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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________________________________________________
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period June 30, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission file number 000-50368
________________________________________________________________
Air Transport Services Group, Inc.
(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 Exchange Act:
Title of each class    Trading Symbol Name of each exchange on which registered
Common Stock, par value $0.01 per share    ATSG NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
  ☒
Accelerated filer ☐ Smaller reporting company ☐
Non-accelerated filer ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No  ☒
As of August 7, 2020, there were 59,589,770 shares of the registrant’s common stock outstanding.



AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
       Page
PART I. FINANCIAL INFORMATION
Item 1.   
4
  
4
  
5
  
6
  
7
  
9
10
Item 2.
31
Item 3.
44
Item 4.
44
PART II. OTHER INFORMATION
Item 1.
45
Item 1A.   
45
Item 2.   
46
Item 5.   
46
Item 6.   
47
48




FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
The financial information, including the financial statements, included in the Quarterly Report on Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 2, 2020.
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. Additionally, 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.

FORWARD LOOKING STATEMENTS
Statements contained in this Quarterly report on Form 10-Q 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 “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms 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 this report and in our 2019 Annual Report filed on Form 10-K with the Securities and Exchange Commission.






PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
  June 30, December 31,
  2020 2019
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and restricted cash $ 60,253    $ 46,201   
Accounts receivable, net of allowance of $1,515 in 2020 and $975 in 2019 166,547    162,870   
Inventory 40,131    37,397   
Prepaid supplies and other 20,944    20,323   
TOTAL CURRENT ASSETS 287,875    266,791   
Property and equipment, net 1,876,578    1,766,020   
Customer incentive 136,924    146,678   
Goodwill and acquired intangibles 521,937    527,654   
Operating lease assets 55,356    44,302   
Other assets 58,462    68,733   
TOTAL ASSETS $ 2,937,132    $ 2,820,178   
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 156,674    $ 141,094   
Accrued salaries, wages and benefits 57,205    59,429   
Accrued expenses 17,901    17,586   
Current portion of debt obligations 13,769    14,707   
Current portion of lease obligations 14,902    12,857   
Unearned revenue and grants 42,569    17,566   
TOTAL CURRENT LIABILITIES 303,020    263,239   
Long term debt 1,505,570    1,469,677   
Stock warrant obligations 375,538    383,073   
Post-retirement obligations 30,058    36,744   
Long term lease obligations 40,082    30,334   
Other liabilities 50,482    49,293   
Deferred income taxes 135,849    127,476   
TOTAL LIABILITIES 2,440,599    2,359,836   
Commitments and contingencies (Note H)
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; 150,000,000 shares authorized; 59,589,770 and 59,329,431 shares issued and outstanding in 2020 and 2019, respectively 596    593   
Additional paid-in capital 477,829    475,720   
Retained earnings 78,474    45,895   
Accumulated other comprehensive loss (60,366)   (61,866)  
TOTAL STOCKHOLDERS’ EQUITY 496,533    460,342   
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,937,132    $ 2,820,178   
See notes to condensed consolidated financial statements.
4

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
  Three Months Ended Six Months Ended
June 30, June 30,
  2020 2019 2020 2019
REVENUES $ 377,794    $ 334,576    $ 767,071    $ 682,759   
OPERATING EXPENSES
Salaries, wages and benefits 119,503    97,850    245,034    197,191   
Depreciation and amortization 68,291    63,266    137,633    125,903   
Maintenance, materials and repairs 43,704    39,467    85,381    84,005   
Fuel 36,787    34,168    80,586    69,118   
Contracted ground and aviation services 13,546    14,531    27,895    30,129   
Travel 17,315    20,937    38,972    41,035   
Landing and ramp 2,772    2,391    5,517    5,439   
Rent 5,198    3,984    8,684    7,737   
Insurance 2,508    1,857    4,176    3,768   
Other operating expenses 15,738    18,643    30,954    34,051   
Government grants (9,821)   —    (9,821)   —   
Impairment of aircraft 39,075    —    39,075    —   
Transaction fees —    —    —    373   
354,616    297,094    694,086    598,749   
OPERATING INCOME 23,178    37,482    72,985    84,010   
OTHER INCOME (EXPENSE)
Interest income 12    81    124    177   
Non-service component of retiree benefit gains (costs) 2,898    (2,351)   5,796    (4,702)  
Net loss on financial instruments (109,723)   (35,886)   (2,679)   (31,386)  
Loss from non-consolidated affiliate (6,513)   (5,998)   (9,277)   (9,814)  
Interest expense (16,045)   (16,804)   (32,368)   (34,194)  
(129,371)   (60,958)   (38,404)   (79,919)  
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (106,193)   (23,476)   34,581    4,091   
INCOME TAX (EXPENSE) BENEFIT 1,031    (3,156)   (6,010)   (8,089)  
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (105,162)   (26,632)   28,571    (3,998)  
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES 236    31    4,008    62   
NET EARNINGS (LOSS) $ (104,926)   $ (26,601)   $ 32,579    $ (3,936)  
BASIC EARNINGS PER SHARE
Continuing operations $ (1.78)   $ (0.45)   $ 0.48    $ (0.07)  
Discontinued operations 0.01    —    0.07    —   
TOTAL BASIC EARNINGS (LOSS) PER SHARE $ (1.77)   $ (0.45)   $ 0.55    $ (0.07)  
DILUTED EARNINGS PER SHARE
Continuing operations $ (1.78)   $ (0.45)   $ 0.14    $ (0.07)  
Discontinued operations 0.01    —    0.05    —   
TOTAL DILUTED EARNINGS (LOSS) PER SHARE $ (1.77)   $ (0.45)   $ 0.19    $ (0.07)  
WEIGHTED AVERAGE SHARES
Basic 59,130    58,909    59,085    58,874   
Diluted 59,130    58,909    68,104    58,874   

See notes to condensed consolidated financial statements.
5

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
NET EARNINGS (LOSS) $ (104,926)   $ (26,601)   32,579    (3,936)  
OTHER COMPREHENSIVE INCOME (LOSS):
Defined Benefit Pension 726    3,273    1,452    6,224   
Defined Benefit Post-Retirement 24    36    48    69   
Foreign Currency Translation —    1,479    —    1,474   
TOTAL COMPREHENSIVE INCOME (LOSS), net of tax $ (104,176)   $ (21,813)   34,079    3,831   

See notes to condensed consolidated financial statements.

6

AIR TRANSPORT SERVICES GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
  Common Stock Additional
Paid-in
Capital 		Accumulated Earnings (Deficit) Accumulated
Other
Comprehensive
Income (Loss) 		Total
  Number Amount
BALANCE AT MARCH 31, 2019 59,351,326    $ 594    $ 471,245    $ 7,358    $ (88,383)   $ 390,814   
Stock-based compensation plans
Grant of restricted stock 18,600    —    —    —   
Issuance of common shares, net of withholdings (4,787)   —    (112)   (112)  
Forfeited restricted stock (1,300)   —    —    —   
Amortization of stock awards and restricted stock 1,920    1,920   
Total comprehensive income (loss) (26,601)   4,788    (21,813)  
BALANCE AT JUNE 30, 2019 59,363,839    $ 594    $ 473,053    $ (19,243)   $ (83,595)   $ 370,809   
BALANCE AT JANUARY 1, 2019 59,134,173    $ 591    $ 471,158    $ 56,051    $ (91,362)   $ 436,438   
Stock-based compensation plans
Grant of restricted stock 143,800    2    (2)   —   
Issuance of common shares, net of withholdings 87,166    1    (1,497)   (1,496)  
Forfeited restricted stock (1,300)   —    —    —   
Cumulative effect in change in accounting principle (71,358)   (71,358)  
Amortization of stock awards and restricted stock 3,394    3,394   
Total comprehensive income (3,936)   7,767    3,831   
BALANCE AT JUNE 30, 2019 59,363,839    594    473,053    (19,243)   (83,595)   370,809   

See notes to condensed consolidated financial statements.

7

AIR TRANSPORT SERVICES GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY, cont.
(In thousands, except share data)
  Common Stock Additional
Paid-in
Capital 		Accumulated Earnings Accumulated
Other
Comprehensive
Income (Loss) 		Total
  Number Amount
BALANCE AT MARCH 31, 2020 59,623,195    $ 596    $ 476,423    $ 183,400    $ (61,116)   $ 599,303   
Stock-based compensation plans
Grant of restricted stock 900    —    —    —   
Issuance of common shares, net of withholdings (33,825)   —    (724)   (724)  
Forfeited restricted stock (500)   —    —    —   
Amortization of stock awards and restricted stock 2,130    2,130   
Total comprehensive income (loss) (104,926)   750    (104,176)  
BALANCE AT JUNE 30, 2020 59,589,770    $ 596    $ 477,829    $ 78,474    $ (60,366)   $ 496,533   
BALANCE AT JANUARY 1, 2020 59,329,431    $ 593    $ 475,720    $ 45,895    $ (61,866)   $ 460,342   
Stock-based compensation plans
Grant of restricted stock 201,400    2    (2)   —   
Issuance of common shares, net of withholdings 59,439    1    (1,840)   (1,839)  
Forfeited restricted stock (500)   —    —    —   
Amortization of stock awards and restricted stock 3,951    3,951   
Total comprehensive income 32,579    1,500    34,079   
BALANCE AT JUNE 30, 2020 59,589,770    596    477,829    78,474    (60,366)   496,533   
See notes to condensed consolidated financial statements.
8

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
  2020 2019
OPERATING ACTIVITIES:
Net earnings from continuing operations $ 28,571    $ (3,998)  
Net earnings from discontinued operations 4,008    62   
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 153,088    139,516   
Pension and post-retirement 1,944    7,850   
Deferred income taxes 6,597    8,021   
Amortization of stock-based compensation 3,951    3,394   
Loss from non-consolidated affiliates 9,277    9,814   
Net loss on financial instruments 2,679    31,386   
Impairment of aircraft 39,075    —   
Changes in assets and liabilities:
Accounts receivable (3,677)   21,235   
Inventory and prepaid supplies (6,992)   (4,242)  
Accounts payable 9,628    (3,899)  
Unearned revenue and grants 26,631    896   
Accrued expenses, salaries, wages, benefits and other liabilities (12,104)   1,874   
Pension and post-retirement assets (10,049)   (4,747)  
Other (3,631)   2,281   
NET CASH PROVIDED BY OPERATING ACTIVITIES 248,996    209,443   
INVESTING ACTIVITIES:
Expenditures for property and equipment (265,882)   (216,769)  
Proceeds from property and equipment 9,080    78   
Acquisitions and investments in businesses, net of cash acquired (5,556)   (18,429)  
NET CASH USED IN INVESTING ACTIVITIES (262,358)   (235,120)  
FINANCING ACTIVITIES:
Principal payments on long term obligations (543,240)   (15,938)  
Proceeds from borrowings 80,000    40,000   
Proceeds from bond issuance 500,000    —   
Payments for financing costs (7,507)   (1,081)  
Other financing payments —    (346)  
Withholding taxes paid for conversion of employee stock awards (1,839)   (1,496)  
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,414    21,139   
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,052    (4,538)  
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 46,201    59,322   
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 60,253    $ 54,784   
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amount capitalized $ 16,779    $ 30,338   
Federal alternative minimum and state income taxes paid $ 650    $ 533   
SUPPLEMENTAL NON-CASH INFORMATION:
Accrued expenditures for property and equipment $ 44,171    $ 26,601   
See notes to condensed to consolidated financial statements.
9

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10

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

Nature of Operations
Air Transport Services Group, Inc. is a holding company whose subsidiaries lease aircraft, provide contracted airline operations, ground services, aircraft modification and maintenance services and other support services mainly to the air transportation, e-commerce and package delivery industries. The Company's subsidiaries offer a range of complementary services to delivery companies, freight forwarders, airlines and government customers.
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's airlines, ABX Air, Inc. (“ABX”), Air Transport International, Inc. (“ATI”) and Omni Air International, LLC ("OAI" ) 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 provides air transportation services to a concentrated base of customers. The Company provides a combination of aircraft, crews, maintenance and insurance services for a customer's transportation network through customer "CMI" and "ACMI" agreements and through charter contracts in which aircraft fuel is also included. In addition to its aircraft leasing and airline services, the Company sells aircraft parts, provides aircraft maintenance and modification services, equipment maintenance services and arranges load transfer and package sorting services for customers.
Basis of Presentation
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying unaudited condensed interim consolidated financial statements are prepared in conformity with GAAP and such principles are applied on a basis consistent with the financial statements reflected in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC related to interim financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal fluctuations, among other factors common to the air cargo industry, the results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire year or any interim period. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. The accounting estimates reflect the best judgment of management, but actual results could differ materially from those estimates.
The accompanying condensed consolidated financial statements include the accounts of Air Transport Services Group, Inc. and its wholly-owned subsidiaries. Inter-company balances and transactions are eliminated. Investments in affiliates in which the Company has significant influence but does not exercise control are accounted for using the equity method of accounting. Under the equity method, the Company’s share of the nonconsolidated affiliate's income or loss is recognized in the consolidated statement of earnings and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. Investments in affiliates in which the Company does not exercise control or have significant influence are reflected at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
On February 1, 2019, the Company acquired a group of companies under common control, referred to as TriFactor. TriFactor resells material handling equipment and provides engineering design solutions for warehousing, retail distribution and e-commerce operations. Revenues and operating expenses include the activities of TriFactor for periods since its acquisition by the Company. The excess purchase price over the estimated fair value of net assets acquired was recorded as goodwill. The acquisition of TriFactor did not have a significant impact on the Company's financial statements or results of operations.

11

COVID-19 Uncertainties
In late 2019, an outbreak of a coronavirus, COVID-19, was identified in China and has since spread globally, becoming a pandemic. The pandemic has had an impact on our operations and financial results. Beginning in late February 2020, revenues were disrupted when customers cancelled scheduled passenger flights and aircraft maintenance services and the Company began to incur additional costs, including expenses to protect employees. Additionally, disruptions to the Company's operations, such as shortages of personnel, shortages of parts, maintenance delays, shortages of transportation and hotel accommodations for flight crews, facility closures and other issues may be caused by the pandemic.
The extent of the impact that the coronavirus pandemic will have on future financial and operational results will depend on developments, including the duration, spread, severity and any recurrence of the COVID-19 virus; the duration and scope of government orders and restrictions; and the extent of the pandemic on overall economic conditions. These are highly uncertain. If the coronavirus pandemic persists or reemerges or expectations of operating cash flows decline significantly, the value of airframes, engines and certain intangible assets could decline significantly. If such circumstances occur or appear likely to occur, the Company may need to impair the carrying value of certain recorded assets.
Currently, the pandemic has not had a significant adverse financial impact on the Company's leasing operations or its airline operations for customers' freight networks. Management believes that the Company's current cash balances and forecasted cash flows provided from its customer leases and operating agreements, combined with its Senior Credit Agreement, will be sufficient to fund operations, capital spending and scheduled debt payments for at least the next 12 months.
Accounting Standards Updates
Effective January 1, 2019, the Company adopted the FASB's ASU No. 2016-02, “Leases (Topic 842)” which superseded previous lease guidance ASC 840, Leases. Topic 842 is a new lease model that requires a company to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The Company adopted the standard using the modified retrospective approach that does not require the restatement of prior year financial statements. The adoption of Topic 842 did not have a material impact on the Company’s consolidated statement of operations and consolidated statement of cash flows. The adoption of Topic 842 resulted in the recognition of ROU assets and corresponding lease liabilities as of January 1, 2019 in the amount of $52.6 million for leases classified as operating leases. Topic 842 also applies to the Company's aircraft lease revenues, however, the adoption of Topic 842 did not have a significant impact on the Company's accounting for its customer lease agreements.
The Company adopted the package of practical expedients and transition provisions available for expired or existing contracts, which allowed the Company to carryforward its historical assessments of 1) whether contracts are or contain leases, 2) lease classification, and 3) initial direct costs. Additionally, for real estate leases, the Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component. The Company also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. Further, the Company elected the short-term lease exception policy, permitting it to exclude the recognition requirements for leases with terms of 12 months or less. See Note H for additional information about leases.
In June 2018, the FASB issued ASU No. 2018-07 “Improvements to Non-employee Share-based Payment Accounting" ("ASU 2018-07"). ASU 2018-07 amends ASC 718, "Compensation - Stock Compensation" ("ASC 718"), with the intent of simplifying the accounting for share-based payments granted to non-employees for goods and services and aligning the accounting for share-based payments granted to non-employees with the accounting for share-based payments granted to employees. The Company adopted ASU 2018-07 on January 1, 2019 using the modified retrospective approach as required. ASU 2018-07 replaced ASC 505-50, "Equity-Based Payments to Nonemployees" ("ASC 505-50") which was previously applied by the Company for warrants granted to Amazon.com, Inc. ("Amazon") as customer incentives. As a result of ASU 2018-07, the Company applied accounting guidance for financial instruments to the unvested warrants conditionally granted to Amazon in conjunction with an investment agreement reached with Amazon on December 22, 2018. Applying ASU 2018-07 as of January 1, 2019, through the modified retrospective approach, resulted in the recognition of $176.9 million for unvested warrant liabilities, $100.1 million for customer incentive assets and cumulative-effect adjustments of $71.4
12

million, net of tax, to reduce retained earnings for customer incentives that were not probable of being realized. The adoption of ASU 2018-07 on January 1, 2019 did not have an impact on the accounting for vested warrants.
The Company adopted "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ("ASU 2016-13") on January 1, 2020. Under ASU 2016-13, an entity is required to utilize an “expected credit loss model” on certain financial instruments, including trade receivables. This model requires an entity to estimate expected credit losses over the lifetime of the financial asset including trade receivables that are not past due. Operating lease receivables are not within the scope of Topic 326. The Company's adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements or related disclosures.

NOTE B—GOODWILL, INTANGIBLES AND EQUITY INVESTMENTS
The carrying amounts of goodwill, by operating segment, are as follows (in thousands):
CAM ACMI Services All Other Total
Carrying value as of December 31, 2019 $ 153,290    $ 234,571    $ 8,113    $ 395,974   
Carrying value as of June 30, 2020 $ 153,290    $ 234,571    $ 8,113    $ 395,974   
The Company's acquired intangible assets are as follows (in thousands):
Airline Amortizing
Certificates Intangibles Total
Carrying value as of December 31, 2019 $ 9,000    $ 122,680    $ 131,680   
Amortization —    (5,717)   (5,717)  
Carrying value as of June 30, 2020 $ 9,000    $ 116,963    $ 125,963   
The airline certificates have an indefinite life and therefore are not amortized. The Company amortizes finite-lived intangibles assets, including customer relationship and STC intangibles, over 3 to 19 years.
Stock warrants issued to a lessee (see Note C) as an incentive are recorded as a lease incentive asset using their fair value at the time that the lessee has met its performance obligations and amortized against revenues over the duration of related aircraft leases. The Company's lease incentive granted to the lessee was as follows (in thousands):
Lease
Incentive
Carrying value as of December 31, 2019 $ 146,678   
Amortization (9,754)  
Carrying value as of June 30, 2020 $ 136,924   
In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden ("West"). West, through its two airlines, West Atlantic UK and West Atlantic Sweden, operates a fleet of aircraft on behalf of European regional mail carriers and express logistics providers. The airlines operate a combined fleet of British Aerospace ATPs, Bombardier CRJ-200-PFs, and Boeing 767 and 737 aircraft. In April 2019, West issued additional shares to a new investor in conjunction with a capital investment and purchase agreement which reduced the Company's ownership to approximately 10% and reduced the Company's influence over West. In 2020, the Company sold its remaining interest to the same investor. West leases two Boeing 767 aircraft from the Company.
In August, 2017 the Company entered into a joint-venture agreement with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft. The Company anticipates approval of a supplemental type certificate from the FAA in the fourth quarter of 2020. The Company expects to make contributions equal to its 49% ownership percentage of the program's total costs over the next two years. During the six month periods ending June 30, 2020 and 2019, the Company contributed $5.6 million and $6.4
13

million to the joint venture, respectively. The Company accounts for its investment in the aircraft conversion joint venture under the equity method of accounting, in which the carrying value of each investment is reduced for the Company's share of the non-consolidated affiliates' operating results.
The carrying value of West and the joint venture totaled $7.2 million and $10.9 million at June 30, 2020 and December 31, 2019, respectively, and are reflected in “Other Assets” in the Company’s consolidated balance sheets. The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If the Company determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded carrying value and the fair value of the investment. The fair value is generally determined using an income approach based on discounted cash flows or using negotiated transaction values.

NOTE C—SIGNIFICANT CUSTOMERS
DHL
The Company has had long-term contracts with DHL Network Operations (USA), Inc. and its affiliates ("DHL") since August 2003. Revenues from aircraft leases and related services performed for DHL were approximately 12% and 11% of the Company's consolidated revenues from continuing operations for the three and six month periods ending June 30, 2020, respectively, compared to 15% and 15% for the corresponding periods of 2019. The Company’s balance sheets include accounts receivable from DHL of $9.0 million and $12.7 million as of June 30, 2020 and December 31, 2019, respectively.
The Company leases Boeing 767 aircraft to DHL under both long-term and short-term lease agreements. Under a separate crew, maintenance and insurance (“CMI”) agreement, the Company operates Boeing 767 aircraft that DHL leases from the Company. 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. The Company also provides additional air cargo transportation services for DHL through 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, air starts and related maintenance services to DHL under separate agreements.
Amazon
The Company has been providing freighter aircraft and services for cargo handling and logistical support for Amazon.com Services, LLC ("ASI"), successor to Amazon.com Services, Inc., a subsidiary of Amazon.com, Inc. ("Amazon") since September 2015. On March 8, 2016, the Company entered into an Air Transportation Services Agreement (the “ATSA”) with ASI, pursuant to which CAM leases 20 Boeing 767 freighter aircraft to ASI, including 12 Boeing 767-200 freighter aircraft for a term of five years and eight Boeing 767-300 freighter aircraft for a term of seven years. The ATSA also provides for the operation of those aircraft by the Company’s airline subsidiaries, and the management of ground services by the Company's subsidiary LGSTX Services Inc. ("LGSTX"). The ATSA became effective on April 1, 2016 and had an original term of five years.
In conjunction with the execution of the ATSA, the Company and Amazon entered into an Investment Agreement and a Stockholders Agreement on March 8, 2016. The 2016 Investment Agreement calls for the Company to issue warrants in three tranches which will grant Amazon the right to acquire up to 19.9% of the Company’s outstanding common shares as described below. The first tranche of warrants, issued upon the execution of the Investment Agreement and all of which are now fully vested, granted Amazon the right to purchase approximately 12.81 million ATSG common shares, with the first 7.69 million common shares vesting upon issuance on March 8, 2016, and the remaining 5.12 million common shares vesting as the Company delivered additional aircraft leased under the ATSA. The second tranche of warrants, which were issued and vested on March 8, 2018, grants Amazon the right to purchase approximately 1.59 million ATSG common shares. The third tranche of warrants will be issued and vest on September 8, 2020, and will grant Amazon the right to purchase such additional number of ATSG common shares as is necessary to bring Amazon’s ownership to 19.9% of the Company’s pre-transaction outstanding common shares measured on a GAAP-diluted basis, adjusted for share issuances and repurchases by the Company following the date of the Investment Agreement and after giving effect
14

to the warrants granted. The exercise price of the warrants is $9.73 per share, which represents the closing price of ATSG’s common shares on February 9, 2016. Each of the three tranches of warrants are exercisable in accordance with its terms through March 8, 2021.
On December 22, 2018 the Company announced agreements with Amazon to 1) lease and operate ten additional Boeing 767-300 aircraft for ASI, 2) extend the term of the 12 Boeing 767-200 aircraft currently leased to ASI by two years to 2023 with an option for three more years, 3) extend the term of the eight Boeing 767-300 aircraft currently leased to ASI by three years to 2026 and 2027 with an option for three more years and 4) extend the ATSA by five years through March 2026, with an option to extend for an additional three years. The Company delivered six of the 767-300 aircraft in 2019 and plans to deliver the remainder in 2020. All ten of these aircraft leases will be for ten years.
In conjunction with the commitment for ten additional 767 aircraft leases, extensions of twenty existing Boeing 767 aircraft leases and the ATSA described above, Amazon and the Company entered into another Investment Agreement on December 20, 2018. Pursuant to the 2018 Investment Agreement, Amazon was issued warrants for 14.8 million common shares, of which 11.1 million common shares have vested as existing leases were extended and six additional aircraft leases were executed and added to the ATSA operations. More of these warrants will vest when four additional aircraft leases are executed. These warrants will expire if not exercised by December 20, 2025. They have an exercise price of $21.53 per share.
On May 29, 2020, Amazon agreed to lease twelve more Boeing 767-300 aircraft from the Company. The first of these leases began in the second quarter of 2020 with the remaining eleven to be delivered in 2021. All twelve of these aircraft leases will be for ten year terms. Pursuant to the 2018 Investment Agreement, Amazon was issued warrants for 7.0 million common shares of which 0.6 million common shares have vested. These warrants will expire if not exercised by December 20, 2025. The exercise price of these warrants is $20.40 per share.
Additionally, Amazon can earn incremental warrant rights under the 2018 Investment Agreement by leasing up to five more cargo aircraft from the Company before January 2026. Incremental warrants granted for Amazon’s commitment to any such future aircraft leases will have an exercise price based on the volume-weighted average price of the Company's shares during the 30 trading days immediately preceding the contractual commitment for each lease.
Through the 2016 and 2018 Investment Agreements, Amazon can potentially own approximately 39.9% of the Company if all the possible warrants vest and are settled with cash. For all warrants vested, Amazon may select a cashless conversion option. Assuming ATSG’s stock price at the time of conversion is above the warrant exercise price, Amazon would receive fewer shares in exchange for any warrants exercised under the cashless option. Instead, Amazon would receive the number of ATSG shares equivalent in market value at the time of conversion to the appreciation above the exercise price of the warrants.
The warrants issuable under the 2018 Investment Agreements with Amazon required an increase in the number of authorized common shares of the Company. Management submitted proposals for shareholder consideration at the Company's annual meeting of shareholders on May 9, 2019 calling for an increase in the number of authorized common shares and approval of the warrants as required under the rules of the Nasdaq Global Select Market. Both proposals were approved by shareholders on May 9, 2019.
The Company’s accounting for the warrants has been determined in accordance with the financial reporting guidance for financial instruments. Warrant obligations are marked to fair value at the end of each reporting period. The value of warrants is recorded as a customer incentive asset if it is probable of vesting at the time of grant and further changes in the fair value of warrant obligations are recorded to earnings. Upon a warrant vesting event, the customer incentive asset is amortized as a reduction of revenue over the duration of the related revenue contract.
As of June 30, 2020, the Company's liabilities reflected 14.8 million warrants from the 2016 Investment Agreement having a fair value of $187.3 million and 24.7 million warrants from the 2018 Amazon agreements having a fair value of $188.2 million. During the three and six month periods ended June 30, 2020, the re-measurements of all the warrants to fair value resulted in net non-operating losses of $110.4 million and gains of $7.5 million before the effect of income taxes, respectively, compared to losses of $29.0 million and 20.7 million for the corresponding periods of 2019.
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Revenues from Amazon comprised approximately 29% and 29% of the Company's consolidated revenues from continuing operations for the three and six month periods ending June 30, 2020, respectively, compared to 20% and 19% for the corresponding periods of 2019. The Company’s balance sheets include accounts receivable from Amazon of $37.5 million and $50.1 million as of June 30, 2020 and December 31, 2019, respectively.
The Company's earnings in future periods will be impacted by the re-measurements of warrant fair value, amortizations of the lease incentive asset and the related income tax effects. For income tax calculations, the value and timing of related tax deductions will differ from the guidance described above for financial reporting.
DoD
The Company is a provider of cargo and passenger airlift services to the DoD using its fleet of freighter, passenger and combi aircraft. Combi aircraft are capable of carrying cargo containers and passengers on the main flight deck at the same time. The DoD awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Revenues from services performed for the DoD were approximately 33% and 32% of the Company's total revenues from continuing operations for the three and six months periods ended June 30, 2020, respectively, compared to 36% and 37% for the corresponding periods of 2019. The Company's balance sheets included accounts receivable from the DoD of $67.4 million and $44.5 million as of June 30, 2020 and December 31, 2019, respectively.

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 comparable transactions. The fair value of the Company’s money market funds, convertible note, convertible note hedges and interest rate swaps are based on observable inputs (Level 2) from comparable market transactions.
The fair value of the stock warrant obligations resulting from aircraft leased to Amazon were determined using a Black-Scholes pricing model which considers various assumptions, including the Company’s common stock price, the volatility of the Company’s common stock, the expected dividend yield, exercise price and the risk-free interest rate (Level 2 inputs). The fair value of the stock warrant obligations for unvested stock warrants, conditionally granted to Amazon for the execution of incremental, future aircraft leases, include additional assumptions including the expected exercise prices and the probabilities that future leases will occur (Level 3 inputs).
The following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):
As of June 30, 2020 Fair Value Measurement Using Total
  Level 1 Level 2 Level 3
Assets
Cash equivalents—money market $ —    $ 835    $ —    $ 835   
Total Assets $ —    $ 835    $ —    $ 835   
Liabilities
Interest rate swap $ —    $ (18,341)   $ —    $ (18,341)  
Stock warrant obligations —    (329,895)   (45,643)   (375,538)  
Total Liabilities $ —    $ (348,236)   $ (45,643)   $ (393,879)  
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As of December 31, 2019 Fair Value Measurement Using Total
  Level 1 Level 2 Level 3
Assets
Cash equivalents—money market $ —    $ 1,129    $ —    $ 1,129   
Interest rate swap —    111    —    111   
Total Assets $ —    $ 1,240    $ —    $ 1,240   
Liabilities
Interest rate swap $ —    $ (8,237)   $ —    $ (8,237)  
Stock warrant obligation —    (340,767)   (42,306)   (383,073)  
Total Liabilities $ —    $ (349,004)   $ (42,306)   $ (391,310)  
As a result of lower market interest rates compared to the stated interest rates of the Company’s fixed rate debt obligations, the fair value of the Company’s debt obligations, based on Level 2 observable inputs, was approximately $18.0 million less than the carrying value, which was $1,519.3 million at June 30, 2020. As of December 31, 2019, the fair value of the Company’s debt obligations was approximately $2.7 million less than the carrying value, which was $1,484.4 million. 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 other flight equipment. Property and equipment, to be held and used, is summarized as follows (in thousands):
June 30, December 31,
  2020 2019
Flight equipment $ 2,558,020    $ 2,598,113   
Ground equipment 62,208    59,628   
Leasehold improvements, facilities and office equipment 34,570    33,649   
Aircraft modifications and projects in progress 376,074    220,827   
3,030,872    2,912,217   
Accumulated depreciation (1,154,294)   (1,146,197)  
Property and equipment, net $ 1,876,578    $ 1,766,020   
CAM owned aircraft with a carrying value of $902.1 million and $889.3 million that were under leases to external customers as of June 30, 2020 and December 31, 2019, respectively.
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 are less than the carrying value. If impairment exists, an adjustment is recorded 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.
During the second quarter, the Company decided to retire its four Boeing 757 freighter aircraft as a result of customer preferences for other aircraft types. Three of the Boeing 757 freighter airframes have been removed from service and are available for sale. One remains in service through 2020. The Pratt and Whitney engines that power these aircraft remain in use for lease to external customers. Separating the Boeing 757 freighters and engines while marketing the airframes, triggered a fair value assessment. As a result, an impairment charge totaling $39.1 million
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was recorded primarily to reflect the market value of these assets as well as other surplus engines and parts. Fair values were determined using Level 3 inputs based primarily on independent appraisals and recent market transactions as well as the Company’s assessment of existing market conditions based on industry knowledge.

NOTE F—DEBT OBLIGATIONS
Debt obligations consisted of the following (in thousands):
  June 30, December 31,
  2020 2019
Unsubordinated term loan $ 619,202    $ 626,277   
Revolving credit facility 177,900    632,900   
Senior notes 492,907    —   
Convertible debt 217,886    213,461   
Other financing arrangements 11,444    11,746   
Total debt obligations 1,519,339    1,484,384   
Less: current portion (13,769)   (14,707)  
Total long term obligations, net $ 1,505,570    $ 1,469,677   
The Company utilizes a syndicated credit agreement ("Senior Credit Agreement") which includes an unsubordinated term loan and a revolving credit facility. In November 2019, the Senior Credit Agreement was amended to increase the maximum revolver capacity from $645.0 million to $750.0 million, combine two terms loans into one loan and reduce the interest rate spread of the LIBOR based financing at various ratios of the Company's debt to its earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"). This amendment also extended the agreement to November 2024 provided certain liquidity measures are maintained during 2024, and added incremental accordion capacity based on debt ratios. In January 2020, the Company chose to lower the maximum revolver capacity to $600.0 million in conjunction with the issuance of senior unsecured notes. As of June 30, 2020, the unused revolving credit facility available to the Company at the trailing twelve month EBITDA level was $408.2 million, and additional permitted indebtedness under the Senior Credit Agreement subject to compliance with other covenants, was limited to $250.0 million.
The balance of the unsubordinated term loan is net of debt issuance costs of $7.9 million and $8.7 million as of June 30, 2020 and December 31, 2019, respectively. The balance of the Senior Notes is net of debt issuance costs of $7.1 million as of June 30, 2020. Under the terms of the Senior Credit Agreement, interest rates are adjusted at least quarterly based on the Company's 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, Senior Notes and revolving credit facility bear variable interest rates of 1.68%, 4.75% and 1.68%, respectively.
The Senior Credit Agreement is collateralized by certain of the Company's Boeing 777, 767 and 757 aircraft. Under the terms of the Senior Credit Agreement, the Company is required to maintain collateral coverage equal to 115% of the outstanding balance of the term loan and the total funded revolving credit facility. The minimum collateral coverage which must be maintained is 50% of the outstanding balance of the term loan plus the revolving credit facility commitment of $600.0 million.
The Senior Credit Agreement limits the amount of dividends the Company can pay and the amount of common stock it can repurchase to $100.0 million during any calendar year, provided the Company's total debt to EBITDA ratio is under 3.50 times, after giving effect to the dividend or repurchase. The Senior Credit Agreement contains covenants, including a maximum permitted total debt to EBITDA ratio, a fixed charge covenant ratio requirement, limitations on certain additional indebtedness, and on guarantees of indebtedness. 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.
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On January 28, 2020, the Company, through a subsidiary, completed a debt offering of $500.0 million in senior unsecured notes (the “Senior Notes”). The Senior Notes were sold only to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and certain investors pursuant to Regulation S under the Securities Act. The Senior Notes are senior unsecured obligations that bear interest at a rate of 4.75% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2020. The Senior Notes will mature on February 1, 2028. The Senior Notes contain customary events of default and certain covenants which are generally no more restrictive than those set forth in the Senior Credit Agreement. The net proceeds of $495.0 million from the Senior Notes were used to pay down the revolving credit facility. The Senior Notes do not require principal payments in 2020.
In September 2017, the Company issued $258.8 million aggregate principal amount of 1.125% Convertible Senior Notes due 2024 ("Convertible Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Convertible Notes bear interest at a rate of 1.125% per year payable semi-annually in arrears on April 15 and October 15, beginning April 15, 2018. The Convertible Notes mature on October 15, 2024, unless repurchased or converted in accordance with their terms prior to such date. The Convertible Notes are unsecured indebtedness, subordinated to the Company's existing and future secured indebtedness and other liabilities, including trade payables. Conversion of the Convertible Notes can only occur upon satisfaction of certain conditions and during certain periods, beginning in any calendar quarter commencing after December 31, 2017 and thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon the occurrence of certain fundamental changes, holders of the Convertible Notes can require the Company to repurchase their notes at the cash repurchase price equal to the principal amount of the notes, plus any accrued and unpaid interest.
The Convertible Notes may be settled in cash, the Company’s common shares or a combination of cash and the Company’s common shares, at the Company’s election. The initial conversion rate is 31.3475 common shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $31.90 per common share). If a “make-whole fundamental change” (as defined in the offering circular with the Convertible Notes) occurs, the Company will, in certain circumstances, increase the conversion rate for a specified period of time.
In conjunction with the Convertible Notes, the Company purchased convertible note hedges under privately negotiated transactions for $56.1 million, having the same number of the Company's common shares, 8.1 million shares and same strike price of $31.90, that underlie the Convertible Notes. The convertible note hedges are expected to reduce the potential equity dilution with respect to the Company's common stock, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the Convertible Notes. The Company's current intent and policy is to settle all Note conversions through a combination settlement which satisfies the principal amount of the Convertible Notes outstanding with cash. The Convertible Notes could have a dilutive effect on the computation of earnings per share in accordance with accounting principles to the extent that the average traded market price of the Company’s common shares for a reporting period exceeds the conversion price.
The conversion feature of the Convertible Notes required bifurcation from the principal amount under the applicable accounting guidance. Settlement provisions of the Convertible Notes and the convertible note hedges required cash settlement of these instruments until the Company's shareholders increased the number of authorized shares of common stock to cover the full number of shares underlying the Convertible Notes. As a result, the conversion feature of the Convertible Notes and the convertible note hedges were initially accounted for as liabilities and assets, respectively, and marked to market at the end of each period. The fair value of the note conversion obligation at issuance was $57.4 million.
On May 10, 2018, the Company's shareholders increased the number of authorized shares of common stock to cover the full number of shares underlying the Convertible Notes. The Company reevaluated the Convertible Notes and convertible note hedges under the applicable accounting guidance including ASC 815, "Derivatives and Hedging," and determined that the instruments, which meet the definition of derivative and are indexed to the Company's own stock, should be classified in shareholder's equity. On May 10, 2018, the fair value of the conversion feature of the Convertible Notes and the convertible note hedges of $51.3 million and $50.6 million, respectively, were reclassified to paid-in capital and are no longer remeasured to fair value.
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The net proceeds from the issuance of the Convertible Notes was approximately $252.3 million, after deducting initial issuance costs. These unamortized issuance costs and discount are being amortized to interest expense through October 2024, using an effective interest rate of approximately 5.15%. The carrying value of the Company's convertible debt is shown below.
June 30, December 31,
2020 2019
Principal value, Convertible Senior Notes, due 2024 258,750    258,750   
Unamortized issuance costs (4,383)   (4,864)  
Unamortized discount (36,481)   (40,425)  
Convertible debt 217,886    213,461   
In conjunction with the offering of the Convertible Notes, the Company also sold warrants to the convertible note hedge counterparties in separate, privately negotiated warrant transactions at a higher strike price and for the same number of the Company’s common shares, subject to customary anti-dilution adjustments. The amount received for these warrants and recorded in Stockholders' Equity in the Company’s consolidated balance sheets was $38.5 million. These warrants could result in 8.1 million additional shares of the Company's common stock, if the Company's traded market price exceeds the strike price which is $41.35 per share and is subject to certain adjustments under the terms of the warrant transactions. The warrants could have a dilutive effect on the computation of earnings per share to the extent that the average traded market price of the Company's common shares for a reporting periods exceed the strike price.

NOTE G—DERIVATIVE INSTRUMENTS
The Company's Senior Credit Agreement requires the Company to maintain derivative instruments for protection from fluctuating interest rates, for at least twenty-five percent of the outstanding balance of the term loan issued in November 2018. Accordingly, the Company entered into additional interest rate swaps in December 2018 and January 2019 having initial notional values of $150.0 million and $150.0 million, respectively, and forward start dates of December 31, 2018 and June 28, 2019. The table below provides information about the Company’s interest rate swaps (in thousands):
    June 30, 2020 December 31, 2019
Expiration Date Stated
Interest
Rate 		Notional
Amount 		Market
Value
(Liability) 		Notional
Amount 		Market
Value
(Liability)
May 5, 2021 1.090  % 16,875    (116)   20,625    111   
May 30, 2021 1.703  % 16,875    (204)   20,625    (25)  
December 31, 2021 2.706  % 142,500    (5,400)   146,250    (3,242)  
March 31, 2022 1.900  % 50,000    (1,570)   50,000    (408)  
March 31, 2022 1.950  % 75,000    (2,415)   75,000    (696)  
March 31, 2023 2.425  % 144,375    (8,636)   148,125    (3,866)  
The outstanding interest rate swaps are not designated as hedges 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 a net gain on derivatives of $0.7 million and a net loss of $10.2 million for the three and six month periods ending June 30, 2020, respectively, compared to net losses of $6.9 million and $10.7 million for the corresponding periods of 2019. The liability for outstanding derivatives is recorded in other liabilities and in accrued expenses.


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NOTE H—COMMITMENTS AND CONTINGENCIES
CARES Act
Two of the Company's airline subsidiaries, OAI and ATI, have been granted government funds totaling $75.4 million pursuant to payroll support program agreements under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The grants are being received in installments through September 2020. The grants are not required to be repaid if the Company complies with provisions of the CARES Act and the payroll support program agreements. The grants are recognized over the periods in which the Company recognizes the related expenses for which the grants are intended to compensate.
During the quarter ended June 30, 2020, the Company received $37.7 million of grant funds under the CARES Act payroll support program. The Company recognizes the grants as contra-expense during the periods in which passenger flight operations and combi flight operations levels are expected to be negatively impacted by the pandemic. During the quarter ended June 30, 2020, the Company recognized $9.8 million of the grants and deferred recognition of $27.9 million. The Company expects to recognize all of the CARES Act funds by June of 2021.
In conjunction with the payroll support program agreements, the airlines agreed to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020; limit, on behalf of themselves and certain of their affiliates, executive compensation through March 24, 2022; maintain certain air transportation service through March 1, 2022 as may be required by the U.S. Department of Transportation pursuant to its authority under the CARES Act; and maintain certain internal controls and records relating to the CARES Act funds and comply with certain reporting requirements. In addition, the Company may not pay dividends or repurchase its shares through September 30, 2021.
Lease Commitments
The Company leases property, five aircraft, aircraft engines and other types of equipment under operating leases. Property leases include hangars, warehouses, offices and other space at certain airports with fixed rent payments and lease terms ranging from one month to six years. The Company is obligated to pay the lessor for maintenance, real estate taxes, insurance and other operating expenses on certain property leases. These expenses are variable and are not included in the measurement of the lease asset or lease liability. These expenses are recognized as variable lease expense when incurred and are not material. Equipment leases include ground support and industrial equipment as well as computer hardware with fixed rent payments and terms of one month to five years.
The Company records the initial right-to-use asset and lease liability at the present value of lease payments scheduled during the lease term. For the six month period ending June 30, 2020, non-cash transactions to recognize right-to-use assets and corresponding liabilities for new leases were $23.9 million compared to $13.3 million for the corresponding period of 2019. Unless the rate implicit in the lease is readily determinable, the Company discounts the lease payments using an estimated incremental borrowing rate at the time of lease commencement. The Company estimates the incremental borrowing rate based on the information available at the lease commencement date, including the rate the Company could borrow for a similar amount, over a similar lease term with similar collateral. The Company's weighted-average discount rate for operating leases at June 30, 2020 was 3.7% compared to 4.7% at December 31, 2019. Leases often include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. Although not material, the amount of such options is reflected below in the maturity of operating lease liabilities table. Lease expense is recognized on a straight-line basis over the lease term. Our weighted-average remaining lease term is 4.6 years and 4.6 years as of June 30, 2020 and December 31, 2019, respectively.

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For the six month periods ended June 30, 2020 and 2019, cash payments against operating lease liabilities were $8.3 million and $10.4 million, respectively. As of June 30, 2020, the maturities of operating lease liabilities are as follows (in thousands):
Operating Leases
Remaining 2020 $ 8,652   
2021 14,793   
2022 10,864   
2023 9,610   
2024 8,394   
2025 and beyond 7,177   
Total undiscounted cash payments 59,490   
Less: amount representing interest (4,506)  
Present value of future minimum lease payments 54,984   
Less: current obligations under leases 14,902   
Long-term lease obligation $ 40,082   
The Company expects to lease one additional passenger aircraft commencing later in 2020 that is not reflected in the table above.
Purchase Commitments
The Company has agreements with Israel Aerospace Industries Ltd. ("IAI") for the conversion of Boeing 767 passenger aircraft into a standard configured freighter aircraft. The conversions primarily consist of the installation of a standard cargo door and loading system. As of June 30, 2020, the Company had 14 aircraft that were in or awaiting the modification process. The Company had placed non-refundable deposits of $11.3 million to purchase seven more Boeing 767-300 passenger aircraft through 2021. As of June 30, 2020, the Company's commitments to acquire and convert aircraft totaled $230.2 million through 2021.
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.
Other
In addition to the foregoing matters, the Company is also a party to legal proceedings in various federal and state jurisdictions from time to time arising out of the operation of the Company's business. The amount of alleged liability, if any, from these proceedings cannot be determined with certainty; however, the Company believes that its ultimate liability, if any, arising from 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.


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Employees Under Collective Bargaining Agreements
As of June 30, 2020, the flight crewmember employees of ABX, ATI and OAI and flight attendant employees of ATI and OAI were represented by the labor unions listed below:
Airline Labor Agreement Unit Percentage of
the Company’s
Employees
ABX International Brotherhood of Teamsters 5.0%
ATI Air Line Pilots Association 8.5%
OAI International Brotherhood of Teamsters 7.4%
ATI Association of Flight Attendants 0.8%
OAI Association of Flight Attendants 7.7%

NOTE I—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 crewmembers, which is unfunded. Benefits for covered individuals terminate upon reaching age 65 under the post-retirement healthcare plans.
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 obligations. 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 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.
        The Company’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for both continuing and discontinued operations are as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
  Pension Plans Post-Retirement Healthcare Plan Pension Plans Post-Retirement Healthcare Plan
  2020 2019 2020 2019 2020 2019 2020 2019
Service cost $ —    $ —    $ 35    $ 27    —    —    69    54   
Interest cost 6,970    7,825    23    37    13,940    15,649    45    74   
Expected return on plan assets (11,168)   (9,477)   —    —    (22,336)   (18,954)   —    —   
Amortization of net loss 941    3,882    31    43    1,882    7,764    62    86   
Net periodic benefit (income) loss $ (3,257)   $ 2,230    $ 89    $ 107    $ (6,514)   $ 4,459    $ 176    $ 214   
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During the six month period ending June 30, 2020, the Company contributed $1.6 million to the pension plans. The Company expects to contribute an additional $9.3 million during the remainder of 2020.

NOTE J—INCOME TAXES
The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through June 30, 2020 have been estimated utilizing a 25% rate based upon year-to-date income and projected results for the full year. The recognition of discrete tax items, such as the conversion of employee stock awards, the issuance of stock warrants, assets impairments and other items which are not subject to tax, have an impact on the effective rate during a period.
As a result of these differences in which expenses and benefits for tax purposes are different than required by generally accepted accounting principles, the Company's effective tax rate for the first six months of 2020 was a tax expense of 17.4%. The final effective tax rate for the year 2020 will depend on the actual amount of pre-tax book results by the Company for the full year, the additional conversions of employee stock awards, stock warrant valuations, executive compensation and other items.
The Company has operating loss carryforwards for U.S. federal income tax purposes. Management expects to utilize the loss carryforwards to offset federal income tax liabilities in the future. Due to the Company's deferred tax assets, including its loss carryforwards, management does not expect to pay federal income taxes until 2023 or later. The Company may, however, be required to pay some federal tax due to loss carryforward usage limitations and certain state and local income taxes before then.

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NOTE K—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes the following items by components for the three and six month periods ending June 30, 2020 and 2019 (in thousands):
Defined Benefit Pension Defined Benefit Post-Retirement Foreign Currency Translation Total
Balance as of March 31, 2019 $ (86,091)   $ (808)   $ (1,484)   $ (88,383)  
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment —    —    (4)   (4)  
Amounts reclassified from accumulated other comprehensive income:
Recognition of foreign currency loss —    —    2,253    2,253   
Actuarial costs (reclassified to salaries, wages and benefits) 3,882    43    —    3,925   
Income Tax (Expense) or Benefit (609)   (7)   (770)   (1,386)  
Other comprehensive income (loss), net of tax 3,273    36    1,479    4,788   
Balance as of June 30, 2019 $ (82,818)   $ (772)   $ (5)   $ (83,595)  
Balance as of January 1, 2019 $ (89,042)   $ (841)   $ (1,479)   $ (91,362)  
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment —    —    (11)   (11)  
Amounts reclassified from accumulated other comprehensive income:
Recognition of foreign currency loss —    —    2,253    2,253   
Actuarial costs (reclassified to salaries, wages and benefits) 7,764    86    —    7,850   
Income Tax Expense (1,540)   (17)   (768)   (2,325)  
Other comprehensive income, net of tax 6,224    69    1,474    7,767   
Balance as of June 30, 2019 $ (82,818)   $ (772)   $ (5)   $ (83,595)  

Defined Benefit Pension Defined Benefit Post-Retirement Foreign Currency Translation Total
Balance as of March 31, 2020 $ (60,426)   $ (678)   $ (12)   $ (61,116)  
Amounts reclassified from accumulated other comprehensive income:
Actuarial costs (reclassified to salaries, wages and benefits) 941    31    —    972   
Income Tax (Expense) or Benefit (215)   (7)   —    (222)  
Other comprehensive income (loss), net of tax 726    24    —    750   
Balance as of June 30, 2020 $ (59,700)   $ (654)   $ (12)   $ (60,366)  
Balance as of January 1, 2020 $ (61,152)   $ (702)   $ (12)   $ (61,866)  
Amounts reclassified from accumulated other comprehensive income:
Actuarial costs (reclassified to salaries, wages and benefits) 1,882    62    —    1,944   
Income Tax Expense (430)   (14)   —    (444)  
Other comprehensive income, net of tax 1,452    48    —    1,500   
Balance as of June 30, 2020 $ (59,700)   $ (654)   $ (12)   $ (60,366)  
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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 and in May 2015. 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 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 vesting periods of approximately six or twelve months. The Company expects to settle all of the stock unit awards by issuing new shares of stock. The table below summarizes award activity.
  Six Months Ended
  June 30, 2020 June 30, 2019
  Number of
Awards 		Weighted
average
grant-date
fair value 		Number of
Awards 		Weighted
average
grant-date
fair value
Outstanding at beginning of period 963,832    $ 17.67    969,928    $ 15.89   
Granted 437,054    18.85    295,096    23.22   
Converted (200,563)   19.87    (153,464)   17.29   
Expired (34,100)   19.40    (5,600)   23.78   
Forfeited (1,000)   18.90    (2,600)   22.16   
Outstanding at end of period 1,165,223    $ 17.69    1,103,360    $ 17.61   
Vested 353,023    $ 8.25    337,060    $ 8.04   
The average grant-date fair value of each performance condition award, non-vested restricted stock award and time-based award granted by the Company in 2020 was $18.39, 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 in 2020 was $20.41. The market condition awards were valued using a Monte Carlo simulation technique, a risk-free interest rate of 0.7% and a volatility of 35.0% based on volatility over three years using daily stock prices.
For the six month periods ended June 30, 2020 and 2019, the Company recorded expense of $4.0 million and $3.4 million, respectively, for stock incentive awards. At June 30, 2020, there was $11.3 million of unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average period of 1.6 years. As of June 30, 2020, none of the awards were convertible, 353,023 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 1,441,373 additional outstanding shares of the Company’s common stock depending on service, performance and market results through December 31, 2022.

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NOTE M—COMMON STOCK AND EARNINGS PER SHARE
Earnings per Share
The calculation of basic and diluted earnings per common share are as follows (in thousands, except per share amounts):
Three Months Ending Six Months Ending
June 30, June 30,
  2020 2019 2020 2019
Numerator:
Earnings from continuing operations - basic $ (105,162)   $ (26,632)   $ 28,571    $ (3,998)  
Gain from stock warrants revaluation, net of tax —    —    (19,312)   —   
Earnings from continuing operations - diluted $ (105,162)   $ (26,632)   $ 9,259    $ (3,998)  
Denominator:
Weighted-average shares outstanding for basic earnings per share 59,130    58,909    59,085    58,874   
Common equivalent shares:
Effect of stock-based compensation awards and warrants —    —    9,019    —   
Weighted-average shares outstanding assuming dilution 59,130    58,909    68,104    58,874   
Basic earnings per share from continuing operations $ (1.78)   $ (0.45)   $ 0.48    $ (0.07)  
Diluted earnings per share from continuing operations $ (1.78)   (0.45)   0.14    (0.07)  
The determination of diluted earnings per share requires the exclusion of the fair value re-measurement of the stock warrants recorded as a liability (see Note D), if such warrants have an anti-dilutive effect on earnings per share. The dilutive effect of the weighted-average diluted shares outstanding is calculated using the treasury method for periods in which equivalent shares have a dilutive effect on earnings per share. Under this method, the number of diluted shares is determined by dividing the assumed proceeds of the warrants recorded as a liability by the average stock price during the period and comparing that amount with the number of corresponding warrants outstanding.
The underlying warrants recorded as a liability as of June 30, 2020 and 2019 would have resulted in 39.5 million and 39.5 million additional shares of the Company's common stock, respectively, if the warrants were settled by tendering cash.
The number of equivalent shares that were not included in weighted average shares outstanding assuming dilution because their effect would have been anti-dilutive, were 9.3 million and 0.1 million for the three and six month periods ended June 30, 2020, respectively, compared to 10.9 million and 10.8 million for the corresponding periods of 2019.

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NOTE N—SEGMENT AND REVENUE INFORMATION
The Company operates in two reportable segments. The CAM segment consists of the Company's aircraft leasing operations. The ACMI Services segment consists of the Company's airline operations, including CMI agreements as well as ACMI, charter service and passenger service agreements that the Company has with its customers. The Company's aircraft maintenance services, aircraft modification services, ground services and other services, are not large enough to constitute reportable segments and are combined in all other. Intersegment revenues are valued at arms-length market rates.
The Company's segment information from continuing operations is presented below (in thousands):
  Three Months Ending Six Months Ending
June 30, June 30,
  2020 2019 2020 2019
Total revenues:
CAM $ 74,870    $ 69,256    $ 149,033    $ 139,606   
ACMI Services 287,604    254,938    571,769    512,894   
All other 77,056    71,104    157,092    138,466   
Eliminate inter-segment revenues (61,736)   (60,722)   (110,823)   (108,207)  
Total $ 377,794    $ 334,576    $ 767,071    $ 682,759   
Customer revenues:
CAM 49,959    39,953    96,695    81,562   
ACMI Services 287,595    254,869    571,756    512,822   
All other 40,240    39,754    98,620    88,375   
Total $ 377,794    $ 334,576    $ 767,071    $ 682,759   
ACMI Services revenues are generated from airline service agreements and are typically based on hours flown, cycles operated, the number of aircraft operated and crew resources provided during a month. ACMI Services revenues are recognized over time using the invoice practical expedient as flight hours are performed for the customer. Certain agreements include provisions for incentive payments based upon on-time reliability. These incentives are measured on a monthly basis and recorded to revenue in the corresponding month earned. Under CMI agreements, the Company's airlines have an obligation to provide integrated services including flight crews, aircraft maintenance and insurance for the customer's cargo network. Under ACMI agreements, the Company's airlines are also obligated to provide aircraft. Under CMI and ACMI agreements, customers are generally responsible for aviation fuel, landing fees, navigation fees and certain other flight expenses. When functioning as the customers' agent for arranging such services, the Company records amounts reimbursable from the customer as revenues net of the related expenses as the costs are incurred. Under charter agreements, the Company's airline is obligated to provide full services for one or more flights having specific origins and destinations. Under charter agreements in which the Company's airline is responsible for fuel, airport fees and all flight services, the related costs are recorded in operating expenses. Any sales commissions paid for charter agreements are generally expensed when incurred because the amortization period is less than one year. ACMI Services are invoiced monthly or more frequently. (There are no customer rewards programs associated with services offered by the Company nor does the Company sell passenger tickets or issue freight bills.)
The Company's revenues for customer contracts for airframe maintenance and aircraft modification services that do not have an alternative use and for which the Company has an enforceable right to payment are generally recognized over time based on the percentage of costs completed. Services for airframe maintenance and aircraft modifications typically have project durations lasting a few weeks to a few months. Other revenues for aircraft part sales, component repairs and line service are recognized at a point in time typically when the parts are delivered to the customer and the services are completed. For airframe maintenance, aircraft modifications and aircraft component repairs, contracts include assurance warranties that are not sold separately.
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The Company records revenues and estimated earnings over time for its airframe maintenance and aircraft modification contracts using the costs to costs input method. For such services, the Company estimates the earnings on a contract as the difference between the expected revenue and estimated costs to complete a contract and recognizes revenues and earnings based on the proportion of costs incurred compared to the total estimated costs. Unexpected or abnormal costs that are not reflected in the price of a contract are excluded from calculations of progress toward contract obligations. The Company's estimates consider the timing and extent of the services, including the amount and rates of labor, materials and other resources required to perform the services. These production costs are specifically planned and monitored for regulatory compliance. The expenditure of these costs closely reflect the progress made toward completion of an airframe maintenance and aircraft modification project. The Company recognizes adjustments in estimated earnings on a contract under the cumulative catch-up method in which the impact of the adjustment on estimated earnings of a contract is recognized in the period the adjustment is identified.
The Company's ground services revenues include load transfer and sorting services, facility and equipment maintenance services. These revenues are recognized as the services are performed for the customer over time. Revenues from related facility and equipment maintenance services are recognized over time and at a point in time depending on the nature of the customer contracts.
The Company's external customer revenues from other activities for the three and six month periods ended June 30, 2020 and 2019 are presented below (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Aircraft maintenance, modifications and part sales $ 18,851    $ 23,303    $ 52,686    $ 57,284   
Ground services 16,003    15,775    30,611    29,713   
Other, including aviation fuel sales 5,386    676    15,323    1,378   
Total customer revenues $ 40,240    $ 39,754    $ 98,620    $ 88,375   
CAM's aircraft lease revenues are recognized as operating leases on a straight-line basis over the term of the applicable lease agreements. Customer payments for leased aircraft and equipment are typically paid monthly in advance. CAM's leases do not contain residual guarantees. Approximately 13% of CAM's leases to external customers contain purchase options at projected market values. As of June 30, 2020, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $97.9 million for the remainder of 2020, $188.6 million, $162.0 million, $120.1 million, and $85.6 million, respectively, for each of the next four years ending December 31, 2024 and $214.2 million thereafter. As of December 31, 2019, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $186.8 million, $178.2 million, $152.0 million, $110.1 million and $75.5 million, respectively, for each of the next 5 years ending December 31, 2024 and $186.2 million thereafter.
For customers that are not a governmental agency or department, the Company generally receives partial payment in advance of services, otherwise customer balances are typically paid within 30 to 60 days of service. During the three and six month periods ending June 30, 2020 and 2019, the Company recognized $1.6 million and $2.8 million of non lease revenue that was reported in deferred revenue at the beginning of the respective period, respectively, compared to $0.6 million and $2.8 million in the corresponding periods of 2019. Deferred revenue was $4.9 million and $3.0 million at June 30, 2020 and December 31, 2019, respectively, for contracts with customers.
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Segment earnings, as used by the Company's management, includes an allocation of interest expense based on a reportable segments' assets. Segment earnings does not include asset impairment charges or the recognition of CARES Act grants. The Company's other segment information from continuing operations is presented below (in thousands):
Three Months Ending Six Months Ending
  June 30, June 30,
  2020 2019 2020 2019
Segment earnings (loss):
CAM $ 19,640    $ 16,683    $ 35,460    $ 32,857   
ACMI Services 19,684    973    38,062    13,283   
     All other (2,244)   4,006    (2,191)   5,909   
Net unallocated interest expense (681)   (903)   (1,336)   (1,683)  
Government grants 9,821    —    9,821    —   
Impairment of aircraft and related assets (39,075)   —    (39,075)   —   
Other non-service components of retiree benefit costs, net 2,898    (2,351)   5,796    (4,702)  
Net loss on financial instruments (109,723)   (35,886)   (2,679)   (31,386)  
Loss from non-consolidated affiliate (6,513)   (5,998)   (9,277)   (9,814)  
Transaction fees —    —    —    (373)  
Pre-tax earnings from continuing operations $ (106,193)   $ (23,476)   $ 34,581    $ 4,091   
Depreciation and amortization expense:
CAM $ 42,024    $ 38,723    85,071    77,518   
ACMI Services 25,384    23,865    50,696    46,960   
All other 883    678    1,866    1,425   
Total $ 68,291    $ 63,266    $ 137,633    $ 125,903   
Interest expense
CAM 9,707    9,379    19,962    19,344   
ACMI Services 5,645    6,441    10,946    12,990   
The Company's assets are presented below by segment (in thousands). Cash and cash equivalents are reflected in Assets - All other.
June 30, December 31,
  2020 2019
Assets:
CAM $ 1,959,860    $ 1,857,687   
ACMI Services 820,129    830,620   
Discontinued operations 2,508    1,499   
All other 154,635    130,372   
Total $ 2,937,132    $ 2,820,178   
During the first six months of 2020, the Company had capital expenditures for property and equipment of $41.7 million and $220.5 million for the ACMI Services and CAM, respectively.

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ITEM 2. 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. Air Transport Services Group, Inc. and its subsidiaries may hereinafter individually and collectively be referred to as "the Company", "we", "our" or "us" from time to time. The following discussion and analysis describes the principal factors affecting the results of operations, financial condition, cash flows, liquidity and capital resources. It should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America contained in this report and our Annual Report on Form 10-K for the year ended December 31, 2019.

INTRODUCTION
We lease aircraft and provide airline operations, aircraft modification and maintenance services, ground services, and other support services to the air transportation and logistics industries. Through the Company's subsidiaries, we offer a range of complementary services to delivery companies, freight forwarders, e-commerce operators, airlines and government customers. Our principal subsidiaries include three independently certificated airlines (ABX, ATI and OAI) and an aircraft leasing company (CAM). CAM provides competitive aircraft lease rates by converting passenger aircraft into cargo freighters and offering them to customers under long-term leases.
We have two reportable segments: CAM, which leases Boeing 777, 767 and 757 aircraft and aircraft engines, and ACMI Services, which includes the cargo and passenger transportation operations of the three airlines. Our other business operations, which primarily provide support services to the transportation industry, include aircraft maintenance and modification services, aviation fuel sales and ground services for load transfer, parcel sorting and related equipment maintenance. These operations do not constitute reportable segments and are reported together as Other Activities.
Our largest customers are the U.S. Department of Defense ("DoD"); Amazon.com Services, LLC ("ASI"), successor to Amazon.com Services, Inc., a subsidiary of Amazon.com, Inc. ("Amazon") and DHL Network Operations (USA), Inc. and its affiliates ("DHL").
Amazon
The Company has been providing freighter aircraft and services for cargo handling and logistical support for ASI since September 2015. Revenues from our commercial arrangements with ASI comprised approximately 29% and 19% of our consolidated revenues during the six month periods ending June 30, 2020 and 2019, respectively. The increase in revenues reflects the expansion of the number of aircraft and services provided to ASI since June of 2019.
On March 8, 2016, we entered into an Air Transportation Services Agreement (the “ATSA”) with ASI pursuant to which CAM leased 20 Boeing 767 freighter aircraft to ASI, including 12 Boeing 767-200 freighter aircraft for a term of five years and eight Boeing 767-300 freighter aircraft for a term of seven years. The ATSA also provides for the operation of those aircraft by our airline subsidiaries for a term of five years, and the performance of ground handling services by our subsidiary, LGSTX Services Inc. ("LGSTX"). In December 2018, the Company announced agreements with Amazon to (1) lease and operate ten additional Boeing 767-300 aircraft for ASI, (2) extend the term of the 12 Boeing 767-200 aircraft currently leased to ASI by two years to 2023 with an option on the part of ASI to extend the lease term for three more years, (3) extend the term of the eight Boeing 767-300 aircraft currently leased to ASI by three years to 2026 and 2027 with an option on the part of ASI to extend the lease term for three more years and (4) extend the ATSA by five years through March 2026, with an option on the part of ASI to extend the term for an additional three years. In January 2019, we entered into lease amendments which formalized the lease extensions described in (2), (3) and (4) above. As of June 30, 2020, we had executed leases with ASI for six of the ten Boeing 767-300 aircraft. We plan to deliver the remainder in the second half of 2020. All ten of these aircraft leases will be for ten years. Under the ATSA, we operate the aircraft based on pre-defined fees scaled for the number of aircraft hours flown, aircraft scheduled and flight crews provided to ASI for its network.
In conjunction with the execution of the ATSA, the Company and Amazon entered into an Investment Agreement and a Stockholders Agreement on March 8, 2016. The Investment Agreement calls for the Company to
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issue warrants in three tranches which grant Amazon the right to acquire up to 19.9% of the Company’s pre-transaction outstanding common shares measured on a GAAP-diluted basis, adjusted for share issuances and repurchases by the Company following the date of the Investment Agreement and after giving effect to the warrants granted. These warrants have an exercise price of $9.73 per share and will expire on March 9, 2021. If settled in cash, the Company will receive a payment of approximately $145 million for these warrants.
In conjunction with Amazon's commitment for ten additional 767 aircraft leases, extensions of twenty existing Boeing 767 aircraft leases and additional aircraft operations under the ATSA, Amazon and the Company entered into a new investment agreement on December 20, 2018 (the "2018 Investment Agreement"). Pursuant to the 2018 Investment Agreement, the Company issued additional warrants to Amazon for 14.8 million common shares, of which warrants for 11.1 million common shares have vested as existing leases were extended and six additional aircraft leases were executed and added to the ATSA operations. More of these warrants will vest when four additional aircraft leases are executed during the last half of 2020. These warrants have an exercise price of $21.53 per share and will expire if not exercised by December 20, 2025.
On May 29, 2020, Amazon agreed to lease twelve more Boeing 767-300 aircraft from the Company. The first of these leases began in the second quarter of 2020 with the remaining eleven to be delivered in 2021. Pursuant to the 2018 Investment Agreement, Amazon was issued warrants for 7.0 million common shares of which 0.6 million common shares have vested. All twelve of these aircraft leases will be for ten year terms. These warrants will expire if not exercised by December 20, 2025. The exercise price of these warrants is $20.40 per share
Additionally, Amazon can earn incremental warrant rights under the 2018 Investment Agreement by leasing up to five more cargo aircraft from the Company before January 2026. Incremental warrants granted for Amazon’s commitment to any such future aircraft leases will have an exercise price based on the volume-weighted average price of the Company's shares during the 30 trading days immediately preceding the contractual commitment for each lease.
Through the 2016 and 2018 Investment Agreements, Amazon can potentially own approximately 39.9% of the Company if all potential warrants issued vest and are settled with cash. For all warrants vested, Amazon may select a cashless conversion option. Assuming ATSG’s stock price at the time of conversion is above the warrant exercise price, Amazon would receive fewer shares in exchange for any warrants exercised under the cashless option. Instead, Amazon would receive the number of ATSG shares equivalent in market value at the time of conversion to the appreciation above the exercise price of the warrants.
Our accounting for the warrants issued to Amazon has been determined in accordance with the financial reporting guidance for financial instruments. The fair value of the warrants issued or issuable to Amazon are recorded as a lease incentive asset and are amortized against revenues over the duration of the aircraft leases. The warrants are accounted for as financial instruments, and accordingly, the fair value of the outstanding warrants are measured and classified in liabilities at the end of each reporting period. The Company's earnings are impacted by the fair value re-measurement of the Amazon warrants at the end of each reporting period, customer incentive amortization and the related income tax effects. For income tax calculations, the value and timing of related tax deductions will differ from the guidance described above for financial reporting. For additional information about the warrants, see Note C to the accompanying consolidated financial statements.
DoD
The Company's airlines have been providing services to the U.S. DoD since the 1990's. The Company's airlines provide passenger and cargo airlift services to the DoD. The DoD awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Under the contracts, we are responsible for all operating expenses including fuel, landing and ground handling expenses. We receive reimbursements from the U.S. Transportation Command of the DoD each month if the price of fuel paid by us for the flights exceeds a previously set peg price. The DoD comprised 32% and 37% of the Company's consolidated revenues during the six month periods ending June 30, 2020 and 2019, respectively. The decline in the percentage of revenues from the DoD reflects the impact of Covid-19 and increased revenues from other customers.

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DHL
The Company has had long-term contracts with DHL since August 2003. DHL accounted for 11% and 15% of the Company's consolidated revenues, during the first six months of 2020 and 2019, respectively. As of June 30, 2020, the Company, through CAM, leased 14 Boeing 767 cargo aircraft to DHL comprised of seven Boeing 767-200 aircraft and seven Boeing 767-300 aircraft expiring between 2022 and 2024. Eight of the 14 Boeing 767 aircraft were being operated for DHL by the Company's airlines. We also operated four CAM-owned Boeing 757 aircraft under other operating arrangements with DHL during 2019 and the first half of 2020. During 2020, DHL terminated operating agreements for three of the Boeing 757 aircraft. The decline in the percentage of revenues from DHL primarily reflects the removal of the Boeing 757 operations and increased revenues from other customers compared to last year.
RESULTS OF OPERATIONS
Summary
The consolidated net losses from continuing operations were $105.2 million and net earnings of $28.6 million for the three and six month periods ending June 30, 2020, respectively, compared to net losses of $26.6 million and $4.0 million for the corresponding periods of 2019. The pre-tax losses from continuing operations were $106.2 million and pre-tax earnings of $34.6 million for the three and six month periods ending June 30, 2020, respectively, compared to pre-tax losses of $23.5 million and pre-tax earnings of $4.1 million for the corresponding periods of 2019. Earnings were affected by the following events and adjustments that do not directly reflect our underlying operations among the periods presented:

•On a pre-tax basis, earnings included net losses of $109.7 million and $2.7 million for the three and six month periods ended June 30, 2020, respectively, for the re-measurement of financial instruments, primarily warrant obligations granted to Amazon. This compares to pre-tax losses for re-measurement of such financial instruments of $35.9 million and $31.4 million for the corresponding periods of 2019.

•Pre-tax earnings were reduced by $4.9 million and $9.8 million for the three and six month periods ended June 30, 2020, respectively, for the amortization of customer incentives given to ASI in the form of warrants, compared to $4.0 million and $8.3 million for the corresponding periods of 2019.

•Pre-tax earnings from continuing operations included gains of $2.9 million and $5.8 million for the three and six month periods ended June 30, 2020, respectively, for the non-service components of retiree benefit plans compared to losses of $2.4 million and $4.7 million for the corresponding periods of 2019.

•Pre-tax earnings for the three and six month periods ended June 30, 2020 included losses of $6.5 million and $9.3 million, respectively for the Company's share of development costs for a joint venture and the partial sale of an airline investment, compared to losses of $6.0 million and $9.8 million for the corresponding periods of 2019.

•Pre-tax earnings for the first quarter of 2019 also included expense of $0.4 million for acquisition fees incurred during the Company's acquisition of OAI, along with related entities Advanced Flight Services, LLC; Omni Aviation Leasing, LLC; and T7 Aviation Leasing, LLC (collectively, "Omni").

•Pre-tax earnings for the three and six month periods ending June 30, 2020 were decreased by the impairment of $39.1 million for our four Boeing 757 freighter aircraft and related asset.

•During the second quarter of 2020, the Company recognized $9.8 million of government grants from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

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After removing the effects of the items above, adjusted pre-tax earnings from continuing operations, a non-GAAP measure (a definition and reconciliation of adjusted pre-tax earnings from continuing operations follows), were $41.3 million and $79.7 million for the three and six month periods ended June 30, 2020 compared to $24.8 million and $58.6 million for the corresponding periods of 2019. Adjusted pre-tax earnings from continuing operations improved by $16.5 million and $21.1 million for the three and six month periods ended June 30, 2020 compared to the corresponding periods of 2019, driven by increased revenues primarily from CAM and the ACMI Services segments.
External customer revenues from continuing operations increased by $43.2 million, or 13%, to $377.8 million and $84.3 million, or 12%, to $767.1 million for the three and six month periods ended June 30, 2020 compared to the corresponding periods of 2019. Customer revenues increased in 2020 for contracted airline services, aircraft leasing, ground services and aviation fuel sales compared to the previous year period. Beginning in late February 2020, our revenues were disrupted due to the coronavirus pandemic. The DoD and other customers began canceling scheduled passenger flights as a result of the Covid pandemic. The decline in revenues from these cancellations were offset by an increase in event-driven, ad hoc passenger missions during 2020.
The health and safety of our employees is paramount. We have taken precautions to prevent, detect and limit the spread of the Covid virus in the workplace. These practices include daily temperature checks, requiring face masks, periodically sanitizing facilities, frequent cleaning of high touch surfaces, supporting remote working, travel restrictions, promoting social distancing and frequent hand washing, contact tracing, quarantining, and other practices prescribed by the Centers for Disease Control and Prevention. We have not experienced a wide-spread outbreak at any location. However, a coronavirus outbreak among our flight crews, at one of our maintenance facilities, at customer sorting centers or an airport could result in workforce shortages, facility closures and significant numbers of flight cancellations.

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A summary of our revenues and pre-tax earnings and adjusted pre-tax earnings from continuing operations is shown below (in thousands):
Three Months Ending Six Months Ending
  June 30, June 30,
  2020 2019 2020 2019
Revenues from Continuing Operations:
CAM
Aircraft leasing and related services $ 79,345    $ 73,280    157,954    147,857   
Lease incentive amortization (4,475)   (4,024)   (8,921)   (8,251)  
Total CAM 74,870    69,256    149,033    139,606   
ACMI Services 287,604    254,938    571,769    512,894   
Other Activities 77,056    71,104    157,092    138,466   
Total Revenues 439,530    395,298    877,894    790,966   
Eliminate internal revenues (61,736)   (60,722)   (110,823)   (108,207)  
Customer Revenues - non reimbursed $ 377,794    $ 334,576    $ 767,071    $ 682,759   
Pre-Tax Earnings (Loss) from Continuing Operations:
CAM, inclusive of interest expense $ 19,640    $ 16,683    $ 35,460    $ 32,857   
ACMI Services, inclusive of interest expense 19,684    973    38,062    13,283   
Other Activities (2,244)   4,006    (2,191)   5,909   
Net unallocated interest expense (681)   (903)   (1,336)   (1,683)  
Government grants 9,821    —    9,821    —   
Impairment of aircraft and related assets (39,075)   —    (39,075)   —   
Other non-service components of retiree benefits gains (costs), net 2,898    (2,351)   5,796    (4,702)  
Net financial instrument re-measurement loss (109,723)   (35,886)   (2,679)   (31,386)  
Loss from non-consolidated affiliate (6,513)   (5,998)   (9,277)   (9,814)  
Transaction fees —    —    —    (373)  
Pre-Tax Earnings (Loss) from Continuing Operations (106,193)   (23,476)   34,581    4,091   
Add lease incentive amortization 4,896    4,024    9,753    8,251   
Less government grants (9,821)   —    (9,821)   —   
Add impairment of aircraft and related assets 39,075    —    39,075    —   
Add other non-service components of retiree benefit (gains) costs, net (2,898)   2,351    (5,796)   4,702   
Add net loss on financial instruments 109,723    35,886    2,679    31,386   
Add charges for non-consolidated affiliates 6,513    5,998    9,277    9,814   
Add transaction fees —    —    —    373   
Adjusted Pre-Tax Earnings from Continuing Operations $ 41,295    $ 24,783    $ 79,748    $ 58,617   
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Adjusted pre-tax earnings from continuing operations, a non-GAAP measure, is pre-tax earnings excluding (i) settlement charges and other non-service components of retiree benefit costs, (ii) gains and losses for the fair value re-measurement of financial instruments, (iii) customer incentive amortization, (iv) the transaction fees related to the acquisition of Omni, (v) the start-up costs of a non-consolidated joint venture, and (vi) the partial sale of an airline investment. We exclude these items from adjusted pre-tax earnings because they are distinctly different in their predictability or not closely related to our on-going operating activities. We also excluded the recognition of government grants from adjusted earnings to improve comparability between periods. Management uses adjusted pre-tax earnings to compare the performance of core operating results between periods. Presenting this measure provides investors with a comparative metric of fundamental operations while highlighting changes to certain items among 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.
Aircraft Fleet
Our fleet of cargo and passenger aircraft is summarized in the following table as of June 30, 2020 and December 31, 2019. Our freighters, primarily converted from passenger aircraft, utilize standard shipping containers and can be deployed into regional cargo markets more economically than larger capacity aircraft, newly built freighters or other competing alternatives. At June 30, 2020, the Company owned fourteen Boeing 767-300 aircraft that were either already undergoing, or awaiting, induction into the freighter conversion process.
Aircraft fleet activity during the first six months of 2020 is summarized below:
•CAM completed the modification of one Boeing 767-300 freighter aircraft purchased in the previous year and began to lease that aircraft to an external customer under a multi-year lease.
•ABX returned one Boeing 767-200 freighter aircraft and one Boeing 767-300 freighter aircraft to CAM. CAM is prepping the Boeing 767-300 aircraft for lease to an external customer later in 2020.
•ATI returned three Boeing 757-200 freighter aircraft to CAM and the aircraft were retired.
•ATI returned one Boeing 767-300 freighter aircraft to CAM. CAM leased the Boeing 767-300 aircraft to an external customer under a multi-year lease. ATI operates this aircraft for the customer.
•An external customer returned one Boeing 737-400 freighter aircraft to CAM. CAM sold the Boeing 737-400 aircraft to another external customer during the second quarter of 2020.
•An external customer returned one Boeing 767-200 freighter aircraft to CAM. The aircraft is being prepped for lease to another external customer later in 2020.
•CAM leased one Boeing 767-200 freighter aircraft to an external customer under a multi-year lease.
•OAI began to lease one Boeing 767-300 passenger aircraft from an external lessor.
•CAM purchased two Boeing 767-300 freighter aircraft and five Boeing 767-300 passenger aircraft for the purpose of converting the passenger aircraft into a standard freighter configuration. The aircraft are expected to be leased to external customers during 2020 and 2021.
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June 30, 2020 December 31, 2019
  ACMI
Services 		CAM Total ACMI
Services 		CAM Total
In-service aircraft
Aircraft owned
Boeing 767-200 Freighter 6    26    32    7    26    33   
Boeing 767-200 Passenger 2    —    2    2    —    2   
Boeing 767-300 Freighter 3    37    40    5    35    40   
Boeing 767-300 Passenger 7    —    7    7    —    7   
Boeing 777-200 Passenger 3    —    3    3    —    3   
Boeing 757-200 Freighter 1    —    1    4    —    4   
Boeing 757-200 Combi 4    —    4    4    —    4   
Boeing 737-400 Freighter —    —    —    —    1    1   
Total 26    63    89    32    62    94   
Operating lease
Boeing 767-200 Passenger 1    —    1    1    —    1   
Boeing 767-300 Passenger 2    —    2    1    —    1   
Boeing 767-300 Freighter 2    —    2    2    —    2   
Total 5    —    5    4    —    4   
Other aircraft
Owned Boeing 767-300 under modification —    14    14    —    8    8   
Owned Boeing 767 available or staging for lease —    3    3    —    2    2   
As of June 30, 2020, ABX, ATI and OAI were leasing 26 in-service aircraft internally from CAM. As of June 30, 2020, 36 of CAM's 63 Boeing 767 freighter aircraft were leased to customers and operated by ABX or ATI within ACMI Services. CAM leased the other 13 Boeing 767-200 freighter aircraft and 14 Boeing 767-300 aircraft to external customers, including six Boeing 767-200 aircraft to DHL that are being operated by a DHL-affiliated airline. The carrying values of the total in-service fleet as of June 30, 2020 and December 31, 2019 were $1,304.1 million and $1,387.6 million, respectively.
CAM Segment
CAM offers aircraft leasing and related services to external customers and also leases aircraft internally to the Company's airlines. CAM acquires passenger aircraft and manages the modification of the aircraft into freighters. The follow-on aircraft leases normally cover a term of five to ten years.
As of June 30, 2020 and 2019, CAM had 63 and 56 aircraft under lease to external customers, respectively. CAM's revenues grew by $5.6 million and $9.4 million for the three and six month periods ended June 30, 2020, respectively, compared to the corresponding periods of 2019, primarily as a result of additional aircraft leases. Revenues from external customers totaled $50.0 million and $96.7 million for the three and six month periods ended June 30, 2020, respectively, compared to $40.0 million and $81.6 million for the corresponding periods of 2019. CAM's revenues from the Company's airlines totaled $24.9 million and $52.3 million for the three and six month periods ended June 30, 2020, respectively, compared to $29.3 million and $58.0 million for the corresponding periods of 2019. CAM's aircraft leasing and related services revenues, which exclude customer lease incentive amortization, increased $6.1 million and $10.1 million for the three and six month periods ended June 30, 2020 compared to the corresponding periods of 2019, primarily as a result of new aircraft leases in 2020. Since July 1 2019, CAM has added eight Boeing 767-300 aircraft to its lease portfolio.
CAM's pre-tax earnings, inclusive of internally allocated interest expense, were $19.6 million and $35.5 million for the three and six month periods ended June 30, 2020, respectively, compared to $16.7 million and $32.9 million
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for the corresponding periods of 2019. Increased pre-tax earnings reflect the lease revenues for additional aircraft offset by a $0.3 million and $0.6 million increase in internally allocated interest expense due to higher debt levels for the three and six month periods ended June 30, 2020, respectively, compared to the corresponding periods of 2019. The pre-tax earnings are inclusive of increased depreciation expense of $3.3 million and $7.6 million for the three and six month periods ended June 30, 2020, respectively, compared to the corresponding periods of 2019 driven by the addition of eight Boeing aircraft in 2020 compared to the first half of 2019.
During the first six months of 2020, CAM purchased five Boeing 767-300 passenger aircraft for freighter conversion and two Boeing 767-300 freighter aircraft. As of June 30, 2020, all five of the Boeing 767-300 passenger aircraft purchased in 2020 and seven of the passenger aircraft purchased in 2019 were being modified from passenger to freighter configuration. CAM expects eight passenger aircraft to complete the conversion process and enter service, along with two purchased freighter aircraft, during the second half of 2020. In addition to the aircraft above, CAM has agreements to purchase seven more passenger Boeing 767-300 aircraft and expects to complete their conversion through 2021. We have external customer commitments to lease 20 of these 21 Boeing 767-300 aircraft.
During 2020 CAM removed a Boeing 737 freighter and three Boeing 757 freighter aircraft from its active fleet. During the remainder of 2020, we expect to retire a Boeing 767-200 and sell one Boeing 767-300 aircraft that is currently under lease.
CAM's operating results will depend on its continuing ability to convert passenger aircraft into freighters within planned costs and within the time frames required by customers. Potential supply chain disruptions, including workforce illness, parts shortages and transportation delays, which may be caused by the coronavirus pandemic could result in the delay of aircraft conversions. The timing and lease rates under which these aircraft are ultimately leased, redeployed or disposed will impact CAM's future operating results. Additionally, CAM's future operating results will also be impacted by the amortization of additional warrants committed to Amazon in conjunction with agreements for additional long-term aircraft leases.
ACMI Services
The ACMI Services segment provides airline operations to its customers, typically under contracts providing for a combination of aircraft, crews, maintenance, insurance and aviation fuel. Our customers are typically 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, certain aircraft maintenance expenses and fuel procured directly by the airline. Aircraft charter agreements, including those for the DoD, usually require the airline to provide full service, including fuel and other operating expenses for a fixed, all-inclusive price. As of June 30, 2020, ACMI Services included 67 in-service aircraft as follows:
•12 passenger aircraft and 14 freighter aircraft leased internally from CAM
•Eight CAM-owned freighter aircraft which are under lease to DHL and operated by ABX under the DHL CMI agreement
•27 CAM-owned freighter aircraft which are under lease to ASI and operated by ATI or ABX under the ATSA
•Two freighter aircraft from an external lessor under lease to ASI and operated by ATI under the ATSA
•Another CAM-owned freighter leased to a customer and operated by ATI
•Three passenger aircraft leased from an external lessor
As of June 30, 2020, ACMI Services revenues included the operation of four more aircraft compared to June 30, 2019. Total revenues from ACMI Services increased $32.7 million and $58.9 million during the three and six month periods ended June 30, 2020, respectively, to $287.6 million and $571.8 million compared to the corresponding periods of 2019 driven primarily by incremental passenger charter assignments from the federal government, and increased block hours for our customers' e-commerce delivery networks. Ad hoc passenger flights during the first half of 2020 included special airlift capacity, including flights to return people to the United States who were stranded abroad as a result of the pandemic. During the three and six month periods ending June 30,
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2020, billable block hours increased 17% and 25%, respectively, mainly as a result of operating additional aircraft for ASI.
Revenues during the first half of 2020 were impacted by the coronavirus pandemic. In late February 2020, the DoD began canceling combi aircraft flights and in March, commercial customers began canceling scheduled passenger flights as a result of the coronavirus pandemic. Combined block hours flown for contracted commercial passenger and combi fights declined 37% for the second quarter of 2020 compared to the previous year due to the pandemic. The decline in revenues from these cancellations was mitigated by ad hoc passenger flights during the second quarter of 2020 for the DoD and other governmental agencies and increased flying for customer e-commerce networks. Operations during the second quarter of 2020 also included additional transoceanic flights to replace cargo capacity normally serviced in the belly-hold of passenger aircraft.
ACMI Services had pre-tax earnings of $19.7 million and $38.1 million during the three and six month periods ended June 30, 2020, respectively, compared to $1.0 million and $13.3 million for the corresponding periods of 2019. Improved pre-tax results in 2020 compared to 2019 were primarily a result of expanded revenues from ASI and DHL and ad hoc passenger charters. ACMI Services benefited from reduced travel costs including lower airfares during the second quarter of 2020 compared to the second quarter of 2019. Internally allocated interest expense decreased by $0.8 million and $2.0 million for the three and six month periods ended June 30, 2020, respectively, compared to 2019, to $5.6 million and $10.9 million for the corresponding periods of 2020.
We expect Amazon to lease at least four additional Boeing 767-300 freighter aircraft from CAM during the second half of 2020 and to contract the operation of those aircraft to our airlines through our existing ATSA. However, we expect our operating results to be significantly impacted by the coronavirus pandemic during the second half of 2020 and potentially during subsequent quarters. The DoD has reduced normal personnel movements while most of our other passenger service customers have suspended their operations and demand for commercial passenger charters have significantly declined. During the second quarter 2020, the DoD and other government agencies contracted for special airlift capacity and missions which may not continue to occur near the same level in the months ahead. Similarly, customers may find alternatives for the incremental e-commerce routes we operated in the first half of 2020. While it is difficult to predict, we expect lower revenues from passenger operations during the second half of 2020 than we had in the first half of 2020.
Other Activities
We provide other support services to our ACMI Services customers and other airlines by leveraging our knowledge and capabilities developed for our own operations over the years. Through our FAA certificated maintenance and repair subsidiaries, we sell aircraft parts and provide aircraft maintenance and modification services. We also arrange and perform logistical services and package sorting services for certain ASI gateway locations in the U.S. We provide maintenance for ground equipment, facilities and material handling equipment and we resell aviation fuel in Wilmington, Ohio. Additionally, our airlines provide flight training services.
External customer revenues from all other activities increased $0.5 million and $10.2 million during the three and six month periods ended June 30, 2020, respectively, compared to the corresponding periods of 2019, primarily due to aviation fuel sales at ASI's hub in Wilmington, Ohio. Revenues also increased at two ASI gateways which we operate. Ground services revenues during 2020 included a reduction for equipment and facility maintenance revenues compared to the first half of 2019 as customers chose to in-source some of these services. Revenues from aircraft maintenance and part sales declined during 2020 as passenger airlines have reduced their needs for services during the pandemic.
The pre-tax earnings from other activities decreased by $6.3 million and $8.1 million during the three and six month periods ended June 30, 2020 to losses of $2.2 million each, compared to the corresponding periods of 2019. Reduced earnings for 2020 are a result of reduced revenues on aircraft maintenance services and the sales of aircraft parts. These reductions were partially offset by additional aviation fuel sales which earn a lower margin.
Our customer base for aircraft maintenance revenues includes passenger airlines. We expect the adverse impact on our aircraft maintenance business to continue due to the coronavirus pandemic as passenger airlines reduce their needs for scheduled heavy airframe maintenance. Further, we rely on a skilled workforce to perform aircraft maintenance. Similarly, we staff personnel near airports to sort customer packages, load aircraft and maintain
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related equipment. A coronavirus outbreak at one of our maintenance facilities, or at customer sorting centers could result in workforce shortages and facility closures.
Expenses from Continuing Operations
Salaries, wages and benefits expense increased $21.7 million and $47.8 million during the three and six month periods ended June 30, 2020, respectively, compared to the corresponding period of 2019 driven by higher employee headcount for flight operations, maintenance services and package sorting services. The total headcount increased 13% as of June 30, 2020 compared to June 30, 2019.
Depreciation and amortization expense increased $5.0 million and $11.7 million during the three and six month periods ended June 30, 2020, respectively, compared to the corresponding period of 2019. The increase reflects incremental depreciation for eight Boeing 767-300 aircraft and additional aircraft engines added to the operating fleet since July 1, 2019, as well as capitalized heavy maintenance and navigation technology upgrades. We expect depreciation expense to increase during future periods in conjunction with our fleet expansion and capital spending plans.
Maintenance, materials and repairs expense increased $4.2 million and $1.4 million during the three and six month periods ended June 30, 2020, respectively, compared to the corresponding period of 2019. Increased maintenance expense for 2020 was due to increases corresponding to increased flight hours and higher costs for unscheduled engine repairs at our airlines. The aircraft maintenance and material expenses can vary among periods due to the number of maintenance events and the scope of airframe checks that are performed.
Fuel expense increased by $2.6 million and $11.5 million during the three and six month periods ended June 30, 2020, respectively, compared to the corresponding period of 2019. Fuel expense includes the cost of fuel to operate DoD charters, fuel used to position aircraft for service and for maintenance purposes, as well as the cost of fuel sales. The increase in fuel during 2020 is primarily for the increased amounts of aviation fuel we sell at the ASI air hub in Wilmington, Ohio since it opened in mid 2019.
Contracted ground and aviation services expense includes navigational services, aircraft and cargo handling services, baggage handling services and other airport services. Contracted ground and aviation services decreased $1.0 million and $2.2 million during the three and six month periods ended June 30, 2020, respectively, compared to the corresponding period of 2019. Since mid 2019, certain customers chose to in-source some ground services that we had subcontracted.
Travel expense decreased by $3.6 million and $2.1 million during the three and six month periods ended June 30, 2020, respectively, compared to the corresponding period of 2019. The decrease in travel expense was due to less employee travel and the lower costs of air travel as airfares have fallen.
Rent expense increased by $1.2 million and $0.9 million during the three and six month periods ended June 30, 2020, respectively, compared to the corresponding period of 2019 due to increased rent expense for additional aircraft partially offset by lower facility rents during 2020.
Asset impairment charges were recorded during the second quarter of 2020, in conjunction with management's decision to retire four Boeing 757 freighter aircraft. Three of the 757 airframes have been removed from service and are available for sale. One remains in service through 2020. Impairment charges totaling $39.1 million were recorded, primarily reflecting the fair value of these assets as well as other surplus engines and parts.
Operating results included a pre-tax contra expense of $9.8 million during the second quarter of 2020 to recognize grants received from the U.S. government under the CARES Act. For additional information about the CARES Act grants, see Note H of the unaudited condensed consolidated financial statements included in this report.
Non Operating Income, Adjustments and Expenses
Interest expense decreased by $0.8 million and $1.8 million during the three and six month periods ended June 30, 2020, respectively, compared to the corresponding period of 2019. Interest expense during the first half of 2020 decreased compared to the previous year due to lower interest rates on our borrowings under the Senior Credit Agreement.
The Company recorded unrealized pre-tax losses on financial instrument re-measurements of $109.7 million and gains of $2.7 million during the three and six month periods ended June 30, 2020, respectively, compared to
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unrealized pre-tax net gains of $35.9 million and $31.4 million for the corresponding periods of 2019. The gains include the results of re-valuing, as of June 30, 2020 and 2019, the fair value of the stock warrants granted to Amazon. Generally, the warrant value increases or decreases with corresponding increases or decreases in the ATSG stock price during the measurement period. Additionally, the value of certain warrants depend partially on the probability that warrants will vest upon the execution of aircraft leases. Warrant gains for the first six months of 2020 were primarily a result of a 5% decrease in the traded value of ATSG shares.
Non service components of retiree benefits were net gains of $2.9 million and $5.8 million for the three and six month periods ended June 30, 2020, respectively, compared to net losses of $2.4 million and $4.7 million for corresponding periods of 2019. The non service component gain and losses of retiree benefits are actuarially determined and include the amortization of unrecognized gain and loss stemming from changes in assumptions regarding discount rates, expected investment returns and other retirement plan assumptions. Non service components of retiree benefits can vary significantly from one year to the next based on investment results and changes in discount rates used to account for defined benefit retirement plans.
The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through June 30, 2020 have been estimated utilizing a 25% rate based upon year-to-date income and projected results for the full year. The recognition of discrete tax items, such as the conversion of employee stock awards, the issuance of stock warrants and other items have an impact on the effective rate during a period.
The effective tax rate from continuing operations for the three and six month periods ended June 30, 2020 were 1% and 17%, respectively. The effective tax rate is affected by the re-measurement of warrants, changes in valuation allowances and discrete tax items in which expenses and benefits for tax purposes are different than required by generally accepted accounting principles. The effective tax rate before including the effects of the warrant re-measurements, incentive amortizations and the other adjustments for adjusted pretax earnings from continuing operations (see items in table above) was 21% and 23% for the three and six month periods ended June 30, 2020, respectively. The effective tax rate before including the effects of the warrants was 25% and 24% for the three and six month periods ended June 30, 2019.
Discontinued Operations
The financial results of discontinued operations primarily reflect pension, workers' compensation cost adjustments and other benefits for former employees previously associated with ABX's former hub operations pursuant to which ABX performed package sorting services for DHL. Pre-tax gains related to the former sorting operations were $5.2 million for the first six months of 2020 compared to $0.1 million for 2019. Pre-tax earnings during 2020 and 2019 were a result of reductions in self-insurance reserves for former employee claims and pension credits.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash generated from operating activities totaled $249.0 million and $209.4 million for the first six months in 2020 and 2019, respectively. Cash flows generated from operating activities during 2020 and 2019 were driven primarily by aircraft leases to customers and the ACMI Services segment. Operating cash flows increased $39.6 million for the first six months of 2020 compared to the corresponding period of 2019. Operating cash flows for 2020 include the receipt of $37.7 million of grant funds from the CARES Act. Cash outlays for pension contributions were $1.6 million and $1.4 million for the first six months of 2020 and 2019, respectively.
Capital spending levels were primarily the result of aircraft modification costs and the acquisition of aircraft for freighter modification. Cash payments for capital expenditures were $265.9 million and $216.8 million for the first six months of 2020 and 2019, respectively. Capital expenditures in the first half of 2020 included $188.2 million for the acquisition of seven Boeing 767-300 aircraft and freighter modification costs; $47.2 million for required heavy maintenance; and $30.5 million for other equipment, including purchases of aircraft engines and rotables. Capital expenditures in the first half of 2019 included $159.0 million for the acquisition of seven Boeing 767-300 aircraft
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and freighter modification costs; $34.7 million for required heavy maintenance; and $23.1 million for other equipment, including purchases of aircraft engines and rotables.
During the first six months of 2019, we paid $12.0 million to complete the acquisitions of Omni and TriFactor. During the first six months of 2020 and 2019, we contributed $5.6 million and $6.4 million, respectively, to a joint-venture with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft.
Net cash provided by financing activities was $27.4 million for the first six months of 2020 compared to $21.1 million in 2019. Our financing activities during the first six months of 2020 included a debt offering of $500 million in senior unsecured notes (the “Senior Notes”). The Senior Notes were sold only to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and certain investors pursuant to Regulation S under the Securities Act. The Senior Notes are senior unsecured obligations that bear interest at a rate of 4.750% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2020. The Senior Notes will mature on February 1, 2028. The net proceeds from the Senior Notes were used to pay down the revolving credit facility.
During the first six months of 2020, we drew a total of $80.0 million from the revolving credit facility and $40.0 million during the first six months of 2019. Our borrowing activities were necessary to purchase and modify aircraft for lease deployment into air cargo markets.
Commitments
As of June 30, 2020, the Company had fourteen aircraft that were in, or awaiting, the freighter modification process. Additionally, we have agreed to purchase seven more Boeing 767-300 aircraft through 2021. We estimate that capital expenditures for 2020 will total $465 million, of which the majority will be related to aircraft purchases and freighter modifications. Actual capital spending for any future period will be impacted by aircraft acquisitions, maintenance and modification processes. We expect to finance these capital expenditures from current cash balances, future operating cash flows and the Senior Credit Agreement. The Company outsources a significant portion of the aircraft freighter modification process to a non-affiliated third party. The modification process primarily consists of the installation of a standard cargo door and loading system. For additional information about the Company's aircraft modification obligations, see Note I of the accompanying financial statements.
Since August 3, 2017, the Company has been part of a joint-venture with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft. We anticipate approval of a supplemental type certificate from the FAA during the fourth quarter of 2020. We expect to make contributions equal to the Company's 49% ownership percentage of the program's total costs during 2020.
Liquidity
We have a Senior Credit Agreement with a consortium of banks that includes an unsubordinated term loan of $619.2 million, net of debt issuance costs, and a revolving credit facility from which the Company has drawn $177.9 million, net of repayments, as of June 30, 2020. The Senior Credit Agreement expires in November 2024 if certain liquidity measures are maintained during 2024 and contains an incremental accordion capacity based on debt ratios. As of June 30, 2020, the available unused revolving credit facility capacity totaled $408.2 million, and additional permitted indebtedness under the Senior Credit Agreement subject to compliance with other covenants, was limited to $250.0 million.
The Senior Credit Agreement is collateralized by our fleet of Boeing 777, 767 and 757 freighter aircraft. Under the terms of the Senior Credit Agreement, we are required to maintain collateral coverage equal to 115% of the outstanding balances of the term loan and the total funded revolving credit facility. The Senior Credit Agreement requires a minimum collateral coverage of 50% of the outstanding balance of the term loan plus the revolving credit facility commitment, which was $600.0 million.
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 (earnings before interest, taxes, depreciation and amortization expenses) 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
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forced to repay, renegotiate or replace the Senior Credit Agreement. The Senior Notes contain customary events of default and covenants which are generally no more restrictive than those set forth in the Senior Credit Agreement.
Additional debt or lower EBITDA 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 EBITDA. At the Company's current debt-to-EBITDA ratio, the unsubordinated term loans, the Senior Notes and the revolving credit facility bear variable interest rates of 1.68%, 4.75% and 1.68%, respectively.
At June 30, 2020, the Company had $60.3 million of cash balances. We believe that the Company's current cash balances and forecasted cash flows provided from its customer leases and operating agreements, combined with its Senior Credit Agreement, will be sufficient to fund operations, capital spending, scheduled debt payments and required pension funding 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 June 30, 2020 and 2019, 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.
For information regarding recently issued accounting pronouncements and the expected impact on our annual statements, see Note A "SUMMARY OF FINANCIAL STATEMENT PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES" in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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ITEM 3. 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 its customers.
No changes have occurred to the market risks the Company faces since information about those risks was disclosed in item 7A of the Company's 2019 Annual Report on form 10-K filed with the Securities and Exchange Commission on March 2, 2020.

ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of June 30, 2020, 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 year that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We are currently a party to legal proceedings in various federal and state jurisdictions arising out of the operation of the Company's businesses. The amount of alleged liability, if any, from these proceedings cannot be determined with certainty; however, we believe that the Company's 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 1A. RISK FACTORS
The Company faces risks that could adversely affect its condition or results of operations. Many of these risks are disclosed in Item 1A of the Company's 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 2, 2020. The risk factors presented below update, and should be considered in addition to, the risk factors previously disclosed in Item 1A of the Company's 2019 Annual Report on form 10-K. Other risks that are currently unknown to management or are currently considered immaterial or unlikely, could also adversely affect the Company.
Our operating results have been and will continue to be impacted by the coronavirus pandemic.
In late 2019, an outbreak of a coronavirus (COVID-19) was identified in China and has since spread globally, becoming a pandemic. The pandemic has had an impact on our operations and financial results and is expected to continue to affect our operations and financial results. The extent of the impact that the coronavirus pandemic will have on our operations and financial results will depend on future developments, including the duration, spread, severity and any recurrence of the COVID-19 virus; the duration and scope of government orders and restrictions; and the extent of the impact of the pandemic on overall economic conditions. These are highly uncertain and cannot reasonably be predicted.
We expect our operating results to be significantly impacted by the coronavirus pandemic during the second half of 2020 and most likely during subsequent quarters. The DoD reduced normal personnel movements while most of our other passenger service customers suspended their operations and demand for commercial passenger charters significantly declined. During the second quarter 2020 the DoD and other government agencies contracted for special airlift capacity which may not be needed in the months ahead. As a result, we expect the revenues of ACMI Services to decline at least for the second half of 2020 compare to the first half. It is difficult to reasonably predict when flights will actually resume, the frequency in which flights will resume, and the length of time necessary before passenger flights substantially recover to pre-pandemic levels. The economic downturn resulting from the coronavirus pandemic has also resulted in the reduction of demand for other types of services including aircraft maintenance services.
Some of our employees and employees of suppliers and service providers have tested positive for, or have been suspected of having, COVID-19. Additional instances of actual or perceived risk of infection among our employees, or our suppliers' or service providers’ employees, could further negatively impact our operations We rely on a skilled workforce to perform aircraft maintenance. Similarly, we staff personnel near airports to sort customer packages, load aircraft and maintain related equipment. In addition to our own employees, we rely on services from suppliers and customers to operate efficiently and safely. Measures restricting the ability of airport personnel or flight crews to work may result in the reductions of flights. Our operations could be negatively affected if our own personnel or those of our suppliers and customers are quarantined or sickened as a result of exposure to COVID-19, or if they are subject to governmental curfews or “shelter in place” health orders. A coronavirus outbreak at certain maintenance facilities, customer sorting centers or airports could result in workforce shortages or closures causing reduced revenues and higher expenses.
In addition to workforce shortages, the coronavirus pandemic may result in parts shortages, maintenance delays, shortages of transportation and hotel accommodations for flight crews, any of which could result in reduced revenues and additional expenses. Similarly, the effects of the coronavirus pandemic could result in the slower completion of aircraft freighter conversions which in turn would disrupt our aircraft leasing operations. Our
45

customer base for aircraft maintenance revenues includes passenger airlines. Our operating results have been impacted and may continue to be impacted by the coronavirus pandemic as passenger airlines reduce their needs for scheduled heavy airframe maintenance.
The pandemic may have a long term impact on the demand for aviation services and our operating results.
Due to the pandemic, passenger air travel has declined sharply and passenger airlines have temporarily removed much of their fleets from service. The demand for passenger air travel could remain low for an extended period of time and accordingly, the value of airframes and engines could decline for the foreseeable future. If the coronavirus pandemic persists or reemerges, our expectations of related operating cash flows could significantly decline. If such circumstances occur or appear likely to occur, we may need to impair the carrying value of certain recorded assets.
Conditions of the CARES Act
Two of the Company's airline subsidiaries, OAI and ATI, have been granted government funds totaling $75.4 million pursuant to the payroll support program agreement under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The funds are being received in installments through September 2020. In conjunction with the payroll support program agreements, the airlines agreed to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020; limit, on behalf of themselves and certain of their affiliates, executive compensation through March 24, 2022; maintain certain air transportation services through March 1, 2022, as may be required by the U.S. Department of Transportation pursuant to its authority under the CARES Act; and maintain certain internal controls and records relating to the CARES Act funds and comply with certain reporting requirements. In addition, we may not pay dividends or repurchase our shares through September 30, 2021. If we do not comply with the provisions of the CARES Act and the payroll support program agreements, the Company may be required to repay the government funds and also subject to other remedies.
If the coronavirus pandemic persists or reemerges after September 30, 2020, we may need to terminate or furlough airline employees.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 5, 2014, the Board of Directors authorized the Company to repurchase up to $50.0 million of outstanding common stock. In May 2016, the Board amended the Company's common stock repurchase program increasing the amount that management may repurchase from $50.0 million to $100.0 million of outstanding common stock. In February 2018, the Board increased the authorization from $100.0 million to $150.0 million (less amounts previously repurchased). The Board's authorization does not require the Company to repurchase a specific number of shares or establish a time frame for any repurchase and the Board may terminate the repurchase program at any time. Repurchases may be made from time to time in the open market or in privately negotiated transactions. There is no expiration date for the repurchase program. There were no repurchases made during the second quarter of 2020. As of June 30, 2020, the Company had repurchased 6,592,349 shares and the maximum dollar value of shares that could then be purchased under the program was $61.3 million.

The share repurchase program has been suspended until the CARES Act restrictions on the repurchase of shares have lapsed. See “Conditions of the CARES Act.”

ITEM 5. OTHER INFORMATION
None.

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ITEM 6. EXHIBITS
The following exhibits are filed with or incorporated by reference into this report.
Exhibit No. Description of Exhibit
Articles of Incorporation
3.1
Instruments defining the rights of security holders
4.1
4.2
Material Contracts
10.1
10.2
10.3
10.4
Certifications
31.1
31.2
32.1
32.2
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)Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on January 28, 2020.
(2)Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on March 24, 2020.
47

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.,
a Delaware Corporation
Registrant
/S/  RICHARD F. CORRADO
Richard F. Corrado
Chief Executive Officer (Principal Executive Officer)
Date: August 7, 2020
/S/  QUINT O. TURNER
Quint O. Turner
Chief Financial Officer (Principal Financial Officer
Date: August 7, 2020 and Principal Accounting Officer)
48
Exhibit 10.2
PAYROLL SUPPORT PROGRAM AGREEMENT


Recipient: OMNI AIR INTERNATIONAL, LLC
3303 NORTH SHERIDAN ROAD, HANGAR 19
TULSA, OK 74115
PSP Participant Number: PSA-2004031165
Employer Identification Number: 20-0605928
DUNS Number: 174112102


Amount Initial Payroll Support Payment: $22,357,118.87


The Department of the Treasury (Treasury) hereby provides Payroll Support (as defined herein) under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security Act. The Signatory Entity named above, on behalf of itself and its Affiliates (as defined herein), agrees to comply with this Agreement and applicable Federal law as a condition of receiving Payroll Support. The Signatory Entity and its undersigned authorized representatives acknowledge that a materially false, fictitious, or fraudulent statement (or concealment or omission of a material fact) in connection with this Agreement may result in administrative remedies as well as civil and/or criminal penalties.



The undersigned hereby agree to the attached Payroll Support Program Agreement.
/s/ Brent McIntosh
/s/ Shonda C. Fisher
Department of the Treasury Air Transport International, Inc.
Authorized Representative: Brent McIntosh
First Authorized Representative:
Title: Under Secretary for International Affairs
Title: Vice President of Finance
Date: 05/19/2020
Date: April 30, 2020
/s/ Jeffrey C. Crippen
OMNI AIR INTERNATIONAL, LLC
Second Authorized Representative:
Title: President and CEO
Date: April 30, 2020

        

•



OMB Approved No. 1505-0263
Expiration Date: 09/30/2020


         
PAYROLL SUPPORT PROGRAM AGREEMENT INTRODUCTION
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act or Act) directs the Department of the Treasury (Treasury) to provide Payroll Support (as defined herein) to passenger air carriers, cargo air carriers, and certain contractors that must be exclusively used for the continuation of payment of Employee Salaries, Wages, and Benefits (as defined herein). The Act permits Treasury to provide Payroll Support in such form, and on such terms and conditions, as the Secretary of the Treasury determines appropriate, and requires certain assurances from the Recipient (as defined herein).

This Payroll Support Program Agreement, including the application and all supporting documents submitted by the Recipient and the Payroll Support Certification attached hereto (collectively, Agreement), memorializes the binding terms and conditions applicable to the Recipient.

DEFINITIONS

As used in this Agreement, the following terms shall have the following respective meanings, unless the context clearly requires otherwise. In addition, this Agreement shall be construed in a manner consistent with any public guidance Treasury may from time to time issue regarding the implementation of Division A, Title IV, Subtitle B of the CARES Act.

Act or CARES Act means the Coronavirus Aid, Relief, and Economic Security Act (Pub. L. No. 116-136).

Additional Payroll Support Payment means any disbursement of Payroll Support occurring after the first disbursement of Payroll Support under this Agreement.

Affiliate means any Person that directly or indirectly controls, is controlled by, or is under common control with, the Recipient. For purposes of this definition, "control" of a Person shall mean having the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by ownership of voting equity, by contract, or otherwise.

Benefits means, without duplication of any amounts counted as Salary or Wages, pension expenses in respect of Employees, all expenses for accident, sickness, hospital, and death benefits to Employees, and the cost of insurance to provide such benefits; any Severance Pay or Other Benefits payable to Employees pursuant to a bona fide voluntary early retirement program or voluntary furlough; and any other similar expenses paid by the Recipient for the benefit of Employees, including any other fringe benefit expense described in lines 10 and 11 of Financial Reporting Schedule P-6, Form 41, as published by the Department of Transportation, but excluding any Federal, state, or local payroll taxes paid by the Recipient.

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Corporate Officer means, with respect to the Recipient, its president; any vice president in charge of a principal business unit, division, or function (such as sales, administration or finance); any other officer who performs a policy-making function; or any other person who performs similar policy making functions for the Recipient. Executive officers of subsidiaries or parents of the Recipient may be deemed Corporate Officers of the Recipient if they perform such policy-making functions for the Recipient.

Employee means an individual who is employed by the Recipient and whose principal place of employment is in the United States (including its territories and possessions), including salaried, hourly, full-time,
part-time, temporary, and leased employees, but excluding any individual who is a Corporate Officer or independent contractor.

Involuntary Termination or Furlough means the Recipient terminating the employment of one or more Employees or requiring one or more Employees to take a temporary suspension or unpaid leave for any reason, including a shut-down or slow-down of business; provided, however, that an Involuntary Termination or Furlough does not include a Permitted Termination or Furlough.

Maximum Awardable Amount means the amount determined by the Secretary with respect to the Recipient pursuant to section 4113(a)(l), (2), or (3) (as applicable) of the CARES Act.

Payroll Support means funds disbursed by the Secretary to the Recipient under this Agreement, including the first disbursement of Payroll Support and any Additional Payroll Support Payment.

Permitted Termination or Furlough means, with respect to an Employee, (1) a voluntary furlough, voluntary leave of absence, voluntary resignation, or voluntary retirement, (2) termination of employment resulting from such Employee's death or disability, or (3) the Recipient terminating the employment of such Employee for cause or placing such Employee on a temporary suspension or unpaid leave of absence for disciplinary reasons, in either case, as reasonably determined by the Recipient acting in good faith.

Person means any natural person, corporation, limited liability company, partnership, joint venture, trust, business association, governmental entity, or other entity.

Recipient means, collectively, the Signatory Entity; its Affiliates that are air carriers as defined in 49 U.S.C.
§ 40102; and their respective heirs, executors, administrators, successors, and assigns.

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Salary means, without duplication of any amounts counted as Benefits, a predetermined regular payment, typically paid on a weekly or less frequent basis but which may be expressed as an hourly, weekly, annual or other rate, as well as cost-of-living differentials, vacation time, paid time off, sick leave, and overtime pay, paid by the Recipient to its Employees, but excluding any Federal, state, or local payroll taxes paid by the Recipient.

Secretary means the Secretary of the Treasury.

Severance Pay or Other Benefits means any severance payment or other similar benefits, including cash payments, health care benefits, perquisites, the enhancement or acceleration of the payment or vesting of any payment or benefit or any other in-kind benefit payable (whether in lump sum or over time, including after March 24, 2022) by the Recipient to a Corporate Officer or Employee in connection with any termination of such Corporate Officer's or Employee's employment (including, without limitation, resignation, severance, retirement, or constructive termination), which shall be determined and calculated in respect of any Employee or Corporate Officer of the Recipient in the manner prescribed in 17 CFR 229.402G) (without regard to its limitation to the five most highly compensated executives and using the actual date of termination of employment rather than the last business day of the Recipient's last completed fiscal year as the trigger event).

Signatory Entity means the passenger air carrier, cargo air carrier, or contractor that has entered into this Agreement.

Taxpayer Protection Instruments means warrants, options, preferred stock, debt securities, notes, or other financial instruments issued by the Recipient or an Affiliate to Treasury as compensation for the Payroll Support under this Agreement, if applicable.

Total Compensation means compensation including salary, wages, bonuses, awards of stock, and any other financial benefits provided by the Recipient or an Affiliate, as applicable, which shall be determined and calculated for the 2019 calendar year or any applicable 12-month period in respect of any Employee or Corporate Officer of the Recipient in the manner prescribed under paragraph e.5 of the award term in 2 CFR part 170, App. A, but excluding any Severance Pay or Other Benefits in connection with a termination of employment.

Wage means, without duplication of any amounts counted as Benefits, a payment, typically paid on an hourly, daily, or piecework basis, including cost-of-living differentials, vacation, paid time off, sick leave, and overtime pay, paid by the Recipient to its Employees, but excluding any Federal, state, or local payroll taxes paid by the Recipient.

4

         
PAYROLL SUPPORT PAYMENTS

1.Upon the execution of this Agreement by Treasury and the Recipient, the Secretary shall approve the Recipient's application for Payroll Support.
2.The Recipient may receive Payroll Support in multiple payments up to the Maximum Awardable Amount, and the amounts (individually and in the aggregate) and timing of such payments will be determined by the Secretary in his sole discretion. The Secretary may, in his sole discretion, increase or reduce the Maximum Awardable Amount (a) consistent with section 4113(a) of the CARES Act and (b) on a pro rata basis in order to address any shortfall in available funds, pursuant to section 4113(c) of the CARES Act.
3.The Secretary may determine in his sole discretion that any Payroll Support shall be conditioned on, and subject to, such additional terms and conditions (including the receipt of, and any terms regarding, Taxpayer Protection Instruments) to which the parties may agree in writing.

TERMS AND CONDITIONS
Retaining and Paying Employees

4.The Recipient shall use the Payroll Support exclusively for the continuation of payment of Wages, Salaries, and Benefits to the Employees of the Recipient.

a.Furloughs and Layoffs. The Recipient shall not conduct an Involuntary Termination or Furlough of any Employee between the date of this Agreement and September 30, 2020.
b.Employee Salary, Wages, and Benefits

i.Salary and Wages. Except in the case of a Permitted Termination or Furlough, the Recipient shall not, between the date of this Agreement and September 30, 2020, reduce, without the Employee's consent, (A) the pay rate of any Employee earning a Salary, or (B) the pay rate of any Employee earning Wages.
ii.Benefits. Except in the case of a Permitted Termination or Furlough, the Recipient shall not, between the date of this Agreement and September 30, 2020, reduce, without the Employee's consent, the Benefits of any Employee; provided, however, that for purposes of this paragraph, personnel expenses associated with the performance of work duties, including those described in line 10 of Financial Reporting Schedule P-6, Form 41, as published by the Department of Transportation, may be reduced to the extent the associated work duties are not performed.

5

         
Dividends and Buybacks

5.Through September 30, 2021, neither the Recipient nor any Affiliate shall, in any transaction, purchase an equity security of the Recipient or of any direct or indirect parent company of the Recipient that, in either case, is listed on a national securities exchange.
6.Through September 30, 2021, the Recipient shall not pay dividends, or make any other capital distributions, with respect to the common stock (or equivalent equity interest) of the Recipient.

Limitations on Certain Compensation

7.Beginning March 24, 2020, and ending March 24, 2022, the Recipient and its Affiliates shall not pay any of the Recipient's Corporate Officers or Employees whose Total Compensation exceeded
$425,000 in calendar year 2019 (other than an Employee whose compensation is determined through an existing collective bargaining agreement entered into before March 27, 2020):

a.Total Compensation which exceeds, during any 12 consecutive months of such twoyear period, the Total Compensation the Corporate Officer or Employee received in calendar year 2019; or
b.Severance Pay or Other Benefits in connection with a termination of employment with the Recipient which exceed twice the maximum Total Compensation received by such Corporate Officer or Employee in calendar year 2019.

8.Beginning March 24, 2020, and ending March 24, 2022, the Recipient and its Affiliates shall not pay any of the Recipient's Corporate Officers or Employees whose Total Compensation exceeded
$3,000,000 in calendar year 2019 Total Compensation in excess of the sum of:

a. $3,000,000; and

b. 50 percent of the excess over $3,000,000 of the Total Compensation received by such Corporate Officer or Employee in calendar year 2019.

9.For purposes of determining applicable amounts under paragraphs 7 and 8 with respect to any Corporate Officer or Employee who was employed by the Recipient or an Affiliate for less than all of calendar year 2019, the amount of Total Compensation in calendar year 2019 shall mean such Corporate Officer's or Employee's Total Compensation on an annualized basis.

Continuation of Service

10.If the Recipient is an air carrier, until March 1, 2022, the Recipient shall comply with any applicable requirement issued by the Secretary of Transportation under section 41l 4(b) of the CARES Act to maintain scheduled air transportation service to any point served by the Recipient before March 1, 2020.

6

         
Effective Date

11.This Agreement shall be effective as of the date of its execution by both parties.

Reporting and Auditing

12.Until the calendar quarter that begins after the later of March 24, 2022, and the date on which no Taxpayer Protection Interest is outstanding, not later than 45 days after the end of each of the first three calendar quarters of each calendar year and 90 days after the end of each calendar year, the Signatory Entity, on behalf of itself and each other Recipient, shall certify to Treasury that it is in compliance with the terms and conditions of this Agreement and provide a report containing the following:

a.the amount of Payroll Support funds expended during such quarter;

b.the Recipient's financial statements (audited by an independent certified public accountant, in the case of annual financial statements); and
c.a copy of the Recipient's IRS Form 941 filed with respect to such quarter; and

d.a detailed summary describing, with respect to the Recipient, (a) any changes in Employee headcount during such quarter and the reasons therefor, including any Involuntary Termination or Furlough, (b) any changes in the amounts spent by the Recipient on Employee Wages, Salary, and Benefits during such quarter, and (c) any changes in Total Compensation for, and any Severance Pay
or Other Benefits in connection with the termination of, Corporate Officers and Employees subject to limitation under this Agreement during such quarter; and the reasons for any such changes.

13.If the Recipient or any Affiliate, or any Corporate Officer of the Recipient or any Affiliate, becomes aware of facts, events, or circumstances that may materially affect the Recipient's compliance with the terms and conditions of this Agreement, the Recipient or Affiliate shall promptly provide Treasury with a written description of the events or circumstances and any action taken, or contemplated, to address the issue.
14.In the event the Recipient contemplates any action to commence a bankruptcy or insolvency proceeding in any jurisdiction, the Recipient shall promptly notify Treasury.
15.The Recipient shall:

a.Promptly provide to Treasury and the Treasury Inspector General a copy of any Department of Transportation Inspector General report, audit report, or report of any other oversight body, that is received by the Recipient relating to this Agreement.
b.Immediately notify Treasury and the Treasury Inspector General of any indication of fraud, waste, abuse, or potentially criminal activity pertaining to the Payroll Support.

7

         
c.Promptly provide Treasury with any information Treasury may request relating to compliance by the Recipient and its Affiliates with this Agreement.

16.The Recipient and Affiliates will provide Treasury, the Treasury Inspector General, and such other entities as authorized by Treasury timely and unrestricted access to all documents, papers, or other records, including electronic records, of the Recipient related to the Payroll Support, to enable Treasury and the Treasury Inspector General to make audits, examinations, and otherwise evaluate the Recipient's compliance with the terms of this Agreement. This right also includes timely and reasonable access to the Recipient's and its Affiliates' personnel for the purpose of interview and discussion related to such documents. This right of access shall continue as long as records are required to be retained.

Recordkeeping and Internal Controls

17.If Treasury notifies the Recipient that the first disbursement of Payroll Support to the Recipient under this Agreement is the Maximum Awardable Amount (subject to any pro rata reductions and as determined by the Secretary as of the date of such disbursement), the Recipient shall maintain the Payroll Support funds in a separate account over which Treasury shall have a perfected security interest to continue the payment of Wages, Salary, and Benefits to the Employees. For the avoidance of doubt, regardless whether the first disbursement of Payroll Support to the Recipient under this Agreement is the Maximum Awardable Amount, if the Recipient is a debtor as defined under 11 U.S.C. § 101(13), the Payroll Support funds, any claim or account receivable arising under this Agreement, and any segregated account holding funds received under this Agreement shall not constitute or become property of the estate under 11 U.S.C. § 541.
18.The Recipient shall expend and account for Payroll Support funds in a manner sufficient to:

a.Permit the preparation of accurate, current, and complete quarterly reports as required under this Agreement.
b.Permit the tracing of funds to a level of expenditures adequate to establish that such funds have been used as required under this Agreement.

19.The Recipient shall establish and maintain effective internal controls over the Payroll Support; comply with all requirements related to the Payroll Support established under applicable Federal statutes and regulations; monitor compliance with Federal statutes, regulations, and the terms and conditions of this Agreement; and take prompt corrective actions in accordance with audit recommendations. The Recipient shall promptly remedy any identified instances of noncompliance with this Agreement.

8

         
20.The Recipient and Affiliates shall retain all records pertinent to the receipt of Payroll Support and compliance with the terms and conditions of this Agreement (including by suspending any automatic deletion functions for electronic records, including e-mails) for a period of three years following the period of performance. Such records shall include all information necessary to substantiate factual representations made in the Recipient's application for Payroll Support, including ledgers and
sub-ledgers, and the Recipient's and Affiliates' compliance with this Agreement. While electronic storage of records (backed up as appropriate) is preferable, the Recipient and Affiliates may store records in hardcopy (paper) format. The term "records" includes all relevant financial and accounting records and all supporting documentation for the information reported on the Recipient's quarterly reports.
21.If any litigation, claim, investigation, or audit relating to the Payroll Support is started before the expiration of the three-year period, the Recipient and Affiliates shall retain all records described in paragraph 20 until all such litigation, claims, investigations, or audit findings have been completely resolved and final judgment entered or final action taken.

Remedies

22.If Treasury believes that an instance of noncompliance by the Recipient or an Affiliate with (a) this Agreement, (b) sections 4114 or 4116 of the CARES Act, or (c) the Internal Revenue Code of 1986 as it applies to the receipt of Payroll Support has occurred, Treasury may notify the Recipient in writing of its proposed determination of noncompliance, provide an explanation of the nature of the noncompliance, and specify a proposed remedy. Upon receipt of such notice, the Recipient shall, within seven days, accept Treasury's proposed remedy, propose an alternative remedy, or provide information and documentation contesting Treasury's proposed determination. Treasury shall consider any such submission by the Recipient and make a final written determination, which will state Treasury's findings regarding noncompliance and the remedy to be imposed.
23.If Treasury makes a final determination under paragraph 22 that an instance of noncompliance has occurred, Treasury may, in its sole discretion, withhold any Additional Payroll Support Payments; require the repayment of the amount of any previously disbursed Payroll Support, with appropriate interest; require additional reporting or monitoring; initiate suspension or debarment proceedings as authorized under 2 CFR Part 180; terminate this Agreement; or take any such other action as Treasury, in its sole discretion, deems appropriate.
24.Treasury may make a final determination regarding noncompliance without regard to paragraph 22 if Treasury determines, in its sole discretion, that such determination is necessary to protect a material interest of the Federal Government. In such event, Treasury shall notify the Recipient of the remedy that Treasury, in its sole discretion, shall impose, after which the Recipient may contest Treasury's final determination or propose an alternative remedy in writing to Treasury. Following the receipt of such a submission by the Recipient, Treasury may, in its sole discretion, maintain or alter its final determination.

9

         
25.Any final determination of noncompliance and any final determination to take any remedial action described herein shall not be subject to further review. To the extent permitted by law, the Recipient waives any right to judicial review of any such determinations and further agrees not to assert in any court any claim arising from or relating to any such determination or remedial action.
26.Instead of, or in addition to, the remedies listed above, Treasury may refer any noncompliance or any allegations of fraud, waste, or abuse to the Treasury Inspector General.
27.Treasury, in its sole discretion, may grant any request by the Recipient for termination of this Agreement, which such request shall be in writing and shall include the reasons for such termination, the proposed effective date of the termination, and the amount of any unused Payroll Support funds the Recipient requests to return to Treasury. Treasury may, in its sole discretion, determine the extent to which the requirements under this Agreement may cease to apply following any such termination.
28.If Treasury determines that any remaining portion of the Payroll Support will not accomplish the purpose of this Agreement, Treasury may terminate this Agreement in its entirety to the extent permitted by law.

Debts

29.Any Payroll Support in excess of the amount which Treasury determines, at any time, the Recipient is authorized to receive or retain under the terms of this Agreement constitutes a debt to the Federal Government.
30.Any debts determined to be owed by the Recipient to the Federal Government shall be paid promptly by the Recipient. A debt is delinquent if it has not been paid by the date specified in Treasury's initial written demand for payment, unless other satisfactory arrangements have been made. Interest, penalties, and administrative charges shall be charged on delinquent debts in accordance with 31 U.S.C. § 3717, 31 CFR 901.9, and paragraphs 31 and 32. Treasury will refer any debt that is more than 180 days delinquent to Treasury's Bureau of the Fiscal Service for debt collection services.
31.Penalties on any debts shall accrue at a rate of not more than 6 percent per year or such other higher rate as authorized by law.
32.Administrative charges relating to the costs of processing and handling a delinquent debt shall be determined by Treasury.
33.The Recipient shall not use funds from other federally sponsored programs to pay a debt to the government arising under this Agreement.


         
Protections for Whistleblowers

34.In addition to other applicable whistleblower protections, in accordance with 41 U.S.C. § 4712, the Recipient shall not discharge, demote, or otherwise discriminate against an Employee as a reprisal for disclosing information to a Person listed below that the Employee reasonably believes is evidence of gross mismanagement of a Federal contract or grant, a gross waste of Federal funds, an abuse of authority relating to a Federal contract or grant, a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a Federal contract (including the competition for or negotiation of a contract) or grant:

a.A Member of Congress or a representative of a committee of Congress;
b.An Inspector General;
c.The Government Accountability Office;
d.A Treasury employee responsible for contract or grant oversight or management;
e.An authorized official of the Department of Justice or other law enforcement agency;
f.A court or grand jury; or
g.A management official or other Employee of the Recipient who has the responsibility to investigate, discover, or address misconduct.

Lobbying

35.The Recipient shall comply with the provisions of 31 U.S.C. § 1352, as amended, and with the regulations at 31 CFR Part 21.

Non-Discrimination

36.The Recipient shall comply with, and hereby assures that it will comply with, all applicable Federal statutes and regulations relating to nondiscrimination including:

a.Title VI of the Civil Rights Act of 1964 (42 U.S.C. § 2000d et seq.), including Treasury's implementing regulations at 31 CFR Part 22;
b.Section 504 of the Rehabilitation Act of 1973, as amended (29 U.S.C. § 794);
c.The Age Discrimination Act of 1975, as amended (42 U.S.C. §§ 6101-6107), including Treasury' s implementing regulations at 31 CFR Part 23 and the general age discrimination regulations at 45 CFR Part 90; and
d.The Air Carrier Access Act of 1986 (49 U.S.C. § 41705).


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Additional Reporting

37.Within seven days after the date of this Agreement, the Recipient shall register in SAM.gov, and thereafter maintain the currency of the information in SAM.gov until at least March 24, 2022. The Recipient shall review and update such information at least annually after the initial registration, and more frequently if required by changes in the Recipient's information. The Recipient agrees that this Agreement and information related thereto, including the Maximum Awardable Amount and any executive total compensation reported pursuant to paragraph 38, may be made available to the public through a U.S. Government website, including SAM.gov.
38.For purposes of paragraph 37, the Recipient shall report total compensation as defined in paragraph e.5 of the award term in 2 CFR part 170, App. A for each of the Recipient's five most highly compensated executives for the preceding completed fiscal year, if:

a.the total Payroll Support is $25,000 or more;

b.in the preceding fiscal year, the Recipient received:

1. 80 percent or more of its annual gross revenues from Federal procurement contracts (and subcontracts) and Federal financial assistance, as defined at 2 CFR 170.320 (and subawards); and
i.$25,000,000 or more in annual gross revenues from Federal procurement contracts (and subcontracts) and Federal financial assistance, as defined at 2 CFR 170.320 (and subawards); and

c.the public does not have access to information about the compensation of the executives through periodic reports filed under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a), 78o(d)) or section 6104 of the Internal Revenue Code of 1986. To determine if the public has access to the compensation information, the Recipient shall refer to U.S. Securities and Exchange Commission total compensation filings at http://www.sec.gov/answers/execomp.htm.

39.The Recipient shall report executive total compensation described in paragraph 38:

a.as part of its registration profile at https://www.sam.gov; and

b.within five business days after the end of each month following the month in which this Agreement becomes effective, and annually thereafter.


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40.The Recipient agrees that, from time to time, it will, at its own expense, promptly upon reasonable request by Treasury, execute and deliver, or cause to be executed and delivered, or use its commercially reasonable efforts to procure, all instruments, documents and information, all in form and substance reasonably satisfactory to Treasury, to enable Treasury to ensure compliance with, or effect the purposes of, this Agreement, which may include, among other documents or information, (a) certain audited financial statements of the Recipient, (b) documentation regarding the Recipient's revenues derived from its business as a passenger or cargo air carrier or regarding the passenger air carriers for which the Recipient provides services as a contractor (as the case may be), and (c) the Recipient's most recent quarterly Federal tax returns. The Recipient agrees to provide Treasury with such documents or information promptly.
41.If the total value of the Recipient's currently active grants, cooperative agreements, and procurement contracts from all Federal awarding agencies exceeds $10,000,000 for any period before termination of this Agreement, then the Recipient shall make such reports as required by 2 CFR part 200, Appendix XII.
Other

42.The Recipient acknowledges that neither Treasury, nor any other actor, department, or agency of the Federal Government, shall condition the provision of Payroll Support on the Recipient's implementation of measures to enter into negotiations with the certified bargaining representative of a craft or class of employees of the Recipient under the Railway Labor Act (45 U.S.C. 151 et seq.) or the National Labor Relations Act (29 U.S.C. 151 et seq.), regarding pay or other terms and conditions of employment.
43.Notwithstanding any other provision of this Agreement, the Recipient has no right to, and shall not, transfer, pledge, mortgage, encumber, or otherwise assign this Agreement or any Payroll Support provided under this Agreement, or any interest therein, or any claim, account receivable, or funds arising thereunder or accounts holding Payroll Support, to any party, bank, trust company, or other Person without the express written approval of Treasury.
44.The Signatory Entity will cause its Affiliates to comply with all of their obligations under or relating to this Agreement.
45.Unless otherwise provided in guidance issued by Treasury or the Internal Revenue Service, the form of any Taxpayer Protection Instrument held by Treasury and any subsequent holder will be treated as such form for purposes of the Internal Revenue Code of 1986 (for example, a Taxpayer Protection Instrument in the form of a note will be treated as indebtedness for purposes of the Internal Revenue Code of 1986).
46.This Agreement may not be amended or modified except pursuant to an agreement in writing entered into by the Recipient and Treasury, except that Treasury may unilaterally amend this Agreement if required in order to comply with applicable Federal law or regulation.


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47.Subject to applicable law, Treasury may, in its sole discretion, waive any term or condition under this Agreement imposing a requirement on the Recipient or any Affiliate.
48.This Agreement shall bind and inure to the benefit of the parties and their respective heirs, executors, administrators, successors, and assigns.
49.The Recipient represents and warrants to Treasury that this Agreement, and the issuance and delivery to Treasury of the Taxpayer Protection Instruments, if applicable, have been duly authorized by all requisite corporate and, if required, stockholder action, and will not result in the violation by the Recipient of any provision of law, statute, or regulation, or of the articles of incorporation or other constitutive documents or bylaws of the Recipient, or breach or constitute an event of default under any material contract to which the Recipient is a party.
50.The Recipient represents and warrants to Treasury that this Agreement has been duly executed and delivered by the Recipient and constitutes a legal, valid, and binding obligation of the Recipient enforceable against the Recipient in accordance with its terms.
51.This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which together shall constitute a single contract.
52.The words "execution," "signed," "signature," and words of like import in any assignment shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. Notwithstanding anything herein to the contrary, delivery of an executed counterpart of a signature page of this Agreement by electronic means, or confirmation of the execution of this Agreement on behalf of a party by an email from an authorized signatory of such party, shall be effective as delivery of a manually executed counterpart of this Agreement.
53.The captions and paragraph headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.
54.This Agreement is governed by and shall be construed in accordance with Federal law. Insofar as there may be no applicable Federal law, this Agreement shall be construed in accordance with the laws of the State of New York, without regard to any rule of conflicts of law (other than section 5-1401 of the New York General Obligations Law) that would result in the application of the substantive law of any jurisdiction other than the State of New York.
55.Nothing in this Agreement shall require any unlawful action or inaction by either party.

56.The requirement pertaining to trafficking in persons at 2 CFR 175.15(b) is incorporated herein and made applicable to the Recipient.

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57.This Agreement, together with the attachments hereto, including the Payroll Support Certification and any attached terms regarding Taxpayer Protection Instruments, constitute the entire agreement of the parties relating to the subject matter hereof and supersede any previous agreements and understandings, oral or written, relating to the subject matter hereof. There may exist other agreements between the parties as to other matters, which are not affected by this Agreement and are not included within this integration clause.
58.No failure by either party to insist upon the strict performance of any provision of this Agreement or to exercise any right or remedy hereunder, and no acceptance of full or partial Payroll Support (if applicable) or other performance by either party during the continuance of any such breach, shall constitute a waiver of any such breach of such provision.



ATTACHMENT




Payroll Support Program Certification of Corporate Officer of Recipient

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PAYROLL SUPPORT PROGRAM
CERTIFICATION OF CORPORATE OFFICER OF RECIPIENT
In connection with the Payroll Support Program Agreement (Agreement) between Air Transport International, Inc. and the Department of the Treasury (Treasury) relating to Payroll Support being provided by Treasury to the Recipient under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief and Economic Security Act, I hereby certify under penalty of perjury to the Treasury that all of the following are true and correct. Capitalized terms used but not defined herein have the meanings set forth in the Agreement.

(1)I have the authority to make the following representations on behalf of myself and the Recipient. I understand that these representations will be relied upon as material in the decision by Treasury to provide Payroll Support to the Recipient.

(2)The information and certifications provided by the Recipient in an application for Payroll Support, and in any attachments or other information provided by the Recipient to Treasury related to the application, are true and correct and do not contain any materially false, fictitious, or fraudulent statement, nor any concealment or omission of any material fact.

(3)The Recipient has the legal authority to apply for the Payroll Support, and it has the institutional, managerial, and financial capability to comply with all obligations, terms, and conditions set forth in the Agreement and any attachment thereto.

(4)The Recipient and any Affiliate will give Treasury, Treasury's designee or the Treasury Office of Inspector General (as applicable) access to, and opportunity to examine, all documents, papers, or other records of the Recipient or Affiliate pertinent to the provision of Payroll Support made by Treasury based on the application, in order to make audits, examinations, excerpts, and transcripts.

(5)No Federal appropriated funds, including Payroll Support, have been paid or will be paid, by or on behalf of the Recipient, to any person for influencing or attempting to influence an officer or employee of an agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan, or cooperative agreement.

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(6)If the Payroll Support exceeds $100,000, the Recipient shall comply with the disclosure requirements in 31 CFR Part 21 regarding any amounts paid for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the Payroll Support.

I acknowledge that a materially false, fictitious, or fraudulent statement (or concealment or omission of a material fact) in this certification, or in the application that it supports, may be the subject of criminal prosecution and also may subject me and the Recipient to civil penalties and/or administrative remedies for false claims or otherwise.


/s/ Shonda C. Fisher              
Corporate Officer of Signatory Entity  Second Authorized Representative 
Name: Shonda C. Fisher
Title: Vice President of Finance 
Date: April 30, 2020

/s/ Jeffrey C. Crippen
Second Authorized Representative
Name: Jeffrey C. Crippen
Title: President and CEO
Date: April 30, 2020
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Exhibit 10.3
PAYROLL SUPPORT PROGRAM AGREEMENT


Recipient: Air Transport International, Inc. 145 Hunter Drive
Wilmington, OH 45177

PSP Participant Number: PSA-2004030655
Employer Identification Number: 46-0968635
DUNS Number: 83-675-2030


Amount Initial Payroll Support Payment: $2,776,666.67


The Department of the Treasury (Treasury) hereby provides Payroll Support (as defined herein) under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief, and Economic Security Act. The Signatory Entity named above, on behalf of itself and its Affiliates (as defined herein), agrees to comply with this Agreement and applicable Federal law as a condition of receiving Payroll Support. The Signatory Entity and its undersigned authorized representatives acknowledge that a materially false, fictitious, or fraudulent statement (or concealment or omission of a material fact) in connection with this Agreement may result in administrative remedies as well as civil and/or criminal penalties.



The undersigned hereby agree to the attached Payroll Support Program Agreement.

/s/ Brent McIntosh
/s/ James F. O'Grady
Department of the Treasury Air Transport International, Inc.
Authorized Representative: Brent McIntosh
First Authorized Representative:
Title: Under Secretary for International Affairs
Title: President
Date: 05/28/2020
Date: 05/28/2020
/s/ Tim Allen
Air Transport International, Inc.
Second Authorized Representative:
Title: Secretary, Vice President
Date: 05/28/2020






OMB Approved No. 1505-0263
Expiration Date: 09/30/2020



PAYROLL SUPPORT PROGRAM AGREEMENT INTRODUCTION
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act or Act) directs the Department of the Treasury (Treasury) to provide Payroll Support (as defined herein) to passenger air carriers, cargo air carriers, and certain contractors that must be exclusively used for the continuation of payment of Employee Salaries, Wages, and Benefits (as defined herein). The Act permits Treasury to provide Payroll Support in such form, and on such terms and conditions, as the Secretary of the Treasury determines appropriate, and requires certain assurances from the Recipient (as defined herein).

This Payroll Support Program Agreement, including the application and all supporting documents submitted by the Recipient and the Payroll Support Certification attached hereto (collectively, Agreement), memorializes the binding terms and conditions applicable to the Recipient.

DEFINITIONS

As used in this Agreement, the following terms shall have the following respective meanings, unless the context clearly requires otherwise. In addition, this Agreement shall be construed in a manner consistent with any public guidance Treasury may from time to time issue regarding the implementation of Division A, Title IV, Subtitle B of the CARES Act.

Act or CARES Act means the Coronavirus Aid, Relief, and Economic Security Act (Pub. L. No. 116-136).

Additional Payroll Support Payment means any disbursement of Payroll Support occurring after the first disbursement of Payroll Support under this Agreement.

Affiliate means any Person that directly or indirectly controls, is controlled by, or is under common control with, the Recipient. For purposes of this definition, "control" of a Person shall mean having the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by ownership of voting equity, by contract, or otherwise.

Benefits means, without duplication of any amounts counted as Salary or Wages, pension expenses in respect of Employees, all expenses for accident, sickness, hospital, and death benefits to Employees, and the cost of insurance to provide such benefits; any Severance Pay or Other Benefits payable to Employees pursuant to a bona fide voluntary early retirement program or voluntary furlough; and any other similar expenses paid by the Recipient for the benefit of Employees, including any other fringe benefit expense described in lines 10 and 11 of Financial Reporting Schedule P-6, Form 41, as published by the Department of Transportation, but excluding any Federal, state, or local payroll taxes paid by the Recipient.

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Corporate Officer means, with respect to the Recipient, its president; any vice president in charge of a principal business unit, division, or function (such as sales, administration or finance); any other officer who performs a policy-making function; or any other person who performs similar policy making functions for the Recipient. Executive officers of subsidiaries or parents of the Recipient may be deemed Corporate Officers of the Recipient if they perform such policy-making functions for the Recipient.

Employee means an individual who is employed by the Recipient and whose principal place of employment is in the United States (including its territories and possessions), including salaried, hourly, full-time,
part-time, temporary, and leased employees, but excluding any individual who is a Corporate Officer or independent contractor.

Involuntary Termination or Furlough means the Recipient terminating the employment of one or more Employees or requiring one or more Employees to take a temporary suspension or unpaid leave for any reason, including a shut-down or slow-down of business; provided, however, that an Involuntary Termination or Furlough does not include a Permitted Termination or Furlough.

Maximum Awardable Amount means the amount determined by the Secretary with respect to the Recipient pursuant to section 4113(a)(l), (2), or (3) (as applicable) of the CARES Act.

Payroll Support means funds disbursed by the Secretary to the Recipient under this Agreement, including the first disbursement of Payroll Support and any Additional Payroll Support Payment.

Permitted Termination or Furlough means, with respect to an Employee, (1) a voluntary furlough, voluntary leave of absence, voluntary resignation, or voluntary retirement, (2) termination of employment resulting from such Employee's death or disability, or (3) the Recipient terminating the employment of such Employee for cause or placing such Employee on a temporary suspension or unpaid leave of absence for disciplinary reasons, in either case, as reasonably determined by the Recipient acting in good faith.

Person means any natural person, corporation, limited liability company, partnership, joint venture, trust, business association, governmental entity, or other entity.

Recipient means, collectively, the Signatory Entity; its Affiliates that are air carriers as defined in 49 U.S.C.
§ 40102; and their respective heirs, executors, administrators, successors, and assigns.

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Salary means, without duplication of any amounts counted as Benefits, a predetermined regular payment, typically paid on a weekly or less frequent basis but which may be expressed as an hourly, weekly, annual or other rate, as well as cost-of-living differentials, vacation time, paid time off, sick leave, and overtime pay, paid by the Recipient to its Employees, but excluding any Federal, state, or local payroll taxes paid by the Recipient.

Secretary means the Secretary of the Treasury.

Severance Pay or Other Benefits means any severance payment or other similar benefits, including cash payments, health care benefits, perquisites, the enhancement or acceleration of the payment or vesting of any payment or benefit or any other in-kind benefit payable (whether in lump sum or over time, including after March 24, 2022) by the Recipient to a Corporate Officer or Employee in connection with any termination of such Corporate Officer's or Employee's employment (including, without limitation, resignation, severance, retirement, or constructive termination), which shall be determined and calculated in respect of any Employee or Corporate Officer of the Recipient in the manner prescribed in 17 CFR 229.402G) (without regard to its limitation to the five most highly compensated executives and using the actual date of termination of employment rather than the last business day of the Recipient's last completed fiscal year as the trigger event).

Signatory Entity means the passenger air carrier, cargo air carrier, or contractor that has entered into this Agreement.

Taxpayer Protection Instruments means warrants, options, preferred stock, debt securities, notes, or other financial instruments issued by the Recipient or an Affiliate to Treasury as compensation for the Payroll Support under this Agreement, if applicable.

Total Compensation means compensation including salary, wages, bonuses, awards of stock, and any other financial benefits provided by the Recipient or an Affiliate, as applicable, which shall be determined and calculated for the 2019 calendar year or any applicable 12-month period in respect of any Employee or Corporate Officer of the Recipient in the manner prescribed under paragraph e.5 of the award term in 2 CFR part 170, App. A, but excluding any Severance Pay or Other Benefits in connection with a termination of employment.

Wage means, without duplication of any amounts counted as Benefits, a payment, typically paid on an hourly, daily, or piecework basis, including cost-of-living differentials, vacation, paid time off, sick leave, and overtime pay, paid by the Recipient to its Employees, but excluding any Federal, state, or local payroll taxes paid by the Recipient.

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PAYROLL SUPPORT PAYMENTS

1.Upon the execution of this Agreement by Treasury and the Recipient, the Secretary shall approve the Recipient's application for Payroll Support.
2.The Recipient may receive Payroll Support in multiple payments up to the Maximum Awardable Amount, and the amounts (individually and in the aggregate) and timing of such payments will be determined by the Secretary in his sole discretion. The Secretary may, in his sole discretion, increase or reduce the Maximum Awardable Amount (a) consistent with section 4113(a) of the CARES Act and (b) on a pro rata basis in order to address any shortfall in available funds, pursuant to section 4113(c) of the CARES Act.
3.The Secretary may determine in his sole discretion that any Payroll Support shall be conditioned on, and subject to, such additional terms and conditions (including the receipt of, and any terms regarding, Taxpayer Protection Instruments) to which the parties may agree in writing.

TERMS AND CONDITIONS
Retaining and Paying Employees

1.The Recipient shall use the Payroll Support exclusively for the continuation of payment of Wages, Salaries, and Benefits to the Employees of the Recipient.

a.Furloughs and Layoffs. The Recipient shall not conduct an Involuntary Termination or Furlough of any Employee between the date of this Agreement and September 30, 2020.
b.Employee Salary, Wages, and Benefits

i.Salary and Wages. Except in the case of a Permitted Termination or Furlough, the Recipient shall not, between the date of this Agreement and September 30, 2020, reduce, without the Employee's consent, (A) the pay rate of any Employee earning a Salary, or (B) the pay rate of any Employee earning Wages.
ii.  Benefits. Except in the case of a Permitted Termination or Furlough, the Recipient shall not, between the date of this Agreement and September 30, 2020, reduce, without the Employee's consent, the Benefits of any Employee; provided, however, that for purposes of this paragraph, personnel expenses associated with the performance of work duties, including those described in line 10 of Financial Reporting Schedule P-6, Form 41, as published by the Department of Transportation, may be reduced to the extent the associated work duties are not performed.

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Dividends and Buybacks

5.Through September 30, 2021, neither the Recipient nor any Affiliate shall, in any transaction, purchase an equity security of the Recipient or of any direct or indirect parent company of the Recipient that, in either case, is listed on a national securities exchange.
6.Through September 30, 2021, the Recipient shall not pay dividends, or make any other capital distributions, with respect to the common stock (or equivalent equity interest) of the Recipient.

Limitations on Certain Compensation

7.Beginning March 24, 2020, and ending March 24, 2022, the Recipient and its Affiliates shall not pay any of the Recipient's Corporate Officers or Employees whose Total Compensation exceeded
$425,000 in calendar year 2019 (other than an Employee whose compensation is determined through an existing collective bargaining agreement entered into before March 27, 2020):

a.Total Compensation which exceeds, during any 12 consecutive months of such twoyear period, the Total Compensation the Corporate Officer or Employee received in calendar year 2019; or
b.Severance Pay or Other Benefits in connection with a termination of employment with the Recipient which exceed twice the maximum Total Compensation received by such Corporate Officer or Employee in calendar year 2019.

8.Beginning March 24, 2020, and ending March 24, 2022, the Recipient and its Affiliates shall not pay any of the Recipient's Corporate Officers or Employees whose Total Compensation exceeded
$3,000,000 in calendar year 2019 Total Compensation in excess of the sum of:

a. $3,000,000; and

b. 50 percent of the excess over $3,000,000 of the Total Compensation received by such Corporate Officer or Employee in calendar year 2019.

9.For purposes of determining applicable amounts under paragraphs 7 and 8 with respect to any Corporate Officer or Employee who was employed by the Recipient or an Affiliate for less than all of calendar year 2019, the amount of Total Compensation in calendar year 2019 shall mean such Corporate Officer's or Employee's Total Compensation on an annualized basis.

Continuation of Service

10.If the Recipient is an air carrier, until March 1, 2022, the Recipient shall comply with any applicable requirement issued by the Secretary of Transportation under section 41l 4(b) of the CARES Act to maintain scheduled air transportation service to any point served by the Recipient before March 1, 2020.

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Effective Date

11.This Agreement shall be effective as of the date of its execution by both parties.

Reporting and Auditing

12.Until the calendar quarter that begins after the later of March 24, 2022, and the date on which no Taxpayer Protection Interest is outstanding, not later than 45 days after the end of each of the first three calendar quarters of each calendar year and 90 days after the end of each calendar year, the Signatory Entity, on behalf of itself and each other Recipient, shall certify to Treasury that it is in compliance with the terms and conditions of this Agreement and provide a report containing the following:

a.the amount of Payroll Support funds expended during such quarter;

b.the Recipient's financial statements (audited by an independent certified public accountant, in the case of annual financial statements); and
c.a copy of the Recipient's IRS Form 941 filed with respect to such quarter; and

d.a detailed summary describing, with respect to the Recipient, (a) any changes in Employee headcount during such quarter and the reasons therefor, including any Involuntary Termination or Furlough, (b) any changes in the amounts spent by the Recipient on Employee Wages, Salary, and Benefits during such quarter, and (c) any changes in Total Compensation for, and any Severance Pay
or Other Benefits in connection with the termination of, Corporate Officers and Employees subject to limitation under this Agreement during such quarter; and the reasons for any such changes.

13.If the Recipient or any Affiliate, or any Corporate Officer of the Recipient or any Affiliate, becomes aware of facts, events, or circumstances that may materially affect the Recipient's compliance with the terms and conditions of this Agreement, the Recipient or Affiliate shall promptly provide Treasury with a written description of the events or circumstances and any action taken, or contemplated, to address the issue.
14.In the event the Recipient contemplates any action to commence a bankruptcy or insolvency proceeding in any jurisdiction, the Recipient shall promptly notify Treasury.
15.The Recipient shall:

a.Promptly provide to Treasury and the Treasury Inspector General a copy of any Department of Transportation Inspector General report, audit report, or report of any other oversight body, that is received by the Recipient relating to this Agreement.
b.Immediately notify Treasury and the Treasury Inspector General of any indication of fraud, waste, abuse, or potentially criminal activity pertaining to the Payroll Support.

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c.Promptly provide Treasury with any information Treasury may request relating to compliance by the Recipient and its Affiliates with this Agreement.

16.The Recipient and Affiliates will provide Treasury, the Treasury Inspector General, and such other entities as authorized by Treasury timely and unrestricted access to all documents, papers, or other records, including electronic records, of the Recipient related to the Payroll Support, to enable Treasury and the Treasury Inspector General to make audits, examinations, and otherwise evaluate the Recipient's compliance with the terms of this Agreement. This right also includes timely and reasonable access to the Recipient's and its Affiliates' personnel for the purpose of interview and discussion related to such documents. This right of access shall continue as long as records are required to be retained.

Recordkeeping and Internal Controls

17.If Treasury notifies the Recipient that the first disbursement of Payroll Support to the Recipient under this Agreement is the Maximum Awardable Amount (subject to any pro rata reductions and as determined by the Secretary as of the date of such disbursement), the Recipient shall maintain the Payroll Support funds in a separate account over which Treasury shall have a perfected security interest to continue the payment of Wages, Salary, and Benefits to the Employees. For the avoidance of doubt, regardless whether the first disbursement of Payroll Support to the Recipient under this Agreement is the Maximum Awardable Amount, if the Recipient is a debtor as defined under 11 U.S.C. § 101(13), the Payroll Support funds, any claim or account receivable arising under this Agreement, and any segregated account holding funds received under this Agreement shall not constitute or become property of the estate under 11 U.S.C. § 541.
18.The Recipient shall expend and account for Payroll Support funds in a manner sufficient to:

a.Permit the preparation of accurate, current, and complete quarterly reports as required under this Agreement.
b.Permit the tracing of funds to a level of expenditures adequate to establish that such funds have been used as required under this Agreement.

19.The Recipient shall establish and maintain effective internal controls over the Payroll Support; comply with all requirements related to the Payroll Support established under applicable Federal statutes and regulations; monitor compliance with Federal statutes, regulations, and the terms and conditions of this Agreement; and take prompt corrective actions in accordance with audit recommendations. The Recipient shall promptly remedy any identified instances of noncompliance with this Agreement.

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20.The Recipient and Affiliates shall retain all records pertinent to the receipt of Payroll Support and compliance with the terms and conditions of this Agreement (including by suspending any automatic deletion functions for electronic records, including e-mails) for a period of three years following the period of performance. Such records shall include all information necessary to substantiate factual representations made in the Recipient's application for Payroll Support, including ledgers and sub-ledgers, and the Recipient's and Affiliates' compliance with this Agreement. While electronic storage of records (backed up as appropriate) is preferable, the Recipient and Affiliates may store records in hardcopy (paper) format. The term "records" includes all relevant financial and accounting records and all supporting documentation for the information reported on the Recipient's quarterly reports.
21.If any litigation, claim, investigation, or audit relating to the Payroll Support is started before the expiration of the three-year period, the Recipient and Affiliates shall retain all records described in paragraph 20 until all such litigation, claims, investigations, or audit findings have been completely resolved and final judgment entered or final action taken.

Remedies

22.If Treasury believes that an instance of noncompliance by the Recipient or an Affiliate with (a) this Agreement, (b) sections 4114 or 4116 of the CARES Act, or (c) the Internal Revenue Code of 1986 as it applies to the receipt of Payroll Support has occurred, Treasury may notify the Recipient in writing of its proposed determination of noncompliance, provide an explanation of the nature of the noncompliance, and specify a proposed remedy. Upon receipt of such notice, the Recipient shall, within seven days, accept Treasury's proposed remedy, propose an alternative remedy, or provide information and documentation contesting Treasury's proposed determination. Treasury shall consider any such submission by the Recipient and make a final written determination, which will state Treasury's findings regarding noncompliance and the remedy to be imposed.
23.If Treasury makes a final determination under paragraph 22 that an instance of noncompliance has occurred, Treasury may, in its sole discretion, withhold any Additional Payroll Support Payments; require the repayment of the amount of any previously disbursed Payroll Support, with appropriate interest; require additional reporting or monitoring; initiate suspension or debarment proceedings as authorized under 2 CFR Part 180; terminate this Agreement; or take any such other action as Treasury, in its sole discretion, deems appropriate.
24.Treasury may make a final determination regarding noncompliance without regard to paragraph 22 if Treasury determines, in its sole discretion, that such determination is necessary to protect a material interest of the Federal Government. In such event, Treasury shall notify the Recipient of the remedy that Treasury, in its sole discretion, shall impose, after which the Recipient may contest Treasury's final determination or propose an alternative remedy in writing to Treasury. Following the receipt of such a submission by the Recipient, Treasury may, in its sole discretion, maintain or alter its final determination.

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25.Any final determination of noncompliance and any final determination to take any remedial action described herein shall not be subject to further review. To the extent permitted by law, the Recipient waives any right to judicial review of any such determinations and further agrees not to assert in any court any claim arising from or relating to any such determination or remedial action.
26.Instead of, or in addition to, the remedies listed above, Treasury may refer any noncompliance or any allegations of fraud, waste, or abuse to the Treasury Inspector General.
27.Treasury, in its sole discretion, may grant any request by the Recipient for termination of this Agreement, which such request shall be in writing and shall include the reasons for such termination, the proposed effective date of the termination, and the amount of any unused Payroll Support funds the Recipient requests to return to Treasury. Treasury may, in its sole discretion, determine the extent to which the requirements under this Agreement may cease to apply following any such termination.
28.If Treasury determines that any remaining portion of the Payroll Support will not accomplish the purpose of this Agreement, Treasury may terminate this Agreement in its entirety to the extent permitted by law.

Debts

29.Any Payroll Support in excess of the amount which Treasury determines, at any time, the Recipient is authorized to receive or retain under the terms of this Agreement constitutes a debt to the Federal Government.
30.Any debts determined to be owed by the Recipient to the Federal Government shall be paid promptly by the Recipient. A debt is delinquent if it has not been paid by the date specified in Treasury's initial written demand for payment, unless other satisfactory arrangements have been made. Interest, penalties, and administrative charges shall be charged on delinquent debts in accordance with 31 U.S.C. § 3717, 31 CFR 901.9, and paragraphs 31 and 32. Treasury will refer any debt that is more than 180 days delinquent to Treasury's Bureau of the Fiscal Service for debt collection services.
31.Penalties on any debts shall accrue at a rate of not more than 6 percent per year or such other higher rate as authorized by law.
32.Administrative charges relating to the costs of processing and handling a delinquent debt shall be determined by Treasury.
33.The Recipient shall not use funds from other federally sponsored programs to pay a debt to the government arising under this Agreement.



Protections for Whistleblowers

34.In addition to other applicable whistleblower protections, in accordance with 41 U.S.C. § 4712, the Recipient shall not discharge, demote, or otherwise discriminate against an Employee as a reprisal for disclosing information to a Person listed below that the Employee reasonably believes is evidence of gross mismanagement of a Federal contract or grant, a gross waste of Federal funds, an abuse of authority relating to a Federal contract or grant, a substantial and specific danger to public health or safety, or a violation of law, rule, or regulation related to a Federal contract (including the competition for or negotiation of a contract) or grant:

a.A Member of Congress or a representative of a committee of Congress;
b.An Inspector General;
c.The Government Accountability Office;
d.A Treasury employee responsible for contract or grant oversight or management;
e.An authorized official of the Department of Justice or other law enforcement agency;
f.A court or grand jury; or
g.A management official or other Employee of the Recipient who has the responsibility to investigate, discover, or address misconduct.

Lobbying

35.The Recipient shall comply with the provisions of 31 U.S.C. § 1352, as amended, and with the regulations at 31 CFR Part 21.

Non-Discrimination

36.The Recipient shall comply with, and hereby assures that it will comply with, all applicable Federal statutes and regulations relating to nondiscrimination including:

a.Title VI of the Civil Rights Act of 1964 (42 U.S.C. § 2000d et seq.), including Treasury's implementing regulations at 31 CFR Part 22;
b.Section 504 of the Rehabilitation Act of 1973, as amended (29 U.S.C. § 794);
c.The Age Discrimination Act of 1975, as amended (42 U.S.C. §§ 6101-6107), including Treasury' s implementing regulations at 31 CFR Part 23 and the general age discrimination regulations at 45 CFR Part 90; and
d.The Air Carrier Access Act of 1986 (49 U.S.C. § 41705).


11


Additional Reporting

37.Within seven days after the date of this Agreement, the Recipient shall register in SAM.gov, and thereafter maintain the currency of the information in SAM.gov until at least March 24, 2022. The Recipient shall review and update such information at least annually after the initial registration, and more frequently if required by changes in the Recipient's information. The Recipient agrees that this Agreement and information related thereto, including the Maximum Awardable Amount and any executive total compensation reported pursuant to paragraph 38, may be made available to the public through a U.S. Government website, including SAM.gov.
38.For purposes of paragraph 37, the Recipient shall report total compensation as defined in paragraph e.5 of the award term in 2 CFR part 170, App. A for each of the Recipient's five most highly compensated executives for the preceding completed fiscal year, if:

a.the total Payroll Support is $25,000 or more;

b.in the preceding fiscal year, the Recipient received:

1. 80 percent or more of its annual gross revenues from Federal procurement contracts (and subcontracts) and Federal financial assistance, as defined at 2 CFR 170.320 (and subawards); and
i.$25,000,000 or more in annual gross revenues from Federal procurement contracts (and subcontracts) and Federal financial assistance, as defined at 2 CFR 170.320 (and subawards); and

c.the public does not have access to information about the compensation of the executives through periodic reports filed under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a), 78o(d)) or section 6104 of the Internal Revenue Code of 1986. To determine if the public has access to the compensation information, the Recipient shall refer to U.S. Securities and Exchange Commission total compensation filings at http://www.sec.gov/answers/execomp.htm.

39.The Recipient shall report executive total compensation described in paragraph 38:

a.as part of its registration profile at https://www.sam.gov; and

b.within five business days after the end of each month following the month in which this Agreement becomes effective, and annually thereafter.


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40.The Recipient agrees that, from time to time, it will, at its own expense, promptly upon reasonable request by Treasury, execute and deliver, or cause to be executed and delivered, or use its commercially reasonable efforts to procure, all instruments, documents and information, all in form and substance reasonably satisfactory to Treasury, to enable Treasury to ensure compliance with, or effect the purposes of, this Agreement, which may include, among other documents or information, (a) certain audited financial statements of the Recipient, (b) documentation regarding the Recipient's revenues derived from its business as a passenger or cargo air carrier or regarding the passenger air carriers for which the Recipient provides services as a contractor (as the case may be), and (c) the Recipient's most recent quarterly Federal tax returns. The Recipient agrees to provide Treasury with such documents or information promptly.
41.If the total value of the Recipient's currently active grants, cooperative agreements, and procurement contracts from all Federal awarding agencies exceeds $10,000,000 for any period before termination of this Agreement, then the Recipient shall make such reports as required by 2 CFR part 200, Appendix XII.
Other

42.The Recipient acknowledges that neither Treasury, nor any other actor, department, or agency of the Federal Government, shall condition the provision of Payroll Support on the Recipient's implementation of measures to enter into negotiations with the certified bargaining representative of a craft or class of employees of the Recipient under the Railway Labor Act (45 U.S.C. 151 et seq.) or the National Labor Relations Act (29 U.S.C. 151 et seq.), regarding pay or other terms and conditions of employment.
43.Notwithstanding any other provision of this Agreement, the Recipient has no right to, and shall not, transfer, pledge, mortgage, encumber, or otherwise assign this Agreement or any Payroll Support provided under this Agreement, or any interest therein, or any claim, account receivable, or funds arising thereunder or accounts holding Payroll Support, to any party, bank, trust company, or other Person without the express written approval of Treasury.
44.The Signatory Entity will cause its Affiliates to comply with all of their obligations under or relating to this Agreement.
45.Unless otherwise provided in guidance issued by Treasury or the Internal Revenue Service, the form of any Taxpayer Protection Instrument held by Treasury and any subsequent holder will be treated as such form for purposes of the Internal Revenue Code of 1986 (for example, a Taxpayer Protection Instrument in the form of a note will be treated as indebtedness for purposes of the Internal Revenue Code of 1986).
46.This Agreement may not be amended or modified except pursuant to an agreement in writing entered into by the Recipient and Treasury, except that Treasury may unilaterally amend this Agreement if required in order to comply with applicable Federal law or regulation.


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47.Subject to applicable law, Treasury may, in its sole discretion, waive any term or condition under this Agreement imposing a requirement on the Recipient or any Affiliate.
48.This Agreement shall bind and inure to the benefit of the parties and their respective heirs, executors, administrators, successors, and assigns.
49.The Recipient represents and warrants to Treasury that this Agreement, and the issuance and delivery to Treasury of the Taxpayer Protection Instruments, if applicable, have been duly authorized by all requisite corporate and, if required, stockholder action, and will not result in the violation by the Recipient of any provision of law, statute, or regulation, or of the articles of incorporation or other constitutive documents or bylaws of the Recipient, or breach or constitute an event of default under any material contract to which the Recipient is a party.
50.The Recipient represents and warrants to Treasury that this Agreement has been duly executed and delivered by the Recipient and constitutes a legal, valid, and binding obligation of the Recipient enforceable against the Recipient in accordance with its terms.
51.This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which together shall constitute a single contract.
52.The words "execution," "signed," "signature," and words of like import in any assignment shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. Notwithstanding anything herein to the contrary, delivery of an executed counterpart of a signature page of this Agreement by electronic means, or confirmation of the execution of this Agreement on behalf of a party by an email from an authorized signatory of such party, shall be effective as delivery of a manually executed counterpart of this Agreement.
53.The captions and paragraph headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement.
54.This Agreement is governed by and shall be construed in accordance with Federal law. Insofar as there may be no applicable Federal law, this Agreement shall be construed in accordance with the laws of the State of New York, without regard to any rule of conflicts of law (other than section 5-1401 of the New York General Obligations Law) that would result in the application of the substantive law of any jurisdiction other than the State of New York.
55.Nothing in this Agreement shall require any unlawful action or inaction by either party.

56.The requirement pertaining to trafficking in persons at 2 CFR 175.15(b) is incorporated herein and made applicable to the Recipient.

14


57.This Agreement, together with the attachments hereto, including the Payroll Support Certification and any attached terms regarding Taxpayer Protection Instruments, constitute the entire agreement of the parties relating to the subject matter hereof and supersede any previous agreements and understandings, oral or written, relating to the subject matter hereof. There may exist other agreements between the parties as to other matters, which are not affected by this Agreement and are not included within this integration clause.
58.No failure by either party to insist upon the strict performance of any provision of this Agreement or to exercise any right or remedy hereunder, and no acceptance of full or partial Payroll Support (if applicable) or other performance by either party during the continuance of any such breach, shall constitute a waiver of any such breach of such provision.



ATTACHMENT




Payroll Support Program Certification of Corporate Officer of Recipient

15


PAYROLL SUPPORT PROGRAM
CERTIFICATION OF CORPORATE OFFICER OF RECIPIENT
In connection with the Payroll Support Program Agreement (Agreement) between Air Transport International, Inc. and the Department of the Treasury (Treasury) relating to Payroll Support being provided by Treasury to the Recipient under Division A, Title IV, Subtitle B of the Coronavirus Aid, Relief and Economic Security Act, I hereby certify under penalty of perjury to the Treasury that all of the following are true and correct. Capitalized terms used but not defined herein have the meanings set forth in the Agreement.

(1)I have the authority to make the following representations on behalf of myself and the Recipient. I understand that these representations will be relied upon as material in the decision by Treasury to provide Payroll Support to the Recipient.

(2)The information and certifications provided by the Recipient in an application for Payroll Support, and in any attachments or other information provided by the Recipient to Treasury related to the application, are true and correct and do not contain any materially false, fictitious, or fraudulent statement, nor any concealment or omission of any material fact.

(3)The Recipient has the legal authority to apply for the Payroll Support, and it has the institutional, managerial, and financial capability to comply with all obligations, terms, and conditions set forth in the Agreement and any attachment thereto.

(4)The Recipient and any Affiliate will give Treasury, Treasury's designee or the Treasury Office of Inspector General (as applicable) access to, and opportunity to examine, all documents, papers, or other records of the Recipient or Affiliate pertinent to the provision of Payroll Support made by Treasury based on the application, in order to make audits, examinations, excerpts, and transcripts.

(5)No Federal appropriated funds, including Payroll Support, have been paid or will be paid, by or on behalf of the Recipient, to any person for influencing or attempting to influence an officer or employee of an agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan, or cooperative agreement.

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(6)If the Payroll Support exceeds $100,000, the Recipient shall comply with the disclosure requirements in 31 CFR Part 21 regarding any amounts paid for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the Payroll Support.

I acknowledge that a materially false, fictitious, or fraudulent statement (or concealment or omission of a material fact) in this certification, or in the application that it supports, may be the subject of criminal prosecution and also may subject me and the Recipient to civil penalties and/or administrative remedies for false claims or otherwise.


/s/ James O’Grady
Corporate Officer of Signatory Entity
Name: James O’Grady
Title: President 
Date: 5/28/2020

/s/ Tim Allen
Second Authorized Representative
Name: Tim Allen
Title: Secretary, Vice President
Date: 5/28/2020
17

Exhibit 10.4
EXECUTION VERSION

Those portions of this Agreement marked with an [*] have been excluded because the information is both (i) not material and (ii) would be competitively harmful if publicly disclosed.


FORM OF WARRANT TO PURCHASE COMMON STOCK
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.
THIS INSTRUMENT IS ISSUED PURSUANT TO AND SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF (1) AN INVESTMENT AGREEMENT, DATED AS OF December 20, 2018, BY AND BETWEEN THE ISSUER OF THESE SECURITIES AND AMAZON.COM, INC., A DELAWARE CORPORATION, A COPY OF WHICH IS ON FILE WITH THE ISSUER AND (2) AN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED AS OF December 20, 2018 (as the same may be amended, restated, modified or supplemented from time to time), BY AND BETWEEN THE ISSUER OF THESE SECURITIES AND AMAZON.COM, INC. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENTS. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENTS WILL BE VOID.
WARRANT
to purchase
7,014,804
Shares of Common Stock of
Air Transport Services Group, Inc.
a Delaware Corporation
Issue Date: May 29, 2020
1.Definitions
. Unless the context otherwise requires, when used herein the following terms shall have the meanings indicated.
“2016 Investment Agreement” means the Investment Agreement, dated as of March 8, 2016, as amended from time to time, by and between the Corporation and Amazon, including all annexes, schedules and exhibits thereto.
“2018 Investment Agreement” means the Investment Agreement, dated as of December 20, 2018, as it may be amended from time to time, by and between the Corporation and Amazon, including all annexes, schedules and exhibits thereto.
“Additional Aircraft” has the meaning ascribed to it in the 2018 Investment Agreement.

LA_LAN01:342544.5

“Affiliate” has the meaning ascribed to it in the 2018 Investment Agreement.
“Aggregate Consideration” has the meaning ascribed to it in Section 12(ii).
“Aircraft Lease Agreement” means an Aircraft Lease Agreement by and between Amazon or one of its Affiliates and the Corporation or one of its Affiliates in the form attached to the Air Transportation Agreements.
“Amazon” means Amazon.com, Inc., a Delaware corporation.
“Amazon Warrants” means any warrant that has been or may be issued pursuant to the 2016 Investment Agreement or the 2018 Investment Agreement.
“Antitrust Law” has the meaning ascribed to it in the 2018 Investment Agreement.
“Appraisal Procedure” means a procedure whereby two independent, nationally recognized appraisers, one chosen by the Corporation and one by the Warrantholder, shall mutually agree upon the determinations then the subject of appraisal. Each party shall deliver a notice to the other appointing its appraiser within 15 days after the Appraisal Procedure is invoked. If within 30 days after appointment of the two appraisers they are unable to agree upon the amount in question, a third independent, nationally recognized appraiser shall be chosen within 10 days thereafter by the mutual consent of such first two appraisers or, if such two first appraisers fail to agree upon the appointment of a third appraiser, such appointment shall be made by the American Arbitration Association, or any organization successor thereto, from a panel of arbitrators having experience in appraisal of the subject matter to be appraised. In such event, the decision of the third appraiser so appointed and chosen shall be given within 30 days after the selection of such third appraiser. If three appraisers shall be appointed and the determination of one appraiser is disparate from the middle determination by more than twice the amount by which the other determination is disparate from the middle determination, then the determination of such appraiser shall be excluded, the remaining two determinations shall be averaged and such average shall be binding and conclusive upon the Corporation and the Warrantholder; otherwise, the average of all three determinations shall be binding upon the Corporation and the Warrantholder. The costs of conducting any Appraisal Procedure shall be borne 50% by the Corporation and 50% by the Warrantholder.
“Assumed Payment Amount” has the meaning ascribed to it in Section 12(iv).
“Attribution Parties” has the meaning ascribed to it in Section 14(a).
“Board of Directors” means the board of directors of the Corporation.
“Business Combination” means a merger, consolidation, statutory share exchange, reorganization, recapitalization or similar extraordinary transaction (which may include a reclassification) involving the Corporation.
“Business Day” has the meaning ascribed to it in the 2018 Investment Agreement.
“Cash Exercise” has the meaning set forth in Section 3.
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“Cashless Exercise” has the meaning set forth in Section 3.
“Cashless Exercise Ratio” with respect to any exercise of this Warrant means a fraction (i) the numerator of which is the excess of (x) the VWAP for the Common Stock for the 30 Trading Days immediately preceding such exercise date over (y) the Exercise Price, and (ii) the denominator of which is the VWAP for the Common Stock for the 30 Trading Days immediately preceding such exercise date.
“Change of Control Transaction” means (a) any transaction or series of related transactions as a result of which any Person or group of Persons within the meaning of Section 13(d)(3) of the Exchange Act (excluding the Warrantholder or any of its Affiliates) becomes the beneficial owner, directly or indirectly, of 35% or more of the outstanding Equity Interests (measured by either voting power or economic interests) of the Corporation, (b) any transaction or series of related transactions in which the stockholders of the Corporation immediately prior to such transaction or series of related transactions (the “Pre-Transaction Stockholders”) cease to beneficially own, directly or indirectly, at least 65% of the outstanding Equity Interests (measured by either voting power or economic interests) of the Corporation; provided that this clause (b) shall not apply if (i) such transaction or series of related transactions is an acquisition by the Corporation effected, in whole or in part, through the issuance of Equity Interests of the Corporation, (ii) such acquisition does not result in a Person or group of Persons within the meaning of Section 13(d)(3) of the Exchange Act beneficially owning, directly or indirectly, a greater percentage of the outstanding Equity Interests (measured by either voting power or economic interests) of the Corporation than the Warrantholder, and (iii) the Pre-Transaction Stockholders continue to beneficially own, directly or indirectly, at least 65% of the outstanding Equity Interests (measured by voting power and economic interests) of the Corporation, (c) any Business Combination as a result of which at least 35% ownership of the Corporation is transferred to another Person or group of Persons within the meaning of Section 13(d)(3) of the Exchange Act (excluding the Warrantholder or any of its Affiliates), (d) individuals who constitute the Continuing Directors, taken together, ceasing for any reason to constitute at least a majority of the Board of Directors, or (e) any sale or lease or exchange, transfer, license or disposition of a business, deposits or assets that constitute 35% or more of the consolidated assets, business, revenues, net income, assets or deposits of the Corporation.
“Charter Amendment Approval” has the meaning ascribed to it in the 2018 Investment Agreement.
“Citizen of the United States” has the meaning ascribed to it in the 2018 Investment Agreement.
“Common Stock” means the Common Stock, $0.01 par value per share, of the Corporation.
“Company Stockholder Meeting” has the meaning ascribed to it in the 2018 Investment Agreement.
“Company Stockholders” has the meaning ascribed to it in the 2018 Investment Agreement.
“Confidentiality Agreement” has the meaning ascribed to it in the 2018 Investment Agreement.
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“Continuing Directors” means the directors of the Corporation on the date hereof and each other director, if, in each case, such other director’s nomination for election to the Board of Directors is recommended by more than 50% of the Continuing Directors or more than 50% of the members of the Nominating and Governance Committee of the Board of Directors that are Continuing Directors.
“conversion” has the meaning ascribed to it in Section 12(ii).
“Convertible Securities” has the meaning ascribed to it in Section 12(ii).
“Corporation” means Air Transport Services Group, Inc., a Delaware corporation.
“DOT Approval” has the meaning ascribed to it in the 2018 Investment Agreement.
“Election Mechanic” has the meaning set forth in Section 12(v).
“Equity Interests” means any and all (a) shares, interests, participations or other equivalents (however designated) of capital stock or other voting securities of a corporation, any and all equivalent or analogous ownership (or profit) or voting interests in a Person (other than a corporation), (b) securities convertible into or exchangeable for shares, interests, participations or other equivalents (however designated) of capital stock or voting securities of (or other ownership or profit or voting interests in) such Person, and (c) any and all warrants, rights or options to purchase any of the foregoing, whether voting or nonvoting, and, in each case, whether or not such shares, interests, participations, equivalents, securities, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.
“Exercise Period” has the meaning set forth in Section 3.
“Exercise Price” means $20.40.
“Existing Convertible Note Warrants” has the meaning ascribed to it in the 2018 Investment Agreement.
“Existing Convertible Notes” has the meaning ascribed to it in the 2018 Investment Agreement.
“Existing Lease” has the meaning ascribed to it in the 2018 Investment Agreement.
“Expiration Time” has the meaning set forth in Section 3.
“Fair Market Value” means, with respect to any security or other property, the fair market value of such security or other property as determined by the Board of Directors, acting in good faith and evidenced by a written notice delivered promptly to the Warrantholder (which written notice shall include certified resolutions of the Board of Directors in respect thereof). If the
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LA_LAN01:342544.5

Warrantholder objects in writing to the Board of Director’s calculation of fair market value within 10 Business Days of receipt of written notice thereof and the Warrantholder and the Corporation are unable to agree on fair market value during the 10-day period following the delivery of the Warrantholder objection, the Appraisal Procedure may be invoked by either the Corporation or the Warrantholder to determine Fair Market Value by delivering written notification thereof not later than the 30th day after delivery of the Warrantholder objection. For the avoidance of doubt, the Fair Market Value of cash shall be the amount of such cash.
“Governmental Entities” has the meaning ascribed to it in the 2018 Investment Agreement.
“HSR Act” has the meaning ascribed to it in the 2018 Investment Agreement.
“Initial Number” has the meaning ascribed to it in Section 12(ii).
“Initial Stockholder Meeting” has the meaning ascribed to it in the 2018 Investment Agreement.
“Lease Upgrade” has the meaning ascribed to it in the 2018 Investment Agreement.
“Market Price” means, with respect to the Common Stock or any other security, on any given day, the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, of the Common Stock or of such security, as applicable, on The NASDAQ Global Select Market on such day. If the Common Stock or such security, as applicable, is not listed on The NASDAQ Global Select Market as of any date of determination, the Market Price of the Common Stock or such security, as applicable, on such date of determination means the closing sale price on such date as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock or such security, as applicable, is so listed or quoted, or, if no closing sale price is reported, the last reported sale price on such date on the principal U.S. national or regional securities exchange on which the Common Stock or such security, as applicable, is so listed or quoted, or if the Common Stock or such security, as applicable, is not so listed or quoted on a U.S. national or regional securities exchange, the last quoted bid price on such date for the Common Stock or such security, as applicable, in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization, or, if that bid price is not available, the Market Price of the Common Stock or such security, as applicable, on that date shall mean the Fair Market Value per share as of such date of the Common Stock or such security. For the purposes of determining the Market Price of the Common Stock or any such security, as applicable, on the Trading Day preceding, on or following the occurrence of an event, (a) that Trading Day shall be deemed to commence immediately after the regular scheduled closing time of trading on the applicable exchange, market or organization, or, if trading is closed at an earlier time, such earlier time and (b) that Trading Day shall end at the next regular scheduled closing time, or if trading is closed at an earlier time, such earlier time (for the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last Trading Day preceding a specified event and the closing time of trading on a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on that day, the Market Price would be determined by reference to such 4:00 p.m. closing price).
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“NASDAQ Approval” has the meaning ascribed to it in the 2018 Investment Agreement.
“Other Voting Securities” means, other than (a) Common Stock (and, for the avoidance of doubt, Common Stock expressly excludes, and “Other Voting Securities” expressly includes, any separate class or series of common stock of the Corporation with the right to vote in the election of any directors of the Corporation or otherwise on any other matters (whether separately as a class or series, or together with shares of Common Stock) with respect to which Common Stock is entitled to vote), (b) any rights issued (or any securities issued in respect of such rights) in connection with the adoption of a stockholder rights plan in customary form (including with respect to the receipt of such rights in respect of shares of Common Stock (including Warrant Shares) issued subsequent to the initial dividend or distribution of such rights), or (c) any securities issued to directors, advisors, employees or consultants of the Corporation pursuant to a stock option plan, employee stock purchase plan, restricted stock plan, other employee benefit plan or similar compensatory arrangement or agreement approved by the Board of Directors, any (i) securities with the right to vote in the election of any directors of the Corporation or otherwise on any other matters (whether separately as a class or series, or together with shares of Common Stock) with respect to which Common Stock is entitled to vote, and (ii) securities convertible into or exchangeable for any such securities, and any and all warrants, rights or options to purchase any of the foregoing.
“Other Voting Security Event” means the earliest to occur of the authorization, designation or issuance by the Corporation of, approval or authorization by the Corporation of the issuance of, or agreement or other commitment by the Corporation to issue, any Other Voting Securities.
“Permitted Repurchase” means (a) a Repurchase of up to 10,000,000 shares of Common Stock in the aggregate pursuant to one or more “Dutch Auction” tender offers at a price no greater than 10% above the Fair Market Value of the Common Stock at the time of such Repurchase or (b) a purchase of Equity Interests of the Corporation by the Corporation or any Affiliate thereof pursuant to and in compliance with the requirements of Rule 10b-18 under the Exchange Act.
“Permitted Transactions” has the meaning ascribed to it in Section 12(ii).
“Person” has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.
“Post-Issuance Adjustment” has the meaning ascribed to it in Section 12(ii).
“Pricing Date” has the meaning ascribed to it in Section 12(ii).
“Repurchases” means any transaction or series of related transactions to purchase Equity Interests of the Corporation or any of its subsidiaries by the Corporation or any subsidiary thereof for a purchase price greater than Fair Market Value pursuant to any tender offer or exchange offer (whether or not subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 14E promulgated thereunder), whether for cash, Equity Interests of the Corporation, other securities of the Corporation, evidences of indebtedness of the Corporation or any other Person or any other property (including Equity Interests, other securities or evidences of indebtedness of a subsidiary), or any combination thereof, effected while this Warrant is outstanding.
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“Restricted Warrant Exercise” has the meaning ascribed to it in the 2018 Investment Agreement.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.
“Stockholders Agreement” means the Amended and Restated Stockholders Agreement, dated as of December 20, 2018, as it may be amended from time to time, by and between the Corporation and Amazon, including all annexes, schedules and exhibits thereto.
“Subject Adjustment” has the meaning set forth in Section 12(vii).
“subsidiary” has the meaning ascribed to it in the 2018 Investment Agreement.
“Subject Record Date” has the meaning set forth in Section 12(vii).
“Trading Day” means a day on which The NASDAQ Global Select Market is open for trading.
“Transaction Documents” has the meaning ascribed to it in the 2018 Investment Agreement.
“Vesting Event” means (a) with respect to increments of 584,567 Warrant Shares, each time Amazon or one of its Affiliates executes an Aircraft Lease Agreement with the Corporation or one of its Affiliates for an Additional Aircraft or (b) with respect to increments of 292,283 Warrant Shares, each time Amazon or one of its Affiliates executes a Lease Upgrade with the Corporation or one of its Affiliates. For the avoidance of doubt, Vesting Events will stop occurring once the total number of Warrant Shares authorized under Section 2 have vested pursuant to Vesting Events and if a given Vesting Event would cause the number of shares vested to increase over this threshold then only the number of shares up to and including the total number of Warrant Shares authorized under Section 2 shall vest during the final such Vesting Event.
“VWAP” means the volume weighted average price per share of Common Stock on The NASDAQ Global Select Market (as reported by Bloomberg L.P. (or its successor) or, if not available, by another authoritative source mutually agreed by the Corporation and Amazon) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such trading day. If the VWAP cannot be calculated for such Common Stock with respect to such dates, the VWAP of such security shall be the fair market value of the Common Stock as reasonably determined in good faith jointly by the Board of Directors and the Warrantholder. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period to the extent not taken into account in the reported calculation.
“Warrant” means this Warrant, issued pursuant to the 2018 Investment Agreement.
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“Warrant-C” means that certain warrant to purchase 14,801,369 shares, subject to adjustment in accordance with its terms, of Common Stock issued by the Company to Amazon or its permitted assigns, dated as of December 20, 2018.
“Warrant Shares” has the meaning set forth in Section 2.
“Warrantholder” has the meaning set forth in Section 2.
2.Number of Warrant Shares; Exercise Price. This certifies that, for value received, Amazon or its permitted assigns (the “Warrantholder”) is entitled, upon the terms hereinafter set forth, to acquire from the Corporation, in whole or in part, up to an aggregate of 7,014,804 fully paid and nonassessable shares of Common Stock (the “Warrant Shares”), at a purchase price per share of Common Stock equal to the Exercise Price. The Warrant Shares and Exercise Price are subject to adjustment as provided herein, and all references to “Common Stock,” “Warrant Shares” and “Exercise Price” herein shall be deemed to include any such adjustment or series of adjustments.
3.Exercise of Warrant; Term; Other Agreements; Cancelation
(i)Promptly following the occurrence of a Vesting Event, the Corporation shall deliver to the Warrantholder a Notice of Vesting Event in the form attached as Annex A hereto; provided that neither the delivery, nor the failure of the Corporation to deliver, such Notice of Vesting Event shall affect or impair the rights of the parties hereunder.
(ii)Subject to Section 2, Section 3(iii), Section 12(v) and Section 13, as well as the Charter Amendment Approval, the DOT Approval and the expiration or termination of any applicable waiting period pursuant to the HSR Act, each if applicable, the right to purchase Warrant Shares represented by this Warrant is exercisable, in whole or in part by the Warrantholder, at any time or from time to time from and after the applicable Vesting Event, but in no event later than 5:00 p.m., New York City time, on December 20, 2025 (such time, the “Expiration Time” and such period from and after the applicable Vesting Event through the Expiration Time, the “Exercise Period”), by (A) the surrender of this Warrant and the Notice of Exercise attached as Annex B hereto, duly completed and executed on behalf of the Warrantholder, at the principal executive office of the Corporation located at 145 Hunter Drive, Wilmington, OH 45177, Attn: W. Joseph Payne (or such other office or agency of the Corporation in the United States as it may designate by notice in writing to the Warrantholder), and (B) payment of the Exercise Price for the Warrant Shares thereby purchased by, at the sole election of the Warrantholder, either: (i) tendering in cash, by certified or cashier’s check payable to the order of the Corporation, or by wire transfer of immediately available funds to an account designated by the Corporation (such manner of exercise, a “Cash Exercise”) or (ii) without payment of cash, by reducing the number of Warrant Shares obtainable upon the exercise of this Warrant (either in full or in part, as applicable) and payment of the Exercise Price in cash so as to yield a number of Warrant Shares obtainable upon the exercise of this Warrant (either in full or in part, as applicable) equal to the product of (x) the number of Warrant Shares issuable upon the exercise of this Warrant (either in full or in part, as applicable) (if payment of the Exercise Price were being made in cash) and (y) the Cashless Exercise Ratio (such manner of exercise, a “Cashless Exercise”).
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(iv)Notwithstanding anything herein to the contrary, this Warrant may not be exercised with respect to any Warrant Shares, and the Corporation shall not be required to issue any Warrant Shares pursuant to this Warrant, until the Initial Stockholder Meeting shall have been held and the Company Stockholders shall have voted on the authorization of the Restricted Warrant Exercise. Unless and until the NASDAQ Approval is obtained, (a) the Warrantholder shall not have the right to acquire any Warrant Shares (including, for the avoidance of doubt, upon the consummation of a Change of Control Transaction), and the Corporation shall not be required to issue any Warrant Shares, in excess of [*] (subject to applicable adjustments) pursuant to any warrant that has been or may be issued pursuant to the 2018 Investment Agreement, and (b) the Warrantholder shall not vote any shares of the Common Stock issuable upon exercise of this Warrant in respect of the Nasdaq Approval at any subsequent meeting of the Company Stockholders.
(v)Notwithstanding the foregoing, if at any time during the Exercise Period (I) the Warrantholder has not obtained the approval, exemption, authorization or consent (including the expiration or termination of any waiting periods, as applicable) from any Governmental Entity required pursuant to the HSR Act, any other Antitrust Law or otherwise in connection with the exercise of this Warrant in full, or (II) the Warrantholder has not exercised this Warrant in full as a result of there being insufficient Warrant Shares available for issuance or the lack of any required corporate approval, then the Expiration Time shall be deemed for all purposes hereunder not to have occurred until the later of (x) December 20, 2025 and (y) the date that is 180 days following the first date on which the Warrantholder has obtained all such approvals, exemptions, authorizations or consents (including any applicable expirations or terminations of applicable waiting periods) and is able to exercise this Warrant in respect of all vested Warrant Shares.
(vi)If the Warrantholder does not exercise this Warrant in its entirety, the Warrantholder shall be entitled to receive from the Corporation, upon request, a new warrant of like tenor in substantially identical form for the purchase of that number of Warrant Shares equal to the difference between the number of Warrant Shares subject to this Warrant and the number of Warrant Shares as to which this Warrant is so exercised.
(vii)This Warrant, including with respect to its cancelation, is subject to the terms and conditions of the 2018 Investment Agreement and the Stockholders Agreement. Without affecting in any manner any prior exercise of this Warrant (or any Warrant Shares previously issued hereunder), if (a) the 2018 Investment Agreement is terminated in accordance with Section 5.1 thereof or (b) the Warrantholder delivers to the Corporation a written, irrevocable commitment not to exercise this Warrant, the Corporation shall have no obligation to issue, and the Warrantholder shall have no right to acquire, the unvested portion of any Warrant Shares under this Warrant.
4.Issuance of Warrant Shares; Authorization; Listing. Certificates for Equity Interests issued upon exercise of this Warrant shall be issued on the third Business Day following the date of exercise of this Warrant in accordance with its terms in the name of the Warrantholder and shall be delivered to the Warrantholder. The Corporation hereby represents and warrants that any Equity Interests issued upon the exercise of this Warrant in accordance
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with the provisions of Section 3 will (subject to obtaining the Charter Amendment Approval) be validly issued, fully paid and nonassessable and free of any liens or encumbrances (other than liens or encumbrances created by the Transaction Documents, arising as a matter of applicable law or created by or at the direction of the Warrantholder or any of its Affiliates). The Equity Interests so issued shall be deemed for all purposes to have been issued to the Warrantholder as of the close of business on the date on which this Warrant and payment of the Exercise Price are delivered to the Corporation in accordance with the terms of this Warrant, notwithstanding that the stock transfer books of the Corporation may then be closed or certificates representing such Equity Interests may not be actually delivered on such date. The Corporation shall at all times reserve and keep available, out of its authorized but unissued Equity Interests, solely for the purpose of providing for the exercise of this Warrant, the aggregate Equity Interests issuable upon exercise of this Warrant in full (disregarding whether or not this Warrant is exercisable by its terms at any such time); provided, that the authorization of any Warrant Shares in excess of [*] will require the Charter Amendment Approval. The Corporation shall, at its sole expense, procure, subject to issuance or notice of issuance, the listing of any Equity Interests issuable upon exercise of this Warrant on the principal stock exchange on which such Equity Interests are then listed or traded, promptly after such Equity Interests are eligible for listing thereon.
5.No Fractional Shares or Scrip. No fractional Warrant Shares or other Equity Interests or scrip representing fractional Warrant Shares or other Equity Interests shall be issued upon any exercise of this Warrant. In lieu of any fractional share to which a Warrantholder would otherwise be entitled, the Warrantholder shall be entitled to receive a cash payment equal to the Market Price of the Common Stock or such other Equity Interests on the last trading day preceding the date of exercise less the Exercise Price for such fractional share.
6.No Rights as Stockholders; Transfer Books. Without limiting in any respect the provisions of the 2018 Investment Agreement or the Stockholders Agreement and except as otherwise provided by the terms of this Warrant, this Warrant does not entitle the Warrantholder to (i) receive dividends or other distributions, (ii) consent to any action of the stockholders of the Corporation, (iii) receive notice of or vote at any meeting of the stockholders, (iv) receive notice of any other proceedings of the Corporation, or (v) exercise any other rights whatsoever, in any such case, as a stockholder of the Corporation prior to the date of exercise hereof.
7.Charges, Taxes and Expenses. Issuance of this Warrant and issuance of certificates for Equity Interests to the Warrantholder upon the exercise of this Warrant shall be made without charge to the Warrantholder for any issue or transfer tax (other than taxes in respect of any transfer occurring contemporaneously therewith) or other incidental expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Corporation.
8.Transfer/Assignment.
i.This Warrant may only be transferred to an Affiliate of Amazon. The Warrant Shares may only be transferred in accordance with the terms of the Stockholders Agreement. Subject to compliance with the first two sentences of this Section 8, the legend as set forth on the cover page of this Warrant and the terms of the Stockholders Agreement, this
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Warrant and all rights hereunder are transferable, in whole or in part, upon the books of the Corporation by the registered holder hereof in person or by duly authorized attorney, and a new Warrant shall be made and delivered by the Corporation, of the same tenor and date as this Warrant but registered in the name of one or more transferees, upon surrender of this Warrant, duly endorsed, to the office or agency of the Corporation described in Section 3. If the transferring holder does not transfer the entirety of its rights to purchase all Warrant Shares hereunder, such holder shall be entitled to receive from the Corporation a new Warrant in substantially identical form for the purchase of that number of Warrant Shares as to which the right to purchase was not transferred. All expenses (other than stock transfer taxes) and other charges payable in connection with the preparation, execution and delivery of the new Warrants pursuant to this Section 8 shall be paid by the Corporation, other than the costs and expenses of counsel or any other advisor to the Warrantholder and its transferee.
ii.If and for so long as required by the 2018 Investment Agreement, this Warrant Certificate shall contain a legend as set forth in Section 4.2 of the 2018 Investment Agreement.
9.Exchange and Registry of Warrant. This Warrant is exchangeable, subject to applicable securities laws, upon the surrender hereof by the Warrantholder to the Corporation, for a new warrant or warrants of like tenor and representing the right to purchase the same aggregate number of Warrant Shares. The Corporation shall maintain a registry showing the name and address of the Warrantholder as the registered holder of this Warrant. This Warrant may be surrendered for exchange or exercise, in accordance with its terms, at the office of the Corporation, and the Corporation shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.
10.Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Corporation of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of a bond, indemnity or security reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Corporation shall make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of Warrant Shares as provided for in such lost, stolen, destroyed or mutilated Warrant.
11.Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding day that is a Business Day.
12.Adjustments and Other Rights. The Exercise Price and Warrant Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as follows; provided that if more than one subsection of this Section 12 is applicable to a single event, the subsection shall be applied that produces the largest adjustment and no single event shall cause an adjustment under more than one subsection of this Section 12 so as to result in duplication.
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(i)Stock Splits, Subdivisions, Reclassifications or Combinations. If the Corporation shall at any time or from time to time (a) declare, order, pay or make a dividend or make a distribution on its Common Stock in shares of Common Stock, (b) split, subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares or (c) combine or reclassify the outstanding shares of Common Stock into a smaller number of shares, the number of Warrant Shares issuable upon exercise of this Warrant at the time of the record date for such dividend or distribution or the effective date of such split, subdivision, combination or reclassification shall be proportionately adjusted so that the Warrantholder immediately after such record date or effective date, as the case may be, shall be entitled to purchase the number of shares of Common Stock which such holder would have owned or been entitled to receive in respect of the shares of Common Stock subject to this Warrant after such date had this Warrant been exercised in full immediately prior to such record date or effective date, as the case may be (disregarding whether or not this Warrant had been exercisable by its terms at such time). In the event of such adjustment, the Exercise Price in effect at the time of the record date for such dividend or distribution or the effective date of such split, subdivision, combination or reclassification shall be immediately adjusted to the number obtained by dividing (x) the product of (1) the number of Warrant Shares issuable upon the exercise of this Warrant in full before the adjustment determined pursuant to the immediately preceding sentence (disregarding whether or not this Warrant was exercisable by its terms at such time) and (2) the Exercise Price in effect immediately prior to the record or effective date, as the case may be, for the dividend, distribution, split, subdivision, combination or reclassification giving rise to such adjustment by (y) the new number of Warrant Shares issuable upon exercise of the Warrant in full determined pursuant to the immediately preceding sentence (disregarding whether or not this Warrant is exercisable by its terms at such time).
(ii)Certain Issuances of Common Shares or Convertible Securities. If the Corporation shall at any time or from time to time issue shares of Common Stock (or rights or warrants or any other securities or rights exercisable or convertible into or exchangeable (collectively, a “conversion”) for shares of Common Stock (collectively, “convertible securities”)) (other than in Permitted Transactions or a transaction to which the adjustments set forth in subsection (i) of this Section 12 are applicable), without consideration or at a consideration per share (or having a conversion price per share) that is less than 100% of the Market Price of Common Stock immediately prior to the date of the agreement on pricing of such shares(or of such convertible securities) (such date of agreement, the “Pricing Date”) then, in such event:
(A)the number of Warrant Shares issuable upon the exercise of this Warrant immediately prior to the Pricing Date (the “Initial Number”) shall be increased to the number obtained by multiplying the Initial Number by a fraction (I) the numerator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to the Pricing Date and (y) the number of additional shares of Common Stock issued (or into which convertible securities may be converted) and (II) the denominator of which shall be the sum of (x) the number of shares of Common Stock outstanding immediately prior to the Pricing Date and (y) the number of shares of Common Stock (rounded to the nearest whole share) which the Aggregate Consideration in respect of such issuance of shares of Common Stock (or convertible securities) would
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purchase at the Market Price of Common Stock immediately prior to the Pricing Date; and
(B)the Exercise Price payable upon exercise of this Warrant shall be adjusted by multiplying such Exercise Price in effect immediately prior to the Pricing Date by a fraction, the numerator of which shall be the number of shares of Common Stock issuable upon exercise of this Warrant in full immediately prior to the adjustment pursuant to clause (A) above (disregarding whether or not this Warrant was exercisable by its terms at such time), and the denominator of which shall be the number of shares of Common Stock issuable upon exercise of this Warrant in full immediately after the adjustment pursuant to clause (A) above (disregarding whether or not this Warrant is exercisable by its terms at such time).
For purposes of the foregoing, (1) the “Aggregate Consideration” in respect of such issuance of shares of Common Stock (or convertible securities) shall be deemed to be equal to the sum of the net offering price (before deduction of any related expenses payable to third parties, including discounts and commissions) of all such shares of Common Stock and convertible securities, plus the aggregate amount, if any, payable upon conversion of any such convertible securities (assuming conversion in accordance with their terms immediately following their issuance (and further assuming for this purpose that such convertible securities are convertible at such time)); (2) in the case of the issuance of such shares of Common Stock or convertible securities for, in whole or in part, any non-cash property (or in the case of any non-cash property payable upon conversion of any such convertible securities), the consideration represented by such non-cash property shall be deemed to be the Market Price (in the case of securities) and/or Fair Market Value (in all other cases), as applicable, of such non-cash property as of immediately prior to the Pricing Date (before deduction of any related expenses payable to third parties, including discounts and commissions); (3) on any increase in the number of shares of Common Stock deliverable upon conversion of any such issued convertible securities, and/or any decrease in the consideration receivable by the Corporation in respect of any such conversion (each, a “Post-Issuance Adjustment”), then, to the extent that, in respect of the same facts and events, the adjustment provisions set forth in this Section 12 (excluding this clause (3)) do not result in a proportionate increase in the number of Warrant Shares issuable upon the exercise of this Warrant, and/or proportionate decrease in the Exercise Price payable upon exercise of this Warrant, in each case equal to or greater than the proportionate increase and/or decrease, respectively, in respect of such convertible securities, then the number of Warrant Shares issuable, and the Exercise Price payable, upon exercise of this Warrant, in each case then in effect, shall forthwith be readjusted to such number of Warrant Shares and such Exercise Price as would have been obtained had the Post-Issuance Adjustment been effective in respect of such convertible securities as of immediately prior to the Pricing Date of such convertible securities; (4) if the Exercise Price and the number of Warrant Shares issuable upon exercise of this Warrant shall have been adjusted upon the issuance of any convertible securities in accordance with this Section 12, subject to clause (3) above, no further adjustment of the Exercise Price and the number of Warrant Shares issuable upon exercise of this Warrant shall be made for the actual issuance of shares of Common Stock upon the actual conversion of such convertible securities in accordance with their terms; and (5) “Permitted Transactions” shall include (a) issuances of shares of Common Stock (including upon exercise of options) to directors, advisors, employees
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or consultants of the Corporation pursuant to a stock option plan, employee stock purchase plan, restricted stock plan, other employee benefit plan or other similar compensatory agreement or arrangement approved by the Board of Directors, (b) issuances of shares of Common Stock in accordance with or pursuant to any Existing Convertible Notes or Existing Convertible Note Warrants and (c) issuances of any Amazon Warrants or shares of Common Stock in accordance with or pursuant to the Amazon Warrants, including in connection with the exercise of this Warrant. Any adjustment made pursuant to this Section 12(ii) shall become effective immediately upon the date of such issuance. For the avoidance of doubt, no increase to the Exercise Price or decrease in the number of Warrant Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 12(ii).
(iii)Distributions. If the Corporation shall fix a record date for the making of a dividend or other distribution (by spin-off or otherwise) on shares of Common Stock, whether in cash, Equity Interests of the Corporation, other securities of the Corporation, evidences of indebtedness of the Corporation or any other Person or any other property (including Equity Interests, other securities or evidences of indebtedness of a subsidiary), or any combination thereof, excluding (A) dividends or distributions subject to adjustment pursuant to Section 12(i) or (B) dividends or distributions of rights in connection with the adoption of a stockholder rights plan in customary form (including with respect to the receipt of such rights in respect of shares of Common Stock (including Warrant Shares) issued subsequent to the initial dividend or distribution of such rights), then in each such case, the number of Warrant Shares issuable upon exercise of this Warrant in full (disregarding whether or not this Warrant had been exercisable by its terms at such time) shall be increased by multiplying such number of Warrant Shares by a fraction, the numerator of which is the Market Price per share of Common Stock on such record date and the denominator of which is the Market Price per share of Common Stock on such record date less the Fair Market Value of the cash and/or any other property, as applicable, to be so paid or distributed in such dividend or distribution in respect of one share of Common Stock (in each case as of the record date of such dividend or distribution); such adjustment shall take effect on the record date for such dividend or distribution. In the event of such adjustment, the Exercise Price shall immediately be decreased by multiplying such Exercise Price by a fraction, the numerator of which is the number of Warrant Shares issuable upon the exercise of this Warrant in full immediately prior to such adjustment (disregarding whether or not this Warrant was exercisable by its terms at such time), and the denominator of which is the new number of Warrant Shares issuable upon exercise of this Warrant determined in accordance with the immediately preceding sentence. Notwithstanding the foregoing, in the event that the Fair Market Value of the cash and/or any other property, as applicable, to be so paid or distributed in such dividend or distribution in respect of one share of Common Stock (in each case as of the record date of such dividend or distribution) is equal to or greater than the Market Price per share of Common Stock on such record date, then proper provision shall be made such that upon exercise of this Warrant, the Warrantholder shall receive, in addition to the applicable Warrant Shares, the amount and kind of such cash and/or any other property such Warrantholder would have received had such Warrantholder exercised this Warrant immediately prior to such record date (disregarding whether or not this Warrant had been exercisable by its terms at such time). For purposes of the foregoing, in the event that such dividend or distribution in question is ultimately not so made, the Exercise Price and the number of Warrant Shares issuable upon
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exercise of this Warrant then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to make such dividend or distribution, to the Exercise Price that would then be in effect and the number of Warrant Shares that would then be issuable upon exercise of this Warrant if such record date had not been fixed. For the avoidance of doubt, no increase to the Exercise Price or decrease in the number of Warrant Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 12(iii).
Notwithstanding the foregoing provisions of this Section 12(iii), in the event that all or any portion of any such dividend or other distribution is in Other Voting Securities, then with respect to such dividend or distribution (or such portion thereof that is in Other Voting Securities, as applicable), the Warrantholder shall have the option, exercisable in writing delivered to the Corporation within seven Business Days of such Warrantholder’s receipt of the Corporation’s notice pursuant to Section 12(ix) relating to such dividend or other distribution, to elect (1) for the foregoing adjustments set forth in this Section 12(iii) to apply with respect to such dividend or distribution (or such portion thereof that is in Other Voting Securities, as applicable) or (2) in lieu of the foregoing adjustments set forth in this Section 12(iii) with respect to such dividend or distribution (or such portion thereof that is in Other Voting Securities, as applicable), but, for all purposes of this clause (2), after giving effect to the foregoing adjustments set forth in this Section 12(iii) with respect to any portion of such dividend or distribution that is in securities, cash and/or any other property, in each case other than Other Voting Securities, for its right to receive Warrant Shares upon exercise of this Warrant to be converted, effective as of the record date of such dividend or distribution, into the right to exercise this Warrant to acquire such Warrant Shares plus the Other Voting Securities that such Warrant Shares would have been entitled to receive upon consummation of such dividend or distribution, assuming the exercise in full of this Warrant immediately prior to such record date (disregarding whether or not this Warrant was exercisable by its terms at such time); provided that for purposes of this clause (2), (x) the number and type of Other Voting Securities so deliverable upon any exercise of this Warrant shall be adjusted to take into account any stock or security dividends, splits, reverse splits, spin-offs, split-ups, mergers, reclassifications, reorganizations, recapitalizations, combinations or exchanges of securities and the like from and after the consummation of such dividend or distribution in question and at or prior to such exercise of this Warrant, and (y) with respect to any such Other Voting Securities that are described in clause (b) of the definition of Other Voting Securities, the terms of such Other Voting Securities, as issued upon exercise of this Warrant, shall take into account any anti-dilution or other adjustments that would have been applicable to such Other Voting Securities had such Other Voting Securities been outstanding from and after the consummation of such dividend or distribution in question. In the event that such dividend or distribution in question (or such portion thereof that is in Other Voting Securities, as applicable) is ultimately not so made, this Warrant shall be readjusted, effective as of the date when the Board of Directors determines not to make such dividend or distribution (or such portion thereof that is in Other Voting Securities, as applicable), as though the record date thereof had not been fixed.
(iv)Repurchases. If the Corporation or any subsidiary thereof shall at any time or from time to time effect Repurchases (other than a Permitted Repurchase), the Exercise Price then in effect and the number of Warrant Shares issuable upon the exercise of this Warrant shall be immediately adjusted, in each case in accordance with the foregoing provisions of this
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Section 12, as if, in lieu of such Repurchases, the Corporation had (A) first, declared and paid a dividend, in cash, on shares of Common Stock in an aggregate amount equal to the Assumed Payment Amount, with a record date as of the trading day immediately preceding the first public disclosure of the Corporation’s (or such subsidiary’s) intent to effect such Repurchase, and (B) second, effected a reverse-split of Common Stock, in the proportion required to reduce the number of shares of Common Stock outstanding from (1) the number of such shares outstanding immediately prior to the first purchase of Equity Interests comprising such Repurchases to (2) the number of such shares outstanding immediately following the last purchase of Equity Interests comprising such Repurchases (in the case of this clause (B), with such adjustments as are appropriate to exclude the effect of any issuances of Equity Interests, and any dividends, distributions, splits, subdivisions, reclassifications and combinations subject to adjustment pursuant to Section 12(i), in each case from and after the first purchase of Equity Interests comprising such Repurchases and at or prior to the last purchase of Equity Interests comprising such Repurchases). For the avoidance of doubt, no increase to the Exercise Price or decrease in the number of Warrant Shares issuable upon exercise of this Warrant shall be made pursuant to this Section 12(iv). For purposes of the foregoing, the “Assumed Payment Amount” with respect to any Repurchases shall mean the aggregate Market Price (in the case of securities) and/or Fair Market Value (in the case of cash and/or any other property), as applicable, as of such Repurchases, of the aggregate consideration paid to effect such Repurchases.
(v)Change of Control Transactions. In case of any Change of Control Transaction or reclassification of Common Stock (other than a reclassification of Common Stock subject to adjustment pursuant to Section 12(i)), notwithstanding anything to the contrary contained herein, (a) the Corporation shall notify the Warrantholder in writing of such Change of Control Transaction or reclassification as promptly as practicable, (b) subject to clause (c) below, solely in the event of a Change of Control Transaction that is a Business Combination or a reclassification, the Warrantholder’s right to receive Warrant Shares upon exercise of this Warrant shall be converted, effective upon the occurrence of such Business Combination or reclassification, into the right to exercise this Warrant to acquire the number of shares of stock or other securities or property (including cash) that the Common Stock issuable (at the time of such Business Combination or reclassification) upon exercise of this Warrant immediately prior to such Business Combination or reclassification would have been entitled to receive upon consummation of such Business Combination or reclassification, and (c) all Warrant Shares which are not then vested shall vest fully and become non-forfeitable and immediately exercisable upon consummation of such Change of Control Transaction or reclassification. In determining the kind and amount of stock, securities or the property receivable upon exercise of this Warrant upon and following adjustment pursuant to this paragraph, if the holders of Common Stock have the right to elect the kind or amount of consideration receivable upon consummation of such Business Combination (an “Election Mechanic”), then the Warrantholder shall have the right to make the same election upon exercise of this Warrant with respect to the number of shares of stock or other securities or property which the Warrantholder shall receive upon exercise of this Warrant. The Corporation, or the Person or Persons formed by the applicable Business Combination or reclassification, or that acquire(s) the applicable shares of Common Stock, as the case may be, shall make lawful provisions to establish such rights and to provide for such adjustments that, for events from and after such Business Combination or
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reclassification, shall be as nearly equivalent as possible to the rights and adjustments provided for herein, and the Corporation shall not be a party to or permit any such Business Combination or reclassification to occur unless such provisions are made as a part of the terms thereof.
(vi)Rounding of Calculations; Minimum Adjustments. All calculations under this Section 12 shall be made to the nearest one-hundredth (1/100th) of a cent or to the nearest one-hundredth (1/100th) of a share, as the case may be. Any provision of this Section 12 to the contrary notwithstanding, no adjustment in the Exercise Price or the number of Warrant Shares into which this Warrant is exercisable shall be made if the amount of such adjustment would be less than $0.01 or one-hundredth (1/100th) of a share of Common Stock, but any such amount shall be carried forward and an adjustment with respect thereto shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or 1/100th of a share of Common Stock, or more.
(vii)Timing of Issuance of Additional Securities Upon Certain Adjustments. In any case in which (a) the provisions of this Section 12 shall require that an adjustment (the “Subject Adjustment”) shall become effective immediately after a record date (the “Subject Record Date”) for an event and (b) the Warrantholder exercises this Warrant after the Subject Record Date and before the consummation of such event, the Corporation may defer until the consummation of such event (i) issuing to such Warrantholder the incrementally additional shares of Common Stock or other property issuable upon such exercise by reason of the Subject Adjustment and (ii) paying to such Warrantholder any amount of cash in lieu of a fractional share of Common Stock; provided, however, that the Corporation upon request shall promptly deliver to such Warrantholder a due bill or other appropriate instrument evidencing such Warrantholder’s right to receive such additional shares (or other property, as applicable), and such cash, upon the consummation of such event.
(viii)Statement Regarding Adjustments. Whenever the Exercise Price or the Warrant Shares into which this Warrant is exercisable shall be adjusted as provided in Section 12, the Corporation shall forthwith prepare a statement showing in reasonable detail the facts requiring such adjustment and the Exercise Price that shall be in effect and the Warrant Shares into which this Warrant shall be exercisable after such adjustment, and cause a copy of such statement to be delivered to the Warrantholder as promptly as practicable.
(ix)Notice of Adjustment Event. In the event that the Corporation shall propose to take any action of the type described in this Section 12 (but only if the action of the type described in this Section 12 would result in an adjustment in the Exercise Price or the Warrant Shares into which this Warrant is exercisable or a change in the type of securities or property to be delivered upon exercise of this Warrant), the Corporation shall provide written notice to the Warrantholder, which notice shall specify the record date, if any, with respect to any such action and the approximate date on which such action is to take place. Such notice shall also set forth the facts with respect thereto as shall be reasonably necessary to indicate the effect on the Exercise Price and the number, kind or class of shares or other securities or property which shall be deliverable upon exercise of this Warrant. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed. In case of all other action, such notice shall be given at least 10 days prior to the taking of
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such proposed action unless the Corporation reasonably determines in good faith that, given the nature of such action, the provision of such notice at least 10 days in advance is not reasonably practicable from a timing perspective, in which case such notice shall be given as far in advance prior to the taking of such proposed action as is reasonably practicable from a timing perspective.
(x)Adjustment Rules. Any adjustments pursuant to this Section 12 shall be made successively whenever an event referred to herein shall occur. If an adjustment in Exercise Price made hereunder would reduce the Exercise Price to an amount below par value of the Common Stock, then such adjustment in Exercise Price made hereunder shall reduce the Exercise Price to the par value of the Common Stock.
(xi)No Impairment. The Corporation shall not, by amendment of its certificate of incorporation, bylaws or any other organizational document, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in the carrying out of all the provisions of this Warrant. In furtherance and not in limitation of the foregoing, the Corporation shall not take or permit to be taken any action which would entitle the Warrantholder to an adjustment under this Section 12 if the total number of shares of Common Stock issuable after such action upon exercise of this Warrant in full (disregarding whether or not this Warrant is exercisable by its terms at such time), together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon the exercise in full of any and all outstanding Equity Interests (disregarding whether or not any such Equity Interests are exercisable by their terms at such time) would exceed the total number of shares of Common Stock then authorized by its certificate of incorporation.
(xii)Proceedings Prior to Any Action Requiring Adjustment. As a condition precedent to the taking of any action which would require an adjustment pursuant to this Section 12, the Corporation shall take any and all action which may be necessary, including obtaining regulatory or other governmental, NASDAQ or other applicable securities exchange, corporate or stockholder approvals or exemptions, in order that the Corporation may thereafter validly and legally issue as fully paid and nonassessable all shares of Common Stock, or all other securities or other property, that the Warrantholder is entitled to receive upon exercise of this Warrant pursuant to this Section 12.
13.Mandatory Exercise Upon Business Combination. Notwithstanding anything to the contrary contained herein, in the event of the consummation prior to the Expiration Time of a Business Combination where all outstanding shares of Common Stock are exchanged solely for cash consideration, the Corporation shall have the right to cause the Warrantholder to exercise this Warrant; provided that the Corporation must give written notice to the Warrantholder at least 10 Business Days prior to the date of consummation of such qualifying Business Combination, which notice shall specify the expected date on which such qualifying Business Combination is to take place and set forth the facts with respect thereto as shall be reasonably necessary to indicate the amount of cash deliverable upon exercise of this Warrant and to each outstanding share of Common Stock; provided, further that the Corporation may only cause this Warrant to be exercised concurrently with the consummation of such qualifying Business Combination and the Warrantholder shall be entitled to receive the cash consideration as determined pursuant to
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Section 12(v). If the Warrantholder is required to exercise this Warrant pursuant to this Section 13, the Warrantholder shall notify the Corporation within five Business Days after receiving the Corporation’s written notice described above in this Section 13 whether it is electing to exercise this Warrant through a Cash Exercise or a Cashless Exercise. If the Warrantholder (i) does not provide such notice within five Business Days after receiving the Corporation’s written notice described above in this Section 13, or (ii) elects a Cash Exercise but does not pay the applicable Exercise Price for the Warrant Shares thereby purchased to the Corporation upon the consummation of such qualifying Business Combination then, in either such case, the Corporation shall effect the exercise of this Warrant through a Cashless Exercise.
14.Beneficial Ownership Limitation.
(a)Notwithstanding anything in this Warrant to the contrary, the Corporation shall not honor any exercise of this Warrant, and a Warrantholder shall not have the right to exercise any portion of this Warrant, to the extent that, after giving effect to an attempted exercise set forth on an applicable Notice of Exercise, such Warrantholder (together with such Warrantholder’s Affiliates, and any other Person whose beneficial ownership of Common Stock would be aggregated with the Warrantholder’s for purposes of Section 13(d) or Section 16 of the Exchange Act, and any other applicable regulations of the SEC, including any “group” of which the Warrantholder is a member (the foregoing, “Attribution Parties”)) would beneficially own a number of shares of Common Stock in excess of the Beneficial Ownership Limitation. Except as set forth in the immediately preceding sentence, for purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Warrantholder and its Attribution Parties shall include the number of Warrant Shares issuable under the Notice of Exercise with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (a) exercise of the remaining, unexercised portion of any Warrant beneficially owned by such Warrantholder or any of its Attribution Parties, and (b) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation (including any warrants) beneficially owned by such Warrantholder or any of its Attribution Parties that are subject to a limitation on conversion or exercise similar to the limitation contained herein. Except as set forth in the immediately preceding sentence, for purposes of this Section 14, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and any other applicable regulations of the SEC. In addition, for purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and the applicable regulations of the SEC. For purposes of this Section 14, in determining the number of outstanding shares of Common Stock, a Warrantholder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (x) the Corporation’s most recent periodic or annual filing with the SEC, as the case may be, (y) a more recent public announcement by the Corporation that is filed with the SEC, or (z) a more recent notice by the Corporation or the Corporation’s transfer agent to the Warrantholder setting forth the number of shares of Common Stock then outstanding. Upon the written request of a Warrantholder (which may be by email), the Corporation shall, within three (3) Trading Days thereof, confirm in writing to such Warrantholder (which may be via email) the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to any actual conversion or exercise of securities of the Corporation, including exercise of this Warrant, by such Warrantholder or its Attribution Parties
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since the date as of which such number of outstanding shares of Common Stock was last publicly reported or confirmed to the Warrantholder. The Corporation shall be entitled to rely on representations made to it by the Warrantholder in any Notice of Exercise regarding its Beneficial Ownership Limitation. The Warrantholder acknowledges that the Warrantholder is solely responsible for any schedules or statements required to be filed by it in accordance with Section 13(d) or Section 16(a) of the Exchange Act.
(b)The “Beneficial Ownership Limitation” shall initially be 4.999% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock pursuant to such Notice of Exercise (to the extent permitted pursuant to this Section 14); provided, however, that by written notice to the Corporation, which will not be effective until the 61st day after such notice is given by the Warrantholder to the Corporation, the Warrantholder may waive or amend the provisions of this Section 14 to change the Beneficial Ownership Limitation to any other number, and the provisions of this Section 14 shall continue to apply. Upon any such waiver or amendment to the Beneficial Ownership Limitation, the Beneficial Ownership Limitation may not be further waived or amended by the Warrantholder without first providing the minimum written notice required by the immediately preceding sentence. Notwithstanding the foregoing, at any time following notice of a Change of Control Transaction under Section 12(v) with respect to a Change of Control Transaction that is pursuant to any tender offer or exchange offer (by the Corporation or another Person (other than the Warrantholder or any Affiliate of the Warrantholder)), the Warrantholder may waive or amend the Beneficial Ownership Limitation effective immediately upon written notice to the Corporation and may reinstitute a Beneficial Ownership Limitation at any time thereafter effective immediately upon written notice to the Corporation.
(c)Notwithstanding the provisions of this Section 14, none of the provisions of this Section 14 shall restrict in any way the number of shares of Common Stock which the Warrantholder may receive or beneficially own in order to determine the amount of securities or other consideration that the Warrantholder may receive in the event of a Change of Control Transaction as contemplated in Section 12(v) of this Warrant.
15.Governing Law and Jurisdiction. This Warrant shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. In addition, each of the parties (a) submits to the personal jurisdiction of the Delaware Court of Chancery in and for New Castle County, or in the event (but only in the event) that such Delaware Court of Chancery does not have subject matter jurisdiction over such dispute, the United States District Court for the District of Delaware, or in the event (but only in the event) that such United States District Court also does not have jurisdiction over such dispute, any Delaware State court sitting in New Castle County, in the event any dispute (whether in contract, tort or otherwise) arises out of this Warrant or the transactions contemplated hereby, (b) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that it shall not bring any claim, action or proceeding relating to this Warrant or the transactions contemplated hereby in any court other than
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the Delaware Court of Chancery in and for New Castle County, or in the event (but only in the event) that such Delaware Court of Chancery does not have subject matter jurisdiction over such claim, action or proceeding the United States District Court for the District of Delaware, or in the event (but only in the event) that such United States District Court also does not have jurisdiction over such claim, action or proceeding, any Delaware State court sitting in New Castle County. Each party agrees that service of process upon such party in any such claim, action or proceeding shall be effective if notice is given in accordance with the provisions of this Warrant.
16.Binding Effect. This Warrant shall be binding upon any successors or assigns of the Corporation.
17.Amendments. This Warrant may be amended and the observance of any term of this Warrant may be waived only with the written consent of the Corporation and the Warrantholder.
18.Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and shall be deemed to have been duly given (a) if sent by registered or certified mail in the United States return receipt requested, upon receipt, (b) if sent by nationally recognized overnight air courier, one Business Day after mailing, (c) if sent by email or facsimile transmission, with a copy mailed on the same day in the manner provided in clauses (a) or (b) of this Section 18 when transmitted and receipt is confirmed, or (d) if otherwise personally delivered, when delivered. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.
If to the Corporation, to:
Name:  Air Transport Services Group, Inc.
Address: 145 Hunter Drive
         Wilmington, OH 45177
Attn:   W. Joseph Payne
Fax:   [*]
Email:  [*]
If to the Warrantholder, to:
Name:  Amazon.com, Inc.
Address: 410 Terry Avenue North
         Seattle, WA 98109-5210
Attn:  General Counsel
Fax:  [*]
with a copy to (which copy alone shall not constitute notice):
Name:  Gibson, Dunn & Crutcher LLP
Address: 3161 Michelson Drive, Irvine CA 92612-4412
         Los Angeles, CA 90067
Attn:  Mike Titera
Fax:  [*]
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Email:  [*]
19.Entire Agreement. This Warrant and the form attached hereto, the 2018 Investment Agreement, the other Transaction Documents (as defined in the 2018 Investment Agreement) and the Confidentiality Agreement constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof.
20.Specific Performance. The parties agree that failure of any party to perform its agreements and covenants hereunder, including a party’s failure to take all actions as are necessary on such party’s part in accordance with the terms and conditions of this Warrant to consummate the transactions contemplated hereby, will cause irreparable injury to the other party, for which monetary damages, even if available, will not be an adequate remedy. It is agreed that the parties shall be entitled to equitable relief including injunctive relief and specific performance of the terms hereof, without the requirement of posting a bond or other security, and each party hereby consents to the issuance of injunctive relief by any court of competent jurisdiction to compel performance of a party’s obligations and to the granting by any court of the remedy of specific performance of such party’s obligations hereunder, this being in addition to any other remedies to which the parties are entitled at law or equity.
21.Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Warrantholder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Warrantholder, shall give rise to any liability of the Warrantholder for the purchase price of any Common Stock or as a stockholder of the Corporation, whether such liability is asserted by the Corporation or by creditors of the Corporation.
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IN WITNESS WHEREOF, the Corporation has caused this Warrant to be duly executed by a duly authorized officer.
Dated: June 2, 2020
AIR TRANSPORT SERVICES GROUP, INC.
By: /s/ W. Joseph Payne
Name: W. Joseph Payne
Title: Chief Legal Officer & Sec.
Acknowledged and Agreed
AMAZON.COM, INC.
By: /s/ Alex Ceballos Encarnacion
Name: Alex Ceballos Encarnacion
Title: Vice President

        [Signature Page to Warrant]
Annex A
[Form of Notice of Vesting Event]
Date:
TO: Amazon.com, Inc.
RE: Notice of Vesting Event
Reference is made to that certain Warrant to Purchase Common Stock, dated as of May 29, 2020 (the “Warrant”), issued to Amazon.com, Inc., representing a warrant to purchase 7,014,804 shares of common stock of Air Transport Services Group, Inc. (the “Corporation”). Capitalized terms used herein without definition are used as defined in the Warrant.
The undersigned hereby delivers notice to you that a Vesting Event has occurred under the terms of the Warrant.
A. Vesting Event. The following Vesting Event has occurred on or around __________________, 20___:
_______ Amazon or one of its Affiliates has executed __________ Aircraft Lease Agreements with the Corporation or one of its Affiliates for an Additional Aircraft.
_______ Amazon or one of its Affiliates has executed __________ Lease Upgrades with the Corporation or one of its Affiliates.
B. Vested Warrant Shares. After giving effect to the Vesting Event referenced in Paragraph A above, the aggregate number of Warrant Shares issuable upon exercise of the Warrant that have vested under the terms of the Warrant is:
____________________________.
C. Exercised Warrant Shares. The aggregate number of Warrant Shares issuable upon exercise of the Warrant that have been exercised as of the date hereof is:
____________________________.
D. Unexercised Warrant Shares. After giving effect to the Vesting Event referenced in Paragraph A above, the aggregate number of Warrant Shares issuable upon exercise of the Warrant that have vested but remain unexercised under the Warrant is:
____________________________.

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AIR TRANSPORT SERVICES GROUP, INC.
By:  
Name:  
Title:  

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LA_LAN01:342544.5

[Form of Notice of Exercise]
Date:
TO: Air Transport Services Group, Inc.
RE: Election to Purchase Common Stock
The undersigned, pursuant to the provisions set forth in the attached Warrant, hereby agrees to subscribe for and purchase the number of shares of the Common Stock set forth below covered by such Warrant. The undersigned, in accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate Exercise Price for such shares of Common Stock. A new warrant evidencing the remaining shares of Common Stock covered by suc




h Warrant, but not yet subscribed for and purchased, if any, should be issued in the name of the Warrantholder.
Number of shares of Common Stock with respect to which the Warrant is being exercised (including shares to be withheld as payment of the Exercise Price pursuant to Section 3(ii)(B)(ii) of the Warrant, if any):
______________________________________
Method of Payment of Exercise Price (note if cashless exercise pursuant to Section 3(ii)(B)(ii) of the Warrant or cash exercise pursuant to Section 3(ii)(B)(i) of the Warrant):
___________________________________
Aggregate Exercise Price: _______________________________
Holder:  
By:  
Name:  
Title:  
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LA_LAN01:342544.5

Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard F. Corrado, certify that:
1.I have reviewed this report on Form 10-Q of Air Transport Services Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 7, 2020
 
/s/ RICHARD F. CORRADO
Richard F. Corrado
Chief Executive Officer


Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Quint O. Turner, certify that:
1.I have reviewed this report on Form 10-Q of Air Transport Services Group, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 7, 2020
 
/s/ QUINT O. TURNER
Quint O. Turner
Chief Financial Officer
(Principal Financial and Accounting Officer)


Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Air Transport Services Group, Inc. (the “Company”) on Form 10-Q for the quarter ending June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard F. Corrado, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as enacted by § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Air Transport Services Group, Inc. and will be retained by Air Transport Services Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
/S/ RICHARD F. CORRADO
Richard F. Corrado
Chief Executive Officer
Date: August 7, 2020



Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Air Transport Services Group, Inc. (the “Company”) on Form 10-Q for the quarter ending June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Quint O. Turner, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as enacted by § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Air Transport Services Group, Inc. and will be retained by Air Transport Services Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
/s/ QUINT O. TURNER
Quint O. Turner
Chief Financial Officer
Date: August 7, 2020