Filed Pursuant to Rule 424(b)(5)
File Numbers 333-277855-01 and 333-277855
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 27,
2024)
AIR T FUNDING
$8,000,000
320,000 Shares
of 8% Alpha Income Trust Preferred Securities
(Liquidation
amount $25.00 per Capital Security)
guaranteed by
Air T, Inc.
This
prospectus supplement and the accompanying prospectus relate to the offer and sale from time to time of up to 320,000 Shares of our Alpha
Income Preferred Securities, $25.00 liquidation value per share, (which we refer to in this prospectus supplement as “Capital Securities”),
having an aggregate offering price of up to $8,000,000. Sales of the Capital Securities will be made through Ascendiant Capital Markets,
LLC (the “sales agent”) as sales agent pursuant to the terms of the at the market offering agreement between us and the sales
agent. Sales of our Capital Securities, if any, may be made in transactions that are deemed to be “at-the-market offerings”
as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly
on the NASDAQ Capital Market (“NASDAQ”) or sales made to or through a market maker other than on an exchange, at market
prices prevailing at the time of sale or in negotiated transactions. In the event that any sales are made pursuant to the at the market
offering agreement which are not made directly on NASDAQ or on any other existing trading market for our Capital Securities at market
prices at the time of sale, including, without limitation, any sales to the sales agent acting as principal or sales in negotiated transactions,
we will file a prospectus supplement describing the terms of such transaction, the amount of shares sold, the price thereof, the applicable
compensation, and such other information as may be required pursuant to Rule 424 and Rule 430B of the Securities Act, as applicable,
within the time required by Rule 424 of the Securities Act. 17,058 Capital Securities have been sold during the previous twelve
(12) months.
The Capital Securities may
be redeemed, in whole or in part, at any time on or after June 7, 2024 at a redemption price equal to the total liquidation amount
plus accumulated and unpaid distributions to the date of redemption. In addition, the Capital Securities may be redeemed in whole if a
tax event (as defined herein) or investment company event (as defined herein) occur and are continuing.
The Capital Securities are
listed on NASDAQ under the symbol “AIRTP.” The last reported sales price of our Capital Securities on NASDAQ on August 19,
2024 was $18.20 per share.
The sales agent will receive
a commission of 3.0% of the gross sales price per share for any shares sold through it as our sales agent under the at the market offering
agreement. We have also agreed to reimburse certain expenses of the sales agent in connection with the at the market offering agreement
as further described in the Plan of Distribution section. Subject to the terms and conditions of the at the market offering agreement,
the sales agent will use its commercially reasonable efforts to sell on our behalf any Capital Securities to be offered by us under the
at the market offering agreement. The offering of Capital Securities pursuant to the at the market offering agreement will terminate upon
the earlier of (1) the sale of $8,000,000 of Capital Securities subject to the at the market offering agreement, (2) March 27,
2027, and (3) the termination of the at the market offering agreement, pursuant to its terms, by either the sales agent or us.
Investing in the Capital Securities
involves a high degree of risk. Before buying any Capital Securities, you should carefully consider the risks that we have described in
“Supplemental Risk Factors” beginning on page S-4 of this prospectus supplement, as well as those described in our filings
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The Capital Securities
are not deposits or other obligations of a depository institution and are not insured by the Federal Deposit Insurance Corporation, the
Bank Insurance Fund or any other governmental agency.
The Securities and Exchange
Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus supplement
or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
ASCENDIANT CAPITAL MARKETS, LLC
The date of this prospectus supplement is August 28,
2024.
TABLE OF CONTENTS
Prospectus Supplement
Page
Prospectus
We have not, and the sales
agent has not, authorized any dealer, salesperson or other person to give any information or to make any representation other than those
contained in or incorporated by reference into this prospectus supplement, the accompanying prospectus or any applicable free writing
prospectus. You must not rely upon any information or representation not contained in or incorporated by reference into this prospectus
supplement, the accompanying prospectus or any applicable free writing prospectus as if we had authorized it. This prospectus supplement,
the accompanying prospectus and any applicable free writing prospectus do not constitute an offer to sell or the solicitation of an offer
to buy any securities other than the registered securities to which they relate, nor does this prospectus supplement, the accompanying
prospectus or any applicable free writing prospectus constitute an offer to sell or the solicitation of an offer to buy securities in
any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. You should not assume that
the information contained in this prospectus supplement, the accompanying prospectus, the documents incorporated herein and therein by
reference and any applicable free writing prospectus is correct on any date after their respective dates, even though this prospectus
supplement, the accompanying prospectus or an applicable free writing prospectus is delivered or securities are sold on a later date.
Our business, financial condition, results of operations and cash flows may have changed since those dates.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This prospectus supplement
and the accompanying prospectus are part of a shelf registration statement that we filed with the Securities and Exchange Commission (the
“SEC”). Our shelf registration statement allows us to offer from time to time a wide array of securities. In the accompanying
prospectus, we provide you with a general description of the securities we may offer from time to time under our shelf registration statement
and other general information that may apply to this offering. In this prospectus supplement, we provide you with specific information
about the Capital Securities that we are selling in this offering. Both this prospectus supplement and the accompanying prospectus include
important information about us, the Capital Securities and other information that you should know before investing. This prospectus supplement
also adds, updates and changes information contained in the accompanying prospectus. You should carefully read both this prospectus supplement
and the accompanying prospectus as well as additional information described under “Where You Can Find More Information” before
investing in the Capital Securities.
Generally, when we refer to
this “prospectus supplement,” we are referring to both this prospectus supplement and the accompanying prospectus, as well
as the documents incorporated by reference herein and therein. If information in this prospectus supplement is inconsistent with the accompanying
prospectus, you should rely on this prospectus supplement.
Air T, Inc. is a Delaware
corporation. Its principal executive office is located at 11020 David Taylor Drive, Suite 305, Charlotte, North Carolina 28262, and
its telephone number is (980) 595-2840. Air T, Inc. created Air T Funding by the execution of a Trust Agreement and a Certificate
of Trust that was filed with the Secretary of State of Delaware on September 28, 2018. The Trust Agreement was most recently amended
and restated by that certain Second Amended and Restated Trust Agreement dated June 23, 2021 and the First Amendment to the Second
Amended and Restated Trust Agreement dated January 28, 2022. The principal executive office of the Trust is located at the Delaware
Trust Company, 251 Little Falls Drive, New Castle, DE 19808, and the telephone number of the trust is (980) 595-2840. Air T, Inc’s
website is located at www.airt.net. The information contained on Air T’s website is not part of this prospectus supplement or the
accompanying prospectus.
WHERE
YOU CAN FIND MORE INFORMATION
Air T is required to file
annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act. Air T’s filings
with the SEC are available to the public through the SEC’s Internet site at http://www.sec.gov and through the NASDAQ Stock Market
at One Liberty Plaza, New York, New York 10006. Air T makes available free of charge on its website (https://www.airt.net) its Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as
soon as reasonably practicable after such material is electronically filed with the SEC. The information contained on or that may be accessed
through our website is not part of, and is not incorporated by reference into this Prospectus Supplement.
We have filed a registration
statement on Form S-3 with the SEC relating to the securities covered by this prospectus supplement. This prospectus supplement and
the accompanying prospectus are a part of the registration statement and do not contain all of the information in the registration statement.
Whenever a reference is made in this prospectus to a contract or other document of ours, please be aware that the reference is only a
summary and that you should refer to the exhibits that are part of the registration statement for a copy of the contract or other document.
You may review a copy of the registration statement through the SEC’s Internet site.
Additional copies of this
prospectus supplement and the accompanying prospectus may be obtained, without charge, by writing to us at Air T, Inc. or the Trust,
at 11020 David Taylor Drive, Suite 305, Charlotte, North Carolina 28262, telephone number is (980) 595-2840, Attention: Corporate
Secretary. You may also contact the Corporate Secretary at (980) 595-2840.
INCORPORATION
BY REFERENCE
The SEC’s rules allow
us to “incorporate by reference” information into this prospectus supplement. This means that we can disclose important information
to you by referring you to another document. Any information referred to in this way is considered part of this prospectus supplement
from the date we file that document. Any reports filed by us with the SEC after the date of this prospectus supplement and before the
date that the offerings of the securities by means of this prospectus supplement are terminated will automatically update and, where applicable,
supersede any information contained in this prospectus supplement or incorporated by reference in this prospectus supplement.
We incorporate by reference
into this prospectus supplement the following Air T and Trust documents or information filed with the SEC:
| (5) | the description of our Capital Stock contained in Exhibit 4.6 of the Company’s Annual Report
on Form 10-K/A for the fiscal year ended March 31, 2024, filed with the SEC on June 26, 2024 and; |
| (7) | All documents filed by us under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding
any information that is deemed to have been “furnished” and not “filed” with the SEC) on or after the date of
this prospectus supplement and before the termination of the offerings to which this prospectus supplement relates. |
We will provide without charge
to each person, including any beneficial owner, to whom this prospectus supplement is delivered, upon his or her written or oral request,
a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus supplement,
excluding exhibits to those documents unless they are specifically incorporated by reference into those documents. You can request those
documents from the Corporate Secretary, Air T, Inc., at 11020 David Taylor Drive, Suite 305, Charlotte, North Carolina 28262.
You may also contact the Corporate Secretary at (980) 595-2840.
FORWARD-LOOKING
STATEMENTS
This prospectus supplement
contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E
of the Exchange Act, which reflect our current views with respect to, among other things, our operations and financial performance. In
some cases, you can identify these forward-looking statements by the use of words such as “outlook”, “believes”,
“expects”, “potential”, “continues”, “may”, “will”, “should”,
“seeks”, “approximately”, “predicts”, “intends”, “plans”, “estimates”,
“anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject
to various risks and uncertainties. These forward-looking statements are not historical facts and are based on current expectations, estimates
and projections about Air T, Inc.’s industry, management’s beliefs and certain assumptions made by management, many of
which, by their nature, are inherently uncertain and beyond our control.
Accordingly, there are or
will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. All
statements other than statements of historical fact are forward-looking statements and are based on various underlying assumptions and
expectations and are subject to known and unknown risks, uncertainties and assumptions, and may include projections of our future financial
performance based on our growth strategies and anticipated trends in our business. We believe these factors include, but are not limited
to, those described under the “Supplemental Risk Factors” section of this prospectus supplement and under “Risk Factors”
in Item 1A of our most recent Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the SEC on June 26, 2024 (“2024 Annual Report”), and Item 1A of any subsequently filed Quarterly Reports on Form 10-Q, as such factors may
be updated from time to time in our periodic filings with the SEC (which documents are incorporated by reference herein), as well as the
other information contained or incorporated by reference in this prospectus supplement. These factors should not be construed as exhaustive
and should be read in conjunction with the other cautionary statements that are included or incorporated by reference in this prospectus
supplement. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information,
future developments or otherwise.
You should rely only on the
information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. Air T Funding and Air
T, Inc. have not authorized anyone to provide you with information other than that contained or incorporated by reference in this
prospectus supplement and the accompanying prospectus. The information in this prospectus supplement and the accompanying prospectus may
only be accurate as of their respective dates. In this prospectus supplement, references to the “Trust” mean Air T Funding
and references to “Air T” or “we” mean Air T, Inc. together with its subsidiaries, unless the context indicates
otherwise.
The Trust and Air T are offering
to sell the Capital Securities, and are seeking offers to buy the Capital Securities, only in jurisdictions where offers and sales are
permitted. The distribution of this prospectus supplement and the accompanying prospectus and the offering of the Capital Securities in
certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this prospectus supplement
and accompanying prospectus must inform themselves about and observe any restrictions relating to the offering of the Capital Securities
and the distribution of this prospectus supplement and the accompanying prospectus outside the United States. This prospectus supplement
and the accompanying prospectus do not constitute, and may not be used in connection with, an offer or solicitation by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do
so or to any person to whom it is unlawful to make such offer or solicitation.
PROSPECTUS
SUPPLEMENT SUMMARY
The following information
concerning Air T, the Trust, the Capital Securities to be issued by the Trust, the Guarantee to be issued by Air T with respect to the
Capital Securities and the 8.0% Junior Subordinated Debentures to be issued by Air T supplements, and should be read in conjunction with,
the information contained in the accompanying prospectus. If the information set forth in this prospectus supplement differs in any way
from the information set forth in the accompanying prospectus, you should rely on the information set forth in this prospectus supplement.
Air T, Inc.
Air T is a holding company
with a portfolio of operating businesses and financial assets. Air T’s goal is to prudently and strategically diversify Air T’s
earnings power and compound its free cash flow per share over time.
Air T currently operates in
four industry segments:
| · | Overnight air cargo, which operates in the air express delivery services industry; |
| · | Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment
products to passenger and cargo airlines, airports, the military and industrial customers; |
| · | Commercial jet engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket
commercial jet engine components; provides commercial aircraft disassembly/part-out services; sells commercial aircraft engines and parts;
and procures services and overhaul and repair services to aircraft companies; and |
| · | Corporate and other, which acts as the capital allocator and resource for other segments. Further, Corporate
and other also comprises insignificant businesses and business interests. |
Each business segment has
separate management teams and infrastructures that offer different products and services.
Air T Funding
The Trust is a Delaware statutory
business trust. The Trust exists solely to:
| · | issue and sell its common securities to Air T; |
| · | issue and sell its Capital Securities to the public; |
| · | use the proceeds from the sale of its common securities and Capital Securities to purchase Junior Subordinated
Debentures from Air T; and |
| · | engage in other activities that are necessary, convenient or incidental to these purposes. |
Delaware Trust Company, a
Delaware chartered trust company is the Delaware and Property Trustee of the Trust. Two officers of Air T act as administrative trustees
of the Trust. Delaware Trust Company is also the Indenture Trustee under the Subordinated Indenture dated as of June 10, 2019, as
amended and supplemented.
As of July 31, 2024,
there are $100,000,000 authorized amount of Capital Securities, par value $25.00, and 1,913,906 Capital Securities shares outstanding.
360,000 of these shares are held by wholly-owned subsidiaries of the Company. The Capital Securities are listed for trading on NASDAQ
and trade under the symbol “AIRTP.”
The rights of the holders
of Capital Securities are described in the applicable Trust Agreement and the Delaware Statutory Trust Act. The principal executive office
of the Trust is located at the Delaware Trust Company, 251 Little Falls Drive, New Castle, DE 19808, and the telephone number of the trust
is (980) 595-2840.
The Trust is a “finance
subsidiary” of Air T within the meaning of Rule 3-10 of Regulation S-X under the Securities Act of 1933, as amended, and as
a result the Trust does not file periodic reports with the SEC under the Securities Exchange Act of 1934, as amended.
The Offering
The Trust is offering its
Capital Securities in an at the market offering. The Trust will use all of the proceeds from the sale of its Capital Securities and its
common securities to purchase Junior Subordinated Debentures of Air T. The Junior Subordinated Debentures are and will be the Trust’s
only assets. Air T will fully and unconditionally guarantee the obligations of the Trust, based on its combined obligations under the
Guarantee, the trust agreement and the junior subordinated indenture.
The Capital Securities
If you purchase Capital Securities,
you will be entitled to receive cumulative cash distributions at an annual rate of $2.00 for each Capital Security, which represents 8.0%
of the liquidation amount of $25 for each Capital Security. If the Trust is terminated and its assets distributed, for each Capital Security
you own, you are entitled to receive a like amount of Junior Subordinated Debentures or the liquidation amount of $25 plus accumulated
but unpaid distributions from the assets of the Trust available for distribution, after it has paid liabilities owed to its creditors.
Accordingly, you may not receive the full liquidation amount and accumulated but unpaid distributions if the Trust does not have enough
funds.
Distributions will accumulate
from the date the Trust issues Capital Securities. The Trust will pay the distributions quarterly on February 15, May 15, August 15
and November 15 of each year. These distributions may be deferred for up to 20 consecutive quarters. The Trust will only pay distributions
when it has funds available for payment.
| Securities Offered |
The Capital Securities represent undivided beneficial interests in the Trust’s assets, which will consist solely of the Junior Subordinated Debentures and payments thereunder. |
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| Distributions |
The Distributions payable on each Capital Security will be fixed at a rate per annum of 8% of the Liquidation Amount of $25.00 per Capital Security, will be cumulative, will accrue from the date of issuance of the Capital Securities, and will be payable quarterly in arrears on the 15th day of February, May, August and November of each year (subject to possible deferral as described below). Additionally, from time to time the Board of Air T may in its sole discretion may declare Distributions in addition to the Distributions equal to the 8.0% per annum Liquidation Amount of the Capital Securities. |
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| Extension Periods |
So long as no Debenture event of default has occurred and is continuing, Air T will have the right, at any time on or after, June 7, 2024, to defer payments of interest on the Junior Subordinated Debentures by extending the interest payment period thereon for a period not exceeding 20 consecutive quarters with respect to each deferral period (each an “Extension Period”), provided that no Extension Period may extend beyond the Stated Maturity of the Junior Subordinated Debentures. If interest payments are so deferred, Distributions on the Capital Securities will also be deferred and Air T will not be permitted, subject to certain exceptions described herein, to declare or pay any cash distributions with respect to Air T’s capital stock or debt securities that rank pari passu with or junior to the Junior Subordinated Debentures. During an Extension Period, Distributions will continue to accrue with income thereon compounded quarterly. |
| Maturity |
The Junior Subordinated Debentures will mature on June 7, 2049, which date may be shortened (such date, as it may be shortened, the “Stated Maturity”) to a date not earlier than June 7, 2024. |
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| Redemption |
At any time on or after June 7, 2024, the Capital Securities are subject to mandatory redemption upon repayment of the Junior Subordinated Debentures at maturity or their earlier redemption in an amount equal to the amount of Junior Subordinated Debentures maturing on or being redeemed at a redemption price equal to the aggregate liquidation amount of the Capital Securities plus accumulated and unpaid distributions thereon to the date of redemption. The Junior Subordinated Debentures are redeemable prior to maturity at the option of Air T (i) on or after June 7, 2024, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), upon the occurrence and during the continuance of a tax event or an investment company event, in each case at a redemption price equal to 100% of the principal amount of the Junior Subordinated Debentures so redeemed, together with any accrued but unpaid interest to the date fixed for redemption. |
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| Distribution of Junior Subordinated Debentures |
Air T has the right at any time to terminate the Trust and cause the Junior Subordinated debentures to be distributed to holders of Capital Securities in liquidation of the Trust. |
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| Guarantee |
Taken together, Air T’s obligations under various documents described herein, including the Guarantee, provide a full guarantee of payments by the Trust of distributions and other amounts due on the Capital Securities. Under the Guarantee, Air T guarantees the payment of Distributions by the Trust and payments on liquidation of or redemption of the Capital Securities (subordinate to the right to payment of senior and subordinated debt of Air T, as defined herein) to the extent of funds held by the Trust. If the Trust has insufficient funds to pay distributions on the Capital Securities (i.e., if Air T has failed to make required payments under the Junior Subordinated Debentures), a holder of the Capital Securities would have the right to institute a legal proceeding directly against Air T to enforce payment of such distributions to such holder. |
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| Ranking |
Generally, the Capital Securities will rank pari passu, and payments thereon will be made pro rata, with the Common Securities of the Trust held by Air T. The obligations of Air T under the Guarantee, the Junior Subordinated Debentures and other documents described herein are unsecured and rank subordinate and junior in right of payment to all current and future Senior and Subordinated Debt, the amount of which is unlimited. At June 30, 2024, the aggregate outstanding Senior and Subordinated Debt of Air T was approximately $116,599,000 (which figure includes approximately $4,570,000 incurred in connection with the redemption of OCAS, Inc.’s interest in Contrail Aviation Support, LLC (“Contrail”)). In addition, because Air T is a holding company, all obligations of Air T relating to the securities described herein will be effectively subordinated to all existing and future liabilities of the Air T’s subsidiaries. Air T may cause additional Capital Securities to be issued by the Trust or trusts similar to the Trust in the future, and there is no limit on the amount of such securities that may be issued. In this event, Air T’s obligations under the Junior Subordinated Debentures to be issued to such other trusts and Air T’s guarantees of the payments will rank pari passu with Air T’s obligations under the Junior Subordinated Debentures and the Guarantee, respectively |
| Voting Rights |
The holders of the Capital Securities will generally have limited voting rights relating only to the modification of the Capital Securities, the dissolution, winding-up or termination of the Trust and certain other matters described herein. |
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| Use of Proceeds |
The Trust will invest all of the proceeds from the sale of the Capital Securities in the Junior Subordinated Debentures. Air T intends to use the net proceeds from the sale of the Junior Subordinated Debentures for general corporate purposes, which may include investments in or advances to its existing or future subsidiaries, repayment of its obligations that have matured and reduction of other debt. |
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| Manner of Offering |
“At the market offering” that may be made from time to time through our sales agent, Ascendiant Capital Markets, LLC. See “Plan of Distribution.” |
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Under the terms of the “at the market offering” agreement, we also may sell Capital Securities to the sales agent, as principal for its own account, at a price per share to be agreed upon at the time of sale. If we sell Capital Securities to the sales agent, acting as principal, we will enter into a separate terms agreement with that sales agent, setting forth the terms of such transaction, and we will describe the terms agreement in a separate prospectus supplement or pricing supplement. |
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The proceeds from this offering, if any, will vary depending on the number of Capital Securities that we offer and the offering price per Capital Security. We may choose to raise less than the maximum $8,000,000 in gross offering proceeds permitted by this prospectus supplement. |
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| Risk Factors |
Before deciding to invest in the Capital Securities, you should read carefully the risks set forth under the heading “Supplemental Risk Factors” beginning on page S-5 of this prospectus supplement, and the risk factors set forth under the heading “Risk Factors” in the Prospectus and under the heading “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, as well as any subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K for certain considerations relevant to an investment in our securities. |
| NASDAQ Symbol |
AIRTP |
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| Transfer Agent and Registrar |
Equiniti Trust Company, LLC |
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| Form of Capital Securities |
The Capital Securities will be represented by one or more global securities that will be deposited with, or on behalf of, and registered in the name of The Depository Trust Company (“DTC”) or its nominee. This means that you will not receive a certificate for your Capital Securities and the Capital Securities will not be registered in your name. Rather, your broker or other direct or indirect participant of DTC will maintain your position in the Capital Securities. |
SUPPLEMENTAL
RISK FACTORS
Investing in the Capital
Securities involves risks. In deciding whether to invest in the Capital Securities, you should carefully consider the following risk factors
and the risk factors included in our Annual Report as well as any subsequent Quarterly Reports on Form 10-Q or Current Reports on
Form 8-K in addition to the other information contained in this prospectus supplement and the accompanying prospectus and the information
incorporated by reference herein and therein. The risks and uncertainties described below and in our other filings with the SEC are not
the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become
important factors that affect us. If any of these risks occur, our business, financial condition or results of operations could be materially
and adversely affected. In that case, the value of the Capital Securities and your investment could decline. See “Forward-Looking
Statements.”
Because the Trust will
rely on the payments it receives on the Junior Subordinated Debentures to fund all payments on the Capital Securities, and because the
Trust may distribute the Junior Subordinated Debentures in exchange for the Capital Securities, you are making an investment decision
with regard to the Junior Subordinated Debentures as well as the Capital Securities. You should carefully review the information in this
prospectus supplement and the accompanying prospectus about both of these securities and the Guarantee.
The ranking of Air T’s obligations under the
Junior Subordinated Debentures and the Guarantee creates a risk that the Trust may not be able to pay amounts due to holders of the Capital
Securities.
The ability of the Trust to
pay amounts due to holders of the Capital Securities is solely dependent upon Air T making payments on the Junior Subordinated Debentures
as and when required. All obligations of Air T under the Guarantee, the Junior Subordinated Debentures and other documents described herein
are unsecured and rank subordinate and junior in right of payment to all current and future Senior and Subordinated Debt, the amount of
which is unlimited. At June 30, 2024, the aggregate outstanding Senior and Subordinated Debt of Air T was approximately $116,599,000
(which figure includes approximately $4,570,000 incurred in connection with the redemption of OCAS, Inc.’s interest in Contrail).
None of the Indenture, the Guarantee or the Trust Agreement places any limitation on the amount of secured or unsecured debt, including
Senior and Subordinated Debt, that may be incurred by Air T or its subsidiaries. Further, there is no limitation on Air T’s ability
to issue additional Junior Subordinated Debentures in connection with any further offerings of Capital Securities, and such additional
debentures would rank pari passu with the Junior Subordinated Debentures.
Air T has the option to extend the interest payment
period; tax consequences of a deferral of interest payments.
So long as no Debenture Event
of Default (as defined) has occurred and is continuing, at any time on or after, June 7, 2024, Air T has the right under the Indenture
to defer the payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 20
consecutive quarters with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity of
the Junior Subordinated Debentures. As a consequence of any such deferral, quarterly Distributions on the Capital Securities by the Trust
will be deferred (and the amount of Distributions to which holders of the Capital Securities are entitled will accumulate additional amounts
thereon at the rate of 8% per annum, compounded quarterly, from the relevant payment date for such Distributions, to the extent permitted
by applicable law) during any such Extension Period. During any such Extension Period, Air T will be prohibited from making certain payments
or distributions with respect to Air T’s capital stock (including dividends on or redemptions of common or preferred stock) and
from making certain payments with respect to any debt securities of Air T that rank pari passu with or junior in interest to the
Junior Subordinated Debentures; however, Air T will NOT be restricted from (a) paying dividends or distributions in common stock
of Air T, (b) redeeming rights or taking certain other actions under a stockholders’ rights plan, (c) making payments
under the Guarantee or (d) making purchases of common stock generally or related to the issuance of common stock or rights under
any of Air T’s benefit plans for its directors, officers or employees. Further, during an Extension Period, Air T would have the
ability to continue to make payments on Senior and Subordinated Debt. At June 30, 2024, the aggregate outstanding Senior and Subordinated
Debt of Air T was approximately $116,599,000 (which figure includes approximately $4,570,000 incurred in connection with the redemption
of OCAS, Inc.’s interest in Contrail). Prior to the termination of any Extension Period, Air T may further extend such Extension
Period provided that such extension does not cause such Extension Period to exceed 20 consecutive quarters or to extend beyond the Stated
Maturity. Upon the termination of any Extension Period and the payment of all interest then accrued and unpaid (together with interest
thereon at the annual rate of 8%, compounded quarterly, to the extent permitted by applicable law), Air T may elect to begin a new Extension
Period subject to the above requirements. There is no limitation on the number of times that Air T may elect to begin an Extension Period.
Because Air T believes the
likelihood of it exercising its option to defer payments of interest is remote, the Junior Subordinated Debentures will be treated as
issued without “original issue discount” for United States federal income tax purposes. As a result, holders of Capital Securities
will include interest in taxable income under their own methods of accounting (i.e., cash or accrual). Air T has no current intention
of exercising its right to defer payments of interest by extending the interest payment period on the Junior Subordinated Debentures.
However, should Air T elect to exercise its right to defer payments of interest in the future (which shall be possible at any time
on or after, June 7, 2024), the market price of the Capital Securities is likely to be adversely affected. A holder that disposes
of such holder’s Capital Securities during an Extension Period, therefore, might not receive the same return on such holder’s
investment as a holder that continues to hold the Capital Securities.
Tax event redemption or investment company act redemption.
Upon the occurrence and during
the continuation of a Tax Event or an Investment Company Event, Air T has the right to redeem the Junior Subordinated Debentures in whole
(but not in part) at 100% of the principal amount together with accrued but unpaid interest to the date fixed for redemption within 90
days following the occurrence of such Tax Event or Investment Company Event and therefore cause a mandatory redemption of the Trust Securities.
A “Tax Event”
means the receipt by Air T and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment
to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting
or applying such laws or regulations, which amendment or change is effective or such pronouncement or decision is announced on or after
the original issuance of the Capital Securities, there is more than an insubstantial risk that (i) the Trust is, or will be within
90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Junior
Subordinated Debentures, (ii) interest payable by Air T on the Junior Subordinated Debentures is not, or within 90 days of such opinion,
will not be, deductible by Air T, in whole or in part, for United States federal income tax purposes, or (iii) the Trust is, or will
be within 90 days of the date of the opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges.
An “Investment Company
Event” means the receipt by Air T and the Trust of an opinion of counsel experienced in such matters to the effect that, as a result
of any change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an “investment company” that is required to be registered
under the Investment Company Act, which change becomes effective on or after the original issuance of the Capital Securities.
Air T may cause the Junior Subordinated Debentures
to be distributed to the holders of the Capital Securities.
Air T will have the right
at any time to terminate the Trust and cause the Junior Subordinated Debentures to be distributed to the holders of the Capital Securities
in liquidation of the Trust. Because holders of the Capital Securities may receive Junior Subordinated Debentures in liquidation of the
Trust and because Distributions are otherwise limited to payments on the Junior Subordinated Debentures, prospective purchasers of the
Capital Securities are also making an investment decision with regard to the Junior Subordinated Debentures and should carefully review
all the information regarding the Junior Subordinated Debentures contained herein.
There are limitations on direct actions against Air
T and on rights under the Guarantee.
Under the Guarantee, Air T
guarantees the payment of Distributions by the Trust and payments on liquidation of or redemption of the Capital Securities (subordinate
to the right to payment of Senior and Subordinated Debt of the Company) to the extent of funds held by the Trust. If the Trust has insufficient
funds to pay Distributions on the Capital Securities (i.e., if Air T has failed to make required payments under the Junior Subordinated
Debentures), a holder of the Capital Securities would have the right to institute a legal proceeding directly against Air T for enforcement
of payment to such holder of the principal of or interest on such Junior Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Capital Securities of such holder (a “Direct Action”). Except as described herein, holders
of the Capital Securities will not be able to exercise directly any other remedy available to the holders of the Junior Subordinated Debentures
or assert directly any other rights in respect of the Junior Subordinated Debentures.
Under the Guarantee, Delaware
Trust Company is the indenture trustee (the “Guarantee Trustee”). The holders of not less than a majority in aggregate Liquidation
Amount of the Capital Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust power conferred upon the Guarantee Trustee
under the Guarantee Agreement. Any holder of the Capital Securities may institute a legal proceeding directly against Air T to enforce
its rights under the Guarantee without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other person
or entity. The Trust Agreement provides that each holder of the Capital Securities by acceptance thereof agrees to the provisions of the
Guarantee Agreement and the Indenture.
The covenants in the Indenture are limited.
The covenants in the Indenture
are limited, and there are no covenants relating to Air T in the Trust Agreement. As a result, neither the Indenture nor the Trust Agreement
protects holders of Junior Subordinated Debentures, or Capital Securities, respectively, in the event of a material adverse change in
Air T’s financial condition or results of operations or limits the ability of Air T or any subsidiary to incur additional indebtedness.
Therefore, the provisions of these governing instruments should not be considered a significant factor in evaluating whether Air T
will be able to comply with its obligations under the Junior Subordinated Debentures or the Guarantee.
Holders of the Capital Securities will generally have
limited voting rights.
Holders of the Capital Securities
will generally have limited voting rights relating only to the modification of the Capital Securities and certain other matters. In the
event that (i) there is a Debenture Event of Default (as defined herein) with respect to the Junior Subordinated Debentures, (ii) the
Property Trustee fails to pay any distribution on the Capital Securities for 30 days (subject to deferral of distributions), (iii) the
Property Trustee fails to pay the redemption price on the Capital Securities when due upon redemption, (iv) the Property Trustee
fails to observe a covenant in the Trust Agreement for the Capital Securities for 60 days after receiving a Notice of Default, or (v) the
Property Trustee is declared bankrupt or insolvent and not replaced by the Company within 60 days, the holders of a majority of the outstanding
Capital Securities will be able to remove the Property Trustee and the Indenture Trustee (but not the Administrative Trustees who may
only be removed by Air T as holder of the Common Securities).
The public market for the Capital Securities is limited;
Market prices for the Capital Securities may fluctuate based on numerous factors and there is no assurance of an active and liquid trading
market.
The Capital Securities are
currently listed on the NASDAQ and trade under the symbol “AIRTP.” There can be no assurance that an active and liquid trading
market for the Capital Securities will continue or that a continued listing of the Capital Securities will be available on NASDAQ. Future
trading prices of the Capital Securities will depend on many factors including, among other things, prevailing interest rates, the operating
results and financial condition of Air T, and the market for similar securities. There can be no assurance as to the market prices for
the Capital Securities or the Junior Subordinated Debentures that may be distributed in exchange for the Capital Securities if Air T exercises
its right to terminate the Trust. Accordingly, the Capital Securities that an investor may purchase, or the Junior Subordinated Debentures
that a holder of the Capital Securities may receive in liquidation of the Trust, may trade at a discount from the price that the investor
paid to purchase the Capital Securities offered hereby.
PLAN
OF DISTRIBUTION
We have entered into an at
the market offering agreement with Ascendiant Capital Markets, LLC, the sales agent, under which we may issue and sell over a period of
time, and from time to time, Capital Securities having an aggregate offering price of up to $8,000,000 through the sales agent. This prospectus
supplement relates to our ability to issue and sell over a period of time, and from time to time, up to $8,000,000 of our Capital Securities
through the sales agent. Sales of the Capital Securities to which this prospectus supplement and the accompanying prospectus relate, if
any, will be made by means of ordinary brokers’ transactions on NASDAQ, or otherwise at market prices prevailing at the time of
sale or negotiated transactions, or as otherwise agreed with the sales agent. In the event that any sales are made pursuant to the at
the market offering agreement which are not made directly on NASDAQ or on any other existing trading market for the Capital Securities
at market prices at the time of sale, including, without limitation, any sales to the sales agent acting as principal or sales in negotiated
transactions, we will file a prospectus supplement describing the terms of such transaction, the amount of shares sold, the price thereof,
the applicable compensation, and such other information as may be required pursuant to Rule 424 and Rule 430B under the Securities
Act, as applicable, within the time required by Rule 424 under the Securities Act. To the extent required by Regulation M, as our
sales agent, the sales agent will not engage in any transactions that stabilize our Capital Securities while the offering is ongoing under
this prospectus supplement.
Upon written instructions
from us, the sales agent will offer the shares of Capital Securities, subject to the terms and conditions of the at the market offering
agreement, on a daily basis or as otherwise agreed upon by us and the sales agent. We will designate the maximum amount of shares of Capital
Securities to be sold through the sales agent on a daily basis or otherwise determine such maximum amount together with the sales agent,
subject to certain limitations set forth by the SEC. Subject to the terms and conditions of the at the market offering agreement, the
sales agent will use its commercially reasonable efforts to sell on our behalf all of the shares of Capital Securities so designated or
determined. We may instruct the sales agent not to sell shares of Capital Securities if the sales cannot be effected at or above the price
designated by us in any such instruction. We or the sales agent may suspend the offering of shares of Capital Securities being made through
the sales agent under the at the market offering agreement upon proper notice to the other party.
For its service as sales agent
in connection with the sale of shares of our Capital Securities that may be offered hereby, we will pay the sales agent an aggregate fee
of 3.0% of the gross sales price per share for any shares sold through it acting as our sales agent. The remaining sales proceeds, after
deducting any expenses payable by us and any transaction fees imposed by any governmental, regulatory or self-regulatory organization
in connection with the sales, will equal our net proceeds for the sale of such shares. We have agreed to reimburse the sales agent for
certain of its expenses in an amount not to exceed $30,000 (excluding reimbursement to the sales agent of any periodic due diligence fees),
subject to compliance with FINRA Rule 5110(f)(2)(D)(i).
The sales agent will provide
written confirmation to us following the close of trading on NASDAQ on each day in which shares of Capital Securities are sold by it on
our behalf under the at the market offering agreement. Each confirmation will include the number of shares sold on that day, the gross
sales price per share, the compensation payable by us to the sales agent and the proceeds to us net of such compensation.
Settlement for sales of Capital
Securities will occur, unless the parties agree otherwise, on the third business day following the date on which any sales were made in
return for payment of the proceeds to us net of compensation paid by us to the sales agent. There is no arrangement for funds to be received
in an escrow, trust or similar arrangement.
We will deliver to NASDAQ
copies of this prospectus supplement and the accompanying prospectus pursuant to the rules of NASDAQ. Unless otherwise required,
we will report at least quarterly the number of shares of Capital Securities sold through the sales agent under the at the market offering
agreement, the net proceeds to us and the compensation paid by us to the sales agent in connection with the sales of Capital Securities.
In connection with the sale
of Capital Securities on our behalf, the sales agent may be deemed to be an “underwriter” within the meaning of the Securities
Act, and the compensation paid to the sales agent may be deemed to be underwriting commissions or discounts. We have agreed, under the
at the market offering agreement, to provide indemnification and contribution to the sales agent against certain civil liabilities, including
liabilities under the Securities Act.
In the ordinary course of
their business, the sales agent and/or its affiliates may perform investment banking, broker-dealer, financial advisory or other services
for us for which they may receive separate fees.
We estimate that the total
expenses from this offering payable by us, excluding compensation payable to the sales agent under the at the market offering agreement,
will be approximately $60,000.
The offering of Capital Securities
pursuant to the at the market offering agreement will terminate upon the earlier of (1) the sale of $8,000,000 of shares of our Capital
Securities subject to the at the market offering agreement, (2) March 27, 2027, and (3) the termination of the at the market
offering agreement, pursuant to its terms, by either the sales agent or us.
VALIDITY
OF SECURITIES
Certain legal matters in connection
with the Capital Securities will be passed upon for us by Winthrop & Weinstine, P.A., Minneapolis, Minnesota. Certain legal matters
relating to the securities will be passed upon for the sales agent by Clyde Snow & Sessions, PC, Salt Lake City, Utah.
EXPERTS
The financial statements of
Air T, Inc. incorporated by reference in this Prospectus Supplement have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report. Such financial statements are incorporated by reference in reliance upon
the report of such firm, given their authority as experts in accounting and auditing.
Air T, Inc.
$25,000,000
Common Stock
Preferred Stock
Warrants
Depositary Shares
Units
Debt Securities
Air T Funding
Alpha Income Trust Preferred Securities, par
value $25.00
( the “Capital Securities”)
(fully and unconditionally guaranteed as described herein by Air T, Inc.)
We and/or the Issuer Trust
may offer and sell any combination of the securities listed above, in one or more offerings, up to a total dollar amount of $25,000,000.
We may offer these securities separately or together, in separate series or classes and in amounts, at prices and on terms described in
one or more prospectus supplements. The Debt Securities, Preferred Stock and Warrants may be convertible or exercisable or exchangeable
for debt or equity securities of the Company or of one or more entities.
We encourage you to carefully
read this prospectus and any applicable prospectus supplement before you invest in our securities. We also encourage you to read the documents
we have referred you to in the “Where You Can Find More Information” section of this prospectus for information on us and
for our financial statements. This prospectus may not be used to consummate sales of our securities unless accompanied by a prospectus
supplement.
We are subject to General
Instruction I.B.6 of Form S-3, which limits the amounts that we may sell under the registration statement of which this prospectus
forms a part. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell securities registered on the registration
statement of which this prospectus is a part in a public primary offering with a value exceeding more than one-third of our public float
in any 12-month period if our public float, measured in accordance with such instruction, remains below $75.0 million. As of February 12,
2024, the aggregate market value of our Common Stock held by non-affiliates, or the public float, was approximately $17.7 million, which
was calculated based on 976,468 shares of our outstanding Common Stock held by non-affiliates as of February 12, 2024, at a price
of $18.09 per share, which was the closing price of our Common Stock on the NASDAQ Global Market on February 12, 2024. As of January 19,
2024, the Issuer Trust sold 14,354 shares of Capital Securities for $259,010.68 pursuant to General Instruction I.B.6 of Form S-3
during the 12 calendar months prior to and including the date of this prospectus. These sales were the only sales of securities pursuant
to the registration statement during the prior 12 calendar months.
Our Common Stock is listed
on the NASDAQ Global Market, under the symbol “AIRT.” On March 6, 2024, the last quoted sale price of our Common Stock
was $17.38 per share. The Capital Securities are also listed on the NASDAQ Global Market under the symbols “AIRTP.” On March 6,
2024, the last quoted sale price of the Capital Securities was $17.38. You are urged to obtain current market quotations.
The securities may be offered
and sold on a continuous or delayed basis, through agents, dealers or underwriters, or directly to purchasers. The prospectus supplement
for each offering of securities will describe in detail the plan of distribution for that offering. If agents or any dealers or underwriters
are involved in the sale of the securities, the applicable prospectus supplement will set forth the names of the agents, dealers or underwriters
and any applicable commissions or discounts. Net proceeds from the sale of securities will be set forth in the applicable prospectus supplement.
For general information about the distribution of securities offered, please see “Plan of Distribution” in this prospectus.
Investing in our securities
involves risks. You should carefully consider the Risk Factors beginning on page 6 of this prospectus and set forth in the applicable
prospectus supplement and in the documents incorporated or deemed incorporated by reference herein before making any decision to invest
in the securities.
These securities are not
savings accounts, deposits or other obligations of any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
Neither the Securities
and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities
or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
This prospectus is dated March 27, 2024.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of
a registration statement that we filed with the Securities and Exchange Commission (“SEC”) using a “shelf” registration
process. Under this shelf registration process, we may, from time to time, offer and sell any combination of the securities described
in this prospectus in one or more offerings.
This prospectus provides you
with a general description of the securities we and the Issuer Trust may offer. Each time we sell securities, we will provide a prospectus
supplement that will contain specific information about the terms of that offering. We may also provide a prospectus supplement that will
contain specific information about the terms of any offering by the selling securityholders. That prospectus supplement may include a
discussion of any risk factors or other special considerations that apply to those securities. The prospectus supplement may also add,
update or change the information in this prospectus. If there is any inconsistency between the information in this prospectus or any information
incorporated by reference herein and in a prospectus supplement, you should rely on the information in that prospectus supplement. You
should carefully read both this prospectus, any prospectus supplement, any free writing prospectus that we authorize to be distributed
to you and any information incorporated by reference into the foregoing, together with additional information described under the headings
“Incorporation of Certain Information by Reference” and “Where You Can Find More Information,” before buying any
of the securities offered under this prospectus
As used in this prospectus,
the terms “Company,” “we,” “our,” “ours” “Air T” and “us” refer
Air T, Inc., a Delaware corporation and its subsidiaries (unless the context indicates another meaning). Air T Funding is referred
to as the “Issuer Trust” or “Air T Funding”, and is a Delaware statutory trust which may offer from time to time
Capital Securities representing preferred undivided beneficial interests in the assets of the Issuer Trust (unless the context indicates
another meaning).
You should rely only on the
information contained in this prospectus and in any relevant prospectus supplement or free writing prospectus, including any information
incorporated herein or therein by reference. We have not authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on it. You should not assume that the information in this
prospectus, any accompanying prospectus supplement, any free writing prospectus or any document incorporated by reference is accurate
as of any date other than the date on its front cover. Our business, financial condition, results of operations and prospects may have
changed since the date indicated on the front cover of such documents. Neither this prospectus nor any prospectus supplement or free writing
prospectus constitutes an offer to sell or the solicitation of an offer to buy any securities other than the securities to which they
relate, nor does this prospectus or a prospectus supplement or free writing prospectus constitute an offer to sell or the solicitation
of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.
ABOUT AIR T, INC. AND THE ISSUER TRUST
The items in the following summary are described
in more detail later in this prospectus. This summary does not contain all of the information you should consider. Before investing in
our securities, you should read the entire prospectus carefully, including the “Risk Factors” beginning
on page 6 and the financial statements and notes thereto incorporated by reference.
Air T, Inc.
Air T, Inc. (the “Company,”
“Air T,” “we” or “us” or “our”) is a holding company with a portfolio of operating businesses
and financial assets. Our goal is to prudently and strategically diversify Air T’s earnings power and compound its free cash flow
per share over time.
We currently operate in four
industry segments:
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Overnight air cargo, which operates in the air express delivery services industry; |
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Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment
products to passenger and cargo airlines, airports, the military and industrial customers; |
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Commercial aircraft engines and parts, which manages and leases aviation assets; supplies surplus
and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services, commercial aircraft
parts sales, procurement services and overhaul and repair services to airlines; and |
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Corporate and other, which acts as the capital allocator and resource for other consolidated businesses.
Further, Corporate and other also comprises insignificant businesses and business interests. |
Each business segment has
separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business
segments based on operating income.
Corporate Information
Our principal executive office
is located at 11020 David Taylor Drive, Suite 305, Charlotte, North Carolina 28262, and our telephone number is (980) 595-2840. Our
website address is http://www.airt.net. No information found on our website is part of this prospectus. Also, this prospectus may include
the names of various government agencies or the trade names of other companies. Unless specifically stated otherwise, the use or display
by us of such other parties’ names and trade names in this prospectus is not intended to and does not imply a relationship with,
or endorsement or sponsorship of us by, any of these other parties.
The Issuer Trust
We created Air T Funding by
the execution of a Trust Agreement and a Certificate of Trust for the Issuer Trust that we filed with the Secretary of State of Delaware
on September 28, 2018. The Trust Agreement was most recently amended on March 4, 2021 and January 28, 2022. As of the date
of this prospectus, there are $100,000,000 authorized amount of Alpha Income Trust Preferred Securities, par value $25.00, 1,913,906 Capital
Securities shares outstanding.
The purchasers of the Capital
Securities that the Issuer Trust may issue will collectively own a portion of the Issuer Trust’s Capital Securities, and we will
continue to own all of the Issuer Trust’s common securities (the “Common Securities”). The Common Securities generally
will rank equally, and payments will be made ratably, with the Capital Securities. However, upon the occurrence and during the continuance
of an event of default under the Trust Agreement resulting from an event of default under the Indenture, and any supplemental indenture
which contain the terms of the debt securities held by the Issuer Trust, our rights as the holder of the Common Securities of that Issuer
Trust to distributions, liquidation, redemption and other payments from the Issuer Trust will be subordinated to the rights to those payments
of the holders of the Capital Securities. The Issuer Trust will use the proceeds from the sale of the Capital Securities to invest in
a series of our debt securities (each, a “Junior Subordinated Debenture” and, collectively, the “Junior Subordinated
Debentures”) that we will issue to the Issuer Trust. As of the date hereof, the sole debt securities of the Company purchased by
the Issuer Trust are the Junior Subordinated Debentures.
The debt securities will be
the Issuer Trust’s only assets, and the interest we pay on such debt securities and the Agreement as to Expenses and Liabilities
entered into by the Company under the Trust Agreement (the “Expense Agreement”) will be the only revenue of the Issuer Trust.
Unless stated otherwise in the applicable prospectus supplement, the Trust Agreement does not permit the Issuer Trust to acquire any assets
other than the specified debt securities or to issue any securities other than the trust securities (or warrants to acquire trust securities)
or to incur any other indebtedness. The Issuer Trust will not carry on any active business operations.
The Issuer Trust’s business
and affairs are conducted by the trustees. The Issuer Trust has a Delaware Trustee (the “Delaware Trustee”), two administrative
trustees (each, an “Administrative Trustee” and, collectively, the “Administrative Trustees”) and a Property Trustee
(the “Property Trustee” and together with the Delaware Trustee and the Administrative Trustees, collectively, the “Trustees”).
The Delaware Trustee and the Property Trustee are unaffiliated with us while the Administrative Trustees are employees, officers or affiliates
of ours. The Delaware Trustee has its principal place of business in the State of Delaware. Air T, the holder of the Common Securities
of the Issuer Trust, is entitled generally to appoint, remove or replace any of the trustees and to increase or decrease the number of
trustees; provided that the number of trustees is at least three and that at least one trustee is a Property Trustee, one trustee is a
Delaware Trustee and one trustee is an Administrative Trustee. If a Debenture Event of Default has occurred and is continuing, the Property
Trustee and the Delaware Trustee may be removed at such time by the holders of a majority in Liquidation Amount of the outstanding Capital
Securities. In no event, however, will the holders of the Capital Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the Company as the holder of the Common Securities.
The rights of holders of Capital
Securities, including economic rights, rights to information and voting rights, are set forth in the Trust Agreement, Delaware law and
the Trust Indenture Act. The Trust Agreement also incorporates by reference the Trust Indenture Act. The principal executive office of
the Issuer Trust is located at the Delaware Trust Company, 251 Little Falls Drive, Wilmington, DE 19808, and the telephone number of the
trust is (980) 595-2840.
The Issuer Trust is not subject
to reporting requirements under the Exchange Act.
RISK FACTORS
SUMMARY
General Business Risks
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Market fluctuations may affect the Company’s operations. |
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Rising inflation may result in increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results of operations and the market price of our Securities. |
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We could experience significant increases in operating costs and reduced profitability due to competition for skilled management and staff employees in our operating businesses. |
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Legacy technology systems require a unique technical skillset which is becoming scarcer. |
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Security threats and other sophisticated computer intrusions could harm our information systems, which in turn could harm our business and financial results. |
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We may not be able to insure certain risks adequately or economically. |
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Legal liability may harm our business. |
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Our business might suffer if we were to lose the services of certain key employees. |
Risks Related to Our Segment Operations
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The operating results of our four segments may fluctuate, particularly our commercial jet engine
and parts segment. |
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Our Air Cargo Segment is dependent on a significant customer. |
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Our dry-lease agreements with FedEx subject us to operating risks. |
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Because of our dependence on FedEx, we are subject to the risks that may affect FedEx’s operations. |
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A material reduction in the aircraft we fly for FedEx could materially adversely affect our business
and results of operations. |
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Sales of deicing equipment can be affected by weather conditions. |
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We are affected by the risks faced by commercial aircraft operators and MRO companies because they
are our customers. |
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Our engine values and lease rates, which are dependent on the status of the types of aircraft on
which engines are installed, and other factors, could decline. |
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Upon termination of a lease, we may be unable to enter into new leases or sell the airframe, engine
or its parts on acceptable terms. |
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Failures by lessees to meet their maintenance and recordkeeping obligations under our leases could
adversely affect the value of our leased engines and aircraft which could affect our ability to re-lease the engines and aircraft
in a timely manner following termination of the leases. |
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We may experience losses and delays in connection with repossession of engines or aircraft when a
lessee defaults. |
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Our commercial jet engine and parts segment and its customers operate in a highly regulated industry
and changes in laws or regulations may adversely affect our ability to lease or sell our engines or aircraft. |
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Our aircraft, engines and parts could cause damage resulting in liability claims. |
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We have risks in managing our portfolio of aircraft and engines to meet customer needs. |
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Liens on our engines or aircraft could exceed the value of such assets, which could negatively affect our ability to repossess, lease or sell a particular engine or aircraft. |
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In certain countries, an engine affixed to an aircraft may become an addition to the aircraft and we may not be able to exercise our ownership rights over the engine. |
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Higher or volatile fuel prices could affect the profitability of the aviation industry and our lessees’ ability to meet their lease payment obligations to us. |
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Interruptions in the capital markets could impair our lessees’ ability to finance their operations, which could prevent the lessees from complying with payment obligations to us. |
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Our lessees may fail to adequately insure our aircraft or engines which could subject us to additional costs. |
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If our lessees fail to cooperate in returning our aircraft or engines following lease terminations, we may encounter obstacles and are likely to incur significant costs and expenses conducting repossessions. |
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If our lessees fail to discharge aircraft liens for which they are responsible, we may be obligated to pay to discharge the liens. |
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If our lessees encounter financial difficulties and we restructure or terminate our leases, we are likely to obtain less favorable lease terms. |
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Withdrawal, suspension or revocation of governmental authorizations or approvals could negatively affect our business. |
Risks Related to Our Structure and Financing/Liquidity
Risks
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The Company could experience liquidity issues if the Company’s revolving line of credit with MBT is not extended or replaced. |
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Our holding company structure may increase risks related to our operations. |
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A small number of stockholders has the ability to control the Company. |
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Although we do not expect to rely on the “controlled company” exemption, we may soon become a “controlled company” within the meaning of the Nasdaq listing standards, and we would qualify for exemptions from certain corporate governance requirements. |
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An increase in interest rates or in our borrowing margin would increase the cost of servicing our debt and could reduce our cash flow and negatively affect the results of our business operations. |
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Our inability to maintain sufficient liquidity could limit our operational flexibility and also impact our ability to make payments on our obligations as they come due. |
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Future cash flows from operations or through financings may not be sufficient to enable the Company to meet its obligations. |
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A large proportion of our capital is invested in physical assets and securities that can be hard to sell, especially if market conditions are poor. |
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To service our debt and meet our other cash needs, we will require a significant amount of cash, which may not be available. |
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If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to seek alternatives. |
| |
· |
Despite our substantial indebtedness, we may incur significantly more debt, and cash may not be available to meet our financial obligations when due or enable us to capitalize on investment opportunities when they arise. |
| |
· |
Our current financing arrangements require compliance with financial and other covenants and a failure to comply with such covenants could adversely affect our ability to operate. |
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· |
Future acquisitions and dispositions of businesses and investments are possible, changing the components of our assets and liabilities, and if unsuccessful or unfavorable, could reduce the value of the Company and its securities. |
| |
· |
We face numerous risks and uncertainties as we expand our business. |
| |
· |
Our business strategy includes acquisitions, and acquisitions entail numerous risks, including the risk of management diversion and increased costs and expenses, all of which could negatively affect the Company’s ability to operate profitably. |
| |
· |
Strategic ventures may increase risks applicable to our operations. |
| |
· |
Rapid business expansions or new business initiatives may increase risk. |
| |
· |
Our policies and procedures may not be effective in ensuring compliance with applicable law. |
| |
· |
Compliance with the regulatory requirements imposed on us as a public company results in significant costs that may have an adverse effect on our results. |
| |
· |
Deficiencies in our public company financial reporting and disclosures could adversely impact our reputation. |
Risks Related to Air T Funding
| |
· |
The ranking of the Company’s obligations under the Junior Subordinated Debentures and the Guarantee creates a risk that Air T Funding may not be able to pay amounts due to holders of the Capital Securities. |
| |
· |
The Company has the option to extend the interest payment period; tax consequences of a deferral of interest payments. |
| |
· |
Tax event redemption or investment company act redemption |
| |
· |
The Company may cause the Junior Subordinated Debentures to be distributed to the holders of the Capital Securities. |
| |
· |
There are limitations on direct actions against the Company and on rights under the guarantee. |
| |
· |
The covenants in the Indenture are limited. |
| |
· |
Holders of the Capital Securities have limited voting rights. |
An investment in our securities
involves significant risks. Before making an investment decision, you should carefully read and consider the risk factors incorporated
by reference in this prospectus, as well as those contained in any applicable prospectus supplement, as the same may be updated from time
to time by our future filings with the SEC under the Exchange Act. You should also refer to other information contained in or incorporated
by reference in this prospectus and any applicable prospectus supplement, including our financial statements and the related notes incorporated
by reference herein or therein. Additional risks and uncertainties not presently known to us at this time or that we currently deem immaterial
may also materially and adversely affect our business and operations.
RISKS RELATED TO THE COMPANY
General Business Risks
Market fluctuations may affect our operations.
Market fluctuations may affect
our ability to obtain funds necessary for the operation of our businesses from current lenders or new borrowings. In addition, we may
be unable to obtain financing on satisfactory terms, or at all. Third-party reports relating to market studies or demographics we obtained
previously also may no longer be accurate or complete. The occurrence of any of the foregoing events or any other related matters could
materially and adversely affect our business, financial condition, results of operation and the overall value of our assets.
Rising inflation may result in increased costs
of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results
of operations and the market price of our Common Stock.
Inflation has accelerated
in the U.S. and globally due in part to global supply chain issues, the increase in interest rates by the Federal Reserve, the Ukraine-Russia
war, a rise in energy prices, and strong consumer demand. An inflationary environment can increase our cost of labor, as well as our other
operating costs, which may have a material adverse impact on our financial results. In addition, economic conditions could impact and
reduce the number of customers who purchase our products or services as credit becomes more expensive or unavailable. Although interest
rates have increased and may increase further, inflation may continue. Further, increased interest rates could have a negative effect
on the securities markets generally which may, in turn, have a material adverse effect on the market price of our Common Stock and our
ability to sell additional trust preferred securities.
We could experience significant increases in
operating costs and reduced profitability due to competition for skilled management and staff employees in our operating businesses.
We compete with many other
organizations for skilled management and staff employees, including organizations that operate in different market sectors than us. Costs
to recruit and retain adequate personnel could adversely affect results of operations.
Legacy technology systems require a unique
technical skillset which is becoming scarcer.
The Company deploys legacy
technology systems in several significant business units. As technology continues to rapidly change, the available pool of individuals
technically trained in and able to repair or perform maintenance on these legacy systems shrinks. As this scarcity increases, the Company’s
ability to efficiently and quickly repair its legacy systems becomes increasingly difficult, which could have a significant impact on
the Company’s day-to-day operations.
Security threats and other sophisticated computer
intrusions could harm our information systems, which in turn could harm our business and financial results.
We utilize information systems
and computer technology throughout our business. We store sensitive data and proprietary information on these systems. Threats to these
systems, and the laws and regulations governing security of data, including personal data, on information systems and otherwise held by
companies is evolving and adding layers of complexity in the form of new requirements and increasing costs of attempting to protect information
systems and data and complying with new cybersecurity regulations. Information systems are subject to numerous and evolving cybersecurity
threats and sophisticated computer crimes, which pose a risk to the stability and security of our information systems, computer technology,
and business.
Global cybersecurity threats
can range from uncoordinated individual attempts to gain unauthorized access to our information systems and computer technology to sophisticated
and targeted measures known as advanced persistent threats and ransomware. The techniques used in these attacks change frequently and
may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures.
A failure or breach in security could expose our company as well as our customers and suppliers to risks of misuse of information, compromising
confidential information and technology, destruction of data, production disruptions, ransom payments, and other business risks which
could damage our reputation, competitive position and financial results of our operations. Further, our technology resources may be strained
due to an increase in the number of remote users. In addition, defending ourselves against these threats may increase costs or slow operational
efficiencies of our business. If any of the foregoing were to occur, it could have a material adverse effect on our business and results
of operations.
We sustained a cybersecurity
attack in May 2022 involving ransomware that caused a network disruption and impacted certain of our systems. Upon detection, we
undertook steps to address the incident, including engaging a team of third-party forensic experts and notifying law enforcement. We restored
network systems and resumed normal operations. We have taken actions to improve our existing systems such as adding multi-factor authentication
and to improve employee training and security competency. While we do not believe this event or resultant actions will have a material
adverse effect on our business, this or similar incidents, or any other such breach of our data security infrastructure could have a material
adverse effect on our business, results of operations and financial condition.
Although we maintain cybersecurity
liability insurance, our insurance may not cover potential claims of these types or may not be adequate to indemnify us for any liability
that may be imposed. Any imposition of liability or litigation costs that are not covered by insurance could harm our business.
We may not be able to insure certain risks
adequately or economically.
We cannot be certain that
we will be able to insure all risks that we desire to insure economically or that all of our insurers or reinsurers will be financially
viable if we make a claim. If an uninsured loss or a loss in excess of insured limits should occur, or if we are required to pay a deductible
for an insured loss, results of operations could be adversely affected.
Legal liability may harm our business.
Many aspects of our businesses
involve substantial risks of liability, and, in the normal course of business, we have been named as a defendant or co-defendant in lawsuits
involving primarily claims for damages. The risks associated with potential legal liabilities often may be difficult to assess or quantify
and their existence and magnitude often remain unknown for substantial periods of time. The expansion of our businesses, including expansions
into new products or markets, impose greater risks of liability. In addition, unauthorized or illegal acts of our employees could result
in substantial liability. Substantial legal liability could have a material adverse financial effect or cause us significant reputational
harm, which in turn could seriously harm our businesses and our prospects. Although our current assessment is that there is no pending
litigation that could have a significant adverse impact, if our assessment proves to be in error, then the outcome of such litigation
could have a significant impact on our consolidated financial statements.
Our business might suffer if we were to lose
the services of certain key employees.
Our business operations depend
upon our key employees, including our executive officers. Loss of any of these employees, particularly our Chief Executive Officer, could
have a material adverse effect on our businesses as our key employees have knowledge of our businesses, the industries they operate in
and customers that would be difficult to replace.
Our business, financial condition and results
of operations could be adversely affected by global public health issues or similar events.
During the fiscal years ended
March 31, 2021 and 2022, and to a lesser extent during the fiscal year ended March 31, 2023, the Company’s operations
were impacted by the spread of the COVID-19 pandemic. Additionally, the Company has had to navigate the impact it had on employees, supply
chains and the economy in general and the aviation industry in particular. The Company is unable at this time to predict the impact that
a global health crisis or similar event would have on its businesses, financial position and operating results in future periods due to
numerous uncertainties.
A pandemic, epidemic or outbreak of a contagious
disease in the markets in which we operate or that otherwise impacts our centers could adversely impact our business.
If a pandemic, epidemic or
outbreak of an infectious disease, including new COVID-19 variants, or other public health crisis were to affect the areas in which we
operate, our business, including our revenue, profitability and cash flows, could be
adversely affected. Further,
a pandemic, epidemic or outbreak of an infectious disease might adversely impact our business by causing temporary shutdowns of our businesses
or by causing staffing shortages. We may be unable to locate replacement supplies, and ongoing delays could require us to reduce business
operations. Although we have disaster plans in place, the extent to which new COVID-19 variants or other public health crisis will impact
our business is difficult to predict and will depend on many factors beyond our control, including the speed of contagion, the development
and implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel
and other activity, and public reactions to these factors.
Risks Related to Our Segment Operations
The operating results of our four segments
may fluctuate, particularly our commercial jet engine and parts segment.
The operating results of our
four segments have varied from period to period and comparisons to results for preceding periods may not be meaningful. Due to a number
of factors, including the risks described in this section, our operating results may fluctuate. These fluctuations may also be caused
by, among other things:
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1. |
the economic health of the economy and the aviation industry in general; |
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2. |
FedEx’s demand for the use of the services of our Air Cargo segment; |
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3. |
the timing and number of purchases and sales of engines or aircraft; |
| |
4. |
the timing and amount of maintenance reserve revenues recorded resulting from the termination of long term leases, for which significant amounts of maintenance reserves may have accumulated; |
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5. |
the termination or announced termination of production of particular aircraft and engine types; |
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6. |
the retirement or announced retirement of particular aircraft models by aircraft operators; |
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7. |
the operating history of any particular engine, aircraft or engine or aircraft model; |
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8. |
the length of our operating leases; and |
| |
9. |
the timing of necessary overhauls of engines and aircraft. |
These risks may reduce our
operating segment’s results including particularly our commercial jet engines and parts segment. These risks may reduce the commercial
jet engines and parts segment’s engine utilization rates, lease margins, maintenance reserve revenues and proceeds from engine sales,
and result in higher legal, technical, maintenance, storage and insurance costs related to repossession and the cost of engines being
off-lease. As a result of the foregoing and other factors, the availability of engines for lease or sale periodically experiences cycles
of oversupply and undersupply of given engine models and generally. The incidence of an oversupply of engines may produce substantial
decreases in engine lease rates and the appraised and resale value of engines and may increase the time and costs incurred to lease or
sell engines. We anticipate that supply fluctuations from period to period will continue in the future. As a result, comparisons to results
from preceding periods may not be meaningful and results of prior periods should not be relied upon as an indication of our future performance.
Our Air Cargo Segment is dependent on a significant
customer.
Our Air Cargo business is
significantly dependent on a contractual relationship with FedEx Corporation (“FedEx”), the loss of which would have a material
adverse effect on our business, results of operations and financial position. In the fiscal year ended March 31, 2023, 36% of our
consolidated operating revenues, and 98% of the operating revenues for our overnight air cargo segment, arose from services we provided
to FedEx. While FedEx has been our customer since 1980 under similar terms, our current agreements may be terminated by FedEx upon 90
days’ written notice and FedEx may at any time terminate the lease of any particular aircraft thereunder upon 10 days’ written
notice. In addition, FedEx may terminate the dry-lease agreement with MAC or CSA upon written notice if 60% or more of MAC or CSA’s
revenue (excluding revenues arising from reimbursement payments under the dry-lease agreement) is derived from the services performed
by it pursuant to the respective dry-lease agreement, FedEx becomes its only customer, or either MAC or CSA employs less than six employees.
As of the date of issuance of this report, FedEx would be permitted to terminate each of the dry-lease agreements under this provision.
The loss of these contracts with FedEx would have a material adverse effect on our business, results of operations and financial position.
Our dry-lease agreements with FedEx subject
us to operating risks.
Our dry-lease agreements with
FedEx provide for the lease of specified aircraft by us in return for the payment of monthly rent with respect to each aircraft leased.
The dry-lease agreements provide for the reimbursement by FedEx of our costs, without mark up, incurred in connection with the operation
of the leased aircraft for the following: fuel, landing fees, third-party maintenance, parts and certain other direct operating costs.
Under the dry-lease agreements, certain operational costs incurred by us in operating the aircraft are not reimbursed by FedEx at cost,
and such operational costs are borne solely by us. An increase in unreimbursed operational costs would negatively affect our results of
operations.
Because of our dependence on FedEx, we are
subject to the risks that may affect FedEx’s operations.
Because of our dependence
on FedEx, we are subject to the risks that may affect FedEx’s operations. These risks are discussed in FedEx’s periodic reports
filed with the SEC including its Annual Report on Form 10-K for the fiscal year ended May 31, 2023. These risks include but
are not limited to the following:
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· |
Economic conditions in the global markets in which it operates; |
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· |
Its ability to successfully implement its business strategy and global transformation program and consolidate its operating companies into one organization; |
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· |
Effectively respond to change in market dynamics and achieve the anticipated benefits of such strategies and actions while managing risks; |
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· |
Its ability to achieve its cost reduction initiatives and financial performance goals; |
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· |
The timing and amount of costs related to its global transformation program and other ongoing initiatives; |
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· |
Damage to its reputation or loss of brand equity; |
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· |
Changes in the business or financial soundness of the U.S. Postal Service or its relationship with FedEx, including strategic changes to its operations or reduce its reliance on the air network of FedEx Express; |
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· |
Its ability to meet its labor and purchased transportation needs while controlling related costs; |
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· |
A significant data breach or other disruption to its technology infrastructure; |
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· |
The impact of a widespread outbreak of an illness or any other communicable disease or public health crises; |
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· |
Anti-trade measures and additional changes in international trade policies and relations; |
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· |
The effects of any international conflicts or terrorist activities, including as a result of the current conflict between Russia and Ukraine and Israel and Hamas; |
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· |
Changes in fuel prices or currency exchange rates; |
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· |
Its ability to match capacity to shifting volume levels; |
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· |
The effect of intense competition; |
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· |
An increase in self-insurance accruals and expenses; |
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· |
Failure to receive or collect expected insurance coverage; |
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· |
Its ability to effectively operate, integrate, and grow acquired businesses and realize the anticipated benefits of acquisitions or other strategic transactions; |
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· |
Noncash impairment charges related to its goodwill and certain deferred tax assets; |
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· |
The future rate of e-commerce growth and levels of inventory restocking; |
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· |
Evolving or new U.S. domestic or international laws and government regulations, policies, and actions; |
| |
· |
Future guidance, regulations, interpretations, challenges, or judicial decisions related to our tax positions; |
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· |
Any inability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography; |
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· |
Legal challenges or changes related to service providers engaged by FedEx Ground and the drivers providing services on their behalf and the coverage of U.S. employees at FedEx Express under the Railway Labor Act of 1926, as amended; |
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· |
Any liability resulting from and the costs of defending against litigation; |
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· |
Its ability to achieve or demonstrate progress on its goal of carbon-neutral operations by 2040; |
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· |
The regulatory environment for global aviation or other transportation rights; |
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· |
Other risks and uncertainties, including: |
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· |
the increasing costs of compliance with federal, state and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies; |
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· |
changes in foreign currency exchange rates, especially in the euro, Chinese yuan, British pound, Canadian dollar, Australian dollar, Hong Kong dollar, Mexican peso, Japanese yen and Brazilian real, which can affect our sales levels and foreign currency sales prices; |
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· |
any liability resulting from and the costs of defending against class-action, derivative and other litigation, such as wage-and-hour, joint employment, securities and discrimination and retaliation claims, and any other legal or governmental proceedings; |
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· |
the impact of technology developments on its operations and on demand for its services, and its ability to continue to identify and eliminate unnecessary information-technology redundancy and complexity throughout the organization; |
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· |
governmental underinvestment in transportation infrastructure, which could increase its costs and adversely impact its service levels due to traffic congestion, prolonged closure of key thoroughfares or sub-optimal routing of its vehicles and aircraft; |
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· |
disruptions in global supply chains, which can limit the access of FedEx and its service providers to vehicles and other key capital resources and increase its costs; |
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· |
stockholder activism, which could divert the attention of management and its board of directors from its business, hinder execution of its business strategy, give rise to perceived uncertainties as to our future and cause the price of its Common Stock to fluctuate significantly; and, |
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· |
constraints, volatility or disruption in the capital markets, its ability to maintain its current credit ratings, commercial paper ratings, and senior unsecured debt and pass-through certificate credit ratings, and its ability to meet credit agreement financial covenants. |
A material reduction in the aircraft we fly
for FedEx could materially adversely affect our business and results of operations.
Under our agreements with
FedEx, we are not guaranteed a number of aircraft or routes we are to fly and FedEx may reduce the number of aircraft we lease and operate
upon 10 days’ written notice. Our compensation under these agreements, including our administrative fees, depends on the number
of aircraft leased to us by FedEx. Any material permanent reduction in the aircraft we operate could materially adversely affect our business
and results of operations. A temporary reduction in any period could materially adversely affect our results of operations for that period.
Sales of deicing equipment can be affected
by weather conditions.
Our ground equipment sales
segment’s deicing equipment is used to deice commercial and military aircraft. The extent of deicing activity depends on the severity
of winter weather. Mild winter weather conditions permit airports to use fewer deicing units, since less time is required to deice aircraft
in mild weather conditions. As a result, airports may be able to extend the useful lives of their existing units, reducing the demand
for new units.
We are affected by the risks faced by commercial
aircraft operators and MRO companies because they are our customers.
Commercial aircraft operators
are engaged in economically sensitive, highly cyclical and competitive businesses. We are a supplier to commercial aircraft operators
and MROs. As a result, we are indirectly affected by all of the risks facing commercial aircraft operators and MROs, with such risks being
largely beyond our control. Our results of operations depend, in part, on the financial strength of our customers and our customers’
ability to compete effectively in the marketplace and manage their risks.
Our engine values and lease rates, which are
dependent on the status of the types of aircraft on which engines are installed, and other factors, could decline.
The value of a particular
model of engine depends heavily on the types of aircraft on which it may be installed and the available supply of such engines. Values
of engines generally tend to be relatively stable so long as there is sufficient demand for the host aircraft. However, the value of an
engine may begin to decline rapidly once the host aircraft begins to be retired from service and/or used for spare parts in significant
numbers. Certain types of engines may be used in significant numbers by commercial aircraft operators that are currently experiencing
financial difficulties. If such operators were to go into liquidation or similar proceedings, the resulting over-supply of engines from
these operators could have an adverse effect on the demand for the affected engine types and the values of such engines.
Upon termination of a lease, we may be unable
to enter into new leases or sell the airframe, engine or its parts on acceptable terms.
We directly or indirectly
own the engines or aircraft that we lease to customers and bear the risk of not recovering our entire investment through leasing and selling
the engines or aircraft. Upon termination of a lease, we seek to enter a new lease or to sell or part-out the engine or aircraft. We also
selectively sell engines on an opportunistic basis. We cannot give assurance that we will be able to find, in a timely manner, a lessee
or a buyer for our engines or aircraft coming off-lease or for their associated parts. If we do find a lessee, we may not be able to obtain
satisfactory lease rates and terms (including maintenance and redelivery conditions), and we cannot guarantee that the creditworthiness
of any future lessee will be equal to or better than that of the existing lessees of our engines. Because the terms of engine leases may
be less than 12 months, we may frequently need to remarket engines. We face the risk that we may not be able to keep our engines on lease
consistently.
Failures by lessees to meet their maintenance
and recordkeeping obligations under our leases could adversely affect the value of our leased engines and aircraft which could affect
our ability to re-lease the engines and aircraft in a timely manner following termination of the leases.
The value and income producing
potential of an engine or aircraft depends heavily on it being maintained in accordance with an approved maintenance system and complying
with all applicable governmental directives and manufacturer requirements. In addition, for an engine or aircraft to be available for
service, all records, logs, licenses and documentation relating to maintenance and operations of the engine or aircraft must be maintained
in accordance with governmental and manufacturer specifications. Under our leases, our lessees are primarily responsible for maintaining
our aircraft and engines and complying with all governmental requirements applicable to the lessee and the aircraft and engines, including
operational, maintenance, government agency oversight, registration requirements and airworthiness directives. However, over time, certain
lessees have experienced, and may experience in the future, difficulties in meeting their maintenance and recordkeeping obligations as
specified by the terms of our leases. Failure by our lessees to maintain our assets in accordance with requirements could negatively affect
the value and desirability of our assets and expose us to increased maintenance costs that may not be sufficiently covered by supplemental
maintenance rents paid by such lessees.
Our ability to determine the
condition of the engines or aircraft and whether the lessees are properly maintaining our assets is generally limited to the lessees’
reporting of monthly usage and any maintenance performed, confirmed by periodic inspections performed by us and third-parties. A lessee’s
failure to meet its maintenance or recordkeeping obligations under a lease could result in:
| |
1. |
a grounding of the related engine or aircraft; |
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2. |
a repossession that would likely cause us to incur additional and potentially substantial expenditures in restoring the engine or aircraft to an acceptable maintenance condition; |
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3. |
a need to incur additional costs and devote resources to recreate the records prior to the sale or lease of the engine or aircraft; |
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4. |
a decline in the market value of the aircraft or engine resulting in lower revenues upon a subsequent lease or sale; |
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5. |
loss of lease revenue while we perform refurbishments or repairs and recreate records; and |
| |
6. |
a lower lease rate and/or shorter lease term under a new lease entered into by us following repossession of the engine or aircraft. |
Any of these events may adversely
affect the value of the engine, unless and until remedied, and reduce our revenues and increase our expenses. If an engine is damaged
during a lease and we are unable to recover from the lessee or though insurance, we may incur a loss.
We may experience losses and delays in connection
with repossession of engines or aircraft when a lessee defaults.
We may not be able to repossess
an engine or aircraft when the lessee defaults, and even if we are able to repossess the engine or aircraft, we may have to expend significant
funds in the repossession, remarketing and leasing of the asset. When a lessee defaults and such default is not cured in a timely manner,
we typically seek to terminate the lease and repossess the engine or aircraft. If a defaulting lessee contests the termination and repossession
or is under court protection, enforcement of our rights under the lease may be difficult, expensive and time-consuming. We may not realize
any practical benefits from our legal rights and we may need to obtain consents to export the engine or aircraft. As a result, the relevant
asset may be off-lease or not producing revenue for a prolonged period of time. In addition, we will incur direct costs associated with
repossessing our engine or aircraft, including, but not limited to, legal and similar costs, the direct costs of transporting, storing
and insuring the engine or aircraft, and costs associated with necessary maintenance and recordkeeping to make the asset available for
lease or sale. During this time, we will realize no revenue from the leased engine or aircraft, and we will continue to be obligated to
pay any debt financing associated with the asset. If an engine is installed on an airframe, the airframe may be owned by an aircraft lessor
or other third party. Our ability to recover engines installed on airframes may depend on the cooperation of the airframe owner.
Our commercial jet engine and parts segment
and its customers operate in a highly regulated industry and changes in laws or regulations may adversely affect our ability to lease
or sell our engines or aircraft.
Certain of the laws and regulations
applicable to our business, include:
Licenses and consents.
A number of our leases require specific governmental or regulatory licenses, consents or approvals. These include consents for certain
payments under the leases and for the export, import or re-export of our engines or aircraft. Consents needed in connection with future
leasing or sale of our engines or aircraft may not be received timely or have economically feasible terms. Any of these events could adversely
affect our ability to lease or sell engines or aircraft.
Export/import regulations.
The U.S. Department of Commerce (the “Commerce Department”) regulates exports. We are subject to the Commerce Department’s
and the U.S. Department of State’s regulations with respect to the lease and sale of engines and aircraft to foreign entities and
the export of related parts. These Departments may, in some cases, require us to obtain export licenses for engines exported to foreign
countries. The U.S. Department of Homeland Security, through the U.S. Customs and Border Protection, enforces regulations related to the
import of engines and aircraft into the United States for maintenance or lease and imports of parts for installation on our engines and
aircraft.
Restriction Lists.
We are prohibited from doing business with persons designated by the U.S. Department of the Treasury’s Office of Foreign Assets
Control (“OFAC”) on its “Specially Designated Nationals List,” and must monitor our operations and existing and
potential lessees and other counterparties for compliance with OFAC’s rules. Similarly, sanctions issued by the United Nations,
the U.S. government, the European Union or other foreign governments could prohibit or restrict us from doing business in certain countries
or with certain persons. As a result, we must monitor our operations and existing and potential lessees and other counterparties for compliance
with such sanctions.
Anti-corruption Laws.
As a U.S. corporation with international operations, we are required to comply with a number of U.S. and international laws and regulations
which combat corruption. For example, the U.S. Foreign Corrupt Practices Act (the “FCPA”) and similar world-wide anti-bribery
laws generally prohibit improper payments to foreign officials for the purpose of influencing any official act or decision or securing
any improper advantage. The scope and enforcement of such anti-corruption laws and regulations may vary. Although our policies expressly
mandate compliance with the FCPA and similarly applicable laws, there can be no assurance that none of our employees or agents will take
any action in violation of our policies. Violations of such laws or regulations could result in substantial civil or criminal fines or
penalties. Actual or alleged violations could also damage our reputation, be expensive to defend, and impair our ability to do business.
Civil aviation regulation.
Users of engines and aircraft are subject to general civil aviation authorities, including the FAA and the EASA, who regulate the maintenance
of engines and issue airworthiness directives. Airworthiness directives typically set forth special maintenance actions or modifications
to certain engine and aircraft types or a series of specific engines that must be implemented for the engine or aircraft to remain in
service. Also, airworthiness directives may require the lessee to make more frequent inspections of an engine, aircraft or particular
engine parts. Each lessee of an engine or aircraft generally is responsible for complying with all airworthiness directives. However,
if the engine or aircraft is off lease, we may be forced to bear the cost of compliance with such airworthiness directives. Additionally,
even if the engine or aircraft is leased, subject to the terms of the lease, if any, we may still be forced to share the cost of compliance.
Our aircraft, engines and parts could cause
damage resulting in liability claims.
Our aircraft, engines or parts
could cause bodily injury or property damage, exposing us to liability claims. Our leases require our lessees to indemnify us against
these claims and to carry insurance customary in the air transportation industry, including general liability and property insurance at
agreed upon levels. However, we cannot guarantee that one or more catastrophic events will not exceed insurance coverage limits or that
lessees’ insurance will cover all claims that may be asserted against us. Any insurance coverage deficiency or default by lessees
under their indemnification or insurance obligations may reduce our recovery of losses upon an event of loss.
We have risks in managing our portfolio of
aircraft and engines to meet customer needs.
The relatively long life cycles
of aircraft and jet engines can be shortened by world events, government regulation or customer preferences. We seek to manage these risks
by trying to anticipate demand for particular engine and aircraft types, maintaining a portfolio mix of engines that we believe is diversified,
has long-term value and will be sought by lessees in the global market for jet engines, and by selling engines and aircraft that we expect
will not experience obsolescence or declining usefulness in the foreseeable future. There is no assurance that the engine and aircraft
types owned or acquired by us will meet customer demand.
Liens on our engines or aircraft could exceed
the value of such assets, which could negatively affect our ability to repossess, lease or sell a particular engine or aircraft.
Liens that secure the payment
of repairers’ charges or other liens may, depending on the jurisdiction, attach to engines and aircraft. Engines also may be installed
on airframes to which liens unrelated to the engines have attached. These liens may secure substantial sums that may, in certain jurisdictions
or for certain types of liens, exceed the value of the particular engine or aircraft to which the liens have attached. In some jurisdictions,
a lien may give the holder the right to detain or, in limited cases, sell or cause the forfeiture of the engine or aircraft. Such liens
may have priority over our interest as well as our creditors’ interest in the engines or aircraft. These liens and lien holders
could impair our ability to repossess and lease or sell the engines or aircraft. We cannot give assurance that our lessees will comply
with their obligations to discharge third-party liens on our assets. If they do not, we may, in the future, find it necessary to pay the
claims secured by such liens to repossess such assets.
In certain countries, an engine affixed to
an aircraft may become an addition to the aircraft and we may not be able to exercise our ownership rights over the engine.
In certain jurisdictions,
an engine affixed to an aircraft may become an addition to the aircraft such that the ownership rights of the owner of the aircraft supersede
the ownership rights of the owner of the engine. If an aircraft is security for the owner’s obligations to a third-party, the security
interest in the aircraft may supersede our rights as owner of the engine. Such a security interest could limit our ability to repossess
an engine located in such a jurisdiction in the event of a lessee bankruptcy or lease default. We may suffer a loss if we are not able
to repossess engines leased to lessees in these jurisdictions.
Higher or volatile fuel prices could affect
the profitability of the aviation industry and our lessees’ ability to meet their lease payment obligations to us.
Historically, fuel prices
have fluctuated widely depending primarily on international market conditions, geopolitical and environmental factors and events and currency
exchange rates. Natural and other disasters can also significantly affect fuel availability and prices. The cost of fuel represents a
major expense to airlines that is not within their control, and significant increases in fuel costs or hedges that inaccurately assess
the direction of fuel costs can materially and adversely affect their operating results. Due to the competitive nature of the aviation
industry, operators may be unable to pass on increases in fuel prices to their customers by increasing fares in a manner that fully offsets
the increased fuel costs they may incur. In addition, they may not be able to manage this risk by appropriately hedging their exposure
to fuel price fluctuations. The profitability and liquidity of those airlines that do hedge their fuel costs can also be adversely affected
by swift movements in fuel prices if such airlines are required to post cash collateral under hedge agreements. Therefore, if for any
reason fuel prices return to historically high levels or show significant volatility, our lessees are likely to incur higher costs or
generate lower revenues, which may affect their ability to meet their obligations to us.
Interruptions in the capital markets could
impair our lessees’ ability to finance their operations, which could prevent the lessees from complying with payment
obligations to us.
The global financial markets
can be highly volatile and the availability of credit from financial markets and financial institutions can vary substantially depending
on developments in the global financial markets. Our lessees depend on banks and the capital markets to provide working capital and to
refinance existing indebtedness. To the extent such funding is unavailable, or available only on unfavorable terms, and to the extent
financial markets do not provide equity financing as an alternative, our lessees’ operations and operating results may be materially
and adversely affected and they may not comply with their respective payment obligations to us.
Our lessees may fail to adequately insure our
aircraft or engines which could subject us to additional costs.
While an aircraft or engine
is on lease, we do not directly control its operation. Nevertheless, because we hold title to the aircraft or engine, we could, in certain
jurisdictions, be held liable for losses resulting from its operation. At a minimum, we may be required to expend resources in our defense.
We require our lessees to obtain specified levels of insurance and indemnify us for, and insure against, such operational liabilities.
However, some lessees may fail to maintain adequate insurance coverage during a lease term, which, although constituting a breach of the
lease, would require us to take some corrective action, such as terminating the lease or securing insurance for the aircraft or engines.
Therefore, our lessees’ insurance coverage may not be sufficient to cover all claims that could be asserted against us arising from
the operation of our aircraft or engines. Inadequate insurance coverage or default by lessees in fulfilling their indemnification or insurance
obligations to us will reduce the insurance proceeds that we would otherwise be entitled to receive in the event we are sued and are required
to make payments to claimants. Moreover, our lessees’ insurance coverage is dependent on the financial condition of insurance companies
and their ability to pay claims. A reduction in insurance proceeds otherwise payable to us as a result of any of these factors could materially
and adversely affect our financial results.
If our lessees fail to cooperate in returning
our aircraft or engines following lease terminations, we may encounter obstacles and are likely to incur significant costs and expenses
conducting repossessions.
Our legal rights and the relative
difficulty of repossession vary significantly depending on the jurisdiction in which an aircraft or engines are located. We may need to
obtain a court order or consents for de-registration or re-export, a process that can differ substantially from county to country. When
a defaulting lessee is in bankruptcy, protective administration, insolvency or similar proceedings, additional limitations may also apply.
For example, certain jurisdictions give rights to the trustee in bankruptcy or a similar officer to assume or reject the lease, to assign
it to a third party, or to entitle the lessee or another third party to retain possession of the aircraft or engines without paying lease
rentals or performing all or some of the obligations under the relevant lease. Certain of our lessees are partially or wholly owned by
government-related entities, which can further complicate our efforts to repossess our aircraft or engines in that government’s
jurisdiction. If we encounter any of these difficulties, we may be delayed in, or prevented from, enforcing certain of our rights under
a lease and in re-leasing the affected aircraft or engines.
When conducting a repossession,
we are likely to incur significant costs and expenses that are unlikely to be recouped. These include legal and other expenses related
to legal proceedings, including the cost of posting security bonds or letters of credit necessary to effect repossession of the aircraft
or engines, particularly if the lessee is contesting the proceedings or is in bankruptcy. We must absorb the cost of lost revenue for
the time the aircraft or engines are off-lease. We may incur substantial maintenance, refurbishment or repair costs that a defaulting
lessee has failed to pay and are necessary to put the aircraft or engines in suitable condition for re-lease or sale. We may also incur
significant costs in retrieving or recreating aircraft records required for registration of the aircraft and in obtaining the certificate
of airworthiness for an aircraft. It may be necessary to pay to discharge liens or pay taxes and other governmental charges on the aircraft
to obtain clear possession and to remarket the aircraft effectively, including, in some cases, liens that the lessee may have incurred
in connection with the operation of its other aircraft. We may also incur other costs in connection with the physical possession of the
aircraft or engines.
If our lessees fail to discharge aircraft liens
for which they are responsible, we may be obligated to pay to discharge the liens.
In the normal course of their
businesses, our lessees are likely to incur aircraft and engine liens that secure the payment of airport fees and taxes, custom duties,
Eurocontrol and other air navigation charges, landing charges, crew wages, and other liens that may attach to our aircraft. Aircraft may
also be subject to mechanic’s liens as a result of routine maintenance performed by third parties on behalf of our customers. Some
of these liens can secure substantial sums, and if they attach to entire fleets of aircraft, as permitted for certain kinds of liens,
they may exceed the value of the aircraft itself. Although the financial obligations relating to these liens are the contractual responsibility
of our lessees, if they fail to fulfill their obligations, the liens may ultimately become our financial responsibility. Until they are
discharged, these liens could impair our ability to repossess, re-lease or sell our aircraft or engines. In some jurisdictions, aircraft
and engine liens may give the holder thereof the right to detain or, in limited cases, sell or cause the forfeiture of the aircraft. If
we are obliged to pay a large amount to discharge a lien, or if we are unable take possession of our aircraft subject to a lien in a timely
and cost-effective manner, it could materially and adversely affect our financial results.
If our lessees encounter financial difficulties
and we restructure or terminate our leases, we are likely to obtain less favorable lease terms.
If a lessee delays, reduces,
or fails to make rental payments when due, or has advised us that it will do so in the future, we may elect or be required to restructure
or terminate the lease. A restructured lease will likely contain terms that are less favorable to us. If we are unable to agree on a restructuring
and we terminate the lease, we may not receive all or any payments still outstanding, and we may be unable to re-lease the aircraft or
engines promptly and at favorable rates, if at all.
Withdrawal, suspension or revocation of governmental
authorizations or approvals could negatively affect our business.
We are subject to
governmental regulation and our failure to comply with these regulations could cause the government to withdraw or revoke our
authorizations and approvals to do business and could subject us to penalties and sanctions that could harm our business.
Governmental agencies throughout the world, including the FAA, highly regulate the manufacture, repair and operation of aircraft
operated in the United States and equivalent regulatory agencies in other countries, such as the EASA in Europe, regulate aircraft
operated in those countries. With the aircraft, engines and related parts that we purchase, lease and sell to our customers, we
include documentation certifying that each part complies with applicable regulatory requirements and meets applicable standards of
airworthiness established by the FAA or the equivalent regulatory agencies in other countries. Specific regulations vary from
country to country, although regulatory requirements in other countries are generally satisfied by compliance with FAA requirements.
With respect to a particular engine or engine component, we utilize FAA and/or EASA certified repair stations to repair and certify
engines and components to ensure marketability. The revocation or suspension of any of our material authorizations or approvals
would have an adverse effect on our business, financial condition and results of operations. New and more stringent government
regulations, if enacted, could have an adverse effect on our business, financial condition and results of operations. In addition,
certain product sales to foreign countries require approval or licensing from the U.S. government. Denial of export licenses could
reduce our sales to those countries and could have a material adverse effect on our business.
Risks Related to Our Structure and Financing/Liquidity
Risks
The Company could experience liquidity issues
if the Company’s revolving line of credit with MBT is not extended or replaced.
The principal amount of Air
T’s revolving line of credit with MBT (“Revolver – MBT”) was $6.5 million as of December 31, 2023. This revolving
facility matures on August 31, 2024. The Company believes it has sufficient cash on hand, and available liquidity, to meet its obligations
as they become due in the ordinary course of business for at least 12 months following the date of this registration statement. The Company
is currently seeking to refinance the Revolver – MBT prior to its maturity date; however, there is no assurance that we will be
able to execute this refinancing or, if we are able to refinance this obligation, that the terms of such refinancing would be as favorable
as the terms of our existing credit facility.
Our holding company structure may increase
risks related to our operations.
Our business, financial condition
and results of operations are dependent upon those of our individual businesses, and our aggregate investment in particular industries.
We are a holding company with investments in businesses and assets in a number of industries. Our business, financial condition and results
of operations are dependent upon our various businesses and investments and their management teams. Each of our businesses generally operate
independently and in a decentralized manner. Additionally, in the ordinary course of business we guarantee the obligations of entities
that we manage and/or invest in. Any material adverse change in one of our businesses, investments or management teams, or in a particular
industry in which we operate or invest, may cause material adverse changes to our business, financial condition and results of operations.
The more capital we devote to a particular investment or industry may increase the risk that such investment could significantly impact
our financial condition and results of operations, possibly in a material adverse way.
A small number of stockholders has the ability
to control the Company.
We have a very concentrated
stockholder base. Based on our outstanding shares of Common Stock as of February 12, 2024 and public filings, our two largest stockholders
beneficially owned or had the ability to direct the voting of shares of our Common Stock representing approximately 65% of the outstanding
shares. As a result, these stockholders have the power to determine the outcome of substantially all matters submitted to our stockholders
for approval, including the election of our board of directors. In addition, future sales by these stockholders of substantial amounts
of our Common Stock, or the potential for such sales, could adversely affect the prevailing market price of our securities.
Although we do not expect to rely on the “controlled
company” exemption, we may soon become a “controlled company” within the meaning
of the Nasdaq listing standards, and we would qualify for exemptions from certain corporate governance requirements.
A “controlled company,”
as defined in the Nasdaq listing standards, is a company of which more than 50% of the voting power for the election of directors is held
by an individual, a group or another company. Controlled companies are not required to comply with certain Nasdaq listing standards relating
to corporate governance, including:
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the requirement that a majority of its board of directors consist of independent directors; |
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the requirement that its nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and |
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the requirement that its compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. |
As of February 12, 2024,
Nick Swenson, our President, Chief Executive Officer and Chairman of the Board, beneficially owned an aggregate of 1,352,938 shares of
our Common Stock, which represented 47.95% of the voting power of our outstanding Common Stock as of such date. Our President, CEO/Chairman
could soon own a majority of the voting power for the election of our directors, and thus we would meet the definition of a “controlled
company.” As a result, these requirements would not apply to us as long as we remain a “controlled company.”
Although we may soon qualify
as a “controlled company,” we currently do not, and we do not expect to, rely on this exemption and we currently comply with,
and we expect to continue to comply with, all relevant corporate governance requirements under the Nasdaq listing standards. However,
if we were to utilize some or all of these exemptions, you may not have the same protections afforded to shareholders of companies that
are subject to all of the Nasdaq listing standards that relate to corporate governance.
An increase in interest rates or in our borrowing
margin would increase the cost of servicing our debt and could reduce our cash flow and negatively affect the results of our business
operations.
A portion of our outstanding
debt bears interest at floating rates. As a result, to the extent we have not hedged against rising interest rates, an increase in the
applicable benchmark interest rates would increase the cost of servicing our debt and could materially and adversely affect our results
of operations, financial condition, liquidity and cash flows. In addition, if we refinance our indebtedness or it matures and interest
rates or our borrowing margins increase between the time an existing financing arrangement was consummated and the time such financing
arrangement is refinanced or matures, the cost of servicing our debt would increase and our results of operations, financial condition,
liquidity and cash flows could be materially and adversely affected.
Our inability to maintain sufficient liquidity
could limit our operational flexibility and also impact our ability to make payments on our obligations as they come due.
In addition to being capital
intensive and highly leveraged, our aircraft and engine business requires that we maintain sufficient liquidity to enable us to contribute
the non-financed portion of engine and aircraft purchases as well as to service our payment obligations to our creditors as they become
due, despite the fact that the timing and amounts of our revenues do not match the timing under our debt service obligations. Our restricted
cash is unavailable for general corporate purposes. Accordingly, our ability to successfully execute our business strategy and maintain
our operations depends on our ability to continue to maintain sufficient liquidity, cash and available credit under our credit facilities.
Our liquidity could be adversely impacted if we are subjected to one or more of the following:
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a significant decline in revenues, |
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a material increase in interest expense that is not matched by a corresponding increase in revenues, |
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a significant increase in operating expenses, |
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a reduction in our available credit under our credit facilities, or |
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general economic or national events. |
If we do not maintain sufficient
liquidity, our ability to meet our payment obligations to creditors or to borrow additional funds could become impaired.
Future cash flows from operations or through
financings may not be sufficient to enable the Company to meet its obligations.
Future cash flow of the Company’s
operations can fluctuate significantly. If future cash flows are not sufficient to permit the Company to meet its obligations, this would
likely have a material adverse effect on the Company, its businesses, financial condition and results of operations. Additionally, credit
market volatility may affect our ability to refinance our existing debt, borrow funds under our existing lines of credit or incur additional
debt. There can be no assurance that the Company or its subsidiaries will continue to have access to their lines of credit if their financial
performance does not satisfy the financial covenants set forth in the applicable financing agreements. If the Company or its subsidiaries
do not meet certain of its financial covenants, and if they are unable to secure necessary waivers or other amendments from the respective
lenders on terms acceptable to management and to renew or replace financing arrangements that mature during the current fiscal year, their
ability to access available lines of credit could be limited, their debt obligations could be accelerated by the respective lenders and
liquidity could be adversely affected.
The Company and/or its subsidiaries
may be required to seek additional or alternative financing sources if the Company’s or its subsidiaries’ cash needs are significantly
greater than anticipated or they do not materially meet their business plans, or there are unanticipated downturns in the markets for
the Company’s and its subsidiaries’ products and services. Future disruption and volatility in credit market conditions could
have a material adverse impact on the Company’s ability, or that of its subsidiaries, to refinance debt when it comes due on terms
similar to our current credit facilities, to draw upon existing lines of credit or to incur additional debt if needed. There can be no
assurance therefore that such financing will be available or available on acceptable terms. The inability to generate sufficient cash
flows from operations or through financings or disruptions in the credit markets could impair the Company’s or its subsidiaries’
liquidity and would likely have a material adverse effect on their businesses, financial condition and results of operations.
A large proportion of our capital is invested
in physical assets and securities that can be hard to sell, especially if market conditions are poor.
Because our investment strategy
can involve public company securities, we may be restricted in our ability to effect sales during certain time periods. A lack of liquidity
could limit our ability to vary our portfolio or assets promptly in response to changing economic or investment conditions. Additionally,
if financial or operating difficulties of other competitors result in distress sales, such sales could depress asset values in the markets
in which we operate. The restrictions inherent in owning physical assets could reduce our ability to respond to changes in market conditions
and could adversely affect the performance of our investments, our financial condition and results of operations. Because there is significant
uncertainty in the valuation of, or in the stability of the value of illiquid or non-public investments, the fair values of such investments
do not necessarily reflect the prices that would actually be obtained when such investments are realized.
To service our debt and meet our other cash
needs, we will require a significant amount of cash, which may not be available.
Our ability to make payments
on, or repay or refinance, our debt, will depend largely upon our future operating performance. Our future performance, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition,
our ability to borrow funds in the future to make payments on our debt will depend on our maintaining specified financial ratios and satisfying
financial condition tests and other covenants in the agreements governing our debt. Our business may not generate sufficient cash flow
from operations and future borrowings may not be available in amounts sufficient to pay our debt and to satisfy our other liquidity needs.
If our cash flows and capital resources are
insufficient to fund our debt service obligations, we may be forced to seek alternatives.
If we cannot meet our debt
service obligations, we may be forced to reduce or delay investments and aircraft or engine purchases, sell assets, seek additional capital
or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital
markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and might require us to
comply with more onerous covenants, which could further restrict our business operations. The terms of our debt instruments may restrict
us from adopting some of these alternatives. These alternative measures may not be successful and may not permit us to meet our scheduled
debt service obligations or to meet our aircraft or engine purchase commitments as they come due.
Despite our substantial indebtedness, we may
incur significantly more debt, and cash may not be available to meet our financial obligations when due or enable us to capitalize on
investment opportunities when they arise.
We employ debt and other forms
of leverage in the ordinary course of business to enhance returns to our investors and finance our operations, and despite our current
indebtedness levels, we expect to incur additional debt in the future to finance our operations, including purchasing aircraft and engines
and meeting our contractual obligations as the agreements relating to our debt, including our junior subordinated debentures, indentures,
term loan facilities, revolving credit facilities, and other financings do not entirely prohibit us from incurring additional debt. We
also enter into financing commitments in the normal course of business, which we may be required to fund. If we are required to fund these
commitments and are unable to do so, we could be liable for damages pursued against us or a loss of opportunity through default under
contracts that are otherwise to our benefit could occur. We are therefore subject to the risks associated with debt financing and refinancing,
including but not limited to the following: (i) our cash flow may be insufficient to meet required payments of principal and interest;
(ii) payments of principal and interest on borrowings may leave us with insufficient cash resources to pay operating expenses and
dividends; (iii) if we are unable to obtain committed debt financing for potential acquisitions or can only obtain debt at high interest
rates or on other unfavorable terms, we may have difficulty completing acquisitions or may generate profits that are lower than would
otherwise be the case; (iv) we may not be able to refinance indebtedness at maturity due to company and market factors such as the
estimated cash flow produced by our assets, the value of our assets, liquidity in the debt markets, and/or financial, competitive, business
and other factors; and (v) if we are able to refinance our indebtedness, the terms of a refinancing may not be as favorable as the
original terms for such indebtedness. If we are unable to refinance our indebtedness on acceptable terms, or at all, we may need to utilize
available liquidity, which would reduce our ability to pursue new investment opportunities, dispose of one or more of our assets on disadvantageous
terms, or raise equity, causing dilution to existing stockholders.
The terms of our various credit
agreements and other financing documents also require us to comply with a number of customary financial and other covenants, such as maintaining
debt service coverage and leverage ratios, and adequate insurance coverage. These covenants may limit our flexibility in conducting our
operations and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, even
if we have satisfied and continue to satisfy our payment obligations. Regulatory and market changes may also result in higher borrowing
costs and reduced access to credit.
Our current financing arrangements require
compliance with financial and other covenants and a failure to comply with such covenants could adversely affect our ability to operate.
The terms of our various credit
agreements and other financing documents require us to comply with a number of customary financial and other covenants, such as maintaining
debt service coverage and leverage ratios and adequate insurance coverage. These covenants may limit our flexibility in conducting our
operations and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, even
if we have satisfied and continue to satisfy our payment obligations. Regulatory and market changes may also result in higher borrowing
costs and reduced access to credit.
Future acquisitions and dispositions of businesses
and investments are possible, changing the components of our assets and liabilities, and if unsuccessful or unfavorable, could reduce
the value of the Company and its securities.
Any future acquisitions or
dispositions may result in significant changes in the composition of our assets and liabilities, as well as our business mix and prospects.
Consequently, our financial condition, results of operations and the trading price of our securities may be affected by factors different
from those affecting our financial condition, results of operations and trading price at the present time.
We face numerous risks and uncertainties as
we expand our business.
We expect the growth and development
of our business to come primarily from internal expansion and through acquisitions, investments, and strategic partnering. As we expand
our business, there can be no assurance that financial controls, the level and knowledge of personnel, operational abilities, legal and
compliance controls and other corporate support systems will be adequate to manage our business and growth. The ineffectiveness of any
of these controls or systems could adversely affect our business and prospects. In addition, if we acquire new businesses and/or introduce
new products, we face numerous risks and uncertainties concerning the integration of their controls and systems, including financial controls,
accounting and data processing systems, management controls, other operations and adequate security. A failure to integrate these systems
and controls, and even an inefficient integration of these systems and controls, could adversely affect our business and prospects.
Our business strategy includes acquisitions,
and acquisitions entail numerous risks, including the risk of management diversion and increased costs and expenses, all of which could
negatively affect the Company’s ability to operate profitably.
Our business strategy
includes, among other things, strategic and opportunistic acquisitions. This element of our strategy entails several risks,
including, but not limited to the diversion of management’s attention from other business concerns and the need to finance
such acquisitions with additional equity and/or debt. In addition, once completed, acquisitions entail further risks, including:
unanticipated costs and liabilities of the acquired businesses, including environmental liabilities, that could materially adversely
affect our results of operations; difficulties in assimilating acquired businesses, preventing the expected benefits from the
transaction from being realized or achieved within the anticipated time frame; negative effects on existing business relationships
with suppliers and customers; and losing key employees of the acquired businesses. If our acquisition strategy is not successful or
if acquisitions are not well integrated into our existing operations, the Company’s operations and business results could be
negatively affected.
Strategic ventures may increase risks applicable
to our operations.
We may enter into strategic
ventures that pose risks, including a lack of complete control over the enterprise, and other potential unforeseen risks, any of which
could adversely impact our financial results. We may occasionally enter into strategic ventures or investments with third parties in order
to take advantage of favorable financing opportunities, to share capital or operating risk, or to earn aircraft management fees. These
strategic ventures and investments may subject us to various risks, including those arising from our possessing limited decision-making
rights in the enterprise or over the related aircraft. If we were unable to resolve a dispute with a strategic partner in such a venture
that retains material managerial veto rights, we might reach an impasse which may lead to operational difficulties in the venture and
increases costs or the liquidation of our investment at a time and in a manner that would result in our losing some or all of our original
investment and/or the occurrence of other losses, which could adversely impact our financial results.
Rapid business expansions or new business initiatives
may increase risk.
Certain business initiatives,
including expansions of existing businesses such as the relatively recent expansion at our commercial jet engines and parts segment and
the establishment of an aircraft asset management business and an aircraft capital joint venture, may bring us into contact, directly
or indirectly, with individuals and entities that are not within our traditional client and counterparty base and may expose us to new
asset classes, new business plans and new markets. These business activities expose us to new and enhanced risks, greater regulatory scrutiny
of these activities, increased credit-related, sovereign and operational risks, and reputational concerns regarding the manner in which
these assets are being operated or held. There is no assurance that prior year activity and results will occur in future periods.
Our policies and procedures may not be effective
in ensuring compliance with applicable law.
Our policies and procedures
designed to ensure compliance with applicable laws may not be effective in all instances to prevent violations. We could become subject
to various governmental investigations, audits and inquiries, both formal and informal. Such investigations, regardless of their outcome,
could be costly, divert management attention, and damage our reputation. The unfavorable resolution of such investigations could result
in criminal liability, fines, penalties or other monetary or non-monetary sanctions and could materially affect our business or results
of operations.
Compliance with the regulatory requirements
imposed on us as a public company results in significant costs that may have an adverse effect on our results.
As a public company, we are
subject to various regulatory requirements including, but not limited to, compliance with the rules and regulations of the Securities
Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the Sarbanes-Oxley Act of 2002 and
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Compliance with these rules and regulations results in significant
additional costs to us both directly, through increased audit and consulting fees, and indirectly, through the time required by our limited
resources to address such regulations.
Deficiencies in our public company financial
reporting and disclosures could adversely impact our reputation.
As we expand the size and
scope of our business, there is a greater susceptibility that our financial reporting and other public disclosure documents may contain
material misstatements and that the controls we maintain to attempt to ensure the complete accuracy of our public disclosures may fail
to operate as intended. The occurrence of such events could adversely impact our reputation and financial condition. Management is responsible
for establishing and maintaining adequate internal controls over financial reporting to give our stakeholders assurance regarding the
reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles (“GAAP”). However, the process for establishing and maintaining adequate internal controls
over financial reporting has inherent limitations, including the possibility of human error. Our internal controls over financial reporting
may not prevent or detect misstatements in our financial disclosures on a timely basis, or at all. Some of these processes may be new
for certain subsidiaries in our structure, and in the case of acquisitions, may take time to be fully implemented. Our disclosure controls
and procedures are designed to provide assurance that information required to be disclosed by us in reports filed or submitted under U.S.
securities laws is recorded, processed, summarized and reported within the required time periods. Our policies and procedures governing
disclosures may not ensure that all material information regarding us is disclosed in a proper and timely fashion or that we will be successful
in preventing the disclosure of material information to a single person or a limited group of people before such information is generally
disseminated.
Risks Related to Environmental, Social, and
Governance Issues
Climate change, related legislative and regulatory
responses to climate change, and the transition to a lower carbon economy may adversely affect our business.
There is increasing
concern that a gradual rise in global average temperatures due to increased concentration of carbon dioxide and other greenhouse
gases in the atmosphere will cause significant changes in weather patterns around the globe, an increase in the frequency, severity,
and duration of extreme weather conditions and natural disasters, and water scarcity and poor water quality. These events could also
compound adverse economic conditions. To the extent that significant changes in the climate occur in areas where our businesses are
located or operate, we may experience extreme weather and/or changes in precipitation and temperature, all of which may result in
physical damage to, or a decrease in demand for, our properties located in these areas or affected by these conditions and could
negatively impact our operations. In addition, changes in federal, state, and local legislation and regulation based on concerns
about climate change, including regulations aimed at limiting greenhouse gas emissions and the implementation of “green”
building codes, could result in increased capital expenditures without a corresponding increase in revenue. Any assessment of the
potential impact of future climate change legislation, regulations, or industry standards, as well as any international treaties and
accords, is uncertain given the wide scope of potential regulatory change.
We are subject to risks from natural disasters
such as earthquakes and severe weather (the frequency and severity of which may be impacted by climate change), which may include more
frequent or severe storms, extreme temperatures and ambient temperature increases, hurricanes, flooding, rising sea levels, shortages
of water, droughts and wildfires, any of which could have a material adverse effect on our business, results of operations, and financial
condition.
Natural disasters, severe
weather such as earthquakes, tornadoes, wind, or floods, and wildfires may result in significant damage to our properties or disruption
of our operations. The extent of casualty losses and loss of income in connection with such events is a function of the severity of the
event and the total amount of exposure in the affected area. Additional consequences of severe weather could include increased insurance
premiums and deductibles or a decrease in the availability of coverage.
Environmentally hazardous conditions could
potentially adversely affect us.
Under various federal, state,
and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating
hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. Even if more than one person may have been responsible for the contamination,
each person covered by applicable environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third
parties may sue the owner or operator of a site for damages based on personal injury, natural resources, or property damage or other costs,
including investigation and clean-up costs, resulting from the environmental contamination. The presence of hazardous or toxic substances
on one of our properties, or the failure to properly remediate a contaminated property, could give rise to a lien in favor of the government
for costs it may incur to address the contamination or otherwise adversely affect our ability to sell or lease the property or borrow
using the property as collateral. Environmental laws also may impose restrictions on the manner in which property may be used or businesses
may be operated. A property owner who violates environmental laws may be subject to sanctions which may be enforced by governmental agencies
or, in certain circumstances, private parties. The cost of defending against environmental claims, of compliance with environmental regulatory
requirements, or of remediating any contaminated property could materially and adversely affect us.
We are subject to increasing scrutiny from
investors and others regarding our environmental, social, governance, or sustainability responsibilities, which could result in additional
costs or risks and adversely impact our reputation, associate retention, and ability to raise capital from such investors.
Investor advocacy groups,
certain institutional investors, investment funds, other market participants, and stakeholders have focused increasingly on the Environmental,
Social and Governance (“ESG” or “sustainability”) practices of companies, including those associated with climate
change. These parties have placed increased importance on the implications of the social cost of their investments. If our ESG practices
do not meet investor or other industry stakeholder expectations and standards, which continue to evolve, our reputation and associate
retention may be negatively impacted based on an assessment of our ESG practices. Any sustainability disclosures we make may include our
policies and practices on a variety of social and ethical matters, including corporate governance, environmental compliance, associate
health and safety practices, human capital management, product quality, supply chain management, and workforce inclusion and diversity.
It is possible that stakeholders may not be satisfied with our ESG practices or the speed of their adoption. We could also incur additional
costs and require additional resources to monitor, report, and comply with various ESG practices. In addition, investors may decide to
refrain from investing in us as a result of their assessment of our approach to and consideration of the ESG factors.
RISKS RELATED TO AIR T FUNDING
The ranking of the Company’s obligations
under the Junior Subordinated Debentures and the guarantee creates a risk that Air T Funding may not be able to pay amounts due to holders
of the Capital Securities.
The ability of Air T Funding
to pay amounts due to holders of the Capital Securities is solely dependent upon the Company making payments on the Junior Subordinated
Debentures as and when required. All obligations of the Company under the Guarantee, the Junior Subordinated Debentures and other documents
described herein are unsecured and rank subordinate and junior in right of payment to all current and future Senior and Subordinated Debt,
the amount of which is unlimited. As of December 31, 2023, the aggregate outstanding Senior and Subordinated Debt of the Company
was approximately $68,569,000. None of the Indenture, the Guarantee or the Trust Agreement places any limitation on the amount of secured
or unsecured debt, including Senior and Subordinated Debt that may be incurred by the Company or its subsidiaries. Further, there is no
limitation on the Company’s ability to issue additional Junior Subordinated Debentures in connection with any further offerings
of Capital Securities, and such additional debentures would rank pari passu with the Junior Subordinated Debentures. See “Description
of Junior Subordinated Debentures -- Subordination” and “Description of Guarantee -- Status of the Guarantee.”
The Company has the option to extend the interest
payment period; tax consequences of a deferral of interest payments.
So long as no Debenture
Event of Default (as defined herein) has occurred and is continuing, at any time on or after, June 7, 2024, the Company has the
right under the Indenture to defer the payment of interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 20 consecutive quarters with respect to each Extension Period, provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. As a consequence of any such deferral, quarterly
Distributions on the Capital Securities by Air T Funding will be deferred (and the amount of Distributions to which holders of the
Capital Securities are entitled will accumulate additional amounts thereon at the rate of 8% per annum, compounded quarterly, from
the relevant payment date for such Distributions, to the extent permitted by applicable law) during any such Extension Period.
During any such Extension Period, the Company will be prohibited from making certain payments or distributions with respect to the
Company’s capital stock (including dividends on or redemptions of common or preferred stock) and from making certain payments
with respect to any debt securities of the Company that rank pari passu with or junior in interest to the Junior Subordinated
Debentures; however, the Company will NOT be restricted from (a) paying dividends or distributions in Common Stock of the
Company, (b) redeeming rights or taking certain other actions under a stockholders’ rights plan, (c) making payments
under the Guarantee or (d) making purchases of Common Stock generally or related to the issuance of Common Stock or rights
under any of the Company’s benefit plans for its directors, officers or employees. Further, during an Extension Period, the
Company would have the ability to continue to make payments on Senior and Subordinated Debt. As of December 31, 2023, the
aggregate outstanding Senior and Subordinated Debt of the Company was approximately $68,569,000. Prior to the termination of any
Extension Period, the Company may further extend such Extension Period provided that such extension does not cause such Extension
Period to exceed 20 consecutive quarters or to extend beyond the Stated Maturity. Upon the termination of any Extension Period and
the payment of all interest then accrued and unpaid (together with interest thereon at the annual rate of 8%, compounded quarterly,
to the extent permitted by applicable law), the Company may elect to begin a new Extension Period subject to the above requirements.
There is no limitation on the number of times that the Company may elect to begin an Extension Period. See “Description of the
Capital Securities -- Distributions” and “Description of Junior Subordinated Debentures -- Option to Extend Interest
Payment Period.”
Because the Company believes
the likelihood of it exercising its option to defer payments of interest is remote, the Junior Subordinated Debentures will be treated
as issued without “original issue discount” for United States federal income tax purposes. As a result, holders of Capital
Securities will include interest in taxable income under their own methods of accounting (i.e., cash or accrual). The Company has no current
intention of exercising its right to defer payments of interest by extending the interest payment period on the Junior Subordinated Debentures.
However, should the Company elect to exercise its right to defer payments of interest in the future (which shall be possible at any time
on or after, June 7, 2024), the market price of the Capital Securities is likely to be adversely affected. A holder that disposes
of such holder’s Capital Securities during an Extension Period, therefore, might not receive the same return on such holder’s
investment as a holder that continues to hold the Capital Securities.
Tax event redemption or investment company
act redemption
Upon the occurrence and during
the continuation of a Tax Event or an Investment Company Event, the Company has the right to redeem the Junior Subordinated Debentures
in whole (but not in part) at 100% of the principal amount together with accrued but unpaid interest to the date fixed for redemption
within 90 days following the occurrence of such Tax Event or Investment Company Event and therefore cause a mandatory redemption of the
Trust Securities. See “Description of the Capital Securities -- Redemption.”
A “Tax Event”
means the receipt by the Company and Air T Funding of an opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement
or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such pronouncement or
decision is announced on or after the original issuance of the Capital Securities, there is more than an insubstantial risk that (i) Air
T Funding is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable by the Company on the Junior Subordinated Debentures
is not, or within 90 days of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income
tax purposes, or (iii) Air T Funding is, or will be within 90 days of the date of the opinion, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
An “Investment Company
Event” means the receipt by the Company and Air T Funding of an opinion of counsel experienced in such matters to the effect that,
as a result of any change in law or regulation or a change in interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, Air T Funding is or will be considered an “investment company” that is
required to be registered under the Investment Company Act, which change becomes effective on or after the original issuance of the Capital
Securities.
The Company may cause the Junior Subordinated
Debentures to be distributed to the holders of the Capital Securities.
The Company will have the
right at any time to terminate Air T Funding and cause the Junior Subordinated Debentures to be distributed to the holders of the Capital
Securities in liquidation of Air T Funding. Because holders of the Capital Securities may receive Junior Subordinated Debentures in liquidation
of Air T Funding and because Distributions are otherwise limited to payments on the Junior Subordinated Debentures, prospective purchasers
of the Capital Securities are also making an investment decision with regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated Debentures contained herein. See “Description of the Capital Securities
-- Liquidation Distribution Upon Termination” and “Description of the Junior Subordinated Debentures.”
There are limitations on direct actions against
the Company and on rights under the guarantee.
Under the Guarantee, the Company
guarantees the payment of Distributions by Air T Funding and payments on liquidation of or redemption of the Capital Securities (subordinate
to the right to payment of Senior and Subordinated Debt of the Company) to the extent of funds held by Air T Funding. If Air T Funding
has insufficient funds to pay Distributions on the Capital Securities (i.e., if the Company has failed to make required payments under
the Junior Subordinated Debentures), a holder of the Capital Securities would have the right to institute a legal proceeding directly
against the Company for enforcement of payment to such holder of the principal of or interest on such Junior Subordinated Debentures having
a principal amount equal to the aggregate Liquidation Amount of the Capital Securities of such holder (a “Direct Action”).
Except as described herein, holders of the Capital Securities will not be able to exercise directly any other remedy available to the
holders of the Junior Subordinated Debentures or assert directly any other rights in respect of the Junior Subordinated Debentures.
Under the Guarantee,
Delaware Trust Company will act as indenture trustee (the “Guarantee Trustee”). The holders of not less than a majority
in aggregate Liquidation Amount of the Capital Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust
power conferred upon the Guarantee Trustee under the Guarantee Agreement. Any holder of the Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding
against Air T Funding, the Guarantee Trustee or any other person or entity. The Trust Agreement provides that each holder of the
Capital Securities by acceptance thereof agrees to the provisions of the Guarantee Agreement and the Indenture. See
“Description of Junior Subordinated Debentures -- Enforcement of Certain Rights of Holders of Capital Securities” and
“-- Debenture Events of Default” and “Description of Guarantee.”
The covenants in the Indenture are limited.
The covenants in the Indenture
are limited, and there are no covenants relating to the Company in the Trust Agreement. As a result, neither the Indenture nor the Trust
Agreement protects holders of Junior Subordinated Debentures, or Capital Securities, respectively, in the event of a material adverse
change in the Company’s financial condition or results of operations or limits the ability of the Company or any subsidiary to incur
additional indebtedness. Therefore, the provisions of these governing instruments should not be considered a significant factor in evaluating
whether the Company will be able to comply with its obligations under the Junior Subordinated Debentures or the Guarantee.
Holders of the Capital Securities will generally
have limited voting rights.
Holders of the Capital Securities
will generally have limited voting rights relating only to the modification of the Capital Securities and certain other matters described
herein. In the event that (i) there is a Debenture Event of Default (as defined herein) with respect to the Junior Subordinated Debentures
(see “Description of the Junior Subordinated Debentures -- Events of Default”), (ii) the Property Trustee fails to pay
any distribution on the Capital Securities for 30 days (subject to deferral of distributions as provided under “Description of the
Capital Securities -- Extension Periods”), (iii) the Property Trustee fails to pay the redemption price on the Capital Securities
when due upon redemption, (iv) the Property Trustee fails to observe a covenant in the Trust Agreement for the Capital Securities
for 60 days after receiving a Notice of Default, or (v) the Property Trustee is declared bankrupt or insolvent and not replaced by
the Company within 60 days, the holders of a majority of the outstanding Capital Securities will be able to remove the Property Trustee
and the Indenture Trustee (but not the Administrative Trustees who may only be removed by the Company as holder of the Common Securities).
See “Description of the Capital Securities -- Voting Rights; Amendment of the Trust Agreement” and “-- Removal of Trustees.”
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus and any prospectus
supplement contains or incorporates by reference statements that constitute “forward-looking statements” within the meaning
of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act. All statements, other than statements of
historical fact included in this prospectus and any prospectus supplement regarding our strategy, future operations, financial position,
estimated revenues and losses, projected costs, prospects, plans and objectives of management or that address activities, events or developments
that we expect or anticipate will or may occur in the future are forward-looking statements. When used in this prospectus or any prospectus
supplement, the words “could,” “believe,” “anticipate,” “intend,” “estimate,”
“expect,” “project,” “plan,” “predict,” “target” and similar expressions are
intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking
statements speak only as of the date of this prospectus and any prospectus supplement. You should not place undue reliance on these forward-looking
statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements
we make in this prospectus and any prospectus supplement are reasonable, we can give no assurance that these plans, intentions or expectations
will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk
Factors” and elsewhere in this prospectus and any prospectus supplement. These cautionary statements qualify all forward-looking
statements attributable to us or persons acting on our behalf.
All such forward-looking statements
and any subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to in this section and any other cautionary statements that may accompany
such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual,
quarterly and other reports, proxy statements and other information with the SEC. These SEC filings are available to the public over the
Internet at the SEC’s website at http://www.sec.gov. Information about the Company is also available on the Company’s website,
www.airt.net. Other than any SEC filings incorporated by reference in this prospectus, the information available on the Company’s
website is not part of this prospectus.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate
by reference” the information we have filed with the SEC, which means that we can disclose important information to you without
actually including the specific information in this prospectus by referring you to documents containing such information. The information
incorporated by reference is an important part of this prospectus and later information that we file with the SEC will automatically update
and supersede this information. Therefore, before you decide to invest in a particular offering under this shelf registration, you should
always check for reports we may have filed with the SEC after the date of this prospectus. The following documents previously filed with
the SEC are incorporated by reference in this prospectus:
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our Current Reports on Form 8-K filed with the SEC on July 27, 2023, August 21, 2023, September 5, 2023, October 18, 2023, November 1, 2023, November 29, 2023, January 22, 2024, February 22, 2024, February 26, 2024 and March 5, 2024, respectively; |
All future documents, including
those made after the date of the initial filing of the registration statement of which this prospectus is a part and prior to effectiveness
of such registration statement, filed with the SEC pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act (other than
portions of these documents that are deemed to have been furnished and not filed in accordance with SEC rules, including Current Reports
on Form 8-K furnished under Item 2.02 and Item 7.01) before the termination of the offering under this prospectus and any applicable
prospectus supplement shall be deemed to be incorporated in this prospectus by reference and to be a part hereof from the date of filing
of such documents.
Any statement contained in
a document incorporated or deemed to be incorporated by reference in this prospectus or any applicable prospectus supplement will be deemed
to be modified or superseded to the extent that a statement contained herein or in any other subsequently filed document which also is
or is deemed to be incorporated by reference in this prospectus modifies or supersedes that statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part of this prospectus or any applicable prospectus supplement.
We undertake to provide without
charge to any person, including any beneficial owner, to whom a copy of this prospectus is delivered, upon oral or written request of
such person, a copy of any or all of the documents that have been incorporated by reference in this prospectus, excluding any exhibits
to those documents unless the exhibit is specifically incorporated by reference as an exhibit in this prospectus. We will provide you
with a copy of any of these filings at no cost, if you submit a request to us by writing or telephoning us at the following address or
telephone number: Secretary, 11020 David Taylor Drive, Suite 305, Charlotte, North Carolina 28262, and our telephone number is (980)
595-2840. Our periodic reports are also available on our website at www.airt.net. The reference to our website is not intended to be an
active link and the information on our website is not, and you must not consider the information to be, a part of this prospectus
USE OF PROCEEDS
The use of proceeds from the
sale of any particular offering of securities using this prospectus will be described in the applicable prospectus supplement relating
to such offering. The precise amount and timing of the application of these proceeds will depend upon our funding requirements and the
availability and cost of other funds.
PLAN OF DISTRIBUTION
We or the Issuer Trust may
use this prospectus and any accompanying prospectus supplement to sell the securities being offered hereby in and outside the United States
through the following methods or by any other method permitted pursuant to applicable law:
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through underwriters or dealers; |
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directly to purchasers; |
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in “at the market” offerings, within the meaning of Rule 415(a)(4) of the Securities Act, to or through a market maker or into an existing trading market on an exchange or otherwise; |
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through a combination of any of these methods. |
With respect to any offering
by us and the Issuer Trust the prospectus supplement will include the following information:
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the terms of the offering; |
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the names of any underwriters or agents; |
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the name or names of any managing underwriter or underwriters; |
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the purchase price or initial public offering price of the securities; |
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the net proceeds from the sale of the securities; |
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any delayed delivery arrangements; |
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any underwriting discounts, commissions and other items constituting underwriters’ compensation; |
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any discounts or concessions allowed or reallowed or paid to dealers; and |
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any commissions paid to agents. |
Sale Through Underwriters or Dealers
If underwriters are used in
the sale, the underwriters will acquire the securities for their own account. The underwriters may resell the securities from time to
time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Underwriters may offer securities to the public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more firms acting as underwriters. Unless we inform you otherwise in the prospectus supplement,
the obligations of the underwriters to purchase the securities will be subject to certain conditions, and the underwriters will be obligated
to purchase all the offered securities if they purchase any of them. The underwriters may change from time to time any initial public
offering price and any discounts or concessions allowed or reallowed or paid to dealers.
If we offer securities in
a subscription rights offering to our existing security holders, we may enter into a standby underwriting agreement with dealers, acting
as standby underwriters. We may pay the standby underwriters a commitment fee for the securities they commit to purchase on a standby
basis. If we do not enter into a standby underwriting agreement, we may retain a dealer-manager to manage a subscription rights offering
for us.
During and after an offering
through underwriters, the underwriters may purchase and sell the securities in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover syndicate short positions created in connection with the offering. The underwriters
may also impose a penalty bid, which means that selling concessions allowed to syndicate members or other broker-dealers for the offered
securities sold for their account may be reclaimed by the syndicate if the offered securities are repurchased by the syndicate in stabilizing
or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the offered securities, which
may be higher than the price that might otherwise prevail in the open market. If commenced, the underwriters may discontinue these activities
at any time.
Some or all of the securities
that we offer though this prospectus may be new issues of securities with no established trading market. Any underwriters to whom we sell
our securities for public offering and sale may make a market in those securities, but they will not be obligated to do so and they may
discontinue any market making at any time without notice. Accordingly, we cannot assure you of the liquidity of, or continued trading
markets for, any securities that we offer.
If dealers are used in the
sale of securities, we or the Issuer Trust will sell the securities to them as principals. They may then resell those securities to the
public at varying prices determined by the dealers at the time of resale. We will include in the prospectus supplement the names of the
dealers and the terms of the transaction.
Direct Sales and Sales through Agents
We or the Issuer Trust may
sell the securities directly. In this case, no underwriters or agents would be involved. In addition, any securities that qualify for
sale by the selling securityholder pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant
to this prospectus. We or the Issuer Trust may also sell the securities through agents designated from time to time at fixed prices or
at varying prices determined at the time of sale. In the prospectus supplement, we will name any agent involved in the offer or sale of
the offered securities by us, and we will describe any commissions payable to the agent. Unless we inform you otherwise in the prospectus
supplement, any agent will agree to use its reasonable best efforts to solicit purchases for the period of its appointment.
We or the Issuer Trust may
sell the securities directly to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities
Act with respect to any sale of those securities. We will describe the terms of any sales of these securities in the prospectus supplement.
Remarketing Arrangements
Offered securities may also
be offered and sold, if so indicated in the applicable prospectus supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise, by one or more remarketing firms, acting as principals
for their own accounts or as agents for us or the Issuer Trust. Any remarketing firm will be identified and the terms of its agreements,
if any, with us or the Issuer Trust, and its compensation will be described in the applicable prospectus supplement.
Delayed Delivery Contracts
If we so indicate in the prospectus
supplement, we or the Issuer Trust may authorize agents, underwriters or dealers to solicit offers from certain types of institutions
to purchase securities from us at the public offering price under delayed delivery contracts. These contracts would provide for payment
and delivery on a specified date in the future. The contracts would be subject only to those conditions described in the prospectus supplement.
The prospectus supplement will describe the commission payable for solicitation of those contracts.
General Information
We or the Issuer Trust may
have agreements with the agents, dealers, underwriters and remarketing firms to indemnify them against certain civil liabilities, including
liabilities under the Securities Act, or to contribute with respect to payments that the agents, dealers, underwriters or remarketing
firms may be required to make. Agents, dealers, underwriters and remarketing firms may be customers of, engage in transactions with or
perform services for us or the Issuer Trust in the ordinary course of their businesses.
SECURITIES THAT MAY BE OFFERED
The securities that may be
offered from time to time through this prospectus are:
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· | Preferred
Stock, which we may issue in one or more series; |
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Debt Securities, which we may issue in one or more series; |
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Warrants entitling the holders to purchase Common Stock, Preferred Stock or
Debt Securities; |
We will describe in a prospectus
supplement that we will deliver with this prospectus, the terms of particular securities that may be offered in the future. This
prospectus may not be used to offer or sell any securities unless accompanied by a prospectus supplement. Each prospectus supplement
will include, if relevant and material, the following information:
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type and amount of securities which proposed to be sold; |
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initial public offering price of the securities; |
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original issue discount, if any; |
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rates and times of payment of interest, dividends or other payments, if any; |
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redemption, conversion, exercise, exchange, settlement or sinking fund terms,
if any; |
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voting or other rights, if any; |
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conversion, exchange or settlement prices or rates, if any, and, if applicable,
any provisions for changes to or adjustments in the conversion, exchange or settlement prices or rates and in the securities or other
property receivable upon conversion, exchange or settlement; |
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names of the underwriters, agents or dealers, if any, through or to which we
will sell the securities; |
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compensation, if any, of those underwriters, agents or dealers; |
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details regarding over-allotment options, if any; |
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information about any securities exchange or automated quotation system on which
the securities will be listed or traded; |
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material United States federal income tax considerations applicable to the securities; |
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any material risk factors associated with the securities; and |
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any other material information about the offer and sale of the securities. |
In addition, the applicable
prospectus supplement and any related free writing prospectus may add, update or change the information contained in this prospectus or
in the documents we have incorporated by reference.
DESCRIPTION OF CAPITAL STOCK
As of January 31, 2024,
our authorized capital stock consists of:
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4,000,000 authorized shares of Common Stock, par value $0.25 per share. |
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2,000,000 authorized shares of Preferred Stock, par value $1.00. The Preferred Stock is not registered under Section 12 of the Exchange Act. |
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$100,000,000 authorized amount of Alpha Income Trust Preferred Securities, par value $25.00 (the “Capital Securities”). |
As of January 31, 2024,
there were 2,821,504 shares of our Common Stock issued and outstanding, no shares of Preferred Stock issued and outstanding and 1,726,974
shares of Capital Securities.
On March 3, 2021, the
Company and the individual administrative trustees of the Issuer Trust entered into the Second Amendment to the Air T Funding Amended
and Restated Trust Agreement to increase the total aggregate authorized amount of Capital Securities to $100,000,000, inclusive of previously
issued Capital Securities. The Capital Securities are also known as Alpha Income Preferred Securities (also referred to as 8% Cumulative
Capital Securities) (“AIP”). In addition, the Second Amendment provides for a change in one of the Administrative Trustees.
The Company and the trustees
under the Indenture for the Junior Subordinated Debentures of the Company also entered into a Supplemental Indenture increasing the authorized
principal amount of the Junior Subordinated Debentures to $100,000,000 of Junior Subordinated Debentures, inclusive of previously issued
Junior Subordinated Debentures.
In this section we describe
certain features and rights of our capital stock. The summary does not purport to be exhaustive and is qualified in its entirety by reference
to our Restated Certificate of Incorporation and Amended and Restated By-Laws (the “Bylaws”) and to applicable Delaware law
or to the Trust Agreement, as amended.
Common Stock
General. The
number of authorized shares of Common Stock may be increased or decreased by the vote of a majority of the holders of the voting power
of that class of capital stock who are entitled to vote generally in the election of directors, in accordance with Section 242(b)(2) of
the General Corporation Law of the State of Delaware (the “DGCL”) or any equivalent provision enacted.
Voting Rights.
The holders of Common Stock are entitled to one vote per share, and each stockholder shall at every meeting of the stockholder be entitled
to vote such number of shares then held by such stockholder in person or by proxy, but no proxy shall be voted on after three years from
its date, unless the proxy provides for a longer period. Holders of all classes of capital stock of the Company are entitled to vote together
as a single class on all matters presented to the stockholders for their vote or approval, except for the election and the removal of
directors as discussed below, or otherwise as required by applicable law.
Dividends. Dividends
upon the capital stock of the Company, if any, may be declared by the Board of Directors (the “Board”) at any regular or special
meeting, pursuant to the DGCL. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the discretion
of the Board. As of the date hereof, the Company has not paid a dividend since 2014.
Holders of Common Stock are
entitled to receive dividends at the same rate whenever dividends are declared by the Board out of assets legally available for their
payment, after payment of any dividends required to be paid on shares of preferred stock outstanding, as set forth in the Restated Certificate
of Incorporation, as amended.
Before payment of any dividend,
there may be set aside out of any funds of the Company available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Company, or for such other purpose as the directors shall think conducive to the interest of the Company,
and the directors may modify or abolish any such reserve in the manner in which it was created.
Conversion.
The Common Stock has no conversion rights.
Liquidation.
If we liquidate, any assets remaining after (i) payment of our debts and other liabilities (ii) setting aside sufficient amounts
for any payment due to any holders of preferred stock, will be distributable ratably among the holders of the Common Stock treated as
a single class.
The holders of Common Stock
are not entitled to preemptive rights.
Transfer Agent.
The transfer agent and registrar for our Common Stock is Equiniti Trust Company, LLC.
Preferred Stock
Our Restated Certificate of
Incorporation, as amended permits our Board of Directors to authorize the issuance of up to 2,000,000 shares of preferred stock, par value
$1.00 per share, in one or more series, without stockholder action. As of the date hereof, no shares of preferred stock are outstanding.
The Board of Directors can fix the rights (including voting powers, if any), preferences, qualifications, series limitations and restrictions
of each series. Therefore, without approval of the holders of our Common Stock (except as may be required the rules of the Nasdaq
Stock Market or any other exchange or market on which our securities may then be listed or quoted), our Board of Directors may authorize
the issuance of preferred stock with voting, dividend, liquidation and conversion and other rights that could dilute the voting power
or other rights or adversely affect the market value of our Common Stock and may assist management in impeding any unfriendly takeover
or attempted change in control. See “—Anti-Takeover Effects – Authorized Shares.”
Prior to the issuance of a
new series of preferred stock, we will amend our Restated Certificate of Incorporation by filing a certificate of designation that will
designate the number of shares of that series and the terms of that series. The issuance of any preferred stock could adversely affect
the rights of the holders of Common Stock and, therefore, reduce the value of the Common Stock. The ability of our Board of Directors
to issue preferred stock could discourage, delay or prevent a takeover or other corporate action.
The terms of any particular
series of preferred stock will be described in the prospectus supplement relating to that particular series of preferred stock, including,
where applicable:
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the designation, stated value and liquidation preference of such preferred stock
and the number of shares offered; |
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the dividend rate or rates (or method of calculation), the date or dates from
which dividends shall accrue, and whether such dividends shall be cumulative or noncumulative and, if cumulative, the dates from
which dividends shall commence to cumulate; |
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any redemption or sinking fund provisions; |
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the amount that shares of such series shall be entitled to receive in the event
of our liquidation, dissolution or winding-up; |
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the terms and conditions, if any, on which shares of such series shall be convertible
or exchangeable for shares of our stock of any other class or classes, or other series of the same class; |
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the voting rights, if any, of shares of such series; |
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the status as to reissuance or sale of shares of such series redeemed, purchased
or otherwise reacquired, or surrendered to us on conversion or exchange; |
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the conditions and restrictions, if any, on the payment of dividends or on the
making of other distributions on, or the purchase, redemption or other acquisition by us or any subsidiary, of the Common Stock or
of any other class of our shares ranking junior to the shares of such series as to dividends or upon liquidation; |
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the conditions and restrictions, if any, on the creation of indebtedness of
us or of any subsidiary, or on the issuance of any additional stock ranking on a parity with or prior to the shares of such series
as to dividends or upon liquidation; and |
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any additional dividend, liquidation, redemption, sinking or retirement fund
and other rights, preferences, privileges, limitations and restrictions of such preferred stock. |
Unless otherwise specified
in the applicable prospectus supplement, each series of preferred stock will, upon issuance, rank senior to the Common Stock and on parity
in all respects with each other outstanding series of preferred stock. The rights of the holders of our preferred stock will be subordinate
to those of our general creditors. The description of any series of preferred stock which may be issued is qualified by reference to the
provisions of the applicable certificate of amendment establishing the terms of such series.
The transfer agent and registrar
for the preferred stock will be set forth in the applicable prospectus supplement.
Anti-takeover Effects
The provisions of our Restated
Certificate of Incorporation, as amended and Bylaws summarized in the following paragraphs may have anti-takeover effects and could delay,
defer, or prevent a tender offer or takeover attempt that a stockholder might consider to be in such stockholder’s best interest,
including those attempts that might result in a premium over the market price for the shares held by stockholders, and may make removal
of the incumbent management and directors more difficult.
Authorized Shares.
Our Restated Certificate of Incorporation, as amended authorizes the issuance of 4,000,000 shares of Common Stock and 2,000,000 shares
of preferred stock. These shares of Common Stock and preferred stock provide our Board of Directors with as much flexibility as possible
to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and the exercise of employee stock options.
However, these additional authorized shares may also be used by the Board of Directors consistent with its fiduciary duty to deter future
attempts to gain control of us. The Board of Directors also has sole authority to determine the terms of any one or more series of preferred
stock, including voting rights, conversion rates, and liquidation preferences. As a result of the ability to fix voting rights for any
series of preferred stock, the Board has the power, to the extent consistent with its fiduciary duty, to issue a series of preferred stock
to persons friendly to management in order to attempt to block a tender offer, merger or other transaction by which a third party seeks
control of us, and thereby assist members of management to retain their positions.
Special Meetings of
Stockholders. Our Bylaws provide that special meetings of stockholders may be called at the request in writing of (i) a majority
of the Board of Directors or (ii) stockholders owning a majority in amount of the entire capital stock of the Company issued and
outstanding and entitled to vote.
Action by Stockholders
Without a Meeting. Our Bylaws provide that any action required to be taken at any annual or special meeting of stockholders of
the Company, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote; provided, however, that a consent in writing, setting forth the action so taken,
shall be signed by the holders of the outstanding capital stock of the Company having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders
who have not consented in writing.
Delaware
Interested Stockholder Statute. Section 203 of the Delaware General Corporation Law limits our ability to enter into
business combination transactions with any interested shareholder for three years following the interested shareholder’s stock
acquisition date, unless (i) the Board of Directors approves the business combination or the stock acquisition prior to the
interested stockholder’s stock acquisition date; (ii) upon completion of the transaction, the interested stockholder
would own at least 85% of the outstanding shares of the corporation; or (iii) the business combination is approved by the Board
and subsequently approved by the stockholders by a vote of at least 66 2/3 percent of the outstanding shares which are not owned by
the interested stockholder.
An interested stockholder
includes:
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a beneficial owner, directly or indirectly, of 15% or more of our outstanding voting stock; or |
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an affiliate or associate of Air T who, at any time within the three years prior to the date in question was a beneficial owner, directly or indirectly, of 15% or more of the outstanding voting stock. |
Amendment of Restated
Certificate of Incorporation and Bylaws. Our Restated Certificate of Incorporation, as amended generally may be amended upon approval
by the Board of Directors and the holders of a majority of the outstanding shares of our capital stock. Our Bylaws may be amended either
by the Board of Directors, by a vote of a majority of the whole Board, or by our stockholders, by the vote of the holders of at least
a majority of the voting power of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting
together as a single class.
Advance Notice Provisions.
Our Bylaws provide that we must receive written notice of any stockholder proposal for business at an annual meeting of stockholders,
or any stockholder director nomination for an annual meeting of stockholders, not less than 90 days or more than 120 days before the anniversary
date of the preceding year’s annual meeting.
DESCRIPTION OF WARRANTS
We may issue, together with
other securities or separately, warrants to purchase our Common Stock, preferred stock and depositary shares. We may issue the warrants
under warrant agreements to be entered into between us and a bank or trust company, as warrant agent, all as set forth in the applicable
prospectus supplement. The warrant agent would act solely as agent for the Company in connection with the warrants of the series being
offered and neither would not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of
warrants.
This section, along with the
description in the applicable prospectus supplement, is a summary of certain provisions of the forms of warrant agreements and warrant
certificates and is not complete. We urge you to read any applicable warrant agreements and warrant certificates, because those documents,
and not these descriptions, define your rights as a holder of warrants. We will file copies of the forms of the warrant agreements and
warrant certificates as exhibits to the registration statement of which this prospectus is a part or an amendment thereto, or as exhibits
to a Current Report on Form 8-K.
Warrants of the Company
The applicable prospectus
supplement will describe the following terms, where applicable, of warrants of the Company in respect of which this prospectus is being
delivered:
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the title of the warrants; |
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the designation, amount and terms of the securities for which the warrants are
exercisable and the procedures and conditions relating to the exercise of such warrants; |
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the designation and terms of the other securities, if any, with which the warrants
are to be issued and the number of warrants issued with each such security; |
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the price or prices at which the warrants will be issued; |
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the aggregate number of warrants; |
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any provisions for adjustment of the number or amount of securities receivable
upon exercise of the warrants or the exercise price of the warrants; |
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the price or prices at which the securities purchasable upon exercise of the
warrants may be purchased; |
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if applicable, the date on and after which the warrants and the securities purchasable
upon exercise of the warrants will be separately transferable; |
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if applicable, a discussion of the material U.S. federal income tax considerations
applicable to the warrants; |
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any other terms of the warrants, including terms, procedures and limitations
relating to the exchange and exercise of the warrants; |
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the date on which the right to exercise the warrants shall commence and the
date on which the right shall expire; |
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the maximum or minimum number of warrants which may be exercised at any time; |
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whether the warrants are to be issued in registered or bearer form; |
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whether the warrants are extendible and the period or periods of such extendibility;
and |
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information with respect to book-entry procedures, if any. |
Before exercising their warrants,
holders of warrants will not have any of the rights of holders of the securities purchasable upon such exercise, including the right to
receive dividends, if any, or payments upon our liquidation, dissolution or winding-up or to exercise voting rights, if any.
Each warrant will entitle
the holder thereof to purchase for cash the amount of securities at the exercise price as will in each case be set forth in, or be determinable
as set forth in, the applicable prospectus supplement. Warrants may be exercised at any time up to the close of business on the expiration
date set forth in the applicable prospectus supplement. After the close of business on the expiration date, unexercised warrants will
become void. Warrants may be exercised as set forth in the applicable prospectus supplement relating to the warrants offered thereby.
Upon receipt of payment and the warrant certificate properly completed and duly executed at the corporate trust office of the warrant
agent or any other office indicated in the applicable prospectus supplement, we will, as soon as practicable, forward the purchased securities.
If less than all of the warrants represented by the warrant certificate are exercised, a new warrant certificate will be issued for the
remaining warrants.
Each warrant agent will act
solely as our agent under the applicable warrant agreement and will not assume any obligation or relationship of agency or trust with
any holder of any warrant. A single bank or trust company may act as warrant agent for more than one issue of warrants. A warrant agent
will have no duty or responsibility in case of any default by us under the applicable warrant agreement or warrant, including any duty
or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us. Any holder of a warrant may, without
the consent of the related warrant agent or the holder of any other warrant, enforce by appropriate legal action its right to exercise,
and receive the securities purchasable upon exercise of, that holder’s warrant(s).
DESCRIPTION OF DEPOSITARY SHARES
We may offer fractional interests
in shares of our preferred stock, rather than full shares of preferred stock. If we do, we will provide for the issuance by a depositary
to the public of receipts for depositary shares, each of which will represent a fractional interest in a share of a particular series
of preferred stock.
The shares of any series of
preferred stock underlying the depositary shares will be deposited under a separate deposit agreement between us and a bank or trust company
having its principal office in the United States and having a combined capital and surplus of such amount as may be set forth in the applicable
prospectus supplement, which we refer to in this section as the depositary. We will name the depositary in the applicable prospectus supplement.
Subject to the terms of the deposit agreement, each owner of a depositary share will have a fractional interest in all the rights and
preferences of the preferred stock underlying the depositary share. Those rights include any dividend, voting, redemption, conversion
and liquidation rights.
The depositary shares will
be evidenced by depositary receipts issued under the deposit agreement. If you purchase fractional interests in shares of the related
series of preferred stock, you will receive depositary receipts as described in the applicable prospectus supplement. Unless we specify
otherwise in the applicable prospectus supplement, you will not be entitled to receive the whole shares of preferred stock underlying
the depositary shares.
Unless otherwise provided
in the applicable prospectus supplement or required by law, the form of depositary receipt evidencing the depositary shares and any provision
of the deposit agreement may be amended at any time by an agreement between us and the depositary. Unless otherwise provided in the applicable
prospectus supplement or required by law, a deposit agreement may be terminated by either the depositary or us only if:
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all outstanding depositary shares relating to the deposit agreement have been redeemed; or |
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there has been a final distribution on the preferred stock of the relevant series in connection with our liquidation, dissolution or winding up and the distribution has been distributed to the holders of the related depositary receipts evidencing the depositary shares. |
If necessary, the prospectus
supplement will provide a description of U.S. Federal income tax consequences relating to the purchase and ownership of the series of
depositary shares offered by that prospectus supplement.
We will pay all transfer and
other taxes and governmental charges arising solely from the existence of the depositary arrangements. We will pay charges of the depositary
associated with the initial deposit and any redemption of the preferred stock. Holders of depositary shares will pay transfer and other
taxes and governmental charges, and any other charges that are stated to be their responsibility in the deposit agreement.
The depositary will forward
to the holders of depositary shares all reports and communications that it receives from us, and that we are required to furnish to the
holders of the preferred stock. The description in the applicable prospectus supplement and other offering material of any depositary
shares we offer will not necessarily be complete and will be qualified in its entirety by reference to the applicable depositary agreement,
which will be filed with the SEC if we offer depositary shares, and the terms of the underlying preferred stock.
DESCRIPTION OF UNITS
We may issue units comprising
one or more of the securities described in this prospectus in any combination. Each unit will be issued so that the holder of the unit
also is the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder
of each included security. The unit agreement under which a unit is issued may provide that the securities included in the unit may not
be held or transferred separately at any time or at any time before a specified date.
The applicable prospectus
supplement relating to the units we may offer will include specific terms relating to the offering, including, among others: the designation
and terms of the units and of the securities comprising the units, and whether and under what circumstances those securities may be held
or transferred separately; any provision for the issuance, payment, settlement, transfer or exchange of the units or of the securities
comprising those units; and whether the units will be issued in fully registered or global form.
The description in the applicable
prospectus supplement and other offering material of any units we offer will not necessarily be complete and will be qualified in its
entirety by reference to the applicable unit agreement, which will be filed with the SEC if we offer units. For more information on how
you can obtain copies of the applicable unit agreement if we offer units, see “Incorporation of Certain Information by Reference”
and “Where You can Find More Information”. We urge you to read the applicable unit agreement and the applicable prospectus
supplement and any other offering material in their entirety.
DESCRIPTION OF DEBT SECURITIES
The following is a description
of the material features, terms and provisions of debt securities that we may offer. This summary does not purport to be exhaustive and
may not contain all the information that is important to you. Therefore, you should read the applicable prospectus supplement relating
to those debt securities and any other offering materials that we may provide.
We may issue debt securities
from time to time in one or more series. Unless otherwise stated in the applicable prospectus supplement, we will not be limited in the
amount of debt securities that we may issue, and neither the senior debt securities nor the subordinated debt securities will be secured
by any of our property or assets. Thus, by owning debt securities, you are one of our unsecured creditors.
We are a holding company and
conduct substantially all of our operations through subsidiaries. As a result, claims of holders of debt securities will generally have
a junior position to claims of creditors of our subsidiaries, except to the extent that we may be recognized as a creditor of those subsidiaries.
In addition, our right to participate as a stockholder in any distribution of assets of any subsidiary (and thus the ability of holders
of debt securities to benefit from such distribution as our creditors) is junior to creditors of each subsidiary.
We may issue senior debt securities
or subordinated debt securities under one or separate indentures, which may be supplemented or amended from time to time. Senior debt
securities will be issued under one or more senior indentures and subordinated debt securities will be issued under one or more subordinated
indentures. Any senior debt indentures and subordinated debt indentures are referred to individually in this prospectus as the “indenture”
and collectively as the “indentures.” The particular terms of a series of debt securities will be described in a prospectus
supplement relating to such series of debt securities. Any indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended, and may be supplemented or amended from time to time following their execution and will be filed as exhibits to the registration
statement of which this prospectus forms a part or incorporated therein by reference.
Any indentures will contain
the full legal text of the matters described in this section of the prospectus. Because this section is a summary, it does not describe
every aspect of the debt securities or any applicable indentures. This summary is therefore subject to and is qualified in its entirety
by reference to all the provisions of any applicable indenture, including any definitions of terms used in such indenture. Your rights
will be defined by the terms of any applicable indenture, not the summary provided herein. This summary is also subject to and qualified
by reference to the description of the particular terms of a particular series of debt securities described in the applicable prospectus
supplement or supplements.
The debt securities may be
denominated and payable in U.S. dollars. We may also issue debt securities, from time to time, with the principal amount, interest or
other amounts payable on any relevant payment date to be determined by reference to one or more currency exchange rates, securities or
baskets of securities, commodity prices, indices or any other financial, economic or other measure or instrument, including the occurrence
or non-occurrence of any event or circumstance. In addition, we may issue debt securities as part of any units issued by us. All references
in this prospectus or any prospectus supplement to other amounts will include premiums, if any, other cash amounts payable under the applicable
indenture, and the delivery of securities or baskets of securities under the terms of the debt securities. Debt securities may bear interest
at a fixed rate, which may be zero, or a floating rate.
Some of the debt securities
may be issued as original issue discount debt securities. Original issue discount securities bear no interest or bear interest at below
market rates and will be sold at a discount below their stated principal amount. A prospectus supplement relating to an issue of original
issue discount securities will contain information relating to United States federal income tax, accounting, and other special considerations
applicable to original issue discount securities.
We will set forth in the applicable
prospectus supplement the terms, if any, on which a series of debt securities may be convertible into or exchangeable for our preferred
stock, Common Stock or other securities. We will include provisions as to whether conversion or exchange is mandatory, at the option of
the holder or at our option. We may include provisions pursuant to which the number of shares of our preferred stock, Common Stock or
other securities that holders of the series of debt securities receive would be subject to adjustment.
We will generally have no
obligation to repurchase, redeem, or change the terms of debt securities upon any event (including a merger, consolidation, change in
control or disposition of substantially all of our assets) that might have an adverse effect on our credit quality.
Terms of Debt Securities to be Included in
the Prospectus Supplement
The prospectus supplement
relating to any series of debt securities that we may offer will set forth the price or prices at which the debt securities will be offered,
and will contain the specific terms of the debt securities of that series. These terms may include, without limitation, the following:
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the title of the debt securities and whether they are senior debt securities
or senior subordinated debt securities; |
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the amount of debt securities issued and any limit on the amount that may be
issued; |
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the price(s) (expressed as a percentage of the principal amount) at which
the debt securities will be issued; |
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if other than the principal amount of those debt securities, the portion of
the principal amount payable upon declaration of acceleration of the maturity of those debt securities; |
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the maturity date or dates, or the method for determining the maturity date
or dates, on which the principal of the debt securities will be payable and any rights of extension; |
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the rate or rates, which may be fixed or variable, or the method of determining
the rate or rates at which the debt securities will bear interest, if any; |
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the date or dates from which any interest will accrue and the date or dates
on which any interest will be payable, the regular related record dates and whether we may elect to extend or defer such interest
payment dates; |
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the place or places where payments will be payable, where the debt securities
may be surrendered for registration of transfer or exchange and where notices or demands to or upon us may be served; |
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the period or periods within which, the price or prices at which and the other
terms and conditions upon which the debt securities may be redeemed, in whole or in part, at our option, if we are to have such an
option; |
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our obligation, if any, to redeem, repay or purchase the debt securities pursuant
to any sinking fund or analogous provision or at the option of a holder of the debt securities, and the period or periods within
which, or the date and dates on which, the price or prices at which and the other terms and conditions upon which the debt securities
will be redeemed, repaid or purchased, in whole or in part, pursuant to that obligation; |
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the currency or currencies in which the debt securities may be purchased, are
denominated and are payable, which may be a foreign currency or units of two or more foreign currencies or a composite currency or
currencies, and the related terms and conditions, including whether we or the holders of any such debt securities may elect to receive
payments in respect of such debt securities in a currency or currency unit other than that in which such debt securities are stated
to be payable; |
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whether the amount of payments of principal of and premium, if any, or interest,
if any, on the debt securities may be determined with reference to an index, formula or other method, which index, formula or method
may, but need not be, based on a currency, currencies, currency unit or units or composite currency or currencies or with reference
to changes in prices of particular securities or commodities, and the manner in which the amounts are to be determined; |
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any additions to, modifications of or deletions from the terms of the debt securities
with respect to events of default, amendments, merger, consolidation and sale or covenants set forth in the applicable indenture; |
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whether the debt securities will be in registered or bearer form or both and,
if in registered form, their denominations, if other than $1,000 and any integral multiple thereof, and, if in bearer form, their
denominations, if other than $5,000, and the related terms and conditions; |
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if the debt securities will be issuable only in global form, the depository
or its nominee with respect to the debt securities and the circumstances under which the global security may be registered for transfer
or exchange in the name of a person other than the depository or its nominee; |
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the applicability, if any, of the defeasance and covenant defeasance provisions
of the indenture and any additional or different terms on which the series of debt securities may be defeased; |
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whether and the extent to which the debt securities will be guaranteed, any
guarantors and the form of any guarantee; |
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whether the debt securities can be converted into or exchanged for other securities
of Air T and the related terms and conditions; |
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in the case of senior subordinated debt securities, provisions relating to any
modification of the subordination provisions; |
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whether the debt securities will be sold as part of units consisting of debt
securities and other securities; |
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whether the debt securities will be issued in certificated or book-entry form; |
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if the debt securities are to be issued upon the exercise of warrants, the time,
manner and place for the debt securities to be authenticated and delivered; |
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any trustee, depositary, authenticating agent, paying agent, transfer agent,
registrar or other agent with respect to the debt securities; and |
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any other terms of the debt securities. |
DESCRIPTION OF CAPITAL SECURITIES, JUNIOR SUBORDINATED
DEBENTURES AND GUARANTEE
We may issue, together with
other securities or separately, Capital Securities and Junior Subordinated Debentures and a Guarantee. Such securities would be issued
under the current Trust Agreement, as amended and other existing documents relating to such securities all as amended and as set forth
in the applicable prospectus supplement. As of January 31, 2024, there are 1,726,974 shares of Capital Securities and $33,667,000
in principal amount of Junior Subordinated Debentures outstanding.
This section, along with the
description in the applicable prospectus supplement, is a summary of certain matters related to the Capital Securities, Junior Subordinated
Debentures and Guarantee and is not complete. We urge you to read any applicable Capital Security, Junior Subordinated Debenture and Guarantee,
because those documents, and not these descriptions, will define your rights as a holder. We will file copies of the forms of these documents
and any amendments thereto as exhibits to the registration statement of which this prospectus is a part or an amendment thereto, or as
exhibits to a Current Report on Form 8-K.
GENERAL
The Capital Securities and
the Common Securities related thereto will be issued pursuant to the terms of the Trust Agreement, as amended. The Trust Agreement, as
amended is qualified as an indenture under the Trust Indenture Act. As used herein, (i) the “Indenture” means the Subordinated
Indenture dated as of June 10, 2019, as amended and as amended and supplemented from time to time, among the Company and Delaware
Trust Company, a Delaware chartered trust company, as trustee (the “Indenture Trustee” and also referred to as the “Delaware
Trustee” and “Property Trustee”) and Equiniti Trust Company, LLC, a New York limited liability trust company solely
in its capacity as paying agent (the “Paying Agent”); and (ii) the “Trust Agreement” means the Interim Trust
Agreement dated as of September 28, 2018, among the Company, as Depositor, Delaware Trust Company, as Delaware Trustee and the individual
Operating Trustees, as superseded and replaced by the Trust Agreement dated as of June 10, 2019, as amended and as amended and supplemented
from time to time, among the Company, as Depositor, Delaware Trust Company, as Property Trustee, Delaware Trust Company, as Delaware Trustee
and the individual Administrative Trustees.
The terms of the Capital Securities
include those stated in the Trust Agreement and those made part of the Trust Agreement by the Trust Indenture Act. This summary of certain
terms and provisions of the Capital Securities and the Trust Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Trust Agreement, including the definitions therein of certain terms, and the
Trust Indenture Act. Wherever particular defined terms of the Trust Agreement (as amended or supplemented from time to time) are referred
to herein, such defined terms are incorporated herein.
DESCRIPTION OF CAPITAL SECURITIES
General
Pursuant to the terms of the
Trust Agreement, the Administrative Trustees on behalf of Air T Funding will issue the Capital Securities and the Common Securities related
thereto (collectively, the “Trust Securities”). The Capital Securities will represent preferred undivided beneficial interests
in the assets of Air T Funding and the holders thereof will be entitled to a preference in certain circumstances with respect to Distributions
and amounts payable on redemption or liquidation over the Common Securities of Air T Funding (which are and will be held by the Company),
as well as other benefits as described in the Trust Agreement.
The Capital Securities will
rank pari passu, and payments will be made thereon pro rata, with the Common Securities of Air T Funding except as described under “Subordination
of Common Securities of Air T Funding Held by the Company” below.
Legal title to the Junior
Subordinated Debentures will be held by the Property Trustee in trust for the benefit of the holders of the Trust Securities. The Guarantee
executed by the Company for the benefit of the holders of the Capital Securities (the “Guarantee”) is a guarantee on a subordinated
basis and does not guarantee payment of Distributions or amounts payable on redemption of the Capital Securities or on liquidation of
the Capital Securities if Air T Funding does not have funds on hand available to make such payments. See “Description of Guarantee.”
Distributions
Payment of Distributions
Distributions on the
Capital Securities will be payable at the annual rate of 8% of the stated Liquidation Amount of $25.00, payable quarterly in arrears
on the 15th day of February, May, August, and November in each year, to the holders of the Capital Securities on the relevant
record dates (each date on which Distributions are payable in accordance with the foregoing, a “Distribution Date”). The
amount of each distribution due with respect to the Capital Securities will include amounts accrued through the date the
distribution payment is due. Distributions on the Capital Securities will be payable to the holders thereof as they appear on the
register of Air T Funding on the relevant record date which, for so long as the Capital Securities remain in book-entry form, will
be one Business Day (as defined below) prior to the relevant Distribution Date and, in the event the Capital Securities are not in
book-entry form, will be the 1st day of the month in which the relevant Distribution Date occurs. Distributions will accumulate from
the date of original issuance. Additionally, from time to time the Board may in its sole discretion may declare Distributions in
addition to the Distributions equal to the 8.0% per annum Liquidation Amount of the Trust Securities.
The amount of Distributions
payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which Distributions
are payable on the Capital Securities is not a Business Day, payment of the Distribution payable on such date will be made on the next
Business Day (and without any interest or other payment in respect to any such delay) except that, if such Business Day is in the next
succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on the date such payment was originally payable. As used in this Prospectus, a “Business Day”
shall mean any day other than a Saturday or a Sunday, or a day on which banking institutions in the State of Minnesota are authorized
or required by law or executive order to remain closed or a day on which the corporate trust office of the Property Trustee or the Indenture
Trustee is closed for business.
The funds of Air T Funding
available for distribution to holders of its Capital Securities will be limited to payments by the Company under the Junior Subordinated
Debentures in which Air T Funding will invest the proceeds from the issuance and sale of its Capital Securities. See “Description
of Junior Subordinated Debentures.” If the Company does not make interest payments on the Junior Subordinated Debentures, the Property
Trustee will not have funds available to pay Distributions on the Capital Securities. The payment of Distributions (if and to the extent
Air T Funding has funds legally available for the payment of such Distributions and cash sufficient to make such payments) is guaranteed
by the Company. See “Description of Guarantee.”
Extension Period
So long as no Debenture Event
of Default has occurred and is continuing, at any time on or after, June 7, 2024, the Company has the right under the Indenture to
defer the payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive
quarters with respect to each such period (each, an “Extension Period”), provided that no Extension Period may extend beyond
the Stated Maturity of the Junior Subordinated Debentures. As a consequence of any such election, quarterly Distributions on the Capital
Securities will be deferred by Air T Funding during any such Extension Period. Distributions to which holders of Capital Securities are
entitled will accumulate additional amounts thereon at the rate per annum of 8% thereof, compounded quarterly from the relevant Distribution
Date, to the extent permitted under applicable law. The term “Distributions” as used herein shall include any such additional
accumulated amounts. During any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on,
or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company’s capital stock (which includes
common and preferred stock) or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks
pari passu with or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in Common
Stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholders’ rights plan,
or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments
under the Guarantee and (d) purchases of Common Stock for issuance under any of the Company’s benefit plans for its directors,
officers or employees). Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided
that such extension does not cause such Extension Period to exceed 20 consecutive quarters or extend beyond the Stated Maturity. Upon
the termination of any such Extension Period and the payment of all amounts then due, and subject to the foregoing limitations, the Company
may elect to begin a new Extension Period. Subject to the foregoing, there is no limitation on the number of times that the Company may
elect to begin an Extension Period.
The Company has no current
intention of exercising its right to defer payments of interest by extending the interest payment period on the Junior Subordinated Debentures.
Redemption
Mandatory Redemption
The Trust Securities are subject
to mandatory redemption at any time on or after June 7, 2024. Upon the repayment or redemption at any time, in whole or in part,
of any Junior Subordinated Debentures, the proceeds from such repayment or redemption shall be applied by the Property Trustee to redeem
a Like Amount (as defined below) of the Trust Securities, upon not less than 30 nor more than 60 days’ notice of a date of redemption
(the “Redemption Date”), at the Redemption Price (as defined below). See “Description of Junior Subordinated Debentures
-- Redemption.” If less than all of the Junior Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then the
proceeds from such repayment or redemption shall be allocated to the redemption of the Trust Securities pro rata.
Optional Redemption
The Company will have the
right to redeem the Junior Subordinated Debentures (i) on or after June 7, 2024, in whole at any time or in part from time to
time at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed
for redemption, plus 100% of the principal amount thereof, or (ii) at any time, in whole (but not in part), upon the occurrence of
a Tax Event, an Investment Company Event or a Capital Treatment Event at a redemption price equal to the accrued and unpaid interest on
the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. See “Description
of Junior Subordinated Debentures --Redemption.”
Tax Event Redemption, Investment Company Event Redemption, Capital
Treatment Event Redemption or Distribution of Junior Subordinated Debentures
If a Tax Event, an Investment
Company Event or a Capital Treatment Event shall occur and be continuing, the Company has the right to redeem the Junior Subordinated
Debentures in whole (but not in part) and thereby cause a mandatory redemption of the Trust Securities in whole (but not in part) at the
Redemption Price (as defined below) within 90 days following the occurrence of such Tax Event, Investment Company Event or Capital
Treatment Event. In the event a Tax Event, an Investment Company Event or Capital Treatment Event has occurred and is continuing and the
Company does not elect to redeem the Junior Subordinated Debentures and thereby cause a mandatory redemption of the Trust Securities or
to liquidate Air T Funding and cause the Junior Subordinated Debentures to be distributed to holders of the Trust Securities in liquidation
of Air T Funding as described below, such Trust Securities will remain outstanding and Additional Sums (as defined below) may be payable
on the Junior Subordinated Debentures.
Definitions
“Additional Sums”
means the additional amounts as may be necessary to be paid by the Company with respect to the Junior Subordinated Debentures in order
that the amount of Distributions then due and payable by Air T Funding on the outstanding Trust Securities of Air T Funding shall not
be reduced as a result of any additional taxes, duties and other governmental charges to which Air T Funding has become subject.
“Like Amount”
means (i) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount (as defined below) equal
to that portion of the principal amount of Junior Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture,
allocated to the Common Securities and to the Capital Securities based upon the relative Liquidation Amounts of such classes and the proceeds
of which will be used to pay the Redemption Price of such Trust Securities, and (ii) with respect to a distribution of Junior Subordinated
Debentures to holders of Trust Securities in connection with a dissolution or liquidation of Air T Funding, Junior Subordinated Debentures
having a principal amount equal to the Liquidation Amount of the Trust Securities of the holder to whom such Junior Subordinated Debentures
are distributed.
“Liquidation Amount”
means the stated amount of $25.00 per Trust Security.
“Redemption Price”
means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to
the Redemption Date, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities.
Distribution of Junior Subordinated Debentures
The Company will have the
right at any time to liquidate Air T Funding and, after satisfaction of the liabilities of creditors of Air T Funding as provided by applicable
law, cause the Junior Subordinated Debentures to be distributed to the holders of Trust Securities in liquidation of Air T Funding. After
the liquidation date fixed for any distribution of Junior Subordinated Debentures for Capital Securities (i) such Capital Securities
will no longer be deemed to be outstanding, (ii) the Depositary or its nominee, as the record holder of the Capital Securities, will
receive a registered global certificate or certificates representing the Junior Subordinated Debentures to be delivered upon such distribution
and (iii) any certificates representing Capital Securities not held by the Depositary or its nominee will be deemed to represent
the Junior Subordinated Debentures having a principal amount equal to the Liquidation Amount of such Capital Securities, and bearing accrued
and unpaid interest in an amount equal to the accrued and unpaid Distributions on the Capital Securities until such certificates are presented
to the Administrative Trustees or their agent for transfer or reissuance.
There can be no assurance
as to the market prices for the Capital Securities or the Junior Subordinated Debentures that may be distributed in exchange for the Capital
Securities if a dissolution and liquidation of Air T Funding were to occur. Accordingly, the Capital Securities that an investor may purchase,
or the Junior Subordinated Debentures that the investor may receive on dissolution and liquidation of Air T Funding, may trade at a discount
to the price that the investor paid to purchase the Capital Securities offered hereby.
Redemption Procedures
Capital Securities redeemed
on each Redemption Date shall be redeemed at the Redemption Price with the applicable proceeds from the contemporaneous redemption of
the Junior Subordinated Debentures. Redemptions of the Capital Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that Air T Funding has funds on hand available for the payment of such Redemption Price. See “--
Subordination of Common Securities of Air T Funding Held by the Company” and “-- Guarantee.”
If Air T Funding gives a
notice of redemption in respect of the Capital Securities, then, by 12:00 noon, Minneapolis time, on the Redemption Date, to the
extent funds are available, the Property Trustee will deposit with the Depositary funds sufficient to pay the aggregate Redemption
Price and will give the Depositary irrevocable instructions and authority to pay the Redemption Price to the holders of such Capital
Securities. See “Book-Entry Issuance.” If such Capital Securities are no longer in book-entry form, the Property
Trustee, to the extent funds are available, will deposit with the paying agent for such Capital Securities funds sufficient to pay
the aggregate Redemption Price and will give such paying agent irrevocable instructions and authority to pay the Redemption Price to
the holders thereof upon surrender of their certificates evidencing such Capital Securities. Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date shall be payable to the holders of such Capital Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then
upon the date of such deposit, all rights of the holders of the Capital Securities will cease, except the right of the holders of
the Capital Securities to receive the applicable Redemption Price, but without interest on such Redemption Price, and such Capital
Securities will cease to be outstanding. In the event that any date fixed for redemption of such Capital Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding Business Day (and
without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price in
respect of Capital Securities called for redemption is improperly withheld or refused and not paid either by Air T Funding or by the
Company pursuant to the Guarantee, Distributions on such Capital Securities will continue to accrue at the then applicable rate,
from the Redemption Date originally established by Air T Funding for such Capital Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the
Redemption Price. See “Description of Guarantee.” Subject to applicable law (including, without limitation, United
States federal securities law), the Company may at any time and from time to time purchase outstanding Capital Securities by tender,
in the open market or by private agreement. Payment of the Redemption Price on the Capital Securities and any distribution of Junior
Subordinated Debentures to holders of Capital Securities shall be made to the applicable recordholders thereof as they appear on the
register of such Capital Securities on the relevant record date, which date shall be one Business Day prior to the relevant
Redemption Date or Liquidation Date, as applicable; provided, however, that in the event that any Capital Securities are not in
book-entry form, the relevant record date for such Capital Securities shall be a date at least 15 days prior to the Redemption Date
or Liquidation Date, as applicable. In the case of a liquidation, the record date shall be no more than 45 days before the
Liquidation Date.
If less than all of the Trust
Securities issued by Air T Funding are to be redeemed on a Redemption Date, then the aggregate Redemption Price for such Trust Securities
to be redeemed shall be allocated pro rata to the Capital Securities and Common Securities based upon the relative Liquidation Amounts
of such classes. The particular Capital Securities to be redeemed shall be selected by the Property Trustee from the outstanding Capital
Securities not previously called for redemption, by such method as the Property Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions (equal to $25.00 or an integral multiple thereof) of the Liquidation Amount of Capital
Securities. The Property Trustee shall promptly notify the Trust Securities registrar in writing of the Capital Securities selected for
redemption and, in the case of any Capital Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed.
For all purposes of the Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Capital Securities
shall relate to the portion of the aggregate Liquidation Amount of Capital Securities which has been or is to be redeemed. Notice of any
redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each holder of Trust Securities at
such holder’s registered address. Unless Air T Funding defaults in payment of the applicable Redemption Price, on and after the
Redemption Date, Distributions will cease to accrue on such Capital Securities called for redemption.
Subordination of Common Securities of Air T
Funding Held by the Company
Payment of Distributions on,
and the Redemption Price of, the Capital Securities and Common Securities, as applicable, shall be made pro rata based on the Liquidation
Amounts of the Capital Securities and Common Securities; provided, however, that if on any Distribution Date or Redemption Date a Debenture
Event of Default shall have occurred and be continuing, no payment of any Distribution on, or applicable Redemption Price of, any of the
Common Securities, and no other payment on account of the redemption, liquidation or other acquisition of the Common Securities, shall
be made unless payment in full in cash of all accumulated and unpaid Distributions on all of the outstanding Capital Securities for all
Distribution periods terminating on or prior thereto, or in the case of payment of the applicable Redemption Price the full amount of
such Redemption Price on all of the outstanding Capital Securities then called for redemption, shall have been made or provided for, and
all funds available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions on, or Redemption
Price of, the Capital Securities then due and payable.
In the case of any Event of
Default under the Trust Agreement resulting from a Debenture Event of Default, the Company as holder of the Common Securities will be
deemed to have waived any right to act with respect to any such Event of Default until the effect of all such Events of Default have been
cured, waived or otherwise eliminated. Until any such Events of Default have been so cured, waived or otherwise eliminated, the Property
Trustee shall act solely on behalf of the holders of the Capital Securities and not on behalf of the Company as holder of the Common Securities,
and only the holders of the Capital Securities will have the right to direct the Property Trustee to act on their behalf.
Liquidation Distribution Upon Termination
The Company will have the
right at any time to terminate Air T Funding and cause the Junior Subordinated Debentures to be distributed to the holders of the Capital
Securities. See “Distribution of Junior Subordinated Debentures” above.
In addition, pursuant to the
Trust Agreement, Air T Funding shall automatically terminate upon expiration of its term and shall earlier terminate on the first to occur
of: (i) certain events of bankruptcy, dissolution or liquidation of the Company; (ii) delivery by the Company of written direction
to the Property Trustee to terminate Air T Funding (which direction is optional and wholly within the discretion of the Company); (iii) redemption
of all of the Capital Securities as described under “Description of the Capital Securities --Redemption -- Mandatory Redemption;”
and (iv) the entry of an order for the dissolution of Air T Funding by a court of competent jurisdiction.
If an early termination occurs
as described in clause (i), (ii) or (iv) above, Air T Funding shall be liquidated by the Trustees as expeditiously as the Trustees
determine to be possible by distributing, after satisfaction of liabilities to creditors of Air T Funding as provided by applicable law,
to the holders of such Trust Securities a Like Amount of the Junior Subordinated Debentures, unless such distribution is determined by
the Property Trustee not to be practical, in which event such holders will be entitled to receive out of the assets of Air T Funding available
for distribution to holders, after satisfaction of liabilities to creditors of Air T Funding as provided by applicable law, an amount
equal to, in the case of holders of Capital Securities, the aggregate of the Liquidation Amount of $25.00 per Trust Security plus accrued
and unpaid Distributions thereon to the date of payment (such amount being the “Liquidation Distribution”). If such Liquidation
Distribution can be paid only in part because Air T Funding has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by Air T Funding on the Capital Securities shall be paid on a pro rata basis. The holder(s) of
the Common Securities will be entitled to receive distributions upon any such liquidation pro rata with the holders of the Capital Securities,
except that if a Debenture Event of Default has occurred and is continuing, the Capital Securities shall have a priority over the Common
Securities.
Under current United
States federal income tax law and interpretations and assuming, as expected, Air T Funding is treated as a grantor trust, a
distribution of the Junior Subordinated Debentures should not be a taxable event to holders of the Capital Securities. Should there
be a change in law, a change in legal interpretation, a Tax Event or other circumstances, however, the distribution could be a
taxable event to holders of the Capital Securities. If the Company elects neither to redeem the Junior Subordinated Debentures prior
to maturity nor to liquidate Air T Funding and distribute the Junior Subordinated Debentures to holders of the Capital Securities,
the Capital Securities will remain outstanding until the repayment of the Junior Subordinated Debentures.
If the Company elects to liquidate
Air T Funding and thereby causes the Junior Subordinated Debentures to be distributed to holders of the Capital Securities in liquidation
of Air T Funding, the Company shall continue to have the right to shorten the maturity of such Junior Subordinated Debentures, subject
to certain conditions. See “Description of Junior Subordinated Debentures -- General.”
Events of Default; Notice
Any one of the following events
that has occurred and is continuing constitutes an “Event of Default” under the Trust Agreement (an “Event of Default”)
with respect to the Capital Securities (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary
or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body): (i) the occurrence of a Debenture Event of Default under the Indenture (see “Description
of Junior Subordinated Debentures -- Debenture Events of Default”); or (ii) default by the Property Trustee in the payment
of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (iii) default by
the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (iv) default
in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in the Trust Agreement (other than
a default or breach in the performance of a covenant or warranty which is addressed in clause (ii) or (iii) above), and continuation
of such default or breach, for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Trustee
or Trustees by the holders of at least 25% in aggregate Liquidation Amount of the outstanding Capital Securities, a written notice specifying
such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” under the Trust
Agreement; or (v) the occurrence of certain events of bankruptcy or insolvency with respect to the Property Trustee and the failure
by the Company to appoint a successor Property Trustee within 60 days thereof.
Within five Business Days
after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit notice of such
Event of Default to the holders of the Capital Securities, the Administrative Trustees and the Company, unless such Event of Default shall
have been cured or waived. The Company and the Administrative Trustees are required to file annually with the Property Trustee a certificate
as to whether or not they are in compliance with all the conditions and covenants applicable to them under the Trust Agreement. If a Debenture
Event of Default has occurred and is continuing, the Capital Securities shall have a preference over the Common Securities upon termination
of Air T Funding as described above. See “-- Liquidation Distribution Upon Termination.” Upon a Debenture Event of Default,
unless the principal of all the Junior Subordinated Debentures has already become due and payable, either the Property Trustee or the
holders of not less than 25% in aggregate principal amount of the Junior Subordinated Debentures then outstanding may declare all of the
Junior Subordinated Debentures to be due and payable immediately by giving notice in writing to the Company (and to the Property Trustee,
if notice is given by holders of the Junior Subordinated Debentures). If the Property Trustee or the holders of the Junior Subordinated
Debentures fail to declare the principal of all of the Junior Subordinated Debentures due and payable upon a Debenture Event of Default,
the holders of at least 25% in Liquidation Amount of the Capital Securities then outstanding shall have the right to declare the Junior
Subordinated Debentures immediately due and payable. In either event, payment of principal and interest on the Junior Subordinated Debentures
shall remain subordinated to the extent provided in the Indenture. In addition, holders of the Capital Securities have the right in certain
circumstances to bring a Direct Action (as hereinafter defined). See “Description of Junior Subordinated Debentures -- Enforcement
of Certain Rights by Holders of Capital Securities.”
Removal of Trustees
Unless a Debenture Event of
Default shall have occurred and be continuing, any Trustee may be removed at any time by the holder of the Common Securities. If a Debenture
Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders
of a majority in Liquidation Amount of the outstanding Capital Securities. In no event will the holders of the Capital Securities have
the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in the Company
as the holder of the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance with the provisions of the Trust Agreement.
Co-Trustees and Separate Property Trustee
Unless an Event of Default
shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture
Act or of any jurisdiction in which any part of Trust Property may at the time be located, the Company, as the holder of the Common Securities,
and the Administrative Trustees shall have power to appoint one or more persons either to act as a co-trustee, jointly with the Property
Trustee, of all or any part of such Trust Property, or to act as separate trustee of any such property, in either case with such powers
as may be provided in the instrument of appointment, and to vest in such person or persons in such capacity any property, title, right
or power deemed necessary or desirable, subject to the provisions of the Trust Agreement. In case a Debenture Event of Default has occurred
and is continuing, the Property Trustee alone shall have power to make such appointment.
Merger or Consolidation of Trustees
Any Person (as defined in
the Trust Agreement) into which the Property Trustee, the Delaware Trustee or any Administrative Trustee that is not a natural person
may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation
to which such Trustee shall be a party, or any person succeeding to all or substantially all the corporate trust business of such Trustee,
shall be the successor of such Trustee under the Trust Agreement, provided such corporation shall be otherwise qualified and eligible.
Mergers, Consolidation, Amalgamations or Replacements
of Air T Fund
Air T Funding may not merge
with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety
to any corporation or other Person, except as described below. Air T Funding may, at the request of the Company, with the consent of the
Administrative Trustees and without the consent of the holders of the Capital Securities, merge with or into, consolidate, amalgamate,
or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under
the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of Air T
Funding with respect to the Capital Securities or (b) substitutes for the Capital Securities other securities having substantially
the same terms as the Capital Securities (the “Successor Securities”) so long as the Successor Securities rank the same as
the Capital Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder
of the Junior Subordinated Debentures, (iii) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease
does not cause adversely affect the rights, preferences and privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect, (iv) such successor entity has a purpose identical to that of Air T Funding, (v) the Successor
Securities will be listed or traded on any national securities exchange or other organization on which the Capital Securities may then
be listed, (vi) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Company has received
an opinion from independent counsel to Air T Funding experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders
of the Capital Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, neither Air T Funding nor such successor entity will be required to register
as an investment company under the Investment Company Act and (vii) the Company or any permitted successor or designee owns all of
the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities
at least to the extent provided by the Guarantee. Notwithstanding the foregoing, Air T Funding shall not, except with the consent of holders
of 100% in Liquidation Amount of the Capital Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer
or lease its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause
Air T Funding or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes.
Voting Rights, Amendment of the Trust Agreement
Except as provided below and
under “Description of Guarantee – Amendments and Assignment” and as otherwise required by law and the Trust Agreement,
the holders of the Capital Securities will have no voting rights.
The Trust Agreement may be
amended from time to time by the Company, the Property Trustee and the Administrative Trustees, without the consent of the holders of
the Trust Securities, (i) to cure any ambiguity, correct or supplement any provisions in the Trust Agreement that may be inconsistent
with any other provision, or to make any other provisions with respect to matters or questions arising under the Trust Agreement, which
shall not be inconsistent with the other provisions of the Trust Agreement, or (ii) to modify, eliminate or add to any provisions
of the Trust Agreement to such extent as shall be necessary to ensure that Air T Funding will be classified for United States federal
income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that Air T Funding will not
be required to register as an “investment company” under the Investment Company Act; provided, however, that in the case of
clause (i), such action shall not adversely affect in any material respect the interests of any holder of Trust Securities, and any amendments
of the Trust Agreement shall become effective when notice thereof is given to the holders of the Trust Securities. The Trust Agreement
may be amended by the Trustees and the Company with (i) the consent of holders representing not less than a majority of the aggregate
Liquidation Amount of the outstanding Trust Securities, and (ii) receipt by the Trustees of an opinion of counsel to the effect that
such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect Air T Funding’s
status as a grantor trust for United States federal income tax purposes or Air T Funding’s exemption from status as an “investment
company” under the Investment Company Act, provided that without the consent of each holder of Trust Securities, the Trust Agreement
may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the
amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right
of a holder of Trust Securities to institute suit for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated
Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding
for any remedy available to the Indenture Trustee, or executing any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Junior Subordinated Debentures shall be due and payable or (iv) consent
to any amendment, modification or termination of the Indenture or the Junior Subordinated Debentures, where such consent shall be required,
without, in each case, obtaining the prior approval of the holders of a majority in aggregate Liquidation Amount of all outstanding the
Capital Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Junior Subordinated
Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior consent of each holder of the Capital
Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the holders of the Capital Securities
except by subsequent vote of the holders of the Capital Securities. The Property Trustee shall notify each holder of the Capital Securities
of any notice of default with respect to the Junior Subordinated Debentures. In addition to obtaining the foregoing approvals of such
holders of the Capital Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an opinion of counsel experienced
in such matters to the effect that Air T Funding will not be classified as an association taxable as a corporation for United States federal
income tax purposes on account of such action.
Any required approval of holders
of the Capital Securities may be given at a meeting of holders of Capital Securities convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which holders of the Capital Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be taken, to be given to each holder of record of the Capital Securities
in the manner set forth in the Trust Agreement. No vote or consent of the holders of the Capital Securities will be required for Air T
Funding to redeem and cancel the Capital Securities in accordance with the Trust Agreement.
Global Capital Securities
The Capital Securities will
be represented by one or more global certificates registered in the name of the Depositary or its nominee (“Global Capital Security”).
Beneficial interests in the Capital Securities will be shown on, and transfers thereof will be effected only through, records maintained
by participants in the Depositary. Except as described below, Capital Securities in certificated form will not be issued in exchange for
the global certificates. See “Book-Entry Issuance.”
A global security shall be
exchangeable for Capital Securities registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary
notifies the Company that it is unwilling or unable to continue as a depositary for such global security and no successor depositary shall
have been appointed, or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934,
as amended, at a time when the Depositary is required to be so registered to act as such depositary, (ii) the Company in its sole
discretion determines that such global security shall be so exchangeable, or (iii) there shall have occurred and be continuing an
Event of Default under the Indenture. Any global security that is exchangeable pursuant to the preceding sentence shall be exchangeable
for definitive certificates registered in such names as the Depositary shall direct. It is expected that such instructions will be based
upon directions received by the Depositary with respect to ownership of beneficial interests in such global security. In the event that
Capital Securities are issued in definitive form, such Capital Securities will be in denominations of $25.00 and integral multiples thereof
and may be transferred or exchanged at the offices described below.
Unless and until it is exchanged
in whole or in part for the individual Capital Securities represented thereby, a Global Capital Securities may not be transferred except
as a whole by the Depositary to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee
of such Depositary or by the Depositary or any nominee to a successor Depositary or any nominee of such successor.
Payments on Capital Securities
represented by a global security will be made to the Depositary, as the depositary for the Capital Securities. In the event the Capital
Securities are issued in definitive form, Distributions will be payable, the transfer of the Capital Securities will be registrable, and
Capital Securities will be exchangeable for Capital Securities of other denominations of a like aggregate Liquidation Amount, at the corporate
office of the Property Trustee, or at the offices of any paying agent or transfer agent appointed by the Administrative Trustees, provided
that payment of any Distribution may be made at the option of the Administrative Trustees by check mailed to the address of the persons
entitled thereto or by wire transfer. In addition, if the Capital Securities are issued in certificated form, the record dates for payment
of Distributions will be the 1st day of the month in which the relevant Distribution Date occurs. For a description of the terms of the
depositary arrangements relating to payments, transfers, voting rights, redemptions and other notices and other matters, see “Book-Entry
Issuance.”
Upon the issuance of a Global
Capital Security, and the deposit of such Global Capital Security with or on behalf of the Depositary, the Depositary for such Global
Capital Security or its nominee will credit, on its book-entry registration and transfer system, the respective aggregate Liquidation
Amounts of the individual Capital Securities represented by such Global Capital Securities to the accounts of Participants. Such accounts
shall be designated by the dealers, underwriters or agents with respect to such Capital Securities. Ownership of beneficial interests
in a Global Capital Security will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial
interests in such Global Capital Security will be shown on, and the transfer of that ownership will be effected only through, records
maintained by the applicable Depositary or its nominee (with respect to interests of Participants) and the records of Participants (with
respect to interests of persons who hold through Participants). The laws of some states require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial
interests in a Global Capital Security.
So long as the Depositary
for a Global Capital Security, or its nominee, is the registered owners of such Global Capital Security, such Depositary or such nominee,
as the case may be, will be considered the sole owner or holder of the Capital Securities represented by such Global Capital Security
for all purposes under the Trust Agreement governing such Capital Securities. Except as provided below, owners of beneficial interests
in a Global Capital Security will not be entitled to have any of the individual Capital Securities represented by such Global Capital
Security registered in their names, will not receive or be entitled to receive physical delivery of any such Capital Securities in definitive
form and will not be considered the owners or holders thereof under the Trust Agreement.
None of the Company, the Property
Trustee, any Paying Agent, or the Securities Registrar (defined below) for such Capital Securities will have any responsibility or liability
for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Capital Security
representing such Capital Securities or for maintaining supervising or reviewing any records relating to such beneficial ownership interests.
The Company expects that the
Depositary for Capital Securities or its nominee, upon receipt of any payment of the Liquidation Amount or Distributions in respect of
a permanent Global Capital Security immediately will credit Participants’ accounts with payments in amounts proportionate to their
respective beneficial interest in the aggregate Liquidation Amount of such Global Capital Security as shown on the records of such Depositary
or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in such Global Capital Security
held through such Participants will be governed by standing instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in “street name.” Such payments will be the responsibility of such
Participants.
If the Depositary for the
Capital Securities is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, Air T Funding will issue individual Capital Securities in exchange for the Global Capital Security. In
addition, Air T Funding may at any time and in its sole discretion, subject to any limitations described herein relating to such Capital
Securities, determine not to have any Capital Securities represented by one or more Global Capital Securities and, in such event, will
issue individual Capital Securities in exchange for the Global Capital Security or Securities representing the Capital Securities. Further,
if Air T Funding so specifies with respect to the Capital Securities, an owner of a beneficial interest in a Global Capital Security representing
Capital Securities may, on terms acceptable to the Company, the Property Trustee and the Depositary for such Global Capital Security,
receive individual Capital Securities in exchange for such beneficial interests, subject to any limitations described herein. In any such
instance, an owner of a beneficial interest in a Global Capital Security will be entitled to physical delivery of individual Capital Securities
represented by such Global Capital Security equal in Liquidation Amount to such beneficial interest and to have such Capital Securities
registered in its name. Individual Capital Securities so issued will be issued in denominations, unless otherwise specified by Air T Funding,
of $25.00 and integral multiples thereof.
Payment and Paying Agency
Payments in respect of the
Capital Securities shall be made to the Depositary, which shall credit the relevant accounts at the Depositary on the applicable Distribution
Dates or, if any of the Capital Securities are not held by the Depositary, such payments shall be made by check mailed to the address
of the holder entitled thereto as such address shall appear on the Register. The paying agent (the “Paying Agent”) shall initially
be the Property Trustee and any co-paying agent chosen by the Property Trustee and acceptable to the Administrative Trustees and the Company.
The Paying Agent shall be permitted to resign as Paying Agent upon 30 days’ written notice to the Property Trustee and the Company.
In the event that the Property Trustee shall no longer be the Paying Agent, the Administrative Trustees shall appoint a successor (which
shall be a bank or trust company acceptable to the Administrative Trustees and the Company) to act as Paying Agent.
Registrar and Transfer Agent
The Property Trustee will
act as registrar and transfer agent for the Capital Securities. Registration of transfers of the Capital Securities will be effected without
charge by or on behalf of Air T Funding, but upon payment of any tax or other governmental charges that may be imposed in connection with
any transfer or exchange. Air T Funding will not be required to register or cause to be registered the transfer of the Capital Securities
after such Capital Securities have been called for redemption.
Information Concerning the Property Trustee
The Properly Trustee, other
than upon the occurrence and during the continuance of an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Property Trustee is under no obligation
to exercise any of the powers vested in it by the Trust Agreement at the request of any holder of Capital Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. If no Event of Default has occurred and
is continuing and the Property Trustee is required to decide between alternative causes of action, construe ambiguous provisions in the
Trust Agreement or is unsure of the application of any provision of the Trust Agreement, and the matter is not one on which holders of
the Capital Securities are entitled under the Trust Agreement to vote, then the Property Trustee shall take such action as is directed
by the Company and if not so directed, shall take such action as it deems advisable and in the best interests of the holders of the Trust
Securities and will have no liability except for its own bad faith, negligence or willful misconduct.
Miscellaneous
The Administrative Trustees
are authorized and directed to conduct the affairs of and to operate Air T Funding in such a way that Air T Funding will not be deemed
to be an “investment company” required to be registered under the Investment Company Act or classified as an association taxable
as a corporation for United States federal income tax purposes and so that the Junior Subordinated Debentures will be treated as indebtedness
of the Company for United States federal income tax purposes. In this connection, the Company and the Administrative Trustees are authorized
to take any action, not inconsistent with applicable law, the certificate of trust of Air T Funding or the Trust Agreement, that the Company
and the Administrative Trustees determine in their discretion to be necessary or desirable for such purposes, as long as such action does
not materially adversely affect the interests of the holders of the related Capital Securities. Holders of the Capital Securities have
no preemptive or similar rights.
Air T Funding may not borrow
money or issue debt or mortgage or pledge any of its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures
will be issued under the Indenture. The following summary of the terms and provisions of the Junior Subordinated Debentures and the Indenture
does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Indenture, which has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a part, and to the Trust Indenture Act. The Indenture is qualified
under the Trust Indenture Act. Whenever particular defined terms of the Indenture are referred to herein, such defined terms are incorporated
herein or therein by reference.
Concurrently with the issuance
of the Capital Securities, Air T Funding will invest the proceeds thereof, together with the consideration paid by the Company for the
Common Securities, in Junior Subordinated Debentures issued by the Company. The Junior Subordinated Debentures will be issued as unsecured
debt under the Indenture.
General
The Junior Subordinated
Debentures will bear interest at the annual rate of 8% of the principal amount thereof, payable quarterly in arrears on the 15th day
of February, May, August and November of each year (each, an “Interest Payment Date”), to the person in whose
name each Subordinated Debenture is registered, subject to certain exceptions, at the close of business on the Business Day next
preceding such Interest Payment Date. Notwithstanding the above, in the event that either the (i) Junior Subordinated
Debentures are held by the Property Trustee and the Capital Securities are no longer in book-entry only form or (ii) the Junior
Subordinated Debentures are not represented by a Global Subordinated Debenture (as defined herein), the record date for such payment
shall be the 1st day of the month in which such payment is made. The amount of each interest payment due with respect to the Junior
Subordinated Debentures will include amounts accrued through the date the interest payment is due. It is anticipated that, until the
liquidation, if any, of Air T Funding, each Junior Subordinated Debenture will be held in the name of the Property Trustee in trust
for the benefit of the holders of the Capital Securities. The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Junior Subordinated
Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next Business Day (and
without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as
if made on the date such payment was originally payable. Accrued interest that is not paid on the applicable Interest Payment Date
will bear additional interest on the amount thereof (to the extent permitted by law) at the rate per annum of 8% thereof, compounded
quarterly. The term “interest” as used herein shall include quarterly interest payments, interest on quarterly interest
payments not paid on the applicable Interest Payment Date and Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures
will mature on June 7, 2049 (such date, as it may be shortened as hereinafter described, the “Stated Maturity”). Such
date may be shortened once at any time by the Company to any date not earlier than June 7, 2024. In the event that the Company elects
to shorten the Stated Maturity of the Junior Subordinated Debentures, it shall give notice to the Indenture Trustee, and the Indenture
Trustee shall give notice of such shortening or extension to the holders of the Junior Subordinated Debentures no less than 90 days prior
to the effectiveness thereof.
The Junior Subordinated Debentures
will be unsecured and will rank junior and be subordinate in right of payment to all Senior and Subordinated Debt of the Company. Because
the Company is a holding company, the right of the Company to participate in any distribution of assets of any subsidiaries upon any such
subsidiaries’ liquidation or reorganization or otherwise (and thus the ability of holders of the Capital Securities to benefit indirectly
from such distribution), is subject to the prior claims of creditors of that subsidiary, except to the extent that the Company may itself
be recognized as a creditor of that subsidiary. Accordingly, the Junior Subordinated Debentures will be effectively subordinated to all
existing and future liabilities of the Company’s subsidiaries, and holders of Junior Subordinated Debentures should look only to
the assets of the Company for payments on the Junior Subordinated Debentures. The Indenture does not limit the incurrence or issuance
of other secured or unsecured debt of the Company, including Senior and Subordinated Debt, whether under the Indenture or any existing
or other indenture that the Company may enter into in the future or otherwise. See “Subordination” below.
Option to Extend Interest Payment Period
So long as no Debenture Event
of Default has occurred and is continuing, at any time on or after, June 7, 2024, the Company has the right under the Indenture at
any time during the term of the Junior Subordinated Debentures to defer the payment of interest at any time or from time to time for a
period not exceeding 20 consecutive quarters (each such period an “Extension Period”), provided that no Extension Period may
extend beyond the Stated Maturity. At the end of such Extension Period, the Company must pay all interest then accrued and unpaid (together
with interest thereon at the annual rate of 8%, compounded quarterly, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Junior Subordinated Debentures will be required to accrue interest income for
United States federal income tax purposes. See “Federal Income Tax Considerations.”
During any such Extension
Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation
payment with respect to, any of the Company’s capital stock or (ii) make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any debt securities of the Company (including other Junior Subordinated Debentures) that rank pari
passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the
Junior Subordinated Debentures (other than (a) dividends or distributions in Common Stock of the Company, (b) any declaration
of a dividend in connection with the implementation of a stockholders’ rights plan, or the issuance of stock under any such plan
in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the Guarantee, and (d) purchases
of Common Stock related to rights under any of the Company’s benefit plans for its directors, officers or employees). Prior to the
termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 20 consecutive quarters or extend beyond the Stated Maturity. Upon the termination of any such Extension
Period and the payment of all amounts then due on any Interest Payment Date, the Company may elect to begin a new Extension Period subject
to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company must
give the Property Trustee, the Administrative Trustees and the Indenture Trustee notice of its election of any Extension Period at least
one Business Day prior to the earlier of (i) the date the Distributions on the Capital Securities would have been payable except
for the election to begin or extend such Extension Period or (ii) the date the Administrative Trustees are required to give notice
to the holders of the Capital Securities of the record date or the date such Distributions are payable, but in any event not less than
one Business Day prior to such record date. The Indenture Trustee shall give notice of the Company’s election to begin or extend
a new Extension Period the holders of the Capital Securities. There is no limitation on the number of times that the Company may elect
to begin an Extension Period.
Additional Sums
If Air T Funding is required
to pay any additional taxes, duties or other governmental charges as a result of a Tax Event, the Company will pay as additional amounts
on the Junior Subordinated Debentures such amounts (“Additional Sums”) as shall be required so that the Distributions payable
by Air T Funding shall not be reduced as a result of any such additional taxes, duties or other governmental charges.
Redemption
The Junior Subordinated Debentures
are redeemable prior to maturity at the option of the Company (i) at any time on or after June 7, 2024, in whole at any time
or in part from time to time, or (ii) at any time in whole (but not in part), upon the occurrence and during the continuance of a
Tax Event, an Investment Company Event or a Capital Treatment Event, in each case at a redemption price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof.
Notice of any redemption
will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at such holder’s registered address. Unless the Company defaults in payment of the redemption price,
on and after the redemption date interest ceases to accrue on such Junior Subordinated Debentures or portions thereof called for
redemption.
The Junior Subordinated Debentures
will not be subject to any sinking fund.
Distribution Upon Liquidation
As described under “Description
of the Capital Securities – Liquidation Distribution Upon Termination,” under certain circumstances involving the termination
of Air T Funding, the Junior Subordinated Debentures may be distributed to the holders of the Capital Securities in liquidation of Air
T Funding after satisfaction of liabilities to creditors of Air T Funding as provided by applicable law. If distributed to holders of
the Capital Securities in liquidation, the Junior Subordinated Debentures will initially be issued in the form of one or more global securities
and the Depositary, or any successor depositary for the Capital Securities, will act as depositary for the Junior Subordinated Debentures.
It is anticipated that the depositary arrangements for the Junior Subordinated Debentures would be substantially identical to those in
effect for the Capital Securities. If the Junior Subordinated Debentures are distributed to the holders of Capital Securities upon the
liquidation of Air T Funding, there can be no assurance as to the market price of any Junior Subordinated Debentures that may be distributed
to the holders of Capital Securities.
Restrictions on Certain Payments
If at any time (i) there
shall have occurred any event of which the Company has actual knowledge that (a) with the giving of notice or the lapse of time,
or both, would constitute a Debenture Event of Default and (b) in respect of which the Company shall not have taken reasonable steps
to cure, or (ii) the Company shall have given notice of its election of an Extension Period as provided in the Indenture with respect
to the Junior Subordinated Debentures and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall
be continuing, or (iii) while the Junior Subordinated Debentures are held by Air T Funding, the Company shall be in default with
respect to its payment of any obligation under the Guarantee, then the Company will not (1) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company’s capital stock or (2) make
any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including
other Junior Subordinated Debt) that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks
pari passu or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in Common Stock,
(b) any declaration of a dividend in connection with the implementation of a stockholders’ rights plan, or the issuance of
stock under any such plan in the future or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of Common Stock related to rights under any of the Company’s benefit plans for its directors, officers
or employees).
Subordination
In the Indenture, the Company
has covenanted and agreed that any Junior Subordinated Debentures issued thereunder will be subordinate and junior in right of payment
to all Senior and Subordinated Debt to the extent provided in the Indenture. Upon any payment or distribution of assets to creditors upon
any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency, debt restructuring or similar proceedings in connection with any insolvency or bankruptcy proceeding of the Company, the holders
of Senior and Subordinated Debt will first be entitled to receive payment in full of principal of (and premium, if any) and interest,
if any, on such Senior and Subordinated Debt before the holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the principal of or interest, if any, on the Junior Subordinated Debentures.
In the event of the acceleration
of the maturity of any Junior Subordinated Debentures, the holders of all Senior and Subordinated Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts due thereon (including any amounts due upon acceleration)
before the holders of Junior Subordinated Debentures will be entitled to receive or retain any payment in respect of the principal of
or interest, if any, on the Junior Subordinated Debentures; provided, however, that holders of Subordinated Debt shall not be entitled
to receive payment of any such amounts to the extent that such Subordinated Debt is by its terms subordinated to trade creditors.
No payments on account of
principal or interest, if any, in respect of the Junior Subordinated Debentures may be made if there shall have occurred and be continuing
a default in any payment with respect to Senior and Subordinated Debt or an event of default with respect to any Senior and Subordinated
Debt resulting in the acceleration of the maturity thereof, or if any judicial proceeding shall be pending with respect to any such default.
“Debt” means with
respect to any person, whether recourse is to all or a portion of the assets of such person and whether or not contingent: (i) every
obligation of such person for money borrowed; (ii) every obligation of such person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of such person with respect to letters of credit, bankers’ acceptances or similar facilities issued for
the account of such person; (iv) every obligation of such person issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital
lease obligation of such person; and (vi) every obligation of the type referred to in clauses (i) through (v) of another
person and all dividends of another person the payment of which, in either case, such person has guaranteed or is responsible or liable,
directly or indirectly, as obligor or otherwise.
“Senior and
Subordinated Debt” means the principal of (and premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition
interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of the Indenture or thereafter incurred,
unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Junior Subordinated Debentures or to other Debt which is pari passu with, or
subordinated to, the Junior Subordinated Debentures; provided, however, that Senior Debt shall not be deemed to include (i) any
Debt of the Company which when incurred and without respect to any election under section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company, (ii) any Debt of the Company to any of its
subsidiaries, (iii) any Debt to any employee of the Company, (iv) any Debt which by its terms is subordinated to trade
accounts payable or accrued liabilities arising in the ordinary course of business to the extent that payments made to the holders
of such Debt by the holders of the Junior Subordinated Debentures as a result of the subordination provisions of the Indenture would
be greater than they otherwise would have been as a result of any obligation of such holders to pay amounts over to the obligees on
such trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination
provisions to which such Debt is subject, (v) the Guarantee, and (vi) any other debt securities issued pursuant to the
Indenture.
The Indenture places no limitation
on the amount of additional Senior and Subordinated Debt that may be incurred by the Company. The Company expects from time to time to
incur additional indebtedness constituting Senior and Subordinated Debt.
Denominations, Registration and Transfer
The Junior Subordinated Debentures
will be represented by global certificates registered in the name of the Depositary or its nominee (“Global Subordinated Debenture”).
Beneficial interests in the Junior Subordinated Debentures will be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary. Except as described below, Junior Subordinated Debentures in certificated form will not be issued in exchange
for the global certificates. See “Book-Entry Issuance.” Unless and until a Global Subordinated Debenture is exchanged in whole
or in part for the individual Junior Subordinated Debentures represented thereby, it may not be transferred except as a whole by the Depositary
for such Global Subordinated Debenture to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by the Depositary or any nominee to a successor Depositary or any nominee of such successor.
A global security shall be
exchangeable for Junior Subordinated Debentures registered in the names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as a depositary for such global security and no successor depositary
shall have been appointed, or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act
of 1934, as amended, at a time when the Depositary is required to be so registered to act as such depositary, (ii) the Company in
its sole discretion determines that such global security shall be so exchangeable or (iii) there shall have occurred and be continuing
an Event of Default under the Indenture with respect to such global security. Any global security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for definitive certificates registered in such names as the Depositary shall direct. It is expected
that such instructions will be based upon directions received by the Depositary from its Participants with respect to ownership of beneficial
interests in such global security. In the event that Junior Subordinated Debentures are issued in definitive form, such Junior Subordinated
Debentures will be in denominations of $25.00 and integral multiples thereof and may be transferred or exchanged at the offices described
below.
Payments on Junior Subordinated
Debentures represented by a global security will be made to the Depositary, as the depositary for the Junior Subordinated Debentures.
In the event Junior Subordinated Debentures are issued in definitive form, principal and interest will be payable, the transfer of the
Junior Subordinated Debentures will be registrable, and Junior Subordinated Debentures will be exchangeable for Junior Subordinated Debentures
of other denominations of a like aggregate principal amount, at the corporate office of the Indenture Trustee, or at the offices of any
paying agent or transfer agent appointed by the Company, provided that payment of interest may be made at the option of the Company by
check mailed to the address of the persons entitled thereto or by wire transfer. In addition, if the Junior Subordinated Debentures are
issued in certificated form, the record dates for payment of interest will be the 1st day of the month in which such payment is to be
made. For a description of the Depositary and the terms of the depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see “Book-Entry Issuance.”
The Company will appoint the
Indenture Trustee as securities registrar under the Indenture (the “Securities Registrar”). Junior Subordinated Debentures
may be presented for exchange as provided above, and may be presented for registration of transfer (with the form of transfer endorsed
thereon, or a satisfactory written instrument of transfer, duly executed), at the office of the Securities Registrar. The Company may
at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent
acts, provided that the Company maintains a transfer agent in the place of payment. The Company may at any time designate additional transfer
agents with respect to the Junior Subordinated Debentures.
In the event of any redemption,
neither the Company nor the Indenture Trustee shall be required to (i) issue, register the transfer of or exchange Junior Subordinated
Debentures during a period beginning at the opening of business 15 days before the day of selection for redemption of Junior Subordinated
Debentures and ending at the close of business on the day of mailing of the relevant notice of redemption or (ii) transfer or exchange
any Junior Subordinated Debentures so selected for redemption, except, in the case of any Junior Subordinated Debentures being redeemed
in part, any portion thereof not to be redeemed.
Global Junior Subordinated Debentures
Upon the issuance of the Global
Subordinated Debenture, and the deposit of such Global Subordinated Debenture with or on behalf of the Depositary, the Depositary for
such Global Subordinated Debenture or its nominee will credit, on its book-entry registration and transfer system, the respective principal
amounts of the individual Junior Subordinated Debentures represented by such Global Subordinated Debenture to the accounts of persons
that have accounts with such Depositary (“Participants”). Ownership of beneficial interests in a Global Subordinated Debenture
will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial interests in such Global
Subordinated Debenture will be shown on, and the transfer of that ownership will be effected only through, records maintained by the applicable
Depositary or its nominee (with respect to interests of Participants) and the records of Participants (with respect to interests of persons
who hold through Participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Subordinated Debenture.
So long as the
Depositary for a Global Subordinated Debenture, or its nominee, is the registered owner of such Global Subordinated Debenture, such
Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Junior Subordinated Debentures
represented by such Global Subordinated Debenture for all purposes under the Indenture governing such Junior Subordinated
Debentures. Except as provided below, owners of beneficial interests in a Global Subordinated Debenture will not be entitled to have
any of the individual Junior Subordinated Debentures represented by such Global Subordinated Debenture registered in their names,
will not receive or be entitled to receive physical delivery of any such Junior Subordinated Debentures in definitive form and will
not be considered the owners or holders thereof under the Indenture.
Payments of principal of and
interest on individual Junior Subordinated Debentures represented by a Global Subordinated Debenture registered in the name of the Depositary
or its nominee will be made to the Depositary or its nominee, as the case may be, as the registered owner of the Global Subordinated Debenture
representing such Junior Subordinated Debentures. None of the Company, the Indenture Trustee, any Paying Agent, or the Securities Registrar
for such Junior Subordinated Debentures will have any responsibility or liability for any aspect of the records relating to or payments
made on account of beneficial ownership interests of the Global Subordinated Debenture representing such Junior Subordinated Debentures
or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
The Company expects that the
Depositary or its nominee, upon receipt of any payment of principal or interest in respect of a permanent Global Subordinated Debenture
representing the Junior Subordinated Debentures, immediately will credit Participants’ accounts with payments in amounts proportionate
to their respective beneficial interest in the principal amount of the Global Subordinated Debenture as shown on the records of such Depositary
or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in such Global Subordinated Debenture
held through such Participants will be governed by standing instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in “street name.” Such payments will be the responsibility of such
Participants.
If the Depositary is at any
time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by the Company within 90 days,
the Company will issue individual Junior Subordinated Debentures in exchange for the Global Subordinated Debenture. In addition, the Company
may at any time and in its sole discretion, determine not to have the Junior Subordinated Debentures represented by one or more Global
Junior Subordinated Debentures and, in such event, will issue individual Junior Subordinated Debentures in exchange for the Global Subordinated
Debenture. Further, if the Company so specifies with respect to the Junior Subordinated Debentures, an owner of a beneficial interest
in a Global Subordinated Debenture representing Junior Subordinated Debentures may, on terms acceptable to the Company, the Indenture
Trustee and the Depositary for such Global Subordinated Debenture, receive individual Junior Subordinated Debentures in exchange for such
beneficial interests. In any such instance, an owner of a beneficial interest in a Global Subordinated Debenture will be entitled to physical
delivery of individual Junior Subordinated Debentures equal in principal amount to such beneficial interest and to have such Junior Subordinated
Debentures registered in its name. Individual Junior Subordinated Debentures so issued will be issued in denominations, unless otherwise
specified by the Company, of $25.00 and integral multiples thereof.
Payment and Paying Agents
Payment of principal of and
any interest on the Junior Subordinated Debentures will be made at the office of the Indenture Trustee, except that at the option of the
Company payment of any interest may be made (i) except in the case of Global Junior Subordinated Debentures, by check mailed to the
address of the person entitled thereto as such address shall appear in the securities register or (ii) by transfer to an account
maintained by the person entitled thereto as specified in the securities register, provided that proper transfer instructions have been
received by the regular record date. Payment of any interest on Junior Subordinated Debentures will be made to the person in whose name
such Junior Subordinated Debenture is registered at the close of business on the regular record date for such interest. The Company may
at any time designate additional Paying Agents or rescind the designation of any Paying Agent; however the Company will at all times be
required to maintain a Paying Agent in each place of payment for the Junior Subordinated Debentures.
Any moneys deposited with
the Indenture Trustee or any Paying Agent, or then held by the Company in trust, for the payment of the principal of or interest on the
Junior Subordinated Debentures and remaining unclaimed for two years after such principal or interest has become due and payable shall,
at the request of the Company, be repaid to the Company and the holder of such Junior Subordinated Debenture shall thereafter look, as
a general unsecured creditor, only to the Company for payment thereof.
Modification of Indenture
From time to time the Company
and the Indenture Trustee may, without the consent of the holders of the Junior Subordinated Debentures, amend, waive or supplement the
Indenture for specified purposes, including, among other things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interests of the holders of the Junior Subordinated Debentures or the Capital Securities
so long as they remain outstanding) and qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act.
The Indenture contains provisions permitting the Company and the Indenture Trustee, with the consent of the holders of not less than a
majority in principal amount of the outstanding Junior Subordinated Debentures, to modify the Indenture in a manner affecting the rights
of the holders of the Junior Subordinated Debentures; provided, that no such modification may, without the consent of the holder of each
outstanding Subordinated Debenture, (i) change the Stated Maturity of the Junior Subordinated Debentures, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest thereon or (ii) reduce the percentage of principal amount
of Junior Subordinated Debentures, the holders of which are required to consent to any such modification of the Indenture, provided that
so long as any of the Capital Securities remain outstanding, no such modification may be made that adversely affects the holders of such
Capital Securities in any material respect, and no termination of the Indenture may occur, and no waiver of any Debenture Event of Default
or compliance with any covenant under the Indenture may be effective, without the prior consent of the holders of at least a majority
of the aggregate Liquidation Amount of the Capital Securities unless and until the principal of the Junior Subordinated Debentures and
all accrued and unpaid interest thereon have been paid in full and certain other conditions are satisfied.
Debenture Events of Default
The Indenture provides
that any one or more of the following described events with respect to the Junior Subordinated Debentures that has occurred and is
continuing constitutes a “Debenture Event of Default” with respect to the Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated Debentures, when due (subject to the deferral of any due
date in the case of an Extension Period); or (ii) failure to pay any principal on the Junior Subordinated Debentures when due
whether at maturity, upon redemption by declaration or otherwise; or (iii) failure to observe or perform in any material
respect certain other covenants contained in the Indenture for 90 days after written notice to the Company from the Indenture
Trustee or to the Company and the Indenture Trustee by the holders of at least 25% in aggregate outstanding principal amount of the
Junior Subordinated Debentures; or (iv) certain events in bankruptcy, insolvency or reorganization of the Company.
The holders of a majority
in aggregate outstanding principal amount of the Junior Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee. The Indenture Trustee or the holders of not less than 25%
in aggregate outstanding principal amount of the Junior Subordinated Debentures may declare the principal due and payable immediately
upon a Debenture Event of Default. The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debentures
may annul such declaration and waive the default if the default (other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the Indenture Trustee. Should the holders of the Junior Subordinated
Debentures fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount of the Capital
Securities shall have such right.
In case a Debenture Event
of Default shall occur and be continuing as to the Junior Subordinated Debentures, the Property Trustee will have the right to declare
the principal of and the interest on such Junior Subordinated Debentures, and any other amounts payable under the Indenture, to be forthwith
due and payable and to enforce its other rights as a creditor with respect to such Junior Subordinated Debentures.
The Company is required to
file annually with the Indenture Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants
applicable to it under the Indenture.
Enforcement of Certain Rights by Holders of
Capital Securities
If a Debenture Event of Default
has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Junior
Subordinated Debentures on the date such interest or principal is otherwise payable, a holder of Capital Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such holder of the principal of or interest on such Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount of the Capital Securities of such holder (“Direct
Action”). If the right to bring a Direct Action is removed, Air T Funding may become subject to the reporting obligations under
the Exchange Act. The Company shall have the right under the Indenture to set-off any payment made to such holder of Capital Securities
by the Company in connection with a Direct Action.
The holders of the Capital
Securities would not be able to exercise directly any remedies other than those set forth in the preceding paragraph available to the
holders of the Junior Subordinated Debentures unless there shall have been an Event of Default under the Trust Agreement. See “Description
of Capital Securities -- Events of Default; Notice.”
Consolidation, Merger, Sale of Assets and Other
Transactions
The Indenture provides that
the Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties
and assets substantially as an entirety to the Company, unless (i) in case the Company consolidates with or merges into another Person
or conveys or transfers its properties and assets substantially as an entirety to any Person, the successor Person is organized under
the laws of the United States or any state or the District of Columbia, and such successor Person expressly assumes the Company’s
obligations on the Junior Subordinated Debentures issued under the Indenture; (ii) immediately after giving effect thereto, no Debenture
Event of Default, and no event which, after notice or lapse of time or both, would become a Debenture Event of Default, shall have occurred
and be continuing; and (iii) certain other conditions as prescribed in the Indenture are met.
The general provisions of
the Indenture do not afford holders of the Junior Subordinated Debentures protection in the event of a highly leveraged or other transaction
involving the Company that may adversely affect holders of the Junior Subordinated Debentures.
Satisfaction and Discharge
The Indenture provides that
when, among other things, all Junior Subordinated Debentures not previously delivered to the Indenture Trustee for cancellation (i) have
become due and payable or (ii) will become due and payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Indenture Trustee trust funds, in trust, for the purpose and in an amount in the currency or currencies
in which the Junior Subordinated Debentures are payable sufficient to pay and discharge the entire indebtedness on the Junior Subordinated
Debentures not previously delivered to the Indenture Trustee for cancellation, for the principal and interest to the date of the deposit
or to the Stated Maturity, as the case may be, then the Indenture will cease to be of further effect (except as to the Company’s
obligations to pay all other sums due pursuant to the Indenture and to provide the officers’ certificates and opinions of counsel
described therein), and the Company will be deemed to have satisfied and discharged the Indenture.
Governing Law
The Indenture and the Junior
Subordinated Debentures will be governed by and construed in accordance with the laws of the State of Minnesota. The immunities and the
standard of care of the Trustee shall be governed by Delaware law.
Information Concerning the Indenture Trustee
The Indenture Trustee shall
have and be subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act.
Subject to such provisions, the Indenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at
the request of any holder of Junior Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Indenture Trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the Indenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Covenants of the Company
The Company will covenant
in the Indenture, as to the Junior Subordinated Debentures, that if and so long as (i) Air T Funding is the holder of all such Junior
Subordinated Debentures, (ii) a Tax Event in respect of Air T Funding has occurred and is continuing and (iii) the Company has
elected, and has not revoked such election, to pay Additional Sums (as defined under “Description of the Capital Securities -- Redemption”)
in respect of the Capital Securities, the Company will pay to Air T Funding such Additional Sums. The Company will also covenant, as to
the Junior Subordinated Debentures, (i) to maintain directly or indirectly 100% ownership of the Common Securities of Air T Funding
to which Junior Subordinated Debentures have been issued, provided that certain successors which are permitted pursuant to the Indenture
may succeed to the Company’s ownership of the Common Securities, (ii) not to voluntarily terminate, wind up or liquidate Air
T Funding, and except (a) in connection with a distribution of Junior Subordinated Debentures to the holders of the Capital Securities
in liquidation of Air T Funding or (b) in connection with certain mergers, consolidations, or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and provisions of the Trust Agreement, to cause Air
T Funding to remain classified as a grantor trust and not as an association taxable as a corporation for United States federal income
tax purposes.
Book-Entry Issuance
The Depositary will act as
securities depositary for all of the Capital Securities and the Junior Subordinated Debentures. The Capital Securities and the Junior
Subordinated Debentures will be issued only as fully-registered securities registered in the name of Cede & Co. (the Depositary’s
nominee). One or more fully-registered global certificates will be issued for the Capital Securities and the Junior Subordinated Debentures
and will be deposited with the Depositary.
The Depositary is a limited
purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial
Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
holds securities that its Participants deposit with the Depositary. The Depositary also facilitates the settlement among Participants
of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes
in Participants’ accounts, thereby eliminating the need for physical movement of securities certificates.
“Direct Participants”
include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. The Depositary
is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc.
and the National Association of Securities Dealers, Inc. Access to the Depositary system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain custodial relationships with Direct Participants, either
directly or indirectly (“Indirect Participants”). The rules applicable to the Depositary and its Participants are on
file with the Commission.
Purchases of Capital Securities
or Junior Subordinated Debentures within the Depositary system must be made by or through Direct Participants, which will receive a credit
for the Capital Securities or Junior Subordinated Debentures on the Depositary’s records. The ownership interest of each actual
purchaser of each Capital Securities and each Subordinated Debenture (“Beneficial Owner”) is in turn to be recorded on the
Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from the Depositary of their
purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Capital Securities
or Junior Subordinated Debentures. Transfers of ownership interests in the Capital Securities or Junior Subordinated Debentures are to
be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Capital Securities or Junior Subordinated Debentures, except in the event that
use of the book-entry system for the or Junior Subordinated Debentures is discontinued.
The Depositary has no knowledge
of the actual Beneficial Owners of the Capital Securities or Junior Subordinated Debentures; the Depositary’s records reflect only
the identity of the Direct Participants to whose accounts such Capital Securities or Junior Subordinated Debentures are credited, which
may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and
other communications by the Depositary to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants
and Indirect Participants to Beneficial Owners and the voting rights of Direct Participants, Indirect Participants and Beneficial
Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time
to time.
Redemption notices will be
sent to Cede & Co. as the registered holder of the Capital Securities or Junior Subordinated Debentures. If less than all of
the Capital Securities or the Junior Subordinated Debentures are being redeemed, the Depositary will determine by lot or pro rata the
amount of the Capital Securities of each Direct Participant to be redeemed.
Although voting with
respect to the Capital Securities or the Junior Subordinated Debentures is limited to the holders of record of the Capital
Securities Junior Subordinated Debentures, in those instances in which a vote is required, neither the Depositary nor
Cede & Co. will itself consent or vote with respect to Capital Securities or Junior Subordinated Debentures. Under its
usual procedures, the Depositary would mail an omnibus proxy (the “Omnibus Proxy”) to the relevant Trustee as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct
Participants to whose accounts such Capital Securities or Junior Subordinated Debentures are credited on the record date (identified
in a listing attached to the Omnibus Proxy).
Distribution payments on the
Capital Securities or the Junior Subordinated Debentures will be made by the relevant Trustee to the Depositary. The Depositary’s
practice is to credit Direct Participants’ accounts on the relevant payment date in accordance with their respective holdings shown
on the Depositary’s records unless the Depositary has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices and will be the responsibility
of such Participant and not of the Depositary, the relevant Trustee, Air T Funding or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of Distributions to the Depositary is the responsibility of the relevant Trustee,
disbursement of such payments to Direct Participants is the responsibility of the Depositary, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
The Depositary may discontinue
providing its services as securities depositary with respect to any of the Capital Securities or the Junior Subordinated Debentures at
any time by giving reasonable notice to the relevant Trustee and the Company. In the event that a successor securities depositary is not
obtained, definitive Capital Securities or Subordinated Debenture certificates representing such Capital Securities or Junior Subordinated
Debentures are required to be printed and delivered. The Company, at its option, may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor depositary). After a Debenture Event of Default, the holders of a majority in liquidation
preference of Capital Securities or aggregate principal amount of Junior Subordinated Debentures may determine to discontinue the system
of book-entry transfers through the Depositary. In any such event, definitive certificates for such Capital Securities or Junior Subordinated
Debentures will be printed and delivered.
The information in this section
concerning the Depositary and the Depositary’s book-entry system has been obtained from sources that Air T Funding and the Company
believe to be accurate, but Air T Funding and the Company assume no responsibility for the accuracy thereof. Neither Air T Funding nor
the Company has any responsibility for the performance by the Depositary or its Participants of their respective obligations as described
herein or under the rules and procedures governing their respective operations.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed
and delivered by the Company concurrently with the issuance of the Capital Securities for the benefit of the holders of the Capital Securities.
The Guarantee Trustee will act as trustee under the Guarantee for the purposes of compliance with the Trust Indenture Act, and the Guarantee
is qualified as an Indenture under the Trust Indenture Act. The following summary of certain provisions of the Guarantee does not purport
to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Guarantee Agreement, including
the definitions therein of certain terms, and the Trust Indenture Act. The form of the Guarantee has been included as an exhibit to this
Registration Statement of which this Prospectus forms a part. The Guarantee Trustee will hold the Guarantee for the benefit of the holders
of the Capital Securities.
General
The Guarantee is an irrevocable
guarantee on a subordinated basis of Air T Funding’s obligations under the Capital Securities, but applies only to the extent that
Air T Funding has funds sufficient to make such payments, and is not a guarantee of collection. The Company irrevocably agrees to pay
in full on a subordinated basis, to the extent set forth herein, the Guarantee Payments (as defined below) to the holders of the Capital
Securities, as and when due, regardless of any defense, right of set-off or counterclaim that Air T Funding may have or assert other than
the defense of payment. The following payments with respect to the Capital Securities, to the extent not paid by or on behalf of Air T
Funding (the “Guarantee Payments”), will be subject to the Guarantee: (i) any accumulated and unpaid Distributions required
to be paid on the Capital Securities, to the extent that Air T Funding has funds on hand available therefor at such time, (ii) the
Redemption Price with respect to any Capital Securities called for redemption to the extent that Air T Funding has funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of Air T Funding (unless
the Junior Subordinated Debentures are distributed to holders of the Capital Securities), the lesser of (a) the Liquidation Distribution
and (b) the amount of assets of Air T Funding remaining available for distribution to holders of Capital Securities. The Company’s
obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Company to the holders of the
Capital Securities or by causing Air T Funding to pay such amounts to such holders.
If the Company does not make
interest payments on the Junior Subordinated Debentures held by Air T Funding, Air T Funding will not be able to pay Distributions on
the Capital Securities and will not have funds legally available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior and Subordinated Debt of the Company. See “Status of the Guarantee” below. Because the Company is a
holding company, the right of the Company to participate in any distribution of assets of any subsidiary upon such subsidiary’s
liquidation or reorganization or otherwise, is subject to the prior claims of creditors of that subsidiary, except to the extent the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the Company’s obligations under the Guarantee will be effectively
subordinated to all existing and future liabilities of the Company’s subsidiaries, and claimants should look only to the assets
of the Company for payments thereunder. Except as otherwise described herein, the Guarantee does not limit the incurrence or issuance
of other secured or unsecured debt of the Company, including Senior and Subordinated Debt whether under the Indenture, any other indenture
that the Company may enter into in the future, or otherwise.
The Company has, through the
Guarantee, the Trust Agreement, the Junior Subordinated Debentures, the Indenture and the Expense Agreement, taken together, fully, irrevocably
and unconditionally guaranteed all of Air T Funding’s obligations under the Capital Securities. No single document standing alone
or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and unconditional guarantee of Air T Funding’s obligations
under the Capital Securities. See “Relationship Among the Capital Securities, the Junior Subordinated Debentures and the Guarantee.”
Status of the Guarantee
The Guarantee constitutes
an unsecured obligation of the Company and ranks subordinate and junior in right of payment to all Senior and Subordinated Debt in the
same manner as the Junior Subordinated Debentures.
The Guarantee constitutes
a guarantee of payment and not of collection. For example, the guaranteed party may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a legal proceeding against any other person or entity. The
Guarantee is held for the benefit of the holders of the Capital Securities. The Guarantee will not be discharged except by payment of
the Guarantee Payments in full to the extent not paid by Air T Funding or upon distribution to the holders of the Capital Securities of
the Junior Subordinated Debentures to the holders of the Capital Securities. The Guarantee does not place a limitation on the amount of
additional Senior and Subordinated Debt that may be incurred by the Company. The Company expects from time to time to incur additional
indebtedness constituting Senior and Subordinated Debt.
Amendments and Assignment
Except with respect to any
changes which do not materially adversely affect the rights of holders of the Capital Securities (in which case no vote will be required),
the Guarantee may not be amended without the prior approval of the holders of not less than a majority of the aggregate Liquidation Amount
of such outstanding Capital Securities. See “Description of the Capital Securities --Voting Rights; Amendment of Trust Agreement.”
All guarantees and agreements contained in the Guarantee shall bind the successors, assigns, receivers, trustees and representatives of
the Company and shall inure to the benefit of the holders of the Capital Securities then outstanding.
Events of Default
An event of default under
the Guarantee will occur upon the failure of the Company to perform any of its payment or other obligations thereunder. The holders of
not less than a majority in aggregate Liquidation Amount of the Capital Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of
any trust or power conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the Capital
Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against Air T Funding, the Guarantee Trustee or any other person or entity.
The Company, as guarantor,
is required to file annually with the Guarantee Trustee a certificate as to whether or not the Company is in compliance with all the conditions
and covenants applicable to it under the Guarantee.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other
than during the occurrence and continuance of a default by the Company in performance of the Guarantee, undertakes to perform only such
duties as are specifically set forth in the Guarantee and, after default with respect to the Guarantee, must exercise the same degree
of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the Guarantee at the request of any holder of the Capital
Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby.
Termination of the Guarantee
The Guarantee will terminate
and be of no further force and effect upon full payment of the Redemption Price of the Capital Securities, upon full payment of the amounts
payable upon liquidation of Air T Funding or upon distribution of Junior Subordinated Debentures to the holders of the Capital Securities.
The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the Capital Securities
must restore payment of any sums paid under the Capital Securities or the Guarantee.
Governing Law
The Guarantee will be governed
by and construed in accordance with the laws of the State of Delaware (without regard to conflict of laws principles).
THE EXPENSE AGREEMENT
Pursuant to the Agreement
as to Expenses and Liabilities entered into by the Company under the Trust Agreement (the “Expense Agreement”), the Company
will irrevocably and unconditionally guarantee to each person or entity to whom Air T Funding becomes indebted or liable, the full payment
of any costs, expenses or liabilities of Air T Funding, other than obligations of Air T Funding to pay to the holders of the Capital Securities
or other similar interests in Air T Funding of the amounts due such holders pursuant to the terms of the Capital Securities or such other
similar interests, as the case may be.
RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of
Distributions and other amounts due on the Capital Securities (to the extent Air T Funding has funds available for the payment of
such Distributions) are irrevocably guaranteed by the Company as and to the extent set forth under “Description of
Guarantee.” Taken together, the Company’s obligations under the Junior Subordinated Debentures, the Indenture, the Trust
Agreement, the Expense Agreement and the Guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of those
documents that has the effect of providing a full, irrevocable and unconditional guarantee of Air T Funding’s obligations
under the Capital Securities. If and to the extent that the Company does not make payments on the Junior Subordinated Debentures,
Air T Funding will not pay Distributions or other amounts due on the Capital Securities. The Guarantee does not cover payment of
Distributions when Air T Funding does not have sufficient funds to pay such Distributions. In such event, the remedy of a holder of
the Capital Securities is to institute a legal proceeding directly against the Company for enforcement of payment of such
Distributions to such holder. The obligations of the Company under the Guarantee are subordinate and junior in right of payment to
all Senior and Subordinated Debt.
Sufficiency of Payments
As long as payments of interest
and other payments are made when due on the Junior Subordinated Debentures, such payments will be sufficient to cover Distributions and
other payments due on the Capital Securities, primarily because: (i) the aggregate principal amount of the Junior Subordinated Debentures
will be equal to the sum of the aggregate Liquidation Amount of the Capital Securities and Common Securities; (ii) the interest rate
and interest and other payment dates on the Junior Subordinated Debentures will match the Distribution rate and Distribution and other
payment dates for the Capital Securities; (iii) the Company shall pay for all and any costs, expenses and liabilities of Air T Funding
except Air T Funding’s obligations to holders of Capital Securities; and (iv) the Trust Agreement further provides that Air
T Funding will not engage in any activity that is not consistent with the limited purposes of Air T Funding.
Notwithstanding anything to
the contrary in the Indenture, the Company has the right to set-off any payment it is otherwise required to make thereunder with and to
the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee.
Enforcement Rights of Holders of the Capital
Securities Under the Guarantee
A holder of any the Capital
Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting
a legal proceeding against the Guarantee Trustee, Air T Funding or any other person or entity, A default or event of default under any
Senior and Subordinated Debt would not constitute a default or Event of Default. However, in the event of payment defaults under, or acceleration
of, Senior and Subordinated Debt, the subordination provisions of the Indenture provide that no payments may be made in respect of the
Junior Subordinated Debentures until such Senior and Subordinated Debt has been paid in full or any payment default thereunder has been
cured or waived. Failure to make required payments on Junior Subordinated Debentures would constitute an Event of Default.
Limited Purpose of Air T Funding
The Capital Securities evidence
a beneficial interest in Air T Funding, and Air T Funding exists for the sole purpose of issuing the Trust Securities and investing the
proceeds thereof in Junior Subordinated Debentures. A principal difference between the rights of a holder of the Capital Securities and
a holder of a Subordinated Debenture is that a holder of a Subordinated Debenture is entitled to receive from the Company the principal
amount of and interest accrued on Junior Subordinated Debentures held, while a holder of the Capital Securities is entitled to receive
Distributions from Air T Funding (or from the Company under the Guarantee) if and to the extent Air T Funding has funds available for
the payment of such Distributions.
Rights Upon Termination
Upon any voluntary or involuntary
termination, winding-up or liquidation of Air T Funding involving the liquidation of the Junior Subordinated Debentures, the holders of
Capital Securities will be entitled to receive, out of assets held by Air T Funding, the Liquidation Distribution in cash. See “Description
of the Capital Securities -- Liquidation Distribution Upon Termination.” Upon any voluntary or involuntary liquidation or bankruptcy
of the Company, the Property Trustee, as holder of the Junior Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior and Subordinated Debt as set forth in the Indenture, but entitled to receive payment in
full of principal and interest, before any stockholders of the Company receive payments or distributions. Since the Company is the guarantor
under the Guarantee and has agreed to pay for all costs, expenses and liabilities of Air T Funding (other than Air T Funding’s obligations
to the holders of its Capital Securities), the positions of a holder of the Capital Securities and a holder of Junior Subordinated Debentures
relative to other creditors and to stockholders of the Company in the event of liquidation or bankruptcy of the Company are expected to
be substantially the same.
LEGAL MATTERS
In connection with particular
offerings of our or the Issuer Trust’s securities in the future, and if stated in the applicable prospectus supplement, the validity
of those securities offered may be passed upon for us or the Issuer Trust by Winthrop & Weinstine, P.A., Minneapolis, Minnesota
and for any underwriters or agents by counsel named in the applicable prospectus supplement.
EXPERTS
The consolidated financial
statements of Air T, Inc. incorporated by reference in this Prospectus, have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report. Such financial statements are incorporated by reference in reliance upon
the report of such firm, given their authority as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
Insofar as
indemnification for liabilities arising under the Securities Act, as amended, may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the Company’s constituent documents, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling person in the successful defense of any action, suit,
or proceeding) is asserted by such director, officer, or controlling person connected with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Air T (NASDAQ:AIRTP)
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Air T (NASDAQ:AIRTP)
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