-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HjImKuYGRTZW83U4WXkWvPdI8QiDgd77nBz4BK/VyGrlL3aapH14RTp/5RdYHCMq PpxBVk3CuqfIdmuAHkbUyQ== 0000353184-98-000010.txt : 19980812 0000353184-98-000010.hdr.sgml : 19980812 ACCESSION NUMBER: 0000353184-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980810 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIR TRANSPORTATION HOLDING CO INC CENTRAL INDEX KEY: 0000353184 STANDARD INDUSTRIAL CLASSIFICATION: AIR COURIER SERVICES [4513] IRS NUMBER: 521206400 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11720 FILM NUMBER: 98681468 BUSINESS ADDRESS: STREET 1: 3524 AIRPORT RD CITY: MAIDEN STATE: NC ZIP: 28650 BUSINESS PHONE: 704648741X227 MAIL ADDRESS: STREET 1: P O BOX 488 CITY: DENVER STATE: NC ZIP: 28037 FORMER COMPANY: FORMER CONFORMED NAME: ATLANTA EXPRESS AIRLINE CORP DATE OF NAME CHANGE: 19840321 10-Q 1 JUNE 30 1998 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended June 30, 1998 Commission File Number 0-11720 AIR TRANSPORTATION HOLDING COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 52-1206400 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Post Office Box 488, Denver, North Carolina 28037 (Address of principal executive offices) (704) 377-2109 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 2,711,653 Common Shares, par value of $.25 per share were outstanding as of August 7, 1998. This filing contains 60 pages. The exhibit index is on page 15. AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Earnings for the three-month periods ended June 30, 1998 and 1997 (Unaudited) 3 Consolidated Balance Sheets at June 30, 1998 (Unaudited) and March 31, 1998 4 Consolidated Statements of Cash Flows for the three-month periods ended June 30, 1998 and 1997 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12-14 Exhibit Index 15 Exhibits 16-60 2 AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended June 30, 1998 1997 Operating Revenues: Cargo $ 4,676,739 $ 4,374,209 Maintenance 3,348,669 3,139,421 Ground equipment 3,360,023 - Aircraft services and other 1,124,710 645,450 12,510,141 8,159,080 Operating Expenses: Flight operations 3,231,848 3,015,056 Maintenance and brokering 3,857,126 3,429,576 Ground equipment 2,870,123 - General and administrative 1,855,104 1,016,867 Depreciation and amortization 171,377 107,013 Facility start-up and merger expense - 125,764 11,985,578 7,694,276 Operating Income 524,563 464,804 Non-operating Expense (Income): Interest 50,696 - Deferred retirement expense 6,249 420,083 Investment income (43,545) (79,507) 13,400 340,576 Earnings Before Income Taxes 511,163 124,228 Income Taxes 204,465 29,731 Net Earnings $ 306,698 $ 94,497 Net Earnings Per Share: Basic $ 0.11 $ 0.04 Diluted $ 0.11 $ 0.03 Average Shares Outstanding: Basic 2,711,653 2,651,432 Diluted 2,810,875 2,790,935 See notes to consolidated financial statements.
3 AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, 1998 March 31,1998 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 135,968 $ 193,918 Marketable securities 2,566,542 2,556,257 Accounts receivable, net 6,543,028 6,673,101 Inventories 5,860,069 5,325,613 Deferred tax asset, net 272,980 272,980 Prepaid expenses and other 35,020 33,922 Total Current Assets 15,413,607 15,055,791 Property and Equipment 4,858,959 4,693,268 Less accumulated depreciation (2,577,075) (2,429,031) 2,281,884 2,264,237 Deferred Tax Asset 152,000 152,000 Intangible Pension Asset 389,495 389,495 Other Assets 426,228 427,880 Total Assets 18,663,214 18,289,403 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to bank 3,683,135 916,079 Accounts payable 2,904,280 3,975,633 Accrued expenses 1,177,970 1,778,664 Income taxes payable 126,174 762,961 Current portion of long-term obligations 55,045 56,241 Total Current Liabilities 7,946,604 7,489,578 Capital Lease Obligation (less current portion) 30,904 30,904 Deferred Retirement Obligations (less current portion) 1,044,570 1,056,795 Stockholders' Equity: Preferred stock, $1 par value, authorized 10,000,000 shares, none issued - - Common stock, par value $.25; authorized 4,000,000 shares; 2,711,653 and 2,651,433 shares issued 677,241 677,241 Additional paid in capital 7,128,907 7,128,907 Retained Earnings 1,834,988 1,905,978 9,641,136 9,712,126 Total Liabilities & Stockholders' Equity $ 18,663,214 $ 18,289,403 See notes to consolidated financial statements.
4 AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended June 30, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 306,698 $ 94,497 Adjustments to reconcile net earnings to net cash (used in) provided by operations: Depreciation and amortization 171,377 107,013 Change in retirement obligation (12,225) 445,779 Change in assets and liabilities which provided (used) cash: Accounts receivable 130,073 924,887 Inventories (534,456) (37,277) Prepaid expenses and other 554 39,594 Accounts payable (1,071,353) (453,135) Accrued expenses (601,890) (541,651) Income taxes payable (636,787) (121,249) Total adjustments (2,554,707) 363,961 Net cash (used in) provided by operating activities (2,248,009) 458,458 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (189,024) (119,500) Purchase of marketable securities (10,285) (19,783) Sale of marketable securities - 116,446 Net cash used in investing activities (199,309) (22,837) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit 2,767,056 - Payment of cash dividend (377 688) (265,143) Repurchase of common stock - (48) Net cash provided by (used in) financing activities 2,389,368 (265,191) NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (57,950) 170,430 CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 193,918 2,377,898 CASH & CASH EQUIVALENTS AT END OF PERIOD $ 135,968 $ 2,548,328 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 47,856 $ 45 Income/Franchise taxes 845,885 160,425 See notes to consolidated financial statements.
5 AIR TRANSPORTATION HOLDING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. Financial Statements The Consolidated Balance Sheet as of June 30, 1998, the Consolidated Statements of Earnings for the three-month periods ended June 30, 1998 and 1997 and the Consolidated Statements of Cash Flows for the three-month periods ended June 30, 1998 and 1997 have been prepared by Air Transportation Holding Company, Inc. (the Company) without audit. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of June 30, 1998, and for prior periods presented, have been made. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 1998. The results of operations for the period ended June 30 are not necessarily indicative of the operating results for the full year. B. Income Taxes The tax effect of temporary differences gave rise to the Company's deferred tax asset in the accompanying June 30, 1998 and March 31, 1998 consolidated balance sheets. The Company has recorded a valuation allowance in order to reduce its deferred tax asset to an amount, which is more likely than not to be realized. Changes in the valuation allowance, related to future utilization of net operating losses, reduced the provision for income taxes by $44,000 during the three-months ended June 30, 1997. At June 30, 1998, the Company had no valuation allowance. The income tax provisions for the three-months ended June 30, 1998 and 1997 differ from the federal statutory rate primarily as a result of state income taxes, non-deductible meals and entertainment expenses and a reduction in the above mentioned valuation allowance. C. Net Earnings Per Share Basic earnings per share has been calculated by dividing net earnings by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings per share, shares issuable under employee stock options were considered common share equivalents and were included in the weighted average common shares. 6 The computation of basic and diluted earnings per common share is as follows: Three months ended June 30, 1998 1997 Net earnings $ 306,698 $ 94,497 Weighted average common shares: Shares outstanding - basic 2,711,653 2,651,432 Dilutive stock options 99,222 139,503 Shares outstanding - diluted 2,810,875 2,790,935 Net earnings per common share: Basic $ 0.11 $ 0.04 Diluted $ 0.11 $ 0.03 D. Acquisition On August 29, 1997, the Company acquired the Simon Deicer Division of Terex, Inc. for $715,000 cash. The acquisition, renamed Global Ground Support, LLC (Global), manufactures, sells and services aircraft deice equipment on a worldwide basis. The acquisition was accounted for using the purchase method; accordingly, the assets and liabilities (which included $1,522,000 inventory, $287,000 fixed assets and $3,000 accounts receivable, net of $1,048,000 in customer deposits and $49,000 warranty obligation) of the acquired entity have been recorded at their estimated fair value at the date of acquisition. Global's results of operations have been included in the Consolidated Statement of Income since the date of acquisition. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview Statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" or made by management of the Company which contain more than historical information may be considered forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) which are subject to risks and uncertainties. Actual results may differ materially from those expressed in the forward-looking statements because of important risks and uncertainties, including but not limited to the effects of economic, competitive and market conditions in the aviation industry. The Company's most significant component of revenue is generated through its air cargo subsidiaries, Mountain Air Cargo, Inc. (MAC) and CSA Air, Inc. (CSA), which are short-haul express air freight carriers flying nightly contracts for a major express delivery company out of 80 cities, principally located in 30 states in the eastern half of the United States and in Puerto Rico, Canada and the Virgin Islands. Under the terms of its dry-lease service contracts (which currently cover approximately 98% of the revenue aircraft operated), the Company passes through to its customer certain cost components of its operations without markup. The cost of fuel, flight crews, landing fees, outside maintenance, aircraft certification and conversion, parts and certain other direct operating costs are included in operating expenses and billed to the customer as cargo and maintenance revenue. In May 1997, to expand its revenue base, the Company's Mountain Aircraft Services, LLC (MAS) subsidiary expanded its aircraft component repair services. MAS's revenue contributed $1,029,000 and $620,000 to the Company's revenues for the three-month periods ended June 30, 1998 and 1997, respectively. In August 1997, the Company acquired certain assets and order backlog and assumed certain liabilities of Simon Deicer Company, a division of Terex Aviation Ground Equipment, Inc. located in Olathe, Kansas. The acquisition, renamed Global Ground Support, LLC (Global), manufactures, services and supports aircraft deicers on a worldwide basis. Global is operated as a subsidiary of MAS. Global's revenue contributed $3,360,000 for the three-month period ended June 30, 1998. 8 Seasonality Global's business has historically been highly seasonal. In general, the bulk of Global's revenues and earnings have occurred during the second and third fiscal quarters, and comparatively little has occurred during the first and fourth fiscal quarters due to the nature of its product line. The Company plans to reduce Global's seasonal fluctuation in revenues and earnings by broadening its product line to increase revenues and earnings in the first and fourth fiscal quarters. The remainder of the Company's business is not materially seasonal. Results of Operations Consolidated revenue increased $4,351,000 (53.3%) to $12,510,000 for the three-month period ended June 30, 1998 compared to its equivalent 1997 period. The increase in revenue primarily resulted from the operations of Global and increases in air cargo and component repair services. Operating expenses increased $4,291,000 (55.8%) to $11,986,000 for the three-month period ended June 30, 1998 compared to its equivalent 1997 period. The increase in operating expenses consisted of the following changes: cost of flight operations increased $217,000 (7.2%) primarily as a result of increases in pilot and flight personnel and costs associated with pilot travel; maintenance expense increased $428,000 (12.5%) primarily as a result of increases associated with contract services, and cost of parts and labor related to the expansion of MAS's repair shop; ground equipment increased $2,870,000, as a result of the August 1997 acquisition of Global; depreciation increased $64,000 (60.2%) as a result of increased depreciation related to the above Global acquisition; general and administrative expense increased $838,000 (82.4%) primarily as a result of increases associated with the start-up of Global and expansion of MAS's repair shop operations. The $327,000 decrease in non-operating expense was principally due to a $420,000 provision, booked in the first quarter of 1997, to fulfill contractual benefits related to the death of the Company's Chairman and CEO. Pretax earnings increased $387,000 for the three-month period ended June 30, 1998 compared to 1997, principally due to the above 1997 death benefit provision and an increase in air cargo service earnings for the three-month period ended June 30, 1998, partially offset by a seasonal first quarter 1999 loss at Global. The provision for income taxes for the three-month period ended June 30, 1998 increased $175,000 compared to the 1997 period, primarily due to increased taxable income. 9 Liquidity and Capital Resources As of June 30, 1998 the Company's working capital amounted to $7,467,000, a decrease of $99,000 compared to March 31, 1998. The net decrease primarily resulted from cash required in the operation of Global, partially offset by profitable air cargo service operations. The Company, on July 17, 1998, increased its unsecured line of credit to $7,000,000. The line, which matures August 31, 1998, is expected to be renewed before its expiration date. Amounts advanced under the line of credit bear interest at the 30-day "LIBOR" rate plus 137 basis points. The Company anticipates that it will renew the line of credit before its scheduled expiration. Under the terms of the line of credit the Company may not encumber certain real or personal property. As of June 30, 1998, the Company was in a net borrowing position against its credit line of $3,683,000, a $2,767,000 increase over the March 31, 1998 loan balance. Management believes that funds anticipated from operations and existing credit facilities will provide adequate cash flow to meet the company's future financial needs. The respective three-month periods ended June 30, 1998 and 1997 resulted in the following changes in cash flow: operating activities used $2,248,000 in 1998 and provided $458,000 in 1997, investing activities used $199,000 in 1998 and $23,000 in 1997 and financing activities provided $2,389,000 in 1998 and used $265,000 in 1997. Net cash decreased $58,000 during the three months ended June 30, 1998 and increased $170,000 during the three months ended June 30, 1997. Cash used in operating activities was $2,706,000 more for the three-months ended June 30, 1998 compared to the similar 1997 period principally due to increases in inventory and decreases in accounts payable, accrued expenses and taxes payable and a $420,000 provision to fulfill contractual benefits related to the death of the Company's former Chairman and CEO in the first quarter of 1997, partially offset by profitable operations. Cash used in investing activities for the three-months ended June 30, 1998 was approximately $176,000 more than the comparable period in 1997, principally due to the sale of marketable securities in 1997 and to increased capital expenditures related to operations of Global in 1998. Cash provided by financing activities was $2,655,000 more in the 1998 three-month period than in the corresponding 1997 period due to an increase in borrowings under the line of credit in 1998, partially offset by an increase in cash dividend. 10 Liquidity and Capital Resources (continued) There are currently no commitments for significant capital expenditures. The Company's Board of Directors on August 7, 1997 adopted the policy to pay an annual cash dividend in the first quarter of each fiscal year, in an amount to be determined by the Board. The Company paid a $.14 per share cash dividend in June 1998. Deferred Retirement Obligation The Company's former Chairman and Chief Executive Officer passed away on April 18, 1997. In addition to amounts previously expensed, under the terms of his supplemental retirement agreement, death benefits with a present value of approximately $420,000 were expensed in the first quarter 1998. The death benefits are payable in the amount of $75,000 per year for 10 years. Impact of Inflation The Company believes the impact of inflation and changing prices on its revenues and net earnings will not have a material effect on its manufacturing operations because increased costs due to inflation could be passed on the its customers, or on its air cargo business since the major cost components of its operations, consisting principally of fuel, crew and certain maintenance costs are reimbursed, without markup, under current contract terms. Year 2000 Issue The Company has initiated a comprehensive review of its computer systems to identify the systems that could be affected by the "year 2000 issue", which is the result of computer programs written using two digits rather than four to define the applicable year. As a result of such review, the Company has revised certain customized software systems to enable such systems to work properly following the year 2000 and has verified that recently acquired software systems from third-party vendors have been certified as being "year 2000 compliant". Management believes only one significant software system used by the Company has not been confirmed as being "year 2000 compliant". Management has not yet determined whether to replace such system (management believes that replacement products for such system that are "year 2000 compliant" are commercially available) or to revise the software system to confirm that it will function properly after the year 2000. Management believes that such system can be replaced or revised by the end of the current fiscal year. Management does not believe the conversion of its software systems will have a significant impact on the Company's financial position or results of operations. 11 PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits No. Description 3.1 Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 3.2 By-laws of the Company, incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 4.1 Specimen Common Stock Certificate, incorporated by reference to exhibit 4.1 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 10.1 Aircraft Dry Lease and Service Agreement dated February 2, 1994 between Mountain Air Cargo, Inc. and Federal Express Corporation, incorporated by reference to Exhibit 10.13 to Amendment No. 1 on Form 10-Q/A to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1993 10.2 Loan Agreement among NationsBank of North Carolina, N.A., the Company and its subsidiaries, dated July 17, 1998 10.3 Aircraft Wet Lease Agreement dated April 1, 1994 between Mountain Air Cargo, Inc. and Federal Express Corporation, incorporated by reference to Exhibit 10.4 of Amendment No. 1 on Form 10-Q/Q to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1994 10.4 Adoption Agreement regarding the Company's Master 401(k) Plan and Trust, incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993* 10.5 Form of options to purchase the following amounts of Common Stock issued by the Company to the following executive officers during the following fiscal years ended March 31:* Number of Shares Executive Officer 1993 1992 1991 J. Hugh Bingham 150,000 150,000 200,000 John J. Gioffre 100,000 100,000 125,000 William H. Simpson 200,000 200,000 300,000 incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993 12 10.6 Premises and Facilities Lease dated November 16, 1995 between Global TransPark Foundation, Inc. and Mountain Air Cargo, Inc., incorporated by reference to Exhibit 10.5 to Amendment No. 1 on form 10-Q/A to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1995 10.7 Employment Agreement dated January 1, 1996 between the Company, Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and William H. Simpson, incorporated by reference to Exhibit 10.8 to the Company's Annual Report Form 10-K for the fiscal year ended March 31, 1996* 10.8 Employment Agreement dated January 1, 1996 between the Company, Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and John J. Gioffre, incorporated by reference to Exhibit 10.9 to the Company's Annual Report Form 10-K for the fiscal year ended March 31, 1996* 10.9 Employment Agreement dated January 1, 1996 between Company, Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and J. Hugh Bingham, incorporated by reference to Exhibit 10.10 to the Company's Annual Report Form 10K for the fiscal year end March 31, 1996.* 10.10 Employment Agreement dated September 30, 1997 between Mountain Aircraft Services, LLC and J. Leonard Martin, incorporated by refer- ence to Exhibit 10.10 to the Company's Quarterly Report Form 10-Q for the quarter ended December 31, 1997.* 10.11 Omibus Securities Award Plan.* 21.1 List of subsidiaries of the Company, incorporated by reference to Exhibit 21.1 of the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997 27.1 Financial Data Schedule (For SEC use only) _______________________ * Management compensatory plan or arrangement required to be filed as an exhibit to this report. b. Reports on form 8-K No Current Reports on Form 8-K were filed in the first quarter of fiscal 1999. 13 SIGNATURES Pursuant to the requirements 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 TRANSPORTATION HOLDING COMPANY, INC. (Registrant) Date: August 10, 1998 /s/ Walter Clark Walter Clark, Chief Executive Officer Date: August 10, 1998 /s/ John Gioffre John J. Gioffre, Vice President-Finance 14 AIR TRANSPORTATION HOLDING COMPANY, INC. EXHIBIT INDEX Exhibit PAGE 10.2 Loan Agreement among NationsBank of North Carolina, N.A., the Company and its Subsidiaries, dated July 17, 1998 16-28 10.11 Omnibus Securities Award Plan 29-60 15 EX-27 2
5 "This schedule contains summary financial information extracted from Air Transportation Holding Company, Inc. SEC Form 10-K for year ended March 31, 1998 (identify specific financial statements) and is qualified in its entirety by reference to such financial statements." 12-MOS MAR-31-1998 MAR-31-1998 193918 2556257 6673101 0 5325613 15055791 4693268 2429031 18289403 7489578 0 0 0 677241 0 18289403 51025640 51025640 0 47954638 179358 0 0 2891644 1185574 1706070 0 0 0 1706070 0.64 0.61
EX-10 3 32 C-352414v02!.04848.00010 AIR TRANSPORTATION HOLDING COMPANY, INC. 1998 OMNIBUS LONG-TERM COMPENSATION PLAN ARTICLE 1 - PURPOSE AND TERM OF PLAN 1.1 Purpose. The purposes of the Plan are to aid Air Transportation Holding Company, Inc. ("AirT") and its Subsidiaries (AirT and its Subsidiaries collectively being referred to herein as the "Company") in attracting and retaining Key Employees through a competitive compensation package, to stimulate the efforts of such Key Employees and to strengthen their desire to remain with the Company, to aid the Company in attracting superior individuals to serve as Nonemployee Directors and to provide appropriate compensation to such Nonemployee Directors for their Service. Toward these objectives, the Committee may grant Employee Stock Options, stock appreciation rights, Performance Restricted Stock Awards, Performance Awards payable in Common Stock or cash, performance units, and other incentive Awards to Key Employees on the terms and subject to the conditions set forth in the Plan. In addition, the Plan provides for the grant of options to Nonemployee Directors upon their initial election or appointment as a Director and that each Nonemployee Director may elect to take all or part of his or her compensation as Director in the form of options. 1.2 Term. The Plan shall become effective as of August 13, 1998, subject to its approval by the shareholders of AirT at the 1998 Annual Meeting of the shareholders. No Awards shall be exercisable or payable before approval of the Plan has been obtained from Air T's shareholders. Awards shall not be granted pursuant to Articles 7, 8, 9, 10 or 11 of the Plan after August 13, 2001; except that the Committee may grant Awards after such date in recognition of performance for Performance Cycles and Performance Periods commencing prior to such date. ARTICLE 2 - DEFINITIONS 2.1 Approved Reason. "Approved Reason" means a reason for terminating employment with the Company that, in the opinion of the Committee, is in the best interests of the Company, as determined by the Committee on a case-by-case basis in its sole discretion. 2.2 Award. "Award" means any form of stock option, stock appreciation right, performance unit, Performance Award payable in cash or shares of Common Stock, shares of Performance Restricted Stock under the Performance Restricted Stock Program, or other incentive Award granted under the Plan, whether singly, in combination, or in tandem, to a Participant by the Committee pursuant to such terms, conditions, restrictions, and limitations, if any, as the Committee may establish by the Award Notice or otherwise, and any Formula Option or Deferral Option. 2.3 Award Notice. "Award Notice" means a written notice from the Company to a Participant that establishes the terms, conditions, restrictions, and limitations applicable to an Award in addition to those established by this Plan and by the Committee's exercise of its administrative powers. 2.4 Award Payment Date. "Award Payment Date" means, for a Performance Cycle or Performance Period, the date the Awards for such Performance Cycle or Performance Period shall be paid to Participants. The Award Payment Date for a Performance Cycle or Performance Period shall occur as soon as administratively possible following the completion of the certifications required pursuant to Subsection 9.5.3, in the case of a Performance Cycle, and Subsection 10.5.3, in the case of a Performance Period. 2.5 Board. "Board" means the Board of Directors of AirT. 2.6 Cause. "Cause," in the case of a Key Employee, means (a) the willful and continued failure by an Employee to substantially perform his or her duties with his or her employer after written warnings identifying the lack of substantial performance are delivered to the Employee by his or her employer to specifically identify the manner in which the employer believes that the Employee has not substantially performed his or her duties, or (b) the willful engaging by an Employee in illegal conduct that is materially and demonstrably injurious to AirT or a Subsidiary. "Cause" means, in the case of a Nonemployee Director, termination of such Nonemployee Director's Service by AirT's shareholders for cause pursuant to the Bylaws of AirT. 2.7 CEO. "CEO" means the Chief Executive Officer of AirT. 2.8 Change In Control. "Change In Control" means, (i) as the result of a tender offer, merger, consolidation, sale of assets, or any combination of such transactions, the persons who were members of the Board immediately before the transaction cease to constitute at least a majority thereof, and (ii) such occurrence would be a change of control of the Company of a nature that such event would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, promulgated pursuant to Section 13 of the Exchange Act (whether or not the Company is required to file such a report). 2.9 Change In Control Price. "Change In Control Price" means the merger or tender price paid for a share of Common Stock upon a Change of Control. 2.10 Change In Ownership. "Change In Ownership" means a Change In Control that results directly or indirectly in the Common Stock ceasing to be actively traded on the primary securities exchange or quotation system on which the Common Stock is traded immediately prior to such Change in Control. 2.11 Code. "Code" means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto. 2.12 Committee. "Committee" means the Compensation Committee of the Board, unless and until its members are not qualified to serve on the Committee pursuant to the provisions of the Plan, in which case the Board will designate the members of the Committee; provided that the Committee shall at all times consist of two or more Directors, each of whom is both a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act and an "outside director" within the meaning of the definition of such term as contained in Treasury Regulation Section 1.162-27(e)(3), or any successor definition; provided further that no Director shall be appointed a member of the Committee who has received any Award other than an Award under Article 12 in the year prior to such appointment; provided further that no Committee member may receive an Award other than pursuant to Article 12. 2.13 Common Stock. "Common Stock" means Common Stock, $.20 par value per share, of AirT, which may be newly issued, treasury stock, shares issued and outstanding or shares owned by a Subsidiary. 2.14 Company. "Company" means AirT and its Subsidiaries. 2.15 Covered Employee. "Covered Employee" means an Employee who is a "Covered Employee" within the meaning of Section 162(m) of the Code. 2.16 Deferral Stock Option. "Deferral Stock Option " means an award of stock options to a Nonemployee Director pursuant to the election of such Nonemployee Director to receive such stock option in lieu of cash compensation in accordance with Subsection 12.3 of this Plan. 2.17 Director. "Director" means a director of AirT. 2.18 Disability. "Disability," in the case of a Key Employee, means a disability under the terms of the AirT long-term disability plan maintained by the Company or any successor plan thereto. 2.19 Disability. "Disability," in the case of a Nonemployee Director, means the permanent and lasting inability, by reason of physical or mental infirmity, or both, of an employee to perform his or her duties as Director. Such Disability shall be determined exclusively by the Board, with or without reference to the certificate of a qualified physician. 2.20 Effective Date. "Effective Date" means the date an Award is determined to be effective by the Committee upon its grant of such Award. 2.21 Employee. "Employee" means either (a) a salaried employee of AirT or (b) a salaried employee of a Subsidiary. 2.22 Employee Stock Option. "Employee Stock Option" means an Award granted to a Key Employee in the form of a stock option pursuant to Article 7. 2.23 Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto. 2.24 Formula Option. "Formula Option " means an Option granted to a Nonemployee Director of the Company pursuant to Section 12.2 of the Plan. 2.25 Good Reason. "Good Reason" means any of the following (without the Participant's written consent): (i) the assignment to the Participant by the Company of duties inconsistent with the Participant's position, duties, responsibilities and status with the Company immediately prior to a Change in Control, or a change in the Participant's titles or offices as in effect immediately prior to Change in Control of the Company, or any removal of the Participant from or any failure to reelect the Participant to any of such positions, except in connection with the termination of his employment because of Disability, Retirement or Cause or as a result of the Participant's death or by the Participant other than for Good Reason; (ii) a reduction by the Company in the Participant's base salary as in effect immediately prior to the Change in Control; (iii) any failure by the Company to continue in effect any benefit plan or arrangement (including, without limitation, the Company's profit sharing plan, Group Annuity Contract, group life insurance plan, senior participant survivor life insurance supplement, and medical, dental, accident and disability plans) in which the Participant is participating at the time of a Change in Control (or any other plans providing the Participant with substantially similar benefits) (hereinafter referred to as "Benefit Plans"), or the taking of any action by the Company which would adversely affect the Participant's participation in or materially reduce the Participant's benefits under any such Benefit Plan or deprive the Participant of any material fringe benefit enjoyed by the Participant at the time of a Change in Control; (iv) any failure by the Company to continue in effect any incentive plan or arrangement (including, without limitation, any annual incentive compensation plan, long-term performance incentive plan, long-term incentive bonus plan, as amended, bonus and contingent bonus arrangements and credits and the right to receive performance awards and similar incentive compensation benefits) in which the Participant is participating at the time of a Change in Control (or any other plans or arrangements providing him with substantially similar benefits) hereinafter referred to as "Incentive Plans") or the taking of any action by the Company which would adversely affect the Participant's participation in any such Incentive Plan or reduce the Participant's benefits under any such Incentive Plan, expressed as a percentage of his base salary, by more than 10 percentage points in any fiscal year as compared to the immediately preceding fiscal year. (v) any failure by the Company to continue in effect any plan or arrangement to receive securities of the Company (including, without limitation, this Plan, and any other plan or arrangement to receive and exercise stock options, stock appreciation rights, restricted stock or grants thereof) in which the Participant is participating at the time of a Change in Control of the Company (or plans or arrangements providing him with substantially similar benefits) (hereinafter referred to as "Securities Plans") or the taking of any action by the Company which would adversely affect the Participant's participation in or materially reduce the Participant's benefits under any such Securities Plan; (vi) the Participant's relocation to any place more than thirty (30) miles from the location at which the Participant performed the Participant's duties prior to a Change in Control, except for required travel by the Participant on the Company's business to an extent substantially consistent with the Participant's business travel obligations at the time of a Change in Control; or (vii) any failure by the Company to provide the Participant with the number of paid vacation days to which the Participant is entitled at the time of a Change in Control. 2.26 Initial Election Date. "Initial Election Date" means, for each Director, the later to occur of (i) the date of such Director's election at the 1998 annual meeting of the shareholders of AirT or (ii) the date of the Director's initial election or appointment to the Board. 2.27 Key Employee. "Key Employee" means a senior level Employee who holds a position of responsibility in a managerial, administrative, or professional capacity. 2.28 Negative Discretion. "Negative Discretion" means the discretion authorized by the Plan to be applied by the Committee in determining the size of an Award for a Performance Period or Performance Cycle if, in the Committee's sole judgment, such application is appropriate. Negative Discretion may only be used by the Committee to eliminate or reduce the size of an Award. By way of example and not by way of limitation, in no event shall any discretionary authority granted to the Committee by the Plan, including but not limited to Negative Discretion, be used to: (a) grant Awards for a Performance Period or Performance Cycle if the Performance Goals for such Performance Period or Performance Cycle have not been attained; or (b) increase an Award above the maximum amount payable under Section 7.7, 8.7, 9.10 or 10.7 of the Plan. 2.29 Nonemployee Director. "Nonemployee Director" means a member of the Board who is not an Employee. 2.30 Nonemployee Director Option. "Nonemployee Director Option " means a Formula Option or a Deferral Option. 2.31 Nonemployee Director Option Agreement. "Nonemployee Director Option Agreement" means an Option Agreement between the Company and the Nonemployee Director pursuant to which the Nonemployee Director Option is awarded stock options as set forth in the Plan. 2.32 AirT. "AirT" means Air Transportation Holding Company, Inc. 2.33 Participant. "Participant" means any Key Employee who has been selected for a grant of stock options pursuant to Article 7, any Key Employee who has been selected for a grant of stock appreciation rights pursuant to Article 8, any Key Employee who for a Performance Cycle has been selected to participate in the Performance Restricted Stock Program pursuant to Article 9, any Key Employee who for a Performance Period has been selected to participate in the Performance Award Program pursuant to Article 10, any Key Employee who has been selected for a grant of performance units pursuant to Article 11, and any Nonemployee Director who is eligible to receive a grant of Formula Options pursuant to Section 12.2, or who elects to receive Deferral Options pursuant to Article 12. 2.34 Performance Awards. "Performance Awards" means the Performance Awards granted to Key Employees pursuant to Article 10. All Performance Awards are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. 2.35 Performance Criteria. "Performance Criteria" means the one or more criteria that the Committee shall select for purposes of establishing the Performance Goal(s) for a Performance Period or Performance Cycle. The Performance Criteria that will be used to establish such Performance Goal(s) shall be limited to the following: Return On Net Assets ("RONA"), return on shareholders' equity, return on assets, return on capital, shareholder returns, profit margin, earnings per share, net earnings, operating earnings, Common Stock price per share, and sales or market share. To the extent required by Section 162(m) of the Code, the Committee shall, within the first 90 days of a Performance Period or Performance Cycle (or, if longer, within the maximum period allowed under Section 162(m) of the Code), define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period or Performance Cycle. 2.36 Performance Cycle. "Performance Cycle" means the one or more periods of time, which may be of varying and overlapping durations, but which shall be at least one year in length, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant's right to and the payment of an Award under the Performance Restricted Stock Program. 2.37 Performance Formula. "Performance Formula" means, for a Performance Period or Performance Cycle, the one or more objective formulas applied against the relevant Performance Goals to determine, with regard to the Award of a particular Participant, whether all, some portion but less than all, or none of the Award has been earned for the Performance Period or Performance Cycle. In the case of an Award under the Performance Restricted Stock Program, in the event the Performance Goals for a Performance Cycle are achieved, the Performance Formula shall determine what percentage of the Participant's Target Award for the Performance Cycle will be earned. 2.38 Performance Goal. "Performance Goal" means, for a Performance Period or Performance Cycle, the one or more goals established by the Committee for the Performance Period or Performance Cycle based upon the Performance Criteria. The Committee is authorized at any time during the first 90 days of a Performance Period or Performance Cycle, or at any time thereafter (but only to the extent the exercise of such authority after the first 90 days of a Performance Period or Performance Cycle would not cause the Awards granted to the Covered Employees for the Performance Period or Performance Cycle to fail to qualify as "performance-based compensation" under Section 162(m) of the Code), in its sole and absolute discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period or Performance Cycle in order to prevent the dilution or enlargement of the rights of Participants, (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; and (c) in view of the Committee's assessment of the business strategy of the Company, performance of comparable organizations, economic and business conditions and any other circumstances deemed relevant. 2.39 Performance Period. "Performance Period" means the one or more periods of time, which may be varying and overlapping durations, but which shall be at least one year in length, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant's right to and the payment of a Performance Award. 2.40 Performance Restricted Stock. "Performance Restricted Stock" means an Award of Common Stock subject to the restrictions set forth in Section 9.6 awarded to a Key Employee pursuant to Article 9. 2.41 Performance Restricted Stock Award. "Performance Restricted Stock Award" means an Award granted pursuant to Article 9 in the form of shares of Performance Restricted Stock. All Restricted Stock Awards are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. 2.42 Performance Restricted Stock Program. "Performance Restricted Stock Program" means the program established under Article 9 of the Plan pursuant to which selected Key Employees receive Awards for a Performance Cycle in the form of shares of Performance Restricted Stock based upon attainment of Performance Goals for such Performance Cycle. All Awards granted to Covered Employees under the Performance Restricted Stock Program are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. 2.43 Plan. "Plan" means this Air Transportation Holding Company, Inc. 1998 Omnibus Long-Term Compensation Plan, as amended or modified from time to time. 2.44 Retirement. "Retirement" means, in the case of a Key Employee, for all Plan purposes other than Section 18.12, a termination of employment from the Company on or after attainment of Normal Retirement Age as defined under the AirT 401(k) Plan. "Retirement" means, in the case of a Nonemployee Director, for all Plan purposes other than Section 18.12, the termination of such Nonemployee Director's Service on or after age 70, or at any earlier age with the consent of the Board. 2.45 Restriction Period. "Restriction Period" means the period of time beginning on the Effective Date of the grant of Performance Restricted Stock and ending three (3) year(s) after such date, or such longer period as the Committee shall determine in its sole discretion. 2.46 Service. "Service" means service as a Director. 2.47 Subsidiary. "Subsidiary" means a corporation or other business entity in which AirT directly or indirectly has an ownership interest of 80 percent or more. 2.48 Target Award. "Target Award" means, for a Performance Cycle, the target Award amount, expressed as a number of shares of Performance Restricted Stock, established for each Participant selected by the Committee for the Performance Cycle. The fact, however, that a Target Award is established for a Participant shall not in any manner entitle such Participant to receive an Award for such Performance Cycle. 2.49 Unit. "Unit" means a bookkeeping entry used by the Company to record and account for the grant of performance units until the performance unit is paid, cancelled, forfeited or terminated, as the case may be. ARTICLE 3 - ELIGIBILITY Only Key Employees are eligible to participate in Awards under Articles 7, 8, 9, 10 and 11 of the Plan. Only Nonemployee Directors shall participate in Awards under Article 12 of the Plan. For purposes of Articles 7, 8, 9, 10, and 11 of the Plan, the Committee shall select, from time to time, Participants from those Key Employees who, in the opinion of the Committee, can further the Plan's purposes. Once a Participant is so selected, the Committee shall determine the type or types of Awards to be made to the Participant and shall establish in the related Award Notices the terms, conditions, restrictions, and limitations, if any, applicable to the Awards in addition to those set forth in this Plan and the administrative rules and regulations issued by the Committee. ARTICLE 4 - PLAN ADMINISTRATION 4.1 Responsibility. The Committee shall have total and exclusive responsibility to control, operate, manage, and administer the Plan in accordance with its terms. 4.2 Authority of the Committee. The Committee shall have all the authority that may be necessary or helpful to enable it to discharge its responsibilities with respect to the Plan. Without limiting the generality of the preceding sentence, the Committee shall have the exclusive right to: (a) interpret the Plan; (b) determine eligibility for the participation in the Plan; (c) decide all questions concerning eligibility for and the amount of Awards payable under the Plan; (d) construe any ambiguous provision of the Plan; (e) correct any default; (f) supply any omission; (g) reconcile any inconsistency; (h) issue administrative guidelines as an aid to administer the Plan and make changes in such guidelines as it from time to time deems proper; (i) make regulations for carrying out the Plan and make changes in such regulations as it from time to time deems proper; (j) determine whether Awards should be granted singly, in combination, or in tandem; (k) to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions, and limitations; (l) accelerate the vesting, exercise, or payment of an Award or the Performance Period of an Award when such action or actions would be in the best interest of the Company; (m) establish such other types of Awards, besides those specifically enumerated in Article 5 hereof, that the Committee determines are consistent with the Plan's purpose; (n) subject to Section 7.2, grant Awards in replacement of Awards previously granted under this Plan or any other executive compensation plan of the Company; (o) establish and administer the Performance Goals and certify whether, and to what extent, they have been attained; and (p) take any and all other action it deems necessary or advisable for the proper operation or administration of the Plan; provided that in no event shall the Committee have the power to determine eligibility for participation under Article 12 or to determine the number, price, vesting period, or timing of Formula Options granted under Article 12 (all of which determinations are automatic under the provisions of the Plan). 4.3 Discretionary Authority. The Committee shall have full discretionary authority in all matters related to the discharge of its responsibilities and the exercise of its authority under the Plan, including without limitation its construction of the terms of the Plan and its determination of eligibility for participation and Awards under the Plan. It is the intent of the Plan that the decisions of the Committee and its action with respect to the Plan shall be final, binding and conclusive upon all persons having or claiming to have any right or interest in or under the Plan. 4.4 Section 162(m) of the Code. With regard to all Covered Employees, the Plan shall, for all purposes, be interpreted and construed in accordance with Section 162(m) of the Code. 4.5 Action by the Committee. The Committee may act only by a majority of its members. Any determination of the Committee may be made, without a meeting, by a writing or writings signed by all of the members of the Committee. In addition, the Committee may authorize any one or more of its number to execute and deliver documents on behalf of the Committee. 4.6 Delegation of Authority. The Committee may delegate some or all of its authority under the Plan to any person or persons provided that any such delegation be in writing; provided, however, that only the Committee may select and grant Awards to Participants who are subject to Section 16 of the Exchange Act or are Covered Employees. ARTICLE 5 - FORMS OF AWARDS 5.1 In General. Awards may, at the Committee's sole discretion, be paid in the form of stock options pursuant to Article 7, stock appreciation rights pursuant to Article 8, Performance Restricted Stock Awards pursuant to Article 9, Performance Awards pursuant to Article 10, performance units pursuant to Article 11, and any form established by the Committee pursuant to Section 4.2(m), or a combination thereof. Awards may also be paid in the form of Formula Options and Deferral Options pursuant to Article 12. All Awards shall be subject to the terms, conditions, restrictions and limitations of the Plan. The Committee may, in its sole judgment, subject an Award, except Formula Options and Deferral Options granted pursuant to Article 12, to such other terms, conditions, restrictions, and limitations (including, but not limited to, the time and conditions of exercise and restrictions on transferability and vesting), provided they are not inconsistent with the terms of the Plan. Awards under a particular Article of the Plan need not be uniform and Awards under two or more Articles may be combined into a single Award Notice. Any combination of Awards may be granted at one time and on more than one occasion to the same Participant. For purposes of the Plan, the value of any Award granted in the form of Common Stock shall be the closing price at which a share of Common Stock trades on the date of the grant's Effective Date, or the next preceding trading day if such date was not a trading date, on the primary securities exchange or quotation system on which the Common Stock is then traded. ARTICLE 6 - SHARES SUBJECT TO PLAN 6.1 Available Shares. The maximum number of shares of Common Stock that shall be available for grant of Awards under the Plan (including incentive stock options) during its term, shall not exceed 165,000. (Such amount shall be subject to adjustment as provided in Section 6.2.) Any shares of Common Stock related to Awards that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares shall be available again for grant under the Plan. Moreover, shares of Common Stock with respect to which a stock appreciation right has been exercised and paid in cash shall again become eligible for grant under the Plan; provided that if such shares of Common Stock subject to Awards are settled in cash in lieu of Common Stock or are exchanged with the Committee's permission for Awards not involving Common Stock, such shares shall not be available again for grant under the Plan. The maximum number of shares available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional performance shares. The shares of Common Stock available for issuance under the Plan may be authorized and unissued shares, treasury shares, shares issued and outstanding or shares owned by a Subsidiary. 6.2 Adjustment to Shares. 6.2.1 In General. The provisions of this Subsection 6.2.1 are subject to the limitation contained in Subsection 6.2.2. If there is any change in the number of outstanding shares of Common Stock through the declaration of stock dividends, stock splits or the like, the number of shares available for Awards, the shares subject to any Award and the option prices or exercise prices of Awards shall be automatically adjusted. If there is any change in the number of outstanding shares of Common Stock through any change in the capital account of AirT, or through a merger, consolidation, separation (including a spin-off or other distribution of stock or property), reorganization (whether or not such reorganization comes within the meaning of such term in Section 368(a) of the Code) or partial or complete liquidation, the Committee shall make appropriate adjustments in the maximum number of shares of Common Stock that may be issued under the Plan and any adjustments and/or modifications to outstanding Awards as it, in its sole discretion, deems appropriate. In event of any other change in the capital structure or in the Common Stock of AirT, the Committee shall also be authorized to make such appropriate adjustments in the maximum number of shares of Common Stock available for issuance under the Plan and any adjustments and/or modifications to outstanding Awards as it, in its sole discretion, deems appropriate. The maximum number of shares available for issuance under the Plan shall be automatically adjusted to the extent necessary to reflect any dividend equivalents paid in the form of Common Stock. 6.2.2 Covered Employees. In no event shall the Award of any Participant who is a Covered Employee be adjusted pursuant to Subsection 6.2(a) to the extent it would cause such Award to fail to qualify as "performance-based compensation" under Section 162(m) of the Code. ARTICLE 7 - EMPLOYEE STOCK OPTION PROGRAM 7.1 In General. Awards may be granted to Key Employees in the form of Employee Stock Options. These Employee Stock Options may be incentive stock options within the meaning of Section 422 of the Code or non-qualified stock options (i.e., stock options that are not incentive stock options), or a combination of both. All Awards under the Plan issued to Covered Employees in the form of Employee Stock Options shall qualify as "performance-based compensation" under Section 162(m) of the Code. 7.2 Terms and Conditions of Stock Options. An Employee Stock Option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee. The price at which Common Stock may be purchased upon exercise of an Employee Stock Option shall be not less than 100% of the closing price at which a share of Common Stock trades on the date of the grant's Effective Date, or the next preceding trading day if such date was not a trading date, on the primary securities exchange or quotation system on which the Common Stock is then traded. Moreover, all Options shall expire not later than 10 years from the Effective Date of the grant. Employee Stock Options shall not be repriced, i.e., there shall be no grant of an Employee Stock Option(s) to a Participant in exchange for a Participant's agreement to cancellation of a higher-priced Employee Stock Option(s) that was previously granted to such Participant. 7.3 Restrictions Relating to Incentive Stock Options. Employee Stock Options issued in the form of incentive stock options shall, in addition to being subject to the terms and conditions of Section 7.2, comply with Section 422 of the Code. Accordingly, the aggregate fair-market value (determined at the time the option was granted) of the Common Stock with respect to which incentive stock options are exercisable for the first time by a Participant during any calendar year (under this Plan or any other plan of the Company) shall not exceed $100,000 (or such other limit as may be required by the Code). The price at which Common Stock may be purchased upon exercise of an incentive stock option shall not be less than 100% of the closing price at which a share of Common Stock trades on the date of the grant's Effective Date, or the next preceding trading day if such date was not a trading date, on the primary securities exchange or quotation system on which the Common Stock is then traded, provided that in the case of an incentive stock option granted to a Key Employee who at the time of grant owns (as is defined in Section 424(d) of the Code) stock of the Company or the Subsidiaries possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of the Subsidiaries, the price at which Common Stock may be purchased upon exercise of such incentive stock option shall be not less than 110% of such price, on the Effective Date of the incentive stock option's grant. In no event may the price at which Common Stock may be purchased upon exercise of such incentive stock option be less than the par value of the Common Stock subject to such incentive stock option. From the maximum number of shares available for issuance under the Plan under Section 6.1, the number of shares of Common Stock that shall be available for incentive stock options granted under the Plan is 165,000. 7.4 Additional Terms and Conditions. The Committee may, by way of the Award Notice or otherwise, establish such other terms, conditions, restrictions, and limitations, if any, of any Employee Stock Option Award, provided they are not inconsistent with the Plan. 7.5 Exercise. Upon exercise, the option price of an Employee Stock Option may be paid in cash, shares of Common Stock, a combination of the foregoing, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock, whether restricted or unrestricted, and may impose such conditions as it deems appropriate on the use of such Common Stock to exercise an Employee Stock Option. Subject to Section 18.9, Employee Stock Options awarded under the Plan may be exercised by way of any broker-assisted exercise program, provided such program is available at the time of the Employee Stock Option's exercise. The Committee may permit a Participant to satisfy any amounts required to be withheld under the applicable Federal, state and local tax laws, in effect from time to time, by electing to have the Company withhold a portion of the shares of Common Stock to be delivered for the payment of such taxes. 7.6 Nontransferability of Employee Stock Options. No Employee Stock Option granted pursuant to the Plan shall be transferable otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code. During the lifetime of an optionee, the Employee Stock Option shall be exercisable only by the optionee personally or by the optionee's legal representative. 7.7 Maximum Award Payable. Notwithstanding any provision contained in the Plan to the contrary, the maximum number of shares for which Employee Stock Options may be granted under the Plan to any one Participant for a calendar year is 50,000 shares of Common Stock. ARTICLE 8 - STOCK APPRECIATION RIGHTS 8.1 In General. Awards may be granted to employees in the form of stock appreciation rights ("SARs"). An SAR may be granted in tandem with all or a portion of a related Employee Stock Option under the Plan ("Tandem SARs"), or may be granted separately ("Freestanding SARs"). A Tandem SAR may be granted either at the time of the grant of the related Employee Stock Option or at any time thereafter during the term of the Employee Stock Option. SARs shall entitle the recipient to receive a payment equal to the appreciation in market value of a stated number of shares of Common Stock from the exercise price to the market value on the date of exercise. All Awards under the Plan issued to Covered Employees in the form of an SAR shall qualify as "performance- based compensation" under Section 162(m) of the Code. 8.2 Terms and Conditions of Tandem SARs. A Tandem SAR shall be exercisable to the extent, and only to the extent, that the related Employee Stock Option is exercisable, and the "exercise price" of such an SAR (the base from which the value of the SAR is measured at its exercise) shall be the option price under the related Employee Stock Option. However, at no time shall a Tandem SAR be issued if the option price of its related Employee Stock Option is less than the fair-market value of the Common Stock, as determined by the Committee, on the Effective Date of the Tandem SAR's grant. If a related Employee Stock Option is exercised as to some or all of the shares covered by the Award, the related Tandem SAR, if any, shall be cancelled automatically to the extent of the number of shares covered by the Employee Stock Option exercise. Upon exercise of a Tandem SAR as to some or all of the shares covered by the Award, the related Employee Stock Option shall be cancelled automatically to the extent of the number of shares covered by such exercise, and such shares shall not again be eligible for grant in accordance with Section 6.1. Moreover, all Tandem SARs shall not expire later than 10 years from the Effective Date of the SAR's grant. 8.3 Terms and Conditions of Freestanding SARs. Freestanding SARs shall be exercisable in whole or in such installments and at such times as may be determined by the Committee. The exercise price of a Freestanding SAR shall be not less than 100% of the closing price at which a share of Common Stock trades on the date of the grant's Effective Date, or the next preceding trading day if such date was not a trading date, on the primary securities exchange or quotation system on which the Common Stock is then traded. Moreover, all Freestanding SARs shall not expire later than 10 years from the Effective Date of the Freestanding SAR's grant. 8.4 Deemed Exercise. The Committee may provide that an SAR shall be deemed to be exercised at the close of business on the scheduled expiration date of such SAR if at such time the SAR by its terms remains exercisable and, if so exercised, would result in a payment to the holder of such SAR. 8.5 Additional Terms and Conditions. The Committee may, by way of the Award Notice or otherwise, determine such other terms, conditions, restrictions, and limitations, if any, of any SAR Award, provided they are not inconsistent with the Plan. 8.6 Nontransferability of SARs. No SAR granted pursuant to the Plan shall be transferable otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code. During the lifetime of the Participant to whom the SAR was granted, the SAR shall be exercisable only by such Participant personally or by the holder's legal representative. 8.7 Maximum Award Payable. Notwithstanding any provision contained in the Plan to the contrary, the maximum number of shares for which SARs may be granted under the Plan to any one Participant for a calendar year is 10,000 shares of Common Stock. ARTICLE 9 - PERFORMANCE RESTRICTED STOCK PROGRAM 9.1 Purpose. The purposes of the Performance Restricted Stock Program are: (a) to promote the interests of the Company and its shareholders by providing a means to acquire a proprietary interest in the Company to selected Key Employees who are in a position to make a substantial contribution to the continued progress and success of the Company; (b) to attract and retain qualified individuals to serve as Employees in those positions; (c) to enhance long-term performance of the Company by linking a meaningful portion of the compensation of selected Key Employees to the achievement of specific long-term financial objectives of the Company; and (d) to motivate and reward selected Key Employees to undertake actions to increase the price of the Common Stock. 9.2 Eligibility. Any Key Employee is eligible to participate in the Performance Restricted Stock Program. Within the first 90 days of a Performance Cycle (or, if longer, within the maximum period allowed under Section 162(m) of the Code), the Committee will select those Key Employees who will be Participants for such Performance Cycle. However, designation of a Key Employee as a Participant for a Performance Cycle shall not in any manner entitle the Participant to receive payment of an Award for the cycle. The determination as to whether or not such Participant becomes entitled to payment of an Award for such Performance Cycle shall be decided solely in accordance with the provisions of this Article 9. Moreover, designation of a Key Employee as a Participant for a particular Performance Cycle shall not require designation of such Key Employee as a Participant in any subsequent Performance Cycle and designation of one Key Employee as a Participant shall not require designation of any other Key Employee as a Participant in such Performance Cycle or in any other Performance Cycle. 9.3 Description of Awards. Awards granted under the Performance Restricted Stock Program provide Participants with the opportunity to earn shares of Performance Restricted Stock, subject to the terms and conditions of Section 9.6 below. Each Award granted under the Plan for a Performance Cycle shall consist of a Target Award expressed as fixed number of shares of Performance Restricted Stock. In the event the Performance Goals for the Performance Cycle are achieved, the Performance Formula shall determine, with regard to a particular Participant, what percentage of the Participant's Target Award for the Performance Cycle will be earned. All of the Awards issued under the Performance Restricted Stock Program to Covered Employees are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. 9.4 Procedure for Determining Awards. Within the first 90 days of a Performance Cycle (or, if longer, within the maximum period allowed under Section 162(m) of the Code), the Committee shall establish in writing for such Performance Cycle the following: the specific Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and level(s) of the Performance Goal(s), whether the Performance Goal(s) is(are) to apply to the Company, AirT, a Subsidiary, or any one or more subunits of the foregoing, the amount of the Target Award and the Performance Formula. 9.5 Payment of Awards. 9.5.1 Condition to Receipt of Awards. Except as provided in Section 9.8, a Participant must be employed by the Company on the Performance Cycle's Award Payment Date to be eligible for an Award for such Performance Cycle. 9.5.2 Limitation. A Participant shall be eligible to receive an Award for a Performance Cycle only if: 9.5.2.1 the Performance Goals for such cycle are achieved; and 9.5.2.2 the Performance Formula as applied against such Performance Goals determines that all or some portion of the Participant's Target Award has been earned for the Performance Period. 9.5.3 Certification. Following the completion of a Performance Cycle, the Committee shall meet to review and certify in writing whether, and to what extent, the Performance Goals for the Performance Cycle have been achieved. If the Committee certifies that the Performance Goals have been achieved, it shall, based upon application of the Performance Formula to the Performance Goals for such cycle, also calculate and certify in writing for each Participant what percentage of the Participant's Target Award has been earned for the cycle. The Committee shall then determine the actual size of each Participant's Award for the Performance Cycle and, in so doing, shall apply Negative Discretion, if and when it deems appropriate. 9.5.4 Negative Discretion. In determining the actual size of an individual Award to be paid for a Performance Cycle, the Committee may, through the use of Negative Discretion, reduce or eliminate the amount of the Award earned under the Performance Formula for the Performance Cycle if, in its sole judgment, such reduction or elimination is appropriate. 9.5.5 Timing of Award Payments. The Awards granted by the Committee for a Performance Cycle shall be paid to Participants on the Award Payment Date for such Performance Cycle. 9.5.6 New Participants. Participants who are employed by the Company after the Committee's selection of Participants for the Performance Cycle, as well as Key Employees who are selected by the Committee to be Participants after such date, shall, in the event Awards are paid for the Performance Cycle, only be entitled to a pro rata Award. The amount of the pro rata Award shall be determined by multiplying the Award the Participant would have otherwise been paid if he or she had been a Participant for the entire Performance Cycle by a fraction, the numerator of which is the number of full months he or she was eligible to participate in the Performance Restricted Stock Program during the Performance Cycle and the denominator of which is the total number of full months in the Performance Cycle. For purposes of this calculation, a partial month of participation shall be treated as a full month of participation to the extent a Participant participates in the Performance Restricted Stock Program for 15 or more days of such month; and shall not be taken into consideration to the extent the Participant participates in the Performance Restricted Stock Program for less than 15 days of such month. 9.5.7 Noncompetition. No Participant shall receive payment of an Award if, subsequent to the commencement of the Performance Cycle and prior to the Award Payment Date for such cycle, the Participant engages in the conduct prohibited under Section 13.3. 9.6 Performance Restricted Stock: Terms and Conditions. Shares of Performance Restricted Stock shall be subject to the following terms and conditions: 9.6.1 Subject to the provisions of the Plan and the Performance Restricted Stock Agreement referred to in paragraph 9.6.4, until the expiration of the Restriction Period, the Participant shall not be permitted to sell, assign, transfer, pledge, or otherwise encumber shares of Performance Restricted Stock. 9.6.2 Except as provided in this Section 9.6 and the Performance Restricted Stock Agreement, the Participant shall have, with respect to the shares of Performance Restricted Stock, all of the rights of a shareholder of the Company holding shares of the Common Stock, including, if applicable, the right to vote the shares and the right to receive any cash dividends. If so determined by the Committee in the applicable Performance Restricted Stock Agreement, dividends payable in Common Stock shall be paid in the form of Performance Restricted Stock on which such dividend was paid, held subject to the same conditions and restrictions of the underlying Performance Restricted Stock. 9.6.3 Except to the extent otherwise provided in the applicable Performance Restricted Stock Agreement, this Section 9.6.3, and Articles 16 and 17, upon a Participant's termination of employment during an unexpired Restriction Period, all shares still subject to such unexpired Restriction Period held by that Participant shall be forfeited by that Participant. In the event of the termination of employment of a Participant because of death, Disability, Retirement, or for an Approved Reason, the unexpired Restriction Period(s) shall lapse as to a pro-rata portion of such Performance Restricted Stock, which pro-rata portion shall be equal to the portion of the applicable Restriction Period(s) that has elapsed as of the date of such termination of employment, and such pro-rata portion shall become free of all restrictions and become fully vested and transferable. The remaining portion of the Performance Restricted Stock for which the Restriction Period has not expired shall be forfeited by the Participant. Notwithstanding anything contained in this Section 9.6.3 to the contrary, as to any Participant who, on the date of his or her termination of employment because of death, Disability, Retirement or for an Approved Reason, holds any Performance Restricted Stock that has not been outstanding for a period of at least six months from the Effective Date of such Performance Restricted Stock and who on the date of such termination is required to report under Section 16 of the Exchange Act, such Performance Restricted Stock shall not become free of restrictions, vested, and transferable pursuant to this Section 9.6.3 until the first business day next following the end of such six-month period. 9.6.4 Each Performance Restricted Stock award shall be confirmed by, and be subject to the terms of, a Performance Restricted Stock Agreement. 9.7 Performance Restricted Stock Certificates. Shares of Performance Restricted Stock shall be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates. Any certificate issued in respect of shares of Performance Restricted Stock shall be registered in the name of such Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Performance Restricted Stock, substantially in the following form: "The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Air Transportation Holding Company, Inc. Omnibus Long-Term Compensation Plan and a Performance Restricted Stock Agreement. Copies of such Plan and Agreement are on file at the offices of the Company. The Committee may require that the certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of Performance Restricted Stock, the Participant shall have delivered a stock power, endorsed in blank, relating to the Common Stock covered by such Award. If and when the applicable Restriction Period expires without a prior forfeiture of the Performance Restricted Stock, unlegended certificates for such shares shall be delivered to the Participant promptly upon surrender of the legended certificates. 9.8 Termination of Employment During Performance Cycle. In the event a Participant's employment is terminated prior to an Award Payment Date for a Performance Cycle for any reason other than death, Disability, Retirement or for an Approved Reason, all of such Participant's Awards for such Performance Cycle shall be forfeited. In the event a Participant terminates employment due to death, Disability, or Retirement, or for an Approved Reason, prior to the Award Payment Date for a Performance Cycle, the Participant shall receive, if Awards are paid for such Performance Cycle and if he or she complies with the requirements of Subsection 9.5.7 through the Award Payment Date, a pro rata Award. The amount of the pro rata Award shall be determined by multiplying the Award the Participant would have otherwise been paid if he or she had been a Participant through the Award Payment Date for the Performance Cycle by a fraction, the numerator of which is the number of full months he or she was a Participant during such Performance Cycle and the denominator of which is the total number of full months in the Performance Cycle. For purposes of this calculation, a partial month of participation shall: (1) be treated as a full month of participation to the extent a Participant participates in the Performance Restricted Stock Program for 15 or more days of such month; and (2) not be taken into consideration to the extent the Participant participates in the Performance Restricted Stock Program for less than 15 days of such month. Such pro rata Award shall be paid in the form of shares of Common Stock, not subject to any restrictions, limitations or escrow requirements. In the event of Disability, or Retirement or termination for an Approved Reason, the pro rata Award shall be paid directly to the Participant and, in the event of death, to the Participant's estate. 9.9 Awards. On or promptly after the Award Payment Date for a Performance Cycle, the Committee shall issue to each Participant the Award, in the form of shares of Performance Restricted Stock, he or she has earned for such Performance Cycle. Such shares of Performance Restricted Stock shall be subject to such terms, conditions, limitations, and restrictions of Section 9.6 and such other as the Committee, in its sole judgment, determines. 9.10 Maximum Award Payable. Notwithstanding any provision contained in the Plan to the contrary, the Maximum Award Payable to any one Participant under the Plan for a Performance Cycle is 5,000 shares of Performance Restricted Stock. ARTICLE 10 - PERFORMANCE AWARD PROGRAM 10.1 Eligibility. Only Key Employees shall be eligible to receive Performance Awards. Within the first 90 days of a Performance Period (or, if longer, within the maximum period allowed under Section 162(m) of the Code), the Committee shall select those Key Employees who will be Participants for such Performance Period. However, designation of a Key Employee as a Participant for a Performance Period shall not in any manner entitle the Participant to receive a Performance Award for the Performance Period. The entitlement of any Participant to payment of a Performance Award for such Performance Period shall be decided solely in accordance with the provisions of this Article 10. Moreover, designation of a Key Employee as a Participant for a particular Performance Period shall not require designation of such Key Employee as a Participant in any subsequent Performance Period, and designation of one Key Employee as a Participant shall not require designation of any other Key Employee as a Participant in such Performance Period or in any other Performance Period. All of the Performance Awards issued under the Performance Award Program to Covered Employees are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. 10.2 Calculation of Performance Incentive Base Salary. Within the first 90 days of a Performance Period (or, if longer, within the maximum period allowed under Section 162(m) of the Code), the Committee shall calculate the Participant's Performance Incentive Base Salary for the Performance Period then beginning. The Performance Incentive Base Salary for any Performance Period shall be the Participant's base salary as of the date the Performance Goal(s) for such Performance Period is set by the Committee. Once the Performance Incentive Base Salary is determined, the Performance Incentive Base Salary will not change for that Performance Period. 10.3 Procedure for Determining Awards. With regard to a particular Performance Period, the Committee shall, using its full discretion, select the length of such Performance Period. Within the first 90 days of a Performance Period (or, if longer, within the maximum period allowed under Section 162(m) of the Code), the Committee shall establish in writing for such Performance Period (i) the specific Performance Criteria that will be used to establish the Performance Goal(s) for such Performance Period and the kind(s) and level(s) of such Performance Goal(s) and (ii) an award matrix detailing the Performance Award for each Participant if such Performance Goals are attained. The amount of a Participant's Performance Award will be calculated from the Performance Formula for the Performance Period, which Performance Formula shall be equal to the product of the Participant's Incentive Base Salary and the percentage derived from the award matrix. 10.4 Performance Awards. On the Award Payment Date for a Performance Period, the Committee shall issue to each Participant the Award, in the form of cash or Common Stock, as the Committee may determine in its sole discretion. Shares of Common Stock shall be subject to such terms, conditions, limitations, and restrictions as the Committee, in its sole judgment, determines. 10.5 Payment of Awards. 10.5.1 Condition to Receipt of Awards. Except as provided in Sections 10.6 and Articles 16 and 17, a Participant must be employed by the Company on the Performance Period's Award Payment Date to be eligible for an Award for such Performance Period. 10.5.2 Limitation. A Participant shall be eligible to receive an Award for a Performance Period only if: (i) the Performance Goals for such Performance Period are achieved; and (ii) the Performance Formula as applied against such Performance Goals determines that all or some portion of the Performance Award has been earned by that Participant for the Performance Period. 10.5.3 Certification. Following the completion of a Performance Period, the Committee shall meet to review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved. If the Committee certifies that the Performance Goals have been achieved, it shall, based upon application of the Performance Formula to the Performance Goals for such Performance Period, also calculate and certify in writing for each Participant what percentage of the Performance Award has been earned for the Performance Period. The Committee shall then determine the size of each Participant's Award for the Performance Period and, in so doing, shall apply Negative Discretion if and when it deems appropriate. 10.5.4 Negative Discretion. In determining the size of an individual Award to be paid for a Performance Period, the Committee may, through the use of Negative Discretion, reduce or eliminate the amount of the Award earned under the Performance Formula for the Performance Period if, in its sole discretion, such reduction or elimination is appropriate. 10.5.5 Timing of Award Payments. The Performance Awards granted by the Committee for a Performance Period shall be paid to Participants on or promptly after the Award Payment Date for such Performance Period. 10.5.6 New Participants. Participants who commence employment by the Company after the Committee's selection of Participants for the Performance Period, as well as Key Employees who are selected by the Committee to be Participants after such date, shall, in the event Awards are paid for the Performance Period, be entitled to a pro rata Award. The amount of the pro rata Award shall be determined by multiplying the Award the Participant would have otherwise been paid if he or she had been a Participant for the entire Performance Period by a fraction, the numerator of which is the number of full months he or she was eligible as a Participant to participate in the Performance Award Program during the Performance Period and the denominator of which is the total number of full months in the Performance Period. For purposes of this calculation, a partial month of participation shall: (i) be treated as a full month of participation to the extent a Participant participates in the Performance Award Program for 15 or more days of such month; and (ii) not be taken into consideration to the extent the Participant participates in the Performance Award Program for less than 15 days of such month. 10.6 Termination of Employment During Performance Period. In the event a Participant's employment terminates because of death, Disability, Retirement or for an Approved Reason prior to the Award Payment Date for a Performance Period, the Participant shall receive, if Awards are paid for such Performance Period, through the Award Payment Date, a pro rata Performance Award. The amount of the pro rata Performance Award shall be determined by multiplying the Performance Award the Participant would have otherwise been paid if he or she had been a Participant through the Award Payment Date for the Performance Period by a fraction, the numerator of which is the number of full months he or she was a Participant during such Performance Period and the denominator of which is the total number of full months in the Performance Period. For purposes of this calculation, a partial month of participation shall: (1) be treated as a full month of participation to the extent a Participant participates in the Performance Award Program for 15 or more days of such month; and (2) not be taken into consideration to the extent the Participant participates in the Performance Award Program for less than 15 days of such month. Such pro rata Performance Award shall be paid in the form of cash. In the event of death, Disability, Retirement or for an Approved Reason, the pro rata Performance Award shall be paid directly to the Participant and, in the event of death, to the Participant's estate, no more than 120 days after the Award Payment Date for such Performance Period. In the event a Participant's employment terminates for any reason other than death, Disability, Retirement or an Approved Reason, such Participant shall have no right to any Performance Award for the Performance Period in which such Participant's employment is terminated. 10.7 Maximum Award Payable. Notwithstanding any provision contained in the Plan to the contrary, the maximum Performance Award payable to any one Participant under the Plan for a calendar year is $100,000, or, in the event the Performance Award is paid in shares of Common Stock, the equivalent Common Stock award thereof, based on the closing price at which a share of Common Stock trades on the date of the grant's Effective Date, or the next preceding trading day if such date was not a trading date, on the primary securities exchange or quotation system on which the Common Stock is then traded. ARTICLE 11 - PERFORMANCE UNITS 11.1 Grants. Awards may be granted in the form of performance units. Performance units, as that term is used in this Plan, shall refer to Units valued by reference to designated criteria established by the Committee, but performance units shall not be payable in Common Stock. 11.2 Performance Criteria. Performance units shall be contingent on the attainment during a Performance Period of certain performance objectives. The length of the Performance Period, the performance objectives to be achieved during the Performance Period, and the measure of whether and to what degree such objectives have been attained shall be conclusively determined by the Committee in the exercise of its absolute discretion. Performance objectives may be revised by the Committee, at such times as it deems appropriate during the Performance Period, in order to take into consideration any unforeseen events or changes in circumstances. 11.3 Additional Terms and Conditions. The Committee may, by way of the Award Notice or otherwise, determine such other terms, conditions, restrictions, and limitations, if any, of any Award of performance units, provided they are not inconsistent with the Plan. ARTICLE 12 - NONEMPLOYEE DIRECTOR OPTIONS 12.1 Eligible Awards. Only Nonemployee Directors are eligible to receive Formula Options and Deferral Options, which shall be nonqualified stock options (i.e. options that are not incentive stock options within the meaning of Section 422 of the Code). 12.2 Formula Options. 12.2.1 Each Nonemployee Director shall automatically receive, upon his or her respective Initial Election Date an option to purchase 1,000 shares of Common Stock ("Formula Options"). 12.2.2 Terms and Conditions of Formula Options 12.2.2.1 Exercise Price. The price at which Common Stock may be purchased upon exercise of a Formula Option shall be not less than 100% of the closing price at which a share of Common Stock traded on the date of the grant of the Formula Option, or the next preceding date if such date is not a trading date, on the primary securities exchange or quotation system on which the Common stock is then traded on the date of grant of such Formula Options. 12.2.2.2 Vesting. Subject to the provisions of Sections 10.3.4.3 and 10.3.4.4, after one (1) year from the Effective date of such Formula Option, such Formula Option shall become exercisable for all shares of Common Stock covered thereby; provided that in the event the Service of the Non- employee Director holding such option terminates prior to the end of such vesting period for reason other than death, Disability or Retirement, such option shall be forfeited and shall lapse immediately. 12.2.2.3 Term of Exercisability. Upon the termination of the Service of a Nonemployee Director because of death, Disability or Retirement, the nonexercised Formula Options held by such Nonemployee Director shall become immediately exercisable as to 100% of the Shares of Common Stock covered thereby; provided that in the event the Service of the Non-employee Director holding such option terminates prior to the end of such vesting period for reason other than death, Disability or Retirement, such option shall be forfeited and shall lapse immediately. Once any portion of a Formula Option becomes exercisable, it shall remain exercisable for the lesser of (10) ten years after the date of grant, (1) one year from the date the Participant shall cease, by reason of the Participant's death, Disability or Retirement, to be a Nonemployee Director, or (3) three months from the date the Participant shall cease, for any reason other than such Participant's death or Disability, to be a Nonemployee Director; provided, however, that if the Participant shall cease to be a Nonemployee Director and then die or become Disabled within three months thereafter, the Formula Option shall remain exercisable for one year after the date of the Participant's death. Notwithstanding any contrary provision in the Plan, upon a Change in Control, no additional terms, conditions, restrictions, or limitations shall be placed upon any Formula Option granted under this Article 12 and each Formula Option outstanding shall become immediately exercisable as to all of the shares of Common Stock covered thereby and shall be valued and cashed out on the basis of the Change in Control Price within 90 days of the Change in Control; provided that any such options having an exercise price equal to or greater than the Change in Control Price shall have a value of zero, shall be cancelled, and the owner thereof shall not be entitled to any payment. 12.2.2.4 Exercise and Payment. Upon exercise, the option price of a Formula Option may be paid in cash, shares of Common Stock, a combination of the foregoing, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock, whether restricted or unrestricted, and may impose such conditions as it deems appropriate on the use of such Common Stock to exercise a stock option. Subject to Section 18.9, stock options awarded under the Plan may be exercised by way of a broker-assisted exercise program, provided such program is available at the time of the option's exercise. The Committee may permit a Participant to satisfy any amounts required to be withheld under the applicable federal, state and local tax laws in effect from time to time, by electing to have the Company withhold a portion of the shares of Common Stock to be delivered for the payment of such taxes. 12.2.2.5 Option Agreements. Each Award of a Formula Option under this Plan shall be evidenced by a written agreement signed by the Participant. 12.2.3 The provisions of the formula contained in Subsections 12.2.1 and 12.2.2 of this Plan shall not be altered or amended more often than every six (6) months except as necessary to comply with the Code and the rules and regulations thereunder. 12.2.4 Rule 16b-3 Compliance. The grant of Formula Options is intended to comply in all respects with Rule 16b-3 of the Exchange Act such that the grant of all Formula Options issued under the Plan shall be exempt from Section 16(b) of the Exchange Act. 12.3 Deferral Options. 12.3.1 Election. Each year, each Nonemployee Director may, on or before the date of the scheduled annual shareholders' meeting of AirT for such year, make an irrevocable election to receive Deferral Options in lieu of all or any part of the cash compensation to which such member would otherwise be entitled as a member of the Board and any committee thereof (other than reimbursement of expenses) for the period from such scheduled annual shareholders' meeting to the day prior to the following annual meeting. The Effective Date of any such Deferral Option shall be the date of AirT's annual shareholders' meeting beginning the compensation period to which such Deferral Option relates, provided that the effectiveness of any Deferral Option granted hereunder is conditioned on the prior approval of such Deferral Option by the Committee or the Board. An election made hereunder shall be effective for the grant of such number of Deferral Options as is determined by the Committee to constitute an amount of Deferral Options equivalent on the Effective Date to the cash compensation elected to be foregone. In making such determination of equivalency, the Committee shall rely upon the Black-Scholes option pricing model or other generally accepted method of pricing options. 12.3.2 Terms and Conditions of Deferral Options. 12.3.2.1 Exercise Price. The price at which Common Stock may be purchased upon exercise of a Deferral Option shall be not less than 100% of the closing price at which a share of Common Stock trades on the date of the grant of the Deferral Option, or the next preceding date if such date is not a trading date, on the primary securities exchange or quotation system on which the Common Stock is then traded. 12.3.2.2 Vesting. Subject to the provisions of Sections 12.3.2.3 and 10.3.4.4, after one (1) year, or such longer time as the Committee shall determine, from the Effective date of such Deferral Option, such Deferral Option shall become exercisable for all shares of Common Stock covered thereby. 12.3.2.3 Acceleration due to Termination of Service, Change in Control. If the Service of any Participant ends during the 1-year period for which cash compensation has been waived, such Participant's rights in such Deferral Option shall be as follows: 12.3.2.3.1 Upon the termination of such Nonemployee Director's Service because of death, Disability or Retirement during such 1-year period, each unexercised Deferral Option held by that Nonemployee Director shall become immediately exercisable as to 100% of the shares of Common Stock covered thereby; 12.3.2.3.2 Upon the termination of such Nonemployee Director's Service during such 1-year period for any reason other than death, Disability or Retirement, a portion of the shares of Common Stock covered by the Deferral Option thereby shall become immediately exercisable as follows: 12.3.2.3.2.1 The shares of Common Stock covered by a Deferral Option attributable to the election to forgo cash compensation for the 1-year period in which such Participant's Service terminates shall be prorated and such Option shall become immediately exercisable to the extent of that portion of the shares of Common Stock attributable to the time of Service during that 1-year period; and 12.3.2.3.2.2 As to the balance of the shares of Common Stock covered by such Deferral Option for such 1- year period, such Deferral Option shall lapse immediately. Notwithstanding any contrary provision in the Plan, upon a Change in Control, no additional terms, conditions, restrictions, or limitations shall be placed upon any Deferral Option granted under this Article 12, and each Deferral Option outstanding shall become immediately exercisable as to all of the shares of Common Stock covered thereby and shall be valued and cashed out on the basis of the Change in Control Price within 90 days of the Change in Control; provided that any such options having an exercise price equal to or greater than the Change in Control Price shall have a value of zero, shall be cancelled, and the owner thereof shall not be entitled to any payment. 12.3.2.4 Term of Exercisability. Once any portion of a Deferral Option becomes exercisable, it shall remain exercisable only for the lesser of 12.3.2.4.0.1 10 years after the date of grant (or such lesser number of years as the Committee shall determine) or 12.3.2.4.0.2 1-year (or such greater number of years as the Committee shall determine) after the Service of a Participant terminates for any reason. Subject to the provisions of Section 12.3.2.3.1, if applicable, each such Deferral Director Option may be exercised in whole or in part not earlier than 6 months (or such longer time as the Committee shall provide in the written agreement referred to in Section 12.3.2.6) after the date of grant and shall expire on the date ten years after the date of grant, or such earlier date as determined by the Committee. 12.3.2.5 Exercise and Payment. Upon exercise, the option price of a Deferral Option may be paid in cash, shares of Common Stock, a combination of the foregoing, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock, whether restricted or unrestricted, and may impose such conditions as it deems appropriate on the use of such Common Stock to exercise a stock option. Subject to Section 18.9, stock options awarded under the Plan may be exercised by way of a broker-assisted exercise program, provided such program is available at the time of the option's exercise. The Committee may permit a Participant to satisfy any amounts required to be withheld under the applicable federal, state and local tax laws in effect from time to time, by electing to have the Company withhold a portion of the shares of Common Stock to be delivered for the payment of such taxes. 12.3.2.6 Option Agreements. Each Award of a Deferral Option under this Plan shall be evidenced by a written agreement signed by the Nonemployee Director. 12.3.3 Rule 16b-3 Compliance. The grant of Deferral Options is intended to comply in all respects with Rule 16b-3 of the Exchange Act such that the grant of all Deferral Options issued under the Plan shall be exempt from Section 16(b) of the Exchange Act. 12.4 Nontransferability of Formula and Deferral Options. No Formula or Deferral Option granted pursuant to the Plan shall be transferable otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code. During the lifetime of an optionee, the Formula Option and Deferral Option shall be exercisable only by the optionee personally or by the optionee's legal representative. ARTICLE 13 - PAYMENT OF AWARDS 13.1 In General. In the absence of a Plan provision to the contrary, payment of Awards may, at the discretion of the Committee, be made in cash, Common Stock, a combination of cash and Common Stock, or any other form of property as the Committee shall determine. In addition, payment of Awards may include such terms, conditions, restrictions, and limitations, if any, as the Committee deems appropriate, including, in the case of Awards paid in the form of Common Stock, restrictions on transfer and forfeiture provisions; provided, however, such terms, conditions, restrictions, and limitations are not inconsistent with the Plan. Further, payment of Awards may be made in the form of a lump sum or installments, as determined by the Committee. 13.2 Termination of Employment. If employment with the Company of a Key Employee who is a Participant terminates for a reason other than death, Disability, Retirement, or any Approved Reason, unpaid Awards granted under Articles 7, 8, 9, 10 and 11, including, but not by way of limitation, Awards earned or exercised but not yet paid, all unpaid dividends and dividend equivalents, and all interest accrued on the foregoing shall be cancelled or forfeited, as the case may be, unless the Participant's Award Notice provides otherwise. The Committee shall, notwithstanding Sections 4.4 and 18.11 to the contrary, have the authority to promulgate rules and regulations to determine the treatment of an Award under the Plan in the event of the Key Employee Participant's death, Disability, Retirement or termination for an Approved Reason; provided, however, in the case of Awards issued under the Performance Restricted Stock Program, such rules and regulations are consistent with Section 9.8, and in the case of Awards under the Performance Award Program, such rules and regulations are consistent with Section 10.6. 13.3 Noncompetition. As to all Awards made pursuant to Articles 7, 8, 9, 10 and 11, unless the Award Notice specifies otherwise, a Participant shall forfeit all unpaid Awards, including, but not by way of limitation, Awards earned or exercised but not yet paid, all unpaid dividends and dividend equivalents and all interest, if any, accrued on the foregoing if, (i) in the opinion of the Committee, the Participant, without the prior written consent of the Company, engages directly or indirectly in any manner or capacity as principal, agent, partner, officer, director, stockholder, employee, or otherwise, in any business or activity competitive with the business conducted by AirT or any Subsidiary; (ii) at any time divulges to any person or any entity other than the Company any trade secrets, methods, processes or the proprietary or confidential information of the Company; or (iii) the Participant performs any act or engages in any activity that the Committee determines is inimical to the best interests of the Company. For purposes of this Section 13.3, a Participant shall not be deemed a stockholder if the Participant's record and beneficial ownership amount to not more than 5% of the outstanding capital stock of any company subject to the periodic and other reporting requirements of the Exchange Act. ARTICLE 14 - DIVIDEND AND DIVIDEND EQUIVALENT If an Award is granted in the form of a Restricted Stock Award, stock option, or Common Stock share, or in the form of any other stock-based grant, the Committee may choose, at the time of the grant of the Award or any time thereafter up to the time of the Award's payment, to include as part of such Award an entitlement to receive dividends or dividend equivalents, subject to such terms, conditions, restrictions, and limitations, if any, as the Committee may establish. Dividends and dividend equivalents shall be paid in such form and manner (i.e., lump sum or installments) and at such time(s) as the Committee shall determine. All dividends or dividend equivalents that are not paid currently may, at the Committee's discretion, accrue interest, be reinvested into additional shares of Common Stock or, in the case of dividends or dividend equivalents credited in connection with performance shares, be credited as additional performance shares and paid to the Participant if and when, and to the extent that, payment is made pursuant to such Award. The total number of shares available for grant under Section 6.1 shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional performance shares. ARTICLE 15 - DEFERRAL OF AWARDS At the discretion of the Committee, payment of any Award, dividend, or dividend equivalent, or any portion thereof, may be deferred by a Participant until such time as the Committee may establish. All such deferrals shall be accomplished by the delivery of a written, irrevocable election by the Participant prior to the time established by the Committee for such purpose, on a form provided by the Company. Further, all deferrals shall be made in accordance with administrative guidelines established by the Committee to ensure that such deferrals comply with all applicable requirements of the Code. Deferred payments shall be paid in a lump sum or installments, as determined by the Committee. Deferred Awards may also be credited with interest, at such rates to be determined by the Committee and, with respect to those deferred Awards denominated in the form of Common Stock, with dividends or dividend equivalents. ARTICLE 16 - CHANGE IN OWNERSHIP 16.1 Background. The provisions of this Article 16 shall apply only to Awards made pursuant to Articles 7, 8, 9, 10 and 11 and shall not apply to Awards made pursuant to Article 12. Notwithstanding any provision contained in the Plan, including, but not limited to, Sections 4.4 and 18.11, the provisions of this Article 16 shall control over any contrary provision. Upon a Change In Ownership: (i) the terms of this Article 16 shall immediately become operative, without further action or consent by any person or entity; (ii) all terms, conditions, restrictions and limitations in effect on any unexercised, unearned, unpaid and/or deferred Award, or any other outstanding Award, shall immediately lapse as of the date of such event; (iii) no other terms, conditions, restrictions and/or limitations shall be imposed upon any Awards on or after such date, and in no circumstance shall an Award be forfeited on or after such date; and (iv) except in those instances where a prorated Award is required to be paid under this Article 16, all unexercised, unvested, unearned and/or unpaid Awards or any other outstanding Awards shall automatically become one hundred percent (100%) vested immediately. 16.2 Dividends and Dividend Equivalents. Upon a Change In Ownership, all unpaid dividends and dividend equivalents and all interest accrued thereon, if any, shall be treated and paid under this Article 16 in the identical manner and time as the Award under which such dividends or dividend equivalents have been credited. For example, if upon a Change In Ownership, an Award under this Article 16 is to be paid in a prorated fashion, all unpaid dividends and dividend equivalents with respect to such Award shall be paid according to the same formula used to determine the amount of such prorated Award. 16.3 Treatment of Performance Units and Performance Awards. Upon a Change In Ownership, any Participant in the Performance Award Program or Performance Unit Program, whether or not he or she is still employed by the Company, shall be paid, as soon as practicable but in no event later than 90 days after the Change In Ownership, a pro rata Award for each Performance Period in which the Participant was selected to participate and during which the Change In Ownership occurs ("Current Performance Period"). The amount of such pro rata Award shall be determined by annualizing (over the current Performance Period) the level of the applicable Performance Criteria for the Performance Goal for such Current Performance Period up to the end of the month preceding the Change In Ownership, determining the Performance Award that would have been payable for such Performance Period had such annualized level been the actual level of the applicable Performance Criteria for the Performance Goal for such Current Performance Period, and multiplying such Performance Award so determined by a fraction, the numerator of which shall be the number of full months in the Current Performance Period prior to the date of the Change In Ownership and the denominator of which shall be the total number of full months in the Performance Period. For purposes of this calculation, a partial month shall be treated as a full month to the extent 15 or more days in such month have elapsed. 16.4 Treatment of Awards under Performance Restricted Stock Program. Upon a Change In Ownership, any Participant of the Performance Restricted Stock Program, whether or not he or she is still employed by the Company, shall be paid, as soon as practicable but in no event later than 90 days after the Change In Ownership, a pro rata Award for each Performance Cycle in which the Participant was selected to participate and during which the Change In Ownership occurs. The amount of the pro rata Award shall be determined by multiplying the Target Award for such Performance Cycle for Participants by a fraction, the numerator of which shall be the number of full months in the Performance Cycle prior to the date of the Change In Ownership and the denominator of which shall be the total number of full months in the Performance Cycle. For purposes of this calculation, a partial month shall be treated as a full month to the extent 15 or more days in such month have elapsed. 16.5 Valuation of Awards. Upon a Change In Ownership, all outstanding shares of Common Stock, Freestanding SARs, stock options (including incentive stock options), Restricted Stock Awards, performance units and all other outstanding stock-based Awards (including those earned as a result of the application of Section 16.4 above and those granted by the Committee pursuant to its authority under Subsection 4.2(m) hereof), shall be valued and cashed out on the basis of the Change In Control Price and shall be cancelled; provided that any Options granted under this Plan having an exercise price equal to or greater than the Change in Control Price shall have a value of zero, shall be cancelled, and the owner thereof shall not be entitled to any payment. 16.6 Payment of Awards. Upon a Change In Ownership, any Participant, whether or not he or she is still employed by the Company, shall be paid, in a single lump sum cash payment, as soon as practicable but in no event later than 90 days after the Change In Ownership, all of his or her shares of Common Stock, Freestanding SARs, stock options (including incentive stock options), Restricted Stock Awards, Performance Awards and (including those earned as a result of the application of Section 16.3 above) performance units, and all other outstanding stock-based Awards (including those earned as a result of the application of Section 16.4 above and those granted by the Committee pursuant to its authority under Subsection 4.2(m) hereof) and all other outstanding Awards. 16.7 Deferred Awards. Upon a Change In Ownership, all Awards deferred by a Participant under Article 15 hereof, but for which he or she has not received payment as of such date, shall be paid in a single lump sum cash payment as soon as practicable, but in no event later than 90 days after the Change In Ownership. For purposes of making such payment, the value of all Awards which are stock based shall be determined by the Change In Control Price. 16.8 Section 16 of the Exchange Act. Notwithstanding anything contained in this Article 16 to the contrary, any Participant who, on the date of the Change In Ownership, holds any stock options or Freestanding SARs that have not been outstanding for a period of at least six months from their date of grant and who on such date is required to report under Section 16 of the Exchange Act shall not be paid such an Award until the first day next following the end of such six-month period. 16.9 Miscellaneous. Upon a Change In Ownership, (i) the provisions of Sections 13.2, 13.3 and 18.3 hereof shall become null and void and of no further force and effect; and (ii) no action, including, but not by way of limitation, the amendment, suspension, or termination of the Plan, shall be taken which would affect the rights of any Participant or the operation of the Plan with respect to any Award to which the Participant may have become entitled hereunder on or prior to the date of such action or as a result of such Change In Ownership. ARTICLE 17 - CHANGE IN CONTROL 17.1 Background. Notwithstanding any provision contained in the Plan, including, but not limited to, Sections 4.4 and 18.11, the provisions of this Article 17 shall control over any contrary provision except with respect to Awards made pursuant to Article 12 (as to which Article 12 this Article 17 shall not apply). All Participants shall be eligible for the treatment afforded by this Article 17 if their employment terminates within two years following a Change in Control, unless the termination is due to (i) death, (ii) Disability, (iii) Cause, (iv) termination by the Participant other than for Good Reason, or (v) Retirement. 17.2 Vesting and Lapse of Restrictions. If a Participant is eligible for treatment under this Article 17, (i) all of the terms, conditions, restrictions and limitations in effect on any of his or her unexercised, unearned, unpaid and/or deferred Awards shall immediately lapse as of the date of his or her termination of employment, (ii) no other terms, conditions, restrictions and/or limitations shall be imposed upon any of his or her Awards on or after such date, and in no event shall any of his or her Awards be forfeited on or after such date; and (iii) except in those instances where a prorated Award is required to be paid under this Article 17, all of his or her unexercised, unvested, unearned and/or unpaid Awards shall automatically become one hundred percent (100%) vested immediately upon his or her termination of employment. 17.3 Dividends and Dividend Equivalents. If a Participant is eligible for treatment under this Article 17, all of his or her unpaid dividends and dividend equivalents and all interest accrued thereon, if any, shall be treated and paid under this Article 17 in the identical manner and time as the Award under which such dividends or dividend equivalents have been credited. 17.4 Treatment of Awards under the Performance Award Program and Performance Unit Program. If a Participant is eligible for treatment under this Article 17, for each Performance Period in which the Participant was selected to participate and during which his or her termination of employment occurs ("Termination Current Performance Period"), he or she shall be considered to have earned and, therefore, be entitled to receive that prorated portion of the Award for such Termination Current Performance Period. The amount of such pro rata Award shall be determined by assuming that the Performance Goal for such Termination Current Performance Period was attained at a level of 100% or the equivalent thereof, determining the Performance Award that would have been payable for such Performance Period had the Performance Goal been attained at a level of 100% or the equivalent thereof, and multiplying such Performance Award so determined by a fraction, the numerator of which shall be the number of full months in the Termination Current Performance Period prior to the date of the Change In Ownership and the denominator of which shall be the total number of full months in the Performance Period. The Participant shall be paid, as soon as practicable but in no event later than 90 days after the date of his or her termination of employment, a pro rata Award so determined, in cash. 17.5 Treatment of Awards under Performance Restricted Stock Program. If a Participant of the Performance Restricted Stock Program is eligible for treatment under this Article 17, he or she shall be paid, as soon as practicable but in no event later than 90 days after the date of his or her termination of employment, a pro rata Award for each Performance Cycle in which the Participant was selected to participate and during which the Change In Ownership occurs. The amount of the pro rata Award shall be determined by multiplying the Target Award for such Performance Cycle for such Participants by a fraction, the numerator of which shall be the number of full months in the Performance Cycle prior to the date of his or her termination of employment and the denominator of which shall be the total number of full months in the Performance Cycle. For purposes of this calculation, a partial month shall be treated as a full month to the extent 15 or more days in such month have elapsed. To the extent Target Awards have not yet been established for the Performance Cycle, the Target Award for the immediately preceding Performance Cycle shall be used. 17.6 Valuation of Awards. If a Participant is eligible for treatment under this Article 17, his or her Award shall be valued and cashed out in accordance with the provisions of Section 16.5. 17.7 Payment of Awards. If a Participant is eligible for treatment under this Article 17, he or she shall be paid, in a single lump sum cash payment, as soon as practicable but in no event later than 90 days after the date of his or her termination of employment, all of his or her shares of Common Stock, Freestanding SARs, stock options (including incentive stock options), Restricted Stock Awards, Performance Awards and performance units and shares (including those earned as a result of the application of Section 17.4 above), all other outstanding stock-based Awards (including those earned as a result of the application of Section 17.5 above and those granted by the Committee pursuant to its authority under Subsection 4.2(m) hereof) and all other outstanding Awards. 17.8 Deferred Awards. If a Participant is eligible for treatment under this Article 17, all of his or her deferred Awards for which payment has not been received as of the date of his or her termination of employment shall be paid to the Participant in a single lump sum cash payment as soon as practicable, but in no event later than 90 days after the date of the Participant's termination. For purposes of making such payment, the value of all Awards which are stock based shall be determined by the Change In Control Price. 17.9 Section 16 of the Exchange Act. Notwithstanding anything contained in this Article 17 to the contrary, any Participant who, on the date of his or her termination of employment under the conditions described in Section 17.1, holds any stock options or Freestanding SARs that have not been outstanding for a period of at least six months from their date of grant and who on the date of such termination is required to report under Section 16 of the Exchange Act shall not be paid such Award until the first business day next following the end of such six-month period. 17.10 Miscellaneous. Upon a Change In Control, (i) the provisions of Sections 13.2, 13.3 and 18.3 hereof shall become null and void and of no force and effect insofar as they apply to a Participant who has been terminated under the conditions described in Section 17.1 above, and (ii) no action, including, but not by way of limitation, the amendment, suspension or termination of the Plan, shall be taken which would affect the rights of any Participant or the operation of the Plan with respect to any Award to which the Participant may have become entitled hereunder on or prior to the date of the Change In Control or to which he or she may become entitled as a result of such Change In Control. 17.11 Legal Fees. AirT shall pay all legal fees and related expenses incurred by a Participant in seeking to obtain or enforce any payment, benefit or right he or she may be entitled to under the Plan after a Change In Control; provided, however, the Participant shall be required to repay any such amounts to AirT to the extent a court of competent jurisdiction issues a final and non-appealable order setting forth the determination that the position taken by the Participant was frivolous or advanced in bad faith. ARTICLE 18 - MISCELLANEOUS 18.1 Nonassignability. No Awards rights shall be subject in any manner to alienation, anticipation, sale, transfer (except by will or the laws of descent and distribution), assignment, pledge, or encumbrance prior to payment pursuant to the Plan. 18.2 Withholding Taxes. The Company shall be entitled to deduct from any payment under the Plan, regardless of the form of such payment, the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment or may require the Participant to pay to it such tax prior to and as a condition of the making of such payment. In accordance with any applicable administrative guidelines it establishes, the Committee may allow a Participant to pay the amount of taxes required by law to be withheld from an Award by withholding from any payment of Common Stock due as a result of such Award, or by permitting the Participant to deliver to the Company, shares of Common Stock having a fair-market value, as determined by the Committee, equal to the amount of such required withholding taxes. 18.3 Amendments to Awards. The Committee may at any time unilaterally amend any unexercised, unearned, or unpaid Award, including, but not by way of limitation, Awards earned but not yet paid, to the extent it deems appropriate; provided, however, that any such amendment which, in the opinion of the Committee, is adverse to the Participant shall require the Participant's consent. 18.4 Regulatory Approvals and Listings. Notwithstanding anything contained in this Plan to the contrary, the Company shall have no obligation to issue or deliver certificates of Common Stock evidencing Stock Awards or any other Award resulting in the payment of Common Stock prior to (i) the obtaining of any approval from any governmental agent which the Company shall, in its sole discretion, determine to be necessary or advisable, (ii) the admission of such shares to listing on the stock exchange on which the Common Stock may be listed and (iii) the completion of any registration or other qualification of said shares under any state or Federal law or ruling of any governmental body that the Company shall, in its sole discretion, determine to be necessary or advisable. 18.5 No Right to Continued Employment or Grants. Participation in the Plan shall not give any Employee any right to remain in the employ of AirT or any Subsidiary. AirT, or, in the case of employment with a Subsidiary, the Subsidiary, reserves the right to terminate any Employee at any time. Further, the adoption of this Plan shall not be deemed to give any Employee or any other individual any right to be selected as a Participant or to be granted an Award. 18.6 Amendment/Termination. The Committee may suspend or terminate the Plan at any time with or without prior notice. In addition, the Committee may, from time to time and with or without prior notice, amend the Plan in any manner, but may not without shareholder approval adopt any amendment that would require the vote of the shareholders of AirT pursuant to Section 16 of the Exchange Act or Section 162(m) of the Code, but only insofar as such amendment affects Covered Employees. 18.7 Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of North Carolina, except as superseded by applicable Federal Law. 18.8 No Right, Title, or Interest in Company Assets. No Participant shall have any rights as a shareholder as a result of participation in the Plan until the date of issuance of a stock certificate in his or her name and, in the case of restricted shares of Common Stock, such rights are granted to the Participant under the Plan. To the extent any person acquires a right to receive payments from the Company under the Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company and the Participant shall not have any rights in or against any specific assets of the Company. All of the Awards granted under the Plan shall be unfunded. 18.9 Section 16 of the Exchange Act. In order to avoid any Exchange Act violations, the Committee may, from time to time, impose additional restrictions upon an Award, including but not limited to, restrictions regarding tax withholdings and restrictions regarding the Participant's ability to exercise Awards under any broker-assisted exercise program. 18.10 No Guarantee of Tax Consequences. No person connected with the Plan in any capacity, including, but not limited to, AirT and its Subsidiaries and their directors, officers, agents and employees makes any representation, commitment, or guarantee that any tax treatment, including, but not limited to, Federal, state and local income, estate and gift tax treatment, will be applicable with respect to amounts deferred under the Plan, or paid to or for the benefit of a Participant under the Plan, or that such tax treatment will apply to or be available to a Participant on account of participation in the Plan. 18.11 Compliance with Section 162(m). If any provision of the Plan, other than the application of those contained in Articles 17 or 18 hereof, would cause the Awards granted to a Covered Person not to qualify as "performance-based compensation" under Section 162(m) of the Code, that provision, insofar as it pertains to the Covered Person, shall be severed from, and shall be deemed not to be a part of this Plan, but the other provisions hereof shall remain in full force and effect. 18.12 Other Benefits. No Award granted under the Plan shall be considered compensation for purposes of computing benefits under any retirement plan of the Company nor affect any benefits or compensation under any other benefit or compensation plan of the Company now or subsequently in effect. EX-10 4 13 NationsBank, N.A. LOAN AGREEMENT This Loan Agreement (the "Agreement") dated as of July 17, 1998, by and between NationsBank, N.A. a national banking association ("Bank") and the Borrower described below. [This Agreement contains some provisions preceded by boxes. A box which is not marked means that the provision beside it is not applicable to this transaction.] In consideration of the Loan or Loans described below and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, Bank and Borrower agree as follows: 1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined herein, the following terms shall have the meaning set forth with respect thereto: A. Borrower: Air Transportation Holding Company, Inc. CSA Air, Inc Mountain Air Cargo, Inc. Mountain Aircraft Services, LLC Global Ground Support, LLC B. Borrower's Address: 3524 Airport Road, Maiden, North Carolina 28650 C. Current Assets. Current Assets means the aggregate amount of all of Borrower's assets which would, in accordance with GAAP, properly be defined as current assets. D. Current Liabilities. Current Liabilities means the aggregate amount of all current liabilities as determined in accordance with GAAP, but in any event shall include all liabilities except those having a maturity date which is more than one year from the date as of which such computation is being made. E. Hazardous Materials. Hazardous Materials include all materials defined as hazardous materials or substances under any local, state or federal environmental laws, rules or regulations, and petroleum, petroleum products, oil and asbestos. F. Loan. Any loan described in Section 2 hereof and any subsequent loan which states that it is subject to this Loan Agreement. G. Loan Documents. Loan Documents means this Loan Agreement and any and all promissory notes executed by Borrower in favor of Bank and all other documents, instruments, guarantees, certificates and agreements executed and/or delivered by Borrower, any guarantor or third party in connection with any Loan. H. Tangible Net Worth. Tangible Net Worth means the amount by which total assets exceed total liabilities in accordance with GAAP. I. Accounting Terms. All accounting terms not specifically defined or specified herein shall have the meanings generally attributed to such terms under generally accepted accounting principles ("GAAP"), as in effect from time to time, consistently applied, with respect to the financial statements referenced in Section 3.H. hereof. 2. LOANS. A. Loan. Bank hereby agrees to make (or has made) one or more loans to Borrower in the aggregate principal face amount of $7,000,000.00. The obligation to repay the loans is evidenced by a promissory note or notes dated July 17, 1998, (the promissory note or notes together with any and all renewals, extensions or rearrangements thereof being hereafter collectively referred to as the "Note") having a maturity date, repayment terms and interest rate as set forth in the Note. i . [X] Revolving Credit Feature. The Loan provides for a revolving line of credit (the "Line") under which Borrower may from time to time, borrow, repay and re-borrow funds. ii. [] Clean-Up Period. Borrower shall maintain a zero balance on the Line for a period of at least ____ consecutive days during [] each fiscal year [] any consecutive twelve month period. iii. [] Borrowing Base. The Line is subject to the Borrowing Base Agreement attached hereto as Exhibit "A" and by reference made a part hereof. iv. [] Usage Fee. Borrower will pay hereafter on ________________, 19_____ and on the ______ day of each _________________ for the period from and including the date the Line was established to and including the maturity date of the Line, a usage fee at a rate per annum of _______% of the [] average daily unused portion of the Line during such period [] average daily used portion of the Line during such period [] committed amount of the Line. The Borrower may at any time upon written notice to the Bank permanently reduce the amount of the Line at which time the obligation of the Borrower to pay a usage fee shall thereupon correspondingly be reduced. v. [X] Letter of Credit Subfeature. As a subfeature under the Line, Bank may from time to time up to and including August 31, 1998, issue letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, "Letters of Credit"); provided, however, that the form and substance of each Letter of Credit shall be subject to approval by Bank in its sole discretion; and provided further that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed $4,000,000. Each Letter of Credit shall be issued for a term designated by Borrower, provided, however, that no Letter of Credit shall have an expiration date subsequent to August 31, 1998. The undrawn amount of all Letters of Credit plus any and all amounts paid by Bank in connection with drawings under any Letter of Credit for which the Bank has not been reimbursed shall be reserved under the Line and shall not be available for advances thereunder. Each draft paid by Bank under a Letter of Credit shall be deemed an advance under the Line and shall be repaid in accordance with the terms of the Line; provided however, that if the Line is not available for any reason whatsoever, at the time any draft is paid by Bank, or if advances are not available under the Line in such amount due to any limitation of borrowing set forth herein, then the full amount of such drafts shall be immediately due and payable, together with interest thereon, from the date such amount is paid by Bank to the date such amount is fully repaid by Borrower, at that rate of interest applicable to advances under the Line. In such event, Borrower agrees that Bank, at Bank's sole discretion may debit Borrower's deposit account with Bank for the amount of such draft. 3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Bank as follows: A. Good Standing. Borrower is a corporation duly organized, validly existing and in good standing under the laws of Deleware and has the power and authority to own its property and to carry on its business in each jurisdiction in which Borrower does business. B. Authority and Compliance. Borrower has full power and authority to execute and deliver the Loan Documents and to incur and perform the obligations provided for therein, all of which have been duly authorized by all proper and necessary action of the appropriate governing body of Borrower. No consent or approval of any public authority or other third party is required as a condition to the validity of any Loan Document, and Borrower is in compliance with all laws and regulatory requirements to which it is subject. C. Binding Agreement. This Agreement and the other Loan Documents executed by Borrower constitute valid and legally binding obligations of Borrower, enforceable in accordance with their terms. D. Litigation. There is no proceeding involving Borrower pending or, to the knowledge of Borrower, threatened before any court or governmental authority, agency or arbitration authority, except as disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement. E. No Conflicting Agreements. There is no charter, bylaw, stock provision, partnership agreement or other document pertaining to the organization, power or authority of Borrower and no provision of any existing agreement, mortgage, indenture or contract binding on Borrower or affecting its property, which would conflict with or in any way prevent the execution, delivery or carrying out of the terms of this Agreement and the other Loan Documents. F. Ownership of Assets. Borrower has good title to its assets, and its assets are free and clear of liens, except those granted to Bank and as disclosed to Bank in writing prior to the date of this Agreement. G. Taxes. All taxes and assessments due and payable by Borrower have been paid or are being contested in good faith by appropriate proceedings and the Borrower has filed all tax returns which it is required to file. H. Financial Statements. The financial statements of Borrower heretofore delivered to Bank have been prepared in accordance with GAAP applied on a consistent basis throughout the period involved and fairly present Borrower's financial condition as of the date or dates thereof, and there has been no material adverse change in Borrower's financial condition or operations since June 30, 1997. All factual information furnished by Borrower to Bank in connection with this Agreement and the other Loan Documents is and will be accurate and complete on the date as of which such information is delivered to Bank and is not and will not be incomplete by the omission of any material fact necessary to make such information not misleading. I. Place of Business. Borrower's chief executive office is located at 3524 Airport Road Maiden, NC 28650 J. Environmental. The conduct of Borrower's business operations and the condition of Borrower's property does not and will not violate any federal laws, rules or ordinances for environmental protection, regulations of the Environmental Protection Agency, any applicable local or state law, rule, regulation or rule of common law or any judicial interpretation thereof relating primarily to the environment or Hazardous Materials. K. Continuation of Representations and Warranties. All representations and warranties made under this Agreement shall be deemed to be made at and as of the date hereof and at and as of the date of any advance under any Loan. 4. AFFIRMATIVE COVENANTS. Until full payment and performance of all obligations of Borrower under the Loan Documents, Borrower will, unless Bank consents otherwise in writing (and without limiting any requirement of any other Loan Document): A. Financial Condition. Maintain Borrower's financial condition as follows, determined in accordance with GAAP applied on a consistent basis throughout the period involved except to the extent modified by the following definitions: I. Maintain at all times a ratio of debt to tangible net worth of not greater than 1.0 to 1.0. II. Maintain on a quarterly basis a ratio of Funded Debt to EBITDA of not greater than 3.0 to 1.0. B. Financial Statements and Other Information. Maintain a system of accounting satisfactory to Bank and in accordance with GAAP applied on a consistent basis throughout the period involved, permit Bank's officers or authorized representatives to visit and inspect Borrower's books of account and other records at such reasonable times and as often as Bank may desire, and pay the reasonable fees and disbursements of any accountants or other agents of Bank selected by Bank for the foregoing purposes. Unless written notice of another location is given to Bank, Borrower's books and records will be located at Borrower's chief executive office set forth above. All financial statements called for below shall be prepared in form and content acceptable to Bank and by independent certified public accountants acceptable to Bank. In addition, Borrower will: i. Furnish to Bank annual audited financial statements and 10K filings of Borrower for each fiscal year of Borrower, within 90 days after the close of each such fiscal year. ii.Furnish to Bank certified copies of 10Q filings and related financial statements including a balance sheet and income statement for each quarter of each fiscal year within 60 days after the close of each such period. iii. Furnish to Bank a compliance certificate for (and executed by an authorized representative of) Borrower concurrently with and dated as of the date of delivery of each of the financial statements as required in paragraphs i and ii above, containing (a) a certification that the financial statements of even date are true and correct and that the Borrower is not in default under the terms of this Agreement, and (b) computations and conclusions, in such detail as Bank may request, with respect to compliance with this Agreement, and the other Loan Documents, including computations of all quantitative covenants. vii. Furnish to Bank promptly such additional information, reports and statements respecting the business operations and financial condition of Borrower from time to time, as Bank may reasonably request. C. Insurance. Maintain insurance with responsible insurance companies on such of its properties, in such amounts and against such risks as is customarily maintained by similar businesses operating in the same vicinity, specifically to include fire and extended coverage insurance covering all assets, business interruption insurance, workers compensation insurance and liability insurance, all to be with such companies and in such amounts as are satisfactory to Bank and providing for at least 30 days prior notice to Bank of any cancellation thereof. Satisfactory evidence of such insurance will be supplied to Bank prior to funding under the Loan(s) and 30 days prior to each policy renewal. D. Existence and Compliance. Maintain its existence, good standing and qualification to do business, where required and comply with all laws, regulations and governmental requirements including, without limitation, environmental laws applicable to it or to any of its property, business operations and transactions. E. Adverse Conditions or Events. Promptly advise Bank in writing of (i) any condition, event or act which comes to its attention that would or might materially adversely affect Borrower's financial condition or operations or Bank's rights under the Loan Documents, (ii) any litigation filed by or against Borrower, (iii) any event that has occurred that would constitute an event of default under any Loan Documents and (iv) any uninsured or partially uninsured loss through fire, theft, liability or property damage in excess of an aggregate of $500,000. F. Taxes and Other Obligations. Pay all of its taxes, assessments and other obligations, including, but not limited to taxes, costs or other expenses arising out of this transaction, as the same become due and payable, except to the extent the same are being contested in good faith by appropriate proceedings in a diligent manner. G. Maintenance. Maintain all of its tangible property in good condition and repair and make all necessary replacements thereof, and preserve and maintain all licenses, trademarks, privileges, permits, franchises, certificates and the like necessary for the operation of its business. H. Environmental. Immediately advise Bank in writing of (i) any and all enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted, completed or threatened pursuant to any applicable federal, state, or local laws, ordinances or regulations relating to any Hazardous Materials affecting Borrower's business operations; and (ii) all claims made or threatened by any third party against Borrower relating to damages, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials. Borrower shall immediately notify Bank of any remedial action taken by Borrower with respect to Borrower's business operations. Borrower will not use or permit any other party to use any Hazardous Materials at any of Borrower's places of business or at any other property owned by Borrower except such materials as are incidental to Borrower's normal course of business, maintenance and repairs and which are handled in compliance with all applicable environmental laws. Borrower agrees to permit Bank, its agents, contractors and employees to enter and inspect any of Borrower's places of business or any other property of Borrower at any reasonable times upon three (3) days prior notice for the purposes of conducting an environmental investigation and audit (including taking physical samples) to insure that Borrower is complying with this covenant and Borrower shall reimburse Bank on demand for the costs of any such environmental investigation and audit. Borrower shall provide Bank, its agents, contractors, employees and representatives with access to and copies of any and all data and documents relating to or dealing with any Hazardous Materials used, generated, manufactured, stored or disposed of by Borrower's business operations within five (5) days of the request therefore. 5. NEGATIVE COVENANTS. Until full payment and performance of all obligations of Borrower under the Loan Documents, Borrower will not, without the prior written consent of Bank (and without limiting any requirement of any other Loan Documents): [] A. Capital Expenditures. Make capital expenditures during each fiscal year (including capitalized leases) exceeding in the aggregate the lesser of $__________. [] B. Lease Expenditures. Incur new obligations for the lease or hire of real or personal property requiring payments in any fiscal year in excess of an aggregate of $__________. [] C. Compensation. Pay by way of salary, bonus, distribution, dividend, lease payment or otherwise, aggregate annual compensation to ______________________, and __________________________ in excess of: $________________ during fiscal year 19_____ $________________ during fiscal year 19_____ $________________ during fiscal year 19_____ $________________ during fiscal year 19_____ D. Transfer of Assets or Control. Sell, lease, assign or otherwise dispose of or transfer any assets, except in the normal course of its business, or enter into any merger or consolidation, or transfer control or ownership of the Borrower or form or acquire any subsidiary. E. Liens. Grant, suffer or permit any contractual or noncontractual lien on or security interest in its assets, except in favor of Bank, or fail to promptly pay when due all lawful claims, whether for labor, materials or otherwise. F. Extensions of Credit. Make or permit any subsidiary to make, any loan or advance to any person or entity, or purchase or otherwise acquire, or permit any subsidiary to purchase or otherwise acquire, any capital stock, assets, obligations, or other securities of, make any capital contribution to, or otherwise invest in or acquire any interest in any entity, or participate as a partner or joint venturer with any person or entity, except for the purchase of direct obligations of the United States or any agency thereof with maturities of less than one year. G. Borrowings. Create, incur, assume or become liable in any manner for any indebtedness (for borrowed money, deferred payment for the purchase of assets, lease payments, as surety or guarantor for the debt for another, or otherwise) other than to Bank, except for normal trade debts incurred in the ordinary course of Borrower's business, and except for existing indebtedness disclosed to Bank in writing and acknowledged by Bank prior to the date of this Agreement. [] H. Dividends and Distributions. Make any distribution (other than dividends payable in capital stock of Borrower) on any shares of any class of its capital stock or, if Borrower is a partnership, make any distribution to any partner, or apply any of its property or assets to the purchase, redemption or other retirement of any shares of any class of capital stock of or any partnership interest in Borrower exceeding in the aggregate [] $_______________ per fiscal year, [] _____% of net profit per fiscal year, or in any way amend its capital structure. I. Character of Business. Change the general character of business as conducted at the date hereof, or engage in any type of business not reasonably related to its business as presently conducted. [] J. Management Change. Make any substantial change in its present executive or management personnel. 6. DEFAULT. Borrower shall be in default under this Agreement and under each of the other Loan Documents if it shall default in the payment of any amounts due and owing under the Loan or should it fail to timely and properly observe, keep or perform any term, covenant, agreement or condition in any Loan Document or in any other loan agreement, promissory note, security agreement, deed of trust, deed to secure debt, mortgage, assignment or other contract securing or evidencing payment of any indebtedness of Borrower to Bank or any affiliate or subsidiary of NationsBank Corporation. 7. REMEDIES UPON DEFAULT. If an event of default shall occur, Bank shall have all rights, powers and remedies available under each of the Loan Documents as well as all rights and remedies available at law or in equity. 8. NOTICES. All notices, requests or demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to the other party at the following address: Borrower: Air Transportation Holding Company, Inc. 3524 Airport Road Maiden, NC 28650 Bank: NationsBank, NA PO Box 100 Denver, NC 28037 or to such other address as any party may designate by written notice to the other party. Each such notice, request and demand shall be deemed given or made as follows: A. If sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the U.S. Mail, first class postage prepaid; B. If sent by any other means , upon delivery. 9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel if permitted by applicable law), incurred by Bank in connection with (a) negotiation and preparation of this Agreement and each of the Loan Documents, and (b) all other costs and attorneys' fees incurred by Bank for which Borrower is obligated to reimburse Bank in accordance with the Terms of the Loan Documents. 10. MISCELLANEOUS. Borrower and Bank further covenant and agree as follows, without limiting any requirement of any other Loan Document: A. Cumulative Rights and No Waiver. Each and every right granted to Bank under any Loan Document, or allowed it by law or equity shall be cumulative of each other and may be exercised in addition to any and all other rights of Bank, and no delay in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by Bank of any right preclude any other or future exercise thereof or the exercise of any other right. Borrower expressly waives any presentment, demand, protest or other notice of any kind, including but not limited to notice of intent to accelerate and notice of acceleration. No notice to or demand on Borrower in any case shall, of itself, entitle Borrower to any other or future notice or demand in similar or other circumstances. B. Applicable Law. This Loan Agreement and the rights and obligations of the parties hereunder shall be governed by and interpreted in accordance with the laws of D.C. and applicable United States federal law. C. Amendment. No modification, consent, amendment or waiver of any provision of this Loan Agreement, nor consent to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by an officer of Bank, and then shall be effective only in the specified instance and for the purpose for which given. This Loan Agreement is binding upon Borrower, its successors and assigns, and inures to the benefit of Bank, its successors and assigns; however, no assignment or other transfer of Borrower's rights or obligations hereunder shall be made or be effective without Bank's prior written consent, nor shall it relieve Borrower of any obligations hereunder. There is no third party beneficiary of this Loan Agreement. D. Documents. All documents, certificates and other items required under this Loan Agreement to be executed and/or delivered to Bank shall be in form and content satisfactory to Bank and its counsel. E. Partial Invalidity. The unenforceability or invalidity of any provision of this Loan Agreement shall not affect the enforceability or validity of any other provision herein and the invalidity or unenforceability of any provision of any Loan Document to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances. F. Indemnification. Notwithstanding anything to the contrary contained in Section 10(G), Borrower shall indemnify, defend and hold Bank and its successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs or other expenses (including reasonable attorneys' fees and court costs) arising from or in any way related to any of the transactions contemplated hereby, including but not limited to actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or property damage, due to a release or alleged release of Hazardous Materials, arising from Borrower's business operations, any other property owned by Borrower or in the surface or ground water arising from Borrower's business operations, or gaseous emissions arising from Borrower's business operations or any other condition existing or arising from Borrower's business operations resulting from the use or existence of Hazardous Materials, whether such claim proves to be true or false. Borrower further agrees that its indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of the Borrower, regardless of whether the Borrower has paid the employee under the workmen' s compensation laws of any state or other similar federal or state legislation for the protection of employees. The term "property damage" as used in this paragraph includes, but is not limited to, damage to any real or personal property of the Borrower, the Bank, and of any third parties. The Borrower's obligations under this paragraph shall survive the repayment of the Loan and any deed in lieu of foreclosure or foreclosure of any Deed to Secure Debt, Deed of Trust, Security Agreement or Mortgage securing the Loan. G. Survivability. All covenants, agreements, representations and warranties made herein or in the other Loan Documents shall survive the making of the Loan and shall continue in full force and effect so long as the Loan is outstanding or the obligation of the Bank to make any advances under the Line shall not have expired. [] H. Updated Appraisals and Maintenance of Collateral Value. Bank may at its option obtain at Borrower's expense, once every _____________ (or as otherwise requested by Bank) an appraisal of any real property securing payment of the Loan (the "Real Property") prepared in accordance with applicable bank regulatory agency regulations and the written instructions from Bank by a third party appraiser engaged directly by Bank. The costs of each such appraisal shall be payable by Borrower to Bank on demand. If such appraisal shows the market value of the Real Property has declined, Borrower agrees that upon demand of Bank it will immediately either pledge additional collateral in form and substance satisfactory to Bank or make such payments as shall be necessary to reduce the principal balance outstanding under the Loan, so that in either case the principal amount outstanding under the Loan shall not exceed ______% of the market value of the Real Property and any additional collateral. 11. ADDITIONAL PROVISIONS: [] The Borrower shall comply with those additional provisions set forth on Exhibit "__" attached hereto and by reference made a part hereof. 12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS, INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. 13. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal by their duly authorized representatives as of the date first above written. BORROWER: BANK: Air Transportation Holding Company, Inc. NationsBank, NA By: ________________________ (Seal) By: ______________________________ (Seal) Name:______________________ Name: C. Gerome Chambers, Jr. Title: _______________________ Title: Vice President [Corporate Seal] Attest:________________________ (Seal) Name:____________________________ Title:_____________________________ BORROWER: BORROWER: CSA Air, Inc. Mountain Air Cargo, Inc. By: ________________________ (Seal) By: ______________________________ (Seal) Name:______________________ Name: ____________________________ Title: _______________________ Title: _____________________________ [Corporate Seal] [Corporate Seal] Attest:________________________ (Seal) Attest:________________________ (Seal) Name:____________________________ Name:____________________________ Title:_____________________________ Title:_____________________________ BORROWER: BORROWER: Mountain Aircraft Services, LLC Global Ground Support, LLC By: ________________________ (Seal) By: ______________________________ (Seal) Name:______________________ Name: ____________________________ Title: _______________________ Title: _____________________________ [Corporate Seal] [Corporate Seal] Attest:________________________ (Seal) Attest:________________________ (Seal) Name:____________________________ Name:____________________________ Title:_____________________________ Title:_____________________________ INDEX Accounting Terms, 1 Adverse Conditions or Events, 6 AFFIRMATIVE COVENANTS, 4 Amendment, 8 Applicable Law, 8 ARBITRATION, 9 Authority and Compliance., 2 Bank, 1 Binding Agreement, 3 Borrower, 1 Borrower's Address, 1 Borrowing Base, 2 Borrowings, 7 Capital Expenditures, 6 Cash flow coverage ratio, 4 Character of Business, 7 Clean-Up Period, 2 Compensation, 6 Compliance certificate, 5 Continuation of Representation and Warranties, 4 COSTS, EXPENSES AND ATTORNEY'S FEES, 8 Cumulative Rights and No Waiver, 8 Current Assets, 1 Current Liabilities, 1 DEFAULT, 7 Dividends and Distributions, 7 Documents, 8 Environmental Matters, 3 Existence and Compliance, 6 Extensions of Credit, 7 Financial Condition, 4 Financial Statements, 3 Financial Statements and Other Information, 5 GAAP, 1 Good Standing, 2 Hazardous Materials, 1 Indemnification, 8 Insurance, 5 Lease Expenditures., 6 Letter of Credit Subfeature, 2 Liens, 7 Litigation, 3 Loan, 1 Loan Documents., 1 Maintenance of property in good condition, 6 Maintenance of Collateral Value, 9 MISCELLANEOUS, 8 NEGATIVE COVENANTS, 6 Net working capital, 4 No Conflicting Agreements, 3 NOTICES, 7 Notification of Environmental Claims, 6 Ownership of Assets, 3 Partial Invalidity, 8 Place of Business, 3 Ratio of Current Assets to Current Liabilities, 4 Ratio of total liabilities to Tangible Net Worth, 4 REMEDIES UPON DEFAULT, 7 Revolving Credit Feature, 2 Survivability, 9 Tangible Net Worth, 1, 4 Taxes, 3 Taxes and Other Obligations, 6 Transfer of Assets or Control, 7 Updated Appraisals, 9 Usage Fee, 2 -----END PRIVACY-ENHANCED MESSAGE-----