ” and “where is”, without any representation, guarantee, or warranty of Seller, express or implied, of any kind, arising by law or otherwise, except to the extent provided by Seller in Schedule 4 and the Warranty Bills of Sale.

(b) Except to the extent provided by Seller in Schedule 4 and the Warranty Bills of Sale, Buyer unconditionally agrees that, as between Buyer and Seller, the Equipment (and each part of it and each interest in it) and the Technical Documents are to be sold and purchased in an as is , where is condition on the relevant Delivery Date, and no term, condition, warranty, representation, or covenant of any kind has been accepted, made, or is given by Seller or any of its officers, employees, or agents

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to a request for confidential treatment and have been filed separately with the SEC.

in respect of the airworthiness, value, satisfactory quality, durability, date processing, condition, design, operation, description, merchantability, or fitness for use or purpose of the Equipment or any part thereof or interest therein, as to the absence of latent, inherent, or other defects (whether or not discoverable), as to the completeness or condition of the Technical Documents, or as to the absence of any infringement of any patent, copyright, design, or other proprietary rights; and all conditions, warranties, and representations in relation to any of those matters, expressed or implied, statutory or otherwise, are expressly excluded, and Buyer hereby waives any and all rights and remedies it may have or have had against Seller arising therefrom whether arising in contract or in tort out of any negligence or strict liability of Seller or otherwise, including rights and remedies for loss of use, revenue, and profit, or other indirect, incidental, special, or consequential damages.

8.2

Assignment of Warranties. Effective upon Delivery of each Item of Equipment, Seller assigns, to the extent assignable, all existing assignable warranties, service life policies, and patent indemnities of manufacturers and maintenance and overhaul agencies with respect to that Item, which assignment shall be evidenced by the related Warranty Bill of Sale. Without limitation, Seller will assign, or caused to be assigned, to Buyer (i) the Conversion Contract, but only with respect to the Aircraft, (ii) the right to use (on a non-exclusive basis) the “combi” conversion STC, the other Material STCs and the Master Change associated with the Aircraft, and (iii) any and all assignable warranties, royalties and other rights associated with the modification of the Aircraft into a “combi” configuration; provided that Seller shall retain for itself, and its successors and assigns, all such rights as they relate to Seller’s other aircraft which are subject to the Conversion Contract or otherwise, including the right to utilize the “combi” conversion STC and any other STCs.


8.3	Acceptance Certificate. Buyer’s delivery of an Acceptance Certificate for an Item of Equipment shall be conclusive proof, as between Buyer and Seller, that Buyer agrees that such Item and each part of it and interest in it, and all related Technical Documents, have been accepted by Buyer for the purposes of this Agreement.

8.4

Seller’s Undertakings as to Maintenance Providers. Seller warrants that, on or before the Delivery Date for each Item of Equipment, it shall pay Pemco and any other service providers, suppliers, or vendors in full for all services performed, materials, parts, or equipment provided, and other amounts due or anticipated to become due under the Conversation Contract or otherwise related to the modification and maintenance of such Item. Seller covenants and warrants that (i) it will not agree to terminate, or take any actions which are likely to result in the termination of, the Conversion Contract during the Relevant Period as such term is defined therein; (ii) it has not and shall not agree to amend or modify the provisions contained in Section 32 of the Conversion Contract or any other provisions contained in the Conversion Contract that could reasonably be expected to have a deleterious effect on the provisions contained in Section 32 thereof, and has not entered into and shall not enter into any agreements, and has not taken or agreed to take any actions, that could reasonably be expected to have a deleterious effect on the respective rights of Seller or NACH, or of Pemco (or the successful bidder(s) under the bankruptcy proceedings), under the provisions contained in Section 32 of the Conversion Contract, in each case, without the prior written consent of Buyer; and (iii) Seller shall not default under the Conversion

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Contract.


9	INDEMNITIES; DEFENSE OF CLAIMS


9.1	General Indemnity

(a) Buyer will be responsible for and shall indemnify, defend, and hold harmless each Seller Indemnitee, on an after-tax basis, from and against any and all Claims: (1) with respect to each Item of Equipment, which arise on or after the time that title to that Item passes to Buyer (including Claims relating to or arising from any component, equipment, or part installed on that Item, or any of the related Technical Documents), and which directly or indirectly arise in any manner out of or in connection with (aa) the ownership by Buyer or by any third Person of that Item, or (bb) the use, possession, dispossession, re-possession, control, operation, location, landing, departure, condition, acceptance, rejection, delivery, non‑delivery, re‑delivery, registration, de‑registration, re‑registration, sale, leasing, wet leasing, chartering, subleasing, importation, exportation, transfer of title, other disposition of title, abandonment storage, maintenance, service, repair, overhaul, testing, design, modification, dismantling, disassembly or re‑assembly of that Item, even if any of the foregoing arise from Buyer’s or its transferee’s use of Seller’s maintenance program; or (2) which directly or indirectly arise in any manner out of or in connection with a Buyer event of default under this Agreement; or (3) arising from or related to any breach of any representation, warranty, or covenant made by Buyer under this Agreement. The foregoing indemnity shall apply to all Claims, regardless of whether any such Claim arises in tort (including strict liability); provided that this § 9.1(a) shall not extend to any liability arising from (x) any Seller Indemnitee’s fraud, gross negligence, or willful misconduct, or (y) the breach by any Seller Indemnitee of any representation or warranty in this Agreement or any other documents delivered by such Seller Indemnitee to Buyer; provided further that Buyer’s indemnity obligations set forth in this section shall not apply to any Tax, whether or not indemnity is provided in § 5.4(b).

(b) Seller will be responsible for and shall indemnify, defend, and hold harmless each Buyer Indemnitee, on an after-tax basis, from and against any and all Claims: (1) with respect to each Item of Equipment, which arise before the time that title to that Item passes to Buyer (including Claims relating to or arising from any component, equipment, or part installed on that Item, or any of the related Technical Documents), and which directly or indirectly arise in any manner out of or in connection with (aa) the ownership by Seller or by any third Person of that Item, or (bb) the use, possession, dispossession, re-possession, control, operation, location, landing, departure, condition, acceptance, rejection, delivery, non‑delivery, re‑delivery, registration, de‑registration, re‑registration, sale, leasing, wet leasing, chartering, subleasing, importation, exportation, transfer of title, other disposition of title, abandonment storage, maintenance, service, repair, overhaul, testing, design,

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modification, dismantling, disassembly or re‑assembly of that Item by Seller or by any third Person; or (2) which directly or indirectly arise in any manner out of or in connection with a Seller event of default under this Agreement or (3) arising from or related to any breach of any representation, warranty, or covenant made by Seller under this Agreement. The foregoing indemnity shall apply to all Claims, regardless of whether any such Claim arises in tort (including strict liability); provided that this § 9.1(b) shall not extend to any liability arising from (1) any Buyer Indemnitee’s fraud, gross negligence, or willful misconduct, or (2) the breach by any Buyer Indemnitee of any representation or warranty in this Agreement or any other documents delivered by such Buyer Indemnitee to Seller.

(c) If any Claim is made against a Seller Indemnitee or a Buyer Indemnitee, upon receiving notice of such Claim, such Seller Indemnitee or Buyer Indemnitee will promptly notify Buyer or Seller, respectively; provided that any failure by the indemnified party so to notify the indemnifying party shall not relieve the indemnifying party of its obligations to indemnify hereunder except to the extent that the indemnifying party is materially prejudiced by such failure. The indemnifying party may, and if within a reasonable time requested in writing by an indemnified party to do so shall, at the indemnifying party’s expense, resist and defend the action, suit, or proceeding relating to any Claim, or cause it to be resisted and defended by counsel designated by the indemnifying party (which counsel shall be reasonably satisfactory to the indemnified party), and the indemnified party shall furnish to the indemnifying party such information relating to the conduct or status of such defense as the indemnifying party or its counsel from time to time reasonably requests. If the indemnifying party does not resist or defend such action, suit, or proceeding as provided for in the proceeding sentence, then, unless the indemnifying party has paid the Claim that is the subject of such action, suit, or proceeding, the indemnified party may elect to resist or defend such action, suit, or proceeding with counsel designated by the indemnified party at the indemnifying party’s cost (for reasonable expenses and legal fees).


9.2	Survival. The obligations of the parties under this § 9 will survive the consummation, completion, or termination (or any combination of any thereof) of this Agreement.


10	FURTHER PROVISIONS


10.1	Benefit of Agreement. Neither party shall assign or transfer all or any of its rights or obligations under this Agreement without the prior written consent of the other party (such consent not to be unreasonably withheld or delayed).

10.2

Further Assurances. Each party agrees from time to time, to do and perform such other and further acts and execute and deliver any and all such other instruments and documents as may be required by law or reasonably requested by the other party (and at the expense of the other party) to establish, maintain and protect the rights and remedies of the parties and to carry out and effect the intent and purpose of this Agreement.

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10.3	[Reserved.]

10.4

Waivers. Each party’s rights (whether arising under this Agreement or the general law) shall not be capable of being waived or varied otherwise than by an express waiver or variation in writing; and in particular any failure to exercise or any delay in exercising any of such rights shall not operate as a waiver or variation of that or any other such right; any defective or partial exercise of any of such rights shall not preclude any other or further exercise of that or any other such right; and no act or course of conduct or negotiation on the part of either party or on its behalf shall in any way preclude it from exercising any such right or constitute a suspension or any variation of any such right.


10.5	Variation. The provisions of this Agreement shall not be varied otherwise than by an instrument in writing executed by both parties.


10.6	Notices. Any notice or other communication under or in connection with this Agreement shall be in writing, and shall be effective when delivered personally, by fax, by email, or by internationally-recognized express courier service, to the address given below (or such other address as the recipient shall have notified to the sender in writing):


if to Buyer:	Cargo Aircraft Management, Inc. 145 Hunter Drive Wilmington, OH 45177 Attention: W. Joseph Payne Fax: 937-382-2452

with a copy to

Email: joe.payne@atsginc.com

Attention: W. Joseph Payne


if to Seller:	National Air Cargo Group, Inc. (d.b.a. National Airlines) 835 Willow Run Airport Ypsilanti, Michigan 48198 Attention: President Fax: 734-484-4740

with a copy to

Email: gjoerger@nationalaircargo.com
Attention: Glen Joerger

Email: Nationalcontracts@nationalaircargo.com

Attention: Contracts

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10.7	Invalidity of any Provision. If any of the provisions of this Agreement becomes invalid, illegal, or unenforceable in any respect under any Law, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired.


10.8	Entire Agreement. This Agreement (including the attached Schedules) and the other Transaction Documents constitute the entire agreement between Buyer and Seller in relation to the sale and purchase of the Equipment and Technical Documents, and supersede all previous proposals, agreements, and other written and oral communications in relation thereto.

10.9

Costs and Expenses. Each party shall bear its own fees, costs, and expenses in connection with the preparation, negotiation, and completion of the Transaction Documents and performance of the transactions contemplated hereby, except as otherwise expressly provided herein. With respect to the Aircraft and unless the parties shall otherwise agree in order to facilitate expedience and efficiency, Seller will be responsible for the costs incurred in satisfying the Delivery Condition, including pursuant to the Conversion Contract, the Boeing Contract and for any other services performed or materials provided by vendors. Seller shall not be responsible for arranging, or the costs incurred for, the stripping or painting of any of the Aircraft. The parties shall share equally the fees of Daugherty, Fowler, Peregrin, Haught & Jenson for Oklahoma City FAA / IR work and work as document escrow agent, and shall equally share the fees of Funds Escrow Agent. Buyer shall be responsible for any data hosting and technical support fees charged by Boeing; provided that, in the first year only, Seller will contribute $[*] per Aircraft for such fees. Seller will provide assistance in working with Pemco and Boeing in order to minimize any such expenses. Seller shall assign (or to the extent it cannot assign, provide a back-to-back indemnity for) the indemnification obligation of AerCo Ireland Limited with respect to Engine 30853.

10.10

Confidentiality. This Agreement, including the Purchase Prices and all other terms and conditions herein, shall be kept strictly confidential by the parties, and shall not be disclosed to any third party (except, on a need to know basis, to its affiliates, legal counsel, accountants, and, in the case of Seller, its equity holders, investors and lenders) without the prior written consent of the other party unless such disclosure is required by any Law, or by any Government Entity, in which event the party under the obligation to make such disclosure shall notify the other parties hereto as soon as reasonably possible prior to such disclosure.


10.11	Counterparts. This Agreement may be executed in any number of separate counterparts, and each fully-executed counterpart shall be an original document, but all counterparts shall together constitute one and the same instrument.


11	GOVERNING LAW AND JURISDICTION


11.1	Governing Law. This Agreement is being delivered in the state of New York, and in all respects shall be governed by, and construed in accordance with, the laws of the state of New York.


11.2	Submission. The federal and state courts in the city and county of New York, NY (Manhattan) shall have non-exclusive jurisdiction to settle any disputes arising out of or relating to this Agreement.

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11.3	Waivers. Each of the parties hereto:

(a) waives to the fullest extent permitted by law any objection which it may now or hereafter have to the courts referred to in § 11.2 on grounds of inconvenient forum or otherwise as regards proceedings in connection with this Agreement;

(b) waives to the fullest extent permitted by law any objection which it may now or hereafter have to the laying of venue of any suit, action, or proceeding arising out of or relating to this Agreement brought in the courts referred to in § 11.2; and

(c) agrees that (subject to permitted appeals) a judgment or order of any court referred to in § 11.2 in connection with this Agreement is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction.


12	INSURANCE

Effective upon Delivery of each Aircraft and the Spare Engine, and for two years thereafter, Buyer will maintain, with respect to that Aircraft or Spare Engine, comprehensive aviation liability insurance (including aviation liability, third party bodily and property damage insurance, and war risk and allied perils coverage) with insurers (or reinsurers) of internationally-recognized responsibility, for an amount not less than $1 billion per occurrence. The liability insurance shall be endorsed so that: (a) it names Seller, its affiliates, and the officers, directors, members, managers, agents, employees, and representatives of the foregoing, as additional insureds ( “Additional Insureds” ); (b) it provides that all of the provisions thereof, except the limits of liability, operate in the same manner as if there were a separate policy covering each insured; (c) it waives any right of subrogation of the insurers against each of the Additional Insureds; (d) it is primary without any right of contribution from any other insurance carried by any Additional Insured; (e) it waives any right of the insurers to set-off or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of any Additional Insured; (f) the coverage afforded to each Additional Insured by the policy shall not be invalidated by any act or omission (including misrepresentation and non-disclosure) of any other person or party which results in a breach of any term, condition or warranty of the policy ; and (g) it provides that the insurers will give 30 days’ prior written notice in the event of cancellation, termination, or material alteration in such coverage (or such shorter period as generally applies in the international commercial airline insurance marketplace with respect to non-payment of a premium or war-risk coverage) . The insurance required by this § 12 may be subject to any limits prevailing at the time in the aviation insurance marketplace (for example, on the date of this Agreement, AVN 67B). Buyer will furnish to Seller, on the Delivery Date (and promptly after any subsequent renewal of the required insurance), one or more broker’s certificates certifying that the required insurance is in full force and effect.


13	COVENANT NOT TO COMPETE

As a specifically-bargained-for inducement for Buyer to buy the Aircraft and Spare Engine, Seller shall not (and shall cause its affiliates not to) directly or indirectly compete with Buyer or its affiliates for [*]. In the event that Seller sells, leases or otherwise conveys an aircraft

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meeting the description contained in this provision to a third party, or otherwise permits such an aircraft (under Seller’s care, custody or control) to be operated by a third party during the period specified in this provision, Seller shall cause such third party to agree in writing to be bound by the provisions contained herein to the same extent as Seller and, further, shall cause such third party to agree in writing that it shall likewise cause any subsequent owner or operator of such aircraft to agree in writing to be bound by such provisions during such period. This provision will not limit the ability of Seller or its affiliates to [*]. If this provision is determined to be unenforceable by reason of its extent, duration, scope, or otherwise, then the parties contemplate that the court making such determination shall reduce such extent, duration, scope, or other provision and enforce them in their reduced form for all purposes contemplated in the Transaction Documentation.

[Signatures Appear on Following Page]

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IN WITNESS WHEREOF, Buyer and Seller have executed this Purchase and Sale Agreement.

CARGO AIRCRAFT MANAGEMENT, INC. (Buyer)

By: /s/ W. Joseph Payne
Name: W. Joseph Payne
Title: Vice President

NATIONAL AIR CARGO GROUP, INC. (Seller)

By: /s/ Glen Joerger
Name: Glen Joerger
Title: President

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SCHEDULE 1

EQUIPMENT DESCRIPTION

One Boeing model 757-200 aircraft bearing manufacturer's serial number 24451 and U.S. FAA registration mark N151GX, including two Rolls-Royce model RB211-535E4 engines, bearing manufacturer’s serial numbers 30855 and 30856, including one Auxiliary Power Unit (“APU”) bearing manufacturer’s serial number P-1179, including all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules, and other equipment of any nature incorporated in, installed on, or attached to such aircraft.

One Boeing model 757-200 aircraft bearing manufacturer's serial number 26152 and U.S. FAA registration mark N259CA, including two Rolls-Royce model RB211-535E4 engines, bearing manufacturer’s serial numbers 30848 and 30853, including one APU bearing manufacturer’s serial number P-1871, including all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules, and other equipment of any nature incorporated in, installed on, or attached to such aircraft.

One Boeing model 757-200 aircraft bearing manufacturer's serial number 26154 and U.S. FAA registration mark N763CA, including two Rolls-Royce model RB211-535E4 engines, bearing manufacturer’s serial numbers 30845 and 30913, including one APU bearing manufacturer’s serial number P-1865, including all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules, and other equipment of any nature incorporated in, installed on, or attached to such aircraft.

One Rolls-Royce model RB211-535E4 bare engine (excluding QEC), bearing manufacturer’s serial number 30594, including all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules, and other equipment of any nature incorporated in, installed on, or attached to such engine, including an appropriate engine cradle/shipping stand for such engine (collectively, the “Spare Engine”).

The equipment listed on the following two pages (the “Ancillary Equipment”):

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Ancillary Equipment List

Interior Components 11.29.2012

Item	Quantity	Part Number	Decscription	Unit Cost	Extended Cost	Current Location

1	1		G1 Galley (Lifeport)	$[*]	$[*]	Oscoda, MI
2	1		G4 Galley (Lifeport)	$[*]	$[*]	Lifeport
3	4		Galley - Small Convection Oven	$[*]	$[*]	1-each Oscoda, 3-each Lifeport
4	1		G4 Galley - Large Refrigerator	$[*]	$[*]	Enflite, warranty repair
5	1		G1 Galley - Small Refrigerator	$[*]	$[*]	Oscoda, MI
6	3		Coffee Makers	$[*]	$[*]	2-each Lifeport, 1-each Enflite (warranty)
7	46		Leather 5150 Seats With Leather Covers	$[*]	$[*]	46-each In storage
8	46		In Seat IFE Controllers	$[*]	$[*]	46-each installed on seats in storage
				Interior Components Extended Cost	$[*]

Avionics

Item	Quantity	Part Number	Decscription	Unit Cost	Extended Cost	Current Location
1	1	G7400-227	VHF Comm Control	$[*]	$[*]	YIP Bay 2 cage
2	1	9D-05522-15	IS&S Display Control	$[*]	$[*]	YIP Bay 2 cage
3	1	9D-80431-5	IS&S Display	$[*]	$[*]	YIP Bay 2 cage
4	1	9D-80431-5	IS&S Display	$[*]	$[*]	YIP Bay 2 cage
5	1	9D-80431-5	IS&S Display	$[*]	$[*]	YIP Bay 2 cage
6	1	9K-00763-5	IS&S Installation Kit	$[*]	$[*]	YIP Bay 2 cage
7	1	9B-84032-5	IS&S Data Concentrator	$[*]	$[*]	YIP Bay 2 cage
8	1	9B-84032-5	IS&S Data Concentrator	$[*]	$[*]	YIP Bay 2 cage
				Avionics Components Extended Cost	$[*]

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				Grand Total Ancillary Equipment	$[*]

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SCHEDULE 2

DEFINITIONS

Acceptance Certificate: a certificate of acceptance of Delivery for an Item of Equipment, substantially in the form of Schedule 6.

Aircraft: each of the aircraft described in Schedule 1, including the related Engines and APU, or, if the context so requires, more than one of such aircraft.

Airframe: an Aircraft (excluding Engines), including all related Parts.

Ancillary Equipment: the equipment (other than the Aircraft and Spare Engine) described in Schedule 1.

Bills of Sale: the Warranty Bills of Sale and the FAA Bills of Sale.

Boeing Contract: means the Kit Proposal, dated September 21, 2012 between The Boeing Company and National Air Cargo Group, Inc.

Business Day: a day (other than a Saturday or Sunday) on which banks are open for business in New York, NY, and (if necessary for a Delivery) the FAA Aircraft Registry is open in Oklahoma City, OK.

Buyer: Cargo Aircraft Management, Inc.

Buyer Conditions Precedent: the conditions specified in Part B of Schedule 3.

Buyer Indemnitees: (1) Buyer, (2) Buyer’s subsidiaries and affiliates, and (3) the officers, employees, or agents of the entities described in clauses (1) and (2).

Claims: any and all claims, actions, suits, proceedings, judgments, liabilities, damages, losses, expenses or demands, including reasonable attorneys’ fees, costs, and expenses.

Conversion Contract: the May 22, 2010 Aircraft Modification Agreement between NACH and Pemco.

Delivery: the transfer of title to the pertinent Item of Equipment by Seller to Buyer under this Agreement.

Delivery Condition: the requirements of Schedule 7, and the following: (a) any Aircraft then being delivered shall have been modified to a “combi” configuration by Pemco in accordance with the Conversion Contract; (b) the Boeing Company shall have provided the FAA-approved weight upgrades for any such Aircraft in accordance with the Boeing Contract; and (c) the Technical Documents in Seller’s possession for the Item(s) of Equipment then being delivered shall (1) be as inspected by Buyer prior to Delivery, (2) include any additions to such records made after the conclusion of such inspection, (3) include any engineering or other data necessary to maintain any Aircraft then being delivered with the “combi” STC, any other Material STCs and the Master Change

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installed in accordance with Federal Aviation Regulations, and (4) satisfy the requirements for Buyer’s use of such Equipment under FAR Part 121. In the event of a dispute between Seller and Buyer regarding whether any Aircraft is in Delivery Condition, Seller and Buyer shall consult in good faith in an effort to resolve the matter, failing which the matter shall be resolved by an appropriate third-party mutually acceptable to the parties (such as The Boeing Company or Rolls-Royce Ltd.).

Delivery Date: the date (which shall be a Business Day) on which the Delivery of the pertinent Item of Equipment occurs.

Delivery Location: (a) for each Aircraft and the Spare Engine, Seller’s facility in Oscoda, Michigan, or such other location mutually and reasonably acceptable to both parties, and (b) for the Ancillary Equipment, Dothan, Alabama, Ypsilanti, Michigan, Oscoda, Michigan or Wilmington, Ohio.

Deposit: defined in § 4.2.

$ and Dollars: the lawful currency of the United States of America, and (in relation to all payments in dollars to be made under this Agreement) same-day funds.

Document Escrow Agent: Daugherty, Fowler, Peregrin, Haught & Jenson.

Document Escrow Letter: defined in § 5.3.

Engines: the engines specified in Schedule 1, including all related Parts.

Equipment: the three Aircraft, the Spare Engine, and the Ancillary Equipment.

Event of Loss: any of the following events with respect to an Item of Equipment: (1) the destruction or damage beyond economic repair of such Item or the rendition of such Item permanently unfit for normal use for any reason whatsoever, (2) any damage or other event that results in an insurance settlement with respect to such Item on the basis of a total loss or constructive or compromised total loss, (3) the condemnation, confiscation, or requisition of title to such Item, or (4) the loss, theft, or disappearance of such Item which is continuing on its Delivery Date, or, for any reason whatsoever, the confiscation or seizure of such Item.

FAA Bill of Sale: a bill of sale for an Aircraft on FAA form 8050-2.

Funds Escrow Agent: Union Bank of California, N.A.

Funds Escrow Agreement: the June 4, 2012 Funds Escrow Agreement among Buyer, Seller, and Funds Escrow Agent, as such Funds Escrow Agreement may be amended and restated from time to time.

Government Entity: (a) any national government, political subdivision thereof, or local jurisdiction therein; (b) any instrumentality, board, commission, court, or agency of any of the above, however constituted; and (c) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any thereof is subject or in whose activities any of the above is a participant.

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Item or Item of Equipment: an Aircraft, the Spare Engine, or an item of Ancillary Equipment listed on Schedule 1.

Law: (a) any statute, decree, constitution, regulation, order, judgment, or other directive of any Government Entity; (b) any treaty, pact, compact, or other agreement by which any Government Entity is bound; (c) any judicial or administrative interpretation or application of any Law described in clause (a) or (b) of this definition; and (d) any amendment or revision of any Law described in clause (a), (b), or (c).

Lien: any encumbrance or security interest however and whenever created or arising, including any mortgage, charge, pledge, lien, encumbrance, assignment, hypothecation, or any other agreement or arrangement conferring security.

Master Change: the FAA-approved retrofit master change, number 0310MK5547, entitled “Increase Maximum Takeoff Weight (MTOW), Maximum Taxi Weight (MTW), and Maximum Zero Fuel Weight (MZFW), provided by The Boeing Company for the Aircraft pursuant to the Boeing Contract.

Material STCs: the STCs identified in Schedule 8.

NACH: National Air Cargo Holdings, Inc.

Part: any part or component (other than a complete Engine) furnished with an Item of Equipment on its Delivery Date, whether or not installed on the Item.

Pemco: Pemco World Air Services, Inc.

Pemco Bankruptcy Proceedings: bankruptcy proceedings concerning Pemco in the United States Bankruptcy Court for the District of Delaware, Case No. 12-10799 (MFW).

Person: any individual person, corporation, partnership, firm, joint stock company, joint venture, trust, estate, unincorporated organization, association, limited liability company or partnership, Government Entity, or organization or association of which any of the above is a member or a participant.

Purchase Price: defined in § 5.1.

Seller: National Air Cargo Group, Inc.

Seller Conditions Precedent: the conditions specified in Part A of Schedule 3.

Seller Indemnitees: (1) Seller, (2) Seller’s subsidiaries and affiliates, and (3) the officers, employees, and agents of the entities described in clauses (1) and (2).

Spare Engine: the engine specified as a “Spare Engine” in Schedule 1, including all related Parts.

STC: a Supplemental Type Certificate.

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Taxes: any and all present and future taxes, duties, withholdings, levies, assessments, imposts, fees, and other governmental charges of all kinds (including any value added or similar tax and any stamp, documentary, registration, or similar tax), together with any penalties, fines, surcharges, and interest thereon and any additions thereto.

Technical Documents: the operating and maintenance records specifically relating to any Item of Equipment.

Transaction Documents: this Agreement, the Funds Escrow Agreement, the Document Escrow Letters, the Bills of Sale, the Acceptance Certificates, and any agreement amending or supplementing any of the foregoing documents.

Warranty Bill of Sale: a bill of sale for an Item of Equipment, substantially in the form of Schedule 5.

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SCHEDULE 3

CONDITIONS PRECEDENT

PART A ‑ SELLER CONDITIONS PRECEDENT


1	Seller has received the Acceptance Certificate for the relevant Item of Equipment, duly executed by Buyer.


2	Buyer has deposited with Funds Escrow Agent the Purchase Price for the relevant Item of Equipment, less the portion of the Deposit that is to be applied to the Purchase Price for such Item.


3	Buyer’s representations and warranties in Part B of Schedule 4 are true and accurate in all material respects on the relevant Delivery Date.


4	Buyer has deposited with the Document Escrow Agent certificates and brokers letters of undertaking evidencing the insurance required by § 12 for the relevant Item of Equipment.


5	The relevant Item of Equipment has not suffered an Event of Loss.


6	Buyer has provided Seller with a sales tax exemption certificate for the relevant Item of Equipment.

PART B ‑ BUYER CONDITIONS PRECEDENT


1	Seller has deposited with the Document Escrow Agent the Warranty Bill of Sale for the relevant Item of Equipment, duly executed by Seller.


2	The relevant Item of Equipment shall in all material respects conform to its description in Schedule 1 hereof.


3	The relevant Item of Equipment has not suffered an Event of Loss.


4	Seller’s representations and warranties in Part A of Schedule 4 are true and accurate in all material respects on the relevant Delivery Date.


5	No Liens appear of record against the relevant Item of Equipment at the FAA Aircraft Registry or at any other relevant registry.


6	As to any Aircraft then being delivered, Seller has deposited an original executed FAA Bill of Sale with the Document Escrow Agent showing Buyer as the owner of that Aircraft.


7	The Item of Equipment then being delivered is in Delivery Condition.

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8	As to any Aircraft then being delivered, NACH has assigned to Buyer the Conversion Contract for that Aircraft by means of an assignment agreement, the form and content of which are reasonably acceptable to Buyer, and an original fully executed counterpart of such assignment agreement has been deposited with the Document Escrow Agent.

(a) Pemco (or the successful bidder(s) under the Pemco Bankruptcy Proceedings) has assumed the Conversion Contract in the Pemco Bankruptcy Proceedings; and (b) the non-debtor parties to any agreements with Pemco involving the conversion or maintenance of the Aircraft do not object to the assumption and assignment of the agreements by Pemco (or the successful bidder(s) under the Pemco Bankruptcy Proceedings) or, alternatively, any such objections are resolved to the satisfaction of Buyer. Buyer and Seller shall reasonably cooperate with each other in determining the status of the matters contained in this Section 9.

With respect to any Aircraft then being delivered, Pemco (or the successful bidder(s) under the Pemco Bankruptcy Proceedings), (a) (1) consent(s) to the assignment to Buyer of the Conversion Contract, (2) agrees that Pemco’s obligations to Seller contained in Section 32(ii) of the Conversion Contract shall also extend to Buyer with respect to business opportunities being pursued by Buyer with the U.S. Department of Defense, (3) confirms that the Conversion Contract is in full force and effect, (4) confirms that it has been paid in full respecting all services performed or amounts due or anticipated to become due under the Conversion Contract with respect to that Aircraft, (5) confirms that NACH is not in default of the Conversion Contract with respect to that Aircraft, and (6) confirms that the terms and conditions of the Conversion Contract have not been restricted or limited in any way as a result of the Pemco Bankruptcy Proceedings; and (b) consents to the assignment to Buyer of all assignable warranties, royalties, and other rights contained in any other agreements between Pemco and non-debtor parties concerning the conversion or maintenance of that Aircraft. The consents and confirmations described in this paragraph shall be in a signed writing and the form and content thereof shall be subject to the reasonable approval of Buyer, and Buyer has received a fully executed original counterpart of such consents and confirmations.


11	Seller has transferred, or caused to be transferred, to Buyer or its affiliate, that certain STC Number ST01920LA (Conversion of B757-200 Passenger to Freighter/Combi).

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SCHEDULE 4

REPRESENTATIONS AND WARRANTIES

PART A – SELLER’S REPRESENTATIONS AND WARRANTIES

Seller represents and warrants to Buyer that the following statements are true and accurate:


(a)	Seller is a corporation duly organized, validly existing and in good standing under the laws of Michigan, and has the requisite power to enter into and implement the transactions contemplated by the Transaction Documents to which it is a party.


(b)	Seller’s execution, delivery, and performance of the Transaction Documents to which it is a party have been duly authorized by all necessary action on its part.


(c)	The Transaction Documents to which it is a party constitute legal, valid, and binding obligations of Seller.


(d)	At Delivery of each Item of Equipment in accordance with this Agreement, and upon the release by Document Escrow Agent of the Bills of Sale to Buyer, Seller shall convey to Buyer good title to each Item of Equipment, free and clear of any and all Liens.


(e)	The execution, delivery and performance by Seller of this Agreement do not contravene the provisions of or constitute a default under any agreement or instrument to which Seller is a party or by which Seller or any of its properties may be bound or affected.


(f)	To the best of Seller’s knowledge, (i) the Items of Equipment do not infringe any patent, copyright, design, or other propriety rights, and (ii) there are no pending, threatened or unasserted claims that the Items of Equipment infringe any patent, copyright, design or other proprietary rights.

PART B - BUYER’S REPRESENTATIONS AND WARRANTIES

Buyer represents and warrants to Seller that the following statements are true and accurate:


(a)	Buyer is a corporation duly organized, validly existing and in good standing under the laws of Florida, and has the requisite power to enter into and implement the transactions contemplated by the Transaction Documents to which it is a party.


(b)	Buyer’s execution, delivery, and performance of the Transaction Documents to which it is a party have been duly authorized by all necessary action on its part.


(c)	The Transaction Documents to which it is a party constitute legal, valid, and binding obligations of Buyer.

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(d)

Buyer is not (and is not acting on behalf of or for the benefit of) (1) a “national” of any foreign country designated in Executive Order No. 8389 or of any “designated enemy country” as defined in Executive Order 9193 of the President of the United States, within the meaning of such Executive Orders or of any regulations, interpretations or rulings issued under them; (2) a “national” of any designated foreign country within the meaning of the Foreign Assets Control Regulations or the Cuban Assets Control Regulations of the United States Treasury Department, 31 Code of Federal Regulations, Subtitle B, Chapter V, or of any regulations, interpretations or rulings issued under them; and (3) an “Iranian Entity” within the meaning of the Iranian Assets Control Regulations of the United States Treasury Department, 31 Code of Federal Regulations, Subtitle B, Chapter V.


(e)	The execution, delivery and performance by Buyer of this Agreement do not contravene the provisions of or constitute a default under any agreement or instrument to which Buyer is a party or by which Buyer or any of its properties may be bound or affected.


(f)	Buyer is a “citizen of the United States” (as defined in 49 U.S. Code § 40102(a)(15).

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SCHEDULE 5

BILL OF SALE

For good and valuable consideration, the receipt and sufficiency of which Seller hereby acknowledges, National Air Cargo Group, Inc. ( “Seller” ), hereby sells, delivers, and sets over to Cargo Aircraft Management, Inc. ( “Buyer” ), good [and marketable] title in and to the following:

[One Boeing model 757-200 aircraft bearing manufacturer's serial number _____ and U.S. FAA registration mark N_____, including two Rolls-Royce model RB211-535E4 engines, bearing manufacturer’s serial numbers _____ and _____, including all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules, and other equipment of any nature incorporated in, installed on, or attached to such aircraft (collectively, the “Aircraft” ).]

[One Rolls-Royce model RB211-535E4 bare engine (excluding QEC), bearing manufacturer’s serial number 30594, including all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules, and other equipment of any nature incorporated in, installed on, or attached to such engine (collectively, the “Spare Engine” ).]

[The equipment listed on the attached schedule (collectively, the “Ancillary Equipment” ).]

and good title to the related Technical Documents (as defined in the December __, 2012 Purchase and Sale Agreement (the “Agreement” ) between Buyer and Seller).

The interest of the Seller in said [Aircraft] [Spare Engine] [Ancillary Equipment], and the interest transferred by this Bill of Sale, is that of absolute ownership.

The [Aircraft] [Spare Engine] [Ancillary Equipment] and such Technical Documents are sold in an “as is, where is” condition and without recourse or warranty whatsoever, other than the warranty given by Seller in the following paragraph.

Seller hereby warrants to Buyer, and to Buyer’s successors and assigns, that Seller conveys to Buyer the [Aircraft] [Spare Engine] [Ancillary Equipment] and such Technical Documents with full title guarantee, free and clear of any Liens (as defined in the Agreement) and that it will warrant and defend such title forever against all claims and demands whatsoever.

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This Bill of Sale shall be governed by the laws of the state of New York, U.S.A.

________ __, 2012

NATIONAL AIR CARGO GROUP, INC.

By:
Name:
Title:

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SCHEDULE 6

ACCEPTANCE CERTIFICATE

This Acceptance Certificate relates to [one Boeing model 757-200 aircraft bearing manufacturer's serial number _____ and U.S. FAA registration mark N_____, including two Rolls-Royce model RB211-535E4 engines, bearing manufacturer’s serial numbers _____ and _____, including all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules, and other equipment of any nature incorporated in, installed on, or attached to such aircraft (collectively, the “Aircraft” ).] [one Rolls-Royce model RB211-535E4 bare engine (excluding QEC), bearing manufacturer’s serial number 30594, including all appliances, components, parts, instruments, appurtenances, accessories, furnishings, modules, and other equipment of any nature incorporated in, installed on, or attached to such engine (collectively, the “Spare Engine” ).] [the equipment listed on the attached schedule (collectively, the “Ancillary Equipment” ).]

Cargo Aircraft Management, Inc. ( “Buyer” ) hereby certifies that, pursuant to the December __, 2012 Purchase and Sale Agreement (the “Agreement” ) between National Air Cargo Group, Inc. ( “Seller” ) and Buyer:


•	the [Aircraft] [Spare Engine] [Ancillary Equipment] and related Technical Documents are acceptable to Buyer in all respects for the purposes of the Agreement.


•	Buyer accepted delivery of the [Aircraft] [Spare Engine] [Ancillary Equipment] and related Technical Documents today at __:__ _.m. ________ time.


•	it has no rights or claims whatsoever against Seller in respect of the condition of the [Aircraft] [Spare Engine] [Ancillary Equipment] or related Technical Documents, or any other matters referred to in § 8 of the Agreement.


•	the location of the [Aircraft] [Spare Engine] [Ancillary Equipment] at Delivery is _______________________________.

______ __, 2012

CARGO AIRCRAFT MANAGEMENT, INC.

By:
Name:
Title:

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SCHEDULE 7

DELIVERY CONDITION

(a) The Aircraft shall (i) be in flyable condition; (ii) be in compliance with the Boeing MPD (May 20, 2011 revision or later), MSG 3 Maintenance Program, as updated periodically in accordance with FAA requirements; (iii) be in compliance with and have a valid U.S. Certificate of Airworthiness; (iv) have a valid registration with the FAA, meet all FAR 121 requirements for “combi” aircraft, and be suitable for immediate operation under FAR Part 121 upon conformity by the applicable operator, without waiver, unless the benefit of such waiver is applicable to the Buyer; (v) have had terminating action, if applicable, accomplished on all outstanding Airworthiness Directives (" A.D.s ") and affecting the Aircraft, its engines and APU as issued by the FAA requiring action within five hundred forty-eight (548) days of the Delivery Date for the Aircraft, with no repetitive inspections falling between C-checks (other than those inspections disclosed to Buyer prior to execution of the Transaction Documentation); (vi) Alternate Means of Compliance (AMOC) affecting the Aircraft, its engines and APU must be transferrable and reasonably acceptable to Buyer; (vii) be in compliance with Configuration, Maintenance and Procedures (CMP ETOPS 180), Document number D011N002, Rev K; (viii) have all instruments and call outs in U.S. standard configuration; (ix) be in accordance with the following weights: MTOW 255,000 lbs, MZFW 186,000 lbs and MLW 210,000 lbs; (x) have installed an ISS flat panel modification, Pegasus FMS system with DMCU, ACARS w/printer, ICG SATCOM, Dual HF’s and Cockpit Voice Recorder (CVR) AD upgrade to 120-minute record time; and (xi) be in accordance with the pertinent Aircraft Specifications attached to this Schedule.

(b) General Conditions . Seller will provide Buyer or its agent unrestricted use of and/or reasonable access to Buyer’s maintenance program and Aircraft records and manuals reasonably prior to the Delivery Date in order to facilitate the Aircraft's integration into Buyer’s fleet. On the Delivery Date, Seller will deliver to Buyer all current and complete historical records required to be maintained for the Aircraft, its engines and APU, including documents, manuals, data, overhaul records, life limited part traceability to “Zero Time Since New”, log books, original delivery documents (if available), serviceable parts tags (to the extent available), FAA forms, modification records and inspection records, and including all of the Aircraft records and manuals pertaining to the Aircraft that are in Seller’s possession.

(i) Any repairs or alterations or structural damage shall have been repaired to a permanent standard as per the SRM or, if the damage is outside the scope of the SRM, shall require FAA 8110-3 certification. Except those disclosed to Buyer prior to execution of the Transaction Documentation, all repairs of a temporary or interim nature, requiring repetitive inspection or further upgrading shall have been upgraded to permanent repair prior to delivery.

(ii) All major repairs shall have proper documentation traceable to FAA approval. Reference to approval by SRM shall be shown to be proper and within the scope of the SRM approved repair. Buyer may re-inspect, or cause to be removed, those repairs where good technical reason exists to question the validity of reference to SRM approval. Buyer acknowledges that

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Category B repairs will be considered to be permanent repairs and also acknowledges that where all other repair documentation is acceptable, the concept of fleet leader can be used to set the re-inspection criteria for Category B repairs. In this respect, Seller shall make commercially-reasonable efforts to obtain records to maximize the reinspection interval for Category B repairs.

(iii) With respect to major and minor alterations, Seller shall provide to Buyer a listing of all alterations made on the Aircraft reasonably prior to the Delivery Date. Buyer may request any additional data on all alterations where the Buyer questions the major/minor classification or method of FAA approval. A complete list of major alterations that require FAA approval shall be agreed between Buyer and Seller reasonably prior to the Delivery Date.

(iv) Seller and Buyer shall consult in good faith in an effort to agree as to the propriety of the major and minor classification of repairs and alterations, failing which the matter shall be resolved by an appropriate third party mutually acceptable to Buyer and Seller.

(v) The main and the nose landing gears shall be fresh from overhaul in accordance with the manufacturer's maintenance program; with traceability back to manufacturer's installation for all life limited components in the landing gears and all history to current times, cycles and calendar limitations.

(vi) Except as shall have been disclosed by Seller to Buyer prior to execution of the Transaction Documentation, the Aircraft, its engines and APU shall have no open, deferred, continued or carry-over items to include no reduced inspection intervals, or placarded maintenance items or watch items or placarded log book items, and all other log book discrepancies shall be cleared.

(d) Engines . The Aircraft’s installed engines and the Spare Engine shall have the number of engine flight hours and engine cycles remaining to the next scheduled removal as specified in the pertinent Aircraft Specifications attached to this Schedule and shall be eligible for 180-minutes ETOPS requirements. Further, each engine shall pass a complete video borescope inspection (performed by an independent qualified inspector acceptable to Buyer and Seller) based on the Boeing maintenance manual limits without an imposed reduced inspection interval, except for those engines bearing ESN 30845, 30848 and 30853, each of which has a 500 flight hour re-inspection interval and the engine bearing ESN 30913 which currently has a 250 to 350 flight hour re-inspection interval. Each engine shall successfully complete a replacement engine test run (utilizing Test Block 1 through 16) in accordance with the Boeing maintenance manual (Reference 71-00-00, Page Block 500, as amended from time to time). Each engine shall also have Engine Condition Monitoring (ECM) data for the last ninety (90) engine operational days (or since last restoration if less than 90 operational days), to the extent that such data are in Seller’s possession. Engine vibration as measured shall be within the limits as specified per the Boeing 757-200 Maintenance Manual Chapter 71-00-00, applicable to Rolls-Royce RB211-535E4 model engines. Except as otherwise disclosed, oil consumption of each engine shall be within the unrestricted maintenance manual limits for ETOPS operations and there shall be no external oil leaks. Magnetic plugs/chip detectors condition shall be within the manufacturer’s maintenance manual limits without imposing reduced inspection interval. No engine shall have a condition which, per the manufacturer’s maintenance manual, shall impose a reduced inspection interval, other than as otherwise disclosed. The inspections, runs and

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checks required by this Section (d) shall be performed during Buyer’s inspection in accordance with the manufacturer’s maintenance program, except to the extent otherwise provided in this Section (d).

(e) Condition of Controlled Components . At the time the Aircraft is delivered to Buyer, all flight hour, cycle or calendar controlled hard time components under the manufacturer’s maintenance program shall be supported by appropriate certification documentation indicating traceability, to the extent in Seller’s possession, of TSN, CSN, TSO and CSO in the form of an FAA Form 8130-1, as applicable. Each "on-condition" and "condition-monitored" component will be serviceable, serialized and have documentation indicating traceability, to the extent in Seller’s possession, of TSN, CSN, TSO and CSO.

(f) APU Condition . The APU shall be in serviceable condition with the lower life limited parts having the remaining number of flight hours specified in the Aircraft Specifications attached to this Schedule until the next scheduled removal in accordance with the manufacturer's time limitation manual. Further, the APU shall meet ETOPS requirements and shall pass a borescope inspection immediately prior to delivery with no defects and/or repetitive inspections. The APU shall also have successfully completed an on-wing health check immediately prior to delivery per the manufacturer’s (Boeing’s or Honeywell’s) maintenance program. Oil consumption shall be within the unrestricted maintenance manual limits for ETOPS operations and there shall be no external oil leaks.

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SCHEDULE 8

MATERIAL STCs AND MASTER CHANGE

MATERIAL STCs



STC Number	Description	Owner	Issued
ST01920LA	Conversion of B757-200 Passenger to Freighter/Combi	Pemco World Air Services	Yes

ST02418LA	Installation of Main Deck Cargo Loading System	Pemco World Air Services and Ancra International LLC	Yes

ST02372CH	Installation of IS&S Integrated Flat Panel Display System	Innovative Solutions and Support	Yes

ST10938SC	Installation of Iridium Communication System	L2 Consulting Services	Yes
MASTER CHANGE
Master Change Number	Description		Issued
0310MK5547	Increase Maximum Takeoff Weight (MTOW), Maximum Taxi Weight (MTW), and Maximum Zero Fuel Weight (MZFW)		No

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SCHEDULE 9

FORM OF DOCUMENT ESCROW LETTER

[________________], 2012

Daugherty, Fowler, Peregrin, Haught & Jenson

204 North Robinson
Suite 900
Oklahoma City, Oklahoma 73102

Attn: Robin Jenson, Esq.

Re: Boeing 757-200 Combi Aircraft, MSN [____________] (the “Aircraft”) [Spare Engine] [Ancillary Equipment]

Dear Ms. Jenson:

The undersigned National Air Cargo Group, Inc. ("Seller"), and Cargo Aircraft Management, Inc. ("Buyer"), have each agreed to deliver to you the following executed original documents with respect to the above-referenced Aircraft [Spare Engine][Ancillary Equipment], to be held in escrow and distributed in accordance with these instructions:

Documents to be Deposited by Seller :


1.	Original executed Warranty Bill of Sale with respect to the [Aircraft][Spare Engine][Ancillary Equipment];


2	Original executed FAA Bill of Sale with respect to the Aircraft on Form 8050-2; and


3.	Original fully executed counterpart of an assignment agreement between NACH and Pemco, assigning to Buyer the Conversion Contract with respect to the Aircraft.

Document to be Deposited by Buyer :


1.	Original insurance certificates and brokers letters of undertaking with respect to the [Aircraft] [Spare Engine].

The documents delivered to you by the Seller are the "Seller Documents" and the document delivered to you by the Buyer is the "Buyer Document".

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When you have received both the Buyer Document and the Seller Documents, and you have received an acknowledgement from Seller and Buyer via email, that Buyer has executed the Acceptance Certificate, please (i) confirm these facts to Buyer and Seller via telephone conference and email, and, upon such confirmation (ii) notify the Funds Escrow Agent to release the $___________________ of funds (the “Escrow Funds”) to Seller’s account (the “Release Notice”), via telephone conference and email.

Upon receipt by you of confirmation from ______________________ (the “Funds Bank”) that the Funds Bank has received the Escrow Funds for the benefit of Seller, you are instructed and authorized to (i) file the Form 8052-2 with the FAA, (ii) distribute the Warranty Bill(s) of Sale to Buyer, (iii) distribute the remaining Seller Documents to Buyer, and (iv) distribute the Buyer Document to Seller.

If the conditions to delivery by you of the Release Notice contained in the prior paragraphs have not been met or waived in writing within seven (7) calendar days after date of this letter, you are irrevocably authorized and instructed to return the Seller Documents to Seller and the Buyer Document to Buyer.

We hereby confirm to you that you are entitled to act in accordance with this letter upon receipt of a copy of the releases by email unless instructed otherwise, and hereby further confirm that you are entitled to act upon joint written instructions signed or orally communicated by Seller and Buyer that may vary from the terms of this letter.

The Buyer and Seller hereby confirm to you that they will be responsible for and hereby agree to pay the fees and expenses incurred in connection with acting as document escrow agent.

The notices and documents that we have requested that you deliver pursuant to this agreement should be delivered to the following:

If to Seller: National Air Cargo Group, Inc.

350 Windward Drive
Orchard Park, NY 14127

Attention: Glen Joerger

President, National Airlines

EVP, National Air Cargo Holdings

Telephone: (734) 547-4116

Email: gjoerger@nationalaircargo.com

If to Buyer: Cargo Aircraft Management, Inc.

145 Hunter Drive

Wilmington, Ohio 45177 U.S.A.

Attention: W. Joseph Payne

Vice President

Telephone: (937) 366-2686

Email: joe.payne@atsginc.com

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If to Funds Escrow Agent: Union Bank of California, NA

551 Madison Avenue, 11 ^th Floor

New York, NY 10022

Attention: Hugo Gindraux

Telephone: (646) 452-2011

Email: hugo.gindraux@uboc.com

This Agreement may be delivered by the parties to each other by email transmission and such delivery may be relied on by the other as if the document were a manually signed original and will be binding on the party sending the facsimile transmission for all purposes of this Agreement.

Thank you for your assistance.

SELLER: National Air Cargo Group, Inc.

Its

BUYER: Cargo Aircraft Management, Inc.

Its

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Exhibit 10.36

AMENDED AND RESTATED LEASE AGREEMENT

(Wilmington Air Park)

THIS AMENDED AND RESTATED LEASE AGREEMENT (this “Lease Agreement”) is made and entered into this 27th day of December, 2012 (the “Execution Date”), to be effective as of June 2, 2010 (the “Effective Date”), by and between CLINTON COUNTY PORT AUTHORITY , a body corporate and politic and a port authority duly organized and validly existing under the laws of the State of Ohio with an address of 1113 Airport Road, Wilmington, OH 45177 (“Landlord”), and AIR TRANSPORT SERVICES GROUP, INC. , a Delaware corporation with an address of 145 Hunter Drive, Wilmington, OH 45177 (“Tenant”).

WITNESSETH

WHEREAS, Landlord is the owner of the certain real property located in Clinton County, Ohio and generally known as Wilmington Air Park, as more particularly described and detailed in Exhibit A attached hereto and fully incorporated herein (the “Air Park”), together with title to and possession of all improvements therein and thereon; and

WHEREAS, as of the Effective Date, Landlord and Tenant entered into that certain Lease Agreement (Wilmington Air Park) relative to the Premises (as defined herein), which are a part of the Air Park (the “Original Lease”), which Original Lease was amended and modified pursuant to the terms and conditions of the certain First Amendment to Lease Agreement (Wilmington Air Park) by and between Landlord and Tenant and dated April 20, 2011 (the “First Lease Amendment”); and

WHEREAS, ABX Air, Inc. (“ABX”), an Affiliate (as defined herein) of Tenant, previously occupied certain buildings within the Air Park (the “Buildings”) pursuant to that certain Wilmington Air Park Sublease between Airborne, Inc. and ABX, dated August 15, 2003 (“the ABX Sublease”); and

WHEREAS, contemporaneously with the execution of the Original Lease, the ABX Sublease was terminated; and

WHEREAS, contemporaneously with the execution of the Original Lease, Landlord and ABX entered into that certain Operations and Management Services Agreement (Wilmington Air Park) dated of even date with the Effective Date (the “Operations Agreement”) with respect to the performance by ABX of certain operation, management and maintenance services on behalf of Landlord for the benefit of the Air Park; provided that, pursuant to the terms and conditions of that certain First Amendment to Operations and Management Services Agreement (Wilmington Air Park) dated as of April 20, 2011, LGSTX Services, Inc., a wholly-owned subsidiary of Tenant (“LGSTX”), has replaced ABX as the named party under, and has assumed the duties and obligations of ABX under, the Operations Agreement; and

WHEREAS, in connection with certain transactions by and among the Ohio Department of Development, Landlord, Tenant, affiliates of Tenant and other parties, an approximately 100,000 square foot joint use maintenance and paint hanger facility (the “JUMP Facility”) will be developed on a 4.457 acre parcel of real property situated adjacent to the existing aircraft hangers at the Air Park (the “JUMP Site”) and occupied by an affiliate of Tenant under a separate lease agreement relating to the JUMP Site and the JUMP Facility and dated as of December 1, 2012, by and between Landlord and said affiliate of Tenant (the “JUMP Lease”); and

WHEREAS, in connection with the development of the JUMP Facility and the execution and delivery of the JUMP Lease, Landlord and Tenant have agreed to amend, restate and supersede in its entirety the Original Lease, as amended by the First Lease Amendment, by virtue of the execution and delivery of this Lease Agreement;

NOW, THEREFORE, in consideration of the terms, covenants and agreements herein contained, Landlord and Tenant do hereby amend, restate and supersede in its entirety the Original Lease, as amended by the First Lease Amendment, and make the following agreement, intending to be legally bound hereby:

ARTICLE 1

Definition of Certain Terms

1.01 . The term “Affiliate”, in reference to Tenant, means (a) any Person (as defined herein) who directly or indirectly controls, is controlled by, or is under common control with Tenant; (b) any Person owning or controlling, directly or indirectly, 10% or more of the outstanding voting securities of Tenant; and (c) any officer, director, member, manager or partner of Tenant.

1.02 . [Intentionally Omitted]

1.03 . The term “Fixtures” means all furniture, fixtures, machinery, equipment and trade fixtures which Tenant may own, purchase (conditionally or otherwise) or lease and hereafter cause to be installed, maintained or kept in or otherwise at the Premises for any purpose whatsoever.

1.04 . The term “Lease Year” means the periods determined as follows: (a) the first Lease Year shall commence on the Effective Date and shall end on the last day of the twelfth (12th) full calendar month next following the Effective Date, and (b) each Lease Year thereafter shall commence immediately following the expiration of the preceding Lease Year and shall end on the anniversary date of the expiration of the preceding Lease Year, except that the final Lease Year shall end on the date this Lease Agreement shall expire or otherwise terminate.

1.05 . [Intentionally Omitted]

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1.06 . The term “Person” means any individual, partnership, limited liability company, corporation, firm, joint venture, or other entity, or any combination thereof.

1.07 . The term “Premises” means the Buildings and/or space within certain of the Buildings comprising, in the aggregate, five hundred eighteen thousand four hundred thirty-four (518,434) square feet of space, more or less, all as identified and illustrated on Exhibit B attached hereto and fully incorporated herein, together with the exclusive right to use two (2) two hundred forty thousand (240,000) gallon above ground aviation fuel tanks and related facilities and certain above ground vehicle fuel skid tanks, all situated at the Air Park in the locations more specifically illustrated in Exhibit C attached hereto and fully incorporated herein (the “Fuel Tanks”); provided that, Tenant’s right to exclusive use of the Fuel Tanks under this Lease Agreement shall continue only for so long as Tenant or an Affiliate of Tenant shall be responsible for the operation and management of the Fuel Tanks and fueling operations at the Air Park pursuant to the Operations Agreement.

1.08 . [Intentionally Omitted]

1.09 . [Intentionally Omitted]

1.10 . The term “Permitted Encumbrances” means those title encumbrances relating to the Premises as more particularly described on Exhibit F attached hereto and fully incorporated herein.

ARTICLE 2

Creation of Leasehold

2.01. Demise . Upon the terms and conditions set forth in this Lease Agreement, Landlord does hereby demise and let unto Tenant, and Tenant does hereby lease and hire from Landlord, the Premises, together with the non-exclusive right to use the Common Use Facilities (as defined herein), but subject to the Reserved Easements (as defined herein) and Permitted Encumbrances (as defined herein).

2.02. Common Use Facilities . As an appurtenance to Tenant’s leasehold estate in and use of the Premises, Tenant is hereby granted the non-exclusive right to enter upon or make customary and reasonable use of, including the right to ingress to and egress from, (i) all runways, landing areas, taxiways, aprons, walkways, roadways, runway lights, signals, and other operating aids of the Air Park and all navigation or flight easements now or hereafter granted or reserved for the benefit of Landlord, (ii) all automobile parking fields and facilities within the Air Park (limited to the right of Tenant and its employees, agents, contractors and invitees to park in such fields and facilities on a daily basis and specifically excluding the storage of vehicles in or on said parking fields or facilities), and (iii) such other areas of the Air Park provided and developed by Landlord for common use at the Air Park (collectively, the “Common Use Facilities”); provided that, except as otherwise permitted by Landlord in writing, the Common Use Facilities shall not include the following Air Park facilities: (a) any buildings or other structures situated in or at the Air Park which are not part of the Premises, (b) the so-called

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“Welcome Center” and any improvements attendant thereto, including parking fields and (c) any portion of the Air Park identified and defined in the Operations Agreement as “Limited Service Areas”. Tenant’s rights hereunder shall be in common with Landlord and with other persons authorized by Landlord from time to time to use the Common Use Facilities, including members of the general public if Landlord so elects; provided, however, that Landlord shall not use, and shall not authorize any person to use, the Common Use Facilities in any way that unreasonably interferes with the use and enjoyment of the Premises by Tenant for the purposes contemplated by this Lease Agreement. Tenant’s use of the Common Use Facilities shall be in accordance with all applicable laws and regulations, including, without limitation, all Federal Aviation Administration (“FAA”) and all other applicable governmental regulations governing aviation and air navigation and further in accordance with any reasonable rules and procedures adopted by Landlord from time to time governing the use of the Air Park and the Common Use Facilities. Landlord reserves the right, in its sole and absolute discretion, to make changes, at any time and from time to time, to the size, shape, location, number and extent of the Common Use Facilities and/or to eliminate portions of the Common Use Facilities, and specifically further reserves the right to designate portions of the Common Use Facilities for the exclusive or non-exclusive use of certain tenants and licensees, so long as such changes, eliminations and/or designations do not unreasonably interfere with the use and enjoyment of the Premises by Tenant for the purposes contemplated by this Lease Agreement.

2.03. Maintenance of Communications Network . As an appurtenance to Tenant’s leasehold estate in and use of the Premises, Tenant is hereby granted a non-exclusive easement during the Lease Term to utilize those areas of the Air Park outside the Premises (as more particularly described on Exhibit D , attached hereto and fully incorporated herein) where it currently maintains fiber optic cabling and other equipment that are part of Tenant’s telecommunications network and systems (“Tenant’s Fiber Optics Systems”) for the purposes of monitoring, testing, maintaining, repairing, upgrading, replacing and using such cabling and other equipment. Landlord and Tenant agree to cooperate in good faith so as not to interfere with or disrupt Tenant’s Fiber Optics Systems and/or the Air Park Fiber Optics Systems (as hereinafter defined), respectively, in connection with the use and occupancy of the Premises and the Air Park, respectively.

2.04. Reserved Easements . Landlord does hereby retain and reserve unto itself, and Tenant does hereby grant and convey to Landlord: (a) non-exclusive perpetual easements over, under, across and through the Premises for the purposes of constructing, installing, reconstructing, repairing, replacing, maintaining, testing, upgrading and using (1) underground laterals and lines to be connected to those public utilities and appurtenant works and connections which now or in the future may exist in the public thoroughfares or other portions of the Air Park and (2) fiber optic cabling and other equipment as part of telecommunications networks and systems to be installed by Landlord or other tenants at the Air Park (the “Air Park Fiber Optics Systems”), provided, however, that (i) such easements shall be used in such a manner as will not result in interference with the use and enjoyment of the Premises by Tenant for the purposes contemplated by this Lease Agreement and (ii) if as a result of the use of said easements for said purposes the Premises shall be damaged, then Landlord shall promptly repair the damage and restore the Premises to its pre-existing condition; and (b) a non-exclusive perpetual avigation

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easement over, across and through the Premises creating in favor of Landlord and its permitees a right of flight for the passage of aircraft in the airspace over the Premises and the right to cause in said airspace any noise inherent in the operation of any aircraft used for navigation or flight through said airspace or landing at, or taking off from, or operations at, the Air Park (herein collectively called the “Reserved Easements”).

2.05. “As Is” Possession . Tenant acknowledges that ABX was in sole possession of the Premises under the ABX Sublease commencing August 15, 2003 and continuing through the Effective Date (the “ABX Prior Possession Period”). Accordingly, Tenant accepts the Premises in “As Is” condition with all faults and defects. Tenant acknowledges that Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises are suitable for Tenant’s intended purposes. In no event shall Landlord be liable for any defects in the Premises or for any limitation on its use. Further, Tenant agrees that Tenant’s obligation to pay Base Rent and other sums hereunder is not dependent upon the condition of the Premises or, except as otherwise expressly provided herein, any performance by Landlord hereunder.

ARTICLE 3

Lease Term

3.01. Lease Term . The term “Lease Term” under this Lease Agreement means the Initial Lease Term (as defined herein), plus the Renewal Terms (as defined herein), if any, plus any period during which Tenant may be a tenant-at-sufferance under Section 3.04 of this Lease Agreement, or the shorter period expiring upon the date of earlier termination of this Lease Agreement as provided elsewhere in this Lease Agreement.

3.02. Initial Lease Term . The initial term of this Lease Agreement (the “Initial Lease Term”) shall commence on the Effective Date and shall continue for a period of nine (9) years and end on the ninth (9 ^th ) anniversary of the Effective Date, unless sooner terminated as provided elsewhere in this Lease Agreement; provided, however, that if the Effective Date is not the first day of the month, the number of days remaining in the month containing the Effective Date shall be added to the Initial Lease Term.

3.03. Renewal Options . Landlord hereby grants to Tenant the right and options (collectively, the “Renewal Options”, and each a “Renewal Option”) to extend the Initial Lease Term for five (5) additional periods (collectively, the “Renewal Terms”, and each a “Renewal Term”), as hereinafter described:


(i)	the first Renewal Term shall be the period beginning on the day immediately following the expiration of the Initial Lease Term and expiring on the seventh (7 ^th ) anniversary of the date of expiration of the Initial Lease Term (the “First Renewal Term”);

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(ii)	the second Renewal Term shall be the period beginning on the day immediately following the expiration of the First Renewal Term and expiring on the fifth (5 ^th ) anniversary of the date of expiration of the First Renewal Term (the “Second Renewal Term”);


(iii)	the third Renewal Term shall be the period beginning on the day immediately following the expiration of the Second Renewal Term and expiring on June 1, 2036 (the “Third Renewal Term”);


(iv)	the fourth Renewal Term shall be the period beginning on the day immediately following the expiration of the Third Renewal Term and expiring on the fifth (5 ^th ) anniversary of the date of expiration of the Third Renewal Term (the “Fourth Renewal Term”); and


(v)	the fifth Renewal Term shall be the period beginning on the day immediately following the expiration of the Fourth Renewal Term and expiring on the fifth (5 ^th ) anniversary of the date of expiration of the Fourth Renewal Term (the “Fifth Renewal Term”).

During the Renewal Terms, the terms and conditions of this Lease Agreement shall remain in full force and effect and Tenant shall use and occupy the Premises on the same terms and conditions as provided in this Lease Agreement relative to the Initial Lease Term; provided that, Base Rent (as defined herein) during the Renewal Terms shall be as provided in Section 7.01(B) of this Lease Agreement.

If Tenant elects to exercise a Renewal Option, Tenant shall give to Landlord written notice of such election not less than one hundred eighty (180) days prior to the expiration of the Initial Lease Term or the then-applicable Renewal Term, as the case may be. In the event that Tenant fails to timely exercise a Renewal Option as aforesaid, then such Renewal Option, together with any and all subsequent Renewal Options, shall terminate and be of no further force or effect and, unless sooner terminated as provided elsewhere in this Lease Agreement, the Lease Term shall fully and finally expire as of the date of expiration of the Initial Lease Term or the then-applicable Renewal Term, as the case may be.

3.04. Lease Hold-Over Provisions . If Tenant remains in possession of the Premises after the expiration of the Lease Term, Tenant shall be deemed to be a tenant-at-sufferance at an annual Base Rent equal to one hundred fifty percent (150%) of the amount of Base Rent payable hereunder during the final Lease Year and otherwise shall comply with all of the terms and conditions of this Lease Agreement.

ARTICLE 4

Use and Operations

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4.01. Permitted Uses . Tenant covenants and agrees that it shall use the Premises and the Common Use Facilities only for its Air Park Operations (as defined herein) and any legally permitted uses related thereto (including, without limitation, the landing, taking off, flying over, taxiing, pushing, towing, fueling, loading, unloading, repairing, maintaining, conditioning, servicing, and parking of aircraft or other equipment). As used herein, the term “Air Park Operations” shall mean (1) the operation of a commercial air transport and related services business, (2) the maintenance, servicing, repair, and operation of aircraft and other equipment, (3) the sale of aircraft parts and fuel, (4) the operation of a cafeteria and concession machines, fitness center and health clinic for Tenant’s employees, agents, contractors and invitees, (5) training of personnel in connection with the operation of aircraft and related equipment, and (6) other operations that are incidental to the uses, purposes, operations and activities described in clauses (1) through (5) above. Tenant agrees that all business and operations of Tenant must be consistent with the principal use of the Air Park as an airport, and Tenant shall be prohibited from using the Premises for any use which interferes with the use or operation of the Air Park as an airport.

4.02 . [Intentionally Omitted]

4.03. Air Park Procedures Manual; Current Plans and Procedures . Following the Effective Date, Landlord, in collaboration with LGSTX under the terms of the Operations Agreement, intends to develop and implement, and amend from time to time: (a) a comprehensive set of rules, regulations and procedures governing the use of the Air Park; (b) a schedule of rates and charges for operations at the Air Park; (c) minimum standards for aeronautical activities at the Air Park; (d) Air Park development standards; (e) an Air Park noise abatement program; (f) a storm water pollution prevention plan in accordance with applicable law (the “SWPP Plan”); (g) a spill prevention control and countermeasure plan in accordance with applicable law (the “SPCC Plan”); (h) plans and procedures for de-icing operations in and at the Air Park, including regarding the use and treatment or disposal of glycol and the location(s) and accessways for said de-icing operations (the “De-Icing Regulations”); (i) plans and procedures for security at the Air Park; (j) emergency response and evacuation plans and procedures for the Air Park; and (k) such other Air Park matters in respect of which CCPA wishes to establish procedures (collectively, the “Air Park Procedures Manual”). As and when each component of the Air Park Procedures Manual is implemented by Landlord, Tenant agrees to comply with each such component thereof in connection with its use and occupancy of the Premises and the Common Use Facilities, so long as (a) the rules, regulations and procedures set forth in each such component of the Air Park Procedures Manual do not unreasonably interfere with the use and enjoyment by Tenant and its permitted sublessees of the Premises and the Common Use Facilities for the purposes contemplated by this Lease Agreement and (b) Tenant and such permitted sublessees are not obligated to pay to CCPA any landing fees, license fees or other use charges as may otherwise be imposed under the Air Park Procedures Manual in connection with the Air Park.

In addition, until the corresponding components of the Air Park Procedures Manual are developed and implemented, Tenant and its permitted sublessees shall comply with

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the rules, regulations and procedures which currently are in place in respect of the Air Park as of the Effective Date, including, without limitation, current security programs and plans, current storm water pollution prevention plans, current spill prevention control and countermeasure plans, current plans regarding the use and treatment or disposal of glycol and de-icing operations generally, and emergency response and evacuation plans.

ARTICLE 5

Ownership of Fixtures

All of the Fixtures shall remain the property of Tenant and shall be removable at any time, including upon the expiration of the Lease Term; provided that Tenant shall repair any damage to the Premises caused by the removal of the Fixtures, and any Fixtures or personal property of Tenant which remain at the Premises after the expiration of the Lease Term shall be deemed abandoned and may be disposed of by Landlord without notice at Tenant’s cost and expense to be paid by Tenant to Landlord immediately upon Landlord’s request therefor.

ARTICLE 6

Liens

Tenant agrees to and shall indemnify, defend, save and hold harmless Landlord from and against any and all loss, damage, liability, expense or claim whatsoever (including reasonable fees of attorneys, paralegals, experts, court reporters and others), arising by reason of any claim or lien, including, without limitation, any judgment lien, tax lien or vendor’s lien, or any mechanic’s lien, laborer’s lien, materialmen’s lien, or other similar lien or claim based upon or arising out of the furnishing of materials, fuel, machinery, supplies or labor to or in respect of the Premises, and not expressly contracted for (or authorized) in writing by Landlord. In the event any such lien is filed, Tenant shall cause any such lien to be discharged, at its sole cost and expense, within thirty (30) days after Tenant shall have notice of the existence of the lien or any suit, action, or other proceeding to foreclose the lien or to seek execution in respect thereof, unless such lien and the claim occasioning it both are contested or litigated in good faith by Tenant, at its sole cost and expense, and Tenant shall have posted, at its sole cost and expense, a bond (with surety) or other security reasonably satisfactory to Landlord, sufficient to insure that upon final determination of the validity of the lien or claim, any final judgment rendered against Tenant or Landlord, together with all related costs and charges, will be fully paid.

ARTICLE 7

Rent and Other Payments

7.01. Base Rent . During the Lease Term, Tenant shall pay to Landlord annual base rent for the Lease Year in question, as follows (“Base Rent”), as the same may be reduced by the Base Rent Credit (as defined herein) in accordance with Section 7.01(D) of this Lease Agreement:

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(A) Initial Lease Term . In each Lease Year during the Initial Lease Term, Tenant shall pay to Landlord annual Base Rent for the Lease Year in question as set forth below:



Lease Year	Annual Base Rent
Lease Years 1 through 3, inclusive	$3,055,302.00
Lease Years 4 through 6, inclusive	As determined below in this Section 7.01
Lease Years 7 through 9, inclusive	As determined below in this Section 7.01

Base Rent during the Initial Lease Term shall increase on the first day of (a) the fourth (4th) Lease Year and (b) the seventh (7th) Lease Year (each, an “Adjustment Date”) and shall be determined on each Adjustment Date by multiplying the annual Base Rent for the first Lease Year by a fraction, the numerator of which is the Index (as defined herein) in effect for the month of March immediately preceding the Adjustment Date and the denominator of which is the Index in effect for March, 2010 (which is 133.096).

As used in this Lease Agreement, the term “Index” shall mean the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index - All Urban Consumers, Series ID CUURX200SAO, Not Seasonally Adjusted, Area: Midwest Size Class B/C, Item: All Items, Base Period: December 1996 = 100 (the “Index”). If the Index at any time during the Lease Term has changed so that the base year of the Index differs from the base year initially used by the parties, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the Lease Term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index has not been discontinued or revised. Notwithstanding the foregoing, and except as provided in Section 7.02 below, in no event shall the adjusted Base Rent due during any Lease Year be less than the Base Rent due during the prior Lease Year.

(B) Renewal Terms . In each Lease Year during the Renewal Terms, as applicable, Tenant shall pay to Landlord annual Base Rent for the Lease Year in question as set forth below:


(i)	Base Rent for each Lease Year during the First Renewal Term shall be an amount equal to the annual Base Rent in effect for the seventh (7 ^th ) Lease Year during the Initial Lease Term;


(ii)	Base Rent for each Lease Year during the Second Renewal Term shall be the lesser of (a) the amount determined by multiplying the annual Base Rent for the First Renewal Term by a fraction, the numerator of which is the Index in effect for the month of March immediately preceding the Second Renewal Term and the denominator of which is the Index in effect for the month of March immediately

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preceding the First Renewal Term, and (b) one hundred two percent (102%) of the annual Base Rent for the First Renewal Term;


(iii)	Base Rent for each Lease Year during the Third Renewal Term shall be an amount equal to the annual Base Rent in effect for the Second Renewal Term; and

(iv)

Base Rent for each Lease Year during the Fourth Renewal Term and the Fifth Renewal Term shall be an amount equal to the annual fair market rent for the Premises as determined by an appraiser mutually agreed upon by Landlord and Tenant prior to the commencement of the applicable Renewal Term, each acting reasonably. In the event that Landlord and Tenant are unable to agree upon an appraiser, then Landlord and Tenant shall each choose one appraiser and the two appraisers so chosen shall attempt to agree on such fair market rent within 60 days after receiving the request to make such determination. If the two appraisers so chosen cannot agree on such fair market rent within such period, and the lower fair market rent so determined is not less than 90% of the higher fair market rent, then the determination of fair market rent shall be the numerical average of the two fair market rents. If the lower fair market rent is less than 90% of the higher fair market rent, the two appraisers shall choose one additional appraiser. If the two appraisers cannot agree on the choice of such third appraiser within 15 days following the determination of such two fair market rents, such third appraiser shall be selected by the administrative judge of the Court of Common Pleas of Clinton County. The third appraiser shall make an independent determination of fair market rent, which shall be submitted to Landlord and Tenant within 60 days after the third appraiser has been selected. The determination of fair market rent shall be conclusively deemed to be the numerical average of (i) the numerical average of the higher two of the three determinations of fair market rent, and (ii) the numerical average of the lower two of the three determinations of fair market rent; provided, however, that solely for purposes of such averaging, if the lowest determination of fair market

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rent is less than 75% of the amount of the middle determination of fair market rent, then the lowest determination of fair market rent shall be deemed to be 75% of the amount of the middle determination of fair market rent, and if the highest determination of fair market rent is more than 125% of the middle determination of fair market rent. then the highest determination of fair market rent shall be deemed to be 125% of the amount of the middle determination of fair market rent. Each party shall pay the fees of the appraiser chosen by it, and the fees of the third appraiser, if any, shall be split equally between Landlord and Tenant; provided , however , Landlord's obligation to split the fee shall be subject to a duly authorized appropriation. Each appraiser selected pursuant to this Section 7.01(B)(iv) shall be an Ohio-certified M.A.I. appraiser with at least 15-years’ experience appraising commercial projects.

Notwithstanding the above provisions of this Section 7.01(B) to the contrary, if, prior to the end of the Third Renewal Term, the JUMP Lease terminates pursuant to the exercise by the tenant thereunder of its early termination option under Section 3.05(b) of the JUMP Lease, then: (a) the later of (I) the effective date of termination of the JUMP Lease or (II) the commencement date of the First Renewal Term, shall be an Adjustment Date, (b) each third anniversary of the Adjustment Date established pursuant to clause (a) of this sentence shall be an Adjustment Date; and (c) as of each Adjustment Date established pursuant to clause (a) or clause (b) of this sentence, the annual Base Rent shall be adjusted to the amount determined by multiplying the annual Base Rent in effect immediately prior to such Adjustment Date by a fraction, the numerator of which is the Index in effect for the month of March immediately preceding such Adjustment Date and the denominator of which is the Index in effect for the month of March immediately preceding the immediately preceding Adjustment Date.

(C) Terms of Payment of Base Rent . Base Rent hereunder shall be paid without demand, notice or setoff in equal consecutive equal monthly installments in advance commencing on the Effective Date and continuing on the first day of each and every calendar month thereafter during the Lease Term. In the event that the Effective Date shall occur on a day which is other than the first day of a calendar month, then the installment of Base Rent payable by Tenant on the Effective Date shall be an amount equal to the product which is obtained when (a) the per diem amount of Base Rent which Tenant is obligated to pay to Landlord hereunder during the first (1 ^st ) Lease Year is multiplied by (b) the number of days which elapse during the period from (and including) the Effective Date to (but excluding) the first day of the calendar month next succeeding the month in which the Effective Date occurs.

(D) Base Rent Credit . In consideration of the transactions relating to the JUMP Facility and the execution and delivery of the JUMP Lease, commencing on January 1, 2014, and continuing each month thereafter for a total of one hundred fifty six (156) consecutive calendar months (inclusive of the month of January, 2014), the then-applicable monthly

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installment of annual Base Rent under this Lease Agreement shall be reduced by an amount equal to $17,666.67 (the “Base Rent Credit”); provided, that the Base Rent Credit shall terminate immediately and prospectively as of the effective date of a termination of the JUMP Lease pursuant to the exercise by the tenant thereunder of its early termination option under Section 3.05(b) of the JUMP Lease.

7.02. Base Rent Adjustments Resulting From Changes in Air Park Occupancy . Landlord and Tenant recognize that Base Rent hereunder constitutes what is commonly referred to as “gross rent” which includes a component representing Landlord’s recovery of expenses relating to the operation, maintenance and repair of the areas of the Air Park that are not included in the Premises. As of the Effective Date, such annual Air Park operating expenses amount to $1,424,096 (which amount of $1,424,096, as hereafter adjusted in the same manner and at the same times as Base Rent is adjusted as provided in Section 7.01 of this Lease Agreement, is herein referred to as the “Expense Component”). As occupancy of the Air Park changes from time to time during the Term, Landlord and Tenant have agreed to adjust Base Rent in the manner provided in this Section 7.02, to reflect a reallocation of the Expense Component among the Air Park tenants. Accordingly, Landlord and Tenant hereby agree as follows:

(A) Increases in Occupancy . In the event that a new tenant leases space in the Air Park (or a then-existing tenant leases additional space in the Air Park), then, effective as of the date that such new or then-existing tenant commences the payment of rent for such newly-leased space, Base Rent hereunder shall be reduced by an amount equal to the product of the Expense Component and a fraction, the numerator of which is the number of newly-leased square feet and the denominator of which is the total number of square feet of then-leasable space in the Air Park. As of the Effective Date, the parties hereby agree that the Air Park includes 1,900,967 square feet of leasable space.

(B) Decreases in Occupancy . In the event that Base Rent is reduced in accordance with Section 7.02(A) and one or more tenants subsequently vacate space in the Air Park, resulting in the Landlord’s gross revenues arising from its ownership and operation of the Air Park being less than its total expenses incurred therefrom for the same period (an “Operating Deficit”), then, upon the request of Landlord, Landlord and Tenant shall negotiate in good faith with respect to an increase in the Base Rent to the extent required in order to alleviate such Operating Deficit, with the understanding that any resulting increase shall not result in the Base Rent exceeding that amount which it otherwise would have been in the absence of prior reductions in accordance with Section 7.02(A). In the event that Base Rent is increased in accordance with this Section 7.02(B) and, thereafter, Landlord’s gross revenues arising from its ownership and operation of the Air Park begin to exceed its total expenses incurred therefrom for the same period due to a reduction in such expenses, then Landlord shall promptly notify Tenant thereof and the Base Rent shall be reduced on an equitable basis, with the understanding that any resulting decrease shall not result in the Base Rent being lower than that amount which it otherwise would have been in the absence of the prior increase agreed upon in accordance with this Section 7.02(B). In conjunction with the negotiations between the parties in accordance with this Section 7.02(B), Landlord shall make available to Tenant upon request supporting documentation relating to such Operating Deficit and any such other information relating to the Operating Deficit as Tenant may reasonably request. Any increase or subsequent decrease in the

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Base Rent, as well as the effective dates thereof, in accordance with this Section 7.02(B) shall be documented in writing and signed by both parties.

(C) JUMP Lease . Notwithstanding anything contained herein to the contrary, the foregoing Base Rent adjustment provisions shall not be triggered by or as a consequence of the execution and delivery of the JUMP Lease by Landlord and the affiliate of Tenant.

Monthly installments of Base Rent payable under this Lease Agreement shall be prorated, as appropriate, for the month during which any adjustment to Base Rent under this Section 7.02 occurs.

7.03. Late Payments . If Tenant is delinquent in any monthly installment of Base Rent or any other sums due hereunder for more than ten (10) days after such installment or sum is due, Tenant shall pay to Landlord a late charge equal to five percent (5%) of such delinquent sum. Landlord and Tenant hereby agree that any such late charge represents a fair and reasonable estimate of the costs which Landlord will incur by reason of late payment by Tenant. The provision for such late charge shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as a penalty or as limiting Landlord’s remedies in any manner.

ARTICLE 8

Taxes, Assessments, Utilities

8.01. Taxes and Assessments . Tenant shall be responsible for and shall pay, when due, all intangible, personal, sales and personal property taxes in connection with the Fixtures and/or any other property or fixtures now or hereafter situated at the Premises and owned by Tenant. Landlord will pay all real property taxes and assessments due in connection with the Air Park, including the Premises. Tenant shall have no right to initiate any protest regarding real property taxes or assessments in connection with all or any part of the Air Park.

8.02. Utilities . Tenant shall pay for all water, gas, electricity, heat, light, power, telephone, sewer, sprinkler services, refuse and trash collection, and other utilities and services pertaining to the Premises, including all maintenance charges for utilities used on or at the Premises, and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider pertaining to the Premises. Tenant shall, at Tenant’s expense, endeavor in good faith to cause any of said services to be separately metered and charged directly to Tenant by the provider, if and as reasonably practical to do so and without undue expense to either party. Tenant and Landlord each shall pay their respective shares of all charges for jointly metered utilities based upon respective consumption, as reasonably and jointly determined by Landlord and Tenant. Neither Landlord nor Tenant shall be liable to the other for any interruption or failure of utilities or any other service to the Premises or the Air Park, respectively, and no such interruption or failure shall result in the abatement of rent hereunder or otherwise permit Tenant to terminate this Lease Agreement.

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ARTICLE 9

Security Deposit

Tenant shall deposit with Landlord on the date hereof a security deposit in the amount of Fifty Thousand Dollars ($50,000.00) (the “Security Deposit”), which shall be held by Landlord as security for the prompt, full and faithful performance by Tenant of the terms and provisions of this Lease Agreement. If Tenant commits a default, Landlord may use or apply the whole or any part of the Security Deposit for the payment of Tenant’s obligations hereunder. The use or application of the Security Deposit shall not prevent Landlord from exercising any other right or remedy available to Landlord and shall not be construed as liquidated damages. If the Security Deposit is reduced by such use or application, Tenant shall deposit with Landlord within ten (10) days after written notice, an amount sufficient to restore the full amount of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from Landlord’s general funds or pay interest on the Security Deposit. Any remaining portion of the Security Deposit shall be returned to Tenant after Tenant has vacated the Premises in full compliance with the terms of this Lease Agreement.

ARTICLE 10

Environmental Requirements

10.01. General . Other than in compliance with applicable Environmental Laws (as defined herein), Tenant shall not: (a) permit, cause or suffer any Hazardous Material (as defined herein) to be used, generated, manufactured, produced, stored, brought upon, managed or Released (as defined herein) in, on, under or from the Premises or the Common Use Facilities, or (b) store or use, or permit the storage or use of, any Hazardous Material in or about the Premises or the Common Use Facilities. In operating its business on the Premises and in the Common Use Facilities, Tenant shall comply with all applicable Environmental Laws and will obtain, comply with, and properly maintain all permits and licenses or applications required by Environmental Laws for its operations.

10.02. Terms . For the purposes of this Lease Agreement:

(A) “Environmental Laws” means any one or all of the following as the same are amended from time to time: the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; the Federal Water Pollution Control Act; the Federal Hazardous Materials Transportation Act; the Safe Drinking Water Act; the Clean Water Act; the Clean Air Act; any other laws (whether enacted by local, state, federal or other governmental authorities) now in effect or hereinafter enacted that deal with the regulation or protection of the environment, including the ambient air, ground water, surface water, and land use, including sub-strata land; and any regulations promulgated in connection with or under any of the foregoing.

(B) “Hazardous Material” shall mean all substances, materials, wastes, pollutants or contaminants that are, or that become, regulated under or classified as hazardous or

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toxic under any applicable Environmental Laws and all petroleum products, including, without limitation, gasoline, kerosene, diesel fuel, airplane fuel and like substances.

(C) “Release” and “Released” shall mean any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing, or dumping of any Hazardous Material into the environment.

10.03. Indemnity .

(B) Without limiting the foregoing, if any condition covered by Tenant’s indemnification obligations set forth in Section 10.03(A) occurs (each an “Environmental Indemnification Condition”), then (a) Tenant shall, at its sole cost and expense, promptly take all actions as are reasonably necessary to return the Premises or the Common Use Facilities, as the case may be, or any improvements thereon (and the Air Park, to the extent applicable) in all material respects to the condition required by applicable Environmental Laws; provided, that Landlord’s approval of such actions shall first be obtained, which approval shall not be unreasonably withheld, conditioned or delayed; and (b) if, due to a Release of Hazardous Materials by Tenant or any Person acting through or on behalf of Tenant during the Lease Term or during the ABX Prior Possession Period, a governmental authority determines that site investigation, site assessment and/or a cleanup plan must be prepared or that a cleanup should be undertaken on or surrounding the Premises or the Common Use Facilities or in any improvements thereon due to any such Release by Tenant or any Person acting through or on behalf of Tenant, then, subject to the terms of this Article 10, Tenant shall, at its sole cost and expense, prepare and submit the required plans and financial assurances, and carry out the approved plans; provided that, Tenant shall have the right to participate with Landlord in all discussions and communications with such governmental authority with respect to such matters and the right to contest in good faith and with diligence any such determination by such governmental authority, and to assert claims against any third party. Anything contained in this Agreement to the contrary notwithstanding, Tenant shall have no responsibility or liability under this Agreement for cleanup or any other action relating to a Release of Hazardous materials in,

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on or under, or from the Premises or the Common Use Facilities occurring prior to the ABX Prior Possession Period.

(C) The following terms shall apply to any and all Indemnified Exposures claims made by Landlord against Tenant relating to any Environmental Indemnification Condition under this Lease Agreement:

(i)

Prior to asserting any such Indemnified Exposures claim against Tenant, Landlord shall provide to Tenant: (a) prompt, written notice of such Indemnified Exposures claim with sufficient detail so as to permit Tenant to understand the nature of such claim, and (b) if curable, a reasonable opportunity for Tenant to cure the same by causing action to be taken to remedy or otherwise address the Environmental Indemnification Condition (and/or the consequences thereof, including, without limitation, fines or penalties) which gives rise to such Indemnified Exposures claim.

(ii)

Landlord’s claims relating to Indemnified Exposures shall be limited to Indemnified Exposures arising out of or relating to any one or all of the following: (a) any claims, actions, suits, proceedings or demands instituted or asserted by a third party, including, without limitation, by a governmental authority having jurisdiction; (b) one or more Environmental Indemnification Conditions that materially interfere with any bona fide then-existing use or reasonably anticipated use of the Premises and/or the Air Park by Landlord or its employees, agents, tenants or invitees; (c) one or more Environmental Indemnification Conditions that reasonably do or could adversely affect the health, safety or welfare of the public or any user of or invitee at the Air Park taking into account any applicable standards for such health, safety and public welfare considerations included in the applicable Environmental Laws; or (d) one or more Environmental Indemnification Conditions which Landlord is required by applicable Environmental Laws to address; and


(iii)	Landlord’s claims relating to remediation of an Indemnified Environmental Condition shall be limited to those costs reasonably necessary to attain Ohio EPA Voluntary Action Program standards

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applicable to the current “Land Use and Activities” category for the Premises and/or the affected Common Use Facilities, as the case may be, as that term is defined in Ohio Administrative Code 3745-300-08(C)(2)(c)(iii)(March 1, 2009 edition), with no use of groundwater for any purpose other than monitoring and no use of subsurface structures for human occupancy, and not for any other more superior uses or more stringent standards.

(D) The indemnification and hold harmless obligations of Tenant under this Section 10.03 shall survive any expiration or termination of this Lease Agreement, any renewal, expansion or amendment of this Lease Agreement and/or the execution and delivery of any new lease with Tenant covering all or any portion of the Premises or the Air Park. The term “Indemnified Exposures” shall include, without limitation, necessary costs incurred in connection with any investigation of on-site conditions or off-site conditions directly relating to Releases of Hazardous Materials by Tenant or its permitted sublessees from the Premises or the Common Use Facilities or any necessary cleanup, remediation, removal or restoration work required by an Environmental Law because of any matter covered by Tenant’s indemnification under this Section 10.03.

10.04. Reporting . Tenant, at Tenant’s own cost and expense, shall make all submissions to, provide all information to, and comply with all applicable requirements of the appropriate governmental authorities as required of Tenant under applicable Environmental Laws. At no cost or expense to Landlord, Tenant shall promptly provide information reasonably requested by Landlord that is in Tenant’s possession or subject to its control to (a) determine the applicability of the Environmental Laws to the Premises or operations conducted thereon, or (b) respond to any governmental inquiry or investigation or to respond to any claim of liability by third parties which is related to environmental conditions in connection with the Premises.

Tenant shall promptly notify Landlord of any of the following: (a) any correspondence or communication from any governmental authority regarding the application of Environmental Laws to the Premises or Tenant’s operations on the Premises or at the Air Park, (b) any change in Tenant’s operations on the Premises or at the Air Park that will change Landlord’s obligations or could increase or reasonably be expected to increase Tenant’s or Landlord’s obligations or liabilities under Environmental Laws and (c) any incidents occurring in or at the Premises and/or any other areas within the Air Park regarding Hazardous Material, including, without limitation, any Release of Hazardous Material. At any time Tenant submits any filing or required documentation pertaining to investigations or violations relative to Hazardous Materials situated in or on or Released from the Premises or the Common Use Facilities to any governmental authority (other than the Internal Revenue Service), including, by way of example but not in limitation, the FAA, the Environmental Protection Agency or any similar State of Ohio agency or department, Tenant shall provide duplicate copies of the filing(s) made, along with any related documents, to Landlord.

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At Landlord’s request upon or promptly after expiration, termination or cessation of this Lease Agreement for any reason, Tenant shall make available to Landlord, at Landlord’s expense, for copying all environmental inspections, reports or other documentation related to compliance with, or activity related to compliance with, Environmental Laws at or about the Premises or the Common Use Facilities.

10.05. Landlord Assessments . In accordance with the provisions of Article 21 hereof, Landlord shall have such access to, and a right to perform such inspections and tests of, the Premises as it may reasonably require to determine compliance with Environmental Laws and Tenant’s obligations hereunder. Such inspections and tests shall be conducted at Landlord’s expense, unless such inspections or tests document, that Tenant has violated any Environmental Laws and/or the terms of this Lease Agreement, in which case Tenant shall, upon demand, reimburse Landlord for the reasonable cost of such inspection and tests documenting Tenant’s non-compliance. At the expiration or earlier termination of this Lease Agreement, Landlord shall have the right, at its option and at Landlord’s sole cost and expense, to undertake an environmental assessment of the Premises. Landlord and Tenant agree that Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant or any defenses that Tenant holds against Landlord.

10.06. Related Tenant Obligations . As soon as reasonably practicable after the Effective Date: (A) Tenant, at its sole cost and expense, shall cease to use and shall mechanically plug (or reroute to the sanitary sewer if proper governmental approvals are obtained and maintained at no expense to Landlord) all indoor floor drains within the Premises that currently do or could discharge directly or indirectly to the storm sewer system at the Air Park; (B) Landlord and Tenant shall work cooperatively to effect, if and as reasonably practical to do so and without undue expense to either party, possible changes to the current City of Wilmington WWTP Permit No. 1015-09 for sanitary sewage discharges, including, without limitation, to establish procedures and protocols to separately measure, and/or to obtain a separate permit for, discharges by Tenant into the City of Wilmington sanitary sewer system; and (C) Landlord and Tenant shall work collaboratively to determine the necessity and/or appropriateness of Tenant obtaining its own Industrial Activities Stormwater Permit from Ohio EPA relating to Tenant’s activities in or on the Premises and/or the Common Use Facilities.

ARTICLE 11

General Indemnification

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Landlord on account of injury to Person or property or from loss of life sustained in, on, or about the Premises or the Air Park resulting from the willful misconduct or negligent act or omission of Tenant or of its employees or from any act or omission of Tenant or of its employees that violates applicable laws; and (iii) all actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including reasonable attorney’s fees) directly relating to the foregoing. In the event that a claim for indemnification results from or arises out of a circumstance described in Section 10.03 and such claim could also be asserted under this Article 11, then such claim shall be brought under, and be subject to the conditions of, Section 10.03.

11.02. Claims Procedures. In the event that any claim is asserted, or any action or proceeding is instituted, against Landlord by reason of any event or occurrence in respect of which Tenant is to provide indemnity as provided in Section 11.01 of this Lease Agreement:

(A) Tenant shall, if requested in writing by Landlord, cause such claim, action or proceeding to be resisted, defended and resolved, at the Tenant’s sole cost and expense, and by legal counsel to be approved by Landlord, which approval shall not be unreasonably withheld or delayed; or

(B) In the event that Tenant shall fail to engage legal counsel within thirty(30) days after the written request contemplated by clause (A) above, Landlord may cause such claim, action or proceeding to be resisted and defended by legal counsel designated by Landlord, in which event Tenant shall reimburse Landlord, upon demand made from time to time, for the costs thereby incurred by Landlord (including the reasonable fees of attorneys, paralegals, experts, court reporters and others) and actual amounts paid to resolve any such claim, action or proceeding.

ARTICLE 12

Insurance

12.01. Tenant’s Insurance . Tenant shall obtain and maintain in full force and effect throughout the Lease Term, at Tenant’s expense, the following insurance:

(A) Commercial general liability (CGL) and, if necessary, commercial umbrella insurance, with liability limits of not less than Five Million Dollars ($5,000,000) combined single limit coverage. If such CGL insurance contains a general aggregate limit, it shall apply separately to the Premises. Such CGL insurance shall be provided pursuant to a stand-alone policy or as part of a commercial aviation liability policy and shall cover liability on an occurrence basis arising from premises, operations, independent contractors, products-completed operations, personal and advertising injury and liability assumed under an insured contract.

(B) Automobile Liability insurance with liability limits of not less than Five Million Dollars ($5,000,000) combined single limit per accident (without annual aggregate) for bodily injury and property damage. Defense costs shall apply in addition to the limit of liability. Coverage shall include contractual liability and shall apply to owned, leased, hired and non-owned autos, both on and off the Air Park.

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(C) Statutory workers’ compensation coverage as required by the State of Ohio and employer’s liability with limits of not less than One Million Dollars ($1,000,000) bodily injury by accident, One Million Dollars ($1,000,000) bodily injury by disease, and One Million Dollars ($1,000,000) bodily injury by disease, each employee.

(D) Commercial property insurance covering the Fixtures. Such insurance shall cover the perils covered under the ISO special causes of loss form (CP 10 30) and shall cover the replacement cost of the property insured.

Tenant shall cause Landlord to be identified, by endorsement, as an additional insured in connection with any and all insurance policies (other than the commercial property insurance policy, workers’ compensation policies, and employer’s liability policies) provided for under this Lease Agreement and, upon Landlord’s request, shall deliver or cause to be delivered to Landlord evidence of said insurance coverages in the form of appropriate certificates of insurance and endorsements to the underlying policies. Such policies and certificates of insurance shall provide that Landlord will be notified in writing at least thirty (30) days prior to the cancellation, material change or non-renewal of any such insurance policy.

12.02. Landlord’s Insurance . Landlord shall obtain and maintain in full force and effect throughout the Lease Term, at Landlord’s expense (except as herein provided), commercial property insurance covering the Air Park, including the Buildings. Such insurance shall cover the perils covered under the ISO special causes of loss form (CP 10 30) and, as to Buildings in which the Premises are situated, shall cover the replacement cost of the Buildings insured. Tenant shall reimburse Landlord for its proportionate share of the premiums paid by Landlord for the commercial property insurance covering the Building(s) in which the Premises are located, such proportionate share to be determined on a Building-by-Building basis and to be equal to the product of (i) the amount of the premium paid by Landlord in connection with the pertinent insured Building and (ii) a fraction, the numerator of which is the number of square feet of leasable space occupied by Tenant under this Lease Agreement in the pertinent insured Building and the denominator of which is the total number of square feet of leasable space contained in the pertinent insured Building. Such reimbursement shall be made not later than fifteen (15) days following a written request therefor from Landlord accompanied by evidence of payment of such premium and a calculation of the amount of the requested reimbursement.

12.03. Waiver of Subrogation . Landlord and Tenant hereby waive recovery of damages against each other for loss or damage to their property to the extent the same is or could be covered by the commercial property insurance required in Sections 12.01 and 12.02 above. Because the provisions of this Section 12.03 preclude the assignment of any claim mentioned herein, by way of subrogation or otherwise, to an insurance company or any other person, each party to this Lease Agreement shall give to each insurance company which has issued to it one or more policies of commercial property insurance notice of the terms of the mutual releases contained in this Section 12.03, and have such insurance policies properly endorsed, if necessary, to prevent the invalidation of insurance coverages by reason of these mutual releases.

ARTICLE 13

Maintenance and Repair; Alterations; Signage

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13.02. Alterations . Tenant shall not make any alterations, improvements or additions to the Premises, unless and until Tenant has received Landlord’s prior written consent and approval of the complete plans and specifications therefor, which consent and approval shall not be unreasonably withheld, conditioned or delayed by Landlord. All such alterations, improvements or additions shall be performed in all material respects in accordance with the approved plans and specifications.

13.03. Signage . Tenant may, at its own expense, maintain the signage which exists on the Premises on the Effective Date. Tenant shall not make any modifications to any signs or install any new or additional signs unless and until Tenant has received Landlord’s prior written consent and approval of the complete plans and specifications therefor, which consent and approval shall not be unreasonably withheld, conditioned or delayed by Landlord. All such signage shall be constructed and displayed in all material respects in accordance with the approved plans and specifications and in compliance with local, state and federal laws, ordinances and regulations.

ARTICLE 14

Casualty Damage

14.01. Landlord Election . In the event that any portion of the Premises is damaged or destroyed by fire or any other casualty (“Casualty Damage”), Landlord may elect, at its option, by written notice to Tenant given within sixty (60) days after the occurrence of the Casualty Damage: (a) to repair and restore the Premises (but not any of the Fixtures); (b) to effect a Partial Termination (as defined herein); or (c) to terminate this Lease Agreement. Notwithstanding the foregoing, in the event that Casualty Damage occurs to the Premises that is covered by the commercial property insurance to be obtained and maintained by Landlord pursuant to Section 12.02 hereof, then Tenant, at Tenant’s option exercised by written notice to Landlord given within the earlier to occur of (i) sixty (60) days after the occurrence of the Casualty Damage or (ii) ten (10) days following Tenant’s receipt of Landlord’s election not to repair and restore the Premises pursuant to Section 14.01(b) or (c) hereof, Landlord shall be obligated to repair and restore the Premises (but not any of the Fixtures), in which case, any election by Landlord not to repair and restore the Premises pursuant to Section 14.01(b) or (c) hereof shall be deemed to have been overridden and Landlord shall be deemed to have elected to

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repair and restore the Premises pursuant to Section 14.01(a) hereof (the “Tenant Override Option”). In the event that Tenant exercises the Tenant Override Option and the costs of such repair and restoration to the Premises shall exceed $1,000,000.00, then no termination of this Lease Agreement by Tenant pursuant to Section 24.15 hereof shall be effective until the date that is at least one (1) year from the date of completion of said repair and restoration of the Premises.

14.02. Restoration . In the event Landlord shall elect (or shall be deemed to have elected pursuant to the Tenant Override Option) to repair and restore the Premises under Section 14.01(a) hereof, then (a) Landlord shall promptly commence repair and restoration of the Premises to the condition the Premises were in immediately prior to the Casualty Damage and diligently pursue such repair and restoration to completion and (b) this Lease Agreement shall continue in full force and effect; provided, that Base Rent shall temporarily abate from the date of the Casualty Damage through the completion by Landlord of the repair or restoration of the Premises in order to reflect the portion of the Premises rendered temporarily unusable by the Casualty Damage and shall be determined by multiplying the annual Base Rent then in effect by a fraction, the numerator of which shall be the number of square feet in the Premises which remain usable by Tenant during such repair and restoration and the denominator of which shall be 518,434 .

14.03. Partial Termination . If any Casualty Damage results in the destruction of one or more of the Buildings but not all of the Premises, Landlord may elect pursuant to Section 14.01(b) to terminate this Lease Agreement only with respect to the portion of the Premises which was materially affected by such Casualty Damage and maintain this Lease Agreement in full force and effect with respect to the portion of the Premises not materially affected by the Casualty Damage (a “Partial Termination”). In the event of a Partial Termination, annual Base Rent shall be permanently reduced to reflect the reduced area of the Premises and shall be determined by multiplying the annual Base Rent then in effect by a fraction, the numerator of which shall be the number of square feet contained in the Premises after such Partial Termination and the denominator of which shall be 518,434.

14.04. Tenant Election Upon Substantial Damage . If Landlord has elected to repair and restore the Premises under Section 14.01(a) or to cause a Partial Termination under Section 14.01(b) (a “Continuation Election”), but Casualty Damage is so extensive so as to result in a permanent substantial adverse impact upon Tenant’s business conducted on or from the Premises, Tenant may elect to terminate this Lease Agreement upon written notice to Landlord together with documentation which clearly demonstrates the basis for the Tenant’s election to terminate, which notice and supporting documentation shall be given, if at all, within twenty (20) days following receipt of the Continuation Election.

14.05. Total Termination . In the event this Lease Agreement is properly terminated in accordance with Section 14.01(c) or Section 14.04 of this Lease Agreement, this Lease Agreement and all rights and obligations hereunder shall terminate effective as of the thirtieth (30th) day after the party electing to terminate this Lease Agreement has provided notice of such election to the other party. All Base Rent and other sums required to be paid by Tenant hereunder shall be apportioned and paid as of the effective date of such termination.

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ARTICLE 15

Condemnation

15.01. Total Condemnation . If all of the Premises are taken by any condemning authority under the power of eminent domain or otherwise, or by any purchase or other acquisition in lieu of eminent domain or otherwise (a “Total Take”), or if Tenant has the right to and does terminate this Lease Agreement in accordance with Section 15.02(A)(i) below, then this Lease Agreement and the Lease Term shall terminate as of the date when possession of the Premises is required by the condemning authority, and all Base Rent and other sums required to be paid by Tenant hereunder shall be apportioned and paid to the date of such taking.

15.02. Partial Condemnation .

(A) In the event that only a portion of the Premises is taken or condemned by any condemning authority, Landlord shall immediately send written notice thereof to Tenant. If said portion of the Premises so taken or condemned constitutes a “substantial portion of the Premises” as defined in Section 15.02 (C) below, then Tenant shall have the right to elect, by written notice to Landlord within twenty (20) days after receipt from Landlord of the aforesaid notice of condemnation, either: (i) to terminate this Lease Agreement as of the date of the taking of possession by the condemning authority, in which event the Base Rent and all other charges shall be apportioned and paid to the date of the taking, or (ii) to terminate this Lease Agreement only with respect to the portion of the Premises taken by such condemning authority and otherwise to continue this Lease Agreement in full force and effect. In the event that any such taking or condemnation involves less than a “substantial portion of the Premises”, or if it does involve a “substantial portion of the Premises” but Tenant makes the election set forth in clause 15.02(A)(ii) above, then Base Rent will be reduced to reflect the reduced area of the Premises and will be determined by multiplying the annual Base Rent then in effect by a fraction, the numerator of which shall be the number of square feet contained in the Premises after the taking and the denominator of which shall be 518,434 and such reduced Base Rent will become effective upon the date of such taking.

(B) If this Lease Agreement is not terminated as set forth in Section 15.01 or 15.02(A)(i) hereof, then the award or payment for the taking shall be paid to and used by Landlord to restore, with reasonable dispatch, the portion of the Premises remaining, after the taking, to substantially the same condition and tenantability as existed immediately preceding the taking.

(C) A “substantial portion of the Premises” shall be deemed to have been condemned if such condemnation relates to a portion of the Premises the absence of which would reasonably result in a permanent substantial adverse impact upon Tenant’s business conducted on or from the Premises.

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(D) Termination of this Lease Agreement because of condemnation shall be without prejudice to the rights of either Landlord or Tenant to recover from the condemning authority compensation and damages for the injury and loss sustained by them as a result of the taking. Landlord shall have the right to recover from the condemning authority compensation and damages for the injury and loss sustained by Landlord as a result of the taking of the Premises, including land and any improvements. Tenant shall have the right to make an independent claim against the condemning authority for the Fixtures, interruption or dislocation of business in the Premises, loss of good will, and for moving expenses as long as such claim by Tenant does not reduce the amount payable to Landlord.

ARTICLE 16

Assignment and Subletting

16.01. Assignment . Tenant shall not assign this Lease Agreement or its rights in or to the Premises or the Common Use Facilities, or permit the assumption of all or any part of the obligations of Tenant under this Lease Agreement, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed by Landlord. Notwithstanding any such consent, and unless otherwise agreed in the pertinent assignment documentation, Tenant will remain jointly and severally liable (along with any approved assignee), and Landlord shall be permitted to enforce the provisions of this Lease Agreement directly against Tenant and/or any assignee without being required to proceed in any way against the other. For purposes of this Section 16.01, (a) an assignment shall mean the direct or indirect sale, conveyance, mortgage, hypothecation, pledge, transfer or assignment of this Lease Agreement by Tenant, or the assumption of Tenant’s obligations hereunder, to or by any Persons, but shall not include (i) any security interest granted by Tenant in this Lease Agreement as required by the terms of any credit facility of Tenant and/or its Affiliates, or (ii) an assignment of Tenant's rights under this Agreement to a successor or parent corporation in connection with any sale of substantially all of the assets or stock of Tenant, whether via merger or otherwise and (b) a “merger” refers to any merger in which Tenant participates, regardless of whether it is the surviving or disappearing entity.

16.02. Subletting . Tenant shall not sublease all or any part of the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed by Landlord. For purposes of this Lease Agreement, a “sublease” shall include subleases, licenses, concessions, and all other possessory arrangements entered into by Tenant in respect of the Premises. If Landlord consents to a sublease, no such subletting shall release or relieve Tenant from any of its obligations under this Lease Agreement. Notwithstanding the foregoing, the following shall be deemed to have been consented to by Landlord as sublessees: (a) the Affiliates of Tenant which are identified on Exhibit E , attached hereto and fully incorporated herein, occupying those pertinent portions of the Premises as identified on said Exhibit E , and (b) any relocation, from time to time and within the defined boundaries of the Premises, of the physical offices or work stations of administrative employees of Tenant or the Affiliates of Tenant identified on Exhibit E, as amended from time to time (a “Permitted Space Adjustment”). For the avoidance of doubt, a Permitted Space Adjustment shall not include a relocation of employees of Tenant or the aforesaid Affiliates of Tenant if such

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relocation causes any portion of the Premises that houses administrative offices prior to any such relocation to be used for non-administrative offices.

ARTICLE 17

Conveyance or Encumbrancing by Landlord

17.01. Conveyances . Landlord shall have the unrestricted right to sell, assign, convey or transfer to any Person all or any part of its right, title or interest in or to the Premises; subject, however, to this Lease Agreement. In the event of a sale or transfer of the Premises, Landlord (or, in the case of a subsequent transfer, the transferor) shall, after the date of such transfer, be automatically released from all further liability for the performance or observance of any term, condition, covenant or obligation required to be performed or observed by Landlord hereunder, and the transferee shall be deemed to have assumed all of such terms, conditions, covenants and obligations, it being intended hereby that such terms, conditions, covenants and obligations shall be binding upon Landlord, its successors and assigns, only during and in respect of their successive periods of ownership during the Lease Term. Upon Tenant’s request, Landlord shall deliver to Tenant copies of the recorded deed and any lease assignment executed and delivered by Landlord in connection with any such conveyance by Landlord.

17.02. Subordination and Attornment . This Lease Agreement and Tenant’s interest and rights hereunder are and shall be subject and subordinate at all times to the lien of any mortgage of Landlord’s right, title and interest in and to the Premises (a “Fee Mortgage”), now existing or hereafter created on or against the Air Park or the Premises, and all amendments, restatements, renewals, modifications, consolidations, refinancing, assignments and extensions thereof, without the necessity of any further instrument or act on the part of Tenant. Tenant agrees, at the election of the holder of any such Fee Mortgage (a “Fee Mortgagee”), to attorn to any such holder, provided that the Fee Mortgagee agrees to not disturb the possession, use or enjoyment of the Premises by Tenant, or disaffirm this Lease Agreement, so long as Tenant shall fully perform its obligations under this Lease Agreement. Tenant agrees to execute, acknowledge and deliver, within ten (10) days following Landlord’s request therefor, such commercially reasonable instruments confirming such subordination and attornment as shall be requested by any Fee Mortgagee. Notwithstanding the foregoing, any Fee Mortgagee may at any time subordinate its Fee Mortgage to this Lease Agreement, without notice or Tenant’s consent, and thereupon this Lease Agreement shall be deemed prior to such Fee Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Fee Mortgagee shall have the same rights with respect to this Lease Agreement as though this Lease Agreement had been executed prior to the execution, delivery and recording of such Fee Mortgage.

17.03. Notice and Cure Rights . If Tenant shall serve Landlord with any notice claiming a default or breach of this Lease Agreement by Landlord, Tenant shall serve a duplicate of said notice upon each Fee Mortgagee, provided that Tenant has received the name and address of such Fee Mortgagees. The Fee Mortgagees shall be permitted to correct or remedy the breach or default complained of within a reasonable time after the expiration of Landlord’s time to do so and with the same effect as if Landlord itself had done so.

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ARTICLE 18

Default; Termination

18.01. Default by Tenant . Tenant shall create, and there shall exist, an event of default (herein called an “Event of Default”) under this Lease Agreement if:

(A) Tenant shall fail to pay any installment of Base Rent required to be paid by Tenant within ten (10) days after the same shall become due for payment; or

(B) Tenant shall fail in any material respect to perform or comply with any other obligation of Tenant under this Lease Agreement, and such failure is not performed or corrected within thirty (30) days after notice of such default from Landlord (or, if such failure is not capable of being performed or corrected within such thirty (30) day period, if Tenant shall not commence the correction of such default within thirty (30) days after notice of such default from Landlord and proceed with due diligence to complete such correction within a reasonable time, but in no event longer than ninety (90) days from the notice of such default); or

(C) Tenant shall make a general assignment for the benefit of creditors, or if Tenant’s interest in the Premises is sold upon execution or other legal process; or

(D) Tenant shall suffer a receiver to be appointed in any action or proceeding by or against Tenant, and such appointment is not stayed or discharged within sixty (60) days after the commencement thereof, or if Tenant is a debtor in any insolvency proceeding conducted pursuant to the laws of any state or of a political subdivision of any state and such proceeding is not stayed or discharged within sixty (60) days after the commencement thereof, or if Tenant shall be or become, either voluntarily or involuntarily, a debtor in any case commenced under the provisions of the U.S. Bankruptcy Code, as amended, and such case is not stayed or discharged within sixty (60) days after the commencement thereof.

18.02. Rights of Landlord upon Tenant’s Default . In the event that Tenant shall create or suffer an Event of Default under this Lease Agreement, in addition to the other rights and remedies available to Landlord hereunder, in equity or at law, Landlord, at its option, shall have the following remedies:

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Landlord each month following any such repossession by Landlord any deficiency between Base Rent and other sums due and payable hereunder by Tenant for such month and the amount of any rent (net of Reletting Expenses) collected by Landlord during such month from any reletting tenant. Except as expressly provided in this Section 18.02(A), neither such termination of the right of Tenant to occupy the Premises, nor such repossession and possession by Landlord, shall relieve Tenant from its obligations to pay Base Rent and all other amounts payable by Tenant under the terms of this Lease Agreement, and/or to perform and observe all of the obligations of Tenant under this Lease Agreement.

(B) Landlord shall have the right to cancel and terminate this Lease Agreement and the Lease Term at any time (including any time after Landlord has elected to terminate Tenant’s right of possession as provided in subsection 18.02(A) of this Lease Agreement), which termination shall not impair in any manner Landlord’s right to recover from Tenant any damages arising as a consequence of an Event of Default hereunder or such termination of this Lease Agreement; provided that, in no event shall Tenant be liable for consequential, indirect or punitive damages.

18.03. Landlord Right To Cure Tenant Defaults . If Tenant shall create or suffer an Event of Default under this Lease Agreement, Landlord may (but shall not be required to) cure such default on behalf of Tenant (without thereby waiving any of the rights otherwise afforded to Landlord under Article 18 of this Lease Agreement by reason of such default), and the amount of the reasonable cost to Landlord of curing any such default shall be paid by Tenant to Landlord on demand, together with interest thereon at a per annum rate equal to the “prime rate” of Bank of America (as such rate is announced or disclosed from time to time), plus four percent (4%) (the “Default Rate”), or at the maximum rate of interest permitted by law if less than the Default Rate, from the date or dates of payment thereof by Landlord.

ARTICLE 19

Surrender

Upon the exercise by Landlord of its right to obtain possession of the Premises upon the occurrence of an Event of Default hereunder, or upon the expiration or sooner termination of this Lease Agreement, Tenant shall (i) surrender the Premises to Landlord, with all improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted and (ii) appropriately effect, at Tenant’s sole cost and expense and in accordance with all applicable Environmental Laws, the closure of all Resource Conservation and Recovery Act (“ RCRA ”) storage areas in and on the Premises and/or the Common Use Facilities (and such other areas in and on the Premises and/or the Common Use Facilities which should have been designated and permitted as RCRA storage areas in accordance with applicable Environmental Laws) wherein Tenant or its Affiliates caused, suffered or permitted the storage of Hazardous Waste either prior to or during the Lease Term.

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ARTICLE 20

Quiet Enjoyment

Landlord covenants with and warrants and represents to Tenant that, so long as no Event of Default occurs or exists hereunder, and except as otherwise expressly provided herein, Tenant shall, at all times during the Lease Term, peaceably and quietly have, hold, occupy and enjoy the Premises, without hindrance or molestation by Landlord or by any Person claiming rights through Landlord in respect of the Premises, other than rights created by Tenant.

ARTICLE 21

Inspection

Landlord and its duly authorized representatives may enter the Premises at all reasonable times, upon at least twenty-four (24) hours’ prior written notice to Tenant (or, in the event of an emergency, such notice as may be reasonable under the circumstances), to view and inspect the Premises and to inspect all repairs, additions and alterations or to perform any work which may be necessary by reason of Tenant’s default under the terms of this Lease Agreement; provided, that any such inspections shall not unreasonably interfere with the activities of Tenant or its agents or contractors in or on the Premises, nor cause or result in any damage to the Premises.

ARTICLE 22

Notices and Payments

22.01. Notices . Any notice or other communication required or permitted to be given to a party under this Lease Agreement shall be in writing and shall be given by one of the following methods to such party, at the address set forth at the end of this Section 22.01: (i) it may be sent by registered or certified United States (U.S.) mail, return receipt requested and postage prepaid, or (ii) it may be sent by ordinary U.S. mail or delivered in person or by courier, telecopier, fax transmission, electronic mail or any other means for transmitting a written communication. Any such notice shall be deemed to have been given as follows: (i) when sent by registered or certified U.S. mail, as of the second business day after it was mailed, and (ii) when sent or delivered by any other means, upon receipt, with written or electronic confirmation thereof. Either party may change its address for notice by giving written notice thereof to the other party. The address of each party for notice initially is as follows:

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Landlord	Tenant
Clinton County Port Authority	Air Transport Services Group, Inc.
1113 Airport Road	145 Hunter Drive
Wilmington, OH 45177	Wilmington, OH 45177
Attn: Kevin J. Carver	Attn: Joseph C. Hete
Fax No.: (937) 366-5005	Fax No.: (937) 382-2452
E-Mail Address: kcarver@ccportauthority.com	E-Mail Address: Joe.Hete@atsginc.com

With copies to :	With copies to :
D. Scott Powell, Esq.	W. Joseph Payne, Esq., General Counsel
Vorys, Sater, Seymour and Pease LLP	Air Transport Services Group, Inc.
52 E. Gay Street	145 Hunter Drive
Columbus, OH 43216-1008	Wilmington, OH 45177
Fax No.: 614-719-4912	Fax No.: (937) 382-2452
E-Mail Address: dspowell@vorys.com	E-Mail Address: Joe.Payne@atsginc.com

22.02. Place of Payment; No Setoff . All Base Rent and other payments required to be made by Tenant to Landlord shall be delivered or mailed to Landlord at the address specified in Section 22.01 hereof, or any other address Landlord may specify from time to time by written notice given to Tenant, without notice or demand and without abatement, deduction or setoff of any amount whatsoever.

ARTICLE 23

Compliance with Laws

23.01. General Compliance . At all times during the Lease Term, Tenant shall, in respect of this Lease Agreement and its use and occupancy of the Premises, comply with all applicable federal, state and local laws, codes, ordinances, rules and regulations, and any other applicable requirements.

23.02. Incorporation of Provisions of Law . Each and every provision required by applicable federal, state or local laws, codes, ordinances, rules and regulations to be included in this Lease Agreement shall be deemed to be incorporated herein by reference and included in this Lease Agreement, and this Lease Agreement shall be read, construed and enforced as though each such provision were set forth herein.

ARTICLE 24

Miscellaneous Provisions

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commission, or other payment in respect of this Lease Agreement, the transactions contemplated thereby and/or the Premises, arising from agreements, arrangements or undertakings made or effected by it with any third Persons.

24.02. Memorandum of Lease Agreement . This Lease Agreement shall not be filed in any public office or records. Landlord and Tenant shall, upon request by the other, execute and deliver a memorandum of lease or similar instrument reflecting such of the terms of this Lease Agreement as may be acceptable to the parties, which instrument shall be in a form recordable under the laws, regulations and customs of the State of Ohio and its political subdivisions, and which instrument shall be recorded in appropriate public offices.

24.03. Estoppel Certificates . Each party shall, within ten (10) days after written request from the other party, from time to time and at any time, complete, execute, acknowledge and deliver to the requesting party a written instrument, in a form prepared and presented by the requesting party and acceptable to the other party, certifying that this Lease Agreement is unmodified and in full force and effect (or if there have been modifications, that it is in full force and effect as modified and stating the modifications), and the dates to which Base Rent and other charges have been paid in advance, if any, and stating whether, to the knowledge of such party, the requesting party is in default in the performance of any obligation of such requesting party under this Lease Agreement, and, if so, specifying each such default of which such party has knowledge and certifying any other fact reasonably requested to be certified by the requesting party, it being intended that any such instrument may be delivered to and relied upon by any prospective purchaser of Landlord’s interest in the Premises and any prospective assignee of Tenant’s leasehold estate in the Premises, or any mortgagee or prospective mortgagee in respect thereof or any part thereof.

24.05. Governing Law . This Lease Agreement shall be governed by and construed in accordance with the laws of the State of Ohio.

24.06. Remedies Cumulative . All rights and remedies of Landlord and of Tenant enumerated in this Lease Agreement shall be cumulative and, except as specifically contemplated otherwise by this Lease Agreement, none shall exclude any other right or remedy allowed at law or in equity, and said rights or remedies may be exercised and enforced concurrently. No waiver by Landlord or by Tenant of any covenant or condition of this Lease Agreement, to be kept or performed by any other party, shall constitute a waiver by the waiving party of any subsequent breach of such covenant or condition, or authorize the breach or nonobservance on any other occasion of the same or any other covenant or condition of this Lease Agreement.

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24.07. Duplicate Originals . This Lease Agreement may be executed in one or more counterparts, each of which shall be deemed to be a duplicate original, but all of which, taken together, shall constitute a single instrument.

24.08. Article and Section Captions . The Article and Section captions contained in this Lease Agreement are included only for convenience of reference and do not define, limit, explain or modify this Lease Agreement or its interpretation, construction or meaning, and are in no way to be construed as a part of this Lease Agreement.

24.09. Severability . If any provision of this Lease Agreement or the application of any provision to any Person or any circumstance shall be determined to be invalid or unenforceable, then such determination shall not affect any other provision of this Lease Agreement or the application of said provision to any other Person or circumstance, all of which other provisions shall remain in full force and effect, and it is the intention of Landlord and of Tenant that if any provision of this Lease Agreement is susceptible of two or more constructions, one of which would render the provision valid and the other or others of which would render the provision invalid, then such provision shall have a meaning which renders it valid.

24.10. Amendments in Writing; Annexes . No officer, employee, or other servant or agent of Landlord or of Tenant is authorized to make any representation, warranty, or other promise not contained in this Lease Agreement in respect of the subject matter hereof. No amendment, change, termination or attempted waiver of any of the provisions of this Lease Agreement shall be binding upon Landlord or Tenant, unless in writing and signed by the party affected. Each of the annexes, exhibits or instruments attached hereto are hereby expressly incorporated herein by this reference.

24.11. No Third Party Beneficiaries . Except as otherwise expressly provided herein: (a) the provisions of this Lease Agreement are for the exclusive benefit of the parties hereto and are not for the benefit of any other Person, and (b) this Lease Agreement shall not be deemed to have conferred any rights, express or implied, upon any third Person.

24.12. Security . Tenant acknowledges and agrees that Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other injury (including death) or damage suffered or incurred by Tenant or its employees or agents in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant will cooperate with Landlord in connection with any security conducted by or on behalf of Landlord in connection with the Air Park.

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24.13. Miscellaneous Requirements .

In connection with its use and occupancy of the Premises, Tenant hereby agrees as follows:

(A) Tenant understands and agrees that nothing herein contained will be construed to grant or authorize the granting of an exclusive right to provide aeronautical services to the public as prohibited by 49 USC 40103(e), as amended, and Landlord reserves the right to grant to others the privilege and right of conducting any one or all activities of an aeronautical nature;

(B) Tenant agrees to comply with the notification and requirements covered in Part 77 of the Federal Aviation Regulations (to the extent applicable to Tenant and to the extent Landlord notifies Tenant of such applicability) in the event any future structure or building is planned for the Premises, or in the event of any planned modification or alteration of any present or future building or structure situated on the Premises;

(C) Landlord reserves for the use and benefit of the public, a right of flight for the passage of aircraft in the airspace above the surface of the Premises. This public right of flight will include the right to cause in said airspace any noise inherent in the operation of any aircraft used for navigation or flight through the said airspace or landing at, taking off from, or operation on the Air Park; and

(D) Tenant agrees that it will not make use of the Premises in any manner which might interfere with the landing and taking off of aircraft from the Air Park or otherwise constitute a hazard. In the event the aforesaid covenant is breached, Landlord reserves the right to enter upon the Premises and cause the abatement of such interference at the expense of Tenant.

In addition, Landlord contemplates that, reasonably promptly after the Effective Date, Landlord will enter into discussions with the FAA and other pertinent governmental authorities for, and plans to make application for, such governmental grants, loans and/or other funds as may be available to assist Landlord in the ongoing operation, development and/or improvement of the Air Park (the “Government Funding”). In connection therewith, and in particular in connection with any FAA-related funding programs, Landlord is advised that the owners and tenants of the Air Park will be subjected to certain government-mandated requirements regarding the use and operation of the Air Park, including the provisions hereinafter set forth (collectively, the “Funding Requirements”). Accordingly, in connection with any Government Funding obtained by Landlord, Landlord shall provide to Tenant copies of the pertinent Government Funding agreements which give rise to the pertinent Funding Requirements and, thereupon, Tenant shall comply with the following provisions if, and to the extent included in such Funding Requirements and disclosed to Tenant, and such other Funding Requirements, if any, as may be agreed upon by Landlord and Tenant:


(1)	In the event facilities are constructed, maintained, or otherwise operated on the Premises, Tenant will maintain and operate such facilities and services in compliance with all requirements imposed pursuant to 49 CFR Part 21, Nondiscrimination in Federally Assisted Programs of the Department of Transportation, and as said Regulations may be amended;

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(2)

Tenant covenants and agrees that: (1) no Person, on the grounds of race, color or national origin, will be excluded from participation in, denied the benefits of, or be otherwise subjected to discrimination in, the use of the Premises; (2) in the construction of any leasehold improvements on, over or under the Premises and the furnishing of services thereon, no Person on the grounds of race, color or national origin will be excluded from participation in, denied the benefits of, or otherwise be subjected to discrimination by Tenant; and (3) Tenant will use the Premises in compliance with all other requirements imposed by or pursuant to 49 CFR Part 21, Nondiscrimination in Federally Assisted Programs of the Department of Transportation, and as said Regulations may be amended;


(3)	Tenant agrees to furnish service on a fair, equal and not unjustly discriminatory basis to all users thereof, and to charge fair, reasonable and not unjustly discriminatory prices for each unit or service; provided, that Tenant may be allowed to make reasonable and nondiscriminatory discounts, rebates or other similar types of price reductions to volume purchasers;

(4)

Tenant assures that it will undertake an affirmative action program as required by 14 CFR Part 152, Subpart E, to insure that no person will on the grounds of race, creed, color, national origin or sex be excluded from participating in any employment activities covered by 14 CFR Part 152, Subpart E. Tenant assures that no person will be excluded on these grounds from participating in or receiving the services or benefits of any program or activity covered by 14 CFR Part 152, Subpart E. Tenant assures that it will require that its covered suborganizations provide assurances to Landlord that they similarly will undertake affirmative action programs, and that they will require assurances from their suborganizations, as required by 14 CFR Part 152, Subpart E, to the same effect; and


(5)	Tenant agrees that it will insert the above four provisions in any lease, sublease or other such document by which Tenant grants a right or privilege to any person, firm or corporation to render accommodations and/or services to the public on the Premises.

24.14. Survival . The provisions of this Lease Agreement shall survive the expiration or earlier termination of this Lease Agreement for so long as either party bears any liability or responsibility hereunder and until such time as Landlord or Tenant, as the case may be, shall have realized upon all of their respective rights or exercised all of their respective remedies hereunder.

24.15 . [Intentionally Omitted]

24.16. Patriot Act . Tenant hereby certifies to Landlord that: (i) it is not acting, directly or indirectly, for or on behalf of any person, group, entity or nation named by any

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Executive Order or the United States Treasury Department as a terrorist, “Specifically Designated National and Blocked Person,” or other banned or blocked person, group, entity, nation or transaction pursuant to any law, order, rule or regulation that is enforced or administered by the Office of Foreign Assets Control; and (ii) it is not engaged in this transaction, directly or indirectly, on behalf of any such person, group, entity or nation.

24.17. Amendment and Restatement of Original Lease . Notwithstanding anything contained herein to the contrary, Landlord and Tenant hereby acknowledge and agree that this Lease Agreement shall amend, restate, and supersede in its entirety the Original Lease, as amended by the First Lease Amendment, effective as of the Execution Date.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, this Lease Agreement was executed on the Execution Date on behalf of Landlord and Tenant by the duly authorized officials or officers thereof, to be effective as of the Effective Date.



LANDLORD : CLINTON COUNTY PORT AUTHORITY By: /s/ Kevin J. Carver . Kevin J. Carver Executive Director	TENANT : AIR TRANSPORT SERVICES GROUP, INC. By: /s/ Joseph C. Hete . Joseph C. Hete President and Chief Executive Officer

STATE OF OHIO

COUNTY OF FRANKLIN, SS:

The foregoing instrument was acknowledged before me this 21 day of December 2012, by Kevin J. Carver, the Executive Director of the Clinton County Port Authority, a body corporate and politic and a port authority duly organized and validly existing under the State of Ohio, on behalf of said port authority.

/s/ C. Kimbra Rader Notary Public

STATE OF OHIO

COUNTY OF CLINTON, SS:

The foregoing instrument was acknowledged before me this 20 day of
December, 2012, by Joseph C. Hete, President and Chief Executive Officer of Air Transport Services Group, Inc., a Delaware corporation, on behalf of the corporation.

/s/ Beth Allen

Notary Public

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FISCAL OFFICER’S CERTIFICATE

The undersigned fiscal officer of the Clinton County Port Authority (the “Port”) hereby certifies that the money required to meet the obligations of the Port for fiscal year 2012 under the agreement to which this certificate is attached has been lawfully appropriated by the Port for that purpose and is in the treasury of the Port or is in the process of collection to the credit of an appropriate fund, free from any previous encumbrances, and is not appropriated for any other purpose. This certificate is given in compliance with Sections 5705.41 and 5705.44 of the Ohio Revised Code.

Dated: December 21, 2012

/s/ Brian C. Smith
Secretary

Clinton County Port Authority

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EXHIBIT A

The Air Park

TRACT 1:

SITUATE IN THE CITY OF WILMINGTON, CLINTON COUNTY, OHIO, VIRGINIA

MILITARY SURVEY NUMBERS 625, 1162, 1170, 2027, 2690 AND NUMBER 2694 AND BEING PART OF THE LANDS AS CONVEYED BY DEED TO WILMINGTON AIR PARK, INC. AS RECORDED IN (SEE TABLE I) THE CLINTON COUNTY DEED RECORDS AND CLINTON COUNTY OFFICIAL RECORDS AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING FOR REFERENCE AT A CONCRETE MONUMENT FOUND IN THE LINE OF VMS NUMBER 1162 AND NUMBER 1170, BEING THE NORTHWESTERLY CORNER OF WILMINGTON AIR, INC.'S 74.578 ACRE TRACT (DEED NO. 24, TABLE I) AND CORNER TO THE GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT'S REMAINING PART 92.076 ACRE TRACT (DEED BOOK 239, PAGE 482), AND ALSO BEING IN THE NORTHWESTERLY RIGHT OF WAY OF AIRPORT ROAD; THENCE WITH A LINE OF SAID REMAINING PART 92.076 ACRE TRACT, SAID 74.578 ACRE TRACT AND SAID MILITARY SURVEY LINE S 41°17'49" E 53.28' TO A RAILROAD SPIKE FOUND IN THE CENTERLINE OF AIRPORT ROAD AND BEING THE TRUE POINT OF BEGINNING FOR THIS TRACT HEREIN DESCRIBED; THENCE WITH THE PROLONGATION OF SAID PREVIOUS LINE S 41°17'49" E 39.79' TO AN IRON PIN SET IN THE SOUTHEASTERLY RIGHT OF WAY OF AIRPORT ROAD; THENCE WITH THE SOUTHEASTERLY RIGHT OF WAY OF AIRPORT ROAD S 51°30'20" W 189.75' TO A CONCRETE MONUMENT FOUND AT THE INTERSECTION WITH THE NORTHWESTERLY RIGHT OF WAY OF AIRBORNE ROAD; THENCE WITH SAID RIGHT OF WAY OF AIRBORNE ROAD S 37°48'06" W 635.35' TO A CONCRETE MONUMENT FOUND AT THE CORNER OF THE RIGHT OF WAY OF WEIL WAY; THENCE WITH THE RIGHT OF WAY OF WEIL WAY N 52°08'40" W 154.89' TO A CONCRETE MONUMENT FOUND IN THE SOUTHEASTERLY RIGHT OF WAY OF AIRPORT ROAD; THENCE WITH SAID RIGHT OF WAY OF AIRPORT ROAD S 51°30'20" W 102.90' TO A CONCRETE MONUMENT FOUND; THENCE CONTINUING WITH RIGHT OF WAY OF WEIL WAY S 52°08'40" E 179.27' TO CONCRETE MONUMENT FOUND IN THE RIGHT OF WAY OF AIRBORNE ROAD; THENCE WITH SAID RIGHT OF WAY OF AIRBORNE ROAD S 37°48'06" W 630.25' TO AN IRON PIN SET AT THE CORNER OF THE RIGHT OF WAY OF RUANE DRIVE; THENCE WITH RIGHT OF WAY OF RUANE DRIVE N 52°09'47" W 332.94' TO A CONCRETE MONUMENT FOUND IN THE RIGHT OF WAY OF AIRPORT ROAD; THENCE WITH THE RIGHT OF WAY OF AIRPORT ROAD S 51°30'20" W 102.92' TO A RAILROAD SPIKE FOUND AT THE CORNER OF THE RIGHT OF WAY OF RUANE DRIVE; THENCE WITH SAID RIGHT OF WAY S 52°09' 47" E 357.33' TO A CONCRETE MONUMENT FOUND IN THE RIGHT OF WAY OF AIRBORNE ROAD; THENCE WITH SAID RIGHT OF WAY OF AIRBORNE ROAD S 37°48'06" W 1382.49' TO A CONCRETE MONUMENT FOUND AT THE CORNER OF EWE WAREHOUSE INVESTMENTS V, LTD'S

A-1

7.243 ACRE TRACT (OFFICIAL RECORD 312, PAGE 140); THENCE WITH THE LINE OF SAID 7.243 ACRE TRACT N 52°10'13" W 372.54' TO AN IRON PIN SET; THENCE CONTINUING WITH LINE OF SAID 7.243 ACRE TRACT S 37°46'04" W 775.93' TO A 5/8" IRON PIN FOUND IN THE LINE OF SAID EWE WAREHOUSE INVESTMENTS V, LTD'S 6.518 ACRE TRACT (OFFICIAL RECORD 312, PAGE 131); THENCE WITH THE LINE OF SAID 6.518 ACRE TRACT N 48°25'41" W 542.03' TO A RAILROAD SPIKE FOUND IN AIRPORT ROAD; THENCE CONTINUING WITH THE LINE OF SAID 6.518 ACRE TRACT S 46°51'16" W 384.78' TO A RAILROAD SPIKE FOUND IN THE CENTERLINE OF OLD STATE ROUTE 73 AND CORNER TO AIRLINE PROFESSIONAL ASSOCIATION TEAMSTER LOCAL 1224 1.000 ACRE TRACT (OFFICIAL RECORD 328, PAGE 711); THENCE WITH THE LINE OF SAID 1.000 ACRE TRACT S 47°56'48" W 19.22' TO A 5/8" IRON PIN FOUND, A CORNER TO GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT'S REMAINING PART 262.282 ACRE TRACT (OFFICIAL RECORD 239, PAGE 482); THENCE WITH SAID SCHOOL DISTRICT'S LINES ON THE FOLLOWING COURSES: N 48°25'35" W 554.05' TO AN IRON PIN SET; THENCE S 38°12'31" W 502.96' TO A 1/2" IRON PIN FOUND; THENCE S 47°59'29" W 295.07' TO A 1/2" IRON PIN FOUND; THENCE N 42°02'27" W 339.91 TO AN IRON PIN SET; THENCE S 48°18'06" W 118.31' TO A 1/2" IRON PIN FOUND; THENCE N 42°25'19" W 261.00', A PK NAIL FOUND IN CONCRETE BEARS S 25°47'38" E 0.11'; THENCE S 48°18'06" W 750.00' TO A 1/2" IRON PIN FOUND; THENCE S 41°41'28" E 399.97' TO A 1/2" IRON PIN FOUND; THENCE N 48°19'32" E 206.62' TO A 1/2" IRON PIN FOUND BENT; THENCE S 41°38'10" E 689.93' TO AN IRON PIN SET; THENCE N 47°31'40" E 275.00' TO AN IRON PIN SET; THENCE S 41°38'01" E 628.96' TO AN IRON PIN SET AT THE CORNER OF AVIATION FUEL, INC.'S 6.092 ACRE TRACT (DEED BOOK 285, PAGE 339); THENCE WITH THE NORTHWESTERLY LINE OF SAID 6.092 ACRE TRACT S 48°21'17" W 762.89' TO AN IRON PIN SET; THENCE CONTINUING WITH THE LINE OF SAID 6.092 ACRE TRACT S 41°39'36" E (PASSING AN IRON PIN SET AT 345.53') 347.53'; THENCE CONTINUING WITH THE SOUTHEASTERLY LINE OF SAID 6.092 ACRE TRACT N 48°19'41" E 764.87' TO AN IRON PIN SET IN THE LINE OF SAID SCHOOL DISTRICT'S REMAINING PART 262.282 ACRE TRACT; THENCE WITH THE LINE OF SAID SCHOOL DISTRICT'S LAND S 41°59'12" E 223.37' TO A CONCRETE MONUMENT FOUND AT A CORNER TO THE AIRBORNE ROAD RIGHT OF WAY; THENCE WITH SAID RIGHT OF WAY OF AIRBORNE ROAD ON THE FOLLOWING COURSES: S 37°48'06" W 2918.18' TO A CONCRETE MONUMENT MARKING THE BEGINNING OF A CURVE TO THE RIGHT HAVING A RADIUS OF 1150.00'; THENCE WITH SAID CURVE MEASURED ALONG THE ARC A DISTANCE OF 903.21' FROM WHICH THE LONG CHORD BEARS S 60°18'06" W 880.17' TO A CONCRETE MONUMENT FOUND; THENCE S 82°48'06" W 2331.02' TO A CONCRETE MONUMENT FOUND MARKING A CURVE TO THE LEFT HAVING A RADIUS OF 1250.00'; THENCE WITH SAID CURVE MEASURED ALONG THE ARC A DISTANCE OF 730.74' FROM WHICH ALONG CHORD BEARS S 66°03'16" W 720.38' TO A CONCRETE MONUMENT FOUND; THENCE S 49°18'25" W 911.14' TO A CONCRETE MONUMENT FOUND MARKING THE BEGINNING OF A CURVE TO THE RIGHT HAVING A RADIUS OF 1150.00'; THENCE WITH SAID CURVE MEASURED ALONG THE ARC A DISTANCE OF 385.70' FROM WHICH A LONG CHORD BEARS S 58°54'55" W 383.89' TO A, CONCRETE MONUMENT FOUND; THENCE S 68°31'24" W 2263.22' TO A

A-2

CONCRETE MONUMENT FOUND; THENCE N 65°31'24" W 48.63' TO A CONCRETE MONUMENT FOUND IN THE RIGHT OF WAY OF STATE ROUTE 134; THENCE WITH SAID RIGHT OF WAY S 19°31'15" E 133.17' TO A CONCRETE MONUMENT FOUND IN THE LINE OF THE CITY OF WILMINGTON'S 25.52 ACRE TRACT (DEED BOOK 196, PAGE 45); THENCE WITH THE CITY'S LINE S 68°31'24" W 30.03' TO A PK NAIL FOUND IN THE CENTERLINE OF SAID STATE ROUTE 134; THENCE WITH SAID CENTERLINE N 19°31'57" W 2517.43' TO A RAILROAD SPIKE FOUND; THENCE N 71°42'34" E AND BECOMING THE SOUTHEASTERLY RIGHT OF WAY OF DAVIDS DRIVE (PASSING AN IRON PIN SET AT 30.00') 184.98' TO AN IRON PIN SET, A CORNER TO THE COMMUNITY IMPROVEMENT CORPORATION'S (ALSO REFERRED TO AS CIC) REMAINING PART 84.791 ACRE TRACT (OFFICIAL RECORD 66, PAGE 559); THENCE WITH THE LINE OF SAID 84.791 ACRE TRACT ON THE FOLLOWING COURSES: S 25°31'18" E 83.08' TO AN IRON PIN SET; THENCE S 71°17'58" E 144.92' TO AN IRON PIN SET; THENCE S 14°02'40" E 129.25' TO AN IRON PIN SET; THENCE N 86°08'22" E 343.76' TO AN IRON PIN SET THENCE S 41°22'12" E 1033.98' TO AN IRON PIN SET; THENCE N 46°19'30" E 230.15' TO AN IRON PIN SET; THENCE N 37°47'40" E 600.49' TO AN IRON PIN SET;

THENCE N 52°10'47" W 50.00' TO AN IRON PIN SET AT THE SOUTHEASTERLY

CORNER OF THE BOARD OF COUNTY COMMISSIONERS' 14.500 ACRE TRACT

(OFFICIAL RECORD 302, PAGE 717); THENCE WITH THE LINE OF SAID 14.500

ACRE TRACT AND BECOMING THE LINE OF SAID COMMISSIONERS' 5.000 ACRE TRACT, CIC'S REMAINING PART 187.99 ACRE TRACT (DEED BOOK 281, PAGE 698), AND NAVIGATOR GROUP OF OCALA, INC.'S 30.000 ACRE TRACT (OFFICIAL RECORD 342, PAGE 564) N 37°47'40" E 4501.42' TO AN IRON PIN SET IN THE LINE OF R.L.R. INVESTMENTS, L.L.C.'S 17.393 ACRE TRACT (OFFICIAL RECORD 331, PAGE 121); THENCE WITH THE LINE OF SAID 17.393 ACRE TRACT S 52°12'20" E 44.50' TO A 1/2" IRON PIN FOUND; THENCE CONTINUING WITH THE LINE OF SAID 17.393 ACRE TRACT AND BECOMING THE LINE OF R.L.R. INVESTMENTS, L.L.C.'S 15.854 ACRE TRACT (OFFICIAL RECORD 311, PAGE 337), DAVID H. STEWART'S 5.969 ACRE TRACT (OFFICIAL RECORD 249, PAGE 661), SANDRA K. WHITLEY'S 5.900 ACRE TRACT (OFFICIAL RECORD 277, PAGE 32) AND JOHN M. STANFORTH'S 10.240 ACRE TRACT (OFFICIAL RECORD 339, PAGE 134) N 37°47'38" E 4220.18' TO A 5/8" IRON PIN FOUND; THENCE CONTINUING WITH STANFORTH'S LINE N 48°28'45" W 344.86' TO A 5/8" IRON PIN FOUND IN THE LINE OF THE CLINTON COUNTY ANIMAL PROTECTIVE ASSOCIATION FOR THE PREVENTION OF CRUELTY TO ANIMALS 1.322 ACRE TRACT (DEED BOOK 268, PAGE 139); THENCE WITH THE LINE OF SAID 1.322 ACRE TRACT AND BECOMING THE LINE OF WILMINGTON COLLEGE'S 60.45 ACRE TRACT (OFFICIAL RECORD 231, PAGE 735), THE NATIONAL BANK AND TRUST CO.'S 205.51 ACRE TRACT (OFFICIAL RECORD 180, PAGE 818), AND THE LINE OF B. ANTHONY WILLIAMS TRUST'S REMAINING PART 536.23 ACRE TRACT (OFFICIAL RECORD 349, PAGE 119) N 37°48'39" E 4357.17' TO A 1" IRON PIN FOUND; THENCE WITH THE WILLIAMS TRUST'S LANDS ON THE FOLLOWING COURSES: S 52°13'32" E 309.65' TO A 1/2" IRON PIN FOUND; THENCE N 29°16'39" E 908.59', A 5/8" IRON PIN FOUND BEARS S 6°19'35" E 0.16'; THENCE S 52°11'31" E 524.99' TO A 5/8" IRON PIN FOUND; THENCE N 37°48'29" E 900.00' TO A 5/8" IRON PIN FOUND; THENCE S 52°11'31" E

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400.00', A 5/8" IRON PIN, FOUND BEARS S 31°27'27" E 0.16'; THENCE S 37°48’ 29" W 900.00' TO A 1/2" IRON PIN FOUND; THENCE S 52°11'31" E 524.99' TO A 5/8" IRON PIN FOUND AT A CORNER TO ABX AIR, INC.'S REMAINING PART 113.525 ACRE TRACT (OFFICIAL RECORD 88, PAGE 438); THENCE WITH THE LINE OF SAID 113.525 AND BECOMING THE LINE OF WILMINGTON COMMERCE PARK PARTNERSHIP'S 6.130 ACRE TRACT (OFFICIAL RECORD 350, PAGE 505) AND THE LINE OF PREVIOUS SAID GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT'S REMAINING PART 92.076 ACRE TRACT S 46°19'54" W 1373.16' TO A 1/2" IRON PIN FOUND; THENCE WITH SAID SCHOOL DISTRICT'S LINE S 52°11'49" E 938.65' TO AN IRON PIN SET AT THE CORNER OF AVIATION FUEL, INC.'S 4.586 ACRE TRACT (DEED BOOK 285, PAGE 337), AN IRON PIN SET BEARS S 69°20'39" W 0.36'; THENCE WITH THE LINES OF SAID 4.586 ACRE TRACT ON THE FOLLOWING COURSES: S 40°42'14" W 400.42' TO A 5/8" IRON PIN FOUND; THENCE N 52°08'36" W 118.01' TO A MAG NAIL SET; THENCE S 37°49'33" W 27.76' TO A DRILL HOLE FOUND IN CONCRETE; THENCE S 52°16'50" E (PASSING A NAIL FOUND AT 50.00') 587.82' TO A 5/8" IRON PIN FOUND; THENCE N 37°47'15" E 426.46' TO A 1/2" IRON PIN FOUND IN THE LINE OF SAID SCHOOL DISTRICT'S LANDS; THENCE WITH THE LINE OF SAID SCHOOL DISTRICT'S REMAINING PART 92.076 ACRE TRACT S 52°14'24" E 317.64' TO A 1/2" IRON PIN FOUND; THENCE CONTINUING WITH SAID SCHOOL DISTRICT'S LINE S 37°55'13" W 565.93' TO A 1" IRON PIN FOUND; THENCE STILL WITH THE LINE OF SAID SCHOOL DISTRICT'S LAND S 52°12'33" E 451.34' TO A 1/2" IRON PIN FOUND AT THE CORNER OF THE CITY OF WILMINGTON'S 0.84 ACRE TRACT (OFFICIAL

RECORD 204, PAGE 219); THENCE WITH THE LINE OF SAID 0.84 ACRE TRACT S 37°50'00" W 244.92' TO AN IRON PIN SET AT THE CORNER OF ROTARY FORMS PRESS, INC.'S 4.896 ACRE TRACT (DEED BOOK 264, PAGE 1); THENCE WITH THE LINE OF SAID 4.896 ACRE TRACT N 52°15'20" W 554.15' TO A 3/4" IRON PIN FOUND IN THE LINE OF R.L.R. INVESTMENTS, L.L.C.'S REMAINING PART 5.362 ACRE TRACT (OFFICIAL RECORD 298, PAGE 283); THENCE WITH THE LINE OF SAID R.L.R. INVESTMENTS ON THE FOLLOWING COURSES: N 37°44'43" E 14.01' TO A 5/8" IRON PIN FOUND; THENCE N 52°14'57" W 330.66' TO A CHISELED "X" FOUND IN CONCRETE; THENCE S 37°49'36" W 310.99' TO A CHISELED "X" FOUND IN CONCRETE; THENCE S 52°15'28" E AND BECOMING THE CENTERLINE OF HUNTER DRIVE 365.11' TO A RAILROAD SPIKE FOUND; THENCE WITH THE CENTERLINE OF HUNTER DRIVE S 37°48'20" W 497.69' TO A RAILROAD SPIKE FOUND AT THE INTERSECTION WITH THE CENTERLINE OF RUANE DRIVE; THENCE WITH THE CENTERLINE OF RUANE DRIVE S 52°08'34" E 684.83' TO A RAILROAD SPIKE FOUND, A CORNER TO WILMINGTON AIR PARK INC.'S 0.392 ACRE TRACT (OFFICIAL RECORDS 492, PAGE 324); THENCE WITH THE LINES OF SAID 0.392 ACRE TRACT ON THE FOLLOWING COURSES: S 37°46'29" W 159.87'; THENCE S 52°08'20" E 106.84'; THENCE N 37°45'40" E 159.87' TO A RAILROAD SPIKE FOUND IN THE CENTERLINE OF RUANE DRIVE; THENCE WITH SAID CENTERLINE S52°08'34" E 264.73' TO A PK NAIL FOUND IN THE CENTERLINE OF AIRPORTROAD; THENCE WITH THE CENTERLINE OF AIRPORT ROAD N 51°30'59" E 1654.26' TO THE TRUE POINT OF BEGINNING CONTAINING 1105.562 ACRES OF LAND, MORE OR LESS.

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TOGETHER WITH A NON-EXCLUSIVE ACCESS EASEMENT FOR THE BENEFIT OF TRACT 1, AS CREATED BY AN ACCESS EASEMENT FROM THE BOARD OF EDUCATION OF GREAT OAKS INSTITUTE OF TECHNOLOGY AND CAREER DEVELOPMENT, FKA GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT TO WILMINGTON AIR PARK, INC., FILED IN DEED VOLUME 145, PAGE 662, RECORDER'S OFFICE, CLINTON COUNTY, OHIO, WHICH EASEMENT IS MORE SPECIFICALLY DESCRIBED AS FOLLOWS:

SITUATED IN UNION TOWNSHIP, CLINTON COUNTY, OHIO, AND BEING A PART OF M.S. #1162 . BEGINNING AT A PIN AT THE SOUTHERLY CORNER OF THE 52.038 ACRE TRACT AS RECORDED IN VOLUME 24, PLAT NO. 252, OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION: RUNNING THENCE, FROM SAID POINT OF BEGINNING, WITH THE LINES OF SAID 52.038 ACRE TRACT, ON THE FOLLOWING COURSES: (1) N. 41° 59' 35" W., 570.29 FEET TO A PIPE; (2) N. 41° 38' 23" W., 75.00 FEET TO A POINT; THENCE, ON THE FOLLOWING COURSES: (1) N. 48° 21' 37" E., 30.00 FEET TO A POINT; (2) S. 41° 38' 23" E., 74.91 FEET TO A POINT; (3) S. 41° 59' 35" E., 564.79 FEET TO A POINT; THENCE, WITH A LINE OF SAID 52.038 ACRE TRACT, S. 37° 47' 49" W., 30.48 FEET TO THE POINT OF BEGINNING.

NOTE: THE ABOVE DESCRIBED TRACT 1 SAVES AND EXCEPTS A 5.001 ACRE TRACT AS CONVEYED BY DEED TO AVIATION FUEL AS RECORDED IN CLINTON COUNTY OFFICIAL RECORD 212, PAGE 848 AND DESCRIBED AS FOLLOWS:

SITUATE IN THE CITY OF WILMINGTON, CLINTON COUNTY, OHIO, AND BEING A PART OF MS NO. 1162 AND BOUNDED AND DESCRIBED AS FOLLOWS: COMMENCING AT A 3/4" IRON PIPE (FOUND) AT THE NORTHERLY CORNER OF A 6.092 ACRE TRACT AS CONVEYED TO AVIATION FUEL, INC. IN VOLUME 285, PAGE 339 OF THE CLINTON COUNTY, OHIO, DEED RECORDS, SAID PIPE BEING AT A CORNER OF A 195.568 ACRE TRACT AS RECORDED IN VOLUME 24, PAGE NO. 12 OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION AND AT A CORNER OF A 52.038 ACRE TRACT AS RECORDED IN VOLUME 24, PLAT NO. 254 OF SAID RECORD OF LAND DIVISION; THENCE, WITH A LINE OF SAID 195.568 ACRE TRACT AND SAID 52.038 ACRE TRACT, N 41°38'23" W 75.00 FEET TO A POINT; THENCE, S 48°08'00" W 542.30 FEET TO A 1/2" IRON PIN (SET) AT THE POINT OF BEGINNING FOR THE HEREIN DESCRIBED TRACT: RUNNING THENCE, FROM SAID POINT OF BEGINNING, BY NEW DIVISION LINES, ON THE FOLLOWING COURSES: (1) S 48°37'45" W 561.48 FEET TO A 1/2" IRON PIN (SET); (2) N 41°22'15" W 388.00 FEET TO A 1/2" IRON PIN (SET); (3) N 48°37'45" E 561.48 FEET TO A 1/2" IRON PIN (SET); (4) S 41°22'15" E 388.00 FEET TO THE POINT OF BEGINNING, CONTAINING FIVE AND ONE THOUSANDTH (5.001) ACRES.

THE ABOVE DESCRIBED CONTAINS 43.743 ACRES IN VMS NUMBER 625, 412.687 ACRES IN VMS NUMBER 1162, 35.261 ACRES IN VMS 1170, 542.797 ACRES IN VMS

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NUMBER 2027, AND 69.871 ACRES IN VMS NUMBER 2690 AND 1.20 ACRES IN VMS 2694.

THIS SURVEY IS BASED UPON A FIELD SURVEY CONDUCTED UNDER THE DIRECTION OF R. DOUGLAS SUTTON, OHIO PROFESSIONAL SURVEYOR NO. 7124 BY CLINCO & SUTTON SURVEYORS IN SEPTEMBER, 2001. IRON PINS REFERRED TO AS SET ARE 5/8" DIAMETER STEEL AND 30" IN LENGTH WITH A YELLOW CAP STAMPED "CLINCO & SUTTON". BEARINGS ARE BASED UPON AN ASSUMED AZIMUTH AND ARE FOR ANGULAR MEASUREMENT PURPOSES ONLY. RECORDED IN VOLUME 33, PAGE 203, OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION.

NOTE: THE ABOVE DESCRIBED TRACT 1 SAVES AND EXCEPTS A 0.843 ACRE TRACT FURTHER DESCRIBED AS FOLLOWS:

SITUATED IN UNION TOWNSHIP, CLINTON COUNTY, OHIO, AND BEING A PART OF MILITARY SURVEY NO. 1162 AND BOUNDED AND DESCRIBED AS FOLLOWS:

BEGINNING AT A ½" IRON PIN (FOUND) AT THE SOUTHERLY CORNER OF THE 8.370 ACRE TRACT AS RECORDED IN VOLUME 20, PLAT NO. 197, OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION:

RUNNING THENCE, FROM SAID POINT OF BEGINNING, WITH A LINE OF SAID 8.370 ACRE TRACT, N. 52° 15' 44" W. 150.00 FEET TO A ½" IRON PIN (SET); THENCE, BY A NEW DIVISION LINE, N. 37° 47' 36" E. 244.98 FEET TO A ½" IRON PIN (SET); THENCE, WITH THE LINES OF THE AFORESAID 8.370 ACRE TRACT, ON THE FOLLOWING COURSES: (1) S. 52° 13' 33" E. 150.00 FEET TO A ½" IRON PIN (FOUND); (2) S. 37° 47' 36" W. 244.88 FEET TO THE POINT OF BEGINNING, CONTAINING EIGHT HUNDRED FOURTY THREE THOUSANDTHS (0.843) OF AN ACRE.

NOTE: THE ABOVE DESCRIBED TRACT 1 SAVES AND EXCEPTS A 47.225 ACRE TRACT FURTHER DESCRIBED AS FOLLOWS:

Situated in the State of Ohio, County of Clinton, Township of Union, City of Wilmington, lying in Virginia Military Surveys 625, 2694 and 2027, and being part of that 1100.621 acre tract conveyed as Tract 1 to Wilmington Air Park LLC by deed of record in Official Record 516, Page 610 (all references are to the records of the Recorder’s Office, Clinton County, Ohio) and being more particularly described as follows:

BEGINNING at a railroad spike found at the intersection of the southerly right-of-way line of Airborne Road as dedicated in the “Dedication Plat Airborne Road & Extensions of Ruane Drive and Weil Way” of record in Plat Book 7, Pages 50A-51B (width varies) and the easterly right-of-way line of State Route 134 (60 feet wide), being a southeasterly corner of said 1100.621 acre tract and being in a northerly line of that 25.52 acre tract as conveyed to the City of Wilmington of record in Deed Book 196, Page 45;

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Thence South 68° 51' 20" West, with the northerly line of said 25.52 acre tract, a distance of 30.02 feet to a magnetic nail found on the centerline of State Route 134 at the corner common to said 1100.621 acre tract and said 25.52 acre tract and on easterly line of that 102.36 acre tract conveyed to James W. Foland and Betty M. Foland of record in Deed Book 216, Page 176;

Thence North 19° 11' 59" West, with the centerline of said State Route 134 and with the easterly line of said 102.36 acre tract and with the easterly line of that 94.658 acre tract conveyed to Homer Wendell Harding, Trustee of record in Official Record 507, Page 897 and also conveyed to Ruth Alice Harding, Trustee of record in Official Record 507, Page 906, a distance of 2517.39 feet (passing a railroad spike found at the centerline intersection of said State Route 134 and said Airborne Road at 48.29 feet) to a magnetic nail found at a north westerly corner of said 1100.621 acre tract, and on the westerly projection of the southerly right-of-way of Davids Drive as dedicated in the “Dedication Plat Davids Drive” of record in Plat Book 7 Page 70C;

Thence North 72° 01' 51" East, with the southerly projection and southerly right-of-way line of Davids Drive (100 feet wide), a distance of 184.96 feet (passing a 5/8 inch rebar found capped “Clinco” at 29.99 feet), to a 5/8 inch rebar found capped “Clinco” at a northwesterly corner of the original 84.791 acre tract conveyed to Community Improvement Corporation of Wilmington of record in Official Record 66, Page 559;

Thence with the perimeter of said original 84.791 acre tract, the following courses and distances:

South 25° 12' 30" East, a distance of 83.04 feet to a 5/8 inch rebar found capped “Clinco”;

South 70° 58' 01" East, a distance of 144.91 feet to a 5/8 inch rebar found capped “Clinco”;

South 13° 43' 22" East, a distance of 129.25 feet to a 5/8 inch rebar found capped “Clinco”;

North 86° 28' 00" East, a distance of 343.77 feet to a 5/8 inch rebar found capped “Clinco”;

South 41° 01' 45" East, a distance of 1025.53 feet to an iron pin set;

Thence across said 1100.621 acre tract, the following courses and distances:

South 46° 37' 19" West, a distance of 109.25 feet to an iron pin set;

South 41° 19' 48" East, a distance of 1058.33 feet to an iron pin set on the northerly right-of-way line of said Airborne Road;

Thence with the northerly right-of-way line of said Airborne Road, the following courses and distances:

South 68° 51' 21" West, a distance of 1242.20 feet to a 1/2 inch rebar found in concrete;

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North 65° 11' 27" West, a distance of 48.64 feet to a 1/2 inch rebar found in concrete at the intersection of the northerly right-of-way line of said Airborne Road and the easterly right-of-way line of said State Route 134;

Thence South 19° 11' 59" East, with the westerly terminus of the “Dedication Plat Airborne Road & Extensions of Ruane Drive and Weil Way”, a distance of 133.19 feet to the POINT OF BEGINNING and containing 47.225 acres of land , more or less of which 1.733 acres is located in the right-of-way of State Route 134, approximately 1.244 acres is located in Virginia Military Survey 2694, approximately 43.583 acres is located in Virginia Military Survey 625 and approximately 2.398 acres is located in Virginia Military Survey 2027, 45.492 acres are located in the City of Wilmington and 1.733 acres are located in Union Township.

Iron pins set, where indicated, are iron pipes, thirteen sixteenths (13/16) inch inside diameter, thirty (30) inches long with a plastic plug placed in the top bearing the initials EMHT INC.

This description is based on existing records and an actual field survey performed in November 2009.

The bearings contained herein are based on the Ohio State Plane Coordinate System, South Zone, NAD83 (1995). Said bearings originated from a field traverse which was tied (referenced) to said coordinate system by GPS observations and observations of selected NGS monuments AIRBORNE and AIRBORNE AZ MK. The portion of the right-of-way line of Airborne Road, having a bearing of North 38° 08' 03" East, is designated the "basis of bearing" for this survey.

TRACT 2:

Situated in the State of Ohio, County of Clinton, Township of Union, lying in Virginia Military Surveys 1162, 1170 and 2027, and being part of that original 784.989 acre tract conveyed as Tract 2 to Wilmington Air Park LLC by deed of record in Official Record 516, Page 610 (all references are to the records of the Recorder’s Office, Clinton County, Ohio) and being more particularly described as follows:

BEGINNING at a 1/2 inch rebar found in concrete at the a northwesterly corner of said original 784.989 acre tract in the easterly line of Virginia Military Survey Number 1162 and in the westerly line of Virginia Military Survey Number 1170, in the southerly line of the original 92.076 acre tract conveyed to Great Oaks Joint Vocational School District, Ohio of record in Deed Book 239, Page 482 and in the northerly right-of-way line of Airport Road (width varies);

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Career Development of record in Official Record 145, Page 647, with the southerly line of that 0.387 acre tract conveyed as Parcel 26 WDV to the City of Wilmington of record in Official Record 701, Page 1 and with the southerly line of the original 7.707 acre tract conveyed to Wilmington Air Park LLC of record in Official Record 515, Page 662 a distance of 1875.30 feet, (passing a magnetic nail found at 459.51 feet) to a magnetic nail set in the centerline of State Route 73 (width varies) [Ohio Department of Transportation Plan CLI-73 (11.81-13.42)] at the northerly corner of said original 784.989 acre tract and on the westerly line of that 2.013 acre tract conveyed as Parcel 22E to the State of Ohio by deed of record in Official Record 666, Page 558;

Thence with a curve to the right having a central angle of 16° 36' 48", a radius of 3819.72 feet, an arc length of 1107.55 feet, and a chord that bears South 29° 16' 12" East, a chord distance of 1103.67 feet, along the centerline of said State Route 73, with the westerly line of said Parcel 22E and with the westerly line of that 6.036 acre tract conveyed as Parcel 22WL to the State of Ohio by deed of record in Official Record 666, Page 558, (passing the centerline of Airborne Road [Ohio Department of Transportation Plan CLI-73 (12.03)] at an arc length of 51.55 feet, referenced by a 1 inch solid iron pipe found in a monument box, being South 47° 02’ 59” West a distance of 0.58 feet) to a magnetic nail set;

Thence across said original 784.989 acre tract, the following courses and distances:

South 25° 35' 02" West, a distance of 1303.28 feet to an iron pin set;

South 47° 07' 29" West, a distance of 702.68 feet to an iron pin set;

South 47° 07' 28" West, a distance of 1181.16 feet to an iron pin set;

South 26° 41' 52" West, a distance of 348.20 feet to an iron pin set;

South 15° 22' 12" West, a distance of 544.70 feet to an iron pin set;

South 31° 41' 51" West, a distance of 711.99 feet to an iron pin set;

South 37° 27' 01" West, a distance of 614.23 feet to an iron pin set;

South 39° 29' 40" West, a distance of 257.45 feet to a magnetic nail set;

South 53° 12' 36" East, a distance of 51.19 feet to a railroad spike found at the northeasterly corner of that 72.25 acre tract conveyed as Tract 71 to Wilmington College by deed of record in Deed Book 184, Page 306;

Thence South 47° 10' 33" West, with the northerly line of said 72.25 acre tract, a distance of 2580.78 feet to a 5/8 inch rebar found capped “Clinco” found at the northwesterly corner of said 72.25 acre tract in the easterly line of Virginia Military Survey Number 2027 and in the westerly line of Virginia Military Survey Number 1162;

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Thence across said original 784.989 acre tract, the following courses and distances:

North 40° 45' 33" West, with the easterly line of Virginia Military Survey Number 2027 and with the westerly line of Virginia Military Survey Number 1162, a distance of 31.89 feet to an iron pin set;

South 38° 10' 31" West, a distance of 1484.61 feet to an iron pin set;

South 40° 53' 07" East, a distance of 648.98 feet to an iron pin set;

South 46° 47' 14" West, a distance of 232.26 feet to an iron pin set;

South 32° 10' 47" East, a distance of 209.16 feet to a railroad spike set in the centerline of Jenkins Road (Township Road 261) (40 feet wide), being the northerly line of Virginia Military Survey Number 2386 and being the southerly line of Virginia Military Survey Number 2027 and being the northerly line of that 300 acre tract conveyed to David W. Fife and James G. Fife by deed of record in Official Record 677, Page 235;

Thence South 50° 24' 05" West, with the centerline of said Jenkins Road, the northerly line of Virginia Military Survey Number 2386, the southerly line of Virginia Military Survey Number 2027 and with the northerly line of said 300 acre tract, a distance of 1110.95 feet to a magnetic nail found at the northwesterly corner of said 300 acre tract and at the northeasterly corner of that 150 acre tract conveyed as Parcel One to Wilmington Air Park, Inc. by deed of record in Official Record 79, Page 218,

Thence South 50° 29' 14" West, partially with the centerline of said Jenkins Road, the northerly line of Virginia Military Survey Number 2386, the southerly line of Virginia Military Survey Number 2027 and with the northerly line of said 150 acre tract, a distance of 3009.80 feet (passing a 1/2 inch rebar capped “Clinco” found at 2969.90 feet) to a 5/8 inch rebar capped “Clinco” found at the southeasterly corner of that 107.305 acre tract conveyed to Suburban Investments Co. by deed of record in Official Record 191, Page 337;

Thence North 41° 09' 10" West, with the easterly line of said 107.305 acre tract, a distance of 674.51 feet to an iron pin set;

Thence across said Original 784.989 acre tract, the following courses and distances:

North 38° 07' 29" East, a distance of 1243.38 feet to an iron pin set;

North 41° 34' 04" West, a distance of 578.26 feet to an iron pin set;

North 38° 36' 07" East, a distance of 2458.81 feet to an iron pin set on the southerly right-of-way line of Airborne Road (width varies) as dedicated in the “Dedication Plat Airborne Road & Extensions of Ruane Drive and Weil Way” of record in Plat Book 7, Pages 50A-51B;

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Thence with the southerly right-of-way line of said Airborne Road, the following courses and distances:

With a curve to the left having a central angle of 06° 48' 03", a radius of 1250.00 feet, an arc length of 148.37 feet and a chord that bears North 41° 32' 04" East, a chord distance of 148.29 feet to a 1/2 inch rebar found in concrete at the point of tangency;

North 38° 08' 03" East, a distance of 1785.93 feet to a 1/2 inch rebar found in concrete;

North 39° 00' 07" East, a distance of 660.08 feet to a 1/2 inch rebar found in concrete;

North 38° 08' 03" East, a distance of 2098.06 feet to a 1/2 inch rebar found in concrete;

North 37° 15' 58" East, a distance of 660.08 feet to a 1/2 inch rebar found in concrete;

North 38° 08' 03" East, a distance of 576.77 feet to a 1/2 inch rebar found in concrete;

North 39° 00' 07" East, a distance of 660.08 feet to a 1/2 inch rebar found in concrete;

North 38° 08' 03" East, a distance of 2043.92 feet to a 1/2 inch rebar found in concrete at a point of curvature;

With said curve to the right, having a central angle of 13° 42' 14", a radius of 1958.82 feet, an arc length of 468.51 feet and a chord that bears North 44° 59' 10" East, a chord distance of 467.39 feet (passing a 1/2 inch rebar found in concrete at an arc length of 40.22 feet, being on the easterly line of Virginia Military Survey 1162 and being on the westerly line of Virginia Military Survey 1170) to a 1/2 inch rebar found in concrete at a point of tangency;

North 51° 50' 17" East, a distance of 142.79 feet to a 1/2 inch rebar found in concrete;

North 38° 09' 43" West, a distance of 11.56 feet to an iron pin set at the easterly terminus of said Airborne Road, in the southerly right-of-way line of said Airport Road;

Thence South 52° 40' 03" West, with the easterly terminus of said Airborne Road, a distance of 570.99 feet to a magnetic nail set at the southeasterly corner of that 1100.621 acre tract conveyed as Tract 1 to Wilmington Air Park LLC by deed of record in Official Record 516, Page 610, in the easterly line of Virginia Military Survey 1162 and in the westerly line of Virginia Military Survey Number 1170;

Thence North 40° 57' 32" West, with the easterly line of said 1100.621 acre tract, with the easterly line of said original 92.076 acre tract, with the easterly line of Virginia Military Survey 1162 and with the westerly line of Virginia Military Survey Number 1170, a distance of 93.30 feet (passing a magnetic nail set at 40.05 feet on the centerline of said Airport Road) to the POINT OF BEGINNING and containing 481.033 acres of land, more or less of which 7.591 acres is located in the right-of-way of Airport Road, State Route 73 and Jenkins Road, approximately 58.279 acres

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is located in Virginia Military Survey Number 1170, approximately 222.766 acres is located in Virginia Military Survey Number 1162 and approximately 199.988 acres is located in Virginia Military Survey Number 2027.

Iron pins set, where indicated, are iron pipes, thirteen sixteenths (13/16) inch inside diameter, thirty (30) inches long with a plastic plug placed in the top bearing the initials EMHT INC.

This description is based on existing records and an actual field survey performed in November 2009.

Note: The above described tract saves and excepts a 0.980 acre tract conveyed as parcel 23WDV to The City of Wilmington of record in Official Record 673, Page 226, and of record in Survey Record 36, Pages 86-109, further described by the legal description prepared by Kevin L. Stacy, Professional Surveyor 7531, and described as follows:

Situated in Union Township, Clinton County, State of Ohio, and being part of the Military Survey 1170, being conveyed to Wilmington Air Park LLC by instrument of record in Official Record 516 Page 610 and is bounded and described as follows;

Commencing for reference at the intersection of Airborne Road and existing S .R. 73;

Thence South 52° 01’ 17” West 75.37 feet to a point in the southerly right-of-way line of said existing S.R. 73;

Thence South 43° 00’ 06” East 38.42 feet to a point in the existing southerly right-of-way line of said S.R. 73 and in the existing southerly right-of-way line of Airborne Road, said point also being at 38.28 feet right of centerline Station 42+08.76 (proposed Airborne Road), said point also being the TRUE POINT OF BEGINNING of the parcel herein described;

Thence South 43° 00’ 06” East, 8.31 feet along the existing southerly right-of-way line of Township Road 153 to a point at 46.56 feet right of centerline Station 42+09.49 (proposed Airborne Road);

Thence South 35° 40’ 13” East, 58.49 feet along the existing southerly right-of-way line of Township Road 153 to an iron pin set at 105.00 feet right of centerline Station 42+07.13 (proposed Airborne Road);

Thence South 52° 53’ 35” West, 657.21 feet to an iron pin set at 95.00 feet right of centerline Station 35+50.00 (proposed Airborne Road);

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Thence South 80° 49’ 27” West, 112.89 feet to an iron pin set on the existing southerly right-of-way line of Airborne Road at 40.61 feet right of centerline Station 34+51.07 (proposed Airborne Road);

Thence North 51° 50’ 42” East, 757.69 feet along the existing southerly right-of-way line of Airborne Road to the TRUE POINT OF BEGINNING.

The above described area contains 0.980 acres of land, more or less, of which the present road occupies 0.000 acres of land, more or less.

This description was prepared under the direct supervision and reviewed on June 5, 2005 by Kevin L. Stacy, Professional Surveyor Number 7531.

This description is based on a survey made under the direction and supervision of Paul Feie Professional Surveyor Number 6723 in 2004 and 2005.

The Grantor claims title by instrument of record in Official Record 73, Page 687, Recorder’s Office, Clinton County, Ohio.

The basis of bearings in this description are based upon the Ohio State Plane Coordinate System, Ohio South Zone NAD 83 (1995) utilizing NGS monuments stamped “GPS 19 2000”, “GPS 18 2000” and “GPS 22 2000”.

The stations referred to herein are from the centerline of Right-of-Way of Airborne Road as found on the Ohio Department of Transportation Right-of-Way Centerline Plat CLI-73-12.03 to be recorded in the Clinton County Recorder’s Office.

Monuments referred to as iron pins set are 3/4 inch diameter, 30 inch long iron bars with a 2 1/2 inch diameter aluminum cap marked ‘ODOT R/W, District 8’.

TRACT 3:

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BEGINNING FOR THIS TRACT HEREIN DESCRIBED; THENCE WITH THE PROLONGATION OF SAID CENTERLINE S 48°25'58" E 50.03' TO A RAILROAD SPIKE FOUND AT THE CORNER OF EWE WAREHOUSE INVESTMENTS V, LTD.'S 6.252 ACRE TRACT, (OFFICIAL RECORD 312, PAGE 135); THENCE WITH THE LINE OF SAID 6.252 ACRE TRACT S 43°22'44" W 360.46' TO A 5/8" IRON PIN FOUND IN THE LINE OF GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT'S REMAINING PART 262.282 ACRE TRACT. (DEED BOOK 239, PAGE 482); THENCE WITH SAID SCHOOL DISTRICT'S LINE N 48°21'44" W 279.27' TO A 1" O.D. PIPE FOUND; THENCE CONTINUING WITH SCHOOL DISTRICT'S LINE N 48°02'14" E 151.88' TO A 5/8" IRON PIN FOUND AT THE CORNER OF SAID AIRLINE PROFESSIONAL ASSOCIATION'S 1.000 ACRE TRACT; THENCE WITH THE LINE OF SAID 1.000 ACRE TRACT S 48°26'31" E 217.06' TO A 5/8" IRON PIN FOUND; THENCE CONTINUING WITH THE LINE OF SAID 1.000 ACRE TRACT N 43°20'16" E 209.09' TO THE TRUE POINT OF BEGINNING CONTAINING 1.187 ACRES OF LAND, MORE OR LESS.

THIS SURVEY IS BASED UPON A FIELD SURVEY CONDUCTED UNDER THE DIRECTION OF R. DOUGLAS SUTTON, OHIO PROFESSIONAL SURVEYOR NO. 7124 BY CLINCO & SUTTON SURVEYORS IN SEPTEMBER, 2001. IRON PINS REFERRED TO AS SET ARE 5/8" DIAMETER STEEL AND 30" IN LENGTH WITH A YELLOW CAP STAMPED "CLINCO & SUTTON". BEARINGS ARE BASED UPON AN ASSUMED AZIMUTH AND ARE FOR ANGULAR MEASUREMENT PURPOSES ONLY. RECORDED IN VOLUME 33, PLAT NO. 203, OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION.

TRACT 4:

SITUATE IN UNION TOWNSHIP, CLINTON COUNTY, OHIO, VIRGINIA MILITARY SURVEY NUMBER 1162, AND BEING PART OF THE REMAINING PART OF A 3.367 ACRE TRACT AND PART OF A 0.41 ACRE TRACT AS CONVEYED BY DEED TO WILMINGTON AIR PARK, INC. AS RECORDED IN VOLUME 64, PAGE 401 AND VOLUME 148, PAGE 65 OF THE CLINTON COUNTY OFFICIAL RECORDS AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT A MAG NAIL SET AT THE INTERSECTION OF THE NORTHWESTERLY RIGHT OF WAY OF AIRBORNE ROAD AND THE CENTERLINE OF OLD STATE ROUTE 73; THENCE WITH THE CENTERLINE OF OLD STATE ROUTE 73, N 53°56'30" W 182.12' TO A MAG NAIL SET AT THE CORNER OF EWE WAREHOUSE INVESTMENTS V, LTD'S 7.243 ACRE TRACT (OFFICIAL RECORD 312, PAGE 140); THENCE WITH THE LINE OF SAID 7.243 ACRE TRACT N 34°58'16" E (PASSING A 5/8" IRON PIN FOUND AT 54.06') 120.22' TO A 5/8" IRON PIN FOUND; THENCE CONTINUING WITH THE LINE OF SAID 7.243 ACRE TRACT N 67°10'58" E 296.11' TO A 5/8" IRON PIN FOUND;

THENCE STILL WITH THE LINE OF SAID 7.243 ACRE TRACT S 55°30'32" E

42.71' TO A CONCRETE MONUMENT FOUND IN THE NORTHWESTERLY RIGHT OF WAY OF AIRBORNE ROAD; THENCE WITH SAID RIGHT OF WAY S 37°47'37" W 375.02' TO THE POINT OF BEGINNING CONTAINING 1.183 ACRES OF LAND, MORE OR LESS.

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THIS SURVEY IS BASED UPON A FIELD SURVEY CONDUCTED UNDER THE DIRECTION OF R. DOUGLAS SUTTON, OHIO PROFESSIONAL SURVEYOR NO. 7124 BY CLINCO & SUTTON SURVEYORS IN AUGUST, 2001. IRON PINS REFERRED TO AS SET ARE 5/8" DIAMETER STEEL AND 30" IN LENGTH WITH A YELLOW CAP STAMPED "CLINCO & SUTTON". BEARINGS ARE BASED UPON AN ASSUMED AZIMUTH AND ARE FOR ANGULAR MEASUREMENT PURPOSES ONLY. RECORDED IN VOLUME 33, PLAT NO. 203, OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION.

TRACT 5: INTENTIONALLY OMITTED AND NOTHING SUBSTITUTED THEREFOR

TRACT 6: INTENTIONALLY OMITTED AND NOTHING SUBSTITUTED THEREFOR

TRACT 7: INTENTIONALLY OMITTED AND NOTHING SUBSTITUTED THEREFOR

TRACT 8:

SITUATE IN THE CITY OF WILMINGTON, COUNTY OF CLINTON AND STATE OF OHIO: BEING PT MS 1162 AND PART OF VMS NO. 2027, AND BEING 6.092 ACRES OF LAND OUT OF TRACT NO. 3 AS CONVEYED IN DEED BOOK 120, PAGE 83 IN THE RECORDER'S OFFICE OF CLINTON COUNTY, OHIO; AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING FOR REFERENCE ONLY AT THE RAILROAD SPIKE IN THE INTERSECTION OF COUNTY ROAD 26 NORTH, COUNTY ROAD 26 EAST AND ABANDONED S.R. 73 WEST; THENCE WITH THE CENTER OF A 22.00 FOOT ACCESS EASEMENT S 48°13'35" W 1238.63 FEET TO A SPIKE; THENCE S 41°38'48" E 624.94 FEET TO A SPIKE; THENCE S 48°19'21" W 24.82 FEET TO A POINT; THENCE LEAVING SAID 22.00 FOOT ACCESS EASEMENT S 42°00'03" E 62.73 FEET TO AN IRON PIN, THE TRUE POINT OF BEGINNING, THENCE WITH THE NORTHEAST LINE WHICH ENCLOSES THE FUEL STORAGE AREA (1972) S 42°00'03" E 347.27 FEET TO AN IRON PIN, THENCE WITH THE SOUTHEAST LINE OF SAID FUEL STORAGE AREA (1972) S 48°19'15" W 764.87 FEET TO A FENCE CORNER POST; THENCE WITH THE SOUTHWEST LINE OF SAID FUEL STORAGE AREA (1972) N 41°40'29" W 347.53 FEET TO A FENCE CORNER POST; THENCE WITH THE NORTHWEST LINE OF SAID FUEL STORAGE AREA (1972) N 48°20'27" E 762.89 FEET TO SAID TRUE POINT OF BEGINNING, CONTAINING 6.092 ACRES OF LAND.

SURVEY VOLUME 27-108

TOGETHER WITH A NON-EXCLUSIVE ACCESS EASEMENT FOR THE BENEFIT OF TRACT 8, AS CREATED BY AN ACCESS EASEMENT FROM THE BOARD OF EDUCATION OF GREAT OAKS INSTITUTE OF TECHNOLOGY AND CAREER DEVELOPMENT, FKA GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT TO WILMINGTON AIR PARK, INC., FILED IN DEED VOLUME 145, PAGE 662, RECORDER'S

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OFFICE, CLINTON COUNTY, OHIO, WHICH EASEMENT IS MORE SPECIFICALLY DESCRIBED AS FOLLOWS:

TRACT 9:

SITUATE IN THE CITY OF WILMINGTON, CLINTON COUNTY, OHIO, AND BEING A PART OF MS NO. 1162 AND BOUNDED AND DESCRIBED AS FOLLOWS: BEGINNING AT A 5/8" IRON PIN (FOUND) AT THE EASTERLY CORNER OF A 4.576 ACRE TRACT AS RECORDED IN VOLUME 13, PAGE 137 OF THE CLINTON COUNTY SURVEYORS RECORD: RUNNING THENCE, FROM SAID POINT OF BEGINNING, WITH THE NORTHEASTERLY LINE OF SAID 4.576 ACRE TRACT AND WITH THE NORTHEASTERLY TERMINUS OF RUANE DRIVE N 52°18'49" W (PASSING A NAIL (FOUND) AT 537.82 FEET) A DISTANCE OF 587.82 FEET TO A POINT; THENCE WITH THE LINES OF THE HEREIN GRANTOR'S LANDS, ON THE FOLLOWING COURSES:

1. N 37°47'34" E 27.76 FEET TO A NAIL (FOUND);

2. S 52°10'35" E 118.01 FEET TO A 5/8" IRON PIN (FOUND);

3. N 40°40'15" E 400.37 FEET TO A 1/2" IRON PIPE (FOUND);

4. S 52°12'13" E 449.65 FEET TO A 1/2" IRON PIN (SET);

THENCE, BY A NEW DIVISION LINE S 37°47'06" W 426.44 FEET TO THE POINT

OF BEGINNING, CONTAINING FOUR AND FIVE HUNDRED EIGHTY-SIX THOUSANDTHS (4.586) ACRES.

THIS DESCRIPTION IS THE RESULT OF A NEW SURVEY MADE UNDER THE

DIRECTION OF RICHARD D. ROLL, REGISTERED SURVEYOR NO. 4957, BY CLINCO ENGINEERS & SURVEYORS, WILMINGTON, OHIO, IN MAY, 1984, AS RECORDED IN VOLUME 17, PLAT NO. 246 OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION. THE BEARINGS IN THIS DESCRIPTION WERE DERIVED FROM THE SURVEY OF THE AFORESAID 4.576 ACRE TRACT.

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TRACT 10:

SITUATE IN THE CITY OF WILMINGTON, CLINTON COUNTY, OHIO, AND BEING A PART OF MS NO. 1162 AND MS NO. 2027 AND BOUNDED AND DESCRIBED AS FOLLOWS: COMMENCING AT A 3/4" IRON PIPE (FOUND) AT THE NORTHERLY CORNER OF A 6.092 ACRE TRACT AS CONVEYED TO AVIATION FUEL, INC. IN VOLUME 285, PAGE 339 OF THE CLINTON COUNTY, OHIO DEED RECORDS, SAID PIPE BEING AT A CORNER OF A 195.568 ACRE TRACT AS RECORDED IN VOLUME 24, PLAT NO. 12 OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION AND AT A CORNER OF A 52.038 ACRE TRACT AS RECORDED IN VOLUME 24, PLAT NO. 254 OF SAID RECORD OF LAND DIVISION; THENCE, WITH A LINE OF SAID 195.568 ACRE TRACT AND SAID 52.038 ACRE TRACT, N 41°38'23" W 75.00 FEET TO A POINT; THENCE S 48°08'00" W 542.30 FEET TO A 1/2" IRON PIN (SET) AT THE POINT OF BEGINNING FOR THE HEREIN DESCRIBED TRACT: RUNNING THENCE, FROM SAID POINT OF BEGINNING, BY NEW DIVISION LINES, ON THE FOLLOWING COURSES:

1. S 48°37'45" W 561.48 FEET TO A 1/2" IRON PIN (SET);

2. N 41°22' 15" W 388.00 FEET TO A 1/2" IRON PIN (SET);

3. N 48°37'45" E 561.48 FEET TO A 1/2" IRON PIN (SET);

4. S 41°22'15" E 388.00 FEET TO THE POINT OF BEGINNING, CONTAINING

FIVE AND ONE THOUSANDTH (5.001) ACRES.

ALSO, A NON-EXCLUSIVE EASEMENT AND RIGHT-OF-WAY, FOR ACCESS PURPOSES, OVER THE FOLLOWING DESCRIBED TRACT: BEGINNING AT THE IRON PIN AT THE EASTERLY CORNER OF THE ABOVE DESCRIBED 5.001 ACRE TRACT, RUNNING THENCE, FROM SAID POINT OF BEGINNING, N 48°08'00" E 542.30 FEET TO A POINT; THENCE, WITH A LINE OF THE AFORESAID 52.038 ACRE TRACT, S 41°38'23" E 75.00 FEET TO A PIPE; THENCE, WITH A LINE OF THE AFORESAID 6.092 ACRE TRACT, S 48°20'55" W 762.89 FEET TO A POINT; THENCE, WITH A LINE OF THE AFORESAID 5.001 ACRE TRACT, N 48°37'45" E 220.63 FEET TO THE POINT OF BEGINNING.

TRACT 11:

SITUATE IN THE STATE OF OHIO, COUNTY OF CLINTON, CITY OF WILMINGTON, AND BEING PART OF VIRGINIA MILITARY SURVEY NO. 1162, AND BEING 0.392 ACRES OF LAND OUT OF TRACT NO. 41, AS CONVEYED TO THE UNITED STATES OF AMERICA IN DEED BOOK 165, PAGE 645, RECORDER'S OFFICE, CLINTON COUNTY, OHIO, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

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BEGINNING FOR REFERENCE ONLY AT A CONCRETE MONUMENT BEING THE NORTHEASTERLY CORNER OF SAID TRACT NO. 41; THENCE WITH THE NORTHEAST LINE OF SAID TRACT NO. 41 AND A COMMON LINE OF VIRGINIA MILITARY SURVEY NO. 1162 AND VIRGINIA MILITARY SURVEY NO. 1170, NORTH 41°13'04" WEST 129.66 FEET TO A SPIKE; THENCE WITH THE CENTERLINE OF COUNTY ROAD 26 SOUTH, SOUTH 51°30'11" WEST 1654.33 FEET TO A SPIKE; THENCE LEAVING THE CENTERLINE OF SAID COUNTY ROAD 26, NORTH 52°08'41" WEST 264.77 FEET TO A SPIKE, THE TRUE POINT OF BEGINNING;

THENCE WITH THE SOUTHEASTERLY LINE OF THE HEREIN DESCRIBED TRACT SOUTH 37°45'12" WEST 159.87 FEET TO AN IRON PIN; THENCE NORTH 52°08'26" WEST 106.84 FEET TO A SPIKE; THENCE NORTH 37°46'03" EAST 159.87 FEET TO A SPIKE; THENCE SOUTH 52°08'41" EAST 106.80 FEET TO THE SAID TRUE POINT OF BEGINNING, CONTAINING 0.392 ACRES OF LAND.

TRACT 12:

SITUATE IN THE CITY OF WILMINGTON, CLINTON COUNTY, OHIO, VIRGINIA

MILITARY SURVEY NUMBER 1162 AND 1170, AND BEING PART OF THE REMAINING PART OF A 92.076 ACRE TRACT AS CONVEYED BY DEED TO THE GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT AS RECORDED IN VOLUME 239, PAGE 482 OF THE CLINTON COUNTY DEED RECORDS AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING FOR REFERENCE AT A RAILROAD SPIKE FOUND IN THE CENTERLINE OF STATE ROUTE 73 AT THE NORTHERLY CORNER OF WILMINGTON AIR PARK L.L.C.'S 784.989 ACRE TRACT (OFFICIAL RECORD 516, PAGE 610) AS SURVEYED AND RECORDED IN VOLUME 33, PLAT NO. 203 OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION; THENCE WITH THE NORTHWESTERLY LINE OF SAID 784.989 ACRE TRACT AND BECOMING THE NORTHWESTERLY RIGHT OF WAY OF AIRPORT ROAD AND ALSO THE CORPORATION LINE OF THE CITY OF WILMINGTON S 51°38'32" W 1415.09' TO THE SOUTHERLY CORNER OF THE BOARD OF EDUCATION OF GREAT OAKS INSTITUTE OF TECHNOLOGY AND CAREER DEVELOPMENT'S 36.500 ACRE TRACT (OFFICIAL RECORD 145, PAGE 647); THENCE WITH THE WESTERLY LINE OF SAID 36.500 ACRE TRACT N 52°09'19" W 1731.57' TO AN IRON PIN SET MARKING THE TRUE POINT OF BEGINNING FOR THIS TRACT HEREIN DESCRIBED; THENCE BY NEW DIVISION LINE THROUGH THE GRANTOR'S LANDS S 37°59'53" W 457.90' TO AN IRON PIN SET IN THE LINE OF WILMINGTON AIR PARK L.L.C.'S 1105.622 ACRE TRACT (OFFICIAL RECORD 516, PAGE 610); THENCE WITH THE LINE OF SAID 1105.622 ACRE TRACT N 52°14'24" W 20.83' TO A 1/2" IRON PIN FOUND AT THE CORNER OF AVIATION FUEL INC.'S 4.586 ACRE TRACT (DEED BOOK 285, PAGE 337); THENCE WITH THE LINE OF SAID 4.586 ACRE TRACT N 52°09'59" W 449.42' TO THE CORNER OF SAID WILMINGTON AIR PARK L.L.C.'S 1105.622 ACRE TRACT, AN IRON PIN SET BEARS S 69°20'39" W 0.36'; THENCE WITH THE LINE OF SAID 1105.622 ACRE TRACT N 52°11'49" W 938.65' TO A 1/2" IRON PIN FOUND; THENCE CONTINUING WITH THE LINE OF SAID 1105.622 ACRE TRACT N 46°19'54" E 463.78' TO A 1/2" IRON PIN FOUND AT A

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CORNER TO CORPORATION LINE OF SAID WILMINGTON CITY AND ALSO BEING THE CORNER OF WILMINGTON COMMERCE PARK PARTNERSHIP'S 6.130 ACRE TRACT (OFFICIAL RECORD 350, PAGE 505); THENCE WITH SAID CORPORATION LINE, THE LINE OF SAID 6.130 ACRE TRACT AND BECOMING THE LINE OF SAID WILMINGTON COMMERCE PARK PARTNERSHIP'S 7.325 ACRE TRACT (OFFICIAL RECORD 219, PAGE 275), THE LINE OF WILMINGTON COMMERCE PARK PARTNERSHIP'S 8.697 ACRE TRACT (OFFICIAL RECORD 280, PAGE 89) AND THE LINE OF THE PREVIOUSLY STATED 36.500 ACRE TRACT S 52°09'19" E 1341.67' TO THE TRUE POINT OF BEGINNING CONTAINING 14.467 ACRES OF LAND.

NOTE: THE 14.467 ACRE TRACT CONTAINS 9.643 ACRES IN VMS NUMBER 1162 AND 4.824 ACRES IN VMS NUMBER 1170.

IRON PINS REFERRED TO AS SET ARE 5/8" DIAMETER STEEL AND 30" IN LENGTH WITH A YELLOW CAP STAMPED "CLINCO & SUTTON". BEARINGS ARE BASED UPON AN ASSUMED AZIMUTH AND ARE FOR ANGULAR MEASUREMENT PURPOSES ONLY. RECORDED IN VOLUME 34, PLAT NO. 177, OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION.

TRACT 13:

SITUATE IN THE TOWNSHIP OF WASHINGTON, COUNTY OF CLINTON AND STATE OF OHIO, BEING A PART OF VIRGINIA MILITARY SURVEY NO. 1457 AND BEING PART OF THE 10.405 ACRE TRACT AS CONVEYED TO KENNETH L. HAWK AND VIOLET I. HAWK (OFFICIAL RECORD VOLUME 587, PAGE 367) AND RECORDED IN VOLUME 34, PLAT NO. 251 OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISIONAND BEING AN AREA PRESENTLY LEASED BY ABX AIR, INC. FOR UTILITYPURPOSES, LEASE DATED FEBRUARY 24, 1989, AND BOUNDED AND DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT IN THE CENTER OF U.S. ROUTE 68 MARKING THE

SOUTHWESTERLY CORNER OF THE 1.00 ACRE TRACT AS CONVEYED TO KENNETH L.AND VIOLET I. HAWK (OFFICIAL RECORD VOLUME 605, PAGE 231) AND RECORDED IN VOLUME 14, PLAT NO. 394, OF THE AFORESAID RECORD OF LAND DIVISION AND MARKING A SOUTHEASTERLY CORNER OF THE AFORESAID 10.405 ACRE TRACT:

RUNNING THENCE, FROM SAID POINT OF BEGINNING, WITH THE PRESENT LEASE LINES AND WITH THE CENTER OF U.S. ROUTE 68 ON THE FOLLOWING COURSES:

(1) S 60° 56' 58" W 129.73 FEET TO A NAIL (FOUND); (2) S 58° 39' 28"

W 69.88 FEET TO A POINT; THENCE WITH THE PRESENT LEASE LINES AND BY NEW DIVISION LINES ON THE FOLLOWING COURSES: (1) N 29° 03' 02" W

(PASSING A 1/2" PIN (FOUND) AT 29.06 FEET) A DISTANCE OF 220.59 FEET

TO A 1/2" PIN (FOUND); (2) N 60° 56' 58" E 199.55 FEET TO A PIN

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(FOUND) IN A TREE MARKING THE NORTHWESTERLY CORNER OF THE AFORESAID 1.000 ACRE TRACT; THENCE WITH A PRESENT LEASE LINE AND WITH THE WESTERLY LINE OF SAID 1.000 ACRE TRACT S 29° 03' 02" E (PASSING A1/2" PIN (FOUND) AT 190.10 FEET) A DISTANCE OF 217.80 FEET TO THE POINT OF BEGINNING, CONTAINING ONE (1.000) ACRE, MORE OR LESS.

THIS DESCRIPTION IS THE RESULT OF A NEW SURVEY MADE UNDER THE

DIRECTION OF STEVEN D. WEBB, REGISTERED SURVEYOR NO. 7250, BY A.S.A.P. SURVEYS, SABINA, OHIO, IN MAY, 2005, AND RECORDED IN VOLUME 35, PLAT NO. 117, OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION. THE BEARINGS IN THIS DESCRIPTION WERE BASED UPON THE 10.405 ACRE TRACT (OFFICIAL RECORD VOLUME 587, PAGE 367) AND RECORDED IN VOLUME 34, PLAT NO. 251 OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION (S 60° 56' 58" W ON THE CENTER OF U.S. ROUTE 68). ALL PINS (SET) ARE5/8" IRON PINS WITH PLASTIC CAPS STAMPED A.S.A.P. SUR. L.S. 7250.

TRACT 14:

SITUATED IN THE COUNTY OF CLINTON IN THE STATE OF OHIO AND IN THE TOWNSHIP OF UNION, AND BEING A PART OF SURVEY NO. 885 AND BOUNDED AND DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT IN THE CENTER OF MELVIN ROAD (NO. 9) AT THE

EASTERLY CORNER OF ELIZABETH CLEMENT COLLINGHAM'S 30 ACRE TRACT AS RECORDED IN VOL. 7, PAGE 625 OF THE CLINTON SURVEYORS RECORD; THENCE WITH THE SOUTHEASTERLY LINE OF SAID 30 ACRE TRACT, S. 51° 10' W. 25 FEET TO THE REAL POINT OF BEGINNING FOR THE HEREIN DESCRIBED TRACT:

RUNNING THENCE FROM SAID REAL POINT OF BEGINNING, WITH THE

SOUTHEASTERLY LINE OF SAID 30 ACRE TRACT, S. 51° 10' W. 125 FEET TO A

POINT; THENCE ON THE FOLLOWING COURSES: (1) N. 39° 36' 25" W. 125

FEET TO A POINT; (2) N. 51° 10' E. 125 FEET TO A POINT; (3) PARALLEL

TO MELVIN ROAD S. 39° 36' 25" E. 125 FEET TO THE REAL POINT OF

BEGINNING, CONTAINING .359 OF AN ACRE. SURVEY RECORD VOL. 20, PAGE 84.

TRACT 15:

Situated in the State of Ohio, County of Clinton, Township of Union, located in Virginia Military Survey Number 2027 being a part of that Original 784.989 acre tract conveyed as Tract 2 to Wilmington Air Park LLC of record in Official Record 516, Page 610 (all references refer to the records of the Recorder’s Office, Clinton County, Ohio), and being more particularly bounded and described as follows:

Beginning, for reference, at a magnetic nail, with no head, found at the centerline intersection of Township Road 261 (known as Jenkins Road to the West and known as McCoy Road to the East) (40 feet

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wide) and County Road 35 (Old State Route 73) at a northerly corner of that 149.319 acre tract conveyed as Tract II to L.T. Land Development, LLC of record in Official Record 597, Page 441, the southeasterly corner of that 72.25 acre tract conveyed as tract 71 to Wilmington College of record in Deed Book 184, Page 306, a southerly corner of said original 784.989 acre tract and the northwesterly corner of that 5.03 acre tract conveyed to Glen William Ramseyer and Mary Alice Ramseyer of record in Deed Book 246, Page 282, being on the southerly line of Virginia Military Survey 1162 and being on the northerly line of Virginia Military Survey 2386;

Thence South 46° 56’ 14" West, a distance of 3310.76 feet to a magnetic nail found on the centerline of said Jenkins Road, on the southerly line of Virginia Military Survey 2027 and on the northerly line of Virginia Military Survey 2386, at a southwesterly corner of that 25.54 acre tract conveyed as Tract 74 to Wilmington College by deed of record in Deed Book 184, Page 306, and being on the northerly line of that 300 acre tract conveyed to David W. Fife and James G. Fife of record in Official Record 677, Page 235;

Thence South 49° 24’ 42” West, with the centerline of said Jenkins Road, the northerly line of said 300 acre tract, the southerly line of Virginia Military Survey 2027 and the northerly line of Virginia Military Survey 2386, a distance of 843.96 feet to the TRUE POINT OF BEGINNING;

Thence South 49° 24’ 42" West, with the centerline of said Jenkins Road, the northerly line of said 300 acre tract, the southerly line of Virginia Military Survey 2027 and the northerly line of Virginia Military Survey 2386, a distance of 110.70 feet to a point;

Thence across said Tract 2, the following courses and distances:

North 39° 01’ 32" West, a distance of 141.68 feet to a point;

North 50° 47’ 22" East, a distance of 108.26 feet to a point;

South 40° 00’ 51" East, a distance of 139.03 feet to the TRUE POINT OF BEGINNING and containing 0.353 acre, more or less.

Together with a non-exclusive access easement for the benefit of Tract 15, as created in the lease between Wilmington Air Park, LLC and Clinton County Port Authority, as evidenced in the Memorandum of Lease filed June 3, 2010, and recorded in O.R.V. 783, Page 327 Recorder’s Office Clinton County, Ohio, which easement is more specifically described as follows:

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Beginning, for reference, at a magnetic nail, with no head, found at the centerline intersection of Township Road 261 (known as Jenkins Road to the West and known as McCoy Road to the East) (40 feet wide) and County Road 35 (Old State Route 73) at a northerly corner of that 149.319 acre tract conveyed as Tract II to L.T. Land Development, LLC of record in Official Record 597, Page 441, the southeasterly corner of that 72.25 acre tract conveyed as tract 71 to Wilmington College of record in Deed Book 184, Page 306, a southerly corner of said original 784.989 acre tract and the northwesterly corner of that 5.03 acre tract conveyed to Glen William Ramseyer and Mary Alice Ramseyer of record in Deed Book 246, Page 282, being on the southerly line of Virginia Military Survey 1162 and being on the northerly line of Virginia Military Survey 2386;

Thence across said Tract 2, the following courses and distances:

North 40° 00’ 51” West, a distance of 139.03 feet to a point;

South 50° 47’ 22” West, a distance of 108.26 feet to a point;

South 39° 01’ 32” East, a distance of 141.68 feet to a point on the centerline of said Jenkins Road, the northerly line of said 300 acre tract, the southerly line of Virginia Military Survey 2027 and the northerly line of Virginia Military Survey 2386;

Thence South 49° 24’ 42" West, with said centerline, said northerly line of said 300 acre tract, said southerly line of Virginia Military Survey 2027 and said northerly line of Virginia Military Survey 2386, a distance of 40.57 feet to a point;

Thence across said Tract 2, the following courses and distances:

North 40° 35’ 18" West, a distance of 201.48 feet to a point;

North 49° 24’ 42" East, a distance of 204.58 feet to a point;

South 40° 35’ 18" East, a distance of 201.48 feet to the TRUE POINT OF BEGINNING and containing 0.594 acre, more or less.

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system by GPS observations and observations of selected NGS monuments AIRBORNE and AIRBORNE AZ MK. The portion of the right-of-way line of Airborne Road, having a bearing of North 38° 08' 03" East, is designated the "basis of bearing" for this survey.

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EXHIBIT B

The Premises



Building Number	Leased Space
224 (Fitness Facility)	All
1003 (Hangar)	All
1004 (Hangar)	All
1005 (Hangar)	All
1010 (Aircraft Parts)	All
2061 (Administration Building)	All second floor areas and that portion of first floor housing the flight simulators, flight training offices and flight training classrooms (exclusive of what is commonly known as the “DHL training room”)
2062 (Line Services)	All
2065 (Surplus Sales)	All
2066 (Base Shops)	All
2067 (Control Tower)	All
1025 (Air Park Services)	All
1025A (Air Park Services)	All
1026 (Air Park Services)	All
1026A (Air Park Services)	All
2090 (Storage Building)	All
2091 (Storage Building)	All

EXHIBIT C

Illustration of Fuel Tanks

EXHIBIT D

Location of Tenant’s Fiber Optics Systems

As of the Effective Date, the precise location(s) of Tenant’s Fiber Optic Systems in and at the Air Park have not been identified. After the Effective Date, Landlord and Tenant shall work cooperatively (if and as reasonably practical to do so and without undue expense to either party) to develop an Exhibit D which illustrates and describes with reasonable precision the location(s) of Tenant’s Fiber Optic Systems in and at the Air Park.

EXHIBIT E

Approved Subleases



Tenant Affiliate	Portion of Premises Occupied

ABX Air, Inc.	Buildings 224, 2061, 2067, 2065 (partial) and 2091

LGSTX Services, Inc.	Buildings 1025, 1025A, 1026, 1026A, 2062, and 2065 (partial)

ABX Cargo Services, Inc.	Building 2065 (partial)

ABX Material Services, Inc.	Building 2065 (partial)

Airborne Maintenance and Engineering Services, Inc.	Buildings 1003, 1004, 1005, 1010, and 2066

Capital Cargo International Airlines, Inc.	Building 2090

15262591 V.5

Exhibit 10.37

Execution Copy

LOAN AGREEMENT

between

DIRECTOR OF DEVELOPMENT SERVICES AGENCY

OF THE STATE OF OHIO

and

CLINTON COUNTY PORT AUTHORITY

Dated as of

December 1, 2012

(OHIO ENTERPRISE BOND FUND PROGRAM)

(CHAPTER 166, OHIO REVISED CODE, LOAN PROGRAM)

(LOGISTICS & DISTRIBUTION INFRASTRUCTURE FUND PROGRAM)

BROUSE-# 836255-V21-AMES_OEBF_166_LOAN_AGREEMENT.DOC BROUSE-# 836255-V21-AMES_OEBF_166_LOAN_AGREEMENT.DOC BROUSE-# 836255-V21-AMES_OEBF_166_LOAN_AGREEMENT.DOC {BROUSE-# 836255-V21-AMES_OEBF_166_LOAN_AGREEMENT.DOC ;1}

INDEX

(The Index is not a part of this Loan Agreement

and is only for convenience of reference).

Page

ARTICLE I DEFINITIONS 2


Section 1.1.	Use of Defined Terms 2


Section 1.2.	Definitions 2


Section 1.3.	Certain Words and References 14

ARTICLE II DETERMINATION AND REPRESENTATIONS 15


Section 2.1.	Determinations of the Director; Eligible Project 15


Section 2.2.	Representations and Warranties of the Borrower 15

ARTICLE III COMMENCEMENT AND COMPLETION OF THE PROJECT 19


Section 3.1.	Provision of the Project 19


Section 3.2.	Deposits to the Project Funds; the Issuance Expense Account and the Capitalized Interest Account; Advances of the LDI Loan 19


Section 3.3.	Disbursement from the Project Funds 19


Section 3.4	Conditions to Disbursement of the State Assistance and the State Loan 20


Section 3.5.	Establishment of Completion Date 25


Section 3.6.	Borrower to Pay, or Cause Lessee to Pay, Costs in Event Project Funds Insufficient 26


Section 3.7.	Plans and Specifications; Inspections 26


Section 3.8	Remedies to be Pursued Against Contractors and Subcontractors and

Their Sureties 27


Section 3.9.	Investment of Project Funds, Primary Reserve Account or Collateral Proceeds Account 27

ARTICLE IV STATE ASSISTANCE AND LOAN REPAYMENTS 28


Section 4.1.	State Assistance 28


Section 4.2.	State Loan 28


Section 4.3.	LDI Loan 28


Section 4.4.	Borrower Payments for State Assistance 29


Section 4.5.	Place of Payments 30


Section 4.6.	Primary Reserve Account 30


Section 4.7.	Extent of the Covenants of the Borrower; No Personal Liability or

Pledge of General Credit 31

ARTICLE V MAINTENANCE, TAXES AND INSURANCE 33


Section 5.1.	Maintenance and Modifications of Project 33


Section 5.2	Removal of Project 33


Section 5.3.	Taxes, Other Governmental Charges and Utility Charges 33


Section 5.4.	Insurance Required 34


Section 5.5.	Additional Provisions Respecting Insurance 34


Section 5.6.	Application of Net Proceeds of Insurance 35


Section 5.7.	Public Liability Insurance 35


Section 5.8.	Advances 35


Section 5.9	Environmental Matters 35

ARTICLE VI DAMAGE, DESTRUCTION AND CONDEMNATION 38


Section 6.1.	Damage and Destruction 38


Section 6.2.	Eminent Domain 39

ARTICLE VII SPECIAL COVENANTS AND AGREEMENTS 40


Section 7.1.	No Warranty of Condition or Suitability 40


Section 7.2.	Right of Access to the Project 40


Section 7.3.	[Intentionally Omitted] 40


Section 7.4.	Information Concerning Operations 40


Section 7.5.	Affirmative Covenants of the Borrower 40


Section 7.6.	Negative Covenants of the Borrower 44


Section 7.7	Ownership of ATSG 45


Section 7.8.	Mechanics' and Other Liens 45


Section 7.9.	Borrower Not to Adversely Affect Exclusion from Gross Income of Interest on Bonds 45


Section 7.10	Minority Hiring 46


Section 7.11	Equal Employment Opportunities 46

ARTICLE VIII ASSIGNMENT, SELLING AND LEASING 47


Section 8.1.	Assignment, Sale or Lease by the Borrower 47


Section 8.2.	Pledge by the Director 47

ARTICLE IX EVENTS OF DEFAULT AND REMEDIES 48


Section 9.1.	Events of Default 48


Section 9.2.	Remedies 49


Section 9.3.	No Remedy Exclusive 50


Section 9.4.	Agreement to Pay Attorneys’ Fees and Expenses 50


Section 9.5.	No Additional Waiver Implied by One Waiver 51


Section 9.6.	Waiver of Appraisement, Valuation, Etc. 51

ARTICLE X REDEMPTION OF BONDS; PREPAYMENT OF LOANS 52


Section 10.1	Redemption of Bonds 52


Section 10.2	Optional Prepayment of State Loan, State Assistance and LDI Loan 52


Section 10.3	Mandatory Redemption in Event of a Determination of Taxability 53


Section 10.4	Mandatory Redemption 53


Section 10.5	Mandatory Prepayment of State Loan, State Assistance and LDI Loan 53


Section 10.6	Option to Defease Bonds 54

ARTICLE XI MISCELLANEOUS 55


Section 11.1.	Termination of Agreement 55


Section 11.2.	Amounts Remaining in Collateral Proceeds Account and Primary Reserve Account 55


Section 11.3.	Notices 55


Section 11.4.	Binding Effect 55


Section 11.5.	Extent of Covenants of the Director; No Personal Liability 55


Section 11.6.	Amendments, Changes and Modifications 56


Section 11.7.	Execution Counterparts 56


Section 11.8.	Severability 56


Section 11.9.	Captions 56


Section 11.10.	Governing Law 56


Section 11.11	Actions by Borrower 56

EXHIBIT A-1 – Form of State Loan Note A1-1

EXHIBIT A-2 – Form of State Assistance Note A2-1

EXHIBIT A-3 – Form of LDI Loan Note A3-1

EXHIBIT B – Description of Project Facilities B-1

EXHIBIT C – Disbursement Request Form and Cost Certification C-1

EXHIBIT D – Terms and Conditions to Disbursement D-1

EXHIBIT E – Adjacent Hangar Demolition E-1

EXHIBIT F – Related Area Improvements F-1

Schedule 1 – State Loan Payment Schedule

Schedule 2 – State Assistance Payment Schedule

iii

LOAN AGREEMENT

THIS LOAN AGREEMENT made and entered into as of December1, 2012 between the Director of Development Services Agency (the “Director”) of the State of Ohio (the “State”), acting on behalf of the State, and the Clinton County Port Authority, a body corporate and politic and a port authority duly organized and validly existing under the laws of the State (the “Borrower”), under the circumstances summarized in the following recitals (the capitalized terms used in the recitals being used therein as defined in Article I hereof):

A. After making certain determinations pursuant to the Act, the Director is authorized, among other things, to lend money in the Facilities Establishment Fund to persons for the purpose of paying allowable costs of an Eligible Project.

B. The Borrower has requested that the Director provide financial assistance for the Provision of the Project, the Adjacent Hangar Demolition and the Related Area Improvements by providing the State Assistance, the State Loan and the LDI Loan to the Borrower subject to and in accordance with the terms of this Loan Agreement.

C. The Director has determined that the Project, the Adjacent Hangar Demolition and the Related Area Improvements constitute an Eligible Project and that the State Assistance, the State Loan and the LDI Loan to be provided pursuant to this Loan Agreement are appropriate under the Act and will be in furtherance and in implementation of the public policy set forth in the Act.

D. The State Assistance and the State Loan and the LDI Loan to be provided pursuant to this Loan Agreement have been reviewed and approved by the Development Financing Advisory Council and the Controlling Board, pursuant to the Act.

E. As a material inducement to Borrower and the Director entering into this Loan Agreement and to Borrower obtaining financial assistance for the Provision of the Project, the Adjacent Hangar Demolition and the Related Area Improvements, ATSG, Lessee, and Operating Company have executed the Guaranty Agreement pursuant to which ATSG, Lessee, and Operating Company have among other obligations set forth therein, agreed to guarantee all obligations of Borrower under this Loan Agreement.

NOW, THEREFORE, in consideration of the premises and the representations and agreements hereinafter contained, the Director and the Borrower agree as follows (provided, that any obligation of the Director created by or arising out of this Loan Agreement shall not be a general debt on the part of the Director or the State but shall be payable solely out of the loan payments, bond proceeds, revenues and other income, charges and moneys realized from this Loan Agreement and provided, further, that any obligation, liability or duty of the Borrower created by or arising out of this Loan Agreement shall not be a general debt on the part of the Borrower but shall be payable solely out of the rentals, revenues and other income, charges and money realized from the use, lease, sale or other disposition of the Project, any insurance and condemnation awards as provided in the Lease, and any payments by ATSG, Lessee, or the Operating Company pursuant to the Guaranty Agreement):

ARTICLE I•
DEFINITIONS

Section 1.1. Use of Defined Terms . In addition to the words and terms elsewhere defined in this Loan Agreement or other instruments, the words and terms set forth in Section 1.2 hereof shall have the meanings therein set forth unless the context or use expressly indicates a different meaning or intent. Such definitions shall be equally applicable to both the singular and plural forms of any of the words and terms therein defined.

Section 1.2. Definitions . As used herein:

“Act” means Chapter 166, Ohio Revised Code, as from time to time amended.

“Additional Payments” means the (i) Director’s Administrative Fee and the Trustee’s Annual Administrative Fee, which are payable in accordance with Section 4.4 of this Loan Agreement, (ii) amounts payable in accordance with Subsections 4.4(f) and (g) of this Loan Agreement and (iii) amounts payable in accordance with Section 7.5(b)(vi) of this Loan Agreement.

“Adjacent Hangar Demolition” means the demolition, rehabilitation and restoration of the hangar located at the Air Park and commonly referred to as Building No. 207, in accordance with the Plans and Specifications and for purposes of the Provision of the Project, constituting an Eligible Project, as described and illustrated in Exhibit E attached hereto.

“Affiliate” means, with respect to any Person, any other Person which (a) directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such Person (“control” meaning the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise), (b) which beneficially owns or holds with power to vote ten percent (10%) or more of any class of voting stock or similar interest of such Person, (c) ten percent (10%) or more of the voting stock or similar interest of such other Person is beneficially held by such Person or (d) who is an executive officer, director or manager of such Person or such other Person.

“Agreement” or “Loan Agreement” means this Loan Agreement, as from time to time amended or supplemented in accordance with its terms.

“Air Park” means the Wilmington Air Park located in the City, within which the Project Site is located.

“Allowable Costs” means “allowable costs” of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements within the meaning of the Act.

“Application” means the Application of the Operating Company submitted to the Director requesting assistance under the Act.

“Assignment” means the Assignment of Landlord’s Interest in Rent and Other Rights dated as of the date hereof from the Borrower to the Director and the Consent and Acknowledgement of the Lessee, as the same may be amended or supplemented from time to time in accordance with its terms.

“ATSG” means Air Transport Services Group, Inc., a corporation organized under the laws of the State of Delaware and authorized to do business in the State, and any successor thereto.

“Authorized Borrower Representative” means the person(s) at the time designated to act on behalf of the Borrower by written certificate furnished to the Director and the Trustee, containing the specimen signature(s) of such person(s) and signed on behalf of the Borrower by the Executive Director of the Borrower. Such certificate may designate an alternate or alternates. In the event that all such incumbents become unavailable or unable to act, and the Borrower fails to designate at least one replacement within ten Business Days after notice to the Borrower from the Director of such unavailability or inability to act, the Director may appoint a successor.

“Authorized Lessee Representative” means the person at the time designated to act on behalf of the Lessee by written certificate furnished to the Borrower, the Director and the Trustee containing the specimen signature of such person and signed on behalf of the Lessee by an authorized officer of the Lessee. Such certificate may designate an alternate or alternates. In the event that all such incumbents become unavailable or unable to act, and the Lessee fails to designate at least one replacement within ten Business Days after notice to the Lessee from the Director of such unavailability or inability to act, the Director may appoint a successor.

“Bonds” means the State Economic Development Revenue Bonds (Ohio Enterprise Bond Fund), Series 2012-9 (Clinton County Port Authority – AMES Project) (Tax-Exempt Bonds) in the principal amount of $9,055,000 authorized by the General Bond Order and the Series Bond Order.

“Borrower” means the Clinton County Port Authority, a body corporate and politic and a port authority duly organized and validly existing under the laws of the State of Ohio.

“Business Day” means a day other than a Saturday, Sunday, scheduled federal holiday or other day on which commercial banks in Columbus, Ohio, or the City are authorized or required by law to close.

“Capitalized Interest Account” means the Series 2012-9 Capitalized Interest Account created in the Series Bond Order.

“City” means the City of Wilmington, Clinton County, Ohio, a municipality validly existing under the laws of the State.

“Closing Date” means date of the delivery of the Bonds to the original purchasers thereof.

“Code” means the Internal Revenue Code of 1986, as amended, including, when appropriate, the statutory predecessor of the Code, and all applicable regulations (whether proposed, temporary

or final) under that Code and the statutory predecessor of the Code, and any official rulings and judicial determinations under the foregoing applicable to the Bonds.

“Collateral Proceeds Account” means the Series 2012-9 Collateral Proceeds Account, established pursuant to the General Bond Order and the Series Bond Order, in the Economic Development Bond Service Fund.

“Commitment” means the Loan Approval and Commitment dated June 19, 2012 between the Borrower and the Director and acknowledged and accepted by the Lessee.

“Completion Date” means such term as defined in the Lease.

“Construction Agent” means the Lessee, in its capacity as Construction Agent under Section 2.2 of Exhibit E to the Lease.

“Construction Hours Commitment” means 165,000 construction person hours expended in the Provision of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements.

“Construction Period” means Construction Period as defined in the Lease.

“Controlling Board” means the Controlling Board of the State.

“Cost Certification” means a certification of, or provided by the Construction Agent on behalf of, the Borrower, as of a specified date, setting forth in reasonable detail the costs incurred and, if appropriate, to be incurred, by the Borrower in completing the Provision of the Project, the Adjacent Hangar Demolition and the Related Area Improvements, including a detail by category of all Allowable Costs, in the form of Exhibit C.

“Debt Service Account” means the Debt Service Account, established pursuant to the General Bond Order, in the Economic Development Bond Service Fund.

“Determination of Taxability” shall have the meaning set forth in the Series Bond Order.

“Development Financing Advisory Council” means the Development Financing Advisory Council of the State.

“Director” means the officer of the State, appointed pursuant to Section 121.03 of the Ohio Revised Code, who administers and is the executive head of the Development Services Agency, the officer who by law performs the functions of that office, and any individual acting on behalf of the Director of Development Services Agency pursuant to any delegation permitted by law.

“Director’s Administrative Fee” means, collectively, the Director’s State Assistance Administrative Fee and the Director’s State Loan Administrative Fee. The Director’s Administrative Fee shall be paid by the Borrower until all amounts due and owing on the Notes are paid in full.

“Director’s State Assistance Administrative Fee” means the monthly administrative fee paid by the Borrower to the Director pursuant to this Agreement, commencing on November 15,

2015, which amount shall be 1/12 ^th of an amount calculated at a rate equal to 0.125% of the then-outstanding principal amount of the Bonds.

“Director’s State Loan Administrative Fee” means the administrative fee paid by the Borrower to the Director pursuant to this Agreement, on each May 15 and November 15, commencing on May 15, 2016, which amount shall be 1/2 of an amount calculated at a rate equal to 0.25% of the then-outstanding principal amount of the State Loan Amount.

“Disbursement Date” means the date the proceeds of the State Assistance and the State Loan are disbursed by the Director to the Trustee for the account of the Project Fund pursuant to Section 3.3 and 3.4 hereof.

“Economic Development Bond Service Fund” means the Economic Development Bond Service Fund created by Section 166.08(S) of the Ohio Revised Code.

“Eligible Investments” means Eligible Investments as defined in the Trust Agreement.

“Eligible Project” means an “eligible project” within the meaning of the Act and, with respect to the State Loan, the State Assistance and the LDI Loan, means the Project, the Adjacent Hangar Demolition and the Related Area Improvements.

“Environment” means soil, land surface or subsurface strata, surface waters (including navigable waters and ocean waters), groundwater, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.

“Environmental Complaint” has the meaning set forth in Section 5.9(c) hereof.

“Environmental Laws” means any applicable federal, state, local, municipal, foreign, international, multinational or other applicable constitutions, laws, ordinances, principles of common law, regulations, statutes or treaties designed to minimize, prevent, punish or remedy the consequences of actions that damage or threaten the Environment or public health and safety.

“Environmental Report” means, collectively, that certain Phase I Environmental Site Assessment, Future Hangar Wilmington Airpark, dated September 24, 2012, prepared by URS and all reports referred to and summarized therein and that certain Limited Phase II Environmental Site Investigation, Wilmington Air Park, dated November 30, 2012, prepared by URS and all reports referred to and summarized therein.

“ERISA” means the Employee Retirement Income Security Act of 1974, as from time to time amended.

“Event of Default” means any of the events described as an Event of Default in Section 9.1 hereof.

“Facilities Establishment Fund” means the Facilities Establishment Fund created by Section 166.03 of the Ohio Revised Code.

“Federal Income Tax Compliance Agreement” means the Federal Income Tax Compliance Agreement by and among the Treasurer, the Trustee, the Borrower, the Lessee and Operating Company relating to the Bonds.

“Final Cost Certification” means the Cost Certification dated as of the Completion Date.

“Financing Approval Documents” means, with respect to this Loan Agreement, the Resolution of the Development Financing Advisory Council dated April 25, 2012, the Approval of the Controlling Board dated June 11, 2012 and the Commitment.

“First Half Account” shall have the meaning set forth in the General Bond Order.

“Force Majeure” means, without limitation:

(i) acts of God; strikes, lockouts, or other industrial disturbances; acts of public enemies; acts of terrorism; orders or restraints of any kind of the government of the United States or of the State or any of their departments, agencies, political subdivisions or officials, or any civil or military authority; insurrections; civil disturbances; riots; epidemics; landslides; nuclear accidents; lightning; earthquakes; fires; hurricanes; tornadoes; storms; droughts; floods; arrests; restraint of government and people; explosions, breakage, malfunction or accident to facilities, machinery, transmission pipes or canals; partial or entire failure of utilities; shortages of labor, materials, supplies, or transportation; or

(ii) any other cause, circumstance or event not reasonably within the control of the Borrower, ATSG, the Operating Company or the Lessee.

“General Bond Order” means the General Bond Order of the Treasurer, dated April 11, 1988, as the same may be amended from time to time in accordance with its provisions or the provisions of the Trust Agreement.

“Governing Instruments” means, with respect to the Borrower, the ordinances, resolutions and agreements pursuant to which the Borrower was created, with respect to the Lessee, the articles of organization, operating agreement and other governing documents of the Lessee, and with respect to the Operating Company and ATSG, means the respective certificates of incorporation, bylaws and other governing documents of the Operating Company and ATSG.

“Governmental Authority” means, collectively, the United States of America, the State, any political subdivision thereof, any municipality, and any agency, department, commission, board or bureau of any of the foregoing having jurisdiction over the Project, the Adjacent Hangar Demolition and the Related Area Improvements.

“Guarantor” means the Lessee, the Operating Company or ATSG, and “Guarantors” means the Lessee, the Operating Company and ATSG.

“Guaranty” means the Guaranty Agreement dated as of the date hereof, among the Lessee, the Operating Company and ATSG, as guarantors, the Borrower, the Director and the Trustee, as the same may be amended or supplemented from time to time in accordance with its terms.

“Hazardous Discharge” has the meaning set forth in Section 5.9(c) hereof.

“Hazardous Substance” means a hazardous substance as defined under the Comprehensive Emergency Response Compensation and Liability Act of 1980, 42 U.S.C. §§9601, et seq ., as from time to time amended.

“Hazardous Waste” means a hazardous waste as defined under the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § §6901, et seq ., as from time to time amended.

“Indebtedness” means all obligations for money borrowed and obligations for the payment of money in respect of purchase contracts or capitalized leases (but not including trade accounts payable and accrued expenses incurred in the ordinary course of business) and any other obligation for payment of principal and interest with respect to money borrowed, incurred or assumed by the Borrower, ATSG, the Operating Company or the Lessee, as the case may be.

“Independent Consultant” means an environmental consultant or consulting firm qualified to practice the profession of environmental consulting under the laws of the State and who or which is not a member, officer or employee of the Borrower, the Guarantors (or any Affiliates of any of the Guarantors) or any lessee of the Project.

“Independent Engineer” means an engineer or engineering firm or an architect or architectural firm qualified to practice the profession of engineering or architecture under the laws of the State and who or which is not an officer or employee of the Borrower, the Guarantors (or any Affiliates of any of the Guarantors) or any lessee of the Project.

“Intercreditor Agreement” means the Intercreditor Agreement, dated as of the date hereof, between the Director and the Trustee, as the same may be amended or supplemented from time to time in accordance with its terms.

“Interest Rate for Advances” means a rate which is three (3) percent above the interest rate borne by the Bonds.

“Issuance Expense Account” means the Series 2012-9 Issuance Expense Account created in the Series Bond Order.

“LDI Loan” means the loan from the Director to the Borrower pursuant to Section 166.25 of the Act in the total sum of the LDI Loan Amount.

“LDI Loan Amount” is the amount advanced on the LDI Loan pursuant to Section 3.2 of this Agreement, provided that the amount of the LDI Loan shall not exceed the lesser of (a) 15% of Allowable Costs as determined by the Director in the Director’s sole discretion or (b) $1,595,000.

“LDI Loan Note” means the Taxable LDI Loan Revenue Bond, issued by the Borrower in the principal amount of the LDI Loan Amount in the Form of Exhibit A-3 and dated the Closing Date, evidencing the obligation of the Borrower to repay the LDI Loan.

“Lease” means the Lease Agreement, dated as of the date hereof, between the Borrower and the Lessee, as the same may be amended from time to time in accordance with its terms.

“Lessee” means Air Transport International Limited Liability Company, a limited liability company organized under the laws of the State of Nevada and authorized to do business in the State, and any successor thereto or assignee under the Lease.

“Loan Documents” means, collectively, this Agreement, the Notes, and the Security Documents and any other documents delivered pursuant to this Agreement to evidence the State Assistance, the State Loan and the LDI Loan, or any of them.

“Loan Term” or “Term” means the period commencing upon the date of this Loan Agreement and ending on the date on which all obligations of the Borrower hereunder have been paid or deemed paid.

“Market Conditions” means those conditions determined by the Director, with advice from the Federal Reserve Bank of Cleveland, provided that the Director shall consider the following:


(i)	Two consecutive quarters of decline in manufacturing employment in the State of Ohio as a whole or when possible by relevant manufacturing sector (employment figures will be those reported by the Department of Job and Family Services of the State);


(ii)	A decline, as a whole or by relevant sector, in 12 of the last 36 months as detailed in the Federal Reserve Board’s national industrial production index; or

(iii) A decline within the relevant sector of Standard & Poor’s “Industry Surveys.”

“Mortgage” means the Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement, dated as of the date hereof, from Lessee in favor of the Director, as amended and supplemented from time to time in accordance with its terms, encumbering the Lessee’s leasehold interest in the Premises.

“Net Proceeds” means, when used with respect to any insurance or condemnation award, the gross proceeds from the insurance or condemnation award with respect to which that term is used remaining after payment of all expenses incurred in the collection of such gross proceeds.

“Notes” means, collectively, the State Assistance Note, the State Loan Note and the LDI Loan Note.

“Notice Address” means:



(a)	as to the Director:	Director of Development Services Agency Ohio Development Services Agency Loans & Servicing Office 77 South High Street, 28th Floor Columbus, OH 43215-6130 Phone No: (614) 466-5420 Fax: (614) 644-1789
	with a copy to:	Brouse McDowell, LPA 388 S. Main St., Suite 500 Akron, Ohio 44311 Attn: James S. Hogg, Esq. Phone No: (330) 535-5711 Fax: (330) 253-8601
(b)	as to the Trustee:	The Huntington National Bank Corporate Trust Services 7 Easton Oval EA4E63 Columbus, Ohio 43219 Attn: Michelle Harmon Phone No: (614) 331-9803 Fax: (614) 331-5862
(c)	as to the Borrower:	Clinton County Port Authority Wilmington Air Park 1113 Airport Road Wilmington, Ohio 45177 Attn: Kevin Carver, Executive Director Phone No: (937) 536-1783 Fax: 937-366-5005
	With a copy to:	Vorys, Sater, Seymour and Pease LLP 52 East Gay Street Columbus, Ohio 43215 Attn: D. Scott Powell Phone No: (614) 464-5619 Fax: (614) 719-4912
(d)	as to the Lessee, ATSG and the Operating Company:	Air Transport International Limited Liability Company 145 Hunter Drive Wilmington, Ohio 45177 Attn: Russ Smethwick, Director, Strategic Planning Phone No: (937) 366-3314 Fax: (937) 382-2452



	With a copy to:	W. Joseph Payne, Esq., General Counsel Air Transport Services Group, Inc. 145 Hunter Drive Wilmington, OH 45177 Phone No.: (513) 583-5258 Fax: (937) 382-2452 and Vorys, Sater, Seymour and Pease LLP 52 East Gay Street Columbus, Ohio 43215 Attn: Scott J. Ziance Phone No.: (614) 464-8287 Fax: (614) 719-5053

or such additional or different address, notice of which is given under Section 11.3 hereof.

“Operating Company” shall mean Airborne Maintenance and Engineering Services, Inc., a corporation organized under the laws of the State of Delaware and authorized to do business in the State, and any successor thereto or assignee under the Operating Sublease.

“Operating Sublease” means the Sublease Agreement, dated as of the date hereof, between the Lessee and the Operating Company relating to the Premises and the Project.

“Operative Documents” means the Lease, the Operating Sublease, the Guaranty, the Assignment, the RNDA and the Supplement.

“Original Deposit” means $909,000, which amount is to be provided by Lessee in cash, or by the Primary Reserve Letter of Credit, deposited with the Trustee to the credit of the Primary Reserve Account upon delivery of this Loan Agreement, in accordance with Section 4.6 hereof.

“Permitted Encumbrances” means the Lease, the TIF Cooperative Agreement, the Security Documents and any items defined as Permitted Encumbrances in the Mortgage.

“Person” or words importing persons means firms, associations, partnerships (including, without limitation, general, limited and limited liability partnerships), joint ventures, societies, estates, trusts, corporations, limited liability companies, public or governmental bodies, other legal entities and natural persons.

“Petroleum” means petroleum as defined under the Resource Conservation and Recovery Act of 1976, 42 U.S.C. §§6901, et seq., as from time to time amended.

“Plan” is defined in Section 7.5(a)(iv)(C) hereof.

“Plans and Specifications” means the plans and specifications or other appropriate documents describing the Project, the Adjacent Hangar Demolition, and the Related Area

Improvements prepared by or at the direction of the Lessee as provided in accordance with the Lease.

“Premises” means the “Premises” as defined in the Lease.

“Primary Reserve Account” means the Series 2012-9 Primary Reserve Account, established pursuant to the General Bond Order and the Series Bond Order, in the Economic Development Bond Service Fund.

“Primary Reserve Letter of Credit” means an irrevocable Approved Letter of Credit (as defined in the Trust Agreement) in the stated amount of the Original Deposit (or, if an amount of cash is to remain in the Primary Reserve Account after delivery of the Primary Reserve Letter of Credit, the difference between the amount of the Original Deposit and the aggregate amount of such cash), in form satisfactory to the Director and the Trustee, issued by the Primary Reserve Letter of Credit Issuer for the account of the Lessee, which letter of credit may be drawn upon by the Trustee to provide funds for the Primary Reserve Account pursuant to Section 4.6 hereof. The Primary Reserve Letter of Credit must permit drawings thereunder for a period of not less than one year or until 15 days after the final maturity of the Bonds, whichever occurs first.

“Primary Reserve Letter of Credit Issuer” means a commercial bank organized under the laws of the United States of America or of any state thereof and acceptable to the Trustee, which is the issuer of the Primary Reserve Letter of Credit.

“Project” means the Provision of the Project Site and the Project Facilities, constituting an Eligible Project.

“Project Debt” means the Bonds and the obligations of the Borrower to the Trustee and the Director pursuant to this Agreement.

“Project Facilities” means building and other improvements on the Project Site, and all fixtures thereto, more particularly described on Exhibit B attached hereto.

“Project Funds” means, for the purpose of this Loan Agreement, the State Assistance Project Fund and the State Loan Proceeds Fund, established pursuant to Section 8 of the Series Bond Order.

“Project Purposes” means the Provision of the Project for use by the Lessee and/or its permitted sublessees as an aircraft maintenance and/or painting hangar.

“Project Site” means the real property located at the Air Park that is legally described in the Lease and the Mortgage.

“Provision” means, as applicable, the acquisition, construction, renovation, related demolition and restoration, improvement, installation, equipping and furnishing of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements.

“Qualified Business” means the Operating Company’s aircraft maintenance operations at the Project Site, no part of which business shall include the following: (a) residential rental property;

or (b) private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack, gambling facility or liquor store for off-premises consumption.

“Related Area Improvements” means the improvements to be made to the areas and facilities surrounding the Premises in accordance with the Plans and Specification and which are directly related to the Provision of the Project pursuant to the Lease, constituting an Eligible Project, as described and illustrated in Exhibit F attached hereto.

“Rent” means “Rent” as defined in the Lease.

“Required Property Insurance Coverage” means the insurance required to be maintained pursuant to Sections 5.4 and 5.5 hereof.

“Required Public Liability Insurance Coverage” means the insurance required to be maintained pursuant to Sections 5.5 and 5.7 hereof.

“RNDA” means the Recognition, Non-Disturbance and Attornment Agreement, dated as of the date hereof, between the Director and the Borrower, as the same may be amended or supplemented from time to time.

“School District” means the Wilmington City School District, a public school district established under the laws of the State.

“Second Half Account” shall have the meaning set forth in the General Bond Order.

“Senior Loan Agreement” means the Credit Agreement, dated as of May 9, 2011, between ATSG, Cargo Aircraft Management, Inc., the "Lenders" from time to time a party thereto, Suntrust Bank, as Administrative Agent, Regions Bank and JPMorgan Chase Bank, N.A., as Syndication Agents, and Bank of America, N.A., as Documentation Agent, as the same has been heretofore amended and as the same may be hereafter amended, and, following termination or expiration of such agreement, any loan agreement with a commercial bank which (i) provides a senior security interest in the assets of ATSG or (ii) permits borrowings in a stated principal amount of $25,000,000 or more.

“Security Documents” means the Mortgage, the Guaranty, the Intercreditor Agreement, the RNDA, the Assignment, and any other documents delivered pursuant to this Agreement to secure the State Assistance, the State Loan or the LDI Loan or any or all of the foregoing.

“Series Bond Order” means Series Bond Order R9-12 of the Treasurer dated December 13, 2012, as the same may be amended from time to time in accordance with its provisions or the provisions of the Trust Agreement.

“State” means the State of Ohio.

“State Assistance” means the loan by the Director to the Borrower under the Ohio Enterprise Bond Program established pursuant to Section 166.08 of the Act in the total sum of the State Assistance Amount.

“State Assistance Amount” means $9,055,000; provided that in no event shall the sum of the State Assistance Amount and the State Loan Amount, less the cash amount of the Original Deposit, exceed 90% of the Allowable Costs, as determined by the Director in the Director’s sole discretion pursuant to this Loan Agreement.

“State Assistance Note” means the Taxable State Assistance Revenue Bond, issued by the Borrower in the principal amount of the State Assistance Amount in the Form of Exhibit A-2 and dated the Closing Date, evidencing the obligation of the Borrower to repay the State Assistance.

“State Assistance Project Fund” means the Series 2012-9 Project Fund established in Section 8 of the Series Bond Order.

“State Loan” means the loan by the Director to the Borrower pursuant to Section 166.07 of the Act in the total sum of the State Loan Amount.

“State Loan Amount” means $4,000,000, provided that in no event shall the sum of the State Assistance Amount and the State Loan Amount, less the cash amount of the Original Deposit, exceed 90% of the Allowable Costs, as determined by the Director in the Director’s sole discretion pursuant to this Loan Agreement.

“State Loan Note” means the Taxable State Loan Revenue Bond, issued by the Borrower in the principal amount of the State Loan Amount in the Form of Exhibit A-1 and dated the Closing Date, evidencing the obligation of the Borrower to repay the State Loan.

“State Loan Proceeds Fund” means the State Loan Proceeds Fund established in Section 8 of the Series Bond Order.

“Supplement” means the One Hundred Twenty-Eighth Supplemental Trust Agreement, dated as of the date hereof, between the Treasurer and the Trustee, of which the Series Bond Order is a part.

“Terms and Conditions to Disbursement” means the terms and conditions which must be satisfied by the Borrower with respect to each request for disbursement of moneys from the Project Funds, which terms and conditions are set forth on Exhibit D attached hereto.

“TIF Cooperative Agreement” means the TIF Cooperative Agreement dated as of December 1, 2012 among the Borrower, the Director, the City, the School District, the Operating Company, and the Lessee relating to the tax increment financing payments to be paid by Lessee and distributed in accordance with such TIF Cooperative Agreement.

“Toxic Chemical” means and includes any material which has been shown to have significant adverse effect on human health or which is subject to regulation under the Toxic Substances Control Act (TSCA), 15 U.S.C. §§2601, et seq ., applicable state law, or any other applicable Federal or state laws now in force or hereafter enacted relating to toxic substances or that constitutes “toxic chemicals” as defined under Title III of the Superfund Amendments and Reauthorization Act of 1986 (also cited as the Emergency Planning and Community Right-to-Know Act) 42 U.S.C.

§§11001, et seq., as from time to time amended. Toxic substance includes, but is not limited to, asbestos, polychlorinated biphenyls (PCBs) and lead based paints.

“Treasurer” means the Treasurer of State of the State, or the officer who by law performs the functions of that office.

“Trust Agreement” means the Trust Agreement, dated as of April 1, 1988, between the Treasurer and the Trustee, of which the General Bond Order is a part, as the same may be amended, modified or supplemented by any amendments or modifications thereof and any supplements thereto (including, but not limited to, the Supplement) entered into in accordance with the provisions thereof.

“Trustee” means The Huntington National Bank, Columbus, Ohio, or the trustee at the time serving as such under the Trust Agreement.

“Trustee’s Annual Administrative Fee” means the annual administrative fee paid by the Borrower to the Trustee pursuant to this Agreement and which shall be calculated at a rate equal to 0.12% of the first $5,000,000 of the outstanding principal amount of Bonds and 0.07% of the outstanding principal amount of the Bonds in excess of $5,000,000, and constituting the fee of the Trustee in connection with its administration of the Project Funds, the Primary Reserve Account and the Collateral Proceeds Account. The Trustee’s Annual Administrative Fee shall be paid by the Borrower until all amounts due and owing on the State Assistance Note are paid in full.

“UCC” means the Uniform Commercial Code as adopted and in effect in the State, from time to time.

Section 1.3. Certain Words and References . Any reference herein to the Director shall include those succeeding to the Director’s functions, duties or responsibilities pursuant to or by operation of law or lawfully performing such functions. Any reference to a section or provision of the Constitution of the State or to the Act or to a section, provision or chapter of the Ohio Revised Code shall include such section, provision or chapter as from time to time amended, modified, revised, supplemented or superseded, provided that no such amendment, modification, supplementation, revision or supersession shall alter the obligation of the Borrower to pay all the amounts payable hereunder on the terms provided herein.

The terms “hereof,” “hereby,” “herein,” “hereto,” “hereunder” and similar terms refer to this Loan Agreement; and the term “heretofore” means before, and the term “hereafter” means after, the date of delivery of this Loan Agreement. Words of the masculine gender include the feminine and the neuter, and when the sense so indicates, words of the neuter gender may refer to any gender.

[End of Article I]

ARTICLE II•
DETERMINATION AND REPRESENTATIONS

Section 2.1. Determinations of the Director; Eligible Project . Pursuant to the Act and on the basis of the representations and other information provided by the Operating Company, the Director has heretofore made certain determinations, including without limitation those set forth in the Financing Approval Documents, which are hereby confirmed and the Director hereby determines that the financial assistance to be provided by the State pursuant to this Loan Agreement, including the State Assistance, the State Loan and the LDI Loan, will conform to the requirements of the Act, including Section 166.07, Section 166.08 and 166.25 thereof, and will further implement the purposes of the Act by creating new jobs and preserving existing jobs and employment opportunities and improving the economic welfare of the people of the State. The Director further determines and confirms that the Project, the Adjacent Hangar Demolition, and the Related Area Improvements constitute an Eligible Project.

Section 2.2. Representations and Warranties of the Borrower . The Borrower hereby represents and warrants that:

(a) The Borrower is a port authority organized, validly existing and in good standing under Sections 4582.21 through 4582.71, Ohio Revised Code, and has all requisite power, corporate or otherwise, to conduct the Borrower’s business, as presently conducted, and to own, or hold under lease, the Borrower’s assets and properties.

(a) The Borrower has full power and authority to execute, deliver and perform the Loan Documents and the Operative Documents to which the Borrower is a party and to enter into and carry out the transactions contemplated thereby. Such execution, delivery and performance do not, and will not, violate any provision of law applicable to the Borrower or the Governing Instruments of the Borrower and do not, and will not, conflict with or result in a default under any agreement or instrument to which the Borrower is a party or by which it or any property or assets of the Borrower is or may be bound. The Loan Documents and the Operative Documents to which the Borrower is a party have, by proper action, been duly authorized, executed and delivered and all necessary actions have been taken in order for the Loan Documents and the Operative Documents to constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except to the extent limited by bankruptcy, reorganization, moratorium, or laws of general application relating to or effecting the enforcement of creditors’ rights or by the exercise of judicial discretion or the application of principles of equity.

(b) Without independent investigation and solely based on the representations and warranties made by the Lessee, the provision of financial assistance pursuant to the Financing Approval Documents and this Loan Agreement induced the Lessee to retain in Ohio and expand that business of the Lessee to be conducted by the use of the Project for the Project Purposes in the City, thereby creating new jobs and preserving existing jobs and employment opportunities and improving the economic welfare of the people of the State. The Borrower would not be in a position to undertake the Provision of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements without the financial assistance under the Act afforded by the State Loan, the State Assistance and the LDI Loan. The provision of financial assistance pursuant to the Financing

Approval Documents and this Loan Agreement induced the Borrower and, to its knowledge, without independent investigation and based solely on the representations and warranties of the Lessee, the Lessee and the Operating Company, to undertake the Project without having an adverse effect on other enterprises providing jobs for people of the State, thereby preserving existing jobs and improving the economic welfare of the people of the State. The Project is to be acquired, established, expanded, remodeled, rehabilitated, or modernized for industry, commerce, distribution or research, or a combination thereof, and based solely on the representations and warranties of the Lessee, the operation of the Project, alone or in conjunction with other facilities, will preserve existing and create additional jobs and employment opportunities and improve the economic welfare of the people of the State.

(c) The Provision of the Project, the Adjacent Hangar Demolition and the Related Area Improvements, will be completed by the Construction Agent, and the Project will be operated and maintained by the Borrower in the City, in such manner as to conform, in all material respects, with all applicable Environmental Laws and applicable zoning, planning, building and other governmental regulations or variances therefrom imposed by any Governmental Authority and as to be consistent with the purposes of the Act.

(d) The Borrower presently intends that the Project will be used and operated in the active conduct of a Qualified Business and in a manner consistent with the Project Purposes at the Project Site until the end of the Loan Term, and the Borrower knows of no reason why the Project will not be so operated. If, in the future, there is a cessation of that use or operation, the Borrower will use its commercially reasonable (provided that nothing herein shall require the Borrower to expend its own funds) efforts to cause the Lessee, the Operating Company or another lessee of the Project and the Project Site to resume that use or operation or accomplish an alternate use or operation by the Borrower or others which will be consistent with the Code, the Act and this Loan Agreement.

(e) There are no actions, suits or proceedings pending or, to the knowledge of the Borrower threatened, against or affecting the Borrower or the Project which, if adversely determined, would, individually or in the aggregate, materially impair the ability of the Borrower to perform any of the Borrower’s obligations under the Loan Documents or the Operative Documents or adversely affect the financial condition of the Borrower.

(f) There does not exist a default by the Borrower under the provisions of any law, ordinance, regulation, decree, order, agreement or instrument of any nature whatsoever to which the Borrower is a party or by which it is bound or to which it or any of its property is subject that would materially impair the ability of the Borrower to perform any of the Borrower’s obligations under the Loan Documents or the Operative Documents (provided that no representation or warranty is made with respect to any obligations with respect to which the Borrower has no liability other than from revenues provided by or performance by a third party or reserves heretofore pledged to secure any such liability), nor is it in default under any of the Loan Documents or the Operative Documents, or in the payment of any indebtedness for borrowed money (but no representation or warranty is made with respect to any obligations with respect to which the Borrower has no obligation other than from revenues provided by a third party or reserves heretofore pledged to secure any such liability) or under any agreement or instrument evidencing any such indebtedness as to which

the foregoing representation is made, and no event has occurred which, by notice, the passage of time or both, would constitute such a default that would materially impair the ability of the Borrower to perform any of the Borrower’s obligations under the Loan Documents or the Operative Documents.

(g) Based solely on the representations and warranties made by the Lessee, the zoning ordinances applicable to the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, permit the Provision of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, on the Project Site and areas adjacent to the Project Site in accordance with the Plans and Specifications and the operation of the Lessee’s business at the Project Site; and, based solely on assurances provided by the Lessee, all utilities, including water, storm and sanitary sewer, gas, electric and telephone, and rights of access to public ways are available or will be provided to the Project Site in sufficient locations and capacities to meet the requirements of operating the Project and of any applicable Governmental Authority.

(h) The Borrower has made no contract or arrangement of any kind, other than the Loan Documents and the Operative Documents, which has given rise to, or the performance of which by the other party thereto would give rise to, a lien or claim of lien on the Project on or after the Closing Date other than liens granted by the Loan Documents, except Permitted Encumbrances.

(i) To the knowledge of the Borrower and based, without independent investigation, solely on representations and warranties made by the Lessee, no representation or warranty made by the Borrower and contained in any of the Financing Approval Documents, the Loan Documents or the Operative Documents, and no statement contained in any certificate, schedule, list, financial statement or other instrument furnished to the Director by or on behalf of the Borrower, including, without limitation, the Application, contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

(j) All proceeds of the State Assistance, the State Loan and the LDI Loan shall be used for the payment of, or reimbursement to the Borrower or the Construction Agent for, Allowable Costs. No part of any such proceeds shall be knowingly paid to or retained by the Borrower or, to Borrower’s knowledge, the Construction Agent, or any officer, agent or employee of the Borrower or any member of its Board of Directors, or, to Borrower’s knowledge, any officer, director, shareholder or employee of the Construction Agent, as a fee, kick-back or consideration of any type. Neither the Borrower nor, to Borrower’s knowledge, the Construction Agent, has any identity of interest with any supplier, contractor, architect, subcontractor, laborer or materialman performing work or services or supplying materials in connection with the Provision of the Project, the Adjacent Hangar Demolition, or the Related Area Improvements.

(k) Based on the representations of the Lessee, and to the Borrower’s knowledge without independent investigation, the Borrower represents as follows: except as disclosed in the Environmental Report, (1) no Hazardous Substance, Hazardous Waste, Toxic Chemical or Petroleum has been discharged, dispersed, released, stored or treated at the Project Site, except in material compliance with Environmental Laws; (2) no Hazardous Substance, Hazardous Waste, Toxic Chemical or Petroleum will be discharged, dispersed, released, stored or treated at the Project Site, except in compliance with Environmental Laws; (3) no asbestos or asbestos-containing

materials have been or will be installed, used or incorporated into any buildings, structures, additions, improvements, facilities, fixtures or installations at the Project Site, or disposed of on or otherwise released at or from the Project Site, except in compliance with Environmental Laws; (4) no underground storage tanks are located at the Project Site; (5) no investigation, administrative order, consent order and agreement, litigation or settlement under any Environmental Law with respect to any Hazardous Substance, Hazardous Waste, Toxic Chemical, Petroleum, asbestos or asbestos containing material is proposed, in existence, or threatened or anticipated with respect to the Project or the Project Site; and (6) the Project and the Project Site are in compliance with all applicable Environmental Laws and the Borrower has not received any notice from any entity, Governmental Authority, or individual claiming any violation of, or requiring compliance with any Environmental Law. Based on the representations of the Lessee, and to the Borrower’s knowledge without independent investigation, except as disclosed in the Environmental Report, no “clean up” of the Project or the Project Site has occurred pursuant to any applicable Environmental Laws which would give rise to (i) liability on the part of any person, entity or association to reimburse any Governmental Authority for the costs of any such “clean up,” or (ii) a lien or encumbrance on the Project.

(a) Upon completion of the Provision of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, the Borrower will have good and marketable title to the Project, subject in all cases to no lien, charge, condition, restriction, encumbrance, easement or agreement, except as created by or otherwise permitted by the Loan Documents and the Operative Documents.

All representations and warranties contained in, or made in connection with, this Loan Agreement and the other Loan Documents shall survive the Closing Date and the disbursement of the State Loan, the State Assistance and the LDI Loan by the Director and, with respect to the State Loan and the State Assistance, the proceeds thereof by the Trustee, and shall not be limited or otherwise affected by any and all inspections, investigations, reviews or other inquiries made or other actions taken by the Director or any of his agents, representatives and designees or any other Person or board assisting any of the foregoing or acting for or on behalf of the State in connection with the Application, the Financing Approval Documents, the Loan Documents or the consummation of the State Loan, the State Assistance and the LDI Loan.

[End of Article II]

ARTICLE I
COMMENCEMENT AND COMPLETION OF THE PROJECT

Section 1.1. Provision of the Project . The Borrower (a) has commenced or shall promptly hereafter cause the Provision of the Project in accordance with the Operative Documents and the Financing Approval Documents; (b) shall pay all expenses incurred in the Provision of the Project from funds made available therefor in accordance with this Loan Agreement or otherwise; and (c) shall demand, sue for, levy and recover all sums of money and debts which may be due and payable under the terms of any contract, order, receipt, guaranty, warranty, writing or instruction in connection with the Provision of the Project and will enforce the terms of any contract, agreement, obligation, bond or other performance security with respect thereto.

Section 1.2. Deposits to the Project Funds; the Issuance Expense Account and the Capitalized Interest Account; Advances of the LDI Loan . In order to provide funds for payment of a portion of the Allowable Costs, subject to the satisfaction of the conditions set forth in Section 3.4 hereof, the Director, on the Closing Date, shall cause to be deposited in the Issuance Expense Account $117,715.00 from the proceeds of the Bonds, to be deposited in the Capitalized Interest Account $323,202.69 from the proceeds of the Bonds and to be deposited in the State Assistance Project Fund, the balance of the proceeds of the Bonds. The LDI Loan will be advanced in the amount of 15% of amounts disbursed for Allowable Costs pursuant to Section 3.3, which shall be made against draw requests from the Construction Agent on behalf of the Borrower upon the same terms and conditions as payments from the Project Funds.

Section 1.3. Disbursement from the Project Funds . The Treasurer has, in the Supplement, authorized and directed the Trustee to disburse the moneys in the Project Funds for Allowable Costs. Each payment from the Project Funds shall be made only upon (a) the written direction of an Authorized Lessee Representative, acting on behalf of the Lessee as Construction Agent on behalf of the Borrower (in the form of Exhibit C attached hereto), who shall certify with respect to each such payment (i) on behalf of the Borrower that: (A) the Borrower’s representations and warranties made in the Loan Documents remain true, accurate and complete as of the date thereof in all material respects, (B) no Event of Default or event which, by notice, the passage of time or otherwise, would constitute an Event of Default, exists under the Loan Documents, (C) each item for which disbursement is requested is an Allowable Cost and is necessary for the Project, the Adjacent Hangar Demolition, or the Related Area Improvements, (D) no item for which disbursement is requested is the subject of duplicative disbursement request, and (E) the Allowable Costs to be paid from the requested disbursement are capitalized under general accepted accounting principles and will be so capitalized and (ii) on behalf of the Lessee that (A) the Lessee’s representations and warranties made in the Operative Documents remain true, accurate and complete as of the date thereof in all material respects and (B) no Event of Default or event which, by notice, the passage of time or otherwise, would constitute an Event of Default exists under any of the Operative Documents, (b) satisfaction of the provisions of the Terms and Conditions to Disbursement and (c) the written approval of the Director. The Trustee shall be allowed a reasonable time, not to exceed 15 days, in view of the character of any investments required to be liquidated for the purpose, for the making

of any disbursement from the Project Funds authorized by this Section. Disbursements from the Project Funds shall be made first from the State Assistance Project Fund and, after all amounts from the State Assistance Project Fund have been disbursed, from the State Loan Proceeds Fund; provided however, that amounts in respect of costs of issuance of the Series 2012-9 Bonds in excess of amounts deposited in the Issuance Expense Account may be disbursed from the State Loan Proceeds Fund prior to disbursement of all amounts from the State Assistance Project Fund.

Section 1.4. Conditions to Disbursement of the State Assistance and the State Loan . The Director shall deliver the State Assistance Amount and the State Loan Amount to the Trustee on the Closing Date, to be thereafter disbursed by the Trustee pursuant to Section 3.3 of this Agreement, provided the Director shall have received the following on or before the Closing Date:

(a) this Agreement and other Loan Documents, duly executed;

(b) the Lease and the other Operative Documents, duly executed;

(a) [Intentionally omitted];

(b) a duly executed power of attorney to effect wire transfers, if applicable;

(c) evidence satisfactory to the Director of the deposit of cash in the amount of the Original Deposit with, or the delivery of the Primary Reserve Letter of Credit with, the Trustee;

(d) certification by (i) the Borrower that (A) the Borrower’s representations and warranties made in the Loan Documents remain true, accurate and complete as of the Disbursement Date in all material respects, (B) no default or event which, by notice, the passage of time or otherwise, would constitute a default, exists under the Loan Documents, (ii) the Lessee that (A) the Lessee’s representations and warranties made in the Operative Documents remain true, accurate and complete as of the Disbursement Date in all material respects, (B) no default or event which, by notice, the passage of time or otherwise, would constitute a default by the Lessee, exists under the Loan Documents or any of the Operative Documents; (C) that the value of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements is, or upon completion will be, equal to or greater than the total amount of the State Assistance Amount, the State Loan Amount and the LDI Loan Amount, and (D) the aggregate amount of the State Assistance and the State Loan, less the cash amount of the Original Deposit, will not exceed 90% of the total Allowable Costs; and (iii) the Operating Company that the Operating Company’s representations and warranties made in the Application remain true, accurate and complete as of the Disbursement Date in all material respects;

(e) evidence of the liability and property insurance required by the Loan Documents;

(f) evidence of availability and adequacy of utilities for the Project;

(g) a Certificate of Good Standing from the Secretary of State of the State of Delaware and the State, each dated within 10 days prior to the Disbursement Date, with respect to each of

ATSG and the Operating Company and a certificate of Good Standing from the Secretary of State of Nevada and the State, each dated within 10 days prior to the Disbursement Date, with respect to the Lessee;

(h) certified copies of the resolutions of the Borrower authorizing execution and delivery of the Loan Documents to which it is a party, and any other document, certificate or instrument to be executed and delivered thereunder, and performance of each obligation thereunder, as applicable;

(i) certified copies of the resolutions or written actions of the Lessee authorizing execution and delivery of the Loan Documents and Operative Documents to which it is a party and any other document, certificate or instrument to be executed and delivered thereunder, and performance of each obligation thereunder, as applicable;

(j) certified copies of the resolutions or written actions of the Operating Company authorizing execution and delivery of the Operating Sublease and any other document, certificate or instrument to be executed and delivered thereunder, and performance of each obligation thereunder, as applicable;

(k) certified copies of the resolutions or written actions of ATSG authorizing execution and delivery of the Guaranty and any other document, certificate or instrument to be executed and delivered thereunder, and performance of each obligation thereunder, as applicable;

(l) copies, certified by the Borrower to be true, correct and complete, of the Governing Instruments of the Borrower;

(m) copies, certified by the Lessee to be true, correct and complete, of the Governing Instruments of the Lessee;

(n) copies, certified by the Operating Company to be true, correct and complete, of the Governing Instruments of the Operating Company;

(o) copies, certified by ATSG to be true, correct and complete, of the Governing Instruments of ATSG;

(p) a certificate of incumbency as to the officer(s) executing the Loan Documents on behalf of the Borrower;

(q) a certificate of incumbency as to the officer(s) executing the Loan Documents and the Operative Documents on behalf of the Lessee;

(r) a certificate of incumbency as to the officer(s) executing the Operating Sublease on behalf of the Operating Company;

(s) a certificate of incumbency as to the officer(s) executing the Guaranty on behalf of ATSG;

(t) copies of all lien and litigation searches of Lessee, Operating Company and ATSG;

(u) copies of all Plans and Specifications;

(v) all licenses and permits required by any Governmental Authority;

(w) an environmental assessment or assessments of the Project Site and the improvements thereon, in form satisfactory to the Director;

(x) copy of the Operating Sublease;

(y) copy of the ALTA survey of the Project Site;

(z) a copy of the ALTA Loan Policy of Title Insurance for the Project Site;

(aa) an opinion of the Borrower’s counsel, which sets forth substantially the following:

(i) the Borrower is a body corporate and politic of the State, duly organized and existing under Sections 4582.21 through 4582.71, Ohio Revised Code;

(ii) the Borrower has full power and authority to lease the Premises and the Project to the Lessee and to enter into, execute, deliver and perform the Loan Documents and the Operative Documents to which Borrower is a party;

(iii) the Loan Documents and the Operative Documents to which the Borrower is a party, have been duly authorized, executed and delivered by the Borrower and are valid and binding instruments, enforceable against the Borrower in accordance with their respective terms, except as such enforcement may be limited by the application of bankruptcy, insolvency, reorganization, moratorium and other similar laws or equitable principles affecting creditors’ rights generally; and the Borrower has taken all actions necessary to carry out and give effect to the transactions contemplated to be performed on the part of the Borrower under the Loan Documents and the Operative Documents to which it is a party;

(iv) the execution and delivery of each of the Loan Documents and the Operative Documents to which the Borrower is a party and the performance by the Borrower of the actions required of the Borrower thereby and the consummation of the transactions contemplated therein do not and will not conflict with or violate any provisions of the Borrower’s Governing Instruments, or to the knowledge of such counsel constitute a default under, conflict with or violate of any judgment, decree, indenture, mortgage, deed of trust, lease, guaranty, agreement or other instrument to which the Borrower is a party or by which the Borrower is bound, or conflict with or violate any provisions of law, administrative regulation, or court order or consent decree;

(v) there is no action, temporary restraining order, injunction, suit, proceeding or inquiry before or by any judicial or administrative court or agency, pending or to the knowledge of such counsel threatened against or affecting, or involving the properties, securities or businesses of the Borrower;

(vi) the Borrower has obtained any and all requisite governmental consents, permits, licenses and approvals necessary for the Borrower to enter into, execute and deliver the Loan Documents and the Operative Documents to which the Borrower is a party and to perform the Borrower’s obligations thereunder, provided that no opinion is being rendered with respect to the Provision of the Project, Adjacent Hangar Demolition or the Related Area Improvements; and

(i) Such assumptions and qualifications as may be agreed by Borrower’s counsel and the Director.

(bb) an opinion of the Lessee’s counsel, which sets forth substantially the following:

(i) The Lessee has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Nevada, is qualified to do business in the State, and has all requisite power to conduct the Lessee’s business and to own, or hold under lease, the Lessee’s property;

(ii) The Lessee has full power and authority to execute and deliver the Loan Documents and Operative Documents to which it is a party;

(iii) The Lessee has duly authorized the taking of any and all actions necessary to carry out and give effect to the transactions contemplated to be performed on the part of the Lessee under the Loan Documents and the Operative Documents;

(iv) Each of the Loan Documents and the Operative Documents to which the Lessee is a party has been duly authorized, executed and delivered by the Lessee, and is a legal, valid and binding obligation of the Lessee, enforceable in accordance with its terms, except as such enforcement may be limited by the application of bankruptcy, insolvency, reorganization, moratorium and other similar laws or equitable principles affecting creditors’ rights generally;

(v) The execution and delivery of each of the Loan Documents and the Operative Documents to which the Lessee is a party and the performance by the Lessee of the actions required of the Lessee thereby and the consummation of the transactions contemplated therein do not and will not (A) conflict with or violate any provisions of the Lessee’s Governing Instruments, or (B) constitute a default under or conflict with any resolution of the shareholders or directors of the Lessee, or (C) conflict with or violate any provisions of applicable law, or (D) to the knowledge of such counsel, conflict with or violate any judgment, decree, indenture, mortgage, deed of trust, lease, guaranty, agreement or other instrument to which the Lessee is a party or by which the Lessee, or any of Lessee’s property, is bound;

(vi) There is no action, temporary restraining order, injunction, suit, proceeding, inquiry or investigation at law or in equity, before or by any judicial or administrative court or agency, pending or, to the best knowledge of such counsel, threatened against or affecting, or involving the properties, securities or businesses of the Lessee;

(vii) The Lessee has obtained any and all requisite governmental consents, permits, licenses and approvals necessary for the Lessee to enter into, execute and deliver the Loan Documents and Operative Documents to which the Lessee is a party and to perform the Lessee’s obligations thereunder;

(viii) Upon the recording of the Mortgage in the office of the Recorder of Clinton County, Ohio, the Mortgage will have been duly recorded in all public offices in which it is required to be so recorded by Ohio law to publish notice thereof; and

(i) Such assumptions and qualifications as may be agreed by Lessee’s counsel and the Director;

(a) an opinion of Operating Company’s counsel, which sets forth substantially the following:

(i) The Operating Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has all requisite power to conduct the Operating Company’s business and to own, or hold under lease, the Operating Company’s property;

(ii) The Operating Company has full power and authority to execute and deliver the Operating Sublease;

(iii) The Operating Company has duly authorized the taking of any and all actions necessary to carry out and give effect to the transactions contemplated to be performed on the part of Operating Company under the Operating Sublease;

(iv) The Operating Sublease has been duly authorized, executed and delivered by the Operating Company, and is a legal, valid and binding obligation of the Operating Company, enforceable in accordance with its terms, except as such enforcement may be limited by the application of bankruptcy, insolvency, reorganization, moratorium and other similar laws or equitable principles affecting creditors’ rights generally;

(v) The execution and delivery of the Operating Sublease and the performance by the Operating Company of its obligations thereunder do not and will not conflict with or violate any provisions of the Operating Company’s Governing Instruments, or constitute a default under, conflict with or violation of any judgment, decree, indenture, mortgage, deed of trust, lease, guaranty, agreement or other instrument to which the Operating Company is a party or by which the Operating Company is bound, or conflict with or violate any provisions of law, administrative regulation, or court order or consent decree; and

(vi) Such assumptions and qualifications as may be agreed by Operating Company’s counsel and the Director.

(b) an opinion of ATSG’s counsel, which sets forth substantially the following:

(i) ATSG has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has all requisite power to conduct ATSG’s business and to own, or hold under lease, ATSG’s property;

(ii) ATSG has full power and authority to execute and deliver the Guaranty;

(iii) ATSG has duly authorized the taking of any and all actions necessary to carry out and give effect to the transactions contemplated to be performed on the part of ATSG under the Guaranty;

(iv) The Guaranty has been duly authorized, executed and delivered by ATSG, and is a legal, valid and binding obligation of ATSG, enforceable in accordance with its terms, except as such enforcement may be limited by the application of bankruptcy, insolvency, reorganization, moratorium and other similar laws or equitable principles affecting creditors’ rights generally;

(v) The execution and delivery of the Guaranty and the performance by ATSG thereunder do not and will not conflict with or violate any provisions of ATSG’s Governing Instruments, or constitute a default under, conflict with or constitute a violation of any judgment, decree, indenture, mortgage, deed of trust, lease, guaranty, agreement or other instrument to which ATSG is a party or by which ATSG is bound, or conflict with or violate any provisions of law, administrative regulation, or court order or consent decree; and

(vi) Such assumptions and qualifications as may be agreed by ATSG’s counsel and the Director.

(c) evidence that the Borrower has satisfied the terms and conditions set forth on Exhibit D attached hereto, with respect to any disbursement request for Allowable Costs expected to be fulfulled on the Disbursement Date, and such other documents, instruments or certificates as the Director shall reasonably require.

The Trustee shall deposit the State Assistance in the State Assistance Project Fund; the Issuance Expense Account and the Capitalized Interest Account, as provided in the Series Bond Order, and the State Loan Amount in the State Loan Proceeds Fund upon receipt. Moneys deposited to the Project Funds pursuant to this Section 3.4 shall be disbursed for Allowable Costs in the manner provided by Section 3.3 hereof.

Section 1.5. Establishment of Completion Date . The Borrower, based on the representations of the Lessee and Operating Company, covenants that the Completion Date shall occur not later than June 30, 2014. The Completion Date shall be evidenced to the Director by a certificate signed by the Authorized Lessee Representative, as Construction Agent for the Borrower, as provided in Section 2.2(i) of the Lease. Upon receipt of such certificate the Trustee shall retain in the Project Funds amounts specified in such certificate as not yet being due, being contested or otherwise required to be retained in the Project Funds, and all other amounts remaining in the State Assistance Project Fund shall be transferred to the Collateral Proceeds Account and all other amounts remaining in the State Loan Proceeds Fund shall be paid to the Director and applied to prepayment

of the State Loan Note in accordance with its terms. Notwithstanding the foregoing, such certificate shall state that it is given without prejudice to any rights against third parties which exist at the date of such certificate or which may subsequently come into being.

Section 1.6. Borrower to Pay, or Cause Lessee to Pay, Costs in Event Project Funds Insufficient . In the event the moneys from the State Assistance, moneys from the State Loan in the Project Funds and available for payment of costs of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, and moneys advanced from the LDI Loan and available for payment of costs of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, should not be sufficient to pay the Allowable Costs or, if any other costs of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements remain unpaid, the Borrower agrees, for the benefit of the Director to complete, or to cause the Lessee to complete, the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, and to and to pay, or cause to the Lessee to pay, all costs of such completion in full in excess of the moneys so available. The Director does not make any warranty, either express or implied, that the moneys which will be paid into the Project Funds or made available from the State Assistance, the State Loan or the LDI Loan, and which under the provisions of this Loan Agreement will be available for payment of the Allowable Costs, will be sufficient to pay the Allowable Costs. The Borrower agrees that if after exhaustion of the moneys from the State Assistance, the moneys from the State Loan and the moneys from the LDI Loan, the Borrower shall pay, or shall cause the Lessee to pay, any portion of the Allowable Costs pursuant to the provisions of this Section, neither Borrower nor Lessee shall be entitled to any reimbursement therefor from the Director or the Trustee, nor shall the Borrower be entitled to any diminution in or postponement of the loan payments payable under Section 4.2, Section 4.3 or Section 4.4 hereof. The Borrower shall also pay, or caused to be paid, all costs incident to the State Assistance, the State Loan and the LDI Loan.

Section 1.7. Plans and Specifications; Inspections . At the Director’s option, the Director may designate an employee or officer of the State or may retain, at the Borrower’s expense, an architect, engineer, appraiser or other consultant for the purpose of approving the Plans and Specifications, verifying costs and performing inspections of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, as Provision of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, progresses or reviewing any construction contracts and payment or performance bonds or other forms of assurance of completion of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements. Such inspections, reviews or approvals shall not impose any responsibility or liability of any nature upon the Director, the State or officers, employees, agents, representatives or designees of the Director or the State, or, without limitation, make or cause to be made any warranty or representation as to the adequacy or safety of the structures or any of their component parts or any other physical condition or feature pertaining to the Project, the Adjacent Hangar Demolition, and the Related Area Improvements. At the request of the Director, the Borrower shall make, or shall cause the Construction Agent to make, periodic reports (including, if required, submission of updated Cost Certifications) to the Director concerning the status of completion and the expenditures for costs in respect thereof.

The Borrower, or the Construction Agent, on behalf of the Borrower, may revise the Plans and Specifications from time to time in accordance with the Lease; provided, that no revision shall

be made (a) which would change the Project Purposes to purposes other than those permitted by the Act or that would jeopardize the tax-exempt status of the Bonds, (b) without obtaining, to the extent required by law, the approval of any applicable Governmental Authority or (c) without obtaining the written approval of the Director if such revision would change the amounts set forth in the most recently furnished Cost Certification, which approval will not be unreasonably withheld, conditioned or delayed. In any event, all revisions to the Plans and Specifications shall be promptly filed with the Director, upon request. The Borrower shall complete, or shall cause to be completed, the Provision of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, substantially in accordance with the Plans and Specifications.

Section 1.8. Remedies to be Pursued against Contractors and Subcontractors and their Sureties . In the event of default of any contractor or subcontractor under any contract made by it in connection with the Project or in the event of a breach of warranty with respect to any materials, workmanship or performance guaranty, the Borrower will, or will cause the Construction Agent to, promptly proceed to the extent commercially reasonable, either separately or in conjunction with others, to exhaust the remedies of the Borrower against the contractor or subcontractor so in default and against each surety for the performance of such contract. Any amounts recovered as refunds or other adjustments to the cost of the Project in connection with the foregoing, after deduction of expenses incurred in such recovery, and such expenses as necessary to return the work conducted by such contractor or subcontractor to ordinary operating condition, prior to the Completion Date shall be paid into the Project Fund from which such amount was paid, or if recovered after the Completion Date and the full disposition of the Project Funds in accordance with Section 3.5 hereof, shall be paid to the Trustee for deposit in the Collateral Proceeds Account.

Section 1.9. Investment of Project Funds, Primary Reserve Account, Capitalized Interest Account or Collateral Proceeds Account . Any moneys held as part of the Project Funds, the Primary Reserve Account, the Capitalized Interest Account or the Collateral Proceeds Account shall be invested by the Trustee, upon the written or oral direction (but if oral, confirmed promptly in writing) of the Authorized Lessee Representative, in Eligible Investments; provided, however, that moneys held as part of the Capitalized Interest Account of the Collateral Proceeds Account shall be invested only in Eligible Investments which are not “investment property” within the meaning of Section 148(b) of the Code; and provided, further, that cash amounts in the Primary Reserve Account in excess of the amount of the Original Deposit and amounts in the Capitalized Interest Account and the Collateral Proceeds Account shall not be invested at a yield which is materially higher than the yield on the bonds, within the meaning of the Code.

[End of Article III]

ARTICLE I
STATE ASSISTANCE AND LOAN REPAYMENTS

Section 1.10. State Assistance . The Director shall lend to the Borrower the State Assistance Amount pursuant to the Supplement and this Loan Agreement as the State Assistance for the purposes of financing a portion of the Allowable Costs. The Borrower agrees to repay the State Assistance by making all of the payments provided for in Section 4.4 of this Agreement; provided, however, that such amounts are payable solely from the Rent and any other amounts derived by the Borrower from the lease, sale or other disposition of the Project, and from any other collateral that may from time to time be assigned to the Director to secure payment thereof, and are an obligation of the Borrower only to the extent of such moneys and any such collateral. The loan of the State Assistance shall be evidenced by and secured by the Loan Documents, including but not limited to, the State Assistance Note.

Section 4.2. State Loan . On the terms and conditions of this Agreement, the Director shall lend to the Borrower the State Loan Amount to assist in the financing of a portion of the Allowable Costs. The State Loan shall be evidenced and secured by the Loan Documents, including, but not limited to, the State Loan Note. The State Loan shall be disbursed upon the satisfaction of the conditions set forth in Section 3.4 hereof. The State Loan shall be disbursed only from, and only to the extent that on the Disbursement Date funds not theretofore committed are available to make the State Loan from moneys in the Facilities Establishment Fund.

The terms of repayment of the State Loan shall be as set forth in the State Loan Note, and the Borrower shall make all payments required to be made on the State Loan Payment Schedule attached to the State Loan Note as and when due; provided, however, that such amounts are payable solely from the Rent and any other amounts derived by the Borrower from the lease, sale or other disposition of the Project, and from any other collateral that may from time to time be assigned to the Director to secure payment thereof, and are an obligation of the Borrower only to the extent of such moneys and any such collateral. The Borrower authorizes the Director to deliver the State Loan Payment Schedule following the Disbursement Date and to attach such State Loan Payment Schedule to this Agreement and the State Loan Note.

Section 4.3. LDI Loan . (a) On the terms and conditions of this Agreement, the Director shall lend to the Borrower the LDI Loan Amount to assist in the financing of a portion of the Allowable Costs. The LDI Loan shall be evidenced and secured by the Loan Documents, including, but not limited to, the LDI Loan Note. The LDI Loan shall be disbursed from time to time upon the satisfaction of the conditions set forth in Section 3.2 hereof.

(b) The terms of repayment of the LDI Loan shall be as set forth in the LDI Loan Note, and the Borrower shall make all payments required to be made on the LDI Loan Note as and when due; provided, however, that such amounts are payable from the Rent and any other amounts derived by the Borrower from the lease, sale or other disposition of the Project, and from any other collateral

that may from time to time be assigned to the Director to secure payment thereof, and are an obligation of the Borrower only to the extent of such moneys and any such collateral.

(c) If the following conditions are satisfied as of the Completion Date, the LDI Loan shall be immediately forgiven and Borrower’s obligations to make payments under the LDI Loan Note and under this Agreement with respect to the LDI Loan shall be deemed satisfied as of the Completion Date:


(i)	The LDI Loan is then in full force and effect and no Event of Default hereunder shall have occurred and is then continuing;


(ii)	The Project has been fully constructed and completed, as certified in writing by Borrower, or by the Construction Agent on behalf of Borrower, and confirmed by the Director; and


(iii)	The Construction Hours Commitment as set forth in Section 1.2 of this Agreement has been satisfied, as certified in writing by Borrower, or by the Construction Agent on behalf of Borrower, and confirmed by the Director.

Section 4.4. Borrower Payments for the State Assistance . (a) The terms of repayment of the State Assistance shall be as set forth in the State Assistance Note, and the Borrower shall make all payments required to be made on the State Assistance Payment Schedule attached to the State Assistance Note as and when due; provided, however, that such amounts are payable solely from the Rent and any other amounts derived by the Borrower from the lease, sale or other disposition of the Project, and from any other collateral that may from time to time be assigned to the Director to secure payment thereof, and are an obligation of the Borrower only to the extent of such moneys and any such collateral. The Borrower hereby authorizes the Director to deliver the State Assistance Payment Schedule and to attach the State Assistance Payment Schedule to this Agreement and the State Assistance Note on or after the Closing Date.

(b) If the Borrower fails to make any payment required by this paragraph on the due date thereof, the Trustee shall, to the extent that funds are available therefor, transfer to the Debt Service Account an amount equal to such payment from the Collateral Proceeds Account and, if the balance in the Collateral Proceeds Account is insufficient, from the Primary Reserve Account.

(c) If moneys are transferred from the Primary Reserve Account or the Collateral Proceeds Account to the Debt Service Account pursuant to the provisions of Section 14 of the General Bond Order, and if no Event of Default is then existing, the Borrower shall receive a credit against loan payments payable hereunder, in inverse order of their maturity, in an amount equal to the amount so transferred.

(d) If no Event of Default is then existing and if the balance in the Primary Reserve Account is greater than or equal to the aggregate amount of loan payments to become due and payable during the remaining Loan Term, the Borrower may, at the direction of the Lessee, direct the Trustee to apply moneys in the Primary Reserve Account to monthly loan payments as they become due and, in such case and notwithstanding the provisions of Section 4.6 hereof, the Borrower shall not be

required to deliver moneys to the Trustee to restore the balance in the Primary Reserve Account to an amount equal to the Original Deposit.

(e) (i) (A) Not later than the 15th day of each month, commencing January 15, 2014, the Borrower shall pay to the Trustee an amount equal to (1) 1/12 ^th of the Trustee’s Annual Administrative Fee and (2) any amounts payable pursuant to Section 7.5(b)(vi) hereof and (B) not later than the 15th day of each month, commencing November 15, 2015, the Borrower shall pay to the Trustee an amount equal to 1/12 ^th of the Director’s State Assistance Administrative Fee. (ii) Not later than the 15th day of each May and November, commencing May 15, 2016, the Borrower shall pay to the Trustee an amount equal to 1/2 of the Director’s State Loan Administrative Fee. The Borrower and the Director acknowledge and agree that the Additional Payments are intended to reimburse the Development Services Agency for a portion of the cost of administering the Ohio Enterprise Bond Fund program.

(f) The Borrower also agrees to pay to the Director reasonable expenses of the Director related to the Project, the Adjacent Hangar Demolition, and the Related Area Improvements, and requested by the Borrower or required by this Agreement or the Trust Agreement, or incurred in enforcing the provisions of this Agreement or the Trust Agreement and which are not otherwise required to be paid by the Borrower under the terms of this Agreement.

(g) In the event Borrower should fail to make any of the payments required in Section 4.2, Section 4.3 or Section 4.4, the item or installment so in default shall continue as an obligation of the Borrower until the amount in default shall have been fully paid, and the Borrower agrees to pay the same with interest thereon at a rate equal to the Interest Rate for Advances. If any payment required by Section 4.2, Section 4.3 or Section 4.4 is not made by the first day of the month following the month in which such payment is due, the Borrower shall pay, in addition to such payment, a late payment charge of five percent (5%) of the amount of such payment.

Section 4.5. Place of Payments . The loan payments and the late payment charges to be paid in connection with the State Assistance shall be paid directly to the Trustee by automated clearinghouse pre-authorized payment system for the account of the Director, and the Trustee shall deposit such payments in the Debt Service Account. The Additional Payments with respect to the State Assistance shall be paid to the Trustee, who shall pay such amounts to the Director, not less frequently than monthly, for deposit in the First Half Account (if received by the Director between January 1 and June 30) or the Second Half Account (if received by the Director between July 1 and December 31) created in the Trust Agreement. The loan payments and the late payment charges related to the State Loan shall be paid directly to the Director. Amounts received by the Director pursuant to the TIF Cooperative Agreement shall be credited against amounts payable with respect to the State Loan. The loan payments and the late payment charges related to the LDI Loan shall be paid directly to the Director.

Section 4.6. Primary Reserve Account . Upon delivery of this Loan Agreement and in accordance with the General Bond Order and the Series Bond Order, the Borrower shall deliver, or cause to be delivered, to the Trustee for deposit or credit to the Primary Reserve Account a sum of money equal to the Original Deposit (which sum may, to the extent provided for in the Series Bond Order, be derived from proceeds of the sale of the Bonds or pursuant to the Primary Reserve Letter

of Credit). In accordance with the provisions of the General Bond Order and the Series Bond Order, the Trustee shall transfer moneys from the Primary Reserve Account to the Debt Service Account (and shall draw on the Reserve Letter of Credit if necessary, in order to obtain such moneys) if (a) the Borrower shall have failed to make a loan payment required by the State Assistance Note, and (b) the balance in the Collateral Proceeds Account is insufficient to provide funds for such transfer.

If, as a result of a transfer described in the immediately preceding paragraph, the balance in the Primary Reserve Account is less than the Original Deposit, the Trustee shall promptly notify the Borrower and the Lessee, by telephone and confirmed in writing, of the amount of such deficiency, and the Borrower shall, not later than ten (10) days after receipt of such notice, deliver to the Trustee for deposit or credit to the Primary Reserve Account, or cause to be deposited or credited to the Primary Reserve Account, moneys or the Primary Reserve Letter of Credit in the amount of such deficiency.

Pursuant to the Supplement, the Trustee is directed to draw upon any Primary Reserve Letter of Credit prior to its expiration for the full amount thereof and deposit the proceeds of such drawing in the Primary Reserve Account unless, not later than thirty (30) days prior to the expiration of such Primary Reserve Letter of Credit, the Borrower shall have delivered to the Trustee a replacement Primary Reserve Letter of Credit in the same amount as the expiring letter of credit, or evidence that the issuer of the Primary Reserve Letter of Credit has extended the maturity thereof for a period of not less than one (1) year (or fifteen (15) days following the final maturity date of the Bonds, if earlier).

Pursuant to Section 14 of the General Bond Order, the Trustee shall, under the circumstances described in said Section 14, transfer moneys from the Primary Reserve Account to the Debt Service Account, and the Trustee shall draw on any Primary Reserve Letter of Credit, if necessary, to obtain moneys to make such transfer.

Section 4.7. Extent of the Covenants of the Borrower; No Personal Liability or Pledge of General Credit . All covenants, obligations and agreements of the Borrower contained in this Loan Agreement, the Loan Documents and the Operative Documents shall be effective only to the extent authorized and permitted by applicable law. No such covenant, obligation or agreement of the Borrower shall be deemed to be a covenant, obligation or agreement of any present or future officer, agent or employee of the Borrower or any member of its Board of Directors in other than that person’s official capacity. No officer, agent or employee or other person acting on behalf of the Borrower or its Board of Directors executing the Notes, this Loan Agreement, the Loan Documents or the Operative Documents shall be liable thereon, or be subject to any personal liability or accountability whatever by reason of the issuance of the Notes or the execution and delivery of any such documents. Nothing in this Loan Agreement, the Commitment, the Notes, the Bond Legislation, the Loan Documents or the Operative Documents shall constitute a general obligation, debt or bonded indebtedness, or a pledge of the general credit or taxing power, of the Borrower, and the Director has not been given and does not have any right to have excises or taxes levied by the Borrower or the taxing authority of any other political subdivision or other local agency for any payment or other obligation required or secured thereby, but all such payments and obligations shall, in addition to all rights of the Trustee to amounts held under the Trust Agreement, be payable

solely from the Rent and any other amounts derived by the Borrower from the lease, sale or other disposition of the Project, and from any other collateral that may from time to time be assigned to the Director to secure payment thereof, and are an obligation of the Borrower only to the extent of such moneys and any such collateral; provided that the limitations set forth in this Section 4.7 shall in no way reduce or diminish the rights of the Director to enforce the Guarantors’ performance under the Guaranty.

[End of Article IV]

ARTICLE IV•
MAINTENANCE, TAXES AND INSURANCE

Section 5.1. Maintenance and Modifications of Project . The Borrower agrees that during the Loan Term (but after the Completion Date) it will keep, or cause to be kept, the Project in good repair and good operating condition, ordinary wear and tear excepted.

The Borrower shall have the privilege of remodeling or making additions, modifications or improvements to the Project from time to time as it, in the Borrower’s discretion, may deem to be desirable for its uses and purposes; provided, the Project is still used for the Project Purposes upon completion of remodeling, additions, modifications or improvements. The cost of such remodeling, additions, modifications and improvements shall be paid by the Borrower.

Section 5.2. Removal of Project . The Borrower shall have the privilege from time to time of substituting machinery, equipment and related property for any portion of the Project; provided that the machinery, equipment and related property so substituted shall be of a value not less than the value of the machinery, equipment and related property replaced and shall not make the Project unsuitable for the Project Purposes. Any such substitute machinery, equipment and related property shall become part of the Project for purposes of this Agreement. In the event the aggregate of such substitutions exceed $50,000, the Borrower shall promptly notify the Director and the Trustee of all additional substitutions of machinery, equipment and related property, which notice shall include a description of the substituted machinery, equipment and related property. The Borrower shall also have the privilege of removing any portion of the Project without substitution therefor; provided that the Lessee shall pay (a) so long as any of the Bonds remain outstanding, to the Trustee for deposit in the Collateral Proceeds Account, or (b) if no Bonds remain outstanding, to the Director for application to prepayment of the State Loan Note and the LDI Loan Note in accordance with their respective terms, a sum equal to the then value of the portion of the Project removed, as determined by an Independent Engineer selected by the Lessee, and shall deliver to the Director and the Trustee a certificate signed by said Independent Engineer setting forth the value of the portion of the Project removed and stating that the removal of thereof will not make the Project unsuitable for the Project Purposes.

The Director agrees to execute and deliver such releases and other documents as the Lessee may properly request in connection with any action taken by the Borrower in conformity with this Section 5.2. The removal of a portion of the Project pursuant to the provisions of this Section shall not entitle the Borrower to any abatement or diminution of the amounts payable under Sections 4.2, 4.3 or 4.4 hereof.

Section 5.3. Taxes, Other Governmental Charges and Utility Charges. The Borrower shall pay or cause to be paid, as the same respectively become due, all taxes, assessments, whether general or special, and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project, or other property installed or brought by the Borrower or the Lessee therein or thereon (including, without limiting the generality of the foregoing, any taxes levied upon or with respect to the receipts, income or profits which, if not paid, may become or be made a lien on the Project or a charge on the revenues and receipts therefrom),

and all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project.

Notwithstanding the foregoing, either the Borrower or the Lessee shall have the right, but at its own cost and expense and after prior written notice to the Director, to contest the validity or the amount of any such tax, assessment or governmental charge by appropriate proceedings timely instituted, unless the Director shall notify the Borrower and the Lessee in writing that, in the reasonable opinion of legal counsel to the Director, by nonpayment of any such items the lien and security interest granted under the Mortgage to the Director will be materially and adversely affected or the Project or any material part thereof will be subject to loss or forfeiture, in which event the Borrower or the Lessee shall promptly cause such lien to be discharged as aforesaid or give the Director adequate protection in regard to such risks. The Director shall have the commercially reasonable discretion to determine the adequacy of the protection proffered.

Section 5.4. Insurance Required . The Borrower shall insure, or shall cause the Lessee to insure, the Project in an aggregate amount equal to the replacement cost of the Project, but in any event not less than the sum of (a) 100% of the aggregate principal amount of Bonds outstanding from time to time, (b) the unpaid principal balance of the State Loan, and (c) the unpaid principal balance of the LDI Loan, from time to time, against loss or damage by fire, boiler explosion, as well as such other risks as are covered by the endorsement commonly known as “extended coverage,” plus vandalism and malicious mischief, with insurance companies authorized to issue such policies in the State. Any insurance policy maintained by the Borrower pursuant to this Section may provide that the policy does not cover the first $100,000 or less of loss, or such greater amount as may (with due regard to insurance practices from time to time current with respect to properties similar to the Project) be approved in writing by the Director, with the result that the Borrower or the Lessee, as applicable, is its own insurer to that extent. Any return of insurance premium or dividends based upon such premium shall be due and payable solely to the Borrower or the Lessee, as applicable, unless such premium shall have been paid by the Director or the Trustee. The obligation to provide and maintain insurance shall be the obligation of the Borrower.

During the course of any construction, installation, renovation, restoration or repair on the Project Site, builder’s completed value risk insurance against “all risks of physical loss,” including collapse and transit coverage, with deductibles not to exceed $100,000, in nonreporting form, covering the total value of work performed and equipment, supplies and materials furnished. Said policy of insurance shall contain the “permission to occupy upon completion of work or occupancy” endorsement.

As an alternative to the above, the Borrower may insure, or may cause the Lessee to insure, such property under a blanket insurance policy or policies that cover not only such property but also other properties of the Lessee or its Affiliates.

Section 5.5 Additional Provisions Respecting Insurance . Any insurance policy issued pursuant to Section 5.4 hereof shall be so written or endorsed as to make losses, if any, adjustable by the Borrower or the Lessee and payable to the Borrower or the Lessee and the Trustee, for the account of the Director; provided,

any such insurance policy may be so written or endorsed as to make losses not in excess of $100,000 for each occurrence held by and payable directly to the Borrower or the Lessee as hereinafter provided in Section 6.1. Each insurance policy provided for in Section 5.4 and Section 5.7 hereof shall contain a provision to the effect that the insurance company shall not cancel the same without first giving written notice thereof to the Director and the Trustee at least thirty days in advance of such cancellation, and the Borrower or the Lessee shall deliver to the Director and the Trustee duplicate copies or certificates of insurance pertaining to each such policy of insurance procured by the Borrower or Lessee and shall keep such duplicate copies or certificates up to date.

Section 5.6. Application of Net Proceeds of Insurance . The Net Proceeds of the insurance carried pursuant to the provisions of this Loan Agreement shall be applied as follows: (i) the Net Proceeds of the insurance required in Section 5.4 hereof shall be applied as provided in Section 6.1 hereof, and (ii) the Net Proceeds of the insurance required in Section 5.7 hereof shall be applied toward extinguishment or satisfaction of the liability with respect to which such insurance proceeds may be paid.

Section 5.7. Public Liability Insurance . The Borrower shall, or shall cause the Lessee to, maintain commercial general liability insurance against claims for personal injury, death or property damage suffered by others upon, in or about any premises occupied by the Lessee, and maintain all workers’ compensation or similar insurance as may be required under the laws of any state or jurisdiction in which the Lessee may be engaged in business. All insurance for which provision has been made in this Section 5.7 shall be maintained against such risks, at such amounts and with such retentions or deductibles as such insurance is usually carried by Persons engaged in the same or similar businesses, and all such insurance shall be effected or maintained in force under a policy or policies issued by insurers of recognized responsibility, except that the Borrower may maintain workers’ compensation insurance in any state or jurisdiction in any manner permitted by the laws of that jurisdiction. The Borrower, the Director and the Trustee shall be made additional insureds under such general liability policies. The insurance provided by this Section 5.7 may be by blanket insurance policy or policies.

Section 5.8. Advances . In the event the Borrower shall fail to, or shall fail to cause the Lessee to, maintain or cause to be maintained the full insurance coverage required by this Loan Agreement or shall fail to keep, or to cause the Lessee to keep, the Project in good repair and operating condition, normal wear and tear excepted, or shall fail to pay any tax, assessment, governmental charge, public or private utility charge or other amount to be paid by the Borrower under the Loan Documents, or the by Lessee under the Operative Documents, the Director or the Trustee may (but shall be under no obligation to) take out the required policies of insurance and pay the premiums on the same or may make such repairs or replacements as are necessary and provide for payment thereof or pay any such tax, assessment, governmental charge, public or private utility charge or other amount; and all amounts so paid or advanced therefor by the Director shall become an additional obligation of the Borrower to the Director, which amounts, together with interest thereon at the Interest Rate for Advances from the date thereof, the Borrower agrees to pay, or cause the Lessee to pay, on demand.

Section 5.9. Environmental Matters . Throughout the Loan Term, the Borrower shall require the Lessee to do following:

(a) ensure that the Project Site remains in compliance in all material respects with all applicable Environmental Laws;

(b) maintain a system at the Project Site to assure and monitor continued compliance in all material respects with all applicable Environmental Laws which system shall include periodic reviews of such compliance;

(c) in the event that the Lessee (i) obtains, gives or receives written notice that a release or threat of release of a “reportable quantity” (as defined in any Environmental Law) of any asbestos or asbestos-containing material, Hazardous Substance, Hazardous Waste, Toxic Chemical or Petroleum has occurred at the Project Site (any such event being hereinafter referred to as a “Hazardous Discharge”) or (ii) receives any notice of violation, request for information or other written notification that the Lessee or the Borrower is potentially responsible for investigation or cleanup of environmental conditions at the Project Site (a “Cleanup Notice”), or (iii) receives a demand letter or complaint, order, citation, or other written notice with regard to any Hazardous Discharge or violation of Environmental Laws affecting the Project Site (any of the foregoing being hereinafter referred to as an “Environmental Complaint”) from any Person, including the Ohio Environmental Protection Agency or the United States Environmental Protection Agency, within fifteen (15) Business Days, give written notice of same to the Director and Borrower detailing the facts and circumstances of which the Lessee is aware giving rise to the Hazardous Discharge, Cleanup Notice or Environmental Complaint. Such information is to be provided solely to allow the Director to protect the Director’s security interest in the Lease, and to allow the Borrower to protect the Borrower’s interest in the Project Site and the Project, and is not intended to create nor shall it create any obligation, responsibility or liability on the part of the Director with respect thereto;

(d) respond promptly to any Hazardous Discharge or Environmental Complaint as required by applicable Environmental Law; and

(e) defend and indemnify the Director and hold the Director harmless from and against all loss, liability, damage and expense, claims, costs, fines and penalties, including reasonable attorney’s fees, suffered or incurred by the Director under or on account of the noncompliance or alleged noncompliance by the Lessee or the Borrower with any Environmental Laws with respect to (i) the Project Site, (ii) any operations, actions or inactions in the conduct of operations of the Project or at the Project Site or (iii) the Provision of the Project, the Adjacent Hangar Demolition and the Related Area Improvements, including without limitation, the assertion of any lien thereunder, with respect to any Hazardous Discharge, the presence of any asbestos, asbestos-containing materials, Hazardous Substance, Hazardous Waste, Toxic Chemical or Petroleum affecting any of the Project Site, whether or not the same originates or emerges from the Project Site or any contiguous real estate, including any loss in value of the leasehold interest in the Premises as a result of the foregoing.

The Lessee’s obligations described above in this Section shall arise upon the discovery of the presence, other than in compliance with Environmental Laws, of any asbestos, asbestos-containing material, Hazardous Substance, Hazardous Waste, Toxic Chemical or Petroleum at the Project Site, whether or not any federal, state, or local environmental agency has taken or threatened any action in connection with the presence of any asbestos, asbestos-containing material, Hazardous Substance, Hazardous Waste, Toxic Chemical or Petroleum. The Borrower’s obligations hereunder to require the Lessee to perform the obligations and the indemnifications as described above in this Section shall survive the termination of this Loan Agreement.

The Borrower further acknowledges and agrees that in the event (i) the Director has reason to believe that a Hazardous Discharge has occurred or (ii) the Lessee receives a Cleanup Notice or an Environmental Complaint, the Director may retain, at the Borrower’s expense, an Independent Consultant to perform an overall environmental assessment and to prepare a report certifying that (a) the Project Site is not being used for, or threatened by, nor has ever been used for, or threatened by, the use, generation, treatment, storage or disposal of any asbestos or asbestos-containing material, petroleum or any hazardous or toxic chemical, material, substance or waste to which exposure is prohibited, limited or regulated by any Environmental Laws or which, even if not so regulated, is known to pose a hazard to the health or safety of the occupants of the Project Site or of property adjacent thereto, or, if the Project Site has ever been used for or threatened by any such condition, the condition has been fully remediated in compliance with all Environmental Laws and (b) the Lessee’s environmental management practices are in compliance with all Environmental Laws. The overall environmental assessment may be done in three phases. The Borrower represents and warrants that the Borrower has the authority to grant, and hereby does grant, to the Director, the Director’s agents, representatives, employees, consultants and contractors the right to enter the Project Site and to perform such acts as are necessary to conduct such assessment.

[End of Article V]

ARTICLE V•
DAMAGE, DESTRUCTION AND CONDEMNATION

Section 6.1. Damage and Destruction . If prior to full payment of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Trust Agreement) and full payment of the State Loan and the LDI Loan, the Project shall be damaged or partially or totally destroyed by fire, flood, windstorm, or other casualty, there shall be no abatement or reduction in the amounts payable by the Borrower under this Agreement, and, to the extent that the claim for loss resulting from such damage or destruction is not greater than $100,000, the Borrower will, or will cause the Lessee to, (i) promptly repair, rebuild or restore the property damaged or destroyed with such changes, alterations and modifications (including the substitution and addition of other property) as may be desired by the Lessee and as will not make the Project unsuitable for the Project Purposes, and (ii) apply for such purpose so much as may be necessary of any Net Proceeds of insurance policies resulting from claims for such losses not in excess of $100,000 as well as any additional moneys of the Lessee necessary therefor. All Net Proceeds of insurance resulting from claims for any such loss not in excess of $100,000 shall be paid to the Borrower or the Lessee, as the case may be.

If prior to full payment of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Trust Agreement) and full payment of the State Loan and the LDI Loan, the Project shall be destroyed (in whole or in part) or damaged by fire, flood, windstorm or other casualty to such extent that the claim for loss resulting from such destruction or damage is in excess of $100,000, the Borrower shall promptly give written notice thereof to the Director and the Trustee. All Net Proceeds of insurance policies resulting from claims for such losses in excess of $100,000 shall, (a) so long as the Bonds shall be outstanding, be paid to and held by the Trustee in the Collateral Proceeds Account, and (b) if no Bonds shall be outstanding, be paid to and held by, or at the direction of, the Director in a separate account, whereupon, unless the Borrower shall have elected to exercise its option to prepay all amounts due under this Agreement pursuant to the provisions of Section 10.2(a) of this Agreement, (i) the Borrower will, or will cause the Lessee to, proceed to repair, rebuild or restore the property damaged or destroyed with such changes, alterations and modifications (including the substitution and addition of other property) as may be desired by the Lessee and as will not make the Project unsuitable for the Project Purposes, and (ii) the Trustee will disburse moneys in the Collateral Proceeds Account, or the Director will disburse such Net Proceeds, as the case may be, to or upon the direction of the Borrower, or the Lessee, as the case may be, for payment of the costs of such repair, rebuilding or restoration, either on completion thereof or, if the Borrower or the Lessee shall so request, as the work progresses. Any such disbursements shall be made pursuant to the procedures set forth in Section 3.3 of this Agreement for disbursement of moneys in the Project Funds, including, but not limited to, the requirement that the Borrower or the Lessee, as the case may be, obtain the written approval of the Director with respect to each disbursement. Any balance of the Net Proceeds remaining after all such disbursements for such costs held in the Collateral Proceeds Account shall be retained in the Collateral Proceeds Account. Any balance of Net Proceeds held by, or at the direction of, the Director remaining after payment of all costs of such repair or restoration shall be paid at the direction of the Lessee. In the event the moneys in the Collateral Proceeds Account are not sufficient to pay in full the costs of such repair, rebuilding or restoration, the Borrower nonetheless will, or will cause

the Lessee to, complete the work and pay the costs thereof from its own resources. The Borrower shall not, by reason of the payment by the Borrower or the Lessee of such excess costs, be entitled to any reimbursement from the Director or any diminution in or postponement of the amounts payable under Section 4.2, 4.3 or 4.4 of this Agreement.

Section 6.2. Eminent Domain . In the event that title to or the temporary use of the Project, or any part thereof, shall be taken under the exercise of the power of eminent domain by any governmental body or by any Person acting under governmental authority, there shall be no abatement or reduction in the amounts payable by the Borrower under this Agreement, and any Net Proceeds received from any award made in such eminent domain proceedings shall be (a) if any Bonds are then outstanding, paid to and deposited by the Trustee in the Collateral Proceeds Account and (b) if no Bonds are then outstanding, paid to and deposited by, or at the direction of, the Director, in a separate account, and shall be applied by the Director or the Borrower, or the Borrower shall cause the Lessee to apply such Net Proceeds, in one or more of the following ways as shall be directed in writing by an Authorized Lessee Representative, on behalf of the Borrower:

(a) to the restoration of the improvements located on the Project Site to substantially the same condition as they existed prior to the exercise of said power of eminent domain;

(b) to the acquisition, by construction or otherwise, by the Borrower of other improvements suitable for the Lessee’s operation at the Project Site (which improvements shall be deemed a part of the Project); or

(c) to the redemption of all of the Bonds pursuant to the Trust Agreement, together with accrued interest thereon to the date of redemption upon exercise of the option to prepay authorized by Section 10.2(b) of this Agreement.

Within 90 days from the date of entry of a final order in an eminent domain proceeding granting condemnation, an Authorized Lessee Representative, on behalf of the Borrower, shall direct the Director and the Trustee in writing as to which of the ways specified in this Section the Borrower elects to have the Net Proceeds of the condemnation award applied. Any balance of the Net Proceeds held in the Collateral Proceeds Account remaining after such application shall be retained in the Collateral Proceeds Account. Any balance of the Net Proceeds held by, or at the direction of, the Director, shall be paid at the direction of the Lessee.

[End of Article VI]

ARTICLE VI•
SPECIAL COVENANTS AND AGREEMENTS

Section 7.1. No Warranty of Condition or Suitability . The Director does not make any warranty, either express or implied, as to the condition, workmanship, merchantability or capacity of the Project or any part thereof or as to its or any part’s suitability or operation for the Project Purposes.

Section 7.2. Right of Access to the Project . The Borrower agrees that the Director and any of the Director’s duly authorized agents shall have the right at all reasonable times to enter upon the Project Site and to examine and inspect the Project after, as long as no Event of Default exists, providing reasonable advance notice to the Borrower and the Lessee (which notice may be given orally). The Borrower further agrees that the Director and the Director’s duly authorized agents shall have such rights of access to the Project Site and the Project as may be reasonably necessary for the proper maintenance of the Project in the event of failure by the Borrower to perform its obligations under Section 5.1 hereof.

Section 7.3 [Intentionally omitted] .

Section 7.4 Information Concerning Operations . The Borrower shall furnish, or shall cause the Lessee to furnish, to the Director upon request, but not less frequently than the annual financial statements to be furnished pursuant to Section 2.5(b)(v) of Exhibit E of the Lease, a statement certifying to the knowledge of the Lessee (a) the number of employees of the Operating Company employed at the Air Park on the date of delivery of this Agreement; (b) the total number of employees of the Operating Company then employed at the Air Park and the Project Site; (c) the number of employees of the Operating Company at the Air Park and at the Project Site laid off or terminated at the Air Park and at the Project Site since the date of delivery of this Agreement; (d) the current number of women and minority employees employed by the Operating Company at the Air Park and at the Project Site; and (e) and such other employment, economic and statistical data concerning the Project, the Air Park and the Project Site as may reasonably be requested by the Director.

Section 7.5 Affirmative Covenants of the Borrower . (a) Throughout the Loan Term, the Borrower shall:

(i) Compliance with Lease . Fully comply, or contractually require compliance, with all of its duties and obligations under the Lease and take such steps as may be necessary or appropriate to require the Lessee to fulfill its obligations under the Lease and promptly, and in any event within two (2) Business Days of receipt, provide the Director with a copy of any material notice or communication delivered or received by it relating to the Lease and shall immediately notify the Director of any Event of Default (as defined in the Lease) under the Lease, of which it has actual knowledge;

(ii) Maintain Property . Require the Lessee, as provided in the Lease, to maintain and keep the Project in good repair, working order and condition, and from

time to time to make all repairs, renewals and replacements which are necessary and proper so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Subsection 7.5(a)(ii) shall prevent the Lessee from selling or otherwise disposing of any property as permitted by the Lease;

(iii) Financial Information . Furnish to the Director, or in the case of (C) and (D), cause to be furnished to the Director:

(A) Within 180 days or promptly upon their availability thereafter, and in any event within 12 months following the end of each of its fiscal years throughout the term of the Loan Term, the Borrower shall provide the Director with annual financial statements of the Borrower.

(B) With each financial report of the Borrower required to be furnished under this Section, a certificate executed by the chief financial officer or fiscal officer of the Borrower stating that (A) no Event of Default has occurred and is continuing to the best of his or her knowledge and, to the knowledge of that person, no event or circumstances which would constitute an Event of Default, but for the requirement that notice be given or time elapse or both, has occurred and is continuing or, if such an Event of Default or such event or circumstances has occurred and is continuing, a statement as to the nature thereof and any action which the Borrower proposes to take with respect thereto, and that (B) no action, suit or proceeding by or against the Borrower at law or in equity, or before any governmental instrumentality or agency, is pending or, to that person’s knowledge, threatened which, if adversely determined, (1) would materially impair the right or ability of the Borrower (or to the Borrower’s knowledge, the right or ability of the Lessee) to carry on the business which is contemplated in connection with the Project, (2) would materially impair the right or ability of the Borrower (or to the Borrower’s knowledge, the right or ability of the Lessee) to perform the transactions contemplated by this Loan Agreement, the other Loan Documents or the Operative Documents or (3) would materially and adversely affect its businesses, operations, properties, assets or conditions (financial or otherwise), all as of the date of such certificate, and in each case, except as theretofore disclosed to the Director or as disclosed in such certificate.

(C) Promptly upon their availability, and in any event within 120 days following the end of each of ATSG’s fiscal years throughout the term of the Loan Term, the Borrower shall provide the Director with a copy of the ATSG’s consolidated balance sheet as at the end of such fiscal year, together with related consolidated statements of operations and cash flows for such fiscal year, of ATSG setting forth in comparative form the corresponding figures as at the end of or for the previous fiscal year, all in reasonable detail and all examined by and accompanied by an opinion of its independent certified public accountants to the effect that such financial statements were prepared in accordance with the generally accepted accounting principles consistently applied, and present fairly the ATSG’s financial position at the close of such period and the results of its operations for such period.

(D) With each financial report of ATSG required to be furnished under this Section, a certificate executed by the chief financial officer or fiscal officer of the ATSG stating that (A) no Event of Default has occurred and is continuing to the best of his or her knowledge and, to the knowledge of that person, no event or circumstances which would constitute an Event of Default, but for the requirement that notice be given or time elapse or both, has occurred and is continuing or, if such an Event of Default or such event or circumstances has occurred and is continuing, a statement as to the nature thereof and any action which ATSG proposes to take with respect thereto, and that (B) no action, suit or proceeding by or against ATSG, the Lessee or the Operating Company at law or in equity, or before any governmental instrumentality or agency, is pending or, to that person’s knowledge, threatened which, if adversely determined, (1) would materially impair the right or ability of ATSG (or to ATSG’s knowledge, the right or ability of the Lessee or the Operating Company) to carry on the business which is contemplated in connection with the Project, (2) would materially impair the right or ability of ATSG (or to ATSG’s knowledge, the right or ability of the Lessee or the Operating Company) to perform the transactions contemplated by this Loan Agreement, the other Loan Documents or the Operative Documents or (3) would materially and adversely affect the businesses, operations, properties, assets or conditions (financial or otherwise) of ATSG, the Lessee or the Operating Company, all as of the date of such certificate, and in each case, except as theretofore disclosed to the Director or as disclosed in such certificate;

(E) Such other information as the Director may reasonably request respecting the business, operations, properties or condition (financial or otherwise) of the Borrower, the Lessee, the Operating Company or ATSG; provided, however, that, with respect to the Lessee, the Operating Company or ATSG, if the Director requests material non-public information, the Director is subject to reasonable confidentiality arrangements with respect to such material non-public information;

(iv) Deliver Notice . Forthwith upon learning of any of the following, deliver written notice thereof to the Director, describing the same and any steps being taken by the Borrower with respect thereto:

(A) the occurrence of an Event of Default hereunder or an event or circumstance which would constitute an Event of Default hereunder, but for the requirement that notice be given or time elapse or both;

(B) any action, suit or proceeding by or against the Borrower, or, as applicable, by or against the Lessee, ATSG, the Operating Company or other user or users of the Project, at law or in equity, or before any governmental instrumentality or agency, instituted or threatened which, if adversely determined, would materially impair the right or ability of the Borrower, the Lessee, the Operating Company or other user or users of the Project, to carry on the business which is contemplated in connection with the Project or would materially impair the right or ability of the Borrower or the Lessee to perform the transactions contemplated by the Loan Documents or the Operative Documents, or would materially and

adversely affect the business, operations, properties, assets or condition (financial or otherwise) of the Borrower, the Lessee, ATSG or the Operating Company; or

(C) the occurrence of a Reportable Event, as defined in ERISA, under, or the institution of any steps to terminate, any plan maintained for the employees of the Lessee, the Operating Company or ATSG and covered by Title IV of ERISA (a “Plan”) as to which the Lessee, the Operating Company or ATSG may be liable; and

(v) Inspection Rights . Subject to the requirements of the Lease and the rights of the Lessee thereunder, permit the Director, or any agents or representatives thereof, after, as long as no Event of Default exists, providing reasonable advance written notice to the Borrower and the Lessee, to conduct periodic inspections of the Project reasonably necessary to cause the completion of the Project and thereafter for the proper maintenance of the Project in the event of failure by the Lessee to perform its obligations under the Lease.

(b) Throughout the Loan Term, the Borrower shall, or shall cause the Lessee to:

(i) Taxes and Assessments. Pay and discharge promptly, or cause to be paid and discharged promptly, when due and payable, all taxes, assessments and governmental charges or levies imposed upon the Borrower or the Lessee, and their respective income or any of their respective property, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and supplies) which, if unpaid, might by law become a lien or charge the Project, or any part thereof. Notwithstanding the preceding sentence, the Borrower or the Lessee may, at its expense, but only after prior notice to the Director, by appropriate proceedings diligently prosecuted, contest in good faith the validity or amount of any such taxes, assessments, governmental charges, levies and claims and during the period of contest, and after notice to the Director, may permit the items so contested to remain unpaid. However, if at any time the Director shall notify the Borrower, or the Lessee, as the case may be, in writing that, in the opinion of legal counsel reasonably satisfactory to the Director, by nonpayment of any such items the lien and security interest created by the Mortgage as to any part of the Project will be materially affected or the Project or any material part thereof will be subject to imminent loss or forfeiture, the Borrower shall promptly pay, or cause to be paid, such taxes, assessments, charges, levies or claims or give the Director adequate protection in regard to such risks and the Director shall have the reasonable discretion to determine the adequacy of the protection proffered;

(ii) Maintain Insurance . Maintain or require the Lessee and any other user or users of the Project to maintain the insurance required by this Loan Agreement and to name the Director a loss payee thereunder, as the Director’s interest may appear;

(iii) Furnish Information . Furnish promptly to the Director the information provided pursuant to Section 2.5(b)(v) of Exhibit E to the Lease;

(iv) Zoning, Planning and Environmental Regulations . Complete the Provision of the Project and operate and maintain the Project in such manner as to conform, in all material respects, with all applicable zoning, planning, building, environmental and other applicable governmental regulations (or variances therefrom) imposed by any Governmental Authority and as to be consistent with the purposes of the Act;

(v) Use of Project Fund Moneys and State Loan . Use all moneys disbursed from the State Assistance Project Fund (except for any amounts transferred to the Collateral Proceeds Account pursuant to the terms of this Agreement), from the State Loan Proceeds Fund, and in respect of the LDI Loan for the payment of Allowable Costs;

(vi) Job Creation . The Borrower, based solely on the representations of the Lessee, has represented that the State Assistance and the State Loan together will permit the Operating Company to create 259 new full time jobs at the Project Site before the end of the three-year period after the Completion Date and secure 385 not at risk full-time jobs at the Air Park for the three-year period after the Completion Date. If the Lessee or Operating Company fail, for reasons other than Market Conditions, to create the 259 new full time jobs at the Project Site before the end of the three-year period after the Completion Date and secure the 385 not at risk full-time jobs at the Air Park for the three-year period after the Completion Date, the Borrower shall, at the option of the Director, pay, in addition to the amounts required pursuant to the Notes, an amount equal to (A) 10% per annum, less the interest rate on the Bonds, of the outstanding principal amount of the Bonds outstanding, from time to time and (B) 10% per annum, less the interest rate on the State Loan Note, of the outstanding principal amount of the State Loan Note outstanding, from time to time. Such amounts will be paid monthly at the time of payments under the State Loan Note; and

(vii) Ohio Goods and Services . Use commercially reasonable efforts to purchase goods and services from Persons located in the State.

Section 7.6 Negative Covenants of the Borrower . Throughout the Loan Term, the Borrower agrees that the Borrower shall not:

(a) Conflicting Agreements . Enter into any agreement containing any material provision which would be violated or breached by the performance of the Borrower obligations hereunder or under any instrument or document delivered or to be delivered by the Borrower hereunder or in connection herewith or under the Operative Documents;

(b) Suspension of Operations . Permit both the Lessee and the Operating Company to suspend or discontinue operation of the Project;

(c) Removal of Assets . Remove, transfer or transport any portion of the Project or the Project Facilities from the Project Site, except as otherwise permitted by the Loan Documents or the Operative Documents;

(d) Amendments or Waivers with Respect to Operative Documents . Execute any amendment or waiver with respect to the Operative Documents or the Lease, without the prior written consent of the Director;

(a) Creation of Liens . Create or suffer to exist any trust deed, mortgage, pledge, security interest, encumbrance or other lien affecting the Project or the Borrower’s interest in the Project except for the Permitted Encumbrances;

(b) Insurance or Condemnation Proceeds . Apply any proceeds received from insurance or eminent domain proceeds in a manner inconsistent with the terms of this Loan Agreement; or

(g) Change of Business . Enter into, or permit the Lessee or the Operating Company to enter into, any business with respect to the Project which is substantially different from that to be conducted by the Lessee or the Operating Company upon completion of the Project without the prior written consent of the Director.

Section 7.7. Ownership of ATSG . No Person shall acquire shares of ATSG entitling such person to exercise a majority of the voting power of ATSG in the election of directors without the prior written consent of the Director, which consent shall not be unreasonably withheld or delayed provided, however, that ATSG or any parent entity may, without violating the agreement contained in this section, consolidate with or merge into another entity, or permit one or more other entities to consolidate with or merge into ATSG or any parent entity, or sell, transfer or otherwise dispose of all, or substantially all, of ATSG’s or any parent entity’s assets and thereafter dissolve if (i) the surviving, resulting or transferee entity, as the case may be, of ATSG, if any, assumes in writing all of the obligations of ATSG as a Guarantor under the Guaranty (if such surviving, resulting or transferee entity is other than ATSG); and (ii) the surviving, resulting or transferee entity, as the case may be, is an entity duly organized and validly existing under the laws of the State or duly qualified to do business therein.

Section 7.8. Mechanics’ and Other Liens . The Borrower shall not, and shall not permit the Lessee to, suffer or permit any mechanics’ or other liens to be filed or exist against the Project nor any part thereof, nor against the Project Funds or the Collateral Proceeds Account. If any such liens shall at any time be filed, the Borrower shall, within 90 days after notice of the filing thereof but subject to the right to contest hereinafter set forth, cause, or shall cause the Lessee to cause, the same to be discharged of record by payment, deposit, bond, order of a court of competent jurisdiction or otherwise. If the Borrower and the Lessee shall fail to cause such lien to be discharged, or to contest the validity or amount thereof, within the period aforesaid, then, in addition to any other right or remedy of the Director, the Director may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit or by bonding. Any amount paid by the Director shall be reimbursed by the Borrower or the Lessee

to the Director on demand, and if not so reimbursed on demand shall be paid by the Borrower with interest thereon at the Interest Rate for Advances from the date of payment by the Director, which amounts the Borrower agrees to pay. Nothing in this Section shall require the Borrower or the Lessee to pay or discharge any such lien so long as the validity thereof shall be contested in good faith and by appropriate legal proceedings, provided the Borrower or the Lessee shall have delivered to the Director an opinion of counsel, selected by the Borrower or the Lessee and reasonably acceptable to the Director, to the effect that nonpayment of any such lien during the pendency of such contest will not adversely affect the priority of the liens of the Loan Documents on the Borrower’s or the Lessee’s right, title or interest in the Project.

Section 7.9 Borrower Not to Adversely Affect Exclusion from Gross Income of Interest on Bonds . To Borrower’s actual knowledge, the Borrower hereby represents that it has taken and caused to be taken all actions that may be required of it, alone or in conjunction with the State, for the interest on the Bonds to be and remain excluded from gross income for federal income tax purposes, and represents that it has not taken or permitted to be taken on its behalf, and covenants that it will not take or permit to be taken on its behalf, any actions that would adversely affect such exclusion under the provisions of the Code. To the best of the Borrower’s actual knowledge, the Borrower hereby represents that it has taken and caused to be taken all actions that may be required of it to comply with the provisions of the Federal Income Tax Compliance Agreement. The Borrower covenants that it will take and cause to be taken all actions that may be reasonably requested of it, alone or in conjunction with the State, for the interest on the Bonds to be and remain excluded from gross income for federal income tax purposes. The Borrower covenants that it will take and cause to be taken all actions that may be requested of it to comply with the provisions of the Federal Income Tax Compliance Agreement.

Section 7.10 Minority Hiring . Borrower shall, and shall require the Lessee and Operating Company to, make a good faith effort to employ minority persons in the construction and operation of the Project in the same percentage as the average percentage of minority persons who reside in the county in which the Project is located and contiguous Ohio counties.

Section 7.11 Equal Employment Opportunity . Borrower shall not, and Borrower shall require that the Lessee and the Operating Company not, discriminate against any employee or applicant for employment because of race, religion, color, sex, national origin, disability, age, military status or ancestry. Borrower shall ensure, and Borrower shall require the Lessee and the Operating Company to ensure, that its respective applicants for employment are considered for employment, and that its respective employees are treated during employment, without regard to their race, religion, color, sex, national origin, disability, age, military status or ancestry. Borrower will incorporate, or cause to be incorporated, the requirements of this paragraph in all contracts for any work undertaken on the Project (other than subcontracts for standard commercial supplies or raw materials), and Borrower will require all of its contractors for any part of such work to incorporate such requirements in all subcontracts for such work.

[End of Article VII]

ARTICLE VIII•
ASSIGNMENT, SELLING AND LEASING

Section 8.1. Assignment, Sale or Lease by the Borrower . Except pursuant to, and as provided in, the Lease, the Borrower may not assign this Agreement in whole or in part, sell or lease the Project Facilities or the Project Site in whole or in part or grant the right to occupy or use the Project Facilities or Project Site, or any part thereof, to Persons other than the Borrower or the Lessee, without the prior written consent of the Director.

Section 8.2. Pledge by the Director . The Director has pledged all moneys receivable under or pursuant to this Agreement for payment of the State Assistance (except for reimbursement of expenses and indemnification by the Guarantors and except for moneys receivable for payments of the State Loan and the LDI Loan) to the Trustee pursuant to the Trust Agreement. The Borrower hereby consents to such assignment and pledge.

[End of Article VIII]

ARTICLE IX•
EVENTS OF DEFAULT AND REMEDIES

Section 9.1. Events of Default . Each of the following shall be an “Event of Default”:

(a) Failure by the Borrower to pay when due any installment of principal, interest, Additional Payment, or any combination thereof under this Loan Agreement or the Notes on or prior to the date on which such payment is due and payable or failure to pay upon demand any other amounts required to be paid to the Director or the Trustee under the Loan Documents; or

(b) Failure to make any payment (other than a payment specified in subsection (a) above) under any of the other Loan Documents; or

(c) Failure by the Borrower to observe and perform any term, covenant or agreement contained in this Loan Agreement (other than as required pursuant to subsections (a) and (b) above) or any other Loan Document, and continuation of such failure for thirty (30) days after written notice thereof shall have been given to the Borrower and the Lessee by the Director, or for such longer period as the Director may agree to in writing (unless the Borrower or the Lessee is proceeding with all reasonable efforts to cure any such default, in which event such effort by the Borrower or the Lessee does not exceed one hundred twenty (120) days); or

(d) Any representation or warranty made by the Borrower or any of the Borrower’s officers, herein, in any other Loan Document or in connection herewith or therewith shall prove to have been incorrect in any material respect when made; or

(e) The occurrence of an Event of Default under any of the other Loan Documents or Operative Documents; or

(f) ATSG shall fail to pay any Indebtedness of ATSG outstanding under the Senior Loan Agreement and such failure shall continue after the applicable cure or grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other default under any agreement or instrument relating to any such Indebtedness, or any other event, shall occur and shall continue after the applicable cure or grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or

(g) the Lessee, ATSG or the Operating Company, respectively, shall: (i) admit in writing its inability to pay its debts generally as such debts become due; (ii) (A) commence a voluntary bankruptcy case concerning it or (B) have an involuntary bankruptcy case commenced against it and either have an order of insolvency or reorganization entered against it or have the case remain undismissed and unstayed for 90 days; (iii) commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect and either have an order entered against it thereunder or remain undismissed or unstayed for 90 days or there is

commenced against it any such proceeding which remains undismissed or unstayed for 90 days; (iv) be adjudicated insolvent or bankrupt; (v) make a general assignment for the benefit of creditors; (vi) have a receiver, trustee or custodian appointed for the whole or any substantial part of its property or a receiver, trustee or custodian or any other officer or representative of the court or of creditors, or any court, government officer or agency shall take and hold possession of any substantial part of its property; or (vii) take any other action for the purpose of effecting the foregoing; or

(h) judgments or orders for the payment of money in excess of $15,000,000 (to the extent not paid or covered by insurance as to which the relevant insurance company has acknowledged coverage), in the aggregate, shall be rendered against the Lessee, ATSG or the Operating Company and such judgments or orders shall not have been vacated, discharged, stayed or bonded pending appeal within 45 days from the entry thereof; or

(i) any “accumulated funding deficiency”, as defined in Section 302 of ERISA, shall exist with respect to any of ERISA Plans of the Lessee, ATSG or the Operating Company.

The foregoing provisions of subsection (c) only of this Section are subject to the following limitations: if by reason of Force Majeure the Borrower, the Lessee, ATSG or the Operating Company is unable in whole or in part to perform or observe the Borrower’s obligations under this Loan Agreement, other than the Borrower’s obligation to make payments required hereunder, or the obligations of the Lessee, ATSG or the Operating Company to make payments under the Lease, the Operating Sublease or the Guaranty, the Borrower shall not be deemed in default during the continuance of such inability, including a reasonable time for the removal of the effect thereof.

The Borrower shall, or shall cause the Lessee, ATSG or the Operating Company to, promptly give notice to the Director of the existence of an event of Force Majeure and shall use the Borrower’s commercially reasonable efforts, and shall cause the Lessee, ATSG and the Operating Company to use their respective commercially reasonable efforts, to remove the effect thereof; provided, that the settlement of strikes or other industrial disturbances shall be entirely within the reasonable business discretion of the Borrower or the Lessee, ATSG or the Operating Company, as the case may be.

Section 9.2. Remedies . If an Event of Default shall have occurred and be continuing, the Director, at any time, at the Director's election, may exercise any or all or any combination of the remedies conferred upon or reserved to the Director under this Loan Agreement, the Notes, any of the other Loan Documents or any instrument or document collateral thereto, or now or hereafter existing at law, or in equity or by statute. Subject to the foregoing, any or all of the following remedies may be exercised:

(a) If the State Assistance, the State Loan or the LDI Loan have not been disbursed, in whole or in part, termination of any and all of the Director’s obligations under this Agreement;

(b) Declaration that the entire unpaid balance of all amounts owed to the Director are immediately due and payable, whereupon the same shall become immediately due and payable, without notice or demand, such notice or demand being expressly waived by the Borrower;

(c) Direction to the Trustee, in writing, to transfer any amounts remaining in the State Assistance Project Fund and the Capitalized Interest Account to the Collateral Proceeds Account and to transfer any amounts remaining in the State Loan Proceeds Fund to the Director;

(d) Exercise of all or any rights and remedies as the Director may have under this Loan Agreement, the Notes, any of the other Loan Documents, or any instrument or document collateral thereto;

(e) Inspection, examination and copying of the books, records, accounts and financial data of the Lessee/Operating Company/ATSG or the Borrower (but solely with respect to the Project as to the Borrower);

(f) Exercise of any rights, remedies and powers the Director may have at law or in equity as may appear necessary or desirable to collect all amounts then due and thereafter to become due under this Agreement, the Notes, any of the other Loan Documents or any instrument or document collateral thereto or to enforce the performance and observance of any other obligation, agreement or covenant of the Borrower under this Agreement, the Notes, any of the other Loan Documents or any instrument or document collateral thereto, including, without limitation, as a secured party under the UCC or other similar laws in effect; and

(a) The Director may take whatever action at law or in equity as may appear necessary or desirable to collect the amounts then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Borrower under this Loan Agreement.

Any amounts collected pursuant to action taken under this Section shall be paid first into the Collateral Proceeds Account and applied in accordance with the provisions of the Trust Agreement or, if the Bonds have been fully paid (or provision for payment thereof has been made in accordance with the provisions of the Trust Agreement) then to all other amounts payable thereunder and under the Loan Documents, and finally, if all such amounts have been fully paid, as directed by the Authorized Lessee Representative.

Section 9.3. No Remedy Exclusive . No remedy conferred upon or reserved to the Director by this Loan Agreement is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Loan Agreement, each other Loan Document and any instrument or document collateral thereto or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Director to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be expressly provided for herein or required by law.

Section 9.4. Agreement to Pay Attorneys’ Fees and Expenses . If an Event of Default shall occur and the Director shall incur expenses, including reasonable attorneys’ fees, in connection with the enforcement of this Loan Agreement or any of the other Loan Documents or any instrument or

document collateral thereto or the collection of sums due thereunder, the Borrower shall reimburse the Director for the expenses so incurred upon demand. If any such expenses are not so reimbursed, the amount thereof, together with interest thereon from the date of demand for payment at the Interest Rate for Advances, shall, to the extent permitted by law, constitute additional indebtedness secured hereby and by the Trust Agreement and the other Loan Documents, and in any action brought to collect such indebtedness or enforce the Loan Documents, the Director shall be entitled to seek the recovery of such expenses in such action.

Section 9.5. No Additional Waiver Implied by One Waiver . No failure by the Director to insist upon the strict performance by the Borrower of any provision hereof shall constitute a waiver of the Director’s right to strict performance and no express waiver shall be deemed to apply to any other existing or subsequent right to remedy the failure by the Borrower to observe or comply with any provision hereof.

Section 9.6. Waiver of Appraisement, Valuation, Etc. In the event the Borrower should default under any of the provisions of this Loan Agreement, the Borrower agrees to waive, to the extent it may lawfully do so, the benefit of all appraisement, valuation, stay, extension or redemption laws now or hereafter in force, and all right of appraisement and redemption to which it may be entitled.

[End of Article IX]

ARTICLE X
REDEMPTION OF BONDS; PREPAYMENT OF LOANS

Section 10.1. Redemption of Bonds.

(a) If the Bonds are then callable, the Director, at the written request at any time of the Borrower, shall forthwith take all steps that may be necessary under the applicable redemption provisions of the Trust Agreement to effect redemption of all or part of then outstanding Bonds, as may be specified by the Borrower, on the earliest redemption date on which such redemption may be made under such applicable provisions, if the Borrower shall then have deposited, or caused to be deposited, with the Trustee moneys sufficient to pay the principal of and premium, if any, and interest due or to become due on such redemption date with respect to the Bonds as to which such request is made. The Borrower must make that request at the direction of the Lessee, and may only make that request at the direction of the Lessee.

(b) At the Director’s election upon the occurrence of an Event of Default, the Director may take all steps that may be necessary under the applicable redemption provisions of the Trust Agreement to effect redemption of all or part of the then outstanding Bonds in accordance with Section 5 of the Supplement.

Section 10.2. Optional Prepayment of State Loan, State Assistance, and LDI Loan . The Borrower shall have the right to prepay, in whole or in part, the State Loan and the LDI Loan at any time without penalty. The Borrower must make such prepayment at the direction of the Lessee, provided that the Lessee provides the monies for such prepayment, and may only make such prepayment at the direction of the Lessee.

The Borrower shall have, and is hereby granted, the option to prepay, at the direction of the Lessee, all amounts due hereunder with respect to the State Assistance prior to the full payment of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Trust Agreement), if any of the following shall have occurred:

(a) The Project shall have been damaged or destroyed (i) to such extent that it cannot be reasonably restored within a period of six months to the condition thereof immediately preceding such damage or destruction, or (ii) to such extent that the Lessee is thereby prevented from carrying on its normal operations for a period of six consecutive months.

(b) Title to, or the temporary use of, all or substantially all of the Project shall have been taken under the exercise of the power of eminent domain by any governmental authority, or Person acting under governmental authority (including such a taking or takings as results in the Lessee being thereby prevented from carrying on its normal operations therein for a period of six consecutive months).

To exercise such option, the Borrower shall, at the direction of the Lessee, within 90 days following the event authorizing the exercise of such option, give written notice to the Director and

the Trustee specifying therein the date of prepayment, which date shall be not less than 45 nor more than 90 days from the date such notice is mailed, and shall make arrangements satisfactory to the Trustee for the giving of the required notice of redemption, in which arrangements Director shall cooperate. The prepayment amount payable by the Borrower in the event of its exercise of the option granted in this Section 10.2, shall be the sum of the following:

(i) An amount of money which, when added to (i) the moneys and investments held to the credit of the Collateral Proceeds Account and the Primary Reserve Account and (ii) the aggregate loan payments made by the Borrower and not theretofore applied to the payment of principal of or interest on the Bonds, will be sufficient pursuant to the provisions of the Trust Agreement, to pay and discharge all then outstanding Bonds on the date of prepayment of the State Assistance, plus

(ii) An amount of money equal to the Trustee’s fees and expenses, to the extent payable by the Borrower pursuant to this Agreement, accrued and to accrue until such final payment and redemption of the Bonds.

In the event of the exercise of the option granted in this Section, any Net Proceeds of insurance or condemnation received by the Trustee after prepayment of the State Loan and the State Assistance shall be paid to the Borrower, notwithstanding any provision of Section 6.1 and 6.2 hereof.

Section 10.3 Mandatory Redemption in Event of a Determination of Taxability . If, as provided in the Bonds and the Trust Agreement, the Bonds become subject to a Determination of Taxability, the Borrower shall deliver to the Trustee, upon the date requested by the Trustee, an amount sufficient to redeem the Bonds in whole or in part in accordance with the provisions for that redemption set forth in the Supplement.

Section 10.4 Mandatory Redemption . The Borrower shall deliver to the Trustee the moneys needed to redeem the Bonds in accordance with any mandatory redemption provisions relating to the Bonds as may be set forth in the Supplement

Section 10.5 Mandatory Prepayment of State Loan, State Assistance and LDI Loan . The Borrower shall be required to prepay the State Loan, the State Assistance and the LDI Loan if (i) the Lessee terminates operation of any facilities at the Project Site, and (ii) the Lessee does not relocate such facility to another location in the State of Ohio within thirty (30) days after the termination referred to in clause (i) or such later date as may be permitted by the Director within its reasonable discretion.

If the State Loan and the LDI Loan are required to be prepaid in accordance with this Section 10.5, the Borrower shall pay the outstanding principal amount thereof plus accrued interest to the date of prepayment to the Director not later than ten (10) days after the date on which the prepayment obligation is established.

If the State Assistance is required to be prepaid in accordance with this Section 10.5, the Borrower shall, within ten (10) days after the date on which the prepayment obligation is established, give written notice to the Director and to the Trustee specifying therein at the direction of the Lessee

the date of closing such prepayment, which date shall be not less than 45 nor more than 90 days from the date such notice is mailed, and shall make arrangements satisfactory to the Trustee for the giving of the required notice of redemption, in which arrangements Director shall cooperate. The prepayment amount payable by the Borrower in the event of the mandatory prepayment required by this Section 10.5, shall be the sum of the following:

(a) An amount of money which, when added to (i) the moneys and investments held to the credit of the Collateral Proceeds Account and the Primary Reserve Account and (ii) the aggregate loan payments made by the Borrower and not theretofore applied to the payment of principal of or interest on the Bonds, will be sufficient pursuant to the provisions of the Trust Agreement, to pay and discharge all then outstanding Bonds on the date of prepayment of the State Assistance; plus

(b) An amount of money equal to the Trustee’s fees and expenses, to the extent payable by the Borrower pursuant to this Agreement, accrued and to accrue until such final payment and redemption of the Bonds.

Section 10.6 Option to Defease Bonds . Provided no Event of Default has occurred and is existing, the Borrower may, if and only if the Borrower shall have been directed by the Lessee so to do, instruct the Trustee to apply any moneys furnished to the Trustee by the Borrower or the Lessee, but not constituting payments due under the Notes or under Article IV of this Loan Agreement, to any of the following purposes:

(a) Purchase of Bonds in the open market at prices not greater than their fair market value;

(b) Redemption of Bonds pursuant to the optional redemption provisions thereof; or

If the sum of the amounts in the Collateral Proceeds Account and the Primary Reserve Account, when added to the amount delivered by the Borrower or the Lessee to the Trustee for application in accordance with this Section, is sufficient to purchase for cancellation, optionally redeem or defease all of the Outstanding Bonds, the Trustee shall, at the direction of the Authorized Lessee Representative, apply moneys in the Collateral Proceeds Account and the Primary Reserve Account for any of such purposes.

[End of Article X]

ARTICLE XI
MISCELLANEOUS

Section 11.1. Termination of Agreement . This Loan Agreement shall be in full force and effect from the date hereof until the end of the Loan Term, at which time the obligations of the Director and the Borrower hereunder shall terminate, provided that any obligations of the Borrower with respect to the payment of costs and expenses under this Loan Agreement shall survive such termination and continue in effect until such costs and expenses are paid.

Section 11.2. Amounts Remaining in Collateral Proceeds Account and Primary Reserve Account . It is agreed by the parties hereto that after payment in full of the Bonds (or provision for payment thereof having been made in accordance with the provisions of the Trust Agreement), the State Loan Note, the LDI Loan Note and the fees, charges and expenses of the Trustee and the Director and all other amounts required to be paid hereunder, any amounts remaining in the Collateral Proceeds Account or the Primary Reserve Account upon expiration or sooner cancellation or termination of this Loan Agreement shall belong to and be paid to the Lessee by the Trustee.

Section 11.3. Notices . All notices, certificates, requests or other communications hereunder shall be in writing and shall be deemed sufficiently given when mailed by registered or certified mail, postage prepaid, addressed to the recipient at the appropriate Notice Address, or sent and confirmed received by telex, telecopy or similar means of electronic or facsimile transmission to the Notice Address. A duplicate copy of each notice, certificate, request or other communication given hereunder to the Director, the Borrower, the Lessee, ATSG, the Operating Company or the Trustee shall also be given to the others. The Borrower, the Director, the Lessee ATSG, the Operating Company and the Trustee may, by notice given hereunder, change a Notice Address or designate any further addresses to which subsequent notices, certificates, requests or other communications shall be sent.

Section 11.4. Binding Effect . This Loan Agreement shall inure to the benefit of and shall be binding upon the Director, the Borrower and their respective successors and permitted assigns, subject, however, to the limitations contained in Section 8.1 hereof, and subject to the further limitations, as set forth on page 1 of this Loan Agreement, that any obligation of the Director created by or arising out of this Loan Agreement shall not be a general debt of the Director or the State but shall be payable solely out of the proceeds derived from this Loan Agreement.

Section 11.5. Extent of Covenants of the Director; No Personal Liability . All covenants, stipulations, obligations and agreements of the Director contained in this Loan Agreement shall be effective to the extent authorized and permitted by applicable law. No such covenant, stipulation, obligation or agreement shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future Director in other than such Director’s official capacity acting pursuant to the Act.

Section 11.6. Amendments, Changes and Modifications . This Loan Agreement may not be amended or supplemented except by an instrument in writing executed by the Director and the

Borrower and with the written consent of the Lessee; provided however, that the Director may waive compliance by Borrower with any of its obligations hereunder without the consent of the Lessee.

Section 11.7. Execution Counterparts . This Loan Agreement may be executed in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same instrument. Copies (photostatic, facsimile or otherwise) of any party’s signature to this Agreement shall be deemed to be an original, and may be relied on to the same extent as an original signature.

Section 11.8. Severability . If any provision of this Loan Agreement, or any covenant, obligation or agreement contained herein is determined by a court to be void or unenforceable, such determination shall not affect any other valid provision, covenant, obligation or agreement, each of which shall be construed and enforced as if such invalid or unenforceable, provision, covenant, obligation or agreement were not contained herein. Such invalidity or unenforceability shall not affect any valid or enforceable application thereof, and each such provision, covenant, obligation or agreement shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law.

Section 11.9. Captions . The captions or headings in this Loan Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Loan Agreement.

Section 11.10. Governing Law . This Loan Agreement shall be deemed to be a contract made under the laws of the State of Ohio and for all purposes shall be governed by and construed in accordance with the laws of the State of Ohio.

Section 11.11. Actions by Borrower . The parties agree that in any instance where the Borrower is authorized or permitted to act hereunder, the Lessee and/or the Operating Company shall be entitled to perform such action on behalf of the Borrower, and the Director and the Borrower shall recognize such performance for all purposes hereunder.

[End of Article XI]

IN WITNESS WHEREOF, the Director and the Borrower have caused this Loan Agreement to be executed in their respective names by their duly authorized officers, all as of the date first above written.

DIRECTOR OF DEVELOPMENT SERVICES AGENCY OF THE STATE OF OHIO, ACTING ON BEHALF OF THE STATE

By: /s/ M. Beth Trombold

M. Beth Trombold

Assistant Director

CLINTON COUNTY PORT AUTHORITY

By: /s/ Kevin J. Carver

Kevin J. Carver

Executive Director

And: /s/ David C. Hockaday

David C. Hockaday

Chariman

836255v20

CERTIFICATE

The undersigned Fiscal Officer of the Borrower under the foregoing Loan Agreement hereby certifies that the monies required to meet the obligations of the Borrower under the foregoing Loan Agreement during the year 2012 have been lawfully appropriated by the Board of Directors of the Borrower for such purposes and are in the treasury of the Borrower or in the process of collection to the credit of an appropriate fund, free of any previous encumbrances. This Certificate is given in compliance with Sections 5705.41 and 5705.44, Ohio Revised Code.

Dated: December 1, 2012 /s/ Brian C. Smith

Fiscal Officer

Clinton County Port Authority

EXHIBIT A-1

Form of State Loan Note

United States of America

State of Ohio

County of Clinton

Clinton County Port Authority

Taxable State Loan Revenue Bond (Chapter 166 Loan Program) Series 2012

(Clinton County Port Authority – AMES Project)

$4,000,000 December __, 2012

The Clinton County Port Authority (the “Borrower”), a body corporate and politic, and a port authority duly created and validly existing under the laws of the State of Ohio, for value received, promises to pay to the order of the Director of Development Services of the State of Ohio (the “Director”), at 77 South High Street, 28 ^th Floor, Columbus, OH, 43215, or at such other address as may be designated in writing by the Director, but solely from the sources and in the manner referred to herein, the principal amount of Four Million Dollars ($4,000,000), with interest on the amount of principal from time to time outstanding from the Disbursement Date, as defined in the Loan Agreement dated as of December 1, 2012, between the Borrower and the Director (the “Loan Agreement”), at the rate of (a) zero percent (0%) per annum during the period from Disbursement Date through November 14, 2015 and (b) from November 15, 2015 through May 15, 2036, being the final maturity unless otherwise paid in full, at a rate of one percent (1%) per annum until the entire principal amount is paid, plus, commencing May 15, 2016, the Director’s State Loan Administrative Fee equal to 0.25% per annum of the principal balance from time to time outstanding under this Note. Principal of and interest and service fees (calculated upon a basis of a year consisting of twelve thirty-day months) only on this Note shall be paid in semiannual installments as provided on the State Loan Payment Schedule attached to this Note. The Borrower authorizes the Director to attach the State Loan Payment Schedule to this Note following the Disbursement Date. Principal and interest (“Debt Service Charges”) are payable when due in lawful money of the United States of America, without deduction, to the Director. Payments of Debt Service Charges shall be made through an automated clearinghouse credit of funds to the Director, provided that the amount of the last installment shall be equal to the balance of the principal sum then outstanding, together with all interest accrued thereon and all unpaid service fees.

This Note is issued pursuant to the laws of the State of Ohio, particularly Article VIII, Section 13, of the Ohio Constitution and Sections 4582.21 to 4582.71, both inclusive, Ohio Revised Code, to resolutions duly adopted by the Board of Directors of the Borrower on October 11, 2012 (collectively, the “Legislation”), and to the Loan. This Note is issued to evidence the Borrower’s obligation to repay the Chapter 166 direct loan made to the Borrower, pursuant to the Loan Agreement, by the Director (the “Loan”) to assist the Borrower in financing a portion of the costs of the Project, constituting certain facilities being leased to Air Transport International Limited Liability Company, a Nevada limited liability company (the “Lessee”) constituting an eligible project, as defined in Chapter 166 of the Ohio Revised Code, all as more fully described in the Loan Agreement (the “Project”). The Project will be subleased by the Lessee to Airborne Maintenance and Engineering Services, Inc., a Delaware corporation (the “Operating Company”). In accordance

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with the Loan Agreement, the proceeds of this Note will be disbursed from the Facilities Establishment Fund by the Director to The Huntington National Bank, as successor trustee (the “Trustee”) under that certain Trust Agreement dated as of April 1, 1988, between Treasurer of the State of Ohio and The Provident Bank (the “Trust Agreement”) as amended and supplemented by that certain One Hundred Twenty-Eighth Supplemental Trust Agreement, dated as of December 1, 2012 (the “Supplement”) and disbursed by the Trustee in accordance with the Supplement to pay Allowable Costs.

This Note does not of itself constitute a commitment by the Director to make any disbursement of the State Loan, as defined in the Loan Agreement, to the Borrower. The conditions for making such a disbursement are set forth in the Loan Agreement. The disbursements made by the Director to the Borrower shall not exceed the face amount of this Note and the total amount of such disbursement is limited by and subject to the conditions for making disbursement of the State Loan as set forth in the Loan Agreement.

The annual rate of interest stated herein shall apply to a 360-day period and amounts of interest due hereunder shall be computed upon the basis of 30-day months. Installments of Debt Service Charges and monthly service fees shall be applied first to monthly service fees, then to interest as provided herein and the balance to principal due hereunder.

The Borrower may prepay all or any portion of the principal sum hereof at any time without penalty. All such prepayments shall be applied to the payment of the principal installments due hereon in the inverse order of their maturity, and shall be accompanied by the payment of accrued interest and monthly service fee on the amount of the prepayment to the date thereof. Upon prepayment in full, this cancelled Note shall be provided to the Borrower.

The payment of this Note and all interest and monthly service fees hereon is secured by the Loan Documents (as defined in the Loan Agreement), providing the Director with a first mortgage on the Lessee’s leasehold interest in the Premises described in the Mortgage (as defined in the Loan Agreement). The covenants, conditions and agreements contained in the Loan Documents are hereby made a part of this Note.

If default be made in the payment of any installment of principal, interest or monthly service fee under this Note when any such payment shall have become due and payable, or if an “Event of Default,” as defined in the Loan Agreement, shall have occurred and be continuing, then, at the option of the Director, the entire principal sum payable hereunder and all interest and monthly service fee accrued thereon shall become due and payable at once, without demand or notice. Upon default, the Director may increase the rate of interest to ten percent (10%) per annum.

For the period during which a default shall exist in the payment of any installment of principal, interest and monthly service fee due and payable hereunder, whether by acceleration or otherwise, a late charge equal to five percent (5%) of each such installment shall be assessed, in addition to all other sums due hereunder, for each month during which the default exists.

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the Lessee will act as the agent of the Borrower for the purpose of the Provision of the Project and the Trustee will disburse the proceeds of the Note to pay Allowable Costs in accordance with the Supplement. Reference is made to the Lease and the Loan Agreement for a more complete description of the Project, and to the Loan Agreement for the provisions, among others, with respect to the nature and extent of the security for this Note, the rights, duties and obligations of the Borrower, the Trustee and the Director, and the terms and conditions upon which this Note is issued and secured.

The Lessee is required by the Lease to make payments of Rent (defined in the Lease) in fixed amounts in accordance with a schedule attached to the Lease to the Director to pay Debt Service Charges on this Note and certain obligations of the Borrower. The rights of the Director under the Loan Agreement and the Mortgage are subject to the terms of the Intercreditor Agreement, dated as of December 1, 2012, between the Director and the Trustee.

The amounts payable with respect to this Note are payable solely from the Rent received pursuant to the Lease, and any other amounts derived by the Borrower from the lease, sale or other disposition of the Project and paid to the Director in accordance with the Lease, other than money received with respect to the exercise of the Unassigned Authority Rights, and from any other collateral that may from time to time be assigned to the Director to secure payment thereof, and are an obligation of the Borrower only to the extent of such moneys and any such collateral.

THIS NOTE IS NOT A GENERAL OBLIGATION, DEBT OR BONDED INDEBTEDNESS OF THE BORROWER; THE GENERAL RESOURCES OF THE BORROWER ARE NOT REQUIRED TO BE USED AND NEITHER THE GENERAL CREDIT OR TAXING POWER OF THE BORROWER ARE PLEDGED AND THE DIRECTOR HAS NOT BEEN GIVEN AND DOES NOT HAVE ANY RIGHT TO HAVE EXCISES OR TAXES LEVIED BY THE BORROWER OR BY THE STATE OF OHIO OR THE TAXING AUTHORITY OF ANY POLITICAL SUBDIVISION OR OTHER LOCAL AGENCY THEREOF FOR THE PAYMENT OF DEBT SERVICE CHARGES OR SERVICE CHARGES HEREON.

If any provision hereof is in conflict with any statute or rule of law of the State of Ohio or is otherwise unenforceable for any reason whatsoever, then such provision shall be deemed separable from and shall not invalidate any other provision of this Note.

If this Note is placed in an attorney’s hands for collection, or collected by suit or through the bankruptcy or probate, or any other court, either before or after maturity, there shall be paid to the holder of this Note reasonable attorney’s fees, costs and other expenses incurred by the holder in enforcing the terms of this Note.

This Note is delivered in Columbus, Ohio and shall be construed in accordance with the laws of the State of Ohio.

It is certified and recited that there have been performed and have been met in regular and due form, as required by law, all acts and conditions necessary to be performed by the Borrower have been met (i) precedent to and in the issuing of this Note in order to make it a legal, valid and binding special obligation of the Borrower, and (ii) precedent to and in the execution and delivery by the Borrower of the Loan Agreement and the Lease; that payment in full for this Note has been received; and that no constitutional or statutory limitation has been exceeded in issuing this Note.

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IN WITNESS WHEREOF, the Board of Directors of the Clinton County Port Authority has caused this Note to be signed in the name of the Borrower and in their official capacities by the Chairman of the Board of Directors and the Executive Director of the Borrower, all as of the date first above written.

CLINTON COUNTY PORT AUTHORITY

By:

Name:

Title:

And:

Name:

Title:

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EXHIBIT A-2

FORM OF STATE ASSISTANCE NOTE

United States of America

State of Ohio

County of Clinton

Clinton County Port Authority

Taxable State Assistance Revenue Bond (Ohio Enterprise Bond Fund Project) Series 2012

(Clinton County Port Authority – AMES Project)

$9,055,000 December 27, 2012

The Clinton County Port Authority (the “Borrower”), a body corporate and politic, and a port authority duly created and validly existing under the laws of the State of Ohio, for value received, promises to pay to the order of the DIRECTOR OF DEVELOPMENT SERVICES OF THE STATE OF OHIO (the “Director”), acting on behalf of the State of Ohio, at 77 South High Street, 28 ^th Floor, Columbus, Ohio 43215, or at such other address as may be designated in writing by the Director, the principal sum of Nine Million Ninety Thousand Dollars ($9,055,000), with interest on the amount of principal from time to time outstanding from the Disbursement Date, as defined in the Loan Agreement dated as of December 1, 2012, between the Borrower and the Director (the “Loan Agreement”), with the premium, if any, and interest on the unpaid balance of such principal sum from and after the date of this Note at the interest rate or interest rates borne by the State of Ohio, State Economic Development Bonds (Ohio Enterprise Bond Fund) Series 2012-9 (Clinton County Port Authority –AMES Project) (Tax-Exempt Bonds) (the “Series 2012-9 Bonds”) until the entire principal amount is paid on June 1, 2036, being the maturity date, plus in each case the monthly payment of the Trustee’s Annual Administrative Fee, equal to one-twelfth (1/12) of 0.12% of first $5,000,000 of the principal balance from time to time outstanding on the Series 2012-9 Bonds and 0.07% of the outstanding principal balance from time to time outstanding in excess of $5,000,000 and plus in each case, commencing on November 15, 2015, the monthly payment of the Director’s State Assistance Administrative Fee, equal to one-twelfth (1/12) of 0.125% of the principal balance from time to time outstanding under this Note. Principal of and interest and such monthly service fees (calculated upon a basis of a year consisting of twelve thirty-day months) on this Note shall be paid in monthly installments on the fifteenth day of each month as provided on the State Assistance Payment Schedule attached to this Note. Principal of, premium, if any, and interest on this Note (“Debt Service Charges”) are payable when due in lawful money of the United States of America, without deduction, to the Director. Payments shall be made through an automated clearinghouse credit of funds to the Trustee, provided that the amount of the last installment shall be equal to the balance of the principal sum then outstanding, together with all interest accrued thereon and all unpaid service fees.

A2-1

Liability Company, a Nevada limited liability company (the “Lessee”) constituting an eligible project, as defined in Chapter 166 of the Ohio Revised Code, all as more fully described in the Loan Agreement (the “Project”). The Project will be subleased by the Lessee to Airborne Maintenance and Engineering Services, Inc., a Delaware corporation (the “Operating Company”). In accordance with the Loan Agreement, the proceeds of this Note will be disbursed from the Facilities Establishment Fund by the Director to The Huntington National Bank, as successor trustee (the “Trustee”) under that certain Trust Agreement dated as of April 1, 1988, between Treasurer of the State of Ohio and The Provident Bank (the “Trust Agreement”) as amended and supplemented by that certain One Hundred Twenty-Eighth Supplemental Trust Agreement, dated as of December 1, 2012 (the “Supplement”) and disbursed by the Trustee in accordance with the Supplement to pay Allowable Costs.

This Note does not of itself constitute a commitment by the Director to make any disbursement of the State Assistance Amount, as defined in the Loan Agreement, to the Borrower. The conditions for making such a disbursement are set forth in the Loan Agreement. The disbursements made by the Director to the Borrower shall not exceed the face amount of this Note and the total amount of such disbursement is limited by and subject to the conditions for making disbursement of the State Loan as set forth in the Loan Agreement.

The annual rate of interest stated herein shall apply to a 360-day period and amounts of interest due hereunder shall be computed upon the basis of 30-day months. Installments of principal, interest and monthly service fee shall be applied first to monthly service fees, then to interest as provided herein and the balance to principal due hereunder.

The payment of principal of, premium, if any, and interest on this Note and monthly service fees hereon is secured by the Loan Documents (as defined in the Loan Agreement), providing the Director with a first mortgage lien on the Lessee’s leasehold interest in the Premises (as defined in the Loan Agreement). The covenants, conditions and agreements contained in the Loan Documents are hereby made a part of this Note.

If default be made in the payment of any installment of principal, premium, if any, or interest or monthly service fee under this Note when any such payment shall have become due and payable, or if an “Event of Default,” as defined in the Loan Agreement, shall have occurred and be continuing, then, at the option of the Director, the entire principal sum payable hereunder and all interest and monthly service fee accrued thereon shall become due and payable at once, without demand or notice. Upon default, the Director may increase the rate of interest to ten percent (10%) per annum.

Upon prepayment in full, this cancelled Note shall be provided to the Borrower.

A2-2

The Lessee is required by the Lease to make payments of Rent (defined in the Lease) in fixed amounts in accordance with a schedule attached to the Lease to the Trustee which are to pay Debt Service Charges on this Note and certain obligations of the Issuer. The rights of the Director under the Loan Agreement and the Mortgage are subject to the terms of the Intercreditor Agreement, dated as of December 1, 2012, between the Director and the Trustee.

This Note is delivered in Columbus, Ohio and shall be construed in accordance with the laws of the State of Ohio.

A2-3

CLINTON COUNTY PORT AUTHORITY

By:

Name:

Title:

And:

Name:

Title:

A2-4

EXHIBIT A-3

Form of LDI Loan Note

United States of America

State of Ohio

County of Clinton

Clinton County Port Authority

Taxable State Loan Revenue Bond (Logistics & Distribution Infrastructure Loan Program) Series 2012

(Clinton County Port Authority – AMES Project)

$1,595,000 December ___, 2012

The Clinton County Port Authority (the “Borrower”), a body corporate and politic, and a port authority duly created and validly existing under the laws of the State of Ohio, for value received, promises to pay to the order of the Director of Development Services of the State of Ohio (the “Director”), at 77 South High Street, 28 ^th Floor, Columbus, OH, 43215, or at such other address as may be designated in writing by the Director, but solely from the sources and in the manner referred to herein, the principal amount of One Million Five Hundred Ninety-Five Thousand Dollars ($1,595,000), with interest on the amount of principal from time to time outstanding from the Closing Date, as defined in the Loan Agreement dated as of December 1, 2012, between the Borrower and the Director (the “Loan Agreement”), at the rate of one percent (1%) per annum until paid, subject to terms of the Loan Agreement. Capitalized terms not otherwise defined in this Note shall have the same meanings given them in the Loan Agreement

So long as no Event of Default has occurred and is then continuing, no principal or interest shall be due on this Note prior to the Completion Date. Unless the Loan is forgiven as provided in Section 4.3 of the Loan Agreement, the outstanding principal balance of the Loan, together with all interest on the Loan accrued through the date of payment, shall be due and payable in full on May 1, 2014 (the “Maturity Date”).

This Note is issued pursuant to the laws of the State of Ohio, particularly Article VIII, Section 13, of the Ohio Constitution and Sections 4582.21 to 4582.71, both inclusive, Ohio Revised Code, to resolutions duly adopted by the Board of Directors of the Borrower on October 11, 2012 (collectively, the “Legislation”), and to the Loan (as defined below). This Note is issued to evidence the Borrower’s obligation to repay the Logistics & Distribution Infrastructure Loan made to the Borrower, pursuant to the Loan Agreement, by the Director (the “Loan”) to assist the Borrower in financing a portion of the costs of the Project, constituting certain facilities being leased to Air Transport International Limited Liability Company, a Nevada limited liability company (the “Lessee”), constituting an eligible project, as defined in Chapter 166 of the Ohio Revised Code, all as more fully described in the Loan Agreement (the “Project”). The Project will be subleased by the Lessee to Airborne Maintenance and Engineering Services, Inc., a Delaware corporation (the “Operating Company”). In accordance with the Loan Agreement, the proceeds of this Note will be disbursed by the Director to the Borrower in accordance with the Loan Agreement to pay Allowable Costs.

A3-1

This Note does not of itself constitute a commitment by the Director to make any disbursement of the Loan to Borrower. The conditions for making such a disbursement are set forth in the Loan Agreement. The disbursements made by the Director to Borrower shall not exceed the face amount of this Note, and the total amount of such disbursement is limited by and subject to the conditions for making disbursement of the Loan as set forth in the Loan Agreement.

The annual rate of interest stated herein shall apply to a 360-day period and amounts of interest due hereunder shall be computed upon the basis of 30-day months.

The Borrower may prepay all or any portion of the principal sum hereof at any time without penalty. All such prepayments shall be applied to the payment of the principal installments due hereon in the inverse order of their maturity, and shall be accompanied by the payment of accrued interest on the amount of the prepayment to the date thereof. Upon prepayment in full, this cancelled Note shall be provided to the Borrower.

The payment of this Note and all interest hereon is secured by the Loan Documents (as defined in the Loan Agreement), providing the Director a first leasehold mortgage on the Lessee’s leasehold interest in the Premises described in the Mortgage (as defined in the Loan Agreement). The covenants, conditions and agreements contained in the Loan Documents are hereby made a part of this Note.

If default be made in the payment of any installment of principal or interest under this Note when any such payment shall have become due and payable, or if an “Event of Default,” as defined in the Loan Agreement, shall have occurred and be continuing, then, at the option of the Director, the entire principal sum payable hereunder and all interest accrued thereon shall become due and payable at once, without demand or notice.

For the period during which a default shall exist in the payment of any installment of principal or interest due and payable hereunder, whether by acceleration or otherwise, a late charge equal to five percent (5%) of each such installment shall be assessed, in addition to all other sums due hereunder, for each month during which the default exists.

This Note is a duly authorized special obligation of the Borrower, issued for the purpose of paying a portion of the costs of the Project being leased by the Borrower to the Lessee pursuant to the Lease Agreement dated as of December 1, 2012 (as the same may be amended from time to time, the “Lease”) between the Borrower, as lessor, and the Lessee, as lessee. Pursuant to the Lease, the Operating Company will act as the agent of the Borrower for the purpose of the Provision of the Project and the Director will disburse the proceeds of the Note to pay Allowable Costs in accordance with the Loan Agreement. Reference is made to the Lease and the Loan Agreement for a more complete description of the Project, and to the Loan Agreement for the provisions, among others, with respect to the nature and extent of the security for this Note, the rights, duties and obligations of the Borrower and the Director, and the terms and conditions upon which this Note is issued and secured.

The Lessee is required by the Lease to make payments of Rent (defined in the Lease) in fixed amounts in accordance with a schedule attached to the Lease to the Director to pay Debt Service Charges on this Note and certain obligations of the Issuer. The rights of the Director under the Loan Agreement and the Mortgage are subject to the terms of the Intercreditor Agreement, dated

A3-2

as of December 1, 2012, between the Director and The Huntington National Bank, as successor trustee (the “Trustee”) under that certain Trust Agreement dated as of April 1, 1988, between Treasurer of the State of Ohio and The Provident Bank (the “Trust Agreement”) as amended and supplemented by that certain One Hundred Twenty-Eighth Supplemental Trust Agreement, dated as of December 1, 2012 (the “Supplement”).

The amounts payable with respect to this Note are payable solely from the Rent received pursuant to the Lease, and any other amounts derived by the Borrower from the lease, sale or other disposition of the Project and paid to the Director in accordance with the Lease other than moneys received by the Borrower with respect to the exercise of Unassigned Authority Rights, and from any other collateral that may from time to time be assigned to the Director to secure payment thereof, and are an obligation of the Borrower only to the extent of such moneys and any such collateral.

This Note is delivered in Columbus, Ohio and shall be construed in accordance with the laws of the State of Ohio.

CLINTON COUNTY PORT AUTHORITY

A3-3

By:

Name:

Title:

And:

Name:

Title:

A3-4

EXHIBIT B

Description of Project Facilities

The building, consisting of approximately 100,000 square feet square feet, located at the legal description attached hereto, more commonly referred to as Wilmington Air Park, 145 Hunter Drive in the City of Wilmington, County of Clinton, and State of Ohio, as more particularly described in the Plans and Specifications.

B-1

EXHIBIT C

DISBURSEMENT REQUEST FORM AND COST CERTIFICATION



Payment Request, Certification & Trust Authorization Form
AIR TRANSPORT INTERNATIONAL LIMITED LIABILITY COMPANY	Request #	FINAL
145 Hunter Drive
Wilmington, OH 45177	Period Thru:

	Type of Loan:

	PPN or MLN #:

Project Description: purchase of facilities and new infrastructure and equipment for facilities

BORROWER’S REQUEST FOR PAYMENT

1 Loan Amount $ -
2. Borrower’s Required Contribution $ -
3. Other Sources $ -
4. Total Project Costs (Line 1 = Line 2 - Line 3) $ -
(Column C on Breakout Sheet)
5. Retainage: (for prevailing wage, construction or when applicable) a. __ 0 ___% of Loan Amount $ - b. __0 ___% of Total Allowable Costs $ - Total Retainage (Line 5a = 5b) $ 0
6. TOTAL ALLOWABLE COSTS LESS RETAINAGE $ -
(Line 4 less Line 5 total)
7. Less Previous Payment Request(s) $ - (Column F on Breakout Sheet)
8. CURRENT REIMBURSEMENT AMOUNT #REF!
(Column E on Breakout Sheet)
9. Outstanding Balance in Fund, Plus Retainage #REF!

C-1



Payment Request, Certification & Trust Authorization Form
BORROWER’S CERTIFICATION: Air Transport International Limited Liability Company, as Construction Agent, on behalf of the Borrower hereby certifies to the State of Ohio that (i) (A) the Borrower’s representations and warranties made in the Loan Documents remain true, accurate and complete as of the date hereof in all material respects, (B) no Event of Default or event which, by notice, the passage of time or otherwise, would constitute an Event of Default, exists under the Loan Documents, (C) each item for which disbursement is requested is an Allowable Cost and is necessary for the Project, the Adjacent Hangar Demolition, or the Related Area Improvements; (D) no item for which disbursement is requested is the subject of duplicative disbursement request and (E) the Allowable Costs to be paid from the requested disbursement are capitalized under general accepted accounting principles and will be so capitalized. The Lessee hereby certifies to the State of Ohio that (A) the Lessee’s representations and warranties made in the Operative Documents remain true, accurate and complete as of the date hereof in all material respects, (B) no Event of Default or event which, by notice, the passage of time or otherwise, would constitute an Event of Default exists under any of the Operative Documents. BORROWER: Clinton County Port Authority By: Air Transport International Limited Liability Company, Construction Agent LESSEE: Air Transport International Limited Liability Company Signature Date: Title: (Authorized Lessee Representative, CFO, CEO or other Officer authorized to bind Borrower)

C-2

Payment Request, Certification & Trust Authorization Form

DIRECTOR’S CERTIFICATE FOR PAYMENT

AND CERTIFIED #REF!

TRUST OFFICER WIRING INSTRUCTIONS

Pursuant to Section 8 of Series Bond Order No. R9-12 contained in the One Hundred Twenty-Eighth Supplemental Trust Agreement dated as of December 1,2012 (the “Supplemental Trust Agreement”) between the State of Ohio and The Huntington National Bank, as Trustee, and Section 3.3 of the Loan Agreement dated as of December 1, 2012 (the “Loan Agreement”) between the Director of Development Services of The State of Ohio (the “Director”) and Clinton County Port Authority (the “Borrower”), the Borrower and the Director hereby authorize The Huntington National Bank (the “Depository”), as depository of the Proceeds Account of the Project Funds established in the Supplemental Trust Agreement (the “Proceeds Account”), to pay to the person(s) listed on Exhibit A hereto out of the moneys deposited in the Proceeds Account the aggregate sum of $_________ to pay said person(s) in connection with the items listed in the Breakout Sheet, which is incorporated herein by reference.

State Assistance Project Fund State Loan Proceeds Fund Acct. Issuance Exp. Acct.

TRUST OFFICER

Trust Officer: Michelle D. Harmon Trust Date: Insert

Bank Institution: Huntington National Bank, Trust Expiration Date: Insert

Address: 7 Easton Oval, EA4E63

City, State Zip: Columbus, OH 43219

Phone: 614-331-9803

email address michelle.harmon@huntington.com

TRUST OFFICER WIRING INSTRUCTIONS (continued)

LESSEE’S BANKING INFORMATION

Banking Institution: Insert Lessee’s Banking Institution

ABA#: Insert Lessee’s Banking Institution ABA #

Account #: Insert Lessee’s Account #

Reference/Account Name: Insert Lessee’s Account Name and/or Reference Info.

*Important Note to All Perspective Parties to the Trust

*Funds wired to this banking institution using the above referenced wiring instruction will not be credited to your trust account nor invested at your direction until the banking institution has received a full executed copy of the Trust Agreement and all information required to comply with the U.S. Patriot Act. If such agreement and information has not been received within three (3) days after receipt of the wire transfer, this banking institution reserves the right to return the funds to the originating bank.

The director hereby approves the amount certified and authorizes and directs the trust officer, as depository of the trust funds to disburse trust funds to the borrower to pay allowable project costs in connection with the project.

DIRECTOR OF DEVELOPMENT SERVICES, STATE OF OHIO:

Signature Date:

Title:

C-3

Payment Request, Certification & Trust Authorization Form

TRUST OFFICER’S PAYMENT

AMOUNT PAID $ -

(Attached explanation if amount paid differs from the amount certified.)

Check Number Date:

Wire Transfer Reference Number

TRUST OFFICER

Signature Date:

Title:

Trust Officer: Please email to financialincentives@development.ohio.gov or fax to Loans & Servicing office @ (614) 644-1789

C-4

EXHIBIT D

TERMS AND CONDITIONS TO DISBURSEMENT

Disbursements of the State Assistance and State Loan and LDI Loan for the Project

(a) Each request for disbursement from the Project Funds shall be consistent with the cost budget that was prepared by the Construction Agent and accepted by the Borrower and the Director.

(b) Prior to a disbursement of proceeds from the State Loan, all equipment to be purchased from such proceeds shall be located at the Project Site; provided that such proceeds may be disbursed for advanced progress payments if, to the satisfaction of the Director in its sole discretion, adequate alternative collateral is secured prior to such disbursement.

(c) The Construction Agent, on behalf of the Borrower, has received for delivery to the Director all appropriate mechanics’ lien affidavits for each of the items to be paid under this Disbursement Request.

(d) All Disbursement Requests from the Project Funds shall be made by the Construction Agent on behalf of the Borrower, and submitted to the Director by a Disbursement Request Form signed by the Construction Agent on behalf of Borrower.

(e) The Director and the Borrower do not assume, and are hereby expressly released and discharged by Lessee from, any and all liability or responsibility whatsoever that might or could arise out of the approval of disbursements from the Project Funds or as to the method, manner or application of such disbursements or as to any liens whatsoever that might attach to or be filed against the Project or the Project Funds.

(f) Disbursement requests shall be made by the Construction Agent on behalf of the Borrower only once each calendar month.

(g) The Borrower and the Lessee are in compliance with Article VII of the Loan Agreement.

(h) Each request for disbursement may, if required by the Director, be reviewed and approved by an inspector (the “Inspector”) retained by the Director, and Borrower shall pay, or cause to be paid, the reasonable costs and expenses therefor.

(i) If disbursement is requested to reimburse the Borrower or the Construction Agent for Allowable Costs paid by the Borrower or the Construction Agent, the Borrower or the Construction Agent shall have furnished the Director with (1) invoices for each item of the Project acquired and (2) evidence that such costs have been paid to the equipment supplier or other appropriate party.

(j) If disbursement is to be made directly to an equipment supplier or other appropriate party, the Construction Agent on behalf of Borrower shall have furnished the Director with invoices evidencing the amount due.

D-1

(k) Such other documents, instruments and certifications as the Director shall reasonably request.

EXHIBIT E

ADJACENT HANGAR DEMOLITION

E-1

EXHIBIT F

RELATED AREA IMPROVEMENTS

F-1

SCHEDULE 1

STATE LOAN PAYMENT SCHEDULE



		166 Loan
									Total		Total	Outstanding
Date		Principal Payment	Interest Rate				Interest Payment		Fees		Payment	Principal

12/1/2012												$4,000,000.00
5/15/2013	$ -			0.00	%	$ -		$ -		$ -		$4,000,000.00
11/15/2013	$ -			0.00	%	$ -		$ -		$ -		$4,000,000.00
5/15/2014	$ -			0.00	%	$ -		$ -		$ -		$4,000,000.00
11/15/2014	$ -			0.00	%	$ -		$ -		$ -		$4,000,000.00
5/15/2015	$ -			0.00	%	$ -		$ -		$ -		$4,000,000.00
11/15/2015	$ -			0.00	%	$ -		$ -		$ -		$4,000,000.00
5/15/2016	$88,145.25			1.00	%	$20,000.00		$5,000.00		$113,145.25		$3,911,854.75
11/15/2016	$88,585.98			1.00	%	$19,559.27		$4,889.82		$113,035.07		$3,823,268.77
5/15/2017	$89,028.91			1.00	%	$19,116.34		$4,779.09		$112,924.34		$3,734,239.86
11/15/2017	$89,474.05			1.00	%	$18,671.20		$4,667.80		$112,813.05		$3,644,765.81
5/15/2018	$89,921.42			1.00	%	$18,223.83		$4,555.96		$112,701.21		$3,554,844.39
11/15/2018	$90,371.03			1.00	%	$17,774.22		$4,443.56		$112,588.81		$3,464,473.36
5/15/2019	$90,822.89			1.00	%	$17,322.37		$4,330.59		$112,475.85		$3,373,650.47
11/15/2019	$91,277.00			1.00	%	$16,868.25		$4,217.06		$112,362.31		$3,282,373.47
5/15/2020	$91,733.39			1.00	%	$16,411.87		$4,102.97		$112,248.23		$3,190,640.08
11/15/2020	$92,192.05			1.00	%	$15,953.20		$3,988.30		$112,133.55		$3,098,448.03
5/15/2021	$92,653.01			1.00	%	$15,492.24		$3,873.06		$112,018.31		$3,005,795.02
11/15/2021	$93,116.28			1.00	%	$15,028.98		$3,757.24		$111,902.50		$2,912,678.74
5/15/2022	$93,581.86			1.00	%	$14,563.39		$3,640.85		$111,786.10		$2,819,096.88
11/15/2022	$94,049.77			1.00	%	$14,095.48		$3,523.87		$111,669.12		$2,725,047.11
5/15/2023	$94,520.02			1.00	%	$13,625.24		$3,406.31		$111,551.57		$2,630,527.09
11/15/2023	$94,992.62			1.00	%	$13,152.64		$3,288.16		$111,433.42		$2,535,534.47
5/15/2024	$95,467.58			1.00	%	$12,677.67		$3,169.42		$111,314.67		$2,440,066.89
11/15/2024	$95,944.92			1.00	%	$12,200.33		$3,050.08		$111,195.33		$2,344,121.97
5/15/2025	$96,424.64			1.00	%	$11,720.61		$2,930.15		$111,075.40		$2,247,697.33
11/15/2025	$96,906.77			1.00	%	$11,238.49		$2,809.62		$110,954.88		$2,150,790.56
5/15/2026	$97,391.30			1.00	%	$10,753.95		$2,688.49		$110,833.74		$2,053,399.26
11/15/2026	$97,878.26			1.00	%	$10,267.00		$2,566.75		$110,712.01		$1,955,521.00
5/15/2027	$98,367.65			1.00	%	$9,777.60		$2,444.40		$110,589.65		$1,857,153.35
11/15/2027	$98,859.49			1.00	%	$9,285.77		$2,321.44		$110,466.70		$1,758,293.86
5/15/2028	$99,353.78			1.00	%	$8,791.47		$2,197.87		$110,343.12		$1,658,940.08
11/15/2028	$99,850.55			1.00	%	$8,294.70		$2,073.68		$110,218.93		$1,559,089.53
5/15/2029	$100,349.81			1.00	%	$7,795.45		$1,948.86		$110,094.12		$1,458,739.72
11/15/2029	$100,851.55			1.00	%	$7,293.70		$1,823.42		$109,968.67		$1,357,888.17
5/15/2030	$101,355.81			1.00	%	$6,789.44		$1,697.36		$109,842.61		$1,256,532.36
11/15/2030	$101,862.59			1.00	%	$6,282.66		$1,570.67		$109,715.92		$1,154,669.77

Schedule 1 - 1



5/15/2031	$102,371.90	1.00	%	$5,773.35	$1,443.34	$109,588.59	$1,052,297.87
11/15/2031	$102,883.76	1.00	%	$5,261.49	$1,315.37	$109,460.62	$949,414.11
5/15/2032	$103,398.18	1.00	%	$4,747.07	$1,186.77	$109,332.02	$846,015.93
11/15/2032	$103,915.17	1.00	%	$4,230.08	$1,057.52	$109,202.77	$742,100.76
5/15/2033	$104,434.75	1.00	%	$3,710.50	$927.63	$109,072.88	$637,666.01
11/15/2033	$104,956.92	1.00	%	$3,188.33	$797.08	$108,942.33	$532,709.09
5/15/2034	$105,481.71	1.00	%	$2,663.55	$665.89	$108,811.15	$427,227.38
11/15/2034	$106,009.12	1.00	%	$2,136.14	$534.03	$108,679.29	$321,218.26
5/15/2035	$106,539.16	1.00	%	$1,606.09	$401.52	$108,546.77	$214,679.10
11/15/2035	$107,071.86	1.00	%	$1,073.40	$268.35	$108,413.61	$107,607.24
5/15/2036	$107,607.24	1.00	%	$538.04	$134.51	$108,279.79	$0.00
	$4,000,000.00			$433,955.40	$108,488.85	$4,542,444.25

Schedule 1 - 2

SCHEDULE 2

STATE ASSISTANCE PAYMENT SCHEDULE



					Total		Capitalized	Total
Date	Principal		Interest		Fees		Interest	Payment
12/27/2012
1/15/2013			$	25,623.35	$	756.18	($ 26,379.54)
2/15/2013			$	25,623.35	$	756.18	($ 26,379.54)
3/15/2013			$	25,623.35	$	756.18	($ 26,379.54)
4/15/2013			$	25,623.35	$	756.18	($ 26,379.54)
5/15/2013			$	25,623.35	$	756.18	($ 26,379.54)
6/15/2013			$	24,957.81	$	736.54	($ 25,694.36)
7/15/2013			$	24,957.81	$	736.54	($ 25,694.36)
8/15/2013			$	24,957.81	$	736.54	($ 25,694.36)
9/15/2013			$	24,957.81	$	736.54	($ 25,694.36)
10/15/2013			$	24,957.81	$	736.54	($ 25,694.36)
11/15/2013			$	24,957.81	$	736.54	($ 25,694.36)
12/15/2013			$	24,957.81	$	736.54	($ 25,694.36)
1/15/2014	$24,000.00		$	24,957.81	$	736.54		$	49,694.36
2/15/2014	$24,000.00		$	24,957.81	$	736.54		$	49,694.36
3/15/2014	$24,000.00		$	24,957.81	$	736.54		$	49,694.36
4/15/2014	$24,000.00		$	24,957.81	$	736.54		$	49,694.36
5/15/2014	$	24,000.00	$	24,957.81	$	736.54		$	49,694.36
6/15/2014	$	23,333.33	$	24,757.81	$	729.54		$	48,820.69
7/15/2014	$	23,333.33	$	24,757.81	$	729.54		$	48,820.69
8/15/2014	$	23,333.33	$	24,757.81	$	729.54		$	48,820.69
9/15/2014	$	23,333.33	$	24,757.81	$	729.54		$	48,820.69
10/15/2014	$	23,333.33	$	24,757.81	$	729.54		$	48,820.69
11/15/2014	$	23,333.33	$	24,757.81	$	729.54		$	48,820.69
12/15/2014	$	25,000.00	$	24,524.48	$	721.38		$	50,245.86
1/15/2015	$	25,000.00	$	24,524.48	$	721.38		$	50,245.86
2/15/2015	$	25,000.00	$	24,524.48	$	721.38		$	50,245.86
3/15/2015	$	25,000.00	$	24,524.48	$	721.38		$	50,245.86
4/15/2015	$	25,000.00	$	24,524.48	$	721.38		$	50,245.86
5/15/2015	$	25,000.00	$	24,524.48	$	721.38		$	50,245.86
6/15/2015	$	25,000.00	$	24,274.48	$	712.63		$	49,987.11
7/15/2015	$	25,000.00	$	24,274.48	$	712.63		$	49,987.11
8/15/2015	$	25,000.00	$	24,274.48	$	712.63		$	49,987.11
9/15/2015	$	25,000.00	$	24,274.48	$	712.63		$	49,987.11
10/15/2015	$	25,000.00	$	24,274.48	$	712.63		$	49,987.11
11/15/2015	$	25,000.00	$	24,274.48	$	712.63		$	49,987.11
12/15/2015	$	25,000.00	$	24,024.48	$	1,588.77		$	50,613.25
1/15/2016	$	25,000.00	$	24,024.48	$	1,588.77		$	50,613.25
2/15/2016	$	25,000.00	$	24,024.48	$	1,588.77		$	50,613.25
3/15/2016	$	25,000.00	$	24,024.48	$	1,588.77		$	50,613.25

Schedule 2 - 1



4/15/2016	$	25,000.00	$	24,024.48	$	1,588.77	$	50,613.25
5/15/2016	$	25,000.00	$	24,024.48	$	1,588.77	$	50,613.25
6/15/2016	$	25,000.00	$	23,774.48	$	1,564.40	$	50,338.88
7/15/2016	$	25,000.00	$	23,774.48	$	1,564.40	$	50,338.88
8/15/2016	$	25,000.00	$	23,774.48	$	1,564.40	$	50,338.88
9/15/2016	$	25,000.00	$	23,774.48	$	1,564.40	$	50,338.88
10/15/2016	$	25,000.00	$	23,774.48	$	1,564.40	$	50,338.88
11/15/2016	$	25,000.00	$	23,774.48	$	1,564.40	$	50,338.88
12/15/2016	$	25,833.33	$	23,524.48	$	1,540.02	$	50,897.84
1/15/2017	$	25,833.33	$	23,524.48	$	1,540.02	$	50,897.84
2/15/2017	$	25,833.33	$	23,524.48	$	1,540.02	$	50,897.84
3/15/2017	$	25,833.33	$	23,524.48	$	1,540.02	$	50,897.84
4/15/2017	$	25,833.33	$	23,524.48	$	1,540.02	$	50,897.84
5/15/2017	$	25,833.33	$	23,524.48	$	1,540.02	$	50,897.84
6/15/2017	$	25,833.33	$	23,266.15	$	1,514.83	$	50,614.31
7/15/2017	$	25,833.33	$	23,266.15	$	1,514.83	$	50,614.31
8/15/2017	$	25,833.33	$	23,266.15	$	1,514.83	$	50,614.31
9/15/2017	$	25,833.33	$	23,266.15	$	1,514.83	$	50,614.31
10/15/2017	$	25,833.33	$	23,266.15	$	1,514.83	$	50,614.31
11/15/2017	$	25,833.33	$	23,266.15	$	1,514.83	$	50,614.31
12/15/2017	$	25,833.33	$	23,007.81	$	1,489.65	$	50,330.79
1/15/2018	$	25,833.33	$	23,007.81	$	1,489.65	$	50,330.79
2/15/2018	$	25,833.33	$	23,007.81	$	1,489.65	$	50,330.79
3/15/2018	$	25,833.33	$	23,007.81	$	1,489.65	$	50,330.79
4/15/2018	$	25,833.33	$	23,007.81	$	1,489.65	$	50,330.79
5/15/2018	$	25,833.33	$	23,007.81	$	1,489.65	$	50,330.79
6/15/2018	$	26,666.67	$	22,749.48	$	1,464.46	$	50,880.61
7/15/2018	$	26,666.67	$	22,749.48	$	1,464.46	$	50,880.61
8/15/2018	$	26,666.67	$	22,749.48	$	1,464.46	$	50,880.61
9/15/2018	$	26,666.67	$	22,749.48	$	1,464.46	$	50,880.61
10/15/2018	$	26,666.67	$	22,749.48	$	1,464.46	$	50,880.61
11/15/2018	$	26,666.67	$	22,749.48	$	1,464.46	$	50,880.61
12/15/2018	$	26,666.67	$	22,482.81	$	1,438.46	$	50,587.94
1/15/2019	$	26,666.67	$	22,482.81	$	1,438.46	$	50,587.94
2/15/2019	$	26,666.67	$	22,482.81	$	1,438.46	$	50,587.94
3/15/2019	$	26,666.67	$	22,482.81	$	1,438.46	$	50,587.94
4/15/2019	$	26,666.67	$	22,482.81	$	1,438.46	$	50,587.94
5/15/2019	$	26,666.67	$	22,482.81	$	1,438.46	$	50,587.94
6/15/2019	$	26,666.67	$	22,216.15	$	1,412.46	$	50,295.27
7/15/2019	$	26,666.67	$	22,216.15	$	1,412.46	$	50,295.27
8/15/2019	$	26,666.67	$	22,216.15	$	1,412.46	$	50,295.27
9/15/2019	$	26,666.67	$	22,216.15	$	1,412.46	$	50,295.27
10/15/2019	$	26,666.67	$	22,216.15	$	1,412.46	$	50,295.27
11/15/2019	$	26,666.67	$	22,216.15	$	1,412.46	$	50,295.27
12/15/2019	$	27,500.00	$	21,949.48	$	1,386.46	$	50,835.94
1/15/2020	$	27,500.00	$	21,949.48	$	1,386.46	$	50,835.94

Schedule 2 - 1



2/15/2020	$	27,500.00	$	21,949.48	$	1,386.46	$	50,835.94
3/15/2020	$	27,500.00	$	21,949.48	$	1,386.46	$	50,835.94
4/15/2020	$	27,500.00	$	21,949.48	$	1,386.46	$	50,835.94
5/15/2020	$	27,500.00	$	21,949.48	$	1,386.46	$	50,835.94
6/15/2020	$	27,500.00	$	21,657.29	$	1,359.65	$	50,516.94
7/15/2020	$	27,500.00	$	21,657.29	$	1,359.65	$	50,516.94
8/15/2020	$	27,500.00	$	21,657.29	$	1,359.65	$	50,516.94
9/15/2020	$	27,500.00	$	21,657.29	$	1,359.65	$	50,516.94
10/15/2020	$	27,500.00	$	21,657.29	$	1,359.65	$	50,516.94
11/15/2020	$	27,500.00	$	21,657.29	$	1,359.65	$	50,516.94
12/15/2020	$	27,500.00	$	21,365.11	$	1,332.83	$	50,197.94
1/15/2021	$	27,500.00	$	21,365.11	$	1,332.83	$	50,197.94
2/15/2021	$	27,500.00	$	21,365.11	$	1,332.83	$	50,197.94
3/15/2021	$	27,500.00	$	21,365.11	$	1,332.83	$	50,197.94
4/15/2021	$	27,500.00	$	21,365.11	$	1,332.83	$	50,197.94
5/15/2021	$	27,500.00	$	21,365.11	$	1,332.83	$	50,197.94
6/15/2021	$	28,333.33	$	21,021.36	$	1,306.02	$	50,660.71
7/15/2021	$	28,333.33	$	21,021.36	$	1,306.02	$	50,660.71
8/15/2021	$	28,333.33	$	21,021.36	$	1,306.02	$	50,660.71
9/15/2021	$	28,333.33	$	21,021.36	$	1,306.02	$	50,660.71
10/15/2021	$	28,333.33	$	21,021.36	$	1,306.02	$	50,660.71
11/15/2021	$	28,333.33	$	21,021.36	$	1,306.02	$	50,660.71
12/15/2021	$	28,333.33	$	20,667.19	$	1,278.40	$	50,278.92
1/15/2022	$	28,333.33	$	20,667.19	$	1,278.40	$	50,278.92
2/15/2022	$	28,333.33	$	20,667.19	$	1,278.40	$	50,278.92
3/15/2022	$	28,333.33	$	20,667.19	$	1,278.40	$	50,278.92
4/15/2022	$	28,333.33	$	20,667.19	$	1,278.40	$	50,278.92
5/15/2022	$	28,333.33	$	20,667.19	$	1,278.40	$	50,278.92
6/15/2022	$	29,166.67	$	20,277.61	$	1,250.77	$	50,695.04
7/15/2022	$	29,166.67	$	20,277.61	$	1,250.77	$	50,695.04
8/15/2022	$	29,166.67	$	20,277.61	$	1,250.77	$	50,695.04
9/15/2022	$	29,166.67	$	20,277.61	$	1,250.77	$	50,695.04
10/15/2022	$	29,166.67	$	20,277.61	$	1,250.77	$	50,695.04
11/15/2022	$	29,166.67	$	20,277.61	$	1,250.77	$	50,695.04
12/15/2022	$	29,166.67	$	19,876.56	$	1,222.33	$	50,265.56
1/15/2023	$	29,166.67	$	19,876.56	$	1,222.33	$	50,265.56
2/15/2023	$	29,166.67	$	19,876.56	$	1,222.33	$	50,265.56
3/15/2023	$	29,166.67	$	19,876.56	$	1,222.33	$	50,265.56
4/15/2023	$	29,166.67	$	19,876.56	$	1,222.33	$	50,265.56
5/15/2023	$	29,166.67	$	19,876.56	$	1,222.33	$	50,265.56
6/15/2023	$	30,000.00	$	19,439.06	$	1,193.90	$	50,632.96
7/15/2023	$	30,000.00	$	19,439.06	$	1,193.90	$	50,632.96
8/15/2023	$	30,000.00	$	19,439.06	$	1,193.90	$	50,632.96
9/15/2023	$	30,000.00	$	19,439.06	$	1,193.90	$	50,632.96
10/15/2023	$	30,000.00	$	19,439.06	$	1,193.90	$	50,632.96
11/15/2023	$	30,000.00	$	19,439.06	$	1,193.90	$	50,632.96

Schedule 2 - 1



12/15/2023	$	30,000.00	$	18,989.06	$	1,164.65	$	50,153.71
1/15/2024	$	30,000.00	$	18,989.06	$	1,164.65	$	50,153.71
2/15/2024	$	30,000.00	$	18,989.06	$	1,164.65	$	50,153.71
3/15/2024	$	30,000.00	$	18,989.06	$	1,164.65	$	50,153.71
4/15/2024	$	30,000.00	$	18,989.06	$	1,164.65	$	50,153.71
5/15/2024	$	30,000.00	$	18,989.06	$	1,164.65	$	50,153.71
6/15/2024	$	30,833.33	$	18,539.06	$	1,135.40	$	50,507.79
7/15/2024	$	30,833.33	$	18,539.06	$	1,135.40	$	50,507.79
8/15/2024	$	30,833.33	$	18,539.06	$	1,135.40	$	50,507.79
9/15/2024	$	30,833.33	$	18,539.06	$	1,135.40	$	50,507.79
10/15/2024	$	30,833.33	$	18,539.06	$	1,135.40	$	50,507.79
11/15/2024	$	30,833.33	$	18,539.06	$	1,135.40	$	50,507.79
12/15/2024	$	30,833.33	$	18,076.56	$	1,105.33	$	50,015.23
1/15/2025	$	30,833.33	$	18,076.56	$	1,105.33	$	50,015.23
2/15/2025	$	30,833.33	$	18,076.56	$	1,105.33	$	50,015.23
3/15/2025	$	30,833.33	$	18,076.56	$	1,105.33	$	50,015.23
4/15/2025	$	30,833.33	$	18,076.56	$	1,105.33	$	50,015.23
5/15/2025	$	30,833.33	$	18,076.56	$	1,105.33	$	50,015.23
6/15/2025	$	31,666.67	$	17,614.06	$	1,075.27	$	50,356.00
7/15/2025	$	31,666.67	$	17,614.06	$	1,075.27	$	50,356.00
8/15/2025	$	31,666.67	$	17,614.06	$	1,075.27	$	50,356.00
9/15/2025	$	31,666.67	$	17,614.06	$	1,075.27	$	50,356.00
10/15/2025	$	31,666.67	$	17,614.06	$	1,075.27	$	50,356.00
11/15/2025	$	31,666.67	$	17,614.06	$	1,075.27	$	50,356.00
12/15/2025	$	31,666.67	$	17,139.06	$	1,044.40	$	49,850.13
1/15/2026	$	31,666.67	$	17,139.06	$	1,044.40	$	49,850.13
2/15/2026	$	31,666.67	$	17,139.06	$	1,044.40	$	49,850.13
3/15/2026	$	31,666.67	$	17,139.06	$	1,044.40	$	49,850.13
4/15/2026	$	31,666.67	$	17,139.06	$	1,044.40	$	49,850.13
5/15/2026	$	31,666.67	$	17,139.06	$	1,044.40	$	49,850.13
6/15/2026	$	32,500.00	$	16,644.27	$	1,011.65	$	50,155.92
7/15/2026	$	32,500.00	$	16,644.27	$	1,011.65	$	50,155.92
8/15/2026	$	32,500.00	$	16,644.27	$	1,011.65	$	50,155.92
9/15/2026	$	32,500.00	$	16,644.27	$	1,011.65	$	50,155.92
10/15/2026	$	32,500.00	$	16,644.27	$	1,011.65	$	50,155.92
11/15/2026	$	32,500.00	$	16,644.27	$	1,011.65	$	50,155.92
12/15/2026	$	33,333.33	$	16,136.46	$	971.83	$	50,441.63
1/15/2027	$	33,333.33	$	16,136.46	$	971.83	$	50,441.63
2/15/2027	$	33,333.33	$	16,136.46	$	971.83	$	50,441.63
3/15/2027	$	33,333.33	$	16,136.46	$	971.83	$	50,441.63
4/15/2027	$	33,333.33	$	16,136.46	$	971.83	$	50,441.63
5/15/2027	$	33,333.33	$	16,136.46	$	971.83	$	50,441.63
6/15/2027	$	33,333.33	$	15,615.63	$	931.00	$	49,879.96
7/15/2027	$	33,333.33	$	15,615.63	$	931.00	$	49,879.96
8/15/2027	$	33,333.33	$	15,615.63	$	931.00	$	49,879.96
9/15/2027	$	33,333.33	$	15,615.63	$	931.00	$	49,879.96

Schedule 2 - 1



10/15/2027	$	33,333.33	$	15,615.63	$	931.00	$	49,879.96
11/15/2027	$	33,333.33	$	15,615.63	$	931.00	$	49,879.96
12/15/2027	$	34,166.67	$	15,094.79	$	890.17	$	50,151.63
1/15/2028	$	34,166.67	$	15,094.79	$	890.17	$	50,151.63
2/15/2028	$	34,166.67	$	15,094.79	$	890.17	$	50,151.63
3/15/2028	$	34,166.67	$	15,094.79	$	890.17	$	50,151.63
4/15/2028	$	34,166.67	$	15,094.79	$	890.17	$	50,151.63
5/15/2028	$	34,166.67	$	15,094.79	$	890.17	$	50,151.63
6/15/2028	$	34,166.67	$	14,560.94	$	848.31	$	49,575.92
7/15/2028	$	34,166.67	$	14,560.94	$	848.31	$	49,575.92
8/15/2028	$	34,166.67	$	14,560.94	$	848.31	$	49,575.92
9/15/2028	$	34,166.67	$	14,560.94	$	848.31	$	49,575.92
10/15/2028	$	34,166.67	$	14,560.94	$	848.31	$	49,575.92
11/15/2028	$	34,166.67	$	14,560.94	$	848.31	$	49,575.92
12/15/2028	$	35,000.00	$	14,027.08	$	806.46	$	49,833.54
1/15/2029	$	35,000.00	$	14,027.08	$	806.46	$	49,833.54
2/15/2029	$	35,000.00	$	14,027.08	$	806.46	$	49,833.54
3/15/2029	$	35,000.00	$	14,027.08	$	806.46	$	49,833.54
4/15/2029	$	35,000.00	$	14,027.08	$	806.46	$	49,833.54
5/15/2029	$	35,000.00	$	14,027.08	$	806.46	$	49,833.54
6/15/2029	$	35,833.33	$	13,458.33	$	763.58	$	50,055.25
7/15/2029	$	35,833.33	$	13,458.33	$	763.58	$	50,055.25
8/15/2029	$	35,833.33	$	13,458.33	$	763.58	$	50,055.25
9/15/2029	$	35,833.33	$	13,458.33	$	763.58	$	50,055.25
10/15/2029	$	35,833.33	$	13,458.33	$	763.58	$	50,055.25
11/15/2029	$	35,833.33	$	13,458.33	$	763.58	$	50,055.25
12/15/2029	$	35,833.33	$	12,876.04	$	719.69	$	49,429.06
1/15/2030	$	35,833.33	$	12,876.04	$	719.69	$	49,429.06
2/15/2030	$	35,833.33	$	12,876.04	$	719.69	$	49,429.06
3/15/2030	$	35,833.33	$	12,876.04	$	719.69	$	49,429.06
4/15/2030	$	35,833.33	$	12,876.04	$	719.69	$	49,429.06
5/15/2030	$	35,833.33	$	12,876.04	$	719.69	$	49,429.06
6/15/2030	$	36,666.67	$	12,293.75	$	675.79	$	49,636.21
7/15/2030	$	36,666.67	$	12,293.75	$	675.79	$	49,636.21
8/15/2030	$	36,666.67	$	12,293.75	$	675.79	$	49,636.21
9/15/2030	$	36,666.67	$	12,293.75	$	675.79	$	49,636.21
10/15/2030	$	36,666.67	$	12,293.75	$	675.79	$	49,636.21
11/15/2030	$	36,666.67	$	12,293.75	$	675.79	$	49,636.21
12/15/2030	$	37,500.00	$	11,697.92	$	630.88	$	49,828.79
1/15/2031	$	37,500.00	$	11,697.92	$	630.88	$	49,828.79
2/15/2031	$	37,500.00	$	11,697.92	$	630.88	$	49,828.79
3/15/2031	$	37,500.00	$	11,697.92	$	630.88	$	49,828.79
4/15/2031	$	37,500.00	$	11,697.92	$	630.88	$	49,828.79
5/15/2031	$	37,500.00	$	11,697.92	$	630.88	$	49,828.79
6/15/2031	$	38,333.33	$	10,760.42	$	584.94	$	49,678.69
7/15/2031	$	38,333.33	$	10,760.42	$	584.94	$	49,678.69

Schedule 2 - 1



8/15/2031	$	38,333.33	$	10,760.42	$	584.94	$	49,678.69
9/15/2031	$	38,333.33	$	10,760.42	$	584.94	$	49,678.69
10/15/2031	$	38,333.33	$	10,760.42	$	584.94	$	49,678.69
11/15/2031	$	38,333.33	$	10,760.42	$	584.94	$	49,678.69
12/15/2031	$	39,166.67	$	9,802.08	$	537.98	$	49,506.73
1/15/2032	$	39,166.67	$	9,802.08	$	537.98	$	49,506.73
2/15/2032	$	39,166.67	$	9,802.08	$	537.98	$	49,506.73
3/15/2032	$	39,166.67	$	9,802.08	$	537.98	$	49,506.73
4/15/2032	$	39,166.67	$	9,802.08	$	537.98	$	49,506.73
5/15/2032	$	39,166.67	$	9,802.08	$	537.98	$	49,506.73
6/15/2032	$	40,000.00	$	8,822.92	$	490.00	$	49,312.92
7/15/2032	$	40,000.00	$	8,822.92	$	490.00	$	49,312.92
8/15/2032	$	40,000.00	$	8,822.92	$	490.00	$	49,312.92
9/15/2032	$	40,000.00	$	8,822.92	$	490.00	$	49,312.92
10/15/2032	$	40,000.00	$	8,822.92	$	490.00	$	49,312.92
11/15/2032	$	40,000.00	$	8,822.92	$	490.00	$	49,312.92
12/15/2032	$	41,666.67	$	7,822.92	$	441.00	$	49,930.58
1/15/2033	$	41,666.67	$	7,822.92	$	441.00	$	49,930.58
2/15/2033	$	41,666.67	$	7,822.92	$	441.00	$	49,930.58
3/15/2033	$	41,666.67	$	7,822.92	$	441.00	$	49,930.58
4/15/2033	$	41,666.67	$	7,822.92	$	441.00	$	49,930.58
5/15/2033	$	41,666.67	$	7,822.92	$	441.00	$	49,930.58
6/15/2033	$	42,500.00	$	6,781.25	$	389.86	$	49,671.21
7/15/2033	$	42,500.00	$	6,781.25	$	389.86	$	49,671.21
8/15/2033	$	42,500.00	$	6,781.25	$	389.86	$	49,671.21
9/15/2033	$	42,500.00	$	6,781.25	$	389.86	$	49,671.21
10/15/2033	$	42,500.00	$	6,781.25	$	389.86	$	49,671.21
11/15/2033	$	42,500.00	$	6,781.25	$	389.86	$	49,671.21
12/15/2033	$	43,333.33	$	5,718.75	$	337.90	$	49,389.98
1/15/2034	$	43,333.33	$	5,718.75	$	337.90	$	49,389.98
2/15/2034	$	43,333.33	$	5,718.75	$	337.90	$	49,389.98
3/15/2034	$	43,333.33	$	5,718.75	$	337.90	$	49,389.98
4/15/2034	$	43,333.33	$	5,718.75	$	337.90	$	49,389.98
5/15/2034	$	43,333.33	$	5,718.75	$	337.90	$	49,389.98
6/15/2034	$	44,166.67	$	4,635.42	$	284.81	$	49,086.90
7/15/2034	$	44,166.67	$	4,635.42	$	284.81	$	49,086.90
8/15/2034	$	44,166.67	$	4,635.42	$	284.81	$	49,086.90
9/15/2034	$	44,166.67	$	4,635.42	$	284.81	$	49,086.90
10/15/2034	$	44,166.67	$	4,635.42	$	284.81	$	49,086.90
11/15/2034	$	44,166.67	$	4,635.42	$	284.81	$	49,086.90
12/15/2034	$	45,833.33	$	3,531.25	$	230.71	$	49,595.29
1/15/2035	$	45,833.33	$	3,531.25	$	230.71	$	49,595.29
2/15/2035	$	45,833.33	$	3,531.25	$	230.71	$	49,595.29
3/15/2035	$	45,833.33	$	3,531.25	$	230.71	$	49,595.29
4/15/2035	$	45,833.33	$	3,531.25	$	230.71	$	49,595.29
5/15/2035	$	45,833.33	$	3,531.25	$	230.71	$	49,595.29

Schedule 2 - 1



6/15/2035	$	46,666.67		$	2,671.88	$	174.56				$	49,513.11
7/15/2035	$	46,666.67		$	2,671.88	$	174.56				$	49,513.11
8/15/2035	$	46,666.67		$	2,671.88	$	174.56				$	49,513.11
9/15/2035	$	46,666.67		$	2,671.88	$	174.56				$	49,513.11
10/15/2035	$	46,666.67		$	2,671.88	$	174.56				$	49,513.11
11/15/2035	$	46,666.67		$	2,671.88	$	174.56				$	49,513.11
12/15/2035	$	47,500.00		$	1,796.88	$	117.40				$	49,414.27
1/15/2036	$	47,500.00		$	1,796.88	$	117.40				$	49,414.27
2/15/2036	$	47,500.00		$	1,796.88	$	117.40				$	49,414.27
3/15/2036	$	47,500.00		$	1,796.88	$	117.40				$	49,414.27
4/15/2036	$	47,500.00		$	1,796.88	$	117.40				$	49,414.27
5/15/2036	$	47,500.00		$	1,796.88	$	117.40				$	49,414.27
6/15/2036	$	48,333.33		$	906.25	$	59.21				$	49,298.79
7/15/2036	$	48,333.33		$	906.25	$	59.21				$	49,298.79
8/15/2036	$	48,333.33		$	906.25	$	59.21				$	49,298.79
9/15/2036	$	48,333.33		$	906.25	$	59.21				$	49,298.79
10/15/2036	$	48,333.33		$	906.25	$	59.21				$	49,298.79
11/15/2036	$	48,333.33	$906.25					$59.21	$	49,298.79

Schedule 2 - 1

Exhibit 10.38

Execution Copy

GUARANTY AGREEMENT

by and among

AIR TRANSPORT SERVICES GROUP, INC.

and

AIRBORNE MAINTENANCE AND ENGINEERING SERVICES, INC.

and

AIR TRANSPORT INTERNATIONAL LIMITED LIABILITY COMPANY

and

CLINTON COUNTY PORT AUTHORITY

and

THE DIRECTOR OF DEVELOPMENT SERVICES AGENCY

OF THE STATE OF OHIO

and

THE HUNTINGTON NATIONAL BANK,

as Trustee

Dated as of

December 1, 2012

837340v12

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT (the “Guaranty Agreement”), dated as of December 1, 2012, is made by and among AIR TRANSPORT SERVICES GROUP, INC., a corporation organized and existing under the laws of the State of Delaware (“ATSG”), AIRBORNE MAINTENANCE AND ENGINEERING SERVICES, INC., a corporation organized and existing under the laws of the State of Delaware (“AMES”), AIR TRANSPORT INTERNATIONAL LIMITED LIABILITY COMPANY, a limited liability company organized and existing under the laws of the State of Nevada (“ATI;” each of ATSG, AMES and ATI are sometimes referred to herein as a “Guarantor,” and ATSG, AMES and ATI are referred to collectively herein as the “Guarantors”), the CLINTON COUNTY PORT AUTHORITY, a body corporate and politic and a port authority duly organized and validly existing under the laws of the State of Ohio (the “Authority”), the DIRECTOR OF DEVELOPMENT SERVICES AGENCY OF THE STATE OF OHIO, acting on behalf of the State of Ohio (the “Director”), and THE HUNTINGTON NATIONAL BANK, a bank duly organized and validly existing under the laws of the United States of America and qualified to exercise corporate trust powers under the laws of the State of Ohio, as trustee under the Trust Agreement hereinafter defined (the “Trustee”), with each capitalized word or term used as a defined term in this Guaranty Agreement but not otherwise defined herein having the meaning assigned to it in the definitions set forth in the Lease Agreement (Jump Hangar Facility), dated as of the same date as this Guaranty Agreement, between the Authority, as lessor, and ATI, as lessee, a copy of which is on file in the designated Columbus, Ohio offices of the Trustee and a memorandum of which has been recorded in the Clinton County, Ohio Official Records on or about the Closing Date (the “Lease”).

WITNESSETH:

WHEREAS, pursuant to and in accordance with the provisions of the Constitution of the State, the Act, the Port Act and the Loan Agreement, the Authority has determined, at the request of Guarantors, to issue the State Assistance Note, the State Loan Note and the LDI Loan Note, and to use the proceeds thereof to finance costs of acquiring, constructing, equipping and otherwise improving the Project;

WHEREAS, upon the terms and conditions set forth in the Lease and the Loan Agreement, the Authority has determined to provide, or to arrange for the provision of, financing for the Project and certain other services related to the acquisition, construction, improvement, operation, maintenance and use of the Project, including without limitation, arrangements for ATI, or its sublessee, AMES, to act as the Authority’s agent for the acquisition, construction and otherwise improving the Project under the Lease and the lease of the Project to ATI under the Lease, and ATI has, in consideration thereof, agreed to lease the Project from the Authority pursuant to the Lease and to act, or to cause AMES to act, as Construction Agent thereunder;

WHEREAS, ATSG is, indirectly, the parent company of ATI and AMES and will therefore benefit from the provision of financing for the Project;

WHEREAS, in connection with the financing of the Project, (i) the Trustee has been requested, among other things, to enter into the Supplement, to authenticate and deliver the Bonds and act as a fiduciary in accordance with the Trust Agreement and the Supplement, to maintain, invest and use certain Funds, and Accounts created under the Supplement; and (ii) the Director has been requested, among other things (A) to provide for the issuance of the Bonds and to loan the proceeds thereof to the Authority under the Loan Agreement, repayment of which is evidenced by the State Assistance Note to be held by the Director, and to accept the Mortgage as security for the repayment of the State Assistance, (B) to make the State Loan to the Authority under the Loan Agreement, repayment of which is evidenced by the State Loan Note to be held by the Director, as registered owner, and to accept the Mortgage as security for the payment of the State Loan and (C) to make the LDI Loan to the Authority under the Loan Agreement, repayment of which is evidenced by the LDI Loan Note to be held by the Director, as registered owner, and to accept the Mortgage as security for the repayment of the LDI Loan; and

WHEREAS, the Guarantors intend this Guaranty Agreement to be an inducement for (i) the Authority to issue the Notes and make the proceeds thereof available pursuant to the Lease and the Loan Agreement to finance Allowable Costs, and to acquire, construct and otherwise improve the Project and lease the Project to ATI, (ii) the purchasers of the Bonds to purchase and hold the Bonds, (iii) the Director to make the State Loan and the LDI Loan and provide the State Assistance pursuant to the Loan Agreement for such purposes, and (iv) the Authority to enter into the Lease with ATI and appoint ATI as the Construction Agent, all of which will inure to the benefit of the Guarantors, and the Authority, the Director and the Trustee would be unwilling to do so in the absence of this Guaranty Agreement;

NOW, THEREFORE, in consideration of the premises and intending to be legally bound by this Guaranty Agreement, the Guarantors, jointly and severally, hereby agree as follows:

ARTICLE I

REPRESENTATIONS AND WARRANTIES OF GUARANTORS

Section 1.1. Representation and Warranties . The Guarantors do hereby, jointly and severally, represent and warrant that:

(a) ATSG is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and it has full power and authority to operate its properties and conduct the business now being conducted by it;

(b) AMES is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and it has full power and authority to operate its properties and conduct the business now being conducted by it;

(c) ATI is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Nevada, and it has full power and authority to operate its properties and conduct the business now being conducted by it;

(d) each Guarantor has the power to enter into this Guaranty Agreement;

(e) each Guarantor has duly authorized the execution and delivery of this Guaranty Agreement by proper action;

(f) the execution, delivery and performance by each Guarantor of this Guaranty Agreement do not contravene or constitute a default under the respective organizational documents of any Guarantor or any agreement, judgment, injunction, order, decree or other instrument binding upon any Guarantor or its property or any provision of applicable law, including without limitation, any rule or regulation;

(g) there is no action, temporary restraining order, injunction, suit or proceeding, or to the knowledge of any Guarantor, any inquiry or investigation, at law or in equity or before or by any court, public board, regulatory agency or body, pending or, to the knowledge of any Guarantor, threatened against or affecting or involving the properties or businesses or any securities of any Guarantor or, to the knowledge of any Guarantor, any basis for any such action, temporary restraining order, injunction, suit, proceeding, investigation or inquiry that would prohibit the execution, delivery, validity or enforceability of this Guaranty Agreement or impair in any material respect any Guarantor’s ability to perform its obligations under this Guaranty Agreement;

(h) no litigation or administrative action or proceeding is pending or, to the knowledge of any Guarantor, threatened (i) to restrain or enjoin or seeking to restrain or enjoin any payment contemplated to be made or any obligation to be performed, by any Guarantor hereunder, (ii) in any way contesting or affecting the validity of this Guaranty Agreement, (iii) in any way contesting the corporate existence or powers of any Guarantor, or (iv) that is reasonably likely to, individually or in the aggregate, materially and adversely affect the condition, financial or otherwise, businesses, prospects or assets of any Guarantor;

(i) this Guaranty Agreement is made in furtherance of the purposes for which each Guarantor was incorporated and is necessary to promote and further the business interests of each Guarantor, and the assumption by each Guarantor of its obligations hereunder will result in direct financial benefits to such Guarantor; and

(j) t here do not exist, and to each Guarantor's knowledge, there is no pending filing of, liens against the property of any Guarantor arising from its failure to pay promptly when due all taxes, assessments and governmental charges.

ARTICLE II

GENERAL COVENANTS

Section 2.1. (a) Guaranty of Payment . The Guarantors, jointly and severally, hereby absolutely and unconditionally guarantee to and for the benefit of the Authority, the Director and the Trustee, the full and prompt payment, when due (taking into account any grace or cure periods allowed under the Loan Documents or the other Operative Documents for the payment of amounts guaranteed), of all amounts due and payable by (i) the State of Ohio with respect to the Bonds, and (ii) the Authority under the Loan Agreement or any of the other Loan Documents (the “Guaranteed Loan Obligations”), including without limitation, the principal of, premium, if any, and interest on the Bonds, the principal of, premium, if any, and interest on the State Assistance Note, the principal of and interest on the State Loan Note and the principal of and interest on the LDI Loan Note and all Additional Payments and any other payments required to be made by the Authority under the Loan Agreement, when and as the same shall become due and payable, whether as regularly scheduled, at stated maturity or on an interest payment date, by or upon acceleration or redemption, or otherwise, and whether the same shall accrue before or after the filing of a proceeding under the Bankruptcy Code, and regardless of whether any such amount (or any part thereof) constitutes a claim allowable under Section 502 of the Bankruptcy Code in any case under the Bankruptcy Code in which the Authority is the debtor.

(b) Guaranty of Lease Performance . ATSG and AMES, jointly and severally, hereby absolutely, unconditionally, and irrevocably guarantee to and for the benefit of the Authority, the Director and the Trustee the full and prompt payment of all Base Rent and Additional Lease Agreement Payments and any and all other sums and charges payable by ATI under the Lease (collectively, the “Payment Obligations”), and hereby further guarantee the full and timely performance and observance of all of the covenants, terms, conditions and agreements therein provided to be performed and observed by ATI (the “Performance Obligations”, and together with the Payment Obligations, collectively, the “Guaranteed Lease Obligations”). Upon the occurrence of an Event of Default under the Lease, ATSG and AMES, jointly and severally, hereby covenant and agree with the Authority, the Director and the Trustee: (i) to make the due and full punctual payment of all Payment Obligations payable by ATI under the Lease; (ii) to effect prompt and complete performance of all and each of the Performance Obligations contained in the Lease on the part of ATI to be kept, observed and performed; and (iii) to indemnify and save harmless the Authority, the Director and the Trustee from any loss, costs or damages arising out of any failure

by ATI to pay or perform any Guaranteed Lease Obligation including, without limitations, reasonable attorneys’ fees and costs of collection.

(c) Guaranty of Completion . ATSG hereby guarantees and agrees to and for the benefit of the Authority, the Director and the Trustee, to be surety for the performance by the Authority, ATI and AMES of all of the terms and provisions of the Lease, Loan Documents and other Operative Documents pertaining to the Authority’s, ATI’s and AMES’ obligations with respect to the construction and completion of the Project, Adjacent Hangar Demolition and Related Area Improvements (the “Guaranteed Construction Obligations”). Without limiting the generality of the foregoing, ATSG guarantees and provides assurances that: (A) construction of the Project, Adjacent Hangar Demolition and Related Area Improvements will commence and be completed within the time limits set forth in the Lease, Loan Documents and other Operative Documents; (B) the Project, Adjacent Hangar Demolition and Related Area Improvements will be constructed and completed in accordance with the Plans and Specifications and the other provisions of the Lease, Loan Documents and other Operative Documents, without substantial deviation therefrom unless approved by the Director and the Authority in writing; (C) the Project, Adjacent Hangar Demolition and Related Area Improvements will be constructed and completed free and clear of any mechanic’s liens, materialmen’s liens and other liens (other than the lien of the Mortgage); and (D) all costs of constructing the Project, Adjacent Hangar Demolition and Related Area Improvements (including, without limitation, any funding shortfalls and/or cost overruns, all permitting fees, licensing fees, amounts payable under construction contracts, subcontracts and supply contracts, and all amounts payable to architects, engineers and other design consultants) will be paid when due.

(d) Guaranteed Obligations . The Guaranteed Loan Obligations, Guaranteed Lease Obligations and Guaranteed Construction Obligations are sometimes herein collectively called the “Guaranteed Obligations.”

(e) No Guaranty of Certain Obligations . Notwithstanding anything to the contrary in this Guaranty Agreement, with respect to the Authority only, the Guaranteed Obligations owed to the Authority hereunder will in no event extend to any financial obligations to the extent resulting from the negligent, willful or wanton acts or omissions of the Authority and/or its employees or agents (other than the Guarantors and their respective affiliates in their capacity as agents of the Authority).

Section 2.2. Irrevocable and Unconditional . The obligations of the Guarantors under this Guaranty Agreement shall be irrevocable and in all events this Guaranty Agreement shall be (i) with respect to the Guaranteed Loan Obligations, an absolute, unconditional, present and continuing guaranty of payment and not collectability and shall remain in full force and effect, until an aggregate amount equal to the entire amount of the Guaranteed Loan Obligations shall have been paid, or provision therefor shall have been made, in accordance with the Loan Documents and the Operative Documents; and (ii) with respect to the Guaranteed Lease Obligations and the Guaranteed Construction Obligations, an absolute, unconditional, present and continuing guaranty of payment and performance and shall remain in full force and effect until the full payment and performance of all Guaranteed Lease Obligations and Guaranteed Construction Obligations; and the Guarantors’ obligations hereunder shall not be affected, modified or impaired by reason of the occurrence from

time to time of any event, including without limitation, any one or more of the following, whether or not with notice to, or consent of, any of the Guarantors:

(a) the assignment, pledge or mortgaging or the purported assignment, pledge or mortgaging of all or any part of the interest of the Authority, the Director or the Trustee in the Project or any failure of title with respect to the interest of the Authority, any Guarantor, the Construction Agent, the Director or the Trustee in the Project; or

(b) the waiver of the performance or observance by the Authority, the Director, the Trustee or any Guarantor of any obligation, covenant or agreement contained in the Lease, any Loan Document or any Operative Document; or

(c) the extension of the time for payment of the principal of, premium, if any, or interest on the State Assistance Note, the principal of or interest on the State Loan Note or the principal of or interest on the LDI Loan Note, or of the time for payment and performance of any other obligation, covenant or agreement under or arising out of this Guaranty Agreement, the Lease or any Loan Document or Operative Document; or

(d) the modification or amendment of any obligation, covenant or agreement set forth in this Guaranty Agreement, the Lease, or any Loan Document or Operative Document; or

(e) the taking or omission of any of the actions to which reference is made in this Guaranty Agreement or under the Lease, any Loan Document or Operative Document; or

(f) any invalidity or unenforceability of any terms or provisions of any of the State Assistance Note, the State Loan Note, the LDI Loan Note, the Loan Agreement, this Guaranty Agreement, the Lease or any other Loan Document or Operative Document, or any loss or release or substitution of, or other dealing with, any security created by this Guaranty Agreement, the Loan Agreement, the Mortgage, the Lease, any other Loan Document or Operative Document; or

(g) any failure, omission, delay or lack of diligence on the part of the Authority, the Director or the Trustee to enforce, assert or exercise any right, power or remedy conferred on any such party by this Guaranty Agreement, the Lease or any other Loan Document or Operative Document, or any other act or acts on the part of the Authority, the Director or the Trustee; or

(h) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all of the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings affecting any Guarantor, the Director, the Trustee or the Authority or any of the assets of any of them, or any contest of the validity of the Guaranteed Obligations, this Guaranty Agreement, the Lease or any other Loan Document or Operative Document in any such proceeding; or

(i) to the extent permitted by law, the release or discharge of the Construction Agent or any Guarantor from the performance or observance of any obligation, covenant or agreement contained in any Operative Document by operation of law; or

(j) the default or failure of any Guarantor fully to perform any of its obligations set forth in any Operative Document; or

(k) the failure of the Authority, the Director or the Trustee to give notice to any Guarantor of the occurrence of any Event of Default (except as otherwise required by the Operative Documents as a condition to create an Event of Default);

(1) the compromise, settlement, release, discharge or termination of any or all of the obligations, covenants or agreements of the Authority, the Director or the Trustee under the Lease, any Loan Documents or Operative Documents, by operation of law or otherwise, except as may result from payment in full (or provision for the payment in full) of the Guaranteed Obligations;

(m) the assignment of the Lease, or the subletting of the Premises by ATI, with or without the consent of the Authority;

(n) the expiration of the Lease Term;

(o) any holdover by ATI beyond the expiration or earlier termination of the Lease Term;

(p) the rejection, disaffirmance or disclaimer of the Lease by any party in any action or proceeding; or

(q) any acquisition by the Director or any third-party purchaser of ATI’s leasehold estate in the Premises resulting from a foreclosure of the Mortgage, or a conveyance-in-lieu of such foreclosure.

Section 2.3. No Set-off . No set-off, counterclaim, reduction or diminution of any obligation, or any defense of any kind or nature (excepting payment in fact) any Guarantor has or may have, in its capacity as guarantor hereunder, or as Lessee or Construction Agent under the Lease, or otherwise, against the Authority, the Director or the Trustee shall limit or in any way affect the Guarantors’ obligations under Section 2.1.

Section 2.4. (a) Failure to Pay Guaranteed Loan Obligations . If the Guarantors shall fail to pay any of the Guaranteed Loan Obligations when due hereunder, the party to which such amount is payable, alone or together with any other party, may proceed hereunder and shall have the right in its sole discretion to proceed first and directly against any Guarantor under this Guaranty Agreement, without proceeding against or exhausting any other remedies that it may have and without resorting to any other security or guaranty held by it, or without proceeding against any other guarantor; provided, however , that no such party shall have the right to take any action hereunder with respect to any Guarantor that would adversely affect the Project Debt and the taking

of any such action shall not be inconsistent with the Intercreditor Agreement and shall be subject to the provisions thereof.

(b) Failure to Pay or Perform Guaranteed Lease Obligations . If ATSG or AMES shall fail to pay or perform any of the Guaranteed Lease Obligations when due, each of the Authority, the Director and the Trustee, acting alone or collectively, may proceed to enforce this Guaranty Agreement against ATSG or AMES, and shall have the right, in its sole discretion, to proceed first and directly against ATSG or AMES without exhausting any other remedies that it may have, and without resorting to any other security or guaranty held by it, or without proceeding against any other Guarantor or other party liable for those obligations.

(c) Failure to Pay or Perform Guaranteed Construction Obligations . If ATSG or AMES shall fail to pay or perform any of the Guaranteed Construction Obligations when due, each of the Authority, the Director or the Trustee, acting alone or collectively, may proceed to enforce this Guaranty Agreement against ATSG or AMES with respect to the performance of such Guaranteed Construction Obligations, and each shall have the right, in its sole discretion, to proceed first and directly against ATSG or AMES without exhausting any other remedies that it may have, and without resorting to any other security or guaranty held by it, or without proceeding against any other Guarantor or other party liable for those obligations.

Section 2.5. Waiver of Notice . Each Guarantor hereby expressly waives notice from the Authority, the Director and the Trustee of any acceptance of and reliance upon this Guaranty Agreement by the Authority, the Director or the Trustee. The Guarantors, jointly and severally, agree to pay all of the reasonably related costs, expenses and fees, including all reasonable attorneys’ fees, that may be incurred by the Authority, the Director or the Trustee in enforcing or attempting to enforce this Guaranty Agreement following any default on the part of any Guarantor hereunder, whether the same shall be enforced by suit or otherwise. If any such fees and expenses are not so reimbursed, the amount thereof shall, to the extent permitted by law, constitute indebtedness guaranteed hereby, and in any action brought to collect such indebtedness, the Authority, the Director or the Trustee shall be entitled to seek the recovery of such fees and expenses in such action except as limited by law or by judicial order or decision entered in such proceedings.

Each of the Director, the Authority and the Trustee agrees to use reasonable efforts to provide notice to the Guarantors of the occurrence of an Event of Default under the Lease, any Loan Document or Operative Document to which it is a party; provided that, any failure of the Director, the Authority or the Trustee to provide that notice shall not have any impact on the Guarantors’ obligations under this Guaranty Agreement.

Section 2.6. Subrogation . Notwithstanding any payment or payments made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Authority, the Director or the Trustee, no Guarantor shall (a) be entitled to be subrogated to any of the rights of the Authority, the Director or the Trustee or any other guarantor, in any collateral security or guaranty or right of set-off held by the Authority, the Director or the Trustee, for the payment of any amounts due in respect of the Guaranteed Obligations, or (b) seek any reimbursement or contribution from the Authority, the Director or the Trustee, or any other guarantor, in respect of any payment, set-

off or application of funds made by any Guarantor hereunder. However, any payment of a Guaranteed Loan Obligation made by any Guarantor hereunder shall be credited against ATI’s obligations as Lessee under the Lease, to the extent such payments satisfy obligations of the Authority which would have been required to be paid from payments which ATI failed to make, as Lessee, in accordance with the Lease.

Section 2.7. Corporate Existence . (a) No Person shall acquire shares of ATSG entitling such person to exercise a majority of the voting power of ATSG in the election of directors without the prior written consent of the Director, which consent shall not be unreasonably withheld or delayed provided, however, that ATSG or any parent entity may, without violating the agreement contained in this section, consolidate with or merge into another entity, or permit one or more other entities to consolidate with or merge into ATSG or any parent entity, or sell, transfer or otherwise dispose of all, or substantially all, of ATSG’s or any parent entity’s assets and thereafter dissolve if (i) the surviving, resulting or transferee entity, as the case may be, of ATSG, if any, assumes in writing all of the obligations of ATSG as a Guarantor under this Guaranty (if such surviving, resulting or transferee entity is other than ATSG); and (ii) the surviving, resulting or transferee entity, as the case may be, is an entity duly organized and validly existing under the laws of the State or duly qualified to do business therein.

(b) No Guarantor, other than ATSG, shall sell, transfer or otherwise dispose of all, or substantially all, of its assets, consolidate with or merge into any other entity, or permit one or more entities to consolidate with or merge into any such Guarantor, permit any change in the state, province or other jurisdiction of incorporation or organization of any such Guarantor; provided, however, that a Guarantor may, without violating the agreement contained in this subsection, consolidate with or merge into another entity, or permit one or more other entities to consolidate with or merge into such Guarantor, or sell, transfer or otherwise dispose of all, or substantially all, of such Guarantor’s assets and thereafter dissolve if either (a) the written consent of the Director is obtained, which consent shall not be unreasonably withheld, conditioned or delayed; or (b)(i) the surviving, resulting or transferee entity, as the case may be, assumes in writing all of the obligations of such Guarantor hereunder (if such surviving, resulting or transferee entity is other than such Guarantor); and (ii) the surviving, resulting or transferee entity, as the case may be, is an entity duly organized and validly existing under the laws of the State of Ohio or duly qualified to do business therein, and has a net worth of not less than that of such Guarantor immediately prior to such disposition, consolidation or merger, transfer or change of form.

Section 2.8. Indemnification by the Guarantors . The Guarantors, jointly and severally, shall indemnify, defend and hold harmless the Director, the Treasurer, the State, the Authority and the Trustee (including any member, officer, director or employee thereof) (collectively, the “Indemnified Parties”) against any and all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses) imposed upon, incurred by or asserted against an Indemnified Party arising or resulting from, or in any way connected with (i) financing, acquisition, construction, installation, operation, use or maintenance of the Project, (ii) any act, failure to act or misrepresentation by any Guarantor in connection with, or in the performance of any obligation on any Guarantor’s or the Authority’s part to be performed, related to the issuance, sale and delivery of the Bonds, under the Loan Agreement,

under the Trust Agreement, under the Lease or under any of the other Operative Documents; or (iii) an act or failure to act or misrepresentation by any Guarantor or the Authority in connection with, or in the performance of any obligation on any Guarantor’s, or the Authority’s part to be performed, related to, the State Assistance, the State Loan, the LDI Loan or the Lease. In the event any action or proceeding is brought against any Indemnified Party by reason of any such claim, such Indemnified Party will promptly give written notice thereof to the Guarantors. Any Guarantor shall be entitled to participate at its own expense in the defense or, if it so elects, to assume at its own expense the defense of such claim, suit, action or proceeding, in which event such defense shall be conducted by counsel chosen by such Guarantor or Guarantors, and acceptable to the Director; but if such Guarantor or Guarantors shall elect not to assume such defense, such Guarantor or Guarantors shall reimburse such Indemnified Party for the reasonable fees and expenses of any counsel retained by such Indemnified Party. If at any time the Indemnified Party becomes dissatisfied, in their reasonable discretion, with the selection of counsel by a Guarantor, a new mutually agreeable counsel shall be retained at the expense of such Guarantor. Each Indemnified Party agrees that the Guarantors shall have the sole right to compromise, settle or conclude any claim, suit, action or proceeding against any of the Indemnified Parties. Notwithstanding the foregoing, each Indemnified Party shall have the right to employ counsel in any such action at its own expense; and provided further that such Indemnified Party shall have the right to employ counsel in any such action and the fees and expenses of such counsel shall be at the expense of the Guarantors if: (i) the employment of counsel by such Indemnified Party has been authorized by any Guarantor, (ii) there reasonably appears that there is a conflict of interest between any Guarantor and the Indemnified Party in the conduct of the defense of such action (in which case no Guarantor shall have the right to direct the defense of such action on behalf of the Indemnified Party) or (iii) no Guarantor shall in fact have employed counsel to assume the defense of such action. The Guarantors, jointly and severally, shall also indemnify the Indemnified Parties from and against all costs and expenses, including reasonable attorneys’ fees, lawfully incurred in enforcing any obligations of the Authority under the Loan Documents, ATI under the Lease or any Guarantor under this Guaranty or any of the other Operative Documents. The obligations of the Guarantors under this Section shall survive the expiration or termination of the Lease and the termination of the Loan Documents and the Operative Documents and shall be in addition to any other rights, including without limitation, rights to indemnity which any Indemnified Party may have at law, in equity, by contract or otherwise. In the event any Indemnified Party seeks indemnification under this Section, such Indemnified Party will inform the Guarantors of a claim as soon as reasonably practicable after it receives notice of the claim, will permit the Guarantors to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration), and will cooperate as requested (at the expense of the Guarantors) in the defense of the claim. Notwithstanding anything to the contrary in this Guaranty or any other Loan Document, with respect to the Authority only, the Guarantors’ indemnification of the Authority hereunder shall in no event extend to any liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses to the extent that they result from the negligent, willful or wanton acts or omissions of the Authority and/or its employees or agents (other than the Guarantors and their respective affiliates in their capacity as agents of the Authority) .

Section 2.9. Events of Default . An “Event of Default” hereunder shall mean:

(a) any default by any Guarantor in the payment of any amount or the performance of any obligation due under Section 2.1, or any breach by any Guarantor of its obligations under Section 2.7 or 2.8 shall occur;

(b) the occurrence of an Event of Default under the Lease, any Loan Document or Operative Document other than this Guaranty Agreement;

(c) ATSG shall fail to pay any Indebtedness of ATSG outstanding under the Senior Loan Agreement (as defined in the Loan Agreement) and such failure shall continue after the applicable cure or grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other default under any agreement or instrument relating to any such Indebtedness, or any other event, shall occur and shall continue after the applicable cure or grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or

(d) any representation, warranty or statement made by any Guarantor herein or in the Lease, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto, shall be false or misleading in any material respect on the date as of which made or deemed made;

(e) any default by any Guarantor in the performance or observance of any other covenant or agreement contained herein, which default shall continue for thirty (30) days or more after the earlier to occur of actual knowledge of such default by the Authorized Lessee Representative, or notice to such Guarantor from the Authority, the Director or the Trustee; or

(f) any Guarantor shall: (i) admit in writing its inability to pay its debts generally as such debts become due; (ii) (A) commence a voluntary bankruptcy case concerning it or (B) have an involuntary bankruptcy case commenced against it and either have an order of insolvency or reorganization entered against it or have the case remain undismissed and unstayed for 90 days; (iii) commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect and either have an order entered against it thereunder or remain undismissed or unstayed for 90 days or there is commenced against it any such proceeding which remains undismissed or unstayed for 90 days; (iv) be adjudicated insolvent or bankrupt; (v) make a general assignment for the benefit of creditors; (vi) have a receiver, trustee or custodian appointed for the whole or any substantial part of its property or a receiver, trustee or custodian or any other officer or representative of the court or of creditors, or any court, government officer or agency shall take and hold possession of any substantial part of its property; or (vii) take any other action for the purpose of effecting the foregoing.

ARTICLE III

NOTICE AND SERVICE OF PROCESS, PLEADINGS AND OTHER PAPERS

Section 3.1. Jurisdiction . Each Guarantor covenants and agrees that such Guarantor is subject to service of process in the State, and that such Guarantor will remain so subject to that service of process so long as it has any remaining obligations under this Guaranty Agreement. If any Guarantor should not be subject to that service of process for any reason, such Guarantor designates and appoints as its agent, without power of revocation, the Secretary of State of Ohio, Columbus, Ohio 43266-0418, upon whom shall be served all process, pleadings, notices or other papers that may be served upon such Guarantor, as a result of such Guarantor’s covenants, agreements and obligations under this Guaranty Agreement. Each Guarantor hereby irrevocably submits to the jurisdiction of the courts of the State and waives any defenses thereto.

Section 3.2. Service of Process; Notice . Any process, pleadings, notices or other papers served upon any agent appointed in the preceding Section shall be sent at the same time by registered or certified mail, postage prepaid, to the Guarantors at the Notice Address of the Lessee under the Lease. Each Guarantor agrees that any notice given to the Guarantors at the Notice Address of the Lessee under the Lease, given in accordance with the terms of the Lease, will constitute notice to both Guarantors pursuant to this Guaranty Agreement.

ARTICLE IV

MISCELLANEOUS

Section 4.1. Notice of Acceptance . Notice of acceptance of this Guaranty Agreement and notice of the execution and delivery of any other instrument to which reference is made in this Guaranty Agreement, are hereby waived by the Guarantors.

Section 4.2. Reinstatement . This Guaranty Agreement shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the obligations to be paid, is rescinded or must otherwise be restored or returned by the Authority, the Director, the Trustee or any Guarantor, or otherwise, all as though such payment had not been made. The provisions of this paragraph shall survive the termination of other provisions of this Guaranty Agreement.

Section 4.3. Term . This Guaranty Agreement shall remain in full force and effect until payment and performance in full of all Guaranteed Obligations, including all amounts payable under the Lease, the Loan Documents and the Operative Documents with respect to those obligations, and all other obligations of the Guarantors under this Guaranty Agreement have been performed in full in accordance with the provisions of this Guaranty Agreement. Upon the termination of Guarantors’ obligations with respect to the Guaranteed Obligations, either:


(i)	the Director , with the prior written consent of the Authority, such consent not to be unreasonably withheld, conditioned or delayed; or


(ii)	the Authority, to the extent this Guaranty Agreement is then held by the Authority ,

shall mark this Guaranty Agreement “CANCELLED” and return it to Guarantors.

Section 4.4. Severability . In case any provision of this Guaranty Agreement or any application thereof shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions and any other application thereof shall not in any way be affected or impaired thereby.

Section 4.5. Obligations . The obligations of the Guarantors hereunder shall arise absolutely and unconditionally when any of the Project Debt shall have been issued, sold and delivered by the Authority and the proceeds thereof delivered in accordance with the terms of the Loan Documents.

Section 4.6. Remedies . No remedy conferred upon or reserved to the Authority, the Director or the Trustee is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Guaranty Agreement or any other Operative Document or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default, omission or failure of performance hereunder shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority, the Director or the Trustee to exercise any remedy reserved to it in this Guaranty Agreement, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. In the event any provision contained in this Guaranty Agreement should be breached by any Guarantor and thereafter duly waived by the Authority, the Director and the Trustee such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. No waiver, amendment, release or modification of this Guaranty Agreement shall be established by conduct, custom or course of dealing, but solely by an instrument in writing duly executed by the Authority, the Director and the Trustee.

Section 4.7. Binding Effect . This Guaranty Agreement may be amended to the same extent and upon the same conditions that the Lease may be amended by a written agreement signed by the parties hereto. Nothing contained herein shall permit, or be construed as permitting, any amendment, change or modification of this Guaranty Agreement that would (a) reduce the amounts payable by the Guarantors hereunder, (b) change the time or times for payment or performance of the Guaranteed Obligations by the Guarantors hereunder, or (c) change the unconditional nature of the Guaranty Agreement herein contained.

Section 4.8. Entire Agreement . This Guaranty Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, of the parties with respect to the subject matter hereof, and may be executed simultaneously in several counterparts, each of which shall be regarded as an original, and all of which together shall constitute but one and the same instrument.

Section 4.9. Separate Agreement . This Guaranty Agreement constitutes a separate instrument, enforceable in accordance with its terms, and neither this Guaranty Agreement nor the obligations of the Guarantors hereunder shall, under any circumstance or in any legal proceeding, be deemed to have merged into or with any other agreement or obligations of any Guarantor.

Section 4.10. Applicable Law . This Guaranty Agreement shall be deemed to be a contract made under the laws of the State and for all purposes shall be governed by and construed in accordance with the laws of the State.

Section 4.11. Time of the Essence . Time shall be deemed of the essence under this Guaranty Agreement.

Section 4.12. No Jury Trial . Each party to this Guaranty Agreement, to the extent permitted by law, hereby irrevocably and unconditionally waives any right to have a jury participate in resolving any dispute, whether sounding in contract, tort, or otherwise, among or between the parties hereto arising out of, in connection with, related to, or incidental to the relationship established among the parties in connection with this Guaranty Agreement. This waiver shall not in any way affect, waive, limit, amend or modify the ability of any party hereto to pursue any remedies contained in this Guaranty Agreement, the other Operative Documents or any other agreement or document related hereto.

IN WITNESS WHEREOF , each Guarantor has caused this Guaranty Agreement to be executed in its name and on its behalf, and the Director, the Trustee and the Authority, by their respective officers or representatives, have acknowledged their acceptance of this Guaranty Agreement, all as of the day and year first above written.



THE DIRECTOR OF DEVELOPMENT SERVICES AGENCY OF THE STATE OF OHIO		AIR TRANSPORT SERVICES GROUP, INC.


By: /s/ M. Beth Trombold _ .		By: /s/ W. Joseph Payne .
Beth Trombold .		W. Joseph Payne .
Assistant Director .		Sr Vice President, Corporate General Counsel and Secretary .



THE HUNTINGTON NATIONAL BANK		AIRBORNE MAINTENANCE AND ENGINEERING SERVICES, INC.
as Trustee, Rent Collection Agent and Disbursing Agent

By: /s/ Michelle D. Harmon .		By: /s/ W. Joseph Payne .
Michelle D. Harmon .		W. Joseph Payne .
Trust Officer .		Vice President and Secretary .


CLINTON COUNTY PORT AUTHORITY		AIR TRANSPORT INTERNATIONAL LIMITED LIABILITY COMPANY



By: /s/ David C. Hockaday .		By: /s/ W. Joseph Payne .
David C. Hockaday .		W. Joseph Payne .
Chairman .		Manager .

837340v13

Exhibit 10.39

LEASE AGREEMENT

(JUMP Hangar Facility)

THIS LEASE AGREEMENT (this “Lease Agreement”) is made and entered into to be effective as of December 1, 2012 (the “Effective Date”), by and between CLINTON COUNTY PORT AUTHORITY , a body corporate and politic and a port authority duly organized and validly existing under the laws of the State of Ohio, with an address of 1113 Airport Road, Wilmington, OH 45177 (“Landlord”), and AIR TRANSPORT INTERNATIONAL LIMITED LIABILITY COMPANY , a Nevada limited liability company, with an address of 145 Hunter Drive, Wilmington, OH 45177 (“Tenant”). Capitalized terms not otherwise defined have the meanings given in Article I hereof and Article I of Exhibit E .

WITNESSETH

WHEREAS, Landlord is the owner of certain real property located in Clinton County, Ohio and generally known as Wilmington Air Park, as more particularly described and detailed in Exhibit A attached hereto and fully incorporated herein (the “Air Park”), together with title to and possession of all improvements therein and thereon; and

WHEREAS, Air Transport Services Group, Inc., a Delaware corporation (“ATSG”), and an Affiliate of Tenant, currently occupies certain buildings within the Air Park (the “Buildings”) pursuant to that certain Lease Agreement (Wilmington Air Park) between Landlord and ATSG, dated June 2, 2010, as amended (collectively, the “Master Lease”); and

WHEREAS, Tenant wishes to lease and occupy: (i) the Premises (as defined herein), which are a part of the Air Park, but not presently leased to ATSG pursuant to the Master Lease, and (ii) the Project that is to be constructed on the Premises; and

WHEREAS, Landlord desires to engage Tenant, and Tenant desires to accept such engagement, as construction agent for the Provision of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements; and

WHEREAS, as a material inducement to Landlord entering into this Lease Agreement, the Loan Documents, and the Operative Documents, ATSG, Tenant, and Airborne Maintenance and Engineering Services, Inc., a Delaware corporation (“AMES”), have covenanted and agreed to guaranty all obligations of: (i) Landlord as set forth in the Loan Documents and the Operative Documents, and (ii) Tenant as set forth in the Loan Documents and the Operative Documents; and

WHEREAS, pursuant to and in accordance with the provisions of the Ohio Constitution and the Port Act (as defined herein), Landlord has determined to (i) issue the State Loan Note to evidence the State Loan made by the State, through the Director, to Landlord pursuant to Section 166.07 of the Act, (ii) issue the State Assistance Note to evidence the State Assistance made by the State, through the Director, to Landlord pursuant to Section 166.08 of the Act, (iii) issue the LDI Loan Note to evidence the LDI Loan made by the State, through the Director, to Landlord, and (iv) use the proceeds derived from the sources described in the foregoing clauses to assist in the financing of the Project, the Adjacent Hangar Demolition, and the Related Area Improvements to be constructed and otherwise improved by Construction Agent for and on behalf of Landlord; and

WHEREAS, during the period that any of the State Assistance, the State Loan, or the LDI Loan remain outstanding, Landlord and Tenant covenant and agree that certain terms and conditions set forth in Exhibit E attached to, and incorporated by reference in, this Lease Agreement shall govern certain of the rights and obligations of Landlord and Tenant as specifically identified and described herein and therein;

NOW, THEREFORE, in consideration of the terms, covenants and agreements herein contained, Landlord and Tenant hereby make the following agreement, intending to be legally bound hereby:

ARTICLE 1

Definition of Certain Terms

1.01 . The term “Affiliate,” in reference to any Person, means (a) any Person who directly or indirectly controls, is controlled by, or is under common control with such Person; (b) any Person owning or controlling, directly or indirectly, 10% or more of the outstanding voting securities of such Person; and (c) any officer, director, member, manager or partner of such Person or any Person referred to in (a) or (b) above.

1.02 . The term “Fixtures” means all furniture, fixtures, machinery, equipment and trade fixtures which Tenant may own, purchase (conditionally or otherwise) or lease and hereafter cause to be installed, maintained or kept in or otherwise at the Premises for any purpose whatsoever.

1.03 . The term “Lease Year” means the periods determined as follows: (a) the first Lease Year shall commence on the Effective Date and shall end on the last day of the 12th full calendar month next following the Effective Date, and (b) each Lease Year thereafter shall commence immediately following the expiration of the preceding Lease Year and shall end on the anniversary date of the expiration of the preceding Lease Year, except that the final Lease Year shall end on the date this Lease Agreement shall expire or otherwise terminate.

1.04 . The term “Operations Agreement” means that certain Operations and Management Services Agreement (Wilmington Air Park), dated as of June 2, 2010, between Landlord and ABX Air, Inc., a Delaware corporation (“ABX”), as amended, as the same has been assigned from ABX to LGSTX Services, Inc., a Delaware corporation and an Affiliate of Tenant (“LGSTX”), relating, among other things, to the operation, management and maintenance of the Air Park (excluding the Premises and the “Premises,” as defined in the Master Lease).

1.05 . The term “Person” means any individual, partnership (including, without limitation, general, limited and limited liability partnerships), limited liability company, corporation, association, firm, joint venture, society, trust, public or governmental body, other legal entity, or any combination thereof.

1.06 . The term “Premises” means the real property comprising approximately 4.457 acres, more or less, together with the Project to be constructed thereon pursuant to the terms of this Lease Agreement, all as identified and illustrated on Exhibit B attached hereto and fully incorporated

herein, together with the exclusive right to use one (1) one Caterpillar 3516 Four Turbo Standby Generator Set (rated 1400 kW 60 Hz) and related facilities, situated at the Air Park in the location(s) more specifically described in Exhibit C attached hereto and fully incorporated herein (the “Generator”).

ARTICLE 2

Creation of Leasehold

2.01 . Demise . Upon the terms and conditions set forth in this Lease Agreement, Landlord does hereby demise and let unto Tenant, and Tenant does hereby lease and hire from Landlord, the Premises which, upon the Provision of the Project, shall include the Project, together with the non-exclusive right to use the Common Use Facilities (as defined in Section 2.02), but subject to the Reserved Easements (as defined in Section 2.03) and Permitted Encumbrances.

2.02 . Common Use Facilities . As an appurtenance to Tenant’s leasehold estate in and use of the Premises, Landlord grants to Tenant the non-exclusive right to enter upon or make customary and reasonable use of, including the right to ingress to and egress from, (i) all runways, landing areas, taxiways, aprons, walkways, roadways, runway lights, signals, and other operating aids of the Air Park and all navigation or flight easements now or hereafter granted or reserved for the benefit of Landlord, (ii) all automobile parking fields and facilities within the Air Park (limited to the right of Tenant and its employees, agents, contractors and invitees to park in such fields and facilities on a daily basis and specifically excluding the storage of vehicles in or on said parking fields or facilities), and (iii) such other areas of the Air Park provided and developed by Landlord for common use at the Air Park (collectively, the “Common Use Facilities”); provided that, except as otherwise permitted by Landlord in writing, the Common Use Facilities shall not include the following Air Park facilities: (a) any buildings or other structures situated in or at the Air Park which are not part of the Premises, (b) the so-called “Welcome Center” and any improvements attendant thereto, including parking fields and (c) any portion of the Air Park identified and defined in the Operations Agreement as “Limited Service Areas.” Tenant’s rights to use the Common Use Facilities shall be in common with Landlord and with other persons authorized by Landlord from time to time to use the Common Use Facilities, including members of the general public if Landlord so elects; provided, however, that Landlord shall not use, and shall not authorize any person to use, the Common Use Facilities in any way that unreasonably interferes with the use and enjoyment of the Premises by Tenant for the purposes contemplated by this Lease Agreement. Tenant’s use of the Common Use Facilities shall be in accordance with all applicable laws and regulations, including, without limitation, all Federal Aviation Administration (“FAA”) and all other applicable governmental regulations governing aviation and air navigation and further in accordance with any reasonable rules and procedures adopted by Landlord from time to time governing the use of the Air Park and the Common Use Facilities. Landlord reserves the right, in its sole and absolute discretion, to make changes, at any time and from time to time, to the size, shape, location, number and extent of the Common Use Facilities and/or to eliminate portions of the Common Use Facilities, and specifically further reserves the right to designate portions of the Common Use Facilities for the exclusive or non-exclusive use of certain tenants and licensees, so long as such changes,

eliminations and/or designations do not unreasonably interfere with the use and enjoyment of the Premises by Tenant for the purposes contemplated by this Lease Agreement.

2.03 . Reserved Easements . Landlord does hereby retain and reserve unto itself, and Tenant’s leasehold estate in the Premises shall be subject to, the following easements (collectively, the “Reserved Easements”): (a) non-exclusive perpetual easements over, under, across and through the Premises for the purposes of constructing, installing, reconstructing, repairing, replacing, maintaining, testing, upgrading and using (1) above-ground and underground laterals and lines to be connected to those public utilities and appurtenant works and connections which now or in the future may exist in the public thoroughfares or other portions of the Air Park and (2) fiber optic cabling and other equipment as part of telecommunications networks and systems to be installed by Landlord or other tenants at the Air Park (the “Air Park Fiber Optics Systems”), provided, however, that (i) such easements shall be used in such a manner as will not result in interference with the use and enjoyment of the Premises by Tenant for the purposes contemplated by this Lease Agreement and (ii) if as a result of the use of said easements for said purposes the Premises shall be damaged, then Landlord shall promptly repair the damage and restore the Premises to its pre-existing condition; (b) a non-exclusive perpetual avigation easement over, across and through the Premises creating in favor of Landlord and its permitees a right of flight, for the passage of aircraft in the airspace over the Premises and the right to cause in said airspace any noise inherent in the operation of any aircraft used for navigation or flight through said airspace or landing at, or taking off from, or operations at, the Air Park; and (c) a non-exclusive perpetual easement in favor of Landlord and its permitees over, across and through the Roadway for vehicular and pedestrian access to other parts of the Air Park, provided, however, that (i) such easement shall be used in such a manner as will not unreasonably interfere with the use and enjoyment of the Premises by Tenant for the purposes contemplated by this Lease Agreement and (ii) if as a result of the use of said easement for said purposes the Premises shall be damaged, then Landlord shall promptly repair the damage and restore the Premises to its pre-existing condition. As used in this Section 2.03, the term “Roadway” means that portion of the Premises identified and illustrated in Exhibit D attached hereto and fully incorporated herein. A description of the Reserved Easements shall be included in the memorandum of lease to be executed, delivered, and filed of record by Landlord and Tenant pursuant to Section 24.02 of this Lease Agreement.

2.04 . “As Is” Possession . Tenant accepts the Premises in “As Is” condition with all faults and defects. Tenant acknowledges that Landlord has made no representation or warranty as to the suitability of the Premises for the conduct of Tenant’s business, and Tenant waives any implied warranty that the Premises are suitable for Tenant’s intended purposes. In no event shall Landlord be liable for any defects in the Premises or for any limitation on its use. Further, Tenant agrees that Tenant’s obligation to pay Base Rent and other sums hereunder is not dependent upon the condition of the Premises or, except as otherwise expressly provided herein, any performance by Landlord hereunder.

ARTICLE 3

Lease Term

3.01 . Lease Term . The term “Lease Term” under this Lease Agreement means the Initial Lease Term (as defined in Section 3.02), plus any Renewal Term(s) (as defined in Section 3.03), plus any period during which Tenant may be a tenant-at-sufferance under Section 3.04 of this Lease Agreement, or the shorter period expiring upon the date of earlier termination of this Lease Agreement as provided elsewhere in this Lease Agreement.

3.02 . Initial Lease Term . The initial term of this Lease Agreement (the “Initial Lease Term”) shall commence on the Effective Date and shall continue for the period ending on June 1, 2036, unless sooner terminated as provided elsewhere in this Lease Agreement; provided, however, that if the Effective Date is not the first day of the month, the number of days remaining in the month containing the Effective Date shall be added to the Initial Lease Term.

3.03 . Renewal Option . Landlord hereby grants to Tenant the right and option (the “Renewal Option”) to extend the Initial Lease Term for two additional periods of five years each (each, a “Renewal Term”) beginning on the day immediately following the expiration of the Initial Lease Term or first Renewal Term, as applicable, upon the same terms and conditions as herein set forth for the Initial Lease Term, except that if the Loan Term has expired, the terms and conditions of Exhibit E shall not apply to a Renewal Term.

Tenant may exercise each Renewal Option by giving Landlord written notice of exercise not later than 180 days prior to the expiration of the Initial Lease Term or then effective Renewal Term.

3.04 . Lease Hold-Over Provisions . If Tenant remains in possession of the Premises after the expiration of the Lease Term, Tenant shall be deemed to be a tenant-at-sufferance at an annual Base Rent equal to 150% of the amount of Base Rent payable hereunder during the final Lease Year and otherwise shall comply with all of the terms and conditions of this Lease Agreement.

3.05 . Early Termination of the Lease Agreement .

(A) In the event that Tenant is required by either Section 9.6 or Section 9.7 of Exhibit E to prepay the State Loan, the State Assistance and/or the LDI Loan (as such terms are defined in Exhibit E ), then this Lease Agreement shall terminate on the date of the prepayment of all amounts required to be paid by Section 9.6 or Section 9.7 of Exhibit E , as applicable.

(B) In the event that, during the Initial Lease Term, Tenant shall pay, or shall cause to be paid, the State Assistance, the State Loan, the LDI Loan and the Additional Payments (as defined in Exhibit E ) in full, or shall have made provision for payment thereof in full, at Tenant’s option, exercisable upon written notice to Landlord, this Lease Agreement shall terminate on the date specified in such written notice to Landlord.

(C) In the event an early termination of the Lease Agreement as described in this Section 3.05 occurs prior to the Completion Date (as defined in Exhibit E ), Tenant shall: (i) at Tenant’s sole cost and expense, either (a) complete the Provision of the Project, the Adjacent Hangar Demolition and the Related Area Improvements (as such terms are defined in Exhibit E ) no later than the deadline for the Completion Date set forth in the definition thereof, or (b) if less expensive than the costs associated with the Provision described in clause (i)(a) of this Section 3.05(C), restore the Premises and the areas of the Air Park affected by the Adjacent Hangar Demolition and the Related Area Improvements to substantially the same condition that existed prior to the execution of this Lease Agreement no later than 90 days after such termination or, if such restoration is not commercially reasonable, to a condition that does not materially and adversely affect the use or value of the Premises and/or the Air Park, as determined by Landlord in its sole but reasonable discretion; and (ii) in the event clause (i)(b) of this Section 3.05(C) applies, repay to Landlord the amount of the Local Grants disbursed on or prior to the termination for the Provision of the Project, the Adjacent Hangar Demolition, and/or the Related Area Improvements.

ARTICLE 4

Use and Operations

4.01 . Permitted Uses . Tenant covenants and agrees that it, or any permitted sublessee of Tenant, shall use the Premises only for the Project Purposes, and Tenant covenants and agrees that it, or any permitted sublessee of Tenant, shall use the Common Use Facilities only for such Air Park Operations (as defined in the Master Lease) as may be related to its use of the Premises for the Project Purposes. Tenant agrees that all business and operations of Tenant or any permitted sublessee of Tenant must be consistent with the principal use of the Air Park as an airport, and Tenant and any permitted sublessee of Tenant shall be prohibited from using the Premises for any use which interferes with the use or operation of the Air Park as an airport.

4.02 . Air Park Procedures Manual; Current Plans and Procedures . Landlord, in collaboration with LGSTX under the terms of the Operations Agreement, has developed and implemented, and may amend from time to time: (a) a comprehensive set of rules, regulations and procedures governing the use of the Air Park; (b) a schedule of rates and charges for operations at the Air Park; (c) minimum standards for aeronautical activities at the Air Park; (d) Air Park development standards; (e) an Air Park noise abatement program; (f) a storm water pollution prevention plan in accordance with applicable law (the “SWPP Plan”); (g) a spill prevention control and countermeasure plan in accordance with applicable law (the “SPCC Plan”); (h) plans and procedures for de-icing operations in and at the Air Park, including regarding the use and treatment or disposal of glycol and the location(s) and accessways for said de-icing operations (the “De-Icing Regulations”); (i) plans and procedures for security at the Air Park; (j) emergency response and evacuation plans and procedures for the Air Park; and (k) such other Air Park matters in respect of which Landlord wishes to establish procedures (collectively, the “Air Park Procedures Manual”). Tenant agrees to comply with each such component of the Air Park Procedures Manual in connection with its use and occupancy of the Premises and the Common Use Facilities, so long as (a) the rules, regulations and procedures set forth in each such component of the Air Park Procedures Manual do

not unreasonably interfere with the use and enjoyment by Tenant and its permitted sublessees of the Premises and the Common Use Facilities for the purposes contemplated by this Lease Agreement and (b) Tenant and such permitted sublessees are not obligated to pay to Landlord any landing fees, license fees or other use charges as may otherwise be imposed under the Air Park Procedures Manual in connection with the Air Park.

ARTICLE 5

Ownership of Fixtures

All of the Fixtures shall remain the property of Tenant and shall be removable at any time, including upon the expiration of the Lease Term; provided, that Tenant shall repair any damage to the Premises caused by the removal of the Fixtures, and any Fixtures or personal property of Tenant which remain at the Premises after the expiration of the Lease Term shall be deemed abandoned and may be disposed of by Landlord without notice at Tenant’s cost and expense to be paid by Tenant to Landlord immediately upon Landlord’s request therefor. Notwithstanding the foregoing provisions of this Article 5, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Article 5 shall be superseded by the terms and conditions of Sections 4.1 and 11.4 of Exhibit E .

ARTICLE 6

Liens

Tenant agrees to and shall indemnify, defend, save and hold harmless Landlord from and against any and all loss, damage, liability, expense or claim whatsoever (including reasonable fees of attorneys, paralegals, experts, court reporters and others), arising by reason of any claim or lien, including, without limitation, any judgment lien, tax lien or vendor’s lien, or any mechanic’s lien, laborer’s lien, materialmen’s lien, or other similar lien or claim based upon or arising out of the furnishing of materials, fuel, machinery, supplies or labor to or in respect of the Premises, and not expressly contracted for (or authorized) in writing by Landlord (other than any contract or authorized item or matter with respect to which Tenant or an Affiliate of Tenant acts as an agent of Landlord including, without limitation, with respect to the Provision of the Project, the Adjacent Hangar Demolition, and/or the Related Area Improvements (all as defined in Exhibit E )). In the event any such lien is filed, Tenant shall cause any such lien to be discharged, at its sole cost and expense, within 30 days after Tenant shall have notice of the existence of the lien or any suit, action, or other proceeding to foreclose the lien or to seek execution in respect thereof, unless such lien and the claim occasioning it both are contested or litigated in good faith by Tenant, at its sole cost and expense, and Tenant shall have posted, at its sole cost and expense, a bond (with surety) or other security reasonably satisfactory to Landlord, sufficient to insure that upon final determination of the validity of the lien or claim, any final judgment rendered against Tenant or Landlord, together with all related costs and charges, will be fully paid. Notwithstanding any provision of this Article 6 to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Section 6 shall be superseded by the terms and conditions of Section

6.2 of Exhibit E , if, and only to the extent, the terms and conditions of Section 6.2 of Exhibit E do not reduce or diminish the scope of Tenant’s obligations described in this Article 6.

ARTICLE 7

Rent and Other Payments

7.01 . Rent During Initial Lease Term . In each Lease Year during the Initial Lease Term, Tenant shall pay to Landlord the Rent as set forth in Exhibit E .

7.02 . Rent During Renewal Terms . Base Rent for each Renewal Term, if any, shall be $50,000 per annum. Notwithstanding the foregoing, if the Loan Term has expired, in the event that, at the time Tenant exercises the relevant Renewal Option, the Project is not primarily used for the Project Purposes, the annual Base Rent for the applicable Renewal Term shall be equal to the annual fair market rent for the Premises for each year during such Renewal Term, as determined by an appraiser mutually agreed upon by Landlord and Tenant prior to the commencement of the applicable Renewal Term, each acting reasonably. In the event that Landlord and Tenant are unable to agree upon an appraiser, then Landlord and Tenant shall each choose one appraiser and the two appraisers so chosen shall attempt to agree on such fair market rent within 60 days after receiving the request to make such determination. If the two appraisers so chosen cannot agree on such fair market rent within such period, and the lower fair market rent so determined is equal to not less than 90% of the higher fair market rent, then the determination of fair market rent shall be the numerical average of the two fair market rents. If the lower fair market rent is less than 90% of the higher fair market rent, the two appraisers shall choose one additional appraiser. If the two appraisers cannot agree on the choice of such third appraiser within 15 days following the determination of such two fair market rents, such third appraiser shall be selected by the administrative judge of the Court of Common Pleas of Clinton County. The third appraiser shall make an independent determination of fair market rent, which shall be submitted to Landlord and Tenant within 60 days after the third appraiser has been selected. The determination of fair market rent shall be conclusively deemed to be the numerical average of (i) the numerical average of the higher two of the three determinations of fair market rent, and (ii) the numerical average of the lower two of the three determinations of fair market rent; provided, however, that solely for purposes of such averaging, if the lowest determination of fair market rent is less than 75% of the amount of the middle determination of fair market rent, then the lowest determination of fair market rent shall be deemed to be 75% of the amount of the middle determination of fair market rent, and if the highest determination of fair market rent is more than 125% of the middle determination of fair market rent, then the highest determination of fair market rent shall be deemed to be 125% of the amount of the middle determination of fair market rent. Each party shall pay the fees of the appraiser chosen by it, and the fees of the third appraiser, if any, shall be split equally between Landlord and Tenant; provided , however , Landlord's obligation to split the fee shall be subject to a duly authorized appropriation. Each appraiser selected pursuant to this Section 7.02 shall be an Ohio-certified M.A.I. appraiser with at least 15-years’ experience appraising commercial projects.

Annual Base Rent during any Renewal Term shall be payable in advance in consecutive equal monthly installments commencing on the first day of such Renewal Term and

continuing on the first day of each and every calendar month thereafter during the relevant Renewal Term. Base Rent shall be paid as aforesaid without demand, notice or setoff.

7.03 . Late Payments . If Tenant is delinquent in any monthly installment of Base Rent or any other sums due hereunder for more than 10 days after such installment or sum is due, Tenant shall pay to Landlord a late charge equal to 5% of such delinquent sum. Landlord and Tenant hereby agree that any such late charge represents a fair and reasonable estimate of the costs which Landlord will incur by reason of late payment by Tenant. The provision for such late charge shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as a penalty or as limiting Landlord’s remedies in any manner.

ARTICLE 8

Taxes, Assessments, Utilities, Operating Costs

8.01 . Taxes and Assessments . Tenant shall be responsible for and shall pay, when due, all intangible, sales and personal property taxes in connection with the Fixtures and/or any other property or fixtures now or hereafter situated at the Premises and owned by Tenant. Tenant shall also pay all real property taxes, tax increment financing (“TIF”) service payments, other payments in lieu of taxes, and assessments due in connection with the Premises. Landlord shall use good faith efforts to cause all tax bills with respect to the Premises to be sent directly to Tenant and, where it is unable to do so, to promptly send to Tenant any such tax bills received by Landlord. Tenant may, at its expense, in good faith contest any taxes, assessments and other charges, including TIF service payments and payments in lieu of taxes with respect to the Premises and, in the event of any such contest, during the period of such contest and any appeal therefrom, may permit the taxes, assessments or other charges so contested to remain unpaid unless Landlord shall notify Tenant that, in the opinion of counsel, by nonpayment of any such items the Premises or any part of the Premises will be materially adversely affected or the Premises or any part thereof will be subject to loss or forfeiture, in which event such taxes, assessments or charges shall be paid or provisions for payment by deposit or bonding made promptly by Tenant. After first consulting with Landlord, Tenant shall have the right to initiate any such contest in its own name or in the name of the Landlord, and Landlord shall reasonably cooperate with Tenant (at no out-of-pocket expense to Landlord) with Tenant in any such contest, including, if determined by Tenant to be necessary, appointing Tenant as its attorney-in-fact for such contest. Notwithstanding any provision of this Section 8.01 to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Section 8.01 shall be superseded by the terms and conditions of Section 6.1 of Exhibit E .

Tenant and Landlord each shall pay their respective shares of all charges for jointly metered utilities based upon respective consumption, as reasonably and jointly determined by Landlord and Tenant. Neither Landlord nor Tenant shall be liable to the other for any interruption or failure of utilities or any other service to the Premises or the Air Park, respectively, and no such interruption or failure shall result in the abatement of rent hereunder or otherwise permit Tenant to terminate this Lease Agreement.

8.03 . Operating Costs . Except as otherwise provided in this Lease Agreement, Tenant shall be responsible for and shall pay any and all expenses of owning, operating, maintaining and repairing the Premises incurred from and after the Effective Date until the expiration of the Lease Term and any and all other costs, charges, assessments, expenses and taxes of every kind and character, arising out of or incurred in connection with the use or occupancy of the Premises, whether or not such cost, charge, assessment, expense or tax is expressly referred to herein, so as to allow Landlord to receive the Rent as net rent.

ARTICLE 9

[Intentionally Omitted]

ARTICLE 10

Environmental Requirements

10.01 . General . Other than in compliance with applicable Environmental Laws (as defined herein), Tenant shall not: (a) permit, cause or suffer any Hazardous Material (as defined herein) to be used, generated, manufactured, produced, stored, brought upon, managed or Released (as defined herein) in, on, under or from the Premises or the Common Use Facilities, or (b) store or use, or permit the storage or use of, any Hazardous Material in or about the Premises or the Common Use Facilities. In operating its business on the Premises and in the Common Use Facilities, Tenant shall comply with all applicable Environmental Laws and will obtain, comply with, and properly maintain all permits and licenses or applications required by Environmental Laws for its operations.

10.02 . Terms . For the purposes of this Article 10:

(B) “Hazardous Material” shall mean all substances, materials, wastes, pollutants or contaminants that are, or that become, regulated under or classified as hazardous or toxic under any applicable Environmental Laws and all petroleum products, including, without limitation, gasoline, kerosene, diesel fuel, airplane fuel and like substances.

10.03 . Indemnity .

(A) Tenant shall indemnify, defend, and hold Landlord and its officers, directors, agents and employees (together, the “Indemnified Parties”), harmless from and against any and all manner of losses, claims, demands, actions, suits, damages (including, without limitation, punitive damages), fines, penalties, administrative and judicial proceedings, judgments, settlements, expenses (including, without limitation, reasonable consultant fees, attorneys’ fees, or expert fees) and/or costs (collectively, the “Indemnified Exposures”) which are brought or recoverable against, or suffered or incurred by, Landlord or the Indemnified Parties as a result of (i) Tenant’s failure to comply with the provisions of this Article 10, (ii) the Release by Tenant or any Person acting through or on behalf of Tenant of any Hazardous Materials in, on, under, or from the Premises or the Common Use Facilities during the Lease Term for which remediation is required under applicable Environmental Laws and (iii) any noncompliance with Environmental Laws caused by Tenant within the Air Park during the Lease Term, regardless of whether Tenant had knowledge of any of the foregoing.(B) Without limiting the foregoing, if any condition covered by Tenant’s indemnification obligations set forth in Section 10.03(A) occurs (each an “Environmental Indemnification Condition”), then (a) Tenant shall, at its sole cost and expense, promptly take all actions as are reasonably necessary to return the Premises or the Common Use Facilities, as the case may be, or any improvements thereon (and the Air Park, to the extent applicable) in all material respects to the condition required by applicable Environmental Laws; provided, that Landlord’s approval of such actions shall first be obtained, which approval shall not be unreasonably withheld, conditioned or delayed; and (b) if, due to a Release of Hazardous Materials by Tenant or any Person acting through or on behalf of Tenant during the Lease Term, a governmental authority determines that site investigation, site assessment and/or a cleanup plan must be prepared or that a cleanup should be undertaken on or surrounding the Premises or the Common Use Facilities or in any improvements thereon due to any such Release by Tenant or any Person acting through or on behalf of Tenant, then, subject to the terms of this Article 10, Tenant shall, at its sole cost and expense, prepare and submit the required plans and financial assurances, and carry out the approved plans; provided that, Tenant shall have the right to participate with Landlord in all discussions and communications with such governmental authority with respect to such matters and the right to contest in good faith and with diligence any such determination by such governmental authority, and to assert claims against any third party. Anything contained in this Agreement to the contrary notwithstanding, Tenant shall have no responsibility or liability under this Agreement for cleanup or any other action relating to a Release of Hazardous materials in, on or under, or from the Premises or the Common Use Facilities occurring prior to the Effective Date.

(C) The following terms shall apply to any and all Indemnified Exposures claims made by Landlord against Tenant relating to any Environmental Indemnification Condition under this Lease Agreement:

(i)

(ii)

(iii)

Landlord’s claims relating to remediation of an Indemnified Environmental Condition shall be limited to those costs reasonably necessary to attain Ohio EPA Voluntary Action Program standards applicable to the current “Land Use and Activities” category for the Premises and/or the affected Common Use Facilities, as the case may be, as that term is defined in Ohio Administrative Code 3745-300-08(C)(2)(c)(iii)(March 1, 2009 edition), with no use of groundwater for any purpose

other than monitoring and no use of subsurface structures for human occupancy, and not for any other more superior uses or more stringent standards.

10.04 . Reporting . Tenant, at Tenant’s own cost and expense, shall make all submissions to, provide all information to, and comply with all applicable requirements of the appropriate governmental authorities as required of Tenant under applicable Environmental Laws. At no cost or expense to Landlord, Tenant shall promptly provide information reasonably requested by Landlord that is in Tenant’s possession or subject to its control to (a) determine the applicability of the Environmental Laws to the Premises or operations conducted thereon, or (b) respond to any governmental inquiry or investigation or to respond to any claim of liability by third parties which is related to environmental conditions in connection with the Premises.

Tenant shall promptly notify Landlord of any of the following: (a) any correspondence or communication from any governmental authority regarding the application of Environmental Laws to the Premises or Tenant’s operations on the Premises or at the Air Park, (b) any change in Tenant’s operations on the Premises or at the Air Park that will change Landlord’s obligations or could increase or reasonably be expected to increase Tenant’s or Landlord’s obligations or liabilities under Environmental Laws and (c) any incidents occurring in or at the Premises and/or, if caused by Tenant or any Person acting through or on behalf of Tenant, any other areas within the Air Park regarding Hazardous Material, including, without limitation, any Release of Hazardous Material. At any time Tenant submits any filing or required documentation pertaining to investigations or violations relative to Hazardous Materials situated in or on or Released from the Premises or the Common Use Facilities to any governmental authority (other than the Internal Revenue Service), including, by way of example but not in limitation, the FAA, the Environmental Protection Agency or any similar State of Ohio agency or department, Tenant shall provide duplicate copies of the filing(s) made, along with any related documents, to Landlord.

10.05 . Landlord Assessments . In accordance with the provisions of Article 21 hereof, Landlord shall have such access to, and a right to perform such inspections and tests of, the

Premises as it may reasonably require to determine compliance with Environmental Laws and Tenant’s obligations hereunder. Such inspections and tests shall be conducted at Landlord’s expense, unless such inspections or tests document that Tenant has violated any Environmental Laws and/or the terms of this Lease Agreement, in which case Tenant shall, upon demand, reimburse Landlord for the reasonable cost of such inspection and tests documenting Tenant’s non-compliance. At the expiration or earlier termination of this Lease Agreement, Landlord shall have the right, at its option and at Landlord’s sole cost and expense, to undertake an environmental assessment of the Premises. Landlord and Tenant agree that Landlord’s receipt of or satisfaction with any environmental assessment in no way waives any rights that Landlord holds against Tenant or any defenses that Tenant holds against Landlord.

10.06 . Related Tenant Obligations . As soon as reasonably practicable after the Effective Date: (A) Landlord and Tenant shall work cooperatively to effect, if and as reasonably practical to do so and without undue expense to either party, possible changes to the current City WWTP Permit No. 1015-09 for sanitary sewage discharges, including, without limitation, to establish procedures and protocols to separately measure, and/or to obtain a separate permit for, discharges by Tenant into the City sanitary sewer system; and (B) Landlord and Tenant shall work collaboratively to determine the necessity and/or appropriateness of Tenant obtaining its own Industrial Activities Stormwater Permit from Ohio EPA relating to Tenant’s activities in or on the Premises and/or the Common Use Facilities.

ARTICLE 11

General Indemnification

11.01 . General Indemnification Obligations . To the fullest extent permitted by law, and in addition to and not in limitation of any other indemnification provisions set forth in this Lease Agreement, but subject to the provisions of Section 12.02 hereof, Tenant shall indemnify, defend and hold harmless Landlord from and against: (i) any loss, liability, or damage suffered or incurred by Landlord arising from or in connection with (a) Tenant’s use or occupancy of the Premises and/or Tenant’s performance of its responsibilities under this Lease Agreement (other than losses, liabilities or damages that actually are covered by the insurance policies described in Section 12.01 hereof), or (b) the non-performance of the terms of this Lease Agreement to be performed by Tenant; (ii) any loss, liability, or damage suffered or incurred by Landlord on account of injury to Person or property or from loss of life sustained in, on, or about the Premises or the Air Park resulting from the willful misconduct or negligent act or omission of Tenant or of its employees or from any act or omission of Tenant or of its employees that violates applicable laws; and (iii) all actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including reasonable attorney’s fees) directly relating to the foregoing. In the event that a claim for indemnification results from or arises out of a circumstance described in Section 10.03 and such claim could also be asserted under this Article 11, then such claim shall be brought under, and be subject to the conditions of, Section 10.03.

11.02 . Claims Procedures. In the event that any claim is asserted, or any action or proceeding is instituted, against Landlord by reason of any event or occurrence in respect of which Tenant is to provide indemnity as provided in Section 11.01 of this Lease Agreement:

(A) Tenant shall, if requested in writing by Landlord, cause such claim, action or proceeding to be resisted, defended and resolved, at Tenant’s sole cost and expense, and by legal counsel to be approved by Landlord, which approval shall not be unreasonably withheld or delayed; or

(B) In the event that Tenant shall fail to engage legal counsel within 30 days after the written request contemplated by clause (A) above, Landlord may cause such claim, action or proceeding to be resisted and defended by legal counsel designated by Landlord, in which event Tenant shall reimburse Landlord, upon demand made from time to time, for the costs thereby incurred by Landlord (including the reasonable fees of attorneys, paralegals, experts, court reporters and others) and actual amounts paid to resolve any such claim, action or proceeding.

ARTICLE 12

Insurance

12.01 . Tenant’s Insurance . Tenant shall obtain and maintain in full force and effect throughout the Lease Term, at Tenant’s expense, the following insurance:

(A) Commercial general liability (CGL) and, if necessary, commercial umbrella insurance, with liability limits of not less than $5,000,000 combined single limit coverage. If such CGL insurance contains a general aggregate limit, it shall apply separately to the Premises. Such CGL insurance shall be provided pursuant to a stand-alone policy or as part of a commercial aviation liability policy and shall cover liability on an occurrence basis arising from premises, operations, independent contractors, products-completed operations, personal and advertising injury and liability assumed under an insured contract.

(B) Automobile Liability insurance with liability limits of not less than $5,000,000 combined single limit per accident (without annual aggregate) for bodily injury and property damage. Defense costs shall apply in addition to the limit of liability. Coverage shall include contractual liability and shall apply to owned, leased, hired and non-owned autos, both on and off the Premises.

(C) Statutory workers’ compensation coverage as required by the State of Ohio and employer’s liability with limits of not less than $1,000,000 bodily injury by accident, $1,000,000 bodily injury by disease, and $1,000,000 bodily injury by disease, each employee.

(E) Commercial property insurance covering the Premises, including the Project. Such insurance shall cover the perils covered under the ISO special causes of loss form (CP 10 30) and shall cover the replacement cost of the Project.

Tenant shall cause Landlord to be identified, by endorsement, as an additional insured in connection with any and all insurance policies (other than the commercial property insurance

policy, workers’ compensation policies and employer’s liability policies) provided for under this Lease Agreement and, upon Landlord’s request, shall deliver or cause to be delivered to Landlord evidence of said insurance coverages in the form of appropriate certificates of insurance and endorsements to the underlying policies. If, and only if, the provisions of Exhibit E are not in effect, Landlord shall be named as a loss payee with respect to any insurance policy described in clause (E), above. Such policies and certificates of insurance shall provide that Landlord will be notified in writing at least 30 days prior to the cancellation, material change or non-renewal of any such insurance policy. Notwithstanding any provision of this Section 12.01 to the contrary, during any period that the provisions of Exhibit E remain in effect: (i) any insurance policy described in clause (E), above, shall (x) in all events provide coverage of type and amounts required by Sections 5.4 and 5.5 of the Loan Agreement, and (y) name the Director as the loss payee, and (z) contain a clause requiring all Net Proceeds resulting from any claim for loss or damage, if the Net Proceeds of such claim are in excess of $100,000, to be paid to the Trustee for deposit in the Collateral Proceeds Account to be paid and applied as provided in Section 7.2 of Exhibit E , (ii) any insurance policy described in clause (A), (B), (D) or (E), above, shall be with a generally recognized, responsible insurance company unless otherwise agreed to by Landlord and the Director, and (iii) the Director and the Trustee shall have the same rights as Landlord as described in the two preceding sentences.

12.02 . Waiver of Subrogation . Landlord and Tenant hereby waive recovery of damages against each other for loss or damage to their property to the extent the same is or could be covered by the commercial property insurance required in Section 12.01 above. Because the provisions of this Section 12.02 preclude the assignment of any claim mentioned herein, by way of subrogation or otherwise, to an insurance company or any other person, each party to this Lease Agreement shall give to each insurance company which has issued to it one or more policies of commercial property insurance notice of the terms of the mutual releases contained in this Section 12.02, and have such insurance policies properly endorsed, if necessary, to prevent the invalidation of insurance coverages by reason of these mutual releases.

ARTICLE 13

Maintenance and Repair; Alterations; Signage

13.01 . Maintenance and Operation . Tenant shall, at its sole cost and expense, cause the Premises at all times during the Lease Term to be operated, maintained and repaired in good condition and repair and in compliance with all present and future laws, codes, rules, orders, ordinances, regulations, statutes and requirements of any federal, state, county, or other governmental entity having jurisdiction, including, without limitation, the Americans with Disabilities Act of 1990. Tenant shall not use, permit or suffer the use of the Premises, and shall not use or permit the use of the Common Use Facilities, or any part of either of them, for any unlawful purpose or for any dangerous or noxious trade or business, or in violation of any occupancy permit issued in respect thereof. Tenant shall not commit, suffer or permit waste in or to the Premises, and shall not commit or permit waste in or to the Common Use Facilities. Notwithstanding any provision of this Section 13.01 to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Section 13.01 shall be superseded by the terms and conditions of Section 5.2 of Exhibit E , if, and only to the extent, the terms and

conditions of Section 5.2 of Exhibit E do not reduce or diminish the nature and scope of Tenant’s obligations described in this Section 13.01.

13.02 . Alterations . Tenant shall not make any alterations, improvements or additions to the Premises or the Project, unless and until Tenant has received Landlord’s prior written consent and approval of the complete plans and specifications therefor, which consent and approval shall not be unreasonably withheld, conditioned or delayed by Landlord. All such alterations, improvements or additions shall be performed in all material respects in accordance with the approved plans and specifications. Notwithstanding any provision of this Section 13.02 to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Section 13.02 shall be superseded by the terms and conditions of Section 5.3 of Exhibit E .

13.03 . Signage . Tenant shall not install signs at the Premises unless and until Tenant has received Landlord’s prior written consent and approval of the complete plans and specifications therefor, which consent and approval shall not be unreasonably withheld, conditioned or delayed by Landlord. All such signage shall be constructed and displayed in all material respects in accordance with the approved plans and specifications and in compliance with local, state and federal laws, ordinances and regulations.

ARTICLE 14

Casualty Damage

14.01 . Landlord Election . In the event that any portion of the Premises is damaged or destroyed by fire or any other casualty (“Casualty Damage”), Landlord may elect, at its option, by written notice to Tenant given within 60 days after the occurrence of the Casualty Damage, to: (a) repair and restore the Premises (but not any of the Fixtures); or (b) effect a Partial Termination (as defined herein), or (c) terminate this Lease Agreement. Notwithstanding the foregoing, in the event that Casualty Damage occurs to the Premises that is covered by the commercial property insurance to be obtained and maintained by Tenant pursuant to Section 12.01 hereof, then Tenant, at Tenant’s option exercised by written notice to Landlord given within 10 days following Tenant’s receipt of Landlord’s election not to repair and restore the Premises pursuant to Section 14.01(b) or (c) hereof, may repair and restore the Premises (but not any of the Fixtures), on behalf of Landlord, in which case any election by Landlord not to repair and restore the Premises pursuant to Section 14.01(b) or (c) hereof shall be deemed to have been overridden and Tenant may repair and restore the Premises (but not any of the Fixtures); provided, however, that Tenant shall be responsible for the costs of such repair and restoration to the extent such costs exceed the proceeds of commercial property insurance payable as a result of the Casualty Damage.

14.02 . Restoration . In the event Landlord elects or is required to allow Tenant to repair and restore the Premises under Section 14.01 hereof, then (a)Tenant shall promptly commence repair and restoration of the Premises to the condition the Premises were in immediately prior to the Casualty Damage and diligently pursue such repair and restoration to completion, and (b) this Lease Agreement shall continue in full force and effect; provided, that Base Rent shall temporarily

abate from the date of the Casualty Damage through the completion by Tenant of the repair and restoration of the Premises in order to reflect the portion of the Premises rendered temporarily unusable by the Casualty Damage and shall be determined by multiplying the annual Base Rent then in effect by a fraction, the numerator of which shall be the number of square feet of the Project which remain usable by Tenant during such repair and restoration and the denominator of which shall be 100,000 .

14.03 . Partial Termination . If any Casualty Damage results in the destruction of a portion but not all of the Premises, Landlord may elect pursuant to Section 14.01(b) to terminate this Lease Agreement only with respect to the portion of the Premises which was materially affected by such Casualty Damage and maintain this Lease Agreement in full force and effect with respect to the portion of the Premises not materially affected by the Casualty Damage (a “Partial Termination”). In the event of a Partial Termination, annual Base Rent shall be permanently reduced to reflect the reduced area of the Premises and shall be determined by multiplying the annual Base Rent then in effect by a fraction, the numerator of which shall be the number of square feet contained in the Project after such Partial Termination and the denominator of which shall be 100,000.

14.04 . Tenant Election Upon Substantial Damage . If Landlord has elected to repair and restore the Premises under Section 14.01(a) or to cause a Partial Termination under Section 14.01(b) (a “Continuation Election”), but Casualty Damage is so extensive as to result in a permanent substantial adverse impact upon Tenant’s business conducted on or from the Premises, Tenant may elect to terminate this Lease Agreement upon written notice to Landlord together with documentation which clearly demonstrates the basis for Tenant’s election to terminate, which notice and supporting documentation shall be given, if at all, within 20 days following receipt of the Continuation Election. In addition, if the Master Lease has been terminated by either party as a result of a casualty, Tenant may elect to terminate this Lease Agreement upon written notice to Landlord, which notice shall be given, if at all, within 20 days following such termination of the Master Lease.

14.05 . Total Termination . In the event this Lease Agreement is properly terminated in accordance with Section 14.01(c) or Section 14.04 of this Lease Agreement, this Lease Agreement and all rights and obligations hereunder shall terminate effective as of the 30th day after the party electing to terminate this Lease Agreement has provided notice of such election to the other party. All Base Rent and other sums required to be paid by Tenant hereunder shall be apportioned and paid as of the effective date of such termination.

14.06 . Casualty Provision Superseded . Notwithstanding anything herein to the contrary, but subject to Section 14.07, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Article 14 shall be superseded in their entirety by the terms and conditions of Article VII of Exhibit E .

14.07 . Prepayment Upon Casualty . In the event that the provisions of Exhibit E cease to be effective as a result of a prepayment of all remaining Rent (as defined in Exhibit E ) for the Loan Term (as defined in Exhibit E ) by paying the Discharge Amount (as defined in Exhibit E ) following a casualty pursuant to Section 7.1(c) of Exhibit E , then (a) this Lease Agreement shall terminate, and (b) any Net Proceeds remaining after such prepayment (which remaining Net

Proceeds may have been paid to Landlord pursuant to Section 7.1(c) of Exhibit E and/or the last sentence of Section 10.2 of the Loan Agreement), shall be first applied to stabilize or demolish the Project and the Premises and remedy any health and safety hazards relating to the Project and the Premises (a “Clean Up”), with the remainder of the Net Proceeds, if any, paid to Tenant; provided, however, that nothing in this Section 14.07 shall limit in any way Tenant’s indemnification obligations as described in this Lease Agreement including, without limitation, Section 10.03 and Article 11.

ARTICLE 15

Condemnation

15.01 . Total Condemnation . If all of the Premises and/or the Air Park are taken by any condemning authority under the power of eminent domain or otherwise, or by any purchase or other acquisition in lieu of eminent domain or otherwise (a “Total Take”), or if Tenant has the right to and does terminate this Lease Agreement in accordance with Section 15.02(A)(i) below, then this Lease Agreement and the Lease Term shall terminate as of the date when possession of the Premises is required by the condemning authority, and all Base Rent and other sums required to be paid by Tenant hereunder shall be apportioned and paid to the date of such taking.

15.02 . Partial Condemnation .

(A) In the event that only a portion of the Premises and/or the Air Park is taken or condemned by any condemning authority, Landlord shall immediately send written notice thereof to Tenant. If said portion of the Premises and/or the Air Park so taken or condemned constitutes a “substantial portion of the Premises” as defined in Section 15.02 (C) below, then Tenant shall have the right to elect, by written notice to Landlord within 20 days after receipt from Landlord of the aforesaid notice of condemnation, either: (i) to terminate this Lease Agreement as of the date of the taking of possession by the condemning authority, in which event the Base Rent and all other charges shall be apportioned and paid to the date of the taking, or (ii) to terminate this Lease Agreement only with respect to the portion of the Premises taken by such condemning authority and otherwise to continue this Lease Agreement in full force and effect. In the event that any such taking or condemnation involves less than a “substantial portion of the Premises”, or if it does involve a “substantial portion of the Premises” but Tenant makes the election set forth in clause 15.02(A)(ii) above, then Base Rent will be reduced to reflect the reduced area of the Premises and will be determined by multiplying the annual Base Rent then in effect by a fraction, the numerator of which shall be the number of square feet contained in the Project after the taking and the denominator of which shall be 100,000 and such reduced Base Rent will become effective upon the date of such taking.

(B) If this Lease Agreement is not terminated as set forth in Section 15.01 or 15.02(A)(i) hereof, then the award or payment for the taking that is related to the Premises shall be paid to and used by Tenant to restore, with reasonable dispatch, the portion of the Premises remaining, after the taking, to substantially the same condition and tenantability as existed immediately preceding the taking.

(C) A “substantial portion of the Premises” shall be deemed to have been condemned if such condemnation relates to a portion of the Premises and/or the Air Park the absence of which would reasonably result in a permanent substantial adverse impact upon Tenant’s business conducted on or from the Premises.

15.03 . Condemnation Provision Superseded . Notwithstanding anything herein to the contrary, but subject to Section 15.04, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Article 15 shall be superseded in their entirety by the terms and conditions of Article VII of Exhibit E .

15.04 . Prepayment Upon Condemnation . In the event that the provisions of Exhibit E cease to be effective as a result of a prepayment of all remaining Rent for the Loan Term by paying the Discharge Amount following a condemnation pursuant to Section 7.2(b) of Exhibit E , then (a) this Lease Agreement shall terminate, and (b) any Net Proceeds remaining after such prepayment (which remaining Net Proceeds may have been paid to Landlord pursuant to Section 7.2(b) of Exhibit E and/or the last sentence of Section 10.2 of the Loan Agreement) shall be first applied to a Clean Up (as defined in Section 14.07) (if applicable), with the remainder apportioned between Landlord and Tenant pro rata in accordance with the allocation method generally described in Section 15.02(D), above.

ARTICLE 16

Assignment and Subletting

hereunder, to or by any Persons, but shall not include (i) any security interest granted by Tenant in this Lease Agreement as required by the terms of any credit facility of Tenant and/or its Affiliates, or (ii) an assignment of Tenant's rights under this Agreement to a successor or parent corporation in connection with any sale of substantially all of the assets or stock of Tenant, whether via merger or otherwise and (b) a “merger” refers to any merger in which Tenant participates, regardless of whether it is the surviving or disappearing entity.

16.03 . Assignment and Subletting Subject to Exhibit E . Notwithstanding anything herein to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, any assignment or sublease under this Article 16 must also comply with Section 11.1 of Exhibit E , and Section 11.1 of Exhibit E shall control to the extent of any inconsistency.

ARTICLE 17

Conveyance or Encumbrancing by Landlord

17.01 . Conveyances . Landlord shall have the unrestricted right to sell, assign, convey or transfer to any Person all or any part of its right, title or interest in or to the Premises; subject, however, to the Loan Agreement, this Lease Agreement, the Mortgage and the RNDA. In the event of a sale or transfer of the Premises, Landlord (or, in the case of a subsequent transfer, the transferor) shall, after the date of such transfer, be automatically released from all further liability for the performance or observance of any term, condition, covenant or obligation required to be performed or observed by Landlord hereunder, and the transferee shall be deemed to have assumed all of such terms, conditions, covenants and obligations, it being intended hereby that such terms, conditions, covenants and obligations shall be binding upon Landlord, its successors and assigns, only during and in respect of their successive periods of ownership during the Lease Term. Upon Tenant’s request, Landlord shall deliver to Tenant copies of the recorded deed and any lease assignment executed and delivered by Landlord in connection with any such conveyance by Landlord.

of the holder of any such Fee Mortgage (a “Fee Mortgagee”), to attorn to any such holder, provided that the Fee Mortgagee agrees to not disturb the possession, use or enjoyment of the Premises by Tenant, or disaffirm this Lease Agreement, so long as Tenant shall fully perform its obligations under this Lease Agreement. Tenant agrees to execute, acknowledge and deliver, within 10 days following Landlord’s request therefor, such commercially reasonable instruments confirming such subordination and attornment as shall be requested by any Fee Mortgagee. Notwithstanding the foregoing, any Fee Mortgagee may at any time subordinate its Fee Mortgage to this Lease Agreement, without notice or Tenant’s consent, and thereupon this Lease Agreement shall be deemed prior to such Fee Mortgage without regard to their respective dates of execution, delivery or recording and in that event such Fee Mortgagee shall have the same rights with respect to this Lease Agreement as though this Lease Agreement had been executed prior to the execution, delivery and recording of such Fee Mortgage.

17.03 . Notice and Cure Rights . If Tenant shall serve Landlord with any notice claiming a default or breach of this Lease Agreement by Landlord, Tenant shall serve a duplicate of said notice upon each Fee Mortgagee, provided that Tenant has received the name and address of such Fee Mortgagees. The Fee Mortgagees shall be permitted to correct or remedy the breach or default complained of within a reasonable time after the expiration of Landlord’s time to do so and with the same effect as if Landlord itself had done so.

17.04 . Landlord’s Conveyance and Encumbrance Rights Subject to Exhibit E . Notwithstanding anything herein to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, any conveyance or encumbrance by Landlord under this Article 17 must also comply with Sections 11.2 and 11.3 of Exhibit E , and those Sections shall control to the extent of any inconsistency. Any Fee Mortgage must be subordinate to the Mortgage, and Tenant may not attorn to any Fee Mortgage unless such agreement to attorn is subordinate to the RNDA.

ARTICLE 18

Default; Termination

18.01 . Default by Tenant . There shall exist an event of default (herein called an “Event of Default”) under this Lease Agreement if:

(A) Tenant shall fail to pay any installment of Base Rent required to be paid by Tenant within 10 days after the same shall become due for payment; or

(B) Tenant shall fail in any material respect to perform or comply with any other obligation of Tenant under this Lease Agreement, and such failure is not performed or corrected within 30 days after notice of such default from Landlord (or, if such failure is not capable of being performed or corrected within such 30-day period, if Tenant shall not commence the correction of such default within 30 days after notice of such default from Landlord and proceed with due diligence to complete such correction within a reasonable time, but in no event longer than 90 days from the notice of such default); or

(C) Tenant, ATSG, or AMES shall make a general assignment for the benefit of creditors, or if Tenant’s interest in the Premises is sold upon execution or other legal process; or

(D) Tenant shall suffer a receiver to be appointed in any action or proceeding by or against Tenant, and such appointment is not stayed or discharged within 60 days after the commencement thereof, or if Tenant is a debtor in any insolvency proceeding conducted pursuant to the laws of any state or of a political subdivision of any state and such proceeding is not stayed or discharged within 60 days after the commencement thereof, or if Tenant shall be or become, either voluntarily or involuntarily, a debtor in any case commenced under the provisions of the U.S. Bankruptcy Code, as amended, and such case is not stayed or discharged within 60 days after the commencement thereof.

18.02 . Rights of Landlord upon Tenant’s Default . In the event that Tenant shall create or suffer an Event of Default under this Lease Agreement, in addition to the other rights and remedies available to Landlord hereunder, in equity or at law, Landlord, at its option, shall have the following remedies:

(A) Without cancelling or terminating this Lease Agreement or the Lease Term, Landlord shall have the right to repossess the Premises and terminate all rights of Tenant with respect to the Premises and the Common Use Facilities, to possess the Premises and each and every part thereof and to expel Tenant therefrom and to endeavor to relet all or any part of the Premises from time to time for any unexpired part of the Lease Term. In the event of such repossession and reletting by Landlord, Landlord may collect the rents from any such reletting, applying the same first to the payment of reasonable expenses of such repossession and reletting (the “Reletting Expenses”, which shall include attorneys’ fees, brokerage fees, expenses for redecoration, alterations and other costs in connection with preparing the Premises for new tenants) and then as a credit against the Base Rent and additional charges due or to become due from Tenant under this Lease Agreement, with Tenant to pay to Landlord each month following any such repossession by Landlord any deficiency between Base Rent and other sums due and payable hereunder by Tenant for such month and the amount of any rent (net of Reletting Expenses) collected by Landlord during such month from any reletting tenant. Except as expressly provided in this Section 18.02(A), neither such termination of the right of Tenant to occupy the Premises and the Project, nor such repossession and possession by Landlord, shall relieve Tenant from its obligations to pay Base Rent and all other amounts payable by Tenant under the terms of this Lease Agreement, and/or to perform and observe all of the obligations of Tenant under this Lease Agreement.

18.03 . Landlord Right To Cure Tenant Defaults . If Tenant shall create or suffer an Event of Default under this Lease Agreement, Landlord may (but shall not be required to) cure such

default on behalf of Tenant (without thereby waiving any of the rights otherwise afforded to Landlord under Article 18 of this Lease Agreement by reason of such default), and the amount of the reasonable cost to Landlord of curing any such default shall be paid by Tenant to Landlord on demand, together with interest thereon at a per annum rate equal to the “prime rate” of Bank of America (as such rate is announced or disclosed from time to time), plus 4% (the “Default Rate”), or at the maximum rate of interest permitted by law if less than the Default Rate, from the date or dates of payment thereof by Landlord.

18.04 . Default/Termination Provision Superseded . Notwithstanding anything herein to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Article 18 shall be superseded in their entirety by the terms and conditions of Article X of Exhibit E .

ARTICLE 19

Surrender

Upon the exercise by Landlord of its right to obtain possession of the Premises upon the occurrence of an Event of Default hereunder, or upon the expiration or sooner termination of this Lease Agreement, Tenant shall (i) surrender the Premises to Landlord, with all improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted and (ii) appropriately effect, at Tenant’s sole cost and expense and in accordance with all applicable Environmental Laws, the closure of all Resource Conservation and Recovery Act (“ RCRA ”) storage areas, if any, in and on the Premises and/or the Common Use Facilities (and such other areas in and on the Premises and/or the Common Use Facilities which should have been designated and permitted as RCRA storage areas in accordance with applicable Environmental Laws) wherein Tenant or any Person acting through or on behalf of Tenant caused, suffered or permitted the storage of Hazardous Waste either prior to or during the Lease Term.

ARTICLE 20

Quiet Enjoyment

ARTICLE 21

Inspection

Landlord and its duly authorized representatives may enter the Premises at all reasonable times, upon at least 24-hours’ prior written notice to Tenant (or, in the event of an emergency, such notice as may be reasonable under the circumstances), to view and inspect the

Premises and to inspect all repairs, additions and alterations or to perform any work which may be necessary by reason of Tenant’s default under the terms of this Lease Agreement; provided, that any such inspections shall not unreasonably interfere with the activities of Tenant or its agents or contractors in or on the Premises, nor cause or result in any damage to the Premises. Notwithstanding anything herein to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Article 21 shall be superseded in their entirety by the terms and conditions of Article V and Section 8.1 of Exhibit E , if, and only to the extent, such terms and conditions of Article V and Section 8.1 of Exhibit E do not reduce or diminish the nature and scope of Tenants obligations described in this Article 21.

ARTICLE 22

Notices and Payments

22.01 . Notices . Any notice or other communication required or permitted to be given to a party under this Lease Agreement shall be in writing and shall be given by one of the following methods to such party, at the address set forth below: (i) it may be sent by registered or certified U.S. mail, return receipt requested and postage prepaid, or (ii) it may be sent by ordinary U.S. mail or delivered in person or by courier, telecopier, fax transmission, electronic mail or any other means for transmitting a written communication. Any such notice shall be deemed to have been given as follows: (i) if sent by registered or certified U.S. mail, as of the second business day after it was mailed, and (ii) if sent or delivered by any other means, upon receipt, with written or electronic confirmation thereof. Either party may change its address for notice by giving written notice thereof to the other party. The address of each party for notice initially is as follows:



Landlord	Tenant
Clinton County Port Authority Wilmington Air Park	Air Transport International Limited Liability Company
1113 Airport Road	145 Hunter Drive
Wilmington, OH 45177	Wilmington, OH 45177
Attn: Kevin Carver, Executive Director	Attn: Russ Smethwick, Director, Strategic Planning
Fax No.:	Fax No.: (937) 382-2452
E-Mail Address: kcarver@portauthority.com	E-Mail Address: Russ.Smethwick@abxair.com



With copies to:	With copies to:
Vorys, Sater, Seymour and Pease LLP	W. Joseph Payne, Esq., General Counsel
52 East Gay Street	Air Transport Services Group, Inc.
Columbus, OH 43215	145 Hunter Drive
Attn: D. Scott Powell Fax No.: (614) 719-4912	Wilmington, OH 45177 Fax No.: (937) 382-2452
E-Mail Address: dspowell@vorys.com	E-Mail Address: Joe.Payne@atsginc.com

Notwithstanding anything herein to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, any notice or other communication required or permitted to be given to a party under this Lease Agreement shall be given in accordance with Section 12.1 of Exhibit E .

22.02 . Place of Payment; No Setoff . All rent and other payments required to be made by Tenant to Landlord shall be delivered or mailed to Landlord at the address specified in Section 22.01 hereof, or any other address Landlord may specify from time to time by written notice given to Tenant, provided that so long as the terms and conditions of Exhibit E attached hereto are in effect, payments shall be made directly to the Trustee and to the Director as provided in Section 3.1 of Exhibit E , without notice or demand and without abatement, deduction or setoff of any amount whatsoever.

ARTICLE 23

Compliance with Laws

23.01 . General Compliance . At all times during the Lease Term, Tenant shall, in respect of this Lease Agreement and its use and occupancy of the Premises, comply with all applicable federal, state and local laws, codes, ordinances, rules and regulations, and any other applicable requirements.

23.02 . Incorporation of Provisions of Law . Each and every provision required by applicable federal, state or local laws, codes, ordinances, rules and regulations to be included in this Lease Agreement shall be deemed to be incorporated herein by reference and included in this Lease Agreement, and this Lease Agreement shall be read, construed and enforced as though each such provision were set forth herein.

ARTICLE 24

Miscellaneous Provisions

24.01 . Brokers, Finders and Others . Landlord and Tenant each warrant and represent to the other that it has had no compensable dealings, negotiations, agreements, consultations or other transactions with any broker, finder, or other intermediary in respect of the Premises or this Lease Agreement, and that no Person is entitled to any brokerage fee, commission, or other payment in respect of this Lease Agreement, the transactions contemplated thereby and/or the Premises, arising from agreements, arrangements or undertakings made or effected by it with any third Persons.

24.02 . Memorandum of Lease Agreement . This Lease Agreement shall not be filed in any public office or records. Landlord and Tenant shall, upon request by the other, execute, deliver and record a memorandum of lease complying with Section 5301.251, Ohio Revised Code, and containing a description of the Reserved Easements, and such other terms of this Lease Agreement as may be acceptable to the parties.

24.03 . Estoppel Certificates . Each party shall, within 10 days after written request from the other party, from time to time and at any time, complete, execute, acknowledge and deliver to the requesting party a written instrument, in a form prepared and presented by the requesting party and acceptable to the other party, certifying that this Lease Agreement is unmodified and in full force and effect (or if there have been modifications, that it is in full force and effect as modified and stating the modifications), and the dates to which Base Rent and other charges have been paid in advance, if any, and stating whether, to the knowledge of such party, the requesting party is in default in the performance of any obligation of such requesting party under this Lease Agreement, and, if so, specifying each such default of which such party has knowledge and certifying any other fact reasonably requested to be certified by the requesting party, it being intended that any such instrument may be delivered to and relied upon by any prospective purchaser of Landlord’s interest in the Premises and any prospective assignee of Tenant’s leasehold estate in the Premises, or any mortgagee or prospective mortgagee in respect thereof or any part thereof.

24.04 . Successors and Assigns . Except as otherwise specifically provided herein, this Lease Agreement shall inure to the benefit of and be binding upon the respective successors and assigns (including successive, as well as immediate, successors and assigns) of Landlord and of Tenant. Notwithstanding any provision of this Section 24.04 to the contrary, for so long as the terms and conditions of Exhibit E attached hereto are in effect, the terms and conditions of this Section 24.04 shall be superseded by the terms and conditions of Section 12.2 of Exhibit E .

24.05 . Governing Law . This Lease Agreement shall be governed by and construed in accordance with the laws of the State of Ohio.

24.06 . Remedies Cumulative . All rights and remedies of Landlord and of Tenant enumerated in this Lease Agreement shall be cumulative and, except as specifically contemplated otherwise by this Lease Agreement, none shall exclude any other right or remedy allowed at law or in equity, and said rights or remedies may be exercised and enforced concurrently. No waiver by Landlord or by Tenant of any covenant or condition of this Lease Agreement, to be kept or performed by any other party, shall constitute a waiver by the waiving party of any subsequent breach of such covenant or condition, or authorize the breach or nonobservance on any other occasion of the same or any other covenant or condition of this Lease Agreement.

24.07 . Duplicate Originals . This Lease Agreement may be executed in one or more counterparts, each of which shall be deemed to be a duplicate original, but all of which, taken together, shall constitute a single instrument.

24.08 . Article and Section Captions . The Article and Section captions contained in this Lease Agreement are included only for convenience of reference and do not define, limit, explain or modify this Lease Agreement or its interpretation, construction or meaning, and are in no way to be construed as a part of this Lease Agreement.

application of said provision to any other Person or circumstance, all of which other provisions shall remain in full force and effect, and it is the intention of Landlord and of Tenant that if any provision of this Lease Agreement is susceptible of two or more constructions, one of which would render the provision valid and the other or others of which would render the provision invalid, then such provision shall have a meaning which renders it valid.

24.10 . Amendments in Writing; Annexes . No officer, employee, or other servant or agent of Landlord or of Tenant is authorized to make any representation, warranty, or other promise not contained in this Lease Agreement in respect of the subject matter hereof. No amendment, change, termination or attempted waiver of any of the provisions of this Lease Agreement shall be binding upon Landlord or Tenant, unless in writing and signed by the party affected; provided, however, that for so long as the terms and conditions of Exhibit E attached hereto are in effect, this sentence shall be superseded by the terms and conditions of Section 12.3 of Exhibit E .. Each of the annexes, exhibits or instruments attached hereto are hereby expressly incorporated herein by this reference.

24.11 . No Third Party Beneficiaries . Except as otherwise expressly provided herein (including, without limitation, in Section 12.2 of Exhibit E for so long as the terms and conditions of Exhibit E remain in effect): (a) the provisions of this Lease Agreement are for the exclusive benefit of the parties hereto and are not for the benefit of any other Person, and (b) this Lease Agreement shall not be deemed to have conferred any rights, express or implied, upon any third Person.

24.12 . Security . Tenant acknowledges and agrees that Landlord is not providing any security services with respect to the Premises and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other injury (including death) or damage suffered or incurred by Tenant or its employees or agents in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises. Tenant will cooperate with Landlord in connection with any security conducted by or on behalf of Landlord in connection with the Air Park.

24.13 . Miscellaneous Requirements .

In connection with its use and occupancy of the Premises, Tenant hereby agrees as follows:


(A)	Tenant understands and agrees that nothing herein contained will be construed to grant or authorize the granting of an exclusive right to provide aeronautical services to the public as prohibited by 49 USC 40103(e), as amended, and Landlord reserves the right to grant to others the privilege and right of conducting any one or all activities of an aeronautical nature;


(B)	Tenant agrees to comply with the notification and requirements covered in Part 77 of the Federal Aviation Regulations (to the extent applicable to Tenant and to the extent Landlord notifies Tenant of such applicability) in the event

any future structure or building is planned for the Premises, or in the event of any planned modification or alteration of any present or future building or structure situated on the Premises;

(C)

Landlord reserves for the use and benefit of the public, a right of flight for the passage of aircraft in the airspace above the surface of the Premises. This public right of flight will include the right to cause in said airspace any noise inherent in the operation of any aircraft used for navigation or flight through the said airspace or landing at, taking off from, or operation on the Air Park; and


(D)	Tenant agrees that it will not make use of the Premises in any manner which might interfere with the landing and taking off of aircraft from the Air Park or otherwise constitute a hazard. In the event the aforesaid covenant is breached, Landlord reserves the right to enter upon the Premises and cause the abatement of such interference at the expense of Tenant.

In the event that Landlord is advised that the owners and tenants of the Air Park will be subjected to government-mandated requirements (“Funding Requirements”) regarding the use and operation of the Air Park as a result of governmental grants, loans and/or other funds obtained by Landlord in connection with its operations, development and/or improvement of the Air Park (the “Government Funding”), Landlord shall provide to Tenant copies of the pertinent Government Funding agreements that give rise to the pertinent Funding Requirements and, thereupon, Tenant shall comply with the following provisions if, and to the extent included in such Funding Requirements and disclosed to Tenant, and such other Funding Requirements, if any, as may be agreed upon by Landlord and Tenant:


(1)	In the event facilities are constructed, maintained, or otherwise operated on the Premises, Tenant will maintain and operate such facilities and services in compliance with all requirements imposed pursuant to 49 CFR Part 21, Nondiscrimination in Federally Assisted Programs of the Department of Transportation, and as said Regulations may be amended;

(2)


(3)	Tenant agrees to furnish service on a fair, equal and not unjustly discriminatory basis to all users thereof, and to charge fair, reasonable and not unjustly discriminatory prices for each unit or service; provided, that

Tenant may be allowed to make reasonable and nondiscriminatory discounts, rebates or other similar types of price reductions to volume purchasers;

(4)


(5)	Tenant agrees that it will insert the above four provisions in any lease, sublease or other such document by which Tenant grants a right or privilege to any person, firm or corporation to render accommodations and/or services to the public on the Premises.

24.14 . Survival . The provisions of this Lease Agreement shall survive the expiration or earlier termination of this Lease Agreement for so long as either party bears any liability or responsibility hereunder and until such time as Landlord or Tenant, as the case may be, shall have realized upon all of their respective rights or exercised all of their respective remedies hereunder.

24.15 . Terms Relevant to Ohio Development Services Agency Financing . During the Loan Term, the terms and conditions of Exhibit E attached hereto and fully incorporated herein shall be in effect, notwithstanding anything herein to the contrary. In the event of any inconsistency between the terms of Exhibit E and the terms of this Agreement, the terms of Exhibit E shall be controlling unless otherwise specifically set forth herein. The terms and conditions of Exhibit E shall automatically terminate and be of no further force or effect upon the expiration of the Loan Term.

24.16 . Patriot Act . Tenant certifies to Landlord that: (i) it is not acting, directly or indirectly, for or on behalf of any person, group, entity or nation named by any Executive Order or the United States Treasury Department as a terrorist, “Specifically Designated National and Blocked Person,” or other banned or blocked person, entity, nation, or transaction pursuant to any law, order, rule or regulation that is enforced or administered by the Office of Foreign Assets Control; and (ii) it is not engaged in this transaction, directly or indirectly, on behalf of any such person, group, entity, or nation.

24.17 . Administrative and Professional Fees . Landlord and Tenant agree that Landlord shall be entitled to be reimbursed in an amount of up to $100,000 out of the proceeds of the State Loan and the LDI Loan for administrative and professional fees incurred by Landlord in connection with the Project, the Adjacent Hangar Demolition and the Related Area Improvements and/or obtaining and documenting the State Assistance, the State Loan and the LDI Loan. On or

before the Effective Date, Tenant, in its capacity as Construction Agent and with the cooperation of Landlord, shall prepare and submit a Disbursement Request Form pursuant to the terms of Exhibit E with respect to such amount of such fees as Landlord may direct. Landlord and Tenant shall act in good faith to take such further steps as may be in the control of such party to obtain the Director’s approval of the disbursement request.

IN WITNESS WHEREOF, this Lease Agreement was executed on behalf of Landlord and Tenant by the duly authorized officials or officers thereof, to be effective as of the date first above written.



LANDLORD : CLINTON COUNTY PORT AUTHORITY By: /s/ Kevin J. Carver . Name: Kevin J. Carver . Title: Executive Director .	TENANT : AIR TRANSPORT INTERNATIONAL LIMITED LIABILITY COMPANY By: /s/ W. Joseph Payne . . Name: W. Joseph Payne . Title: Manager .

STATE OF OHIO

COUNTY OF CLINTON, SS:

The foregoing instrument was acknowledged before me this 21 day of December , 2012, by Kevin J. Carver, the Executive Director of the Clinton County Port Authority, a body corporate and politic and a port authority duly organized and validly existing under the State of Ohio, on behalf of said port authority.

/s/ C. Kimbra Rader Notary Public

STATE OF OHIO

COUNTY OF CLINTON, SS:

The foregoing instrument was acknowledged before me this 19th day of December , 2012, by W. Joseph Payne, Manager of Air Transport International Limited Liability Company, a Nevada limited liability company, on behalf of said limited liability company.

/s/ Trisha L. Richards

Notary Public

841464

FISCAL OFFICER’S CERTIFICATE

Dated: December 27, 2012

/s/ Brian C. Smith .
Fiscal Officer

Clinton County Port Authority

EXHIBIT A

The Air Park

TRACT 1:

SITUATE IN THE CITY OF WILMINGTON, CLINTON COUNTY, OHIO, VIRGINIA MILITARY SURVEY NUMBERS 625, 1162, 1170, 2027, 2690 AND NUMBER 2694 AND BEING PART OF THE LANDS AS CONVEYED BY DEED TO WILMINGTON AIR PARK, INC. AS RECORDED IN (SEE TABLE I) THE CLINTON COUNTY DEED RECORDS AND CLINTON COUNTY OFFICIAL RECORDS AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING FOR REFERENCE AT A CONCRETE MONUMENT FOUND IN THE LINE OF VMS NUMBER 1162 AND NUMBER 1170, BEING THE NORTHWESTERLY CORNER OF WILMINGTON AIR, INC.'S 74.578 ACRE TRACT (DEED NO. 24, TABLE I) AND CORNER TO THE GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT'S REMAINING PART 92.076 ACRE TRACT (DEED BOOK 239, PAGE 482), AND ALSO BEING IN THE NORTHWESTERLY RIGHT OF WAY OF AIRPORT ROAD; THENCE WITH A LINE OF SAID REMAINING PART 92.076 ACRE TRACT, SAID 74.578 ACRE TRACT AND SAID MILITARY SURVEY LINE S 41°17'49" E 53.28' TO A RAILROAD SPIKE FOUND IN THE CENTERLINE OF AIRPORT ROAD AND BEING THE TRUE POINT OF BEGINNING FOR THIS TRACT HEREIN DESCRIBED; THENCE WITH THE PROLONGATION OF SAID PREVIOUS LINE S 41°17'49" E 39.79' TO AN IRON PIN SET IN THE SOUTHEASTERLY RIGHT OF WAY OF AIRPORT ROAD; THENCE WITH THE SOUTHEASTERLY RIGHT OF WAY OF AIRPORT ROAD S 51°30'20" W 189.75' TO A CONCRETE MONUMENT FOUND AT THE INTERSECTION WITH THE NORTHWESTERLY RIGHT OF WAY OF AIRBORNE ROAD; THENCE WITH SAID RIGHT OF WAY OF AIRBORNE ROAD S 37°48'06" W 635.35' TO A CONCRETE MONUMENT FOUND AT THE CORNER OF THE RIGHT OF WAY OF WEIL WAY; THENCE WITH THE RIGHT OF WAY OF WEIL WAY N 52°08'40" W 154.89' TO A CONCRETE MONUMENT FOUND IN THE SOUTHEASTERLY RIGHT OF WAY OF AIRPORT ROAD; THENCE WITH SAID RIGHT OF WAY OF AIRPORT ROAD S 51°30'20" W 102.90' TO A CONCRETE MONUMENT FOUND; THENCE CONTINUING WITH RIGHT OF WAY OF WEIL WAY S 52°08'40" E 179.27' TO CONCRETE MONUMENT FOUND IN THE RIGHT OF WAY OF AIRBORNE ROAD; THENCE WITH SAID RIGHT OF WAY OF AIRBORNE ROAD S 37°48'06" W 630.25' TO AN IRON PIN SET AT THE CORNER OF THE RIGHT OF WAY OF RUANE DRIVE; THENCE WITH RIGHT OF WAY OF RUANE DRIVE N 52°09'47" W 332.94' TO A CONCRETE MONUMENT FOUND IN THE RIGHT OF WAY OF AIRPORT ROAD; THENCE WITH THE RIGHT OF WAY OF AIRPORT ROAD S 51°30'20" W 102.92' TO A RAILROAD SPIKE FOUND AT THE CORNER OF THE RIGHT OF WAY OF RUANE DRIVE; THENCE WITH SAID RIGHT OF WAY S 52°09' 47" E 357.33' TO A CONCRETE MONUMENT FOUND IN THE RIGHT OF WAY OF AIRBORNE ROAD; THENCE WITH SAID RIGHT OF WAY OF AIRBORNE ROAD S 37°48'06" W 1382.49' TO A CONCRETE MONUMENT FOUND AT THE CORNER OF EWE WAREHOUSE INVESTMENTS V, LTD'S 7.243 ACRE TRACT (OFFICIAL RECORD 312, PAGE 140); THENCE WITH THE LINE OF SAID 7.243 ACRE TRACT N 52°10'13" W 372.54' TO AN IRON PIN SET; THENCE CONTINUING WITH LINE OF SAID 7.243 ACRE TRACT S 37°46'04" W 775.93' TO A 5/8" IRON PIN FOUND IN THE LINE OF SAID EWE WAREHOUSE INVESTMENTS V, LTD'S

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6.518 ACRE TRACT (OFFICIAL RECORD 312, PAGE 131); THENCE WITH THE LINE OF SAID 6.518 ACRE TRACT N 48°25'41" W 542.03' TO A RAILROAD SPIKE FOUND IN AIRPORT ROAD; THENCE CONTINUING WITH THE LINE OF SAID 6.518 ACRE TRACT S 46°51'16" W 384.78' TO A RAILROAD SPIKE FOUND IN THE CENTERLINE OF OLD STATE ROUTE 73 AND CORNER TO AIRLINE PROFESSIONAL ASSOCIATION TEAMSTER LOCAL 1224 1.000 ACRE TRACT (OFFICIAL RECORD 328, PAGE 711); THENCE WITH THE LINE OF SAID 1.000 ACRE TRACT S 47°56'48" W 19.22' TO A 5/8" IRON PIN FOUND, A CORNER TO GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT'S REMAINING PART 262.282 ACRE TRACT (OFFICIAL RECORD 239, PAGE 482); THENCE WITH SAID SCHOOL DISTRICT'S LINES ON THE FOLLOWING COURSES: N 48°25'35" W 554.05' TO AN IRON PIN SET; THENCE S 38°12'31" W 502.96' TO A 1/2" IRON PIN FOUND; THENCE S 47°59'29" W 295.07' TO A 1/2" IRON PIN FOUND; THENCE N 42°02'27" W 339.91 TO AN IRON PIN SET; THENCE S 48°18'06" W 118.31' TO A 1/2" IRON PIN FOUND; THENCE N 42°25'19" W 261.00', A PK NAIL FOUND IN CONCRETE BEARS S 25°47'38" E 0.11'; THENCE S 48°18'06" W 750.00' TO A 1/2" IRON PIN FOUND; THENCE S 41°41'28" E 399.97' TO A 1/2" IRON PIN FOUND; THENCE N 48°19'32" E 206.62' TO A 1/2" IRON PIN FOUND BENT; THENCE S 41°38'10" E 689.93' TO AN IRON PIN SET; THENCE N 47°31'40" E 275.00' TO AN IRON PIN SET; THENCE S 41°38'01" E 628.96' TO AN IRON PIN SET AT THE CORNER OF AVIATION FUEL, INC.'S 6.092 ACRE TRACT (DEED BOOK 285, PAGE 339); THENCE WITH THE NORTHWESTERLY LINE OF SAID 6.092 ACRE TRACT S 48°21'17" W 762.89' TO AN IRON PIN SET; THENCE CONTINUING WITH THE LINE OF SAID 6.092 ACRE TRACT S 41°39'36" E (PASSING AN IRON PIN SET AT 345.53') 347.53'; THENCE CONTINUING WITH THE SOUTHEASTERLY LINE OF SAID 6.092 ACRE TRACT N 48°19'41" E 764.87' TO AN IRON PIN SET IN THE LINE OF SAID SCHOOL DISTRICT'S REMAINING PART 262.282 ACRE TRACT; THENCE WITH THE LINE OF SAID SCHOOL DISTRICT'S LAND S 41°59'12" E 223.37' TO A CONCRETE MONUMENT FOUND AT A CORNER TO THE AIRBORNE ROAD RIGHT OF WAY; THENCE WITH SAID RIGHT OF WAY OF AIRBORNE ROAD ON THE FOLLOWING COURSES: S 37°48'06" W 2918.18' TO A CONCRETE MONUMENT MARKING THE BEGINNING OF A CURVE TO THE RIGHT HAVING A RADIUS OF 1150.00'; THENCE WITH SAID CURVE MEASURED ALONG THE ARC A DISTANCE OF 903.21' FROM WHICH THE LONG CHORD BEARS S 60°18'06" W 880.17' TO A CONCRETE MONUMENT FOUND; THENCE S 82°48'06" W 2331.02' TO A CONCRETE MONUMENT FOUND MARKING A CURVE TO THE LEFT HAVING A RADIUS OF 1250.00'; THENCE WITH SAID CURVE MEASURED ALONG THE ARC A DISTANCE OF 730.74' FROM WHICH ALONG CHORD BEARS S 66°03'16" W 720.38' TO A CONCRETE MONUMENT FOUND; THENCE S 49°18'25" W 911.14' TO A CONCRETE MONUMENT FOUND MARKING THE BEGINNING OF A CURVE TO THE RIGHT HAVING A RADIUS OF 1150.00'; THENCE WITH SAID CURVE MEASURED ALONG THE ARC A DISTANCE OF 385.70' FROM WHICH A LONG CHORD BEARS S 58°54'55" W 383.89' TO A, CONCRETE MONUMENT FOUND; THENCE S 68°31'24" W 2263.22' TO A CONCRETE MONUMENT FOUND; THENCE N 65°31'24" W 48.63' TO A CONCRETE MONUMENT FOUND IN THE RIGHT OF WAY OF STATE ROUTE 134; THENCE WITH SAID RIGHT OF WAY S 19°31'15" E 133.17' TO A CONCRETE MONUMENT FOUND IN THE LINE OF THE CITY OF WILMINGTON'S 25.52 ACRE TRACT (DEED BOOK 196, PAGE 45); THENCE WITH THE CITY'S LINE S 68°31'24" W 30.03' TO A PK NAIL FOUND IN THE CENTERLINE OF SAID STATE ROUTE 134; THENCE WITH SAID CENTERLINE

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N 19°31'57" W 2517.43' TO A RAILROAD SPIKE FOUND; THENCE N 71°42'34" E AND BECOMING THE SOUTHEASTERLY RIGHT OF WAY OF DAVIDS DRIVE (PASSING AN IRON PIN SET AT 30.00') 184.98' TO AN IRON PIN SET, A CORNER TO THE COMMUNITY IMPROVEMENT CORPORATION'S (ALSO REFERRED TO AS CIC) REMAINING PART 84.791 ACRE TRACT (OFFICIAL RECORD 66, PAGE 559); THENCE WITH THE LINE OF SAID 84.791 ACRE TRACT ON THE FOLLOWING COURSES: S 25°31'18" E 83.08' TO AN IRON PIN SET; THENCE S 71°17'58" E 144.92' TO AN IRON PIN SET; THENCE S 14°02'40" E 129.25' TO AN IRON PIN SET; THENCE N 86°08'22" E 343.76' TO AN IRON PIN SET THENCE S 41°22'12" E 1033.98' TO AN IRON PIN SET; THENCE N 46°19'30" E 230.15' TO AN IRON PIN SET; THENCE N 37°47'40" E 600.49' TO AN IRON PIN SET; THENCE N 52°10'47" W 50.00' TO AN IRON PIN SET AT THE SOUTHEASTERLY CORNER OF THE BOARD OF COUNTY COMMISSIONERS' 14.500 ACRE TRACT (OFFICIAL RECORD 302, PAGE 717); THENCE WITH THE LINE OF SAID 14.500 ACRE TRACT AND BECOMING THE LINE OF SAID COMMISSIONERS' 5.000 ACRE TRACT, CIC'S REMAINING PART 187.99 ACRE TRACT (DEED BOOK 281, PAGE 698), AND NAVIGATOR GROUP OF OCALA, INC.'S 30.000 ACRE TRACT (OFFICIAL RECORD 342, PAGE 564) N 37°47'40" E 4501.42' TO AN IRON PIN SET IN THE LINE OF R.L.R. INVESTMENTS, L.L.C.'S 17.393 ACRE TRACT (OFFICIAL RECORD 331, PAGE 121); THENCE WITH THE LINE OF SAID 17.393 ACRE TRACT S 52°12'20" E 44.50' TO A 1/2" IRON PIN FOUND; THENCE CONTINUING WITH THE LINE OF SAID 17.393 ACRE TRACT AND BECOMING THE LINE OF R.L.R. INVESTMENTS, L.L.C.'S 15.854 ACRE TRACT (OFFICIAL RECORD 311, PAGE 337), DAVID H. STEWART'S 5.969 ACRE TRACT (OFFICIAL RECORD 249, PAGE 661), SANDRA K. WHITLEY'S 5.900 ACRE TRACT (OFFICIAL RECORD 277, PAGE 32) AND JOHN M. STANFORTH'S 10.240 ACRE TRACT (OFFICIAL RECORD 339, PAGE 134) N 37°47'38" E 4220.18' TO A 5/8" IRON PIN FOUND; THENCE CONTINUING WITH STANFORTH'S LINE N 48°28'45" W 344.86' TO A 5/8" IRON PIN FOUND IN THE LINE OF THE CLINTON COUNTY ANIMAL PROTECTIVE ASSOCIATION FOR THE PREVENTION OF CRUELTY TO ANIMALS 1.322 ACRE TRACT (DEED BOOK 268, PAGE 139); THENCE WITH THE LINE OF SAID 1.322 ACRE TRACT AND BECOMING THE LINE OF WILMINGTON COLLEGE'S 60.45 ACRE TRACT (OFFICIAL RECORD 231, PAGE 735), THE NATIONAL BANK AND TRUST CO.'S 205.51 ACRE TRACT (OFFICIAL RECORD 180, PAGE 818), AND THE LINE OF B. ANTHONY WILLIAMS TRUST'S REMAINING PART 536.23 ACRE TRACT (OFFICIAL RECORD 349, PAGE 119) N 37°48'39" E 4357.17' TO A 1" IRON PIN FOUND; THENCE WITH THE WILLIAMS TRUST'S LANDS ON THE FOLLOWING COURSES: S 52°13'32" E 309.65' TO A 1/2" IRON PIN FOUND; THENCE N 29°16'39" E 908.59', A 5/8" IRON PIN FOUND BEARS S 6°19'35" E 0.16'; THENCE S 52°11'31" E 524.99' TO A 5/8" IRON PIN FOUND; THENCE N 37°48'29" E 900.00' TO A 5/8" IRON PIN FOUND; THENCE S 52°11'31" E 400.00', A 5/8" IRON PIN, FOUND BEARS S 31°27'27" E 0.16'; THENCE S 37°48' 29" W 900.00' TO A 1/2" IRON PIN FOUND; THENCE S 52°11'31" E 524.99' TO A 5/8" IRON PIN FOUND AT A CORNER TO ABX AIR, INC.'S REMAINING PART 113.525 ACRE TRACT (OFFICIAL RECORD 88, PAGE 438); THENCE WITH THE LINE OF SAID 113.525 AND BECOMING THE LINE OF WILMINGTON COMMERCE PARK PARTNERSHIP'S 6.130 ACRE TRACT (OFFICIAL RECORD 350, PAGE 505) AND THE LINE OF PREVIOUS SAID GREAT OAKS JOINT VOCATIONAL SCHOOL DISTRICT'S REMAINING PART 92.076 ACRE TRACT S 46°19'54" W 1373.16' TO A 1/2" IRON PIN FOUND; THENCE WITH SAID SCHOOL

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DISTRICT'S LINE S 52°11'49" E 938.65' TO AN IRON PIN SET AT THE CORNER OF AVIATION FUEL, INC.'S 4.586 ACRE TRACT (DEED BOOK 285, PAGE 337), AN IRON PIN SET BEARS S 69°20'39" W 0.36'; THENCE WITH THE LINES OF SAID 4.586 ACRE TRACT ON THE FOLLOWING COURSES: S 40°42'14" W 400.42' TO A 5/8" IRON PIN FOUND; THENCE N 52°08'36" W 118.01' TO A MAG NAIL SET; THENCE S 37°49'33" W 27.76' TO A DRILL HOLE FOUND IN CONCRETE; THENCE S 52°16'50" E (PASSING A NAIL FOUND AT 50.00') 587.82' TO A 5/8" IRON PIN FOUND; THENCE N 37°47'15" E 426.46' TO A 1/2" IRON PIN FOUND IN THE LINE OF SAID SCHOOL DISTRICT'S LANDS; THENCE WITH THE LINE OF SAID SCHOOL DISTRICT'S REMAINING PART 92.076 ACRE TRACT S 52°14'24" E 317.64' TO A 1/2" IRON PIN FOUND; THENCE CONTINUING WITH SAID SCHOOL DISTRICT'S LINE S 37°55'13" W 565.93' TO A 1" IRON PIN FOUND; THENCE STILL WITH THE LINE OF SAID SCHOOL DISTRICT'S LAND S 52°12'33" E 451.34' TO A 1/2" IRON PIN FOUND AT THE CORNER OF THE CITY OF WILMINGTON'S 0.84 ACRE TRACT (OFFICIAL

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WITH THE LINES OF SAID 52.038 ACRE TRACT, ON THE FOLLOWING COURSES: (1) N. 41° 59' 35" W., 570.29 FEET TO A PIPE; (2) N. 41° 38' 23" W., 75.00 FEET TO A POINT; THENCE, ON THE FOLLOWING COURSES: (1) N. 48° 21' 37" E., 30.00 FEET TO A POINT; (2) S. 41° 38' 23" E., 74.91 FEET TO A POINT; (3) S. 41° 59' 35" E., 564.79 FEET TO A POINT; THENCE, WITH A LINE OF SAID 52.038 ACRE TRACT, S. 37° 47' 49" W., 30.48 FEET TO THE POINT OF BEGINNING.

NOTE: THE ABOVE DESCRIBED TRACT 1 SAVES AND EXCEPTS A 5.001 ACRE TRACT AS CONVEYED BY DEED TO AVIATION FUEL AS RECORDED IN CLINTON COUNTY OFFICIAL RECORD 212, PAGE 848 AND DESCRIBED AS FOLLOWS: SITUATE IN THE CITY OF WILMINGTON, CLINTON COUNTY, OHIO, AND BEING A PART OF MS NO. 1162 AND BOUNDED AND DESCRIBED AS FOLLOWS: COMMENCING AT A 3/4" IRON PIPE (FOUND) AT THE NORTHERLY CORNER OF A 6.092 ACRE TRACT AS CONVEYED TO AVIATION FUEL, INC. IN VOLUME 285, PAGE 339 OF THE CLINTON COUNTY, OHIO, DEED RECORDS, SAID PIPE BEING AT A CORNER OF A 195.568 ACRE TRACT AS RECORDED IN VOLUME 24, PAGE NO. 12 OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION AND AT A CORNER OF A 52.038 ACRE TRACT AS RECORDED IN VOLUME 24, PLAT NO. 254 OF SAID RECORD OF LAND DIVISION; THENCE, WITH A LINE OF SAID 195.568 ACRE TRACT AND SAID 52.038 ACRE TRACT, N 41°38'23" W 75.00 FEET TO A POINT; THENCE, S 48°08'00" W 542.30 FEET TO A 1/2" IRON PIN (SET) AT THE POINT OF BEGINNING FOR THE HEREIN DESCRIBED TRACT: RUNNING THENCE, FROM SAID POINT OF BEGINNING, BY NEW DIVISION LINES, ON THE FOLLOWING COURSES: (1) S 48°37'45" W 561.48 FEET TO A 1/2" IRON PIN (SET); (2) N 41°22'15" W 388.00 FEET TO A 1/2" IRON PIN (SET); (3) N 48°37'45" E 561.48 FEET TO A 1/2" IRON PIN (SET); (4) S 41°22'15" E 388.00 FEET TO THE POINT OF BEGINNING, CONTAINING FIVE AND ONE THOUSANDTH (5.001) ACRES.

THE ABOVE DESCRIBED CONTAINS 43.743 ACRES IN VMS NUMBER 625, 412.687 ACRES IN VMS NUMBER 1162, 35.261 ACRES IN VMS 1170, 542.797 ACRES IN VMS NUMBER 2027, AND 69.871 ACRES IN VMS NUMBER 2690 AND 1.20 ACRES IN VMS 2694.

NOTE: THE ABOVE DESCRIBED TRACT 1 SAVES AND EXCEPTS A 0.843 ACRE TRACT FURTHER DESCRIBED AS FOLLOWS:

SITUATED IN UNION TOWNSHIP, CLINTON COUNTY, OHIO, AND BEING A PART OF MILITARY SURVEY NO. 1162 AND BOUNDED AND DESCRIBED AS FOLLOWS:

BEGINNING AT A ½" IRON PIN (FOUND) AT THE SOUTHERLY CORNER OF THE 8.370 ACRE TRACT AS RECORDED IN VOLUME 20, PLAT NO. 197, OF THE CLINTON COUNTY ENGINEERS RECORD OF LAND DIVISION:

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NOTE: THE ABOVE DESCRIBED TRACT 1 SAVES AND EXCEPTS A 47.225 ACRE TRACT FURTHER DESCRIBED AS FOLLOWS:

Situated in the State of Ohio, County of Clinton, Township of Union, City of Wilmington, lying in Virginia Military Surveys 625, 2694 and 2027, and being part of that 1100.621 acre tract conveyed as Tract 1 to Wilmington Air Park LLC by deed of record in Official Record 516, Page 610 (all references are to the records of the Recorder's Office, Clinton County, Ohio) and being more particularly described as follows:

BEGINNING at a railroad spike found at the intersection of the southerly right-of-way line of Airborne Road as dedicated in the "Dedication Plat Airborne Road & Extensions of Ruane Drive and Weil Way" of record in Plat Book 7, Pages 50A-51B (width varies) and the easterly right-of-way line of State Route 134 (60 feet wide), being a southeasterly corner of said 1100.621 acre tract and being in a northerly line of that 25.52 acre tract as conveyed to the City of Wilmington of record in Deed Book 196, Page 45;

Thence North 19° 11' 59" West, with the centerline of said State Route 134 and with the easterly line of said 102.36 acre tract and with the easterly line of that 94.658 acre tract conveyed to Homer Wendell Harding, Trustee of record in Official Record 507, Page 897 and also conveyed to Ruth Alice Harding, Trustee of record in Official Record 507, Page 906, a distance of 2517.39 feet (passing a railroad spike found at the centerline intersection of said State Route 134 and said Airborne Road at 48.29 feet) to a magnetic nail found at a north westerly corner of said 1100.621 acre tract, and on the westerly projection of the southerly right-of-way of Davids Drive as dedicated in the "Dedication Plat Davids Drive" of record in Plat Book 7 Page 70C;

Thence North 72° 01' 51" East, with the southerly projection and southerly right-of-way line of Davids Drive (100 feet wide), a distance of 184.96 feet (passing a 5/8 inch rebar found capped "Clinco" at 29.99 feet), to a 5/8 inch rebar found capped "Clinco" at a northwesterly corner of the original 84.791 acre tract conveyed to Community Improvement Corporation of Wilmington of record in Official Record 66, Page 559;

Thence with the perimeter of said original 84.791 acre tract, the following courses and distances:

South 25° 12' 30" East, a distance of 83.04 feet to a 5/8 inch rebar found capped "Clinco";

South 70° 58' 01" East, a distance of 144.91 feet to a 5/8 inch rebar found capped "Clinco";

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South 13° 43' 22" East, a distance of 129.25 feet to a 5/8 inch rebar found capped "Clinco";

North 86° 28' 00" East, a distance of 343.77 feet to a 5/8 inch rebar found capped "Clinco";

South 41° 01' 45" East, a distance of 1025.53 feet to an iron pin set;

Thence across said 1100.621 acre tract, the following courses and distances:

South 46° 37' 19" West, a distance of 109.25 feet to an iron pin set;

South 41° 19' 48" East, a distance of 1058.33 feet to an iron pin set on the northerly right-of-way line of said Airborne Road;

Thence with the northerly right-of-way line of said Airborne Road, the following courses and distances:

South 68° 51' 21" West, a distance of 1242.20 feet to a 1/2 inch rebar found in concrete;

Thence South 19° 11' 59" East, with the westerly terminus of the "Dedication Plat Airborne Road & Extensions of Ruane Drive and Weil Way", a distance of 133.19 feet to the POINT OF BEGINNING and containing 47.225 acres of land , more or less of which 1.733 acres is located in the right-of-way of State Route 134, approximately 1.244 acres is located in Virginia Military Survey 2694, approximately 43.583 acres is located in Virginia Military Survey 625 and approximately 2.398 acres is located in Virginia Military Survey 2027, 45.492 acres are located in the City of Wilmington and 1.733 acres are located in Union Township.

Iron pins set, where indicated, are iron pipes, thirteen sixteenths (13/16) inch inside diameter, thirty (30) inches long with a plastic plug placed in the top bearing the initials EMHT INC.

This description is based on existing records and an actual field survey performed in November 2009.

TRACT 2:

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Situated in the State of Ohio, County of Clinton, Township of Union, lying in Virginia Military Surveys 1162, 1170 and 2027, and being part of that original 784.989 acre tract conveyed as Tract 2 to Wilmington Air Park LLC by deed of record in Official Record 516, Page 610 (all references are to the records of the Recorder's Office, Clinton County, Ohio) and being more particularly described as follows:

Thence North 51° 58' 29" East, partially with the northerly right-of-way line of said Airport Road, with the southerly line of said original 92.076 acre tract, with the southerly line of the original 50.00 acre tract conveyed to The Board of Education of Great Oaks Institute of Technology and Career Development of record in Official Record 145, Page 647, with the southerly line of that 0.387 acre tract conveyed as Parcel 26 WDV to the City of Wilmington of record in Official Record 701, Page 1 and with the southerly line of the original 7.707 acre tract conveyed to Wilmington Air Park LLC of record in Official Record 515, Page 662 a distance of 1875.30 feet, (passing a magnetic nail found at 459.51 feet) to a magnetic nail set in the centerline of State Route 73 (width varies) [Ohio Department of Transportation Plan CLI-73 (11.81-13.42)] at the northerly corner of said original 784.989 acre tract and on the westerly line of that 2.013 acre tract conveyed as Parcel 22E to the State of Ohio by deed of record in Official Record 666, Page 558;

Thence with a curve to the right having a central angle of 16° 36' 48", a radius of 3819.72 feet, an arc length of 1107.55 feet, and a chord that bears South 29° 16' 12" East, a chord distance of 1103.67 feet, along the centerline of said State Route 73, with the westerly line of said Parcel 22E and with the westerly line of that 6.036 acre tract conveyed as Parcel 22WL to the State of Ohio by deed of record in Official Record 666, Page 558, (passing the centerline of Airborne Road [Ohio Department of Transportation Plan CLI-73 (12.03)] at an arc length of 51.55 feet, referenced by a 1 inch solid iron pipe found in a monument box, being South 47° 02' 59" West a distance of 0.58 feet) to a magnetic nail set;

Thence across said original 784.989 acre tract, the following courses and distances:

South 25° 35' 02" West, a distance of 1303.28 feet to an iron pin set;

South 47° 07' 29" West, a distance of 702.68 feet to an iron pin set;

South 47° 07' 28" West, a distance of 1181.16 feet to an iron pin set;

South 26° 41' 52" West, a distance of 348.20 feet to an iron pin set;

South 15° 22' 12" West, a distance of 544.70 feet to an iron pin set;

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South 31° 41' 51" West, a distance of 711.99 feet to an iron pin set;

South 37° 27' 01" West, a distance of 614.23 feet to an iron pin set;

South 39° 29' 40" West, a distance of 257.45 feet to a magnetic nail set;

Thence South 47° 10' 33" West, with the northerly line of said 72.25 acre tract, a distance of 2580.78 feet to a 5/8 inch rebar found capped "Clinco" found at the northwesterly corner of said 72.25 acre tract in the easterly line of Virginia Military Survey Number 2027 and in the westerly line of Virginia Military Survey Number 1162;

Thence across said original 784.989 acre tract, the following courses and distances:

South 38° 10' 31" West, a distance of 1484.61 feet to an iron pin set;

South 40° 53' 07" East, a distance of 648.98 feet to an iron pin set;

South 46° 47' 14" West, a distance of 232.26 feet to an iron pin set;

Thence South 50° 29' 14" West, partially with the centerline of said Jenkins Road, the northerly line of Virginia Military Survey Number 2386, the southerly line of Virginia Military Survey Number 2027 and with the northerly line of said 150 acre tract, a distance of 3009.80 feet (passing a 1/2 inch rebar capped "Clinco" found at 2969.90 feet) to a 5/8 inch rebar capped "Clinco"

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found at the southeasterly corner of that 107.305 acre tract conveyed to Suburban Investments Co. by deed of record in Official Record 191, Page 337;

Thence North 41° 09' 10" West, with the easterly line of said 107.305 acre tract, a distance of 674.51 feet to an iron pin set;

Thence across said Original 784.989 acre tract, the following courses and distances:

North 38° 07' 29" East, a distance of 1243.38 feet to an iron pin set;

North 41° 34' 04" West, a distance of 578.26 feet to an iron pin set;

North 38° 36' 07" East, a distance of 2458.81 feet to an iron pin set on the southerly right-of-way line of Airborne Road (width varies) as dedicated in the "Dedication Plat Airborne Road & Extensions of Ruane Drive and Weil Way" of record in Plat Book 7, Pages 50A-51B;