12.	Commitments and Contingencies

The Company is involved in variou

s legal actions and claims arising in the ordinary course of business. Management believes that these matters, if adversely decided, would

not

have a material adverse effect on the Company's results of operations or financial position.

July 2016,

pursuant to the Asset Purchase Agreement, Contrail Aviation agreed to pay as contingent additional deferred consideration up to a maximum of

$1,500,000

per year and

$3,000,000

in the aggregate (collectively, the “Earnout Payments” and each, an “Earnout Payment”), calculated as follows:

(i) if Contrail Aviation generates EBITDA (as defined in the Asset Purchase Agreement) in any Earnout Period (as defined below) less than

$1,500,000,

Earnout Payment will be payable with respect to such Earnout Period;

(ii) if Contrail Aviation generates EBITDA in any Earnout Period equal to or in excess of

$1,500,000,

but less than

$2,000,000,

the Earnout Payment for each such Earnout Period will be an amount equal to the product of (

) the EBITDA generated with respect to such Earnout Period minus

$1,500,000,

and (y)

two

(

);

(iii) if Contrail Aviation generates EBITDA in any Earnout Period equal to or in excess of

$2,000,000,

but less than

$4,000,000,

the Earnout Payment for each such Earnout Period will be equal to

$1,000,000;

(iv) if Contrail Aviation generates EBITDA in any Earnout Period equal to or in excess of

$4,000,000,

the Earnout Payment for each such Earnout Period will be equal to

$1,500,000;

and

(v) if, following the

fifth

Earnout Period, Contrail Aviation has generated EBITDA equal to or in excess of

$15,000,000

in the aggregate during all Earnout Periods, but the Seller has received or is owed less than

$3,000,000

in aggregate Earnout Payments pursuant to clauses (i) through (iv), above, Contrail Aviation will make an additional Earnout Payment to the Seller in an amount equal to the difference between

$3,000,000

and the aggregate Earnout Payments already received or payable pursuant to clauses (i) through (iv), above.

As used in the Asset Purchase Agreement, “Earnout Period” means each of the

first

five twelve

-full-calendar-month periods following the c

losing of the acquisition. The Company has estimated its liability with respect to the Earnout Payment of

$2,900,000,

which amount was included in the “Other non-current liabilities” in the consolidated balance sheet at

March 31, 2017.

As a result of the EBITDA of Contrail Aviation being approximately

$2.1

million for the

first

Earnout Period, the Earnout Payment with respect to that Earnout Period is

$1,000,000,

which amount was paid in

October 2017.

The remaining liability of

$1,900,000

is included in the “Other non-current liabilities” in the consolidated balance sheet at

December 31, 2017.

On the Contrail Closing Date, Contrail Aviation and the Seller entered into an Operating Agreement (the “Operating Agreement”) providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options (“Put/Call Option”) permitting, at any time after the

fifth

anniversary of the Contrail Closing Date, Contrail Aviation at its election to purchase from the Seller, and permitting the Seller at its election to require Contrail Aviation to purchase from the Seller, all of the Seller

’s equity membership interests in Contrail Aviation at a price to be agreed upon, or failing such an agreement to be determined pursuant to

third

-party appraisals in a process specified in the Operating Agreement.

As discussed in Note

Contrail Aviation entered into the Loan Agreement with Old National Bank on

May 5, 2017.

Contrail Aviation

’s obligations under the Loan Agreement are guaranteed by the Company, with such guaranty limited in amount to a maximum of

$1,600,000

plus interest on such amount at the rate of interest in effect under the Loan Agreement, plus costs of collection.

A newly organized subsidiary of Air T leases

12,206

square feet of space in a building located in Mississauga, Ontario. The lease commenced on

August 1, 2017

and terminates on

July 31, 2020.

Annual rent under the lease escalates annually, with annual rent of approximately

$94,600

(CDN) for the

first

year and approximately

$97,000

(CDN) in the

third

year. The subsidiary

’s obligations under the lease have been guaranteed by Air T. The lease of production facilities in Mississauga, Ontario by Delphax Canada has been terminated effective upon removal of the property foreclosed upon by Air T.

The Company currently expects that

none

of Delphax Canada

’s unsecured creditors will receive payment in connection with the ongoing bankruptcy proceedings. This is because the Company’s priority claims under the Delphax Senior Credit Agreement permitted it to foreclose upon all of Delphax Canada’s personal property and rights of undertakings. Unsecured creditors of Delphax Canada

may

attempt to advance claims against the Company, whether as direct claims or alleging successor liability in light of the foreclosure. The Company does

not

believe that any such claims will be successfully advanced and therefore expects

significant adverse effect on the Company’s financial position or results of operations as a result of such possible claims.

The Company has various operating lease commitments for office equipment and its office and maintenance facilities.