Air Transport Services Group Inc

ITEM 1A. RISK FACTORS.

We face risks that could adversely affect our condition or results of operations. Other than the items noted below, there have been no material changes to the risk factors disclosed in Item 1A of the CompanyATSG's 2023 Form 10-K. Other risks that are currently unknown to management or are currently considered immaterial or unlikely, could also adversely affect us.

Customers and Market Risks

On May 6, 2024, we entered into amended aircraft operating and investment agreements with Amazon with the expectation that the transactions would result in various benefits including, among others, growth in revenues, improved cash flows and operating efficiencies. Achieving the anticipated benefits from the agreements with Amazon is subject to a number of factors, including aircraft transitions, crew training and our customer achieving anticipated revenue levels. If we are unable to achieve our objectives or if we experience delays in implementing the necessary changes to our and our customers' operations, the expected benefits may be only partially realized or not at all, or may take longer to realize than expected, which could adversely impact our financial condition and results of operations. In conjunction with the amended agreements, we granted to Amazon warrants to acquire ATSG common shares. We expect that the warrants issued and issuable to Amazon , including effects of the proposed Merger thereon, will increase the number of shares outstanding when exercised, which would have a dilutive effect on reported earnings per share measures and the ownership interest in ATSG held by other stockholders. Further, the warrants are subject to fair value measurements during the periods that they are outstanding. Accordingly, future fluctuations in the fair value of the warrants may adversely impact our reported earnings measures.

Risks Related to the Proposed Merger

The Merger may not be completed on the terms or timeline currently contemplated or at all, which could incur termination fees or adversely affect our stock price, business, financial condition and results of operations.

On November 3, 2024, ATSG entered into the Merger Agreement, which provides that the consummation of the Merger is subject to certain customary closing conditions, including:

(i) obtaining the Company Stockholder Approval (as defined above);

(ii) receipt of certain regulatory approvals and the expiration or termination of any waiting period (and any extension thereof) applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder as well as certain other applicable foreign direct investment laws of certain jurisdictions;

(iii) the absence of any law or order enjoining, restraining or otherwise making illegal, preventing or prohibiting the consummation of the Merger;

(iv) the other partys compliance in all material respects with of its pre-closing covenants contained in the Merger Agreement; and

(v) the accuracy of the other partys representations and warranties (subject to customary materiality qualifiers).

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While it is anticipated that the Merger will be consummated during the first half of 2025, the conditions above may not be satisfied in a timely manner or at all, or an effect, event, development or change could delay or prevent these conditions from being satisfied. If the Merger is not consummated for any reason, the trading price of our common stock may decline to the extent that the market price of the common stock reflects positive market assumptions that the Merger will be consummated and the related benefits will be realized. We may also be subject to additional risks if the Merger is not completed, including:

We or Parent may terminate the Merger Agreement if the Merger has not been consummated on or before May 3, 2025 or such later date or time as may be agreed to in writing by Parent and the Company (the Outside Date), subject to certain extensions provided in the Merger Agreement. We or Parent also may terminate the Merger Agreement (i) by mutual written agreement; (ii) if a governmental authority of competent jurisdiction has issued an order, or applicable law is in effect, enjoining, restraining or otherwise making illegal, preventing or prohibiting the consummation of the Merger and such order or law is, or has become, final and non-appealable, (iii) if the Company Stockholder Approval shall not have been obtained at a meeting of the Companys stockholders; or (iv) the other party breaches or fails to perform in any material respect any representation, warranty or covenant that results in the failure of the related closing condition to be satisfied, subject to a cure period in certain circumstances. The Company also may, under certain circumstances and subject to the terms of the Merger Agreement, terminate the Merger Agreement (x) in order for the Company to enter into an alternative acquisition agreement with respect to a Superior Proposal (as defined in the Merger Agreement) or (y) if all of the applicable closing conditions have been satisfied and the Company is prepared to consummate the Merger but Parent and MergerCo fail to consummate the Merger in accordance with the Merger Agreement. Additionally, Parent may, under certain circumstances and subject to the terms of the Merger Agreement, terminate the Merger Agreement if the Company's Board withdraws or adversely modifies its recommendation that the Companys stockholders vote in favor of adopting the Merger Agreement. The occurrence of the aforementioned could adversely affect our stock price, business, financial condition and results of operations.

Additionally, in approving the Merger Agreement, the Company's Board considered a number of factors and potential benefits, including the fact that the merger consideration to be received by holders of common stock represents a significant premium to the recent market price. If the Merger is not completed, neither the Company nor the holders of our common stock will realize this benefit of the Merger. Moreover, we would also have nevertheless incurred substantial transaction-related costs and the loss of management time and resources.

The announcement of the Merger Agreement could negatively impact our business, financial condition and results of operations.

The announcement of the Merger including the pendency of the Merger could adversely affect our business, financial condition and results of operations and may result in our inability to hire or the departure of key personnel. In connection with the Merger, some of our customers and business partners may delay or defer decisions or may end their relationships with us, which could negatively affect our revenues, earnings and cash flows, regardless of whether the Merger is completed. In addition, we have undertaken certain covenants in the Merger Agreement restricting the conduct of our business during the pendency of the Merger, including restrictions on undertaking certain significant financing transactions and certain other actions, even if such actions would prove beneficial to us. Similarly, our current and prospective employees may experience uncertainty about their future roles with us following the Merger, which may materially adversely affect our ability to attract and retain key personnel during the pendency of the Merger.

Our directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of our other stockholders.

Our directors and executive officers have financial interests in the Merger that may be different from, or in addition to, the interests of our other stockholders. These interests may include the following:

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The Merger Agreement may limit our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us for greater consideration than what is specified in the Merger Agreement.

The Merger Agreement contains provisions that make it more difficult for us to sell our business to a company other than Parent. These provisions include restrictions on ATSG's solicitation of alternative acquisition proposals from third parties outside of a defined go-shop period. Under the Merger Agreement, ATSG is required to pay a termination fee of up to $55,339,993 if the Merger Agreement is terminated under certain circumstances (including to accept certain superior acquisition proposals), which could deter other potential bidders from making an acquisition proposal prior to the consummation of the Merger and could impact ATSG's ability to engage in another transaction for up to twelve months if the Merger Agreement is terminated in certain circumstances.

We may be the target of lawsuits challenging the Merger Agreement that may prevent the Merger from being consummated within the expected timeframe or at all.

Lawsuits may be filed against us, our Board of Directors or other parties to the Merger Agreement, challenging our acquisition by Parent, or making other claims in connection with the Merger. Even if these lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Such lawsuits may be brought by purported stockholders or other interested parties, seeking, among other things, to enjoin consummation of the Merger. One of the conditions to the consummation of the Merger is that the consummation of the Merger is not enjoined, restrained or otherwise made illegal, prevented or prohibited by any order or legal or regulatory restraint or prohibition of a court of competent jurisdiction or any governmental entity. As such, if the plaintiffs in such potential lawsuits are successful in obtaining an injunction prohibiting the defendants from completing the Merger on the agreed upon terms, then such injunction may prevent the Merger from becoming effective within the expected timeframe or at all.