-----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, LkJ0hnkGXWpSMmHBkTgyd5Dz9/tAgpFW9+5UAQL4bAVUC0zuU0mGzY2lI0uWwAPE HJL2nh58OpxjuOy+JCsFng== 0000353184-99-000031.txt : 19991117 0000353184-99-000031.hdr.sgml : 19991117 ACCESSION NUMBER: 0000353184-99-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIR T 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: 99755612 BUSINESS ADDRESS: STREET 1: 3524 AIRPORT RD CITY: MAIDEN STATE: NC ZIP: 28650 BUSINESS PHONE: 7043772109 MAIL ADDRESS: STREET 1: P O BOX 488 CITY: DENVER STATE: NC ZIP: 28037 FORMER COMPANY: FORMER CONFORMED NAME: AIR TRANSPORTATION HOLDING CO INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ATLANTA EXPRESS AIRLINE CORP DATE OF NAME CHANGE: 19840321 10-Q 1 SEP 30 1999 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 September 30, 1999 Commission File Number 0-11720 AIRT, 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. 2,764,653 Common Shares, par value of $.25 per share were outstanding as of November 5, 1999. This filing contains 35 pages. The exhibit index is on page 19. AIRT, INC. AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Earnings (Loss) for the three and six-month periods ended September 30, 1999 and 1998 (Unaudited) 3 Consolidated Balance Sheets at September 30, 1999 (Unaudited) and March 31, 1999 4 Consolidated Statements of Cash Flows for the six-month periods ended September 30, 1999 and 1998 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16-18 Exhibit Index 19 Exhibits 20-35 2 AIRT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
Three Months Ended Six Months Ended September 30, September 30, 1999 1998 1999 1998 Operating Revenues: Cargo $ 4,613,910 $ 4,894,720 $ 8,970,977 $ 9,571,459 Maintenance 3,458,748 3,413,048 6,934,573 6,761,717 Ground equipment 3,923,913 3,333,572 4,654,533 6,693,595 Aircraft services and other 1,909,816 1,274,704 4,136,357 2,399,414 13,906,387 12,916,044 24,696,440 25,426,185 Operating Expenses: Flight operations 3,508,802 3,507,872 6,561,119 6,739,720 Maintenance and brokering 5,013,094 4,241,617 10,174,343 8,205,083 Ground equipment 3,740,064 2,616,757 4,379,046 5,486,880 General and administrative 2,036,934 1,922,929 3,625,709 3,671,693 Depreciation and amortization 225,045 180,386 464,402 351,763 14,523,939 12,469,561 25,204,619 24,455,139 Operating Income (Loss) (617,552) 446,483 (508,179) 971,046 Non-operating Expense (Income): Interest 173,073 73,990 302,331 124,686 Deferred retirement expense 6,505 6,249 12,754 12,498 Investment income (45,786) (59,877) (91,040) (103,422) 133,792 20,362 224,045 33,762 Earnings (Loss) Before Income Taxes (751,344) 426,121 (732,224) 937,284 Income Taxes Expense (Benefit) Provision (286,600) 186,988 (278,000) 391,453 Net Earnings (Loss) $ (464,744) $ 239,133 $ (454,224)$ 545,831 Net Earnings (Loss) Per Share: Basic $ (0.17) $ 0.09 $ (0.16)$ 0.20 Diluted $ (0.17) $ 0.09 $ (0.16)$ 0.19 Average Shares Outstanding: Basic 2,764,653 2,696,320 2,764,653 2,703,986 Diluted 2,764,653 2,793,565 2,764,653 2,802,220 See notes to consolidated financial statements.
3 AIRT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, 1999 March 31,1999 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 124,939 $ 263,362 Marketable securities 1,675,576 2,086,259 Accounts receivable, net 6,635,241 7,008,987 Inventories 8,787,169 6,925,545 Deferred tax asset, net 424,980 424,980 Prepaid expenses and other 203,227 174,450 Total Current Assets 17,851,132 16,883,583 Property and Equipment 6,091,505 5,856,182 Less accumulated depreciation (3,406,765) (2,992,556) 2,684,740 2,863,626 Deferred Tax Asset 233,625 233,625 Intangible Pension Asset 546,119 498,119 Other Assets 505,258 372,691 Total Assets $ 21,820,874 $ 20,851,644 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to bank $ 5,224,756 $ 3,893,502 Accounts payable 4,989,068 4,267,890 Accrued expenses 1,450,778 1,690,036 Current portion of long-term obligations 55,241 57,853 Total Current Liabilities 11,719,843 9,909,281 Capital Lease Obligation (less current Portion) 23,374 23,920 Deferred Retirement Obligation (less current Portion) 1,299,652 1,282,545 Stockholders' Equity: Preferred stock, $1 par value, authorized 10,000,000 shares, none issued - - Common stock, par value $.25; authorized 4,000,000 shares; 2,764,653 and 2,764,653 shares issued 690,491 690,491 Additional paid in capital 7,049,157 7,049,157 Accumulated other comprehensive loss (338,134) (154,745) Retained earnings 1,376,493 2,050,995 8,778,006 9,635,898 Total Liabilities and Stockholders' Equity $ 21,820,874 $ 20,851,644 See notes to consolidated financial statements.
4 AIRT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) earnings $ (454,224) $ 545,831 Adjustments to reconcile net earnings (loss) to net cash used in operations: Depreciation and amortization 464,402 351,763 Change in retirement obligation 17,106 35,274 Change assets and liabilities: Accounts receivable 373,746 128,549 Inventories (1,861,624) (1,058,137) Prepaid expenses and other (209,344) 4,460 Accounts payable 721,178 (631,789) Accrued expenses (242,416) 26,102 Income taxes payable - (762,961) Total adjustments (736,952) (1,906,739) Net cash used in operating activities (1,191,176) (1,360,908) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (285,517) (385,584) Purchase of marketable securities (100,000) - Sale of marketable securities 327,294 458,614 Net cash (used in) provided by investing activities (58,223) 73,030 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit 1,331,254 2,099,743 Payment of cash dividend (220,278) (377,687) Repurchase of common stock - (149,500) Net cash provided by financing activities 1,110,976 1,572,556 NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (138,423) 284,678 CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 263,362 193,918 CASH & CASH EQUIVALENTS AT END OF PERIOD $ 124,939 $ 478,596 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES: Unrealized loss on available- for-sale securities $ 183,389 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 247,616 $ 115,796 Income/Franchise taxes 53,402 1,287,130 See notes to consolidated financial statements.
5 AIRT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. Financial Statements The Consolidated Balance Sheet as of September 30, 1999, the Consolidated Statements of Earnings (Loss)for the three and six-month periods ended September 30, 1999 and 1998 and the Consolidated Statements of Cash Flows for the six-month periods ended September 30, 1999 and 1998 have been prepared by AirT, Inc. (formerly Air Transportation Holding Company, Inc.) (the Company) without audit. On August 13, 1999, Air Transportation Holding Company, Inc. stockholder's approved a name change to AIRT, Inc.; AIRT, Inc. common shares will continue to be traded on NASDAQ under the symbol AIRT. 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 September 30, 1999, 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, 1999. The results of operations for the period ended September 30 are not necessarily indicative of the operating results for the full year. B. Income Taxes The tax effect of temporary differences, primarily asset reserves and accrued liabilities, gave rise to the Company's deferred tax asset in the accompanying September 30, 1999 and March 31, 1999 consolidated balance sheets. The Company records a valuation allowance in order to reduce its deferred tax asset to an amount which is more likely than not to be realized. At September 30, 1999 and March 31, 1999, the Company had no valuation allowance. The income tax provisions for the six-months ended September 30, 1999 and 1998 differ from the federal statutory rate primarily as a result of state income taxes and permanent timing differences. C. Net Earnings (Loss) Per Share Basic earnings (loss) per share has been calculated by dividing net earnings (loss) 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. For the three and six-months ended September 30, 1999, shares issuable under employee stock options were excluded from the diluted loss per share calculation due to an anti-dilutive effect. 6 The computation of basic and diluted earnings (loss) per common share is as follows: Three Months Ended Six Months Ended September 30, September 30, 1999 1998 1999 1998 Net earnings (loss) $(464,744)$ 239,133 $(454,224)$ 545,831 Weighted average common shares: Shares outstanding - basic 2,764,653 2,696,320 2,764,653 2,703,986 Dilutive stock options - 97,245 - 98,234 Shares outstanding - diluted 2,764,653 2,793,565 2,764,653 2,802,220 Net earnings (loss) per common share: Basic $ (0.17)$ 0.09 $ (0.16)$ 0.20 Diluted $ (0.17)$ 0.09 $ (0.16)$ 0.19 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview On August 13, 1999, Air Transportation Holding Company, Inc. stockholder's approved a name change to AIRT, Inc.; AIRT Inc. common shares will continue to be traded on NASDAQ under the symbol AIRT. 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. Separate agreements cover the four types of aircraft operated by MAC and CSA-Cessna Caravan, Fokker F-27, Short Brothers SD3-60, and Short Brothers SD3-30. Cessna Caravan, Fokker F-27 and Shorts SD3-60 aircraft (a total of 94 aircraft at March 31, 1999) are owned by and dry-leased from a major air express company (Customer), and Short Brothers SD3-30 aircraft (two aircraft at March 31, 1999) are owned by the Company and periodically operated under wet-lease arrangements with the Customer. Pursuant to such agreements, the Customer determines the type of aircraft and schedule of routes to be flown by MAC and CSA, with all other operational decisions made by the Company. Under the terms of the dry-lease service agreements, 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, parts and certain other direct operating costs are included in operating expenses and billed to the customer as cargo and maintenance revenue, at cost. Agreements are renewable annually and may be terminated by the Customer at any time upon 15 to 30 days' notice. The Company believes that the short term and other provisions of its agreements with the Customer are standard within the air freight contract delivery service industry. The Company is not contractually precluded from providing such services to other firms, and has done so in the past. Loss of its contracts with the Customer would have a material adverse effect on the Company. 8 In May 1997, to expand its revenue base, the Company's Mountain Aircraft Services, LLC (MAS) subsidiary expanded its offering of aircraft component repair services. MAS's revenue contributed $4,072,000 and $2,210,000 to the Company's revenues for the six-month periods ended September 30, 1999 and 1998, 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, operated as a subsidiary of MAS, contributed approximately $4,655,000 and $6,694,000 for the six-month periods ended September 30, 1999 and 1998, respectively. In June 1999, Global was awarded a four-year, $25,000,000 contract to supply deicing equipment to the United States Air Force. The Company was subsequently made aware that a competing bidder had filed a protest opposing the awarding of the contract to Global. In September 1999 the General Accounting Office finalized the denial of the protest and upheld the awarding of the Air Force contract to Global. As a result of the delays created by this protest, revenue originally anticipated to commence during the quarter ending December 31, 1999, is currently projected to be delayed until the quarter ending March 31, 2000. Additionally, the protest and its resulting delay caused Global to incur substantial legal fees and additional overhead costs per direct labor hour due to reallocation of fixed production costs to other product lines during the six-month period ended September 30, 1999. Seasonality Global's business has historically been highly seasonal. In general, the bulk of Global's revenues and earnings have typically 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 in the first and fourth fiscal quarters. The remainder of the Company's business is not materially seasonal. Results of Operations Consolidated revenue decreased $730,000 (2.9%) to $24,696,000 and increased $990,000 (7.7%) to $13,906,000, respectively, for the six and three-month periods ended September 30, 1999 compared to their equivalent 1998 periods. The six-month current period net decrease in revenue primarily resulted from decreased sales by Global and MAC, partially offset by increased revenue at MAS, while the three-month increase in revenue primarily resulted from increases in Global's sales and component repair services revenue at MAS, partially offset by decreased MAC revenue. 9>/page> Results of Operations (Cont'd) Operating expenses increased $749,000 (3.1%) to $25,205,000 for the six-month period ended September 30, 1999 and $2,054,000 (16.5%) to $14,524,000 for the three-month period ended September 30, 1999 compared to their equivalent 1998 periods. The change in operating expenses for the six-month period consisted of the following: cost of flight operations decreased $179,000 (2.7%), primarily as a result of decreases in pilot and flight personnel and costs associated with pilot travel offset by a $88,000 prior period worker's compensation insurance adjustment ; maintenance and brokerage expense increased $1,969,000 (24.0%), primarily as a result of increases associated with personnel and cost of parts and labor related to the expansion of MAS's repair shop, and increased personnel cost and a $72,000 prior period worker's compensation adjustment at MAC; ground equipment decreased $1,108,000 (20.2%), as a result of decreased Global sales partially offset by higher than normal production costs associated with the introduction of new products and the reallocation of unused plant capacity and legal costs related to the Air Force contract protest and resulting delays; depreciation and amortization increased $113,000 (32.0%) as a result of increased depreciation related to the expansion of MAS and Global; general and administrative expense decreased $46,000 (1.3%) primarily as a result of decreased wages and benefits, advertising and staff travel expense associated with changes at Global partially offset by increased legal fees. The change in operating expenses for the three-month period consisted of the following: cost of flight operations increased a net of $1,000, primarily as a result of the $88,000 prior period worker's compensation premium adjustment offsetting decreased personnel and travel cost; maintenance and brokerage expense increased $771,000 (18.2%), primarily as a result of increases associated with personnel and cost of parts and labor related to the expansion of MAS's repair shop and increased personnel cost and a $72,000 prior period worker's compensation premium adjustment at MAC; ground equipment increased $1,123,000 (42.9%), as a result of increased Global sales and higher than normal production costs associated with the introduction of new products and the reallocation of unused plant capacity and legal costs related to the Air Force contract protest and resulting delays; depreciation and amortization increased $45,000 (24.8%) as a result of increased depreciation related to the expansion of MAS and Global; general and administrative expense increased $114,000 (5.9%) primarily as a result of increased legal fees associated with finalizing Global's Air Force contract. Non-operating expense increased $190,000 and $113,000, respectively, for the six and three-month periods ended September 30, 1999 and September 30, 1998. The increases were principally due to increased credit line interest. 10 Results of Operations (Cont'd) Pretax earnings decreased $1,670,000 and $1,177,000, respectively, for the six and three-month periods ended September 30, 1999, compared to their respective September 30, 1998 periods. The six-month decrease was principally due to a $1,216,000 increase in the loss at Global and $686,000 decreased earnings at MAC, partially offset by an increase in CSA and MAS earnings. Global's net loss increased $808,000 for the three-month period ended September 30, 1999 compared to 1998 was partially offset by increased profitability at MAS and CSA. The substantial increase in Global's current period loss was primarily due to lost revenue, reallocation of unused productive capacity and legal cost associated with the protest and delay in finalizing the Air Force contract, higher than normal production, engineering and design cost associated with the introduction of new products and higher levels of interest expense to fund its operations. MAC's decreased earnings are primarily related to decreased wet lease cargo and maintenance revenue, increased operating costs and costs related to prior period worker's compensation premium adjustment. The provision for income taxes decreased $669,000 and $474,000 for the six and three-month periods ended September 30, 1999, respectively compared to their respective 1998 periods due to decreased taxable income. Liquidity and Capital Resources As of September 30, 1999 the Company's working capital amounted to $6,131,000, a decrease of $843,000 compared to March 31, 1999. In August 1999, the Company renewed its $7,000,000 unsecured line of credit to August 2000. In October 1999, the Company temporarily increased its unsecured line of credit to $7,500,000 for a ninety-day period to end December 31, 1999. The line, which matures August 31, 2000, 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. Under the terms of the line of credit the Company must maintain certain financial ratios and may not encumber certain real or personal property. At September 30, 1999 the Company was in a net borrowing position against its credit line of $5,225,000. Management believes that funds anticipated from operations and the continuation of existing credit facilities will provide adequate cash flow to meet the Company's future financial needs. The respective six-month periods ended September 30, 1999 and 1998 resulted in the following changes in cash flow: operating activities used $1,191,000 and $1,361,000, investing activities used $58,000 and provided $73,000 and financing activities provided $1,111,000 and $1,573,000. Net cash decreased $138,000 and increased $285,000 for the respective six-month periods ended September 30, 1999 and 1998. 11 Liquidity and Capital Resources (Cont'd) Cash used in operating activities was $170,000 less for the six- months ended September 30, 1999 compared to the similar 1998 period, principally due to decreased earnings, increases in accounts payable and taxes payable partially offset by decreased earnings and increased inventory. Cash used in investing activities for the six-months ended September 30, 1999 was approximately $131,000 more than the comparable period in 1998, principally due to marketable securities transactions and fewer capital expenditures in 1999. Cash provided by financing activities for the six-months ended September 30, 1999 was approximately $462,000 less than the comparable 1998 period, principally due to a decrease in borrowings under the line of credit in 1999, partially offset by a decrease in cash dividend and repurchase of common stock in 1999. There are currently no commitments for significant capital expenditures. The Company's Board of Directors, on August 7, 1998, 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 $0.08 per share cash dividend in June 1999. 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 to 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. 12 Year 2000 Issue The Company has initiated a comprehensive review of its operations and computer systems to identify the extent to which it 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. The Company has broken down its review to assess its information technology systems (IT Systems), the aspects of its operations that rely on devices that may contain embedded microchips (Non-IT Systems) and its relationships and reliance on vendors, suppliers, customers and others with whom the Company deals whose operations may be affected by the year 2000 issue. This review was conducted by the Company's Year 2000 compliance committee, authorized to assess the Company's risks and develop a comprehensive plan to address the year 2000 issue. State of Readiness IT Systems. As a result of such review, as of the date of this Quarterly Report on Form 10-Q, the Company has catalogued all IT Systems utilized directly by the Company. The Company has revised, and tested, certain customized IT Systems to enable such systems to work properly following the year 2000 and has verified that recently acquired IT Systems from third-party vendors are "year 2000 compliant". Management utilized external resources to upgrade internal software systems to become year 2000 compliant. Management believes that such systems have been completely tested and are currently compliant. Non-IT Systems. The Company utilizes a number of devices that include embedded microchips that may be affected by the year 2000 issue, including aircraft operated under lease agreements with its major customer. The Company has completed the testing and replacing of any noncompliant devices. Under its agreements with its major customer the cost of replacing such components in aircraft leased by the Company from its customer was passed on to the customer. Material Third Parties. The Company has made concerted efforts to understand the year 2000 compliance readiness of third parties (including, among others, domestic and international government agencies and air traffic control systems material to the Company's operations, vendors, suppliers and major customers) whose year 2000 non- compliance could either have a material adverse effect on the Company's business, financial condition or results of operations or involve a safety risk to employees or customers. 13 The Company has actively encouraged year 2000 compliance on the part of third parties and has developed contingency plans in the event of their year 2000 non-compliance. The Company has contacted, in writing and by telephone, each "mission critical" vendor and supplier, requesting completion of a questionnaire to assess such third party's year 2000 compliance. The Company's vendors and suppliers are under no contractual obligation to provide such information to the Company. Although the Company has received written or verbal assurances of compliance, year 2000 issue disruptions experienced by "mission critical" vendors could adversely affect the Company's operations. The Company has met with its major air cargo customer on numerous occasions, to discuss and co-ordinate year 2000 readiness and contingency planning. In addition, the Company has reviewed public filings of its major customer to assess the customer's state of year 2000 compliance. Such discussions and filings indicate plans by such customer to be 100% internal systems year 2000 compliant, including operating subsidiaries, by September 1, 1999 and Non-IT system compliant by November 1, 1999. However, such customer's operations rely on many third parties, including governmental agencies, airports and air traffic control systems described below. In conjunction with the Company's major air cargo customer and industry trade associations, the Company is involved in an industry-wide effort to understand the year 2000 compliance status of airports, air traffic systems, and other U.S. and international government agencies that may affect the Company's air cargo operations. The Company's air cargo routes are selected and scheduled by its major customer. In addition to general risks raised by the year 2000 issue, the Company's primary business segment, providing air cargo services to the overnight express delivery industry, is subject to significant additional risks. First, the Company's relationship with its major air cargo customer is based, in significant part, on the Company's operating reliability. A failure to timely confirm its year 2000 compliance to the customer could result in a loss of such relationship. The Company has provided this customer with detailed plans and the time schedule for completion of its year 2000 compliance program, which the Company has verified fits within the customer's planned schedule. In addition, the bulk of the Company's aircraft fleet is leased from such customer and is dedicated for use in flying routes designated by the customer. Costs The Company estimates the cost incurred to date for year 2000 compliance is approximately $120,000. No material future cost are expected to be incurred. The foregoing costs do not include the allocation of substantial internal employee time since the Company does not track such internal costs. 14 Contingency Plans The Company has developed contingency plans for year 2000 non- compliance, including the pre-arranging of alternative operating methods and locations, the stockpiling of critical inventory and supplies and implementing back-up systems and procedures, including manual systems to perform mission-critical functions while IT systems can be brought back on line. Contingency plans also call for alternative Company-wide communications systems and complete on site staffing of key executive and management personnel during the transition to January 1, 1999. Due to the Company's dependence upon, and its current uncertainty with, the year 2000 compliance of certain government agencies, third-party suppliers, vendors and customers with whom the Company deals, the Company is unable to determine at this time its most reasonably likely worst case scenario. While costs related to the lack of year 2000 compliance by third parties, business interruptions, litigation and other liabilities related to year 2000 issues could materially and adversely affect the Company's business, results of operations and financial condition, the Company believes its internal year 2000 compliance efforts and contingency planning have reduced significantly the Company's level of uncertainty about the impact of year 2000 issues affecting both its IT Systems and non-IT Systems. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company does not hold or issue derivative financial instruments for trading or other purposes. The Company is exposed to changes in interest rates on its line of credit, which bears interest based on the 30-day LIBOR rate plus 137 basis points. If the LIBOR interest rate had been increased by one percentage point, based on the quarter-end balance of the line of credit, annual interest expense would have increased by approximately $49,000. 15 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 Bank of America, the Company and its subsidiaries, dated August 31, 1999 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 30,000 30,000 40,000 John J. Gioffre 20,000 20,000 25,000 William H. Simpson 40,000 40,000 60,000 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 16 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 10-K 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, incorporated by reference to Exhibit 10.11 for the quarter ended June 30, 1999.* 10.12 Commercial and Industrial Lease Agreement dated August 25, 1998 between William F. Bieber and Global Ground Support, LLC, incorporated by reference to Exhibit 10.12 of the Company's Quarterly Report on 10Q for the period ended September 30, 1998. 10.13 Amendment, dated February 1, 1999, to 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 of the Company's Quarterly Report on 10Q for the period ended December 31, 1998. 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 six months of the fiscal year ending March 31, 2000. 17 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. AIRT, INC. (Registrant) Date: November 9, 1999 /s/ Walter Clark Walter Clark, Chief Executive Officer Date: November 9, 1999 /s/ John Gioffre John J. Gioffre, Chief Financial Officer 18 AIRT, INC. EXHIBIT INDEX EXHIBIT PAGE 10.2 Loan Agreement among Bank of America, the Company and its subsidiaries, dated August 31, 1999. 20-35 19 EX-27 2
5 "This schedule contains summary financial information extracted from AIRT, Inc. SEC Form 10-Q for Quarter ended September 30, 1999 (identify specific financial statements) and is qualified in its entirety by reference to such financial statements." 6-MOS MAR-31-2000 SEP-30-1999 124939 1675576 6635241 0 8758523 17851132 6091505 3406765 21820874 11719843 0 0 0 690491 0 21820874 24696440 24696440 0 25204619 224045 0 0 (732224) (278000) (454224) 0 0 0 (454224) (0.17) (0.17)
EX-10 3 Bank of America, N.A. LOAN AGREEMENT This Loan Agreement (the "Agreement") dated as of August 31, 1999, by and between Bank of America, 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 T, 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. 20 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. 21 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 August 31, 1999, (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. 22 v. [X] Letter of Credit Subfeature. As a subfeature under the Line, Bank may from time to time up to and including August 31, 2000, 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, 2000. 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. 23 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. 24 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 rolling 4 quarter basis a ratio of Funded Debt to EBITDA of not greater than: Quarter Ending Ratio 9/30/99 4.25 to 1.0 12/31/99 3.5 to 1.0 3/31/00 and thereafter 3.0 to 1.0 25 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 150 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. 26 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. 27 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. 28 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 Bank of America 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. 29 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 T, Inc. 3524 Airport Road Maiden, NC 28650 Bank: Bank of America, NA 100 East Main Street Lincolnton, NC 28092 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. 30 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. 31 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. 32 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 T, Inc. Bank of America, 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:_____________________________ 33 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 34 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 35 -----END PRIVACY-ENHANCED MESSAGE-----