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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1997 COMMISSION FILE NUMBER: 0-14646
AIRSHIP INTERNATIONAL LTD.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 06-1113228
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
7380 SAND LAKE ROAD, SUITE 350, ORLANDO, FL 32819
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(407) 351-0011
(REGISTRANT'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE PER SHARE.
(TITLE OF CLASS)
CLASS A 8% CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant including Preferred Stock as of March 31, 1998 was $2,244,068.
The number of shares of Common Stock outstanding as of March 31, 1998 was
42,583,978 and the number of shares of Preferred Stock outstanding as of
March 31, 1998 was 2,448,179.
Documents Incorporated by Reference: None. A list of Exhibits to this Annual
Report on Form 10-K begins on page 24.
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AIRSHIP INTERNATIONAL LTD.
1996 FORM 10-K REPORT
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS......................................................... -1-
ITEM 2. PROPERTIES....................................................... -6-
ITEM 3. LEGAL PROCEEDINGS................................................ -6-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. -8-
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................... -9-
ITEM 6. SELECTED FINANCIAL DATA.......................................... -11-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... -12-
ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES............................... -15-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE....................... -15-
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... -16-
ITEM 11. EXECUTIVE COMPENSATION........................................... -17-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................... -20-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... -20-
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND
REPORTS ON FORM 8-K.......................................... -23-
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The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forwardlooking statements. This Annual Report contains certain
forwardlooking statements and information that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. The statements contained in this Annual Report relating to matters
that are not historical facts are forwardlooking statements that involve risks
and uncertainties, including, but not limited to, future demand for the
Company's products and services, general economic conditions, government
regulation, competition and customer strategies, capital deployment, the impact
of pricing and reimbursement and other risks and uncertainties. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected.
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PART I
ITEM 1. BUSINESS
GENERAL
Airship International Ltd. (the "Company") operated lighter-than-air
airships, also commonly known as blimps, which were used to advertise and
promote the products and services of the Company's clients. The Company's
clients utilized its airships at major sporting and special events and over
urban and beach locations as an informative advertising and promotional vehicle.
The Company did not operate any airships during 1996 or 1997.
Since 1995, the Company generally has had no operations and no
opportunity to commence operations in the airship industry in which it has
historically conducted its business operations. As a result, the Company has
experienced significant operating losses and negative cash flow from its
operations in 1996 and 1997. Management's strategy for the future is to arrange
for funding from affiliated entities, of which there can be no assurance, and to
separately consider acquiring new business operations or merging (whether
through a direct, indirect, reverse or other form of merger) with an entity that
has ongoing business operations. As of the date hereof, the Company has no
agreements with any third party to effect any such acquisition or merger, and no
assurances can be given that any such acquisition or merger will in fact be
effected in the future. As noted in the auditor's report, there exists the
possibility that the Company may not have the ability to continue as a going
concern.
The Company was incorporated in New York on June 9, 1982 and commenced
operations in August 1985 following the completion of the Company's initial
public offering in June 1985. The Company's principal executive offices are
located at 7380 Sand Lake Road, Suite 350, Orlando, Florida 32819 and its
telephone number is (407) 351-0011. The Company also maintains a small office in
New York, New York.
Set forth below is a description of the Company's business
operations during the period from 1985 to 1995.
AIRSHIPS
For daytime advertising, each of the Airships and its ground support
vehicles were generally painted with the name and logo of the respective client.
In addition, the Company's operating personnel wore uniforms carrying the
client's logo or name.
The Company's clients utilized its Airships as an aerial ambassador and
network-television camera platform for numerous major events.
Each of the Company's airships was operated by a team employed by the
Company which included U.S. Federal Aviation Administration ("FAA") certified
airship pilots, mechanics, technicians and crew. The team supervised and
executed the flight schedule and activities which the client specified. The team
was supported by specially equipped ground support vehicles owned by the
Company, which were used in the operation and maintenance of the Airships. The
flight schedule of an airship could have included flights over a several hundred
mile geographical area. The Company could accommodate such requirements because
an airship's mooring support facilities are mobile and will travel with the
ground crew to each of the landing sites. The Company believes that this
mobility provides the flexibility for the use of the airships and implementation
of a client's promotional campaign. No specialized facility is required for use
as a landing site.
Historically, substantially all of the Company's revenues were derived
from the operation of the Airships pursuant to aerial advertising contracts with
its clients. Fees were generally paid to the Company on a monthly basis and the
respective Airships were flown according to a flight schedule provided by the
client, subject to weather conditions, government regulations and maintenance
requirements. In the absence of advertising contracts, the Company has suffered
a material adverse impact on its revenues. However, the Company continues to
seek new aerial advertising contracts and clients.
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AERIAL ADVERTISING AND OTHER CONTRACTS
Set forth below are descriptions of the Company's aerial advertising
contracts which were in effect during the periods indicated below (for further
detail see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Comparison of Revenue and Operating Costs -- 1997
to 1996").
ARGENTINA AGREEMENTS. On December 15, 1994 the Company through its
wholly-owned subsidiary, Airship Operations, Inc. ("AOI") consummated the
Argentina Lease Agreement and the Argentina Operations Agreement, respectively,
with Mastellone, an Argentinean dairy company, for the promotion of the
products of Mastellone.
Subsequently, on May 24, 1995, prior to commencement of flight
operations of the Argentina Airship and pursuant to the Purchase and Assignment
Agreement, the Argentina Airship and related equipment were sold and the
Argentina Lease Agreement was assigned to First Security. In consideration for
such sale and assignment, First Security assumed the Company's obligations under
the Argentina Lease Agreement. The initial terms of the Agreements were for a
period of four months, and commenced in July 1995. Such initial terms were
extended for a ten-month period by Mastellone pursuant to the provisions of the
Agreements.
In addition, the Company had the option to repurchase the Airship for
120% of the out-of-pocket expenses and the assumption of all liabilities
incurred by First Security and Aviation Support Group Ltd. ("Aviation") in
connection with the Argentina Airship. Such option expired unexercised on
January 15, 1996.
Concurrently with the execution and delivery of the Purchase and
Assumption Agreement, the Company sold to Aviation all of the issued and
outstanding shares of the capital stock of AOI. Mr. Julian Benscher,
a shareholder of the Company, is an officer and stockholder of Aviation. See
"Certain Relationships and Related Transactions".
The Company's revenues were historically dependent on the Company's
aerial advertising contracts. For the years ended December 31, 1995 and 1994,
100% and 50%, respectively, of the Company's revenues were derived from
Anheuser-Busch. In addition, 19% of 1994 revenues were derived from
Kingstreet Tours and 29% from Gulf Oil. The Company has been adversely affected
from the time that any particular aerial advertising agreement terminated.
The Company had no aerial advertising contracts in effect in 1997 and 1996.
ACQUISITIONS, LEASES AND FINANCINGS
Set forth below is a description of the Company's financing arrangements
in effect during the year ended December 31, 1997.
ORIX LEASE
In 1989 the Company executed, as lessee, an airship lease (the "Orix
Lease") with Orix USA, Inc. then known as Orix Commercial Credit Corporation
("Orix") for the Company's 600.05 Airship, which provided for an initial three
year term with two three-year renewal options. Pursuant to the Orix Lease, the
Company was obligated to pay a monthly lease payment of $121,000 (through
November 1995), and $35,000 per month from December 1995 to November 1998. As a
result of the termination of the Met Life Contract in October 1993, the Company
and Orix entered into amendments to the Orix Lease in January and May 1994 to
restructure the monthly payments. As a result of the reduced fees under the Bud
One Contract and the suspension of operations of the Gulf Oil Airship, several
required payments were not made. The Company again renegotiated its arrangement
with Orix and in October, 1995, entered into an Amended and Restated Lease
Agreement in the form of a Conditional Sales Contract effective as of June 2,
1995 (the "Amended Lease"). Pursuant to the Amended Lease,
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the payments to Orix are $20,000 per month for the first year, $40,000 plus
interest per month for the next 6 months, $60,000 plus interest per month for
the next 6 months and thereafter the greater of $80,000 per month or 50% of
annual cash flow for the proceeding 12 month period. The Amended Lease expires
June 2, 2002 at which time the Company can purchase the Airship for $1.00. The
Airship which is the subject of the Amended Lease is not currently operational,
as it requires a new envelope. To date, the envelope has not been replaced.
As security for the Company's obligations under the Orix Lease and the
Amended Lease, Louis J. Pearlman, Chairman of the Board, President and Chief
Executive and Operating Officer of the Company ("Mr. Pearlman"), has personally
guaranteed the payment and performance of the obligations of the Company. In
addition, the Company's obligations to Orix are guaranteed by TransContinental
Airlines, Inc., an affiliate of the Company, which received common stock of the
Company in exchange for such guaranty. See "Certain Relationships and Related
Transactions."
WDL LEASE
Pursuant to an agreement effective May 16, 1993 (the "WDL Lease"), the
Company leased from Westdeutsche Luftwerbung Theodor Wullenkemper GMBH
("Westdeutsche") a used type WDL IB airship equipped with a NightSign`tm'
system. The Company entered into the WDL Lease to procure an airship to fulfill
its obligations under the Gulf Oil Contract when it became apparent that the
proposed acquisition of the assets of Slingsby Aviation Ltd. could not be
completed in time to provide an additional airship to fulfill the Company's
obligations under the Gulf Oil Contract. The Company began operating this
airship as the Gulf Oil Airship on June 25, 1993. On September 11, 1994, the
Gulf Oil Airship was damaged in an accident and its operations ended. As a
result of the damage to the Gulf Oil Airship, the Company sustained a loss of
$1,978,000, representing the cost of the airship less insurance proceeds and
credits allowed, including salvage value, when the airship was returned to WDL
in September 1994. At December 31, 1994, the Company owed WDL a total of
$2,866,000 under the WDL Lease including the $1,978,000 described above plus
lease and other operating costs through September 11, 1994. Pursuant to the
WDL Lease, the Company maintained a security deposit in a cash account
(the "Cash Escrow Account") with Trans Continental Airlines Inc., an affiliate
of the Company ("Trans Continental"). As of December 31, 1994, the Company had
on deposit in the Cash Escrow Account $1,800,000. During March 1995, the Company
paid the full balance of the Cash Escrow Account to WDL to reduce its liability
to WDL to $1,000,000. Pursuant to the WDL Lease, Trans Continental
collateralized the advances with a certificate of deposit in the amount of
$2,500,000 (see Note C to the Financial Statements included elsewhere herein).
The Company is currently indebted to WDL in the approximate amount of $911,000.
ALLSTATE LOAN
On November 16, 1994, the Company entered into an Aircraft Collateral
Funding Repayment Agreement (the "Allstate Agreement") with Allstate Financial
Corporation ("Allstate"). Pursuant to the Allstate Agreement, on December 6,
1994, the Company borrowed $1,500,000, (the "Allstate Loan") and as of December
31, 1994, the Company owed Allstate $1,250,000 plus approximately $47,000 of
accrued interest. The Allstate Loan bore interest at the rate of 37.5% annually
and required a minimum payment of $75,000 each month, the first payment of
$75,000 having been made on January 5, 1995. The Allstate Loan was guaranteed by
both Mr. Pearlman and Trans Continental. See "Certain Relationships and Related
Transactions." The guarantors agreed to subordinate
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any payments due to them from the Company while the Allstate Loan was
outstanding, and any payments that would otherwise be paid to the guarantors was
to be paid to Allstate and applied against the Allstate Loan.
Subsequently on June 22, 1995 the Allstate Loan was repaid when
Trans Continental Leasing, Inc. ("TC Leasing"), a wholly-owned subsidiary of
Trans Continental Airlines, Inc., ("Trans Continental"), an affiliate of the
Company, entered into a Sale-Leaseback Agreement the ("S/L Agreement") with the
Company pursuant to which the Company's last remaining airship was sold to
TC Leasing for the purchase price of $2,060,000, which in turn leased such
airship back to the Company. TC Leasing borrowed the purchase price for the
airship (the "Phoenixcor Loan") from Phoenixcor, Inc. ("Phoenixcor"), which was
granted a pledge of the lease and a lien on the Bud One Airship. In addition,
the Phoenixcor Loan was guaranteed by the Company and Trans Continental. The
lease payments to be made under the S/L Agreement are equal to the payments to
be made under the Phoenixcor Loan.
The Phoenixcor Loan was structured as a sale-leaseback for financing
purposes only.
The Company entered into an arrangement with Senstar Capital
Corporation, ("Senstar") pursuant to which the sale leaseback arrangement with
TC Leasing was reversed such that the Company reacquired such airship and the
Company borrowed a total of $3,500,000 from Senstar (the "Senstar Loan"), part
of which has been used to repay the Phoenixcor Loan. The loan from Senstar was
repayable over 5 years in sixty monthly payments of approximately $63,000
each, with a balance due at the end of the five year term of approximately
$700,000, and was secured by a lien on the Airship and a guaranty by
Trans Continental. The Senstar Loan provided approximately $1,337,000 to the
Company after payment of the Phoenixcor Loan.
On January 15, 1997 the Company entered into a sale-leaseback agreement
with TC Leasing, an affiliated company, with respect to the Company's 500.04
airship (formerly the "Bud One" airship) whereby the Company sold to TC Leasing
the airship and related equipment and then leased it back from TC Leasing. In
connection with the Sale-leaseback, TC Leasing retired the Company's
debt to Senstar Capital Corp. in the amount of $3,014,000. Additionally, TC
Leasing procured a new envelope from a third party and agreed to lease back the
entire assembled and operational airship to the Company. Pursuant to the
agreement, the Company further agreed that it would sell certain idle airship
components to TC Leasing provided that TC Leasing would undertake to pay the
operational costs of the 500.04 airship for a minimum of eight months.
On December 24, 1996, TC Leasing obtained a loan with Norwest
Equipment Finance, Inc. in the amount of $4,709,000. The proceeds of this
refinancing were used to repay the Company's debt to Senstar and to provide
working capital to the Company in connection with the Sale-leaseback. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
ADDITIONAL AIRSHIPS; AIRSHIP ASSEMBLY
In addition to providing clients with aerial advertising and promotion
with its airships, the Company also had acquired assets enabling it to partially
construct additional airships either to service existing or potential clients of
the Company or for lease or purchase by other parties. The Company owns
substantial airship replacement components and its experience in airship
assembly includes the assembly of four airships. The airship components that the
Company currently has in inventory, plus approximately $1,000,000 of additional
capital per airship, would enable the Company to construct up to five additional
airships. The Company believes that its inventory of spare airship components
will significantly reduce its cost for initial airship assembly and future
maintenance expenditures, should future clients be obtained. There can be no
assurance, however, that the Company would be able to obtain the financing
necessary to complete construction of any additional airships, or that it would
be able to consummate aerial advertising agreements with respect to any such
airships. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
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Operation of the Company's airships is subject to suitable weather
conditions and an absence of mechanical failures, either of which could damage
or destroy an airship. During 1994, the 600.05 Airship was damaged in a storm
while attached to its mast and the Gulf Oil Airship was damaged in an accident.
Airships can be operated only in warm climates. Accordingly, during the winter
months airships can only operate in the southern states and west coast states.
Furthermore, maintenance of an airship requires that it cease operations for an
aggregate of approximately one month each year, including approximately two
weeks of in-hangar maintenance.
MARKETING
The Company marketed its airship services directly to potential clients
through a sales effort conducted by its management, including a Director of
Marketing. During 1997, the Company continued pursuing potential new clients,
both for aerial advertising contracts and for the purchase of new airships; none
of such contracts or purchases was consummated.
SUPPLIERS
Airships are manufactured by a limited number of suppliers worldwide.
The Company's Airships were manufactured by Airship UK, a United Kingdom
supplier no longer doing business, and by Slingsby Aviation Ltd. Due to asset
purchases and expertise described above in "Additional Airships; Airship
Assembly," the Company could be in a position to manufacture or assemble up
to five additional airships, subject to financing requirements.
COMPETITION
Historically, the Company's direct competition was limited to those
companies which had airships legally permitted to operate in the United States.
The Company competed with Airship Management Service (AMS), the operator of the
Fuji airship, and Icarus Aircraft, Inc. ("IAI"), a privately-held firm which
operates lightships, which are small airships approximately 1/3 the size of the
Company's airships. Currently, IAI is operating for MetLife. The Lightship
Group, Inc. (formerly Virgin Lightships Inc. and American Blimp Company) owns
and operates the smaller airships on behalf of numerous advertising clients in
the United States. MetLife and Anheuser-Busch are former clients of the Company
which did not renew its agreement with the Company, at least in part due to
these alternative airship providers.
In addition, Airship Operations, Inc. operates airships within the same
class of airships which the Company has historically operated. AOI is owned by
Mr. Julian Benscher, a shareholder of the Company. See "Certain Relationships
and Related Transactions."
GOVERNMENTAL REGULATION
Operation of airships in the United States is regulated by the Federal
aviation laws of the United States. The Company currently holds all necessary
Federal Aviation Administration ("FAA") and U.S. Department of Transportation
authorizations to operate all of its existing airships, including a Standard
airworthiness Certificate issued by the FAA with respect to each of the
airships. In addition, the Company holds an FAA "Type Certificate" which
certifies that the design for the Company's airships meets air-worthiness
requirements of Federal aviation regulations, and an FAA facilities license
which permits the Company to assemble, repair and maintain airships. However,
there can be no assurance that the federal government will not impose additional
requirements on the operation of airships in the future, which might require the
Company to incur additional expense, or which might otherwise have a material
adverse effect on the Company's operations.
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EMPLOYEES
As of December 31, 1997, the Company had two officers, who have managed
its affairs.
INSURANCE
There are risks inherent in the ownership and operation of airships. The
Company has maintained insurance in such amounts and for such coverage as
management has determined to be appropriate and as has been required from time
to time under its contracts with Orix and various financing companies and
airship aerial advertisers. Currently, the Company maintains insurance for its
spare parts, as well as property coverage and general liability insurance. The
Company has also maintained Aircraft Hull All Risk Insurance for the periods
when its Airships are operational.
ITEM 2. PROPERTIES
The Company had leased its principal executive offices pursuant to the
terms of a five-year lease, which commenced May 7, 1991 and ended May 6, 1996,
for approximately 7,000 square feet in Orlando, Florida, the home base of the
Company. The annual rent under such lease was approximately $132,000. Since May
7, 1996, the Company has subleased approximately 500 square feet of such
facility from Trans Continental Airlines, Inc. on a month-to-month basis for
monthly rental payments of approximately $770. The Company stores various
spare parts for its existing airships at a warehouse located in Kissimmee,
Florida. and intends to do so for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Tenerten and Drake, Inc. On September 15, 1994, Tenerten and Drake, Inc.
("TDI") filed a complaint against the Company. The complaint alleges that the
Company failed to pay certain sums of money due and owing to TDI under an
agreement to perform advertising and related services for the Company. The
Company filed its answer and raised its affirmative defenses to said complaint
alleging that the services allegedly performed by TDI were defective in numerous
respects. On June 13, 1995, the parties entered into a Settlement Stipulation
whereby the Company agreed to make certain payments to Tenerten and Drake, Inc.
On July 20, 1995, Tenerten and
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Drake, Inc. filed its Motion for Final Judgment alleging that the Company failed
to make a payment under the Settlement Stipulation. A Final Judgment was entered
against the Company on July 20, 1995. The Company filed its Notice of Appeal on
or about September 19, 1995 and posted a cash bond in the amount of $24,190.76.
The Company has since settled all remaining claims instituted by Tenerton and
Drake, Inc. by agreeing to the release of the cash bond to Tenerton and Drake,
Inc. and by paying to Tenerton and Drake, Inc. the additional sum of $4,100.
Watermark. In January, 1993, a second amended complaint to a lawsuit,
which was initially commenced in March 1991 and subsequently dismissed twice
without prejudice, was filed in the Circuit Court of the State of Florida
against the Company and its President by Watermark Group PLC and Von Tech
Corporation, as general partners of Company Communications (collectively, the
"WNT Plaintiffs") alleging breach of an alleged joint venture agreement
involving Company Communications and Airship Enterprises Ltd. (a company that
was owned by Mr. Pearlman and that was not in any way owned or controlled by the
Company), breach of an alleged agreement by the Company regarding the lease and
operation of a particular airship; and breach of an alleged oral commission
agreement by the Company relating to the Company's acquisition of two airships
it presently owns. The WNT Plaintiffs seek various legal and equitable remedies,
including monetary damages against the Company and Mr. Pearlman in excess of
$800,000 together with a claim for some portion of the advertising revenue the
Company has received, and will continue to receive, from the operation of some
of its airships. On October 3, 1995, the parties entered into a Mutual Release
and Joint Stipulation for Settlement whereby the Company agreed to make payments
to Watermark in the total amount of $40,000. Such payments were made during 1995
and 1996.
In March 1993, the second amended complaint was dismissed without
prejudice. Since the Company denies any involvement with any of the transactions
set forth in the second amended complaint, the Company believes that its
liability, if any, on the claims made by the WNT Plaintiffs will not be
material.
Capital Funding Group Ltd. In February 1992, Capital Funding Group Ltd.
("CFG") commenced an action against the Company and others in excess of
$1,000,000 in damages based on the alleged failure by the Company to provide
adequate collateral and security in connection with certain alleged financial
agreements with CFG. The Company retained CFG in July 1991, paid a commitment
fee (which was written off in 1991) and received a commitment from CFG which
then failed to provide the funding. The Company and the other defendants
answered the complaint in February 1992 by denying all of the substantive
allegations and asserting several affirmative defenses. In addition, the Company
asserted certain counterclaims against CFG and its two principals for breach of
a commitment letter pursuant to which CFG was to arrange for a $9 million loan
to the Company, breach of a compromise agreement accepted by CFG in January
1992, pursuant to which CFG was to provide funding to the Company in the amount
of $7 million, breach of an escrow agreement, pursuant to
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which CFG was to return $200,000 of the commitment fee paid by the Company and
various other counterclaims. In March 1993, the Company was awarded a default
judgment of $8,000,000 against CFG and the complaint against the Company was
dismissed. No balances have been returned to the Company as of December 31,
1997.
Due to the weakening financial position of the Company at the time, the
Company was unable to complete its audit for the year ended December 31, 1994 or
to conduct audits for the years ended December 31, 1995 and 1996. Accordingly,
the Company had not filed any periodic reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended, for the quarterly and annual
periods ended December 31, 1994 through March 31, 1997 or any Current Reports on
Form 8-K during such periods until July 11, 1997, on which date the Company
filed its Current Report on Form 8-K reporting a change of accountants. On July
18, 1997, the Company entered into a Consent and Undertaking with the Securities
and Exchange Commission pursuant to which the Company agreed, among other
things, to file this Annual Report on Form 10-K, Annual Reports on Form 10-K
for the years ended December 31, 1994, 1995 and 1996 and all reports due under
Sections 13 and 15 of the Securities Exchange Act of 1934, as amended, for all
subsequent periods. Judgement was entered on August 21, 1997. The Company is
current with filing its reports.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not held any meetings of, nor has it submitted any
matters to a vote by, shareholders since April 11, 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock, Preferred Stock, and Class B Warrants had
been listed on the Nasdaq SmallCap Market under the symbols BLMP, BLMPP and
BLMPL, respectively, until Nasdaq's delisting of the Company's securities on
July 5, 1995 (the "Delisting") as a result of the Company's failure to timely
file this Annual Report on Form 10-K. Since the Delisting, the Company's Common
Stock and Preferred Stock have traded on the over-the-counter market under the
symbols "BLMPE" and "BLMPPE," respectively. The price ranges presented below
represent the highest and lowest quoted bid prices during each quarter reported
by the National Quotation Bureau, Inc and Nasdaq. The quotes represent prices
between dealers and do not reflect mark-ups, markdowns or commissions and
therefore may not necessarily represent actual transactions.
COMMON STOCK:
1995 High Bid Low Bid
1st Quarter $.125 $.0625
2nd Quarter $.0625 $.03125
3rd Quarter*
4th Quarter $.25 $.125
1996 High Bid Low Bid
1st Quarter $.3125 $.03125
2nd Quarter $.3125 $.04
3rd Quarter $.1 $.04
4th Quarter $.085 $.05
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* Prior to the Delisting. Price ranges during the third quarter of 1995
include quotations on NASDAQ SmallCap Market up to such date. The Common
Stock and the Preferred Stock are currently traded on the Nasdaq OTC
Electronic Bulletin Board.
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1997 High Bid Low Bid
1st Quarter $.175 $.08
2nd Quarter $.175 $.09
3rd Quarter $.115 $.075
4th Quarter $.0775 $.035
1998
1st Quarter $.046 $.02
Preferred Stock:
1995 High Bid Low Bid
1st Quarter $.59375 $.40625
2nd Quarter $.46875 $.375
3rd Quarter $.325 $.325
4th Quarter $.25 $.125
1996 High Bid Low Bid
1st Quarter $.1875 $.1875
2nd Quarter $1.625 $.375
3rd Quarter $.71875 $.385
4th Quarter $.59375 $.28125
1997 High Bid Low Bid
1st Quarter $1.125 $.51
2nd Quarter $1.09375 $.53125
3rd Quarter $.59375 $.38
4th Quarter $.40625 $.26
1998
1st Quarter $.375 $.21875
As reported by the Nasdaq OTC Bulletin Board, on March 31, 1998 the
closing sale price of the Common Stock was $0.045 per share and the closing bid
price of the Preferred Stock was $0.375.
As of March 31, 1998, there were 1,561 holders of record of the
Company's Common Stock and 80 holders of record of the Preferred Stock,
respectively.
No dividends were declared or paid on the Common Stock during the
foregoing periods and the Company does not anticipate paying any dividends on
its Common Stock in the foreseeable future.
Dividends on the Preferred Stock are payable quarterly on February 15,
May 15, August 15 and November 15 of each year (each such date a "Dividend
Payment Date") and accrue at the annual rate of $.48 per share, to the extent
payable in cash and $.60 per share, to the extent payable in shares of Common
Stock. The first four dividend payments were paid 50% in cash and 50% in
registered shares of Common Stock computed on an annual basis, the last such
dividend payment being made on February 15, 1994. The cash portion of such
dividend payments was paid with a portion of the proceeds of the 1993 Offering,
which had been reserved for
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<PAGE>
<PAGE>
such purposes. Beginning May 15, 1994, dividends were payable in cash from the
available cash derived from the adjusted earnings of the Company for the fiscal
quarter immediately preceding the Dividend Payment Date to the extent available,
according to a formula based on adjusted earnings. Such formula provides that
the available cash will be determined as one half of the difference between
airship operating revenues and the sum of operating costs, interest and
principal payments on debt, selling, general and administrative expenses
(limited to a ceiling based on historical numbers with stated annual percentage
increases thereafter) and airship related capital expenditures (limited to
$2,000,000 in any given year). The components of the above formula are to be
determined in accordance with generally accepted accounting principles as
applied in the Company's financial statements as filed with the Securities and
Exchange Commission (the "Commission"). At its option, the Company may pay cash
dividends in excess of the available cash determined by the above formula. The
May 15, 1994 dividend was paid in registered shares of Common Stock. The Company
has deferred and accrued the cash dividend on the Preferred Stock due on August
15, 1994 and subsequent quarterly dividends until a later payment date. The
Company does not anticipate paying such dividends in the near future, and
intends to continue to defer and accrue such dividends.
Concern had been expressed by management and various shareholders of the
Company over the dilutive effects of issuances of shares of Common Stock in
payment of dividends accrued on the Preferred Stock. The Company is submitting
to the Company's shareholders a proposal to amend the terms of the Preferred
Stock which proposal will be voted upon by the Company's shareholders at the
Company's annual meeting.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's financial statements and related notes and Management's Discussion
and Analysis of Financial Discussion and Analysis of Financial Condition and
Results of Operation appearing elsewhere herein.
<TABLE>
<CAPTION>
OPERATING STATEMENT DATA:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross revenues........................ $ -- $ -- $ 2,620,000 $ 3,980,000 $ 9,748,000
Net loss.............................. $(2,294,000) $(2,506,000) $(4,867,000) $(20,635,000) $(5,406,000)
Net loss per share.................... $ (0.09) $ (0.10) $ (0.18) $ (0.74) $ (0.24)
<CAPTION>
BALANCE SHEET DATA:
AT DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total assets.......................... $ 4,374,000 $ 4,496,000 $ 5,073,000 $ 9,819,000 $26,077,000
Long-term obligations................. $ 4,080,000 $ 3,016,000 $ 3,348,000 $ 3,258,000 $ 2,380,000
Obligations under capital lease....... $ 2,477,000 $ 3,158,000 $ 3,689,000 $(3,258,000) $ --
Total liabilities..................... $ 22,057,000 $ 18,334,000 $ 14,680,000 $13,070,000 $ 7,842,000
Stockholders' equity (deficit)........ $(17,683,000) $(13,838,000) $ (9,607,000) $(3,251,000) $18,235,000
</TABLE>
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<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company commenced operations in August 1985 following the completion of the
Company's initial public offering in June 1985. Historically, substantially all
of the Company's revenues were derived from the operation of the airships
pursuant to aerial advertising contracts with its clients. Fees were generally
paid to the Company on a monthly basis and the respective Airships were flown
according to a flight schedule provided by the client, subject to weather
conditions, government regulations and maintenance requirements. In the absence
of advertising contracts, the Company has suffered a material adverse affect on
its revenues. Although the Company has not had a contract in effect since 1995
the Company continues to seek new aerial advertising contracts and clients.
Since 1995, the Company generally has had no operations and no opportunity to
commence operations in the airship industry in which it has historically
conducted its business operations. As a result, the Company has experienced
significant operating losses and negative cash flow from its operations in 1996
and 1997. Management's strategy for the future is to arrange for funding from
affiliated entities, of which there can be no assurance, and to separately
consider acquiring new business operations or merging (whether through a direct,
indirect, reverse or other form of merger) with an entity that has ongoing
business operations. As of the date hereof, the Company has no agreements with
any third party to effect any such acquisition or merger, and no assurances can
be given that any such acquisition or merger will in fact be effected in the
future. As noted in the auditor's report, there exists the possibility that the
Company may not have the ability to continue as a going concern.
In addition, during the past several years, the Company has been approached by
other entities, which have expressed an interest in effecting an acquisition or
merger of the Company primarily due to the fact that the Company is a
publicly-held corporation. In addition, the Company has incurred Net Operating
Losses ("NOLs"), which to a lessor degree, may make the Company attractive to a
prospective suitor.
Year Ended December 31, 1997, as compared to Year Ended December 31, 1996
Overall Financial Situation. The Company had a stockholders' deficit at
December 31, 1997 in the amount of $17,683,000, an increase of $3,845,000 from a
stockholders' deficit at December 31, 1996 of $13,838,000. This increase is
primarily due to the accrual of dividends on the outstanding shares of preferred
stock in the amount of $1,551,000 and a net loss for 1997 of $2,294,000. The
Company did not have revenues during 1997 or 1996. As was expected, operating
costs were substantially lower in 1997 than in 1996 by approximately $793,000 or
69%, while selling general and administrative expenses increased slightly from
1996 by $48,000 or 7%, resulting in a loss from operations of $1,094,000 for
1997. Interest expense increased by more than $470,000 or 61% for 1997 from
1996.
Results of Operations. The Company did not have any revenues from operations
during 1997 or 1996.
Operating costs for 1997 were $357,000, a decrease of $793,000 or 69% compared
to operating costs of $1,150,000 for 1996. The primary reason that operating
expenses decreased from 1996 is a result of having no Airships in operation
during any part of 1997. Operating costs primarily relate to usage of the
Company's one operational gondola and the utilization of the support vehicles.
Periodic usage of such assets promotes the airships for additional business. In
addition, the Company uses the airships to promote other related party
businesses. (See Item 13. "Certain Relationships and Related Transactions").
-12-
<PAGE>
<PAGE>
Selling, general and administrative costs for 1997 were $737,000, an increase of
$48,000 or 7% compared to costs of $689,000 for 1996. An increase of $263,000 in
professional fees during 1997 were incurred in connection with the Company's
filing of its 1994, 1995 and 1996 annual reports with the Securities Exchange
Commission. The Company also experienced decreases in salaries and related
benefits in the amount of $243,000.
Interest expense. Interest expense for 1997 was $1,245,000, an increase of
$477,000 or 62% from interest expense of $768,000 in 1996. This increase was due
to the increase in debt to TC Leasing and advances from Trans Con.
Year Ended December 31, 1996, as compared to Year Ended December 31, 1995
Results of Operations. The Company did not have any revenues from operations
during 1996 as compared with $2,620,000 during 1995. All contracts had either
expired or were cancelled during 1996.
Operating costs for 1996 were $1,150,000, a decrease of $2,877,000 or 71%
compared to operating costs of $4,027,000 for 1995. The primary reason that
operating expenses decreased from 1996 was a result of having no Airships in
operation during any part of 1996. Operating costs primarily relate to
periodic usage of the Company's one operational gondola and the utilization of
the support vehicles. Periodic usage of such assets promotes the airships for
additional business. In addition, the Company uses the airships to promote other
related party businesses. (See Item 13. "Certain Relationships and Related
Transactions").
Selling, general and administrative costs for 1996 were $689,000, a decrease of
$1,204,000 or 64% compared to costs of $1,893,000 for 1995. The Company has made
certain restructuring changes to include the reduction of salaries of certain of
its management, office and operations personnel and a reduction in the cost of
insurance and other costs normally incurred when operating of its Airships.
Interest expense. Interest expense for 1996 was $768,000, a decrease of $335,000
or 30% from interest expense of $1,103,000 in 1995. This decrease was due to the
decrease in debt to Orix and Senstar and the utilization of funds provided by
the Company's certificate of deposits held by Trans Continental.
Other income. As a result of the sale of Airship components to one of the
Company's stockholders, the Company realized a non-recurring gain of $548,000 in
1994.
New Accounting Standards - SFAS No. 128, "Earnings per Share." In February 1997,
the FASB issued SFAS No. 128, "Earnings per Share," which is effective for
financial statements issued for periods ending after December 15, 1997. This
pronouncement establishes standards for computing and presenting earnings per
share (EPS) for entities with publicly-held common stock or potential common
stock. SFAS No. 128 simplifies the standards for computing EPS and makes them
comparable to international EPS standards. Early application of this statement
is not permitted.
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<PAGE>
<PAGE>
SFAS No. 130, "Reporting Comprehensive Income." In June 1997, the FASB issued
SFAS No. 130, "Reporting Comprehensive Income," which requires the
reclassification of earlier financial statements for comparative purposes. SFAS
No. 130 requires that changes in amounts of certain terms, including foreign
currency translation adjustments and gains and losses on certain securities be
shown in the financial statements. SFAS No. 130 does not require a specific
format for the financial statement in which comprehensive income is reported,
but does require that an amount representing total comprehensive income be
reported in that statement. SFAS No. 130 is effective for financial statements
for periods beginning after December 15, 1997.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Also in June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and related Information." SFAS No. 131 will
change the way public companies report information about segments of their
business in annual financial statements and requires them to report selected
segment information in their quarterly reports issued to stockholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues,
and its major customers. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997.
The Company intends to adopt the provisions of SFAS No.'s 128, 130 and 131
during its fiscal year ended December 31, 1998, and does not expect their
application to have a material impact on the financial statements of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
As shown in the accompanying financial statements, the Company has experienced
significant operating losses and negative cash flow from operations in recent
years and has an accumulated deficit of $54,645,000 at December 31, 1997. During
the years ended December 31, 1997 and 1996, the Company did not generate any
revenues from airship operations. The Company also reported net losses of
$2,294,000 and $2,506,000 for the years ended December 31, 1997 and 1996,
respectively and had working capital deficiencies of $15,992,000 and $12,598,000
at 1997 and 1996, respectively. These conditions raise substantial doubt about
the Company's ability to continue as a going concern.
Management's plans to improve the financial position and operation with the goal
of sustaining the Company's operations for the next twelve months and beyond
include:
Arranging with Trans Continental Airlines, Inc. or other related parties common
directorship and ownership to provide funds on a monthly basis as a loan, and
separately, acquiring assets and operations of one or more entities, with which
the Company has been in negotiation. At this time, there are no agreements or
understandings relating to any such acquisition or transaction, and there can
be no assurance that any such transaction will be consummated. The expectation
is that such business combination, if completed, would provide additional cash
flow and net income to the Company.
Though management believes the Company will secure additional capital and/or
attain one or more of the above goals, there can be no assurance that any
acquisition, financing, or other plan will be effected. Any acquisition or
securities offering is subject to the Company's due
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<PAGE>
<PAGE>
diligence, the state of the general securities markets, and of the specific
market for the Company's securities, and any necessary regulatory review.
While the Company believes that its plans for additional funding or for
obtaining a possible business combination have a reasonable possibility of
improving the Company's financial situation and ensuring the continuation of its
business, there can be no assurance that the Company will be successful in
carrying out its plans and the failure to achieve them could have a material
adverse effect on the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
----------------- -----------------
<S> <C> <C>
Net cash used in operating activities ($2,283,000) ($2,135,000)
Net cash used in investing activities ( 159,000) ( 30,000)
Net cash provided by financing activities 2,442,000 2,141,000
Net increase (decrease) in cash and $ - ($ 24,000)
cash equivalents
</TABLE>
During 1997, the Company's operations used $2,283,000 compared to using
approximately $2,135,000 during 1996. This increase in cash used by operations
was primarily attributable to the reduction in depreciation expense during 1997
from 1996 and an increase in accrued interest for 1997 over 1996.
Cash was used by investing activities in the amount of $159,000 and $30,000 in
1997 and 1996, respectively, for working capital loans to certain related
parties. Also during 1996, cash was provided by the sale of airship components
in the amount of $88,000.
Cash was provided by financing activities in the amount of $2,442,000 and
$2,141,000 in 1997 and 1996, respectively. Cash provided by financing
activities in 1997 and 1996 was primarily from the working capital financing
provided by Trans Continental. Also in 1997, the Company obtained additional
financing from TC Leasing in the amount of $4,709,000. This financing was
obtained by TC Leasing from Norwest. The Company used these funds to repay
debt owed to Senstar in the amount of $3,003,000 and for working capital.
INFLATION
Since the formation of the Company in August 1985, the rate of inflation has
remained low and the cost of the Company's operations has not been significantly
affected by inflationary trends in the economy.
ITEM 8. FINANCIAL STATEMENTS AND SCHEDULES
The report of the Company's Independent Auditor, Financial Statements,
Notes to Financial Statements and Financial Statement Schedules appear herein
commencing on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
In June 1997 the Company retained C.M. Meeks & Company, P.A. (formerly
Charlie M. Meeks, C.P.A., P.A.) as its independent auditor due the added
expense of continuing with a large audit firm such as Grant Thornton.
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<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information, as of March 31, 1998,
relating to each director and executive officer of the Company.
<TABLE>
<CAPTION>
Name Age Positions with the Company Position Held Since
<S> <C> <C> <C>
Louis J. Pearlman 44 Chairman of the Board of Directors, June 1982
President and Chief Executive,
Finanical and Operating Officer
James J. Ryan 50 Director July 1986
Alan A. Siegel 34 Secretary and Director October 1989
</TABLE>
- --------------------
The following sets forth the business experience of each director,
executive officer, including principal occupations, at present and for at least
the past five years.
Louis J. Pearlman has been Chairman of the Board, President, Chief
Executive and Operating Officer and Treasurer of the Company since June 1982.
Since November 1976, Mr. Pearlman has been President and Chief Operating
Officer, a director and a 21% shareholder of Trans Continental. See "Certain
Relationships and Related Transactions." Mr. Pearlman currently devotes
approximately 50% of his time to Trans Continental and the remainder of his time
to the Company.
James J. Ryan has been a director of the Company since July 1986. Until
1994 for more than 20 years he had been employed with Alexander and Alexander
Inc., an international insurance brokerage firm and its predecessor firm, where
he most recently held the title of Senior Vice President of the Aviation and
Aerospace Division. Mr. Ryan is currently Executive Director of Sedgwick
Aviation of North America, an international insurance brokerage firm.
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<PAGE>
<PAGE>
Alan A. Siegel has been a director of the Company since December 1991
and Secretary of the Company since October 1989. From 1985 to 1989, Mr. Siegel
was Senior Account Manager of the Company and since 1989 has served as the
Company's General Manager. Mr. Siegel has also been Senior Account Manager for
Trans Continental since 1986.
The Company's directors are elected for a period of one year and until
their successors are duly elected and qualified. Directors who are not employees
of the Company are compensated at a rate of $500 for each meeting of the full
Board of Directors which they attend in person, up to a maximum of $2,000 in any
one year, plus expenses for attending such meetings. Officers are appointed
annually by the Board of Directors and serve at the discretion of the Board.
To the knowledge of management of the Company, except as set forth
above, no director of the Company holds any directorship in any other company
with a class of securities registered pursuant to Section 12, or subject to the
requirements of Section 15(d), of the Securities Exchange Act of 1934 or in any
company registered as an investment company under the Investment Company Act of
1940.
There are currently three members of the Board of Directors. The Company
and its principal shareholders had agreed to use their best efforts to elect two
designees of the underwriters of the 1993 Offering to the Company's Board of
Directors which right expires in April 1998. Due to the Company's failure to pay
a specified portion of dividends on the Preferred Stock in cash, the holders of
the Preferred Stock, voting as a class, have the right to designate two
additional members of the Company's Board of Directors. Marvin Palmquist, who
had been a director of the Company from 1984, died on February 18, 1998. The
Board has not filled the vacancy left by him, and the Company intends to have
only 3 directors in the future.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to the
Company's Chief Executive Officer for services rendered in all capacities to the
Company for the three years ended December 31, 1997 and all officers who earned
over $100,000 ("named executive officers"). No other executive officer's or
employee's annual salary and bonus exceeded $100,000 during the Company's past
three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Fiscal Salary Bonus Other Annual Restricted Securities Other
Position Year Compensation Stock Award Underlying Compensation
Options
----- ----------- ------ ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Louis J. Pearlman, 1997 $4,423
Chairman, 1996 $118,921 $ 0
President, Chief 1995 $112,277 $ 0 -- -- -- --
Executive and
Operatng Officer
Alan A. Siegel, 1997 $ 55,200
Secretary, General 1996(1) $ 61,530 $ 0
Manager and Director 1995(1) $ 58,140 $70,000
</TABLE>
- --------------
(1) Mr. Siegel deferred $25,000 of his salary in each of 1995 and 1996.
1994 EMPLOYEE SHARE PURCHASE PLAN
The Company has an employee share option plan (the "Plan") for employees
of the Company and any present or future "subsidiary corporations." The Company
intends the Plan to be an "employee stock purchase
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<PAGE>
<PAGE>
plan" as defined in Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Plan, approved by the Company's shareholders on April 11,
1995, was effective November 1, 1994. All employees are eligible to participate
in the Plan, except that the Company's appointed committee may exclude any or
all of the following groups of employees from any offering: (i) employees who
have been employed for less than 2 years; (ii) employees whose customary
employment is 20 hours or less per week; (iii) employees whose customary
employment is not more than 5 months in any calendar year; and (iv) highly
compensated employees (within the meaning of Code Section 414(q). The shares
issuable under the Plan shall be common shares of the Company subject to certain
restrictions up to a maximum of 1,000,000 shares. The committee shall determine
the length of each offering but no offering may exceed 27 months. The option
price for options granted in each offering may not be less than the less of (i)
85% of the fair value of the shares on the day of the offering, or (ii) 85% of
the fair market value of the shares at the time the option is exercised.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no option grants in 1997.
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<PAGE>
<PAGE>
AGGREGATED OPTION EXERCISES IN 1996
AND 1996 FISCAL YEAR-END OPTION VALUES
There were no options exercises in 1997.
- --------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company does not have a compensation
committee. Messrs. Pearlman and Siegel determine executive compensation, based
on corporate performance and market conditions. See "Employment Agreements."
EMPLOYMENT AGREEMENTS
The Company had an employment agreement with Louis J. Pearlman which
expired in 1994. The Company and Mr. Pearlman have not entered into a new
employment agreement. Mr. Pearlman's compensation is determined by the
Company's Board of Directors, of which Mr. Pearlman is the Chairman. The Company
currently owes approximately $391,000 to Mr. Pearlman for accrued salary and
bonus which Mr. Pearlman has deferred in order to permit the Company to meet
some of its other obligations.
The Company entered into an employment agreement as of December 31, 1992
with Alan A. Siegel. Mr. Siegel's agreement expired on January 1, 1998. Mr.
Siegel's agreement provided for an annual salary of $75,000 for the first year
of the agreement and for annual increases thereafter in an amount equal to the
greater of 5% of his previous year's salary or the increase, if any, in the
Consumer Price Index for All Urban Consumers, Central Florida 1967 -- 100. The
agreement also provides for an annual bonus payable to Mr. Siegel in an amount
equal to 1 1/2% of the Company's net after-tax profits for such fiscal year plus
an amount determined in the discretion of the Board. The Company has not entered
into a new employment agreement with Mr. Siegel. The Board of Directors
determines Mr. Siegel's compensation. Mr. Siegel is a member of the Board of
Directors.
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<PAGE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of
Common Stock beneficially owned, as of March 31, 1998, by (i) all persons
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock or Preferred Stock, (ii) each of the Company's
directors, (iii) the Company's Chief Executive Officer and "named executive
officers," and (iv) all executive officers and directors of the Company as a
group (3 persons).
<TABLE>
<CAPTION>
SHARES OWNED OF RECORD PERCENTAGE OF OUTSTANDING PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS(4) OR BENEFICIALLY SHARES OF COMMON STOCK SHARES OF PREFERRED STOCK
- ---------------- ----------------- ------------------------ -------------------------
<S> <C> <C> <C>
Louis J. Pearlman(1) 9,302,291 21.8% *
Alan A. Siegel(2) 51,130 * *
James J. Ryan(5) 97,000 * *
Trans Continental(3) 3,666,862 8.6% *
All officers and 9,450,421 22.19% *
directors as a group
(3 persons)(2)
</TABLE>
- ----------
* Denotes less than 1%.
(1) Mr. Pearlman has an address at: c/o Airship International Ltd., 7380 Sand
Lake Road, Suite 350, Orlando, Florida 32819. Includes 2,000,000 warrants
and 500,000 options which are exercisable for 2,500,000 shares of Common
Stock in the aggregate. This table is based upon 42,583,978 shares of
Common Stock which were issued and outstanding on March 31, 1998.
(2) Includes 50,000 options granted under the Company's Incentive Stock Option
Plan.
(3) Such shares of Common Stock were granted to Trans Continental Airlines,
Inc. in consideration for its guaranty of the Company's obligations under
the Allstate Loan, the Phoenixcor Loan, the Senstar Loan, the Argentina
Lease Agreement and the Argentina Operations Agreement, and a corporate
credit card issued for the Company's benefit. See "Certain Relationships
and Related Transactions".
(4) Mr. Marvin Palmquist was a member of the Company's Board of Directors in
1997. Mr. Palmquist died on February 18, 1998. Mr. Palmquist did not own
any shares of the Company's stock.
(5) Includes 67,000 options exercisable for 67,000 shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of January 1, 1998, the Company owed Mr. Pearlman an aggregate amount
of approximately $2,028,000 which amount represented accrued and unpaid salary
and bonus, and principal and accrued and unpaid interest on loans made to the
Company by Mr. Pearlman for general operation purposes. On June 30,1993, the
Company made a $789,000 loan (the "June 1993 Loan") to an individual who had
previously facilitated financing for the Company. Mr. Pearlman has guaranteed
repayment of the Loan and in addition, has agreed that
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<PAGE>
<PAGE>
the Company's obligation to repay principal and interest on Mr. Pearlman's
loan to the Company shall be reduced proportionately to reflect the amount of
the then outstanding Loan for so long as the Loan shall remain outstanding. The
loan from Mr. Pearlman bears interest at the rate of 8.5%. In consideration for
Mr. Pearlman's guaranteeing repayment of the Loan and agreeing that the Loan can
be offset against his loan, the Company has treated the $789,000 as a reduction
of the amount due to Mr. Pearlman.
On behalf of the Company, Trans Continental guaranteed the Company's
obligations to Orix USA Corporation ("Orix") pursuant to a lease, dated June 2,
1995, for one of the Company's airships. Trans Continental has been lending
funds to the Company in order to provide the Company with working capital. Some
of these funds have been used by the Company to make the lease payments to Orix.
During the year ended December 31, 1997, the Company was advanced approximately
$1.6 million by Trans Continental, and as of December 31, 1997 the Company owes
to Trans Continental approximately $5.5 million, representing approximately $4.9
million of principal and approximately $600,000 of accrued interest with respect
to the Orix debt. Mr. Louis J. Pearlman owns 21% of Trans Continental and is the
Company's Chairman of the Board, President and principal shareholder.
On October 9, 1995 the Company granted to Trans Continental 3,666,862
shares of Common Stock representing 10% of the issued and outstanding Common
Stock of the Company. Such grant was made in consideration of Trans
Continental's guaranty of the Company's obligations under the Allstate Loan, the
Phoenixcor Loan and the Senstar Loan and the Argentina Lease and Operations
Agreements. In addition, Trans Continental has procured, for the Company's
benefit, a corporate credit card.
On December 24, 1996, Trans Continental Leasing, Inc. ("TC Leasing")
obtained a loan with Norwest Equipment Finance, Inc. in the amount of
$4,709,000. The proceeds of this refinancing were used to repay the Company's
debt to Senstar and to provide working capital to the Company. TC Leasing is a
wholly owned subsidiary of Trans Continental. The Company owes to TC Leasing the
aggregate amount of approximately $4,090,000, consisting of approximately
$4,060,000 and approximately $30,000 of interest.
The Company advanced Airship Airways, Inc. ("AAI") $137,500 in August
1994. At such time, Mr. Pearlman was a principal stockholder of AAI, owning
approximately 44% of its stock. Subsequent to such transaction Mr. Pearlman has
reduced his ownership interest in AAI to approximately 4%. The advance was made
in connection with a proposed merger (the "Merger") transaction between the
Company and AAI. At the present time the Company believes that it is unlikely
that the Merger will be consummated. In connection with the advance, AAI issued
to the Company its promissory note (the "AAI Note") in the amount of $137,500 in
October 1994. The AAI Note is secured by certain aircraft and equipment owned by
AAI. The AAI Note bore interest at the rate of 8% per annum, and was due and
payable on or before February 23,1995. On February 8, 1995 AAI repaid the AAI
Note in full by paying the Company $82,100 and cancelling two promissory notes
that had been issued by the Company to AAI in the respective principal amounts
of $25,000 and $30,400. These notes had been issued in connection with expenses
incurred in connection with the Merger, and reductions in rental payments on
office space obtained with the cooperation of AAI, and which were due and
payable on February 23, 1995 and May 1, 1996, respectively.
-21-
<PAGE>
<PAGE>
On December 31, 1991, Mr. Julian Benscher and the Company entered into a
Line of Credit Agreement, pursuant to which Mr. Benscher loaned the Company
$1,000,000 in 1992. As partial consideration for making these loans, the Company
issued to Mr. Benscher warrants to purchase 775,000 shares of Common Stock and
issued additional warrants to purchase 325,000 shares of Common Stock to certain
parties designated by Mr. Benscher. The Company has granted Mr. Benscher
registration rights with respect to all shares of Common Stock and warrants
owned by him. These warrants were to expire on December 31, 1994; however, for
continued assistance provided to the Company by Mr. Benscher, the Company
extended the expiration date of these warrants to December 31, 1996, on which
date the warrants expired unexercised. Mr. Benscher currently owns approximately
212,500 shares of the Company's Common Stock, and together with designees, his
ownership represents less than 5% of the outstanding Common Stock. Mr. Benscher
and the Company continue to engage in business transactions in which the Company
provides Mr. Benscher with the use of an airship and related parts and equipment
and Mr. Benscher pays the costs relating to the operation of the airship. In
addition, the Company uses its airships to promote other related party
businesses.
The Company sold the Argentina Airship to First Security for the benefit
of Aviation, in June, 1995 in consideration for First Security's assumption of
the Company's liabilities under the Argentina Lease Agreement and AOI's
obligations under the Argentina Operations Agreement. In connection with such
sale, the Company assigned the Argentina Lease Agreement to First Security, and
Aviation purchased all of the issued and outstanding Capital Stock of AOI. See
"Business-Aerial Advertising and Other Contracts-Argentina Airship."
The Company has purchased hull insurance for the Company's airships
through Sedgwick Aviation of North America, an international insurance brokerage
firm of which Mr. James J. Ryan is the Executive Director.
-22-
<PAGE>
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(a) (1) The following financial statements of the Company have been
filed as part of this report:
A. Report of Independent Certified Public Accountant F-1
B. Balance Sheets as of December 31, 1997 and 1996 F-2
C. Statements of Operations for the years ended December 31,
1997, 1996 and 1995 F-3
D. Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995 F-4
E. Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 F-5
F. Notes to Financial Statements F-6 to F-18
</TABLE>
<TABLE>
<CAPTION>
Exhibit Incorporated by
Number Description Reference to
- ------- ----------- ---------------
<S> <C>
3.1 Certificate of incorporation of the Company filed June 9, 1992. Exhibit 2(12)
3.2 Amendment to Certificate of Incorporation filed September 18, 1984. Exhibit 3(12)
3.3 Amendment to Certificate of Incorporation filed April 8, 1985. Exhibit 4(12)
3.4 Amendment to Certificate of Incorporation filed August 1, 1986. Exhibit 5(12)
3.5 Amendment to Certificate of Incorporation filed January 27, 1989. Exhibit 6(12)
3.6 Amendment to Certificate of Incorporation filed August 5, 1992. Exhibit 7(12)
3.7 Certificate of Correction to Amendment of Certificate of Incorporation filed Exhibit 8(12)
on February 26, 1993.
3.8 Amendment to Certificate of Incorporation filed February 26, 1993. Exhibit 9(12)
3.9 By-laws of the Company. Exhibit 3.9(19)
4.1 Warrant Agreement dated February 14, 1991 between the Company and Exhibit 4.1(4)
American Securities Transfer, Inc. including form of Class A Warrant and
form of Class B. Warrant.
4.2 Warrant dated February 7, 1991 issued to Stephen M. Bathgate. Exhibit 4.2(4)
4.3 Two warrants dated respectively December 31, 1991 and February 25, 1992 Exhibit 4.3(4)
issued to Julian M. Benscher.
4.4 Two warrants dated respectively February 7, 1991 and March 23, 1991 Exhibit 4.4(4)
issued to Kenneth S. Bernstein.
4.5 Two warrants dated respectively February 7, 1991, and May 23, 1991 Exhibit 4.5(4)
issued to Chatfield Dean & Co., Inc.
4.6 Warrant dated September 26. 1991 issued to Dr. Joseph C. F. Chow and Exhibit 4.6(4)
Cynthia B. Chow.
4.7 Warrant dated September 26, 1991 issued to Cohig & Associates, Inc. Exhibit 4.7(4)
4.8 Warrant dated May 1, 1991 issued to Daliz Associates. Exhibit 4.8(4)
4.9 Two warrants dated respectively February 8, 1990, and February 21, 1991 Exhibit 4.9(4)
issued to Emanuel and Company.
4.10 Warrant dated December 10, 1991 issued to After Falkowitz. Exhibit 4.10(4)
4.11 Four warrants dated respectively June 5, 1990, December 5, 1990, Exhibit 4.11(4)
December 17,1 990, and February 21, 1991 issued to Alfonso Figlioia.
4.12 Two warrants dated respectively, May 23, 1991 and February 7, 1992 Exhibit 4.12(4)
issued to Sanford D. Greenberg.
4.13 Warrant dated December 7, 1991 issued to Edward C. Larkin. Exhibit 4.13(4)
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
--------------
Exhibit Incorporated by
Number Description Reference to
- ------- ----------- ---------------
<S> <C>
4.14 Warrant dated December 4, 1991 issued to David Mathis. Exhibit 4.14(4)
4.15 Warrant dated February 7, 1991 issued to Eugene McColley. Exhibit 4.15(4)
4.16 Warrant dated February, 1992 issued to Nour Collection, Inc. Exhibit 4.16(4)
4.17 Warrant dated November 3, 1989 issued to ORIX Commercial Credit Exhibit 10.29(5)
Corporation ("ORIX").
4.18 Warrant date February, 1992 issued to Chahram Pahlavi. Exhibit 4.18(4)
4.19 Warrant dated April 7, 1992 issued to Jim Ryan. Exhibit 4.19(4)
4.20 Warrant dated May 1, 1992 issued to Sterling Capital Group, Inc. Exhibit 4.20(4)
4.21 Warrant dated May 1, 1991 issued to Jonathan Turk. Exhibit 4.21(4)
4.22 Warrant dated February 7, 1991 issued to Steven R. Hinkle. Exhibit 4.22(4)
4.23 Warrant dated April 1. 1992 issued to Simon Zamet. Exhibit 4.23(4)
4.24 Warrant dated May 8, 1992 issued to Louis J. Pearlman. Exhibit 4.24(6)
4.25 Two Warrants dated April 17, 1992 issued to Emanuel and Company. Exhibit 4.25(6)
4.26 Representatives' Preferred Stock Warrant issued to Emanuel and Company
and Chatfield Dean & Co. Inc.
4.27 Action by Written Consent of the Board of Directors dated April 15, 1997 *
extending warrant granted to Louis J. Pearlman.
10.1 Amended and Restated Loan Agreement dated as May 8, 1992 between the Exhibit 10.1(6)
Company and Louis J. Pearlman.
10.2 Form of Subscription Agreement between the Company and certain Exhibit 10.2(6)
investors relating to the 1992 Private Placement.
10.3 Letter Agreement dated April 17, 1992, between the Company and Emanuel Exhibit 10.3(6)
and Company in connection with the 1992 Private Placement.
10.4 Incentive Stock Option Plan as amended, of the Company. Exhibit 10.2(1)
10.5 Amendment to Incentive Stock Option Plan dated December 9, 1991. Exhibit 10.2(4)
10.6 Aerial Airship Agreement dated October 26, 1987 by and between the Exhibit 10.29(7)
Company and the Metropolitan Life Insurance Company ("MetLife").
10.7 Amendment dated as of March 15, 1988 to the Advertising Agreement Exhibit B.1(3)
between the Company and MetLife.
10.8 Amendment dated as of March 15, 1988 to the Aerial Advertising Exhibit 10.14(5)
Agreement between the Company and MetLife.
10.9 Amendment dated as of March 15, 1988 to the Aerial Advertising Exhibit 10.15(5)
Agreement between the Company and MetLife.
10.10 Amendment dated as of March 15, 1988 to the Aerial Advertising Exhibit 19.4(8)
Agreement between the Company and MetLife.
10.11 Airship Advertising Agreement dated as to April 27, 1990 between the Exhibit 10.8(4)
Company, Airship Industries (USA), Inc. ("AIUSA") and Anheuser Busch
Companies, Inc. ("Anheuser").
</TABLE>
-24-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
--------------
Exhibit Incorporated by
Number Description Reference to
- ------- ----------- ---------------
<S> <C>
10.12 Termination Agreement dated as of January 1, 1991 between the Company, Exhibit 19.2(8)
Anheuser, and AIUSA.
10.13 Airship Advertising Agreement dated as of January 1, 1991 between the Exhibit 19.3(8)
Company and Anheuser.
10.14 Amendment to Airship Advertising Agreement dated May 31, 1991 between Exhibit 10.11(4)
the Company and Anheuser.
10.15 Passenger Airship Agreement dated May 31, 1991 between the Company Exhibit 19.12(4)
and Anheuser.
10.16 Airship Advertising Agreement dated March 12, 1992 between the Exhibit 10.13(4)
Company and Anheuser.
10.17 Term Loan Agreement dated as of February 27. 1990, between State Bank Exhibit 10.3(9)
of South Australia and the Company in the principal amount of $250,000.
10.18 Airship Lease dated February 27, 1990 between the Company and the State Exhibit 10.23(5)
Bank of South Australia together with Lease Supplement No. 1 thereto.
10.19 Subordination Agreement dated February 27, 1990, between the Company, Exhibit 10.16(4)
State Bank of South Australia and Louis J. Pearlman.
10.20 Line of Credit Agreement dated December 31, 1991 between Julian Exhibit 10.17(4)
Benscher and the Company in the amount of $1,000,000, as amended on
February 20, 1992 and Secured and Credit Note dated December 31, 1991
from the Company to Julian Benscher in the principal amount of
$1,000,000.
10.21 Loan Agreement dated December 8, 1988 between the Company and Louis Exhibit C.1(3)
J. Pearlman relating to a loan of $500,000.
10.22 Promissory note dated December 8, 1988 of the Company. Exhibit D.1(3)
10.23 Demand Note dated as of December 31, 1988 of the Company to Louis J. Exhibit H.1(3)
Pearlman, in the principal amount of $324,929.76.
10.24 Term Note for the principal amount of $850.000 dated January 31, 1990 Exhibit 10.21(4)
from the Company to Louis J. Pearlman.
10.25 Stock Option Agreement dated January 1, 1989 between the Company and Exhibit E.1(3)
Louis J. Pearlman to purchase 1,000,000 shares.
10.26 Amendment to Stock Option Agreement between the Company and Louis J. Exhibit 10.24(4)
Pearlman dated as of February 7, 1991.
10.27 Exchange Agreement dated January 29, 1992 between Slingsby Aviation Exhibit 10.28(4)
Limited and the Company.
10.28 Purchase Agreement Assignment dated November 2, 1989 between the Exhibit 10.26(5)
Company and ORIX and Consent by Airship UK.
10.29 Letter of Credit dated November 2,1989 between the Company and ORIX. Exhibit 10.309(5)
10.30 Assignment of (MetLife) Aerial Advertising Agreement and Consent dated Exhibit 10.27(5)
as of November 2, 1989 between the Company and Airship (UK).
</TABLE>
-25-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
--------------
Exhibit Incorporated by
Number Description Reference to
- ------- ----------- ---------------
<S> <C>
10.31 Guaranty of Louis J. Pearlman in favor of ORIX dated as of November 2, Exhibit 10.28(5)
1989.
10.32 Note and Warrant Purchase Agreement dated as of November 2, 1989 Exhibit 109.33(5)
between the Company and ORIX
10.33 Agreement dated November 12, 1990 among the Company the Receiver for Exhibit 10.30(10)
Airship UK, AIUSA and others.
10.34 Corporate Financial Consulting Agreement dated February 14, 1991 Exhibit 10.38(4)
between the Company and Cohig & Associates.
10.35 Engagement Letter dated September 22, 1988 between Emanuel and Exhibit K.1(3)
Company and the Company.
10.36 Agreement dated August 28, 1992 between Seoul Olympic Sports Promotion Exhibit 10.45(11)
Foundation and the Company.
10.37 Fifth Amendment to Aerial Advertising Agreement effective as of Exhibit 10.46(11)
September 1, 1992 between Metropolitan Life and the Company.
10.38 Loan Agreement dated October 14, 1992 between Sequel Capital Corporation and Exhibit 10.47(11)
the Company.
10.39 Agreement dated December 17, 1992 between J&B Enterprises Limited Exhibit 10.48(11)
(UK) Corp. Julian Benscher and the Company.
10.40 Airship Mortgage dated December 17, 1992 between the Company and J&B Exhibit 10.49(11)
Enterprises Limited (UK) Corp.
10.41 Employment Agreement dated as of December 31, 1992 between the Exhibit 10.50(11)
Company and Seth Bobet.
10.42 Employment Agreement dated as of December 31, 1992 between the Exhibit 10.51(11)
Company and Alan Siegel.
10.43 Employment Agreement dated as of December 31, 1992 between the Exhibit 10.52(11)
Company and Frank Sicoli.
10.44 Amended Employment Agreement dated as of February 15,1993 between Exhibit 10.53(11)
the Company and Louis J. Pearlman
10.45 Second Amendment to Stock Option Agreement between the Company and Exhibit 10.54(11)
Louis J. Pearlman date as of February 15.l 1993.
10.46 Mast Sale Agreement dated December 30, 1992 between J&B Enterprises Exhibit 10.55(11)
Limited (UK) Corp. Julian Benscher and the Company.
10.47 Mortgage dated December 30, 1992 between the Company and J&B Exhibit 10.56(11)
Enterprises Limited (UK) Corp.
10.48 Subscription Agreements between the Company and certain investors Exhibit 10.57(11)
relating to the 1992 Private Placement.
10.49 Sublease Agreement between Westinghouse Airships, Inc. and the Company Exhibit 10.58(13)
dated November 9, 1992.
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
--------------
Exhibit Incorporated by
Number Description Reference to
- ------- ----------- ---------------
<S> <C>
10.50 Amendment to Sublease Agreement between Westinghouse Airships, Inc. Exhibit 10.59(13)
and the Company dated November 9, 1992.
10.51 Lease Agreement between Sand Lake IV-A Limited Partnership and the Exhibit 10.60(13)
Company dated February 25, 1991.
10.52 Lease Agreement between T&L Leasing and the Company dated January Exhibit 10.61(13)
13. 1992.
10.53 Lease Agreement between Westdeutsche Luftwerbung Theodor Exhibit 10.52(15)
Wullenkemper GMBH and the company dated May 16, 1993.
10.54 Manufacturers Agreement between WDL Luftschiffgesellschaft MBH and Exhibit 10.53(15)
the Company dated may 16, 1993.
10.55 Escrow Agreement between and among Westdeutsche Lufterbung Theodor Exhibit 10.54(15)
Wullenkemper GMBH & Co., WDL Luftschiffgesellschaft MBH, Trans Exhibit 10.55(15)
Continental Airlines Inc., and the Company dated May 15, 1993.
10.56 Aerial Advertising Agreement between the Company and Catamount Exhibit 10.56(15)
Petroleum Limited Partnership dated May 28, 1993.
10.57 Amendment to Aerial Advertising Agreement between the Company and Exhibit 10.57(15)
Catamount Petroleum Limited Partnership dated July 27, 1993.
10.58 Second Amendment to Aerial Advertising Agreement between the Company Exhibit 10.58(15)
and Catamount Petroleum Limited Partnership dated August 9, 1993.
10.59 Third Amendment to Aerial Advertising Agreement between the Company Exhibit 10.59(15)
and Catamount Petroleum Limited Partnership dated October 13, 1993.
10.60 Fourth Amendment to Aerial Advertising Agreement between the Company Exhibit 10.60(15)
and Catamount Petroleum Limited Partnership dated November 9, 1993.
10.61 Aerial Advertising Agreement between Kingstreet Tours Limited and the Exhibit 10.61(15)
Company dated as of January 18, 1994.
10.62 Passenger Airship Agreement between Anheuser-Busch Companies, Inc. Exhibit 10.62(15)
and the Company dated as of January 2, 1994.
10.63 Amendment to Airship Advertising Agreement dated March 12, 1992, Exhibit 10.63(15)
between the Company and Anheuser-Busch Companies, Inc. dated March 4,
1994 and related letter agreement dated February 11, 1994.
10.64 Amendment to note agreement dated as of November 2, 1989 between the Exhibit 10.64(15)
Company and ORIX dated January 11, 1994.
10.65 Loan Agreement between Don Golden and the Company dated June 30, Exhibit 10.65(15)
1993.
10.66 Guarantee of Louis J. Pearlman in favor of the Company dated as of June Exhibit 10.66(15)
30, 1993.
10.67 Loan Agreement between Superbound Limited and the Company dated Exhibit 10.67(15)
December 7, 1993.
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
--------------
Exhibit Incorporated by
Number Description Reference to
- ------- ----------- ---------------
<S> <C>
10.68 Guarantee of James Stuart Tucker in favor of the Company dated as of Exhibit 10.68(19)
December 7, 1993.
10.69 Kingstreet Tours Limited Aerial Advertising Agreement dated January 18, Exhibit 10.69(19)
1994, by and between the Company and Kingstreet Tours Limited.
10.70 Amended and Restated Airship Advertising Agreement, dated July 8, 1994, Exhibit 10.70(19)
by and between the Company and Anheuser-Busch Companies, Inc.
10.71 Aircraft Lease Agreement, dated December 15, 1994, by and between the Exhibit 10.71(19)
Company and Mastellone Hnos., S.A.
10.72 Airship Operations Agreement, dated December 15, 1994, by and between Exhibit 10.72(19)
Airship Operations (USA), Inc. and Mastellone Hnos, S.A.
10.73 Passenger Airship Agreement, dated as of January 2, 1994, by and between Exhibit 10.73(19)
the Company and Anheuser-Busch Companies, Inc.
10.74 Letter Agreement Modification, dated January 11, 1994, by and between Exhibit 10.74(19)
the Company and ORIX USA Corporation.
10.75 Amendment to Lease, dated May 12, 1994, by and between the Company Exhibit 10.75(19)
and ORIX USA Corporation.
10.76 Collateral and Security Agreement, dated as of May 10, 1994, by and Exhibit 10.76(19)
between the Company and ORIX USA Corporation.
10.77 Aircraft Collateral Funding Repayment Agreement, dated as of November Exhibit 10.77(19)
16, 1994, by and between the Company and Allstate Financial Corporation.
10.78 Guaranty, dated December 6, 1994, of Louis J. Pearlman. Exhibit 10.78(19)
10.79 Guaranty, dated December 6, 1994, of Trans-Continental Airlines, Inc. Exhibit 10.79(19)
10.80 Aircraft Lease Agreement, dated as of May 31, 1995, by and between Exhibit 10.80(19)
Trans Continental Leasing, Inc., as Lessor and the Company, as Lessee.
10.81 Full Warranty Bill of Sale, dated as of May 31, 1994, by the Company to Exhibit 10.81(19)
Trans Continental Leasing, Inc.
10.82 Credit Agreement, dated November 30, 1995, by and between the Company Exhibit 10.82(19)
and Senstar Capital Corporation.
10.83 Term Note, dated November 30, 1995, of the Company to Senstar Capital Exhibit 10.83(19)
Corporation.
10.84 Aircraft Mortgage and Security Agreement, dated November 30, 1995, by Exhibit 10.84(19)
and between the Company and Senstar Capital Corporation.
10.85 Assignment of Contract Rights, dated November 30, 1995, by and between Exhibit 10.85(19)
the Company and Senstar Capital Corporation.
10.86 Agreement of Guaranty and Suretyship, dated November 30, 1995, by and Exhibit 10.86(19)
between Trans Continental Airlines and Senstar Capital Corporation.
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
--------------
Exhibit Incorporated by
Number Description Reference to
- ------- ----------- ---------------
<S> <C>
10.87 Release and Settlement Agreement, dated September 20, 1993, by and Exhibit 10.87(19)
between the Company and Sequel Capital Corporation and Louis J.
Pearlman.
10.88 Promissory Note, dated October __, 1994, of Louis J. Pearlman to Airship Exhibit 10.88(19)
Airways, Inc.
10.89 Promissory Note, dated October 26, 1994, of Louis J. Pearlman to Airship Exhibit 10.89(19)
Airways, Inc.
10.90 Form of Share Subscription Agreement, dated August 11, 1994, between Exhibit 10.90(19)
the Company and _______________.
10.91 List of Purchasers in the 1994 Private Placement. Exhibit 10.91(19)
10.92 Secured Promissory Note, dated October 26, 1994, of Airship Airways, Inc. to Exhibit 10.92(19)
the Company.
10.93 Option Agreement, dated as of August 11, 1994, between the Company and Exhibit 10.93(19)
Louis J. Pearlman.
10.94 Airship International Ltd. Employee Share Purchase Plan. Exhibit 1(18)
10.95 Amended and Restated Lease Agreement, dated June 2, 1995, between
Orix USA Corporation, and The Company *
11.1 Statement re: Computation of Per Share Earnings. *
16.1 Letter of Wiss & Co. dated June 22, 1993 Exhibit 16.1(14)
16.2 Letter of Grant Thornton dated July 7, 1997. Exhibit 16(16)
16.3 Letter of Grant Thornton dated July 22, 1997 Exhibit 16(17)
21.1 List of Subsidiaries Exhibit 21.1(19)
27.1 Financial Data Schedule *
</TABLE>
*Filed herewith.
(1) The Company's Registration Statement on Form S 18 Registration No. 2.96334
NY as filed with the Securities and Exchange Commission (the "SEC") on
March 9, 1985.
(2) The Company's Registration Statement on Form S-1 Registration No. 33-7830,
as filed with the SEC on August 7, 1986.
(3) The Company's Annual Report on Form 10-K for fiscal year ended December 31,
1988.
(4) The Company's Annual Report on Form 10-K for fiscal year ended December 31,
1991.
(5) The Company's Registration Statement on Form S-2, Registration No.
33-32619, as filed with the SEC on December 18, 1989.
(6) The Company's Post-effective Amendment No. 1 on Form S-3 to Form S-2,
Registration No. 33-38076, as filed with the SEC on May 14,1 992.
(7) The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1987.
(8) The Company's Report on Form 8 dated August 14, 1991.
(9) The Company's Report on Form 8-K dated February 27, 1990.
(10) The Company's Registration Statement on Form S-2, Registration No.
33038076. as filed with the SEC on December 5. 1990.
-29-
<PAGE>
<PAGE>
(11) The Company's Registration Statement on Form S-1, Registration No.
33-56382, as filed with the SEC on February 16, 1993.
(12) The Company's Registration Statement on Form 8-A, as filed with SEC on
March 16, 1993.
(13) The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992.
(14) The Company's Report on Form 8-K dated July 9, 1993.
(15) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
(16) The Company's Report on Form 8-K, as filed with the SEC on July 11, 1997.
(17) The Company's Report on Form 8-K/A, as filed with the SEC on July 22, 1997.
(18) The Company's Proxy Statement, as filed with the SEC on March 20, 1995.
(19) The Company's Annnual Report on Form 10-K for the year ended December 31,
1994.
(c) The Company had not filed any reports on form 8-K during the last quarter of
the period covered by this report.
-30-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AIRSHIP INTERNATIONAL LTD.
Dated: April 14, 1998 By: /s/ Louis J. Pearlman
-----------------------
Louis J. Pearlman
Chairman of the Board of
Directors, President and
Treasurer (Principal Executive
and Financial Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Louis J. Pearlman Chairman of the Board, President, April 14, 1998
- -------------------------- Treasurer and Director
Louis J. Pearlman (Principal Executive and Financial
Officer)
/s/ Alan A. Siegel Secretary and Director April 14, 1998
- --------------------------
Alan A. Siegel
/s/ James J. Ryan Director April 14, 1998
- --------------------------
James J. Ryan
</TABLE>
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<PAGE>
<PAGE>
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
(a) (1) The following financial statements of the Company have been
filed as part of this report:
A. Report of Independent Certified Public Accountant F-1
B. Balance Sheet as of December 31, 1997 and 1996 F-2
C. Statements of Operations for the years ended
December 31, 1997, 1996, and 1995 F-3
D. Statements of Changes in Stockholders' Equity for
the years ended December 31, 1997, 1996, and 1995 F-4
E. Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995 F-5
F. Notes to Financial Statements F-6 to F-18
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Airship International Ltd.
Orlando, Florida
We have audited the accompanying balance sheets of Airship International Ltd. as
of December 31, 1997 and 1996, and the related statement of operations,
stockholders' deficit, and cash flows for the years ended December 31, 1997,
1996, and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Airship International Ltd. at
December 31, 1997 and 1996, the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note B to the
financial statements, the Company has experienced significant operating losses,
an accumulated deficit and negative working capital at December 31, 1997 and
1996. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty, with the
exception of the effects of applying Statement of Financial Accounting Standards
No. 121, "Impairment of Long-Lived Assets to be Disposed Of", as described in
Note A.
C.M. Meeks & Company, P.A.
Longwood, Florida
March 31, 1998
F-1
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Airships and Related Equipment:
Airships $2,294,000 $2,294,000
Vehicles 645,000 1,384,000
Parts and equipment 850,000 1,216,000
Airship components 1,606,000 1,605,000
- ----------------------------------------------------------------------------------------------
5,395,000 6,499,000
Less: Accumulated depreciation and amortization 1,485,000 2,292,000
- ----------------------------------------------------------------------------------------------
3,910,000 4,207,000
Cash and cash equivalents 2,000 2,000
Prepaid insurance 22,000 -
Due from related parties 434,000 275,000
Other assets 6,000 12,000
- ----------------------------------------------------------------------------------------------
$4,374,000 $4,496,000
==============================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable - trade $1,525,000 $1,615,000
Customer payment on future services 514,000 553,000
Insurance financing 45,000 38,000
Accrued expense and other liabilities 5,983,000 4,536,000
Obligations under capital leases 2,477,000 3,158,000
Notes payable 4,080,000 3,016,000
Deferred gain on sale of airship 766,000 810,000
Due to stockholders 6,667,000 4,608,000
- ----------------------------------------------------------------------------------------------
Total liabilities 22,057,000 18,334,000
Contingencies and commitments
- ----------------------------------------------------------------------------------------------
Stockholders' Deficit
Preferred stock, $.01 par value: Authorized -
10,000,000 shares, issued and outstanding - 2,459,000 24,000 27,000
shares in 1997 and 2,712,000 in 1996
Common stock, $.01 par value: Authorized -
80,000,000 shares, issued and outstanding - 42,523,000
shares in 1997 and 41,002,000 in 1996 425,000 410,000
Capital in excess of par value - Preferred Stock 14,447,000 14,444,000
Capital in excess of par value - Common Stock 22,066,000 22,081,000
Accumulated deficit (54,645,000) (50,800,000)
- ----------------------------------------------------------------------------------------------
Total stockholders' deficit: (17,683,000) (13,838,000)
- ----------------------------------------------------------------------------------------------
$ 4,374,000 $ 4,496,000
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Airship Revenue $ - $ - $ 2,620,000
- --------------------------------------------------------------------------------------------
Costs and expenses:
Operating costs 357,000 1,150,000 4,027,000
Selling, general and administrative expenses 737,000 689,000 1,893,000
- --------------------------------------------------------------------------------------------
1,094,000 1,839,000 5,920,000
Loss from operations (1,094,000) (1,839,000) (3,300,000)
- --------------------------------------------------------------------------------------------
Other income (expense):
Gain (loss) on sale of airship components to
a stockholder - 13,000 (548,000)
Realized gain on sale leaseback 45,000 44,000 26,000
Loss on insurance settlement - - -
Interest expense (1,245,000) (768,000) (1,103,000)
Interest, royalties and other income - 44,000 58,000
- --------------------------------------------------------------------------------------------
(1,200,000) (667,000) (1,567,000)
- --------------------------------------------------------------------------------------------
Net loss ($ 2,294,000) ($2,506,000) ($4,867,000)
============================================================================================
Weighted average number of common shares
and equivalents outstanding 42,181,000 40,879,000 36,008,000
- --------------------------------------------------------------------------------------------
Net loss applicable to common stock:
Net loss ($ 2,294,000) ($2,506,000) ($4,867,000)
Less preferred stock dividend ( 1,551,000) ( 1,725,000) ( 1,725,000)
- --------------------------------------------------------------------------------------------
Net loss applicable to common stock ($ 3,845,000) ($4,231,000) ($6,592,000)
============================================================================================
Net loss per share ($ .09) ($ .10) ($ 0.18)
============================================================================================
SIGNIFICANT AMOUNTS APPLICABLE TO
RELATED PARTIES:
Selling, general and administrative:
Interest expense $ 437,000 $ 293,000 $ 101,000
Interest income $ - $ - $ 23,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Capital in Excess of
Par Value
Preferred Stock Common Stock ----------------------
--------------- ------------ Preferred Common Accumulated
Shares Par Value Shares Par Value Stock Stock Deficit
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 2,875,000 29,000 31,356,000 314,000 14,442,000 21,931,000 (39,977,000)
Conversion of preferred stock
into common stock (78,000) (1,000) 467,000 5,000 1,000 (5,000) -
Exercise of stock options - - 5,000,000 50,000 - 50,000 -
as compensation
Issuance of common stock to Trans
Continental for loan - - 3,667,000 36,000 - 110,000 -
guarantee
Dividends paid on
preferred stock:
Accrued common stock dividend - - - - - - (1,725,000)
Loss - - - - - - (4,867,000)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 2,797,000 28,000 40,490,000 405,000 14,443,000 22,086,000 (46,569,000)
Conversion of preferred
stock into common stock (85,000) (1,000) 512,000 5,000 1,000 (5,000) -
Accrued common stock dividend - - - - - - (1,725,000)
Loss - - - - - - (2,506,000)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,712,000 27,000 41,002,000 410,000 14,444,000 22,081,000 (50,800,000)
Conversion of preferred
stock into common stock (253,000) (3,000) 1,521,000 15,000 3,000 (15,000) -
Exercise of options as
compensation
Accrued common stock dividend - - - - - - (1,551,000)
Loss - - - - - - (2,294,000)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 2,459,000 24,000 42,523,000 425,000 14,447,000 22,066,000 (54,645,000)
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows form operating activities
Net loss ($2,294,000) ($2,506,000) ($4,867,000)
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Issuance of common stock through exercise
of options - - 100,000
Issuance of common stock in exchange for
Trans Continental debt guarantee - - 146,000
Depreciation and amortization 219,000 462,000 661,000
Realized gain on sale leaseback (44,000) (44,000) (26,000)
Loss from impairment of long-lived assets - - 1,462,000
Gain (loss) on disposition of airship
components and related assets 78,000 (34,000) 704,000
Changes in operating assets and liabilities:
Prepaid insurance (22,000) 81,000 545,000
Other assets 6,000 74,000 95,000
Accounts payable - trade (90,000) (75,000) (2,378,000)
Customer payments on future services (39,000) - (813,000)
Insurance financing (7,000) (66,000) (187,000)
Accrued expenses and other liabilities (104,000) (27,000) (329,000)
- ----------------------------------------------------------------------------------------------
Net cash flows used in operating
activities (2,283,000) (2,135,000) (4,887,000)
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of airship components - 88,000 20,000
Acquisition of airships and related equipment - (19,000) (21,000)
Net change in due from Trans Continental (159,000) (99,000) 1,632,000
- ----------------------------------------------------------------------------------------------
Net cash flows provided by (used in)
investing activities (159,000) (30,000) 1,631,000
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 4,787,000 - 3,500,000
Principal payments on capital leases and loans (4,404,000) (863,000) (1,415,000)
Proceeds from loans by stockholder 2,059,000 3,004,000 654,000
- ----------------------------------------------------------------------------------------------
Net cash flows from financing activities 2,442,000 2,141,000 2,739,000
- ----------------------------------------------------------------------------------------------
Net changes in cash and equivalents - (24,000) 517,000)
Cash and cash equivalents, beginning of year 2,000 26,000 543,000
- ----------------------------------------------------------------------------------------------
Cash and equivalents, end of year $ 2,000 $ 2,000 $ 26,000
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Business - The Company operates lighter-than-air airships used to
advertise and promote the products and services of the Company's clients. At
December 31, 1997, the Company had no airships in operation.
Cash and Equivalents - The Company considers unrestricted short-term, highly
liquid investments with maturities of three months or less at the time of
purchase to be cash equivalents.
Revenue Recognition - Airship revenues, when available, are recognized during
the period in which services are provided. Whenever significant flight time is
owed to a customer, the incremental cost of providing services is accrued. No
amounts are accrued at December 31, 1997 or 1996.
Flight Crew Training Costs - Significant flight crew training costs for new
blimps are amortized over twelve months from the date related revenues commence.
Airships and Related Equipment - Property and Equipment are stated at cost.
Depreciation is provided by the straight line method over the estimated useful
lives of the assets - 10 to 20 years (airships), 4 to 8 years (vehicles), 3 to 5
years (parts and equipment) and 2 to 3 years (improvements). Airship components
are not depreciated until placed in service.
Deferred Financing and Offering Costs - Costs incurred to obtain debt financing
are capitalized and amortized over the terms of the related loans. Such costs
include incremental payments to consultants, lenders and other out of pocket
expenses, as well as the fair value of options and warrants issued to persons
other than lenders. The fair value of options and warrants issued to lenders are
reported as debt discount and amortized over the term of the related loan. In
determining the fair value of warrants issued, substantial discounts have been
provided for the effects of restrictions on sale, the volume of shares involved
and other factors.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes - The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes", which requires the
recognition of deferred tax liabilities and assets for expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect when these
differences are expected to reverse. Valuation allowances are established when
appropriate, to reduce deferred tax assets to the amount expected to be
realized.
F-6
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Impairment of Long-Lived Assets - In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of
("SFAS 121"). SFAS 121 requires that long-lived assets held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of this standard in the fourth quarter of the fiscal year ended
December 31, 1994 resulted in an adjustment of $9,634,000 or $0.32 per share to
the Company's financial statements. The Company obtained an independent
appraisal on its airship components in August 1997, which reflects a range of
values from $2,174,000 (on a liquidation sale value) to $5,096,000 (on a market
value basis). Based on the fact that the Company had two airships in operation
at December 31, 1994, the Company adjusted the carrying value to $3,635,000 or
the midpoint of the above range. At December 31, 1995, the Company decided to
write down the balance of the airship components to liquidation sale value,
which resulted in an additional adjustment of $1,462,000 or $0.04 per share. The
Company reviews all of its long-lived assets for impairment in accordance with
SFAS 121. Prior to the adoption of SFAS 121, all long-lived assets, were
reviewed for impairment by comparing the carrying value of such assets to future
expected net cash flows.
Stock Based Compensation - Effective January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock Based Compensation." As it relates to stock
options granted to employees, SFAS No. 123 permits companies who have not done
so already, to either adopt the accounting method promulgated by Accounting
Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to
Employees", to measure compensation, or to adopt the fair value base method
prescribed by SFAS No. 123. If APB No. 25's method is followed, pro forma
disclosures are required as if SFAS No. 123 accounting recognition method was
adopted. SFAS No. 123 pertains to stock options granted after December 31, 1995.
Management has determined not to adopt SFAS No. 123's accounting recognition
provisions related to stock options granted to employees and, accordingly, will
continue following APB No. 25's accounting provisions. All other provisions of
SFAS No. 123 have been implemented effective January 1, 1996. The implementation
of SFAS No. 123 did not have an effect on the Company's financial statements.
Net Loss Per Share - Net loss per share is based on the weighted average number
of shares outstanding during the periods. When losses have been incurred,
warrants and options are not included since the effect would dilute loss per
share, however, preferred stock dividends are included in the loss per share
calculation. When net income is reported, warrants and options are included
using the treasury stock method, provided exercise prices are less than the
average market price; warrants convertible into common stock are included when
such inclusion results in further dilution.
New Accounting Standards - SFAS No. 128, "Earnings per Share." In February 1997,
the FASB issued SFAS No. 128, "Earnings per Share," which is effective for
financial statements issued for periods ending after December 15, 1997. This
pronouncement establishes standards for computing and presenting earnings per
share (EPS) for entities with publicly-held common stock or potential common
stock. SFAS No. 128 simplifies the standards for computing EPS and makes them
comparable to international EPS standards. Early application of this statement
is not permitted.
SFAS No. 130, "Reporting Comprehensive Income." In June 1997, the FASB issued
SFAS No. 130, "Reporting Comprehensive Income," which requires the
reclassification of earlier financial
F-7
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
statements for comparative purposes. SFAS No. 130 requires that changes in
amounts of certain terms, including foreign currency translation adjustments and
gains and losses on certain securities be shown in the financial statements.
SFAS No. 130 does not require a specific format for the financial statement in
which comprehensive income is reported, but does require that an amount
representing total comprehensive income be reported in that statement. SFAS No.
130 is effective for financial statements for periods beginning after December
15, 1997.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Also in June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and related Information." SFAS No. 131 will
change the way public companies report information about segments of their
business in annual financial statements and requires them to report selected
segment information in their quarterly reports issued to stockholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports revenues,
and its major customers. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997.
The Company intends to adopt the provisions of SFAS No.'s 128, 130 and 131
during its fiscal year ended December 31, 1998, and does not expect their
application to have a material impact on the financial statements of the
Company.
NOTE B - SIGNIFICANT UNCERTAINTIES AND MANAGEMENT'S PLANS TO OVERCOME OPERATING
DIFFICULTIES AND MEET CASH REQUIREMENTS
As shown in the accompanying financial statements, the Company has experienced
significant operating losses and negative cash flow from operations in recent
years and has an accumulated deficit of $54,645,000 at December 31, 1997. During
the year ended December 31, 1997, the Company did not generate any revenues from
airship operations and it reported a net loss of $2,294,000 and has negative
working capital of $15,992,000 at December 31, 1997. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans to improve the financial position and operations with the
goal of sustaining the Company's operations for the next twelve months and
beyond include:
Arranging with Trans Continental Airlines, Inc. ("Trans Continental"),
a company related through common directorship and ownership, to provide funds
on a monthly basis as a loan, and separately, acquiring assets and operations
of one or more entities, which the Company has been exploring. Management's
hope is that such business combination, if completed, would provide additional
cash flow and net income to the Company.
While the Company believes that its plans for additional funding or possible
business combination have the reasonable capability of improving the Company's
financial situation and ensuring the continuation of its business, there can be
no assurance that the Company will be successful in carrying out its plans and
the failure to achieve them could have a material adverse effect on the Company.
Though management believes the company will secure additional capital and/or
attain one or more of the above goals, there can be no assurance that any
acquisition, financing or other plan will be effected. Any acquisition or
securities offering is subject to the Company's due diligence, the state of
F-8
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE B - SIGNIFICANT UNCERTAINTIES AND MANAGEMENT'S PLANS TO OVERCOME OPERATING
DIFFICULTIES AND MEET CASH REQUIREMENTS (Continued)
the general securities markets and of the specific market for the Company's
securities, and any necessary regulatory review.
NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES AND OTHERS
Due from Affiliate - At December 31, 1994, the Company made advances netting to
$1,809,000 to Trans Continental, an affiliated aircraft leasing company and
stockholder of the Company. Louis J. Pearlman ("Mr. Pearlman") owns 21% of
Trans Continental and is the Company's Chairman of the Board, President and
Principal Stockholder. Trans Continental pledged a $2,500,000 money market
account as collateral for this advance. The deposit was returned to the Company
during 1995. Interest earned on this deposit amounted to $23,467 for the year
ended December 31, 1995. No interest was earned during the year ended
December 31, 1996 or 1997, as the Company used these funds to reduce liabilities
during the year ended December 31, 1995.
Personal Guarantees - Mr. Pearlman and Trans Continental have guaranteed all
capital leases and loans of the Company (see Note E).
Loans from Principal Stockholder - In May 1992, all amounts due to Mr. Pearlman,
consisting of 10% notes payable, accrued salaries, bonuses and interest were
consolidated into one single loan of $1,845,000. The loan was payable in equal
quarterly installments of $135,000 per year including interest at 8 1/2% per
annum, and commenced in July 1992. This payment schedule continued until a loan
payable to a bank for the SeaWorld airship was paid (with the preferred stock
proceeds - see Note H), at which time the loan became payable at the discretion
of the Company. All unpaid principal and interest was due in May 1997 and has
been deferred by Mr. Pearlman for an indefinite period of time. Interest on the
loan payable was $96,000, $93,000, and $85,000 for the years ended 1997, 1996,
and 1995, respectively.
On June 30, 1993, the Company made a $789,000 loan (the "Loan") to an individual
who had previously facilitated financing for the Company. Mr. Pearlman has
guaranteed repayment of the Loan. The Loan is being repaid by Mr. Pearlman in
equal monthly installments of $6,209 per month, including interest at the rate
of 8.75%. The remaining unpaid principal balance of the Loan was due on June 30,
1995. It has been agreed that the Company's obligation to repay principal and
interest on the loan to Mr. Pearlman shall be reduced to reflect the outstanding
balance on this Loan for so long as it shall remain outstanding. Amounts due to
Mr. Pearlman at December 31, 1997 and 1996 totaled $1,238,000 and $1,137,000,
respectively, net of unamortized discount.
During the period from December 31, 1995 through 1997, Trans Continental
advanced the Company funds that were used for operations in the amount of
$4,872,000. The balance owed to Trans Continental is accruing interest at the
rate of 10% per annum and is due on demand. Interest expense accrued on these
advances amounts to $341,000, $200,000 and $16,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
F-9
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES AND
OTHERS - (Continued)
Transactions with Stockholder and His Affiliate - Mr. Julian Benscher ("Mr.
Benscher") beneficially owns less than 5% of the common stock of the Company
at December 31, 1997. The Company and Mr. Benscher continue to engage in
business transactions in which the Company provides to Mr. Benscher the use of
an airship, along with certain related components and equipment, and
Mr. Benscher pays the cost relating to the operation of the airship.
Rental Arrangement and Travel Agency Service - Trans Continental serves as the
Company's travel agent for substantially all of its travel arrangements and the
Company is its principal customer. In the opinion of management, the terms and
prices received from the corporation are similar to those available from other
travel agencies. During 1997, 1996 and 1995, the Company utilized the travel
agency services for reservations, while primarily paying certain costs directly
to the provider.
Hull and Liability Insurance - The Company purchases hull and liability
insurance with respect to the Company's airships through Alexander Howden, Inc.,
an international insurance brokerage firm of which James J. Ryan is the Senior
Vice President of its Aviation Aerospace Division. Mr. Ryan is also a director
of the Company. Insurance expense for Alexander Howden was $131,000 in 1995.
Warrants - Reference should be made to Note H for warrants issued in connection
with certain of the above transactions.
NOTE D - INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards for
income taxes of approximately $43,105,000 available as offsets against future
taxable income. During 1991, the Company experienced changes in the Company's
ownership as defined in Section 382 of the Internal Revenue Code ("IRC"). The
effect of these changes in ownership is to limit the utilization of certain
existing net operating loss carryforwards for income tax purposes. Operating
losses incurred after the ownership change are not limited. As a result, only
approximately $28,694,000 of the operating losses which occurred after the
ownership change are not limited. The operating losses incurred prior to the
ownership change are limited to a certain dollar amount each year. The net
operating loss carryforwards expire during the years 2000 to 2013. The company
also has unused investment tax credits of $140,000 which expire principally in
the year 2000.
The tax effect of temporary differences that give rise to significant positions
of the deferred tax assets and deferred tax liabilities, consist of the
following at December 31:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss $14,677,000 $13,651,000
Investment tax credits 140,000 140,000
Airships and related equipment - 34,000
Accrued interest on stockholder loans 542,000 394,000
- ------------------------------------------------------------------------------------------------
$15,359,000 14,219,000
Less: Valuation allowance 14,962,000 14,219,000
- ------------------------------------------------------------------------------------------------
- -
Deferred tax liabilities:
Airships and related equipment 397,000 -
- ------------------------------------------------------------------------------------------------
(397,000) -
- ------------------------------------------------------------------------------------------------
Net deferred tax asset - $ -
================================================================================================
</TABLE>
F-10
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE D - INCOME TAXES (Continued)
The net change in the valuation allowance was approximately $743,000 relating to
net operating losses from 1997.
NOTE E - CAPITAL LEASES AND LOANS PAYABLE
Capital Leases - In October 1989, the Company purchased a new Skyship 600 Series
airship (the "MetLife airship") from Airship UK. The MetLife airship and related
equipment were financed primarily by net proceeds of $6,200,000 from a capital
lease obtained through ORIX Commercial Credit Corp. ("ORIX"). The capital lease
initially required monthly payments of $135,000 through November 1992. In
December 1992, the lease was renewed for an additional three-year term at
monthly payments of $121,000. At the end of the additional three year term the
Company had the option to purchase this airship for $1,000,000 or renew the
lease for another three year term at monthly payments of $35,000. At the
completion of the third lease term, title is to be transferred to the Company
upon payment of $1. On January 11, 1994 the Company renegotiated the lease to
reduce the $121,000 payments. Even after the payment modifications the Company
was unable to make the payments and went into default. Effective June 2, 1995,
the lease was renegotiated calling for payments of principle only of $20,000 for
twelve months. At the end of the initial twelve-month period, the Company began
to make principle and interest payments at the rate of prime plus 1% of $40,000
for the next six months, followed by payments of $60,000 for an next six months
and finally payments equaling the higher of $80,000 or 50% of the annual cash
flows for the fiscal year immediately prior to the commencement of each
applicable twelve-month period for the remaining term of the lease until the
lease is fully amortized or a larger payment is made based upon the annual cash
flow of the year. Based upon the revised payment schedule, the payments are not
sufficient to cover the interest expense. Thus negative amortization results in
1994 and 1995 and the ending principal balance is increased. The balance under
this capital lease amounted to $2,477,000 and $3,158,000 at December 31, 1997
and 1996, respectively.
The airship and related equipment financed by the capital leases had a cost of
$6,687,000 and accumulated depreciation of $1,077,000 at December 31, 1993.
During 1994 the leased airship was damaged and taken out of service. A cost of
$2,699,000 and accumulated depreciation of $1,232,000 were written off due to
the damage. The remaining cost basis of approximately $3,500,000 was transferred
to spare parts and airship components. The resulting net book value was later
analyzed as part of the SFAS 121 writedown as described in Note A.
The following is a schedule by year of future minimum lease payments pursuant to
the capital leases together with the present value of the net minimum lease
payments as of December 31, 1997:
1998 $ 960,000
1999 960,000
2000 960,000
Thereafter 28,000
---------------------
Total minimum lease payments 2,908,000
Less amount representing interest 431,000
---------------------
Present value of net minimum lease
payments $2,477,000
=====================
F-11
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE E - CAPITAL LEASES AND LOANS PAYABLE (Continued)
WDL LEASE - Pursuant to an agreement effective May 16, 1993 (the 'WDL Lease'),
the Company leased from Westdeutsche Luftwerbung Theodor Wullenkemper GMBH
('Westdeutsche') a used type WDL airship equipped with a NightSign'tm' system.
The Company entered into the WDL Lease to procure an airship to fulfill its
obligations under the Gulf Oil Contract when it became apparent that the
proposed acquisition of the assets of Slingsby could not be completed in time to
provide an additional airship to fulfill the Company's obligations under the
Gulf Oil Contract. The Company began operating this airship as the Gulf Oil
Airship on June 25, 1993. On September 11, 1994, the Gulf Oil Airship was
damaged in an accident and its operations ended. As a result of the damage to
the Gulf Oil Airship, the Company sustained a loss of $1,978,000, representing
the cost of the airship less insurance proceeds and credits allowed, including
salvage value, when the airship was returned to WDL in September 1994. At
December 31, 1994, the Company owed WDL a total of $2,866,000 under the
WDL Lease, including the $1,978,000 described above plus lease and other
operating costs through September 11, 1994. Pursuant to the WDL Lease,
the Company maintained a security deposit in a cash account (the 'Cash
Escrow Account') with Trans Continental Airlines, Inc., an affiliate of
the Company ('Trans Continental'). As of December 31, 1994, the Company
had on deposit in the Cash Escrow Account $1,800,000. During March 1995,
the Company paid the full balance of the Cash Escrow Account to WDL to reduce
its liability to WDL to $1,000,000. Pursuant to the WDL Lease, Trans Continental
collateralized the advances with a certificate of deposit in the amount of
$2,500,000 (see Note C to the Financial Statements included elsewhere herein).
The Company is currently indebted to WDL in the approximate amount of $911,000.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'
Loan Payable - The Company entered into an accounts receivable factoring
security agreement on September 19, 1994 which was modified on November 16, 1994
and November 23, 1994. The maximum borrowing amount under the November 23rd
agreement was $1,500,000. The loan balance was to be reduced by $75,000 per
month beginning December 1, 1994. A fee of 0.125% per month is payable
each month on the higher of funds outstanding or $1,500,000. The loan
was used to payoff certain liabilities and provide a source of working capital.
The balance due to Allstate Financial Corp. ("Allstate") as of December 31,
1994 amounted to $1,250,000. The loan was secured by accounts receivable,
inventory, certain airships and equipment.
On June 22, 1995, the Allstate loan was repaid when Transcontinental Leasing,
Inc. ("TC Leasing"), a wholly-owned subsidiary of Trans Continental, entered
into a sale-leaseback agreement with the Company. TC Leasing obtained financing
for this transaction from Phoenixcor, Inc. Pursuant to the Allstate
Transactions, the Bud One Airship was sold by the Company to TC Leasing for the
purchase price of $2,060,000, which in turn was leased back to the Company.
In accordance with SFAS No. 98 "Accounting for Leases," any gain on the sale is
deferred and amortized in proportion to the amortization of the leased asset.
The resulting gain of $873,000 was capitalized as part of the airship cost
and is being amortized over 20 years equal to the corresponding increased
depreciation.
On November 30, 1995, the Company entered into an arrangement with
Senstar Capital Corporation ("Senstar") pursuant to which the sale-leaseback
arrangement with TC Leasing was reversed. The Company borrowed a total of
$3,500,000 from Senstar, part of which has been used to repay the loan from
Phoenixcor, Inc., the lender for TC Leasing's transaction. The loan from Senstar
is repayable over 5 years in sixty monthly payments of approximately $63,000
each, with a balance due at the end of the five year term of approximately
$700,000, and secured by a lien on the Airship and is guaranteed by Trans
Continental. The balance due under this loan amounted to $3,004,000 at
December 31, 1996.
TC Leasing entered into a loan agreement, dated December 30, 1996, with Norwest
Equipment Finance, Inc. ("Norwest") on behalf of the Company. The proceeds of
the loan were used to repay the Senstar loan which had a balance due of
approximately $3,000,000 at the time of repayment, and to provide working
capital to the Company. The Company has made the payments required under the
Norwest loan directly to Norwest. Such payments amounted to approximately
$648,000 during 1997, TC Leasing is the obligor under the Norwest loan and
the Company owes to TC Leasing with respect to the Norwest loan the
aggregate amount of approximately $4,090,000, consisting of $4,060,000 of
principal and approximately $30,000 of interest. The transaction with Norwest
facilitated the Sale-leaseback arrangement between the Company and TC Leasing.
Other Long-Term Debt - The Company has other long-term debt in the amount of
$10,000 and $12,000 at December 31, 1997 and 1996, respectively. These loans
mature through December 31, 2001 at various annual interest rates. The
transaction with Norwest facilitaged the Sale-leaseback arrangement between
the Company and TC Leasing.
Current maturities of long-term are as follows:
1998 $ 937,000
1999 928,000
2000 1,013,000
2001 1,202,000
-------------
Total $ 4,080,000
=============
F-12
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE F - LEGAL PROCEEDINGS
Capital Funding Group Ltd. - In February 1992, Capital Funding Group Ltd.
("CFG") commenced an action against the Company and others seeking in excess of
$1,000,000 in damages based on the alleged failure by the Company to provide
adequate collateral and security in connection with certain alleged financial
agreements with CFG. The Company retained CFG in July 1991, paid a commitment
fee (which was written off in 1991) and received a commitment from CFG which
then failed to provide the funding. The Company and the other defendants
answered the complaint in February 1992 by denying all of the substantive
allegations and asserting several affirmative defenses. In addition, the Company
asserted certain counterclaims against CFG and its two principals for breach of
a commitment letter pursuant to which CFG was to arrange for a $9 million loan
to the Company, breach of a compromise agreement accepted by CFG in January
1992, pursuant to which CFG was to provide funding to the Company in the amount
of $7 million, breach of an escrow agreement, pursuant to which CFG was to
return $200,000 of the commitment fee paid by the Company and various other
counterclaims. In March 1993, the Company was awarded a default judgment of
$8,000,000 against CFG. No balances have been returned to the Company as of
December 31, 1997.
Watermark Group PLC and Von Tech Corporation - In January 1993, a second amended
complaint to a lawsuit, which was initially commenced in March 1991 and
subsequently dismissed twice without prejudice, was filed against the Company
and Mr. Pearlman by Watermark Group PLC and Von Tech Corporation, a general
partner of Company communications (collectively the "W/VT Plaintiffs") alleging
breach of an alleged joint venture agreement involving Company Communications
and Airship Enterprises Ltd. (a company that was owned by Mr. Pearlman and that
was not in any way owned or controlled by the Company); breach of an alleged
agreement by the Company regarding the lease and operation of a particular
airship; and breach of an alleged oral commission agreement by the Company
relating to the Company's acquisition of two airships it presently owns.
The W/VT Plaintiffs seek various legal and equitable remedies, including
monetary damages against the Company and Mr. Pearlman in excess of $800,000
together with a claim for some portion of the advertising revenue the Company
has received, and will continue to receive, from the operation of some of its
airships. In March 1993, the second amended complaint filed against the Company
and Mr. Pearlman by W/VT Plaintiffs was dismissed without prejudice. Since the
Company denies any involvement with any of the transactions set forth in the
second amended complaint, the Company believes that its liability, if any, on
the claims made by the W/VT Plaintiffs will not be material. This case was
settled on October 3, 1995 for $40,000.
Tenerten and Drake, Inc. - On September 15, 1994, Tenerten and Drake, Inc.
("TDI") filed a complaint against the Company. The complaint alleges that the
Company failed to pay certain sums of money due to TDI under an agreement to
perform advertising and related services for the Company. The Company filed its
answer and raised its affirmative defenses to said complaint alleging that the
services allegedly performed by TDI were defective in numerous respects. A final
judgment was entered against the Company on July 20, 1995 in the amount of
$24,000, which has been placed in escrow pending appeal. The Company has since
settled all remaining claims instituted by TDI by agreeing to the release of
the cash bond to TDI and by paying to TDI the additional sum of $4,100.
F-13
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE F - LEGAL PROCEEDINGS (Continued)
Westinghouse Airships, Inc. - On September 14, 1994, Westinghouse Airships, Inc.
("WAI") filed a complaint against the Company alleging that the Company and Mr.
Pearlman breached an agreement to purchase two gondolas from WAI. Specifically,
the complaint alleges that WAI delivered both gondolas at issue and that the
Company failed to make certain installments to WAI under the agreement. The
complaint also alleges that the Company breached a sub-lease to occupy certain
hanger space located in North Carolina. On June 19, 1995, the Company and WAI
agreed to settle the case for $32,000.
Other Proceedings - The Company is a defendant in a number of other legal
proceedings, which occurred in the normal the course of business. Those cases in
which the ultimate settlement is known or estimable have been accrued in the
financial statements. It is not possible at this time to predict the outcome of
the unsettled legal actions; however, in the opinion of management and informal
advice of counsel, the disposition of these other lawsuits will not have a
material effect on the financial statements.
NOTE G - COMMITMENTS AND CONTINGENCIES
Possible Future Tax Claims - Because blimp advertising services differ from many
other forms of advertising, state and local tax authorities may assert claims
based on interpretations of law which differ from interpretations by management.
In the opinion of management, its positions are consistent with similar
entities.
Employment Agreements - In 1993 the Company and Mr. Pearlman entered into an
employment agreement which expired in December 1994. The agreement provided for
an annual salary to Mr. Pearlman of $200,000 for the first year of the agreement
and for annual increases thereafter in an amount equal to the greater of 5% of
his previous year's salary or the increase, if any, in the Consumer Price Index
for All Urban Consumers, Central Florida. The agreement also provided for an
annual bonus payable to Mr. Pearlman in an amount equal to 4% of the first $1
million of the Company's net after-tax profits for such fiscal year. Pursuant to
this agreement, Mr. Pearlman's annual compensation, including salary and bonus
was limited to $340,000 per year. Accrued and unpaid salaries through December
31, 1995 are $391,000 and are included in amounts due to related party.
On March 1, 1994 the Company agreed to reimburse Mr. Pearlman $4,000 per month
in expenses, effective January 1, 1993, due to Mr. Pearlman's out-of-pocket
expenses for the Company's business.
The Company entered into employment agreements as of January 1, 1993 with each
of two officers and another employee. Each agreement expires on January 1, 1998
and provides for annual salaries of $75,000 for the first year of the agreement
and annual increases thereafter in an amount equal to the greater of 5% of his
previous years salary or the increase, if any, in the Consumer Price Index for
All Urban Consumers, Central Florida. Each agreement also provides for an annual
bonus payable in an amount equal to 1 1/2% of the Company's net after-tax
profits for such fiscal year plus an additional amount determined at the
discretion of the Board of Directors.
F-14
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE H - STOCKHOLDERS' EQUITY
Preferred Stock - In February 1993, the Company completed a public offering
("the Offering") of 2,875,000 shares of its Class A 8% Cumulative Convertible
Voting Preferred Stock ("Preferred Stock") at $6.00 per share.
Each share of Preferred Stock is convertible, at any time after the earlier of
February 16, 1994 or a date determined by the underwriters at their sole
discretion (which date was not to be prior to April 19, 1993), into 6 shares of
common stock, subject to future adjustment. Dividends on the Preferred Stock are
payable quarterly and the first four dividends were paid, on an annualized
basis, 50% in cash and 50% in shares of the Company's common stock. The
Preferred Stock accrues dividends at the annual rate of $.60 per share for
dividends paid in shares of common stock, and $.48 per share for dividends paid
in cash. If available cash is not sufficient to pay any or all of the subsequent
dividend payments, the balance of the dividend will be paid in shares of the
common stock. The Company has total accrued dividends on Preferred Stock in the
amount of $5,864,000 and $4,313,000 at December 31, 1997 and 1996, respectively.
The Preferred Stock is redeemable at the option of the Company, in whole or in
part, at $6.60, together with all accrued and unpaid dividends, at any time
after February 16, 1996. The liquidation preference of the Preferred Stock is
$6.00 per share.
In connection with the offering, the Company issued to the two representatives
of the several underwriters, warrants to purchase an additional 10% of the
Preferred Stock sold in the Offering. The Preferred Stock warrants are
exercisable for four years commencing February 1994 at an exercise price equal
to 165% of the initial offering price of the Preferred Stock, subject to certain
anti-dilution provisions.
Warrants and Options - Outstanding Warrants and Options at December 31, 1997,
all of which are currently exercisable, after giving effect to adjustments
through such date for Warrants and Options anti-dilution provisions and
exercisable price reductions are as follows:
<TABLE>
<CAPTION>
Exercise
Shares Price Expiration
Issuable Per Share Date
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Warrants:
Issued to Company President
in May 1992 in consideration
of restructing terms of loans
due 2,000,000 $0.10 May 1999
Options:
Issued to Company President in 1989
for guarantee of capital lease,
cancelled and reissued in 1991 500,000 $0.01 November 1998
Issued in connection with public
offering in 1991: through
Officers and others in 1989 and 1991 715,000 $0.01 to $1.28 October 2001
- ---------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE H - STOCKHOLDERS' EQUITY (Continued)
Employee Share Purchase Plan - The Company has an employee share option plan
(the "Plan") for employees of the Company and any present or future "subsidiary
corporations." The Company intends the Plan to be an "employee stock purchase
plan" as defined in Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Plan was effective November 1, 1994. All employees are
eligible to participate in the Plan, except that the Company's appointed
committee may exclude any or all of the following groups of employees from any
offering: (i) employees who have been employed for less than 2 years; (ii)
employees whose customary employment is 20 hours or less per week; (iii)
employees whose customary employment is not more that 5 months in any calendar
year; and (iv) highly compensated employees within the meaning of Code Section
414(q). The shares issuable under the Plan shall be common shares of the Company
subject to certain restrictions up to a maximum of 1,000,000 shares. The
committee shall determine the length of each offering but no offering may exceed
27 months. The option price for options granted in each offering may not be less
than the less of (i) 85% of the fair value of the shares on the day of the
offering, or (ii) 85% of the fair market value of the shares at the time the
option is exercised.
NOTE I - AIRSHIP REVENUES, MAJOR CUSTOMERS AND CREDIT
CONCENTRATION
Anheuser-Busch/Bud One - In March 1992, the Company entered into an agreement
with Anheuser-Busch for the use of the Bud One airship. Pursuant to this
agreement, the Company agreed to convert the Bud One airship (then being used
as a passenger airship) into an airship operated to promote the goods and
products of Anheuser-Busch. The agreement provides for an initial term
of six months with renewals for additional terms totaling three years.
Anheuser-Busch could terminate the agreement during the first or at the
end of the second annual period by giving proper notice to the Company
(see Note L). The Company had operated this airship to advertise and promote
the Sea World theme park from September 1991 to March 1992 under a prior
agreement with Anheuser-Busch which enabled the Company to operate sightseeing
tours for passengers on a fee basis at Kissimmee Airport.
Pursuant to an amendment dated March 4, 1994, monthly fees under the Bud One
agreement were reduced by 50% effective February 1994 through July 1994 and the
term of the contract ended in August 1994. The Bud One contract was amended in
July 1994 and provided for operations at the full price from August 1994 through
December 1996. However, during December 1995 it was determined that the envelope
was in need of replacement. Therefore, the Company removed the airship from
service.
Catamount Petroleum Corporation/Gulf Oil - In May 1993, the Company entered into
an agreement with Catamount Petroleum Corporation for the use of the Gulf
airship. The initial term of the agreement is for three years. Notwithstanding
this term, the agreement may be terminated by either party upon proper written
notice. During 1993, the airship was in operation from July through October upon
which, at the request of Catamount, the agreement was suspended through April
1994, at which time the airship resumed operations through October 1994.
F-16
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE I - AIRSHIP REVENUES, MAJOR CUSTOMERS AND CREDIT
CONCENTRATION (Continued)
The Company was responsible for all costs associated with the operation of the
Gulf airship, including repairs, maintenance, insurance and taxes.
Mastellone Hnos, S.A. - On December 15, 1994, the Company and its wholly-owned
subsidiary Airship Operations, Inc. consummated an Aircraft Lease Agreement (the
"Argentina Lease Agreement") and an Airship Operations Agreement (the "Argentina
Operations Agreement"), respectively, with Mastellone Hnos, S.A. ("Mastellone")
for the promotion of the products of Mastellone (the "Argentina Airship"). The
Company received a deposit from Mastellone in the amount of $500,000. The
xxxxx for the Argentina Airship were never commenced. On May 24, 1995,
prior to commencement of operations of the Argentina Airship and pursuant to an
Aircraft Purchase and Lease Assignment and Assumption between the Company and
First Security Bank of Utah, as trustee for the benefit of Aviation Support
Group, Ltd. ("Aviation"), the Argentina Airship was sold and the Argentina Lease
Agreement was assigned to First Security for the amount of $500,000. Pursuant to
such arrangement, operations for the Argentina Airship were never commenced
by the Company. On May 24, 1995, prior to commencement of operations of the
Argentina Airship and pursuant to an Aircraft Purchase and Lease Assignment and
Assumption between the Company and First Security Bank of Utah, as trustee for
the benefit of Aviation Support Group, Ltd. ("Aviation"), the Argentina Airship
was sold and the Argentina Lease Agreement was assigned to First Security.
In consideration for such sale and assignment, First Security assumed the
Company's obligations under the Argentina Lease Agreement. The Company is
entitled to receive, during a ten-month renewal term provided for in the
Argentina Lease and Argentina Operations Agreements, a portion of the rental
income generated should Mastellone exercise its right to extend the terms
of such agreement.
In addition, by notifying First Security prior to December 15, 1995 (extended to
January 15, 1996), the Company had the right to repurchase the airship for 120%
of the out-of-pocket expenses and the assumption of all liabilities incurred by
First Security and Aviation in connection with the Argentina Airship. The
Company did not exercise the right to repurchase the airship.
Concurrently with the execution and delivery of the Purchase and Assumption
Agreement, the Company sold to Aviation all of the issued and outstanding shares
of the capital stock of Airship Operations, Inc. Mr. Benscher, who holds
indirectly through designees less than 5% of the Company's common stock, is
a principal stockholder of Aviation. See Note C - Transactions With
Stockholders, Related Parties And Others.
Hampstead Technologies Limited, In December 1995, the Company entered into an
Envelope Purchase agreement with Hampstead Technologies Limited, an affiliated
company of Julian Benscher, for the purchase of a new envelope for the Bud One
Airship. The Company made a non-refundable deposit of $630,000. This purchase
was never consummated and the deposit was written off in 1995.
NOTE J - EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan (the "Savings Plan") that qualifies as
a deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a portion of their
pretax earnings, up to the Internal Revenue
F-17
<PAGE>
<PAGE>
AIRSHIP INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE J - EMPLOYEE SAVINGS PLAN (Continued)
Service annual contribution limit of 15% of the employee's salary. The Company
matches 25% of each employee's contributions for 1993 and 5% for 1995 and 1994,
depending on length of service, up to a maximum of 6% of the employee's
earnings. The Company's matching contributions to the Savings Plan was $1,948
for 1995.
NOTE K - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 679,000 $ 475,000 $1,018,000
Supplemental non-cash activity:
Accrued common stock dividend $1,551,000 $1,725,000 $1,725,000
</TABLE>
F-18
<PAGE>
<PAGE>
[LOGO]
ACTION BY WRITTEN CONSENT
OF
THE BOARD OF DIRECTORS
OF
AIRSHIP INTERNATIONAL LTD.
(UNDER SECTION 708(b) OF THE BUSINESS CORPORATION LAW)
The undersigned, constituting a majority of the directors of Airship
International Ltd. (the "Company"), do hereby adopt the following resolution by
written consent with the same force and effect as if adopted at a meeting duly
called and held therefor:
RESOLVED, that the Board of Directors hereby approves the extension of the
expiration date of Louis J. Pearlman's Common Share Purchase Warrant in the
amount of 2,000,000 shares (exercisable at $.10 per Common Share) to May 7, 1999
from May 7, 1997.
Therefore, the above resolution is hereby signed and agreed to as of this 15th
day of April, 1997.
LOUIS J. PEARLMAN
-----------------------------------
Louis J. Pearlman
ALAN A. SIEGEL
-----------------------------------
Alan A. Siegel
JAMES J. RYAN
-----------------------------------
James J. Ryan
[LETTERHEAD]
<PAGE>
<PAGE>
Exhibit 10.95
AMENDED AND RESTATED LEASE AGREEMENT IN THE FORM OF A
CONDITIONAL SALES CONTRACT
Dated as of June 2, 1995
between ORIX USA CORPORATION
(FORMERLY KNOWN AS ORIX COMMERCIAL CREDIT CORPORATION),
as Lessor
and
AIRSHIP INTERNATIONAL LTD.,
as Lessee
-----------------------------------
One Airship Industries Model 600 Series Skyship
N600LP
==============================================================================
This Amended and Restated Lease Agreement in the Form of a Conditional
Sales Contract has been executed in several original counterparts of which this
is original counterpart 3. Only original counterpart Number 1 which has been
delivered to Lessor constitutes chattel paper within the meaning of the Uniform
Commercial Code. No security interest in Lessor's right, title and interest in
and to this Amended and Restated Lease Agreement in the Form of a Conditional
Sales Contract may be created through the transfer or possession of any
counterpart other than original counterpart Number 1.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C>
SECTION 1. Definitions.......................................................... 1
SECTION 2. Lease and Acceptance............................................. ... 10
(a) Lease of Airship..................................................... 10
(b) Acceptance........................................................... 10
SECTION 3. [Reserved]........................................................... 10
SECTION 4. Purchase Option.......................................................11
SECTION 5. Rent............................................................. ....11
(a) Basic Rent........................................................... 11
(b) Supplemental Rent.................................................... 12
(c) Payment to Lessor; Non-Business Day Due Date......................... 12
SECTION 6. Conditions to Lease.................................................. 12
(a) Authorization, Execution and Delivery of
Documents............................................................ 13
(b) Representations and Warranties Correct; Event
of Default........................................................... 13
(c) Legality of Investments.............................................. 13
(d) Guaranties........................................................... 13
(e) Deliveries by Pearlman............................................... 14
(f) Proof of Corporate Action of Lessee.................................. 14
(g) Proof of Corporate Action of Trans Continental....................... 14
(h) Insurance Certificates............................................... 14
(i) Allstate Releases.................................................... 14
(j) Financial Condition.................................................. 14
(k) Title, Airworthiness and Registration................................ 15
(l) Filing............................................................... 15
(m) Opinion of Counsel for Lessee and Guarantors......................... 15
(n) Opinion of Oklahoma City Counsel..................................... 15
(o) Opinion of General Counsel to FAA.................................... 16
SECTION 7. Representations and Warranties....................................... 16
(a) Lessee's Representations and Warranties.............................. 16
(b) Lessor's Representations, Warranties and
Covenants; Disclaimer................................................ 20
SECTION 8. Return of Airship.................................................... 22
(a) Condition upon Return................................................ 22
(b) Return of Engines and Propellers..................................... 24
(c) Manuals; Markings.................................................... 24
(d) [Reserved]........................................................... 25
(e) Inspections.......................................................... 25
(f) Failure to Return Airship............................................ 25
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 9. Liens................................................................ 25
SECTION 10. Possession; Registration, Maintenance and
Operation; Maintenance Reserves; Insignia;
Records.............................................................. 26
(a) Possession........................................................... 26
(b) Registration, Maintenance and Operation.............................. 28
(c) [Reserved]........................................................... 30
(d) Insignia............................................................. 30
(e) Records.............................................................. 30
SECTION 11. Replacement of Parts; Alterations,
Modifications and Additions.......................................... 30
(a) Replacement of Parts................................................. 30
(b) Alterations, Modifications and Additions............................. 31
SECTION 12. Loss; Destruction; Requisition; Etc.................................. 32
(a) Event of Loss with Respect to the Airship or
the Gondola.......................................................... 32
(b) Event of Loss with Respect to the Envelope or
an Engine or Propeller............................................... 33
(c) Application of Payments from Insurers With
Respect to an Event of Loss.......................................... 34
(d) Application of Payments During Existence of
Default or Event of Default.......................................... 35
SECTION 13. Insurance............................................................ 35
(a) Public Liability and Property Damage Insurance....................... 35
(b) Insurance Against Loss or Damage to Airship.......................... 37
(c) Reports, Etc......................................................... 38
(d) Additional Insurance................................................. 39
SECTION 14. General Indemnification and Expenses................................. 39
SECTION 15. General Tax Indemnity................................................ 42
(a) General.............................................................. 42
(b) Certain Exceptions................................................... 43
(c) Gross-Up and Certain Adjustments..................................... 44
(d) Payment.............................................................. 45
(e) Contest.............................................................. 46
(f) Refund............................................................... 47
(g) Reports; Records..................................................... 47
(h) Payments............................................................. 47
(i) Interest on Overdue Amounts.......................................... 48
(j) Survival............................................................. 48
SECTION 16. Inspection........................................................... 48
SECTION 17. Events of Default.................................................... 48
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 18. Remedies............................................................. 51
SECTION 19. Certain Covenants of Lessee.......................................... 54
(a) Financial and Other Information...................................... 54
(b) Corporate Existence.................................................. 55
(c) Citizen.............................................................. 55
(d) Merger............................................................... 55
(e) Observer Rights...................................................... 57
(f) Location of Parts and Spare Equipment................................ 57
SECTION 20. Further Assurances................................................... 57
SECTION 21. Notices.............................................................. 58
SECTION 22. No Setoff, Counterclaim, Etc......................................... 59
SECTION 23. Quiet Enjoyment...................................................... 60
SECTION 24. Assignment........................................................... 60
SECTION 25. Lessor's Right To Perform for Lessee................................. 60
SECTION 26. Survival............................................................. 61
SECTION 27. SUITS; JURISDICTION; VENUE........................................... 61
SECTION 28. Expenses............................................................. 61
SECTION 29. Miscellaneous........................................................ 61
SECTION 30. Truth-in-Leasing Clause.............................................. 63
</TABLE>
iii
<PAGE>
<PAGE>
AMENDED AND RESTATED LEASE AGREEMENT IN THE FORM OF A CONDITIONAL
SALES AGREEMENT dated as of June 2, 1995 between ORIX USA CORPORATION (FORMERLY
KNOWN AS ORIX COMMERCIAL CREDIT CORPORATION), a Delaware corporation, and its
successors and assigns ("Lessor"), and AIRSHIP INTERNATIONAL LTD., a New York
corporation ("Lessee").
W I T N E S S E T H :
WHEREAS, the parties entered into the Original Lease (as
hereinafter defined), relating to the Airship as described herein;
WHEREAS, in connection with the Original Lease and the
transactions entered into contemporaneously therewith, Lessor (i) was assigned
Lessee's right, title and interest in the purchase contract for the Airship
pursuant to the Purchase Agreement Assignment; (ii) purchased the Airship from
Manufacturer; (iii) purchased the Night Sign and other Buyer Furnished
Equipment; and (iv) leased the Airship (including the Night Sign and other Buyer
Furnished Equipment) to Lessee;
WHEREAS, the parties desire to amend and restate the Original
Lease in its entirety to provide for the following terms contained herein;
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. Definitions. Unless the context otherwise requires,
the following terms shall have the following meanings for all purposes of this
Lease and shall be equally applicable to both the singular and the plural forms
of the terms herein defined; and, except as otherwise provided, any agreement
referred to below shall mean such agreement as amended, supplemented and
modified from time to time:
"Act" means Subtitle VII of Title 49 of the United
States Code.
"Airship" means the Gondola (or any Replacement Gondola
substituted for such Gondola hereunder), to be leased hereunder, together with
(i) the two Engines and Propellers initially installed on the Gondola on the
Delivery Date, or any replacement substituted for any of such Engines or
Propellers in accordance with Section 12 hereof whether or not any of such
initial or substitute Engines or Propellers may from time to time no longer be
installed on the Gondola or on any other airship; (ii) the Envelope initially
attached to the Gondola on the Delivery Date, or any Replacement Envelope,
whether or not the
<PAGE>
<PAGE>
initial or any substitute Envelope may from time to time no longer be attached
to the Gondola or any other gondola; (iii) the Buyer Furnished Equipment,
including the Night Sign, whether or not the Buyer Furnished Equipment may from
time to time no longer be attached to the Gondola or any Replacement Gondola or
the Envelope or any Replacement Envelope; and (iv) the Spare Equipment whether
or not the Spare Equipment is attached to the Gondola or any Replacement Gondola
or the Envelope or any Replacement Envelope.
"Amended and Restated Pearlman Guaranty" means that certain
Amended and Restated Guaranty of Pearlman dated as of the date hereof.
"Annual Cash Flow" means, with respect to any fiscal year of
Lessee, the net income or loss for all activities of Lessee for the fiscal year
in question, determined in accordance with generally accepted accounting
principles consistently applied and adjusted as follows: there shall be added to
such net income or subtracted from such loss, without duplication, the amount
charged for depreciation, amortization, interest or any other deduction not
involving a cash expenditure.
"Appraisal Procedure" means a determination by two recognized
independent airship or aircraft appraisers, one of which shall be chosen by
Lessor and one by Lessee, or, if such appraisers cannot agree, by a third
independent appraiser chosen by the mutual consent of such two appraisers. If
either party shall fail to appoint an appraiser within fifteen (15) days of
notice by Lessor or if such two appraisers cannot agree on the amount of such
appraisal and fail to appoint a third appraiser within fifteen (15) days, then
either party may apply to any court in New York, New York having jurisdiction to
make such appointment. The fees and expenses of the appraisers shall be paid by
Lessee.
"Basic Rent" means the rent payable for the Airship pursuant to
Section 5(a).
"BFE Bill of Sale" means the full warranty bill(s) of sale
covering the Buyer Furnished Equipment including the Night Sign delivered to
Lessor on the Delivery Date by Lessee.
"Bills of Sale" means the FAA Bill of Sale, the Warranty Bill of
Sale and the BFE Bill of Sale.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which commercial banking
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institutions in the States of California or New York are authorized or obligated
to be closed.
"Buyer Furnished Equipment" means the equipment described in
Schedule III to the Original Lease Supplement.
"Closing Date" means October 6, 1995.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time, and any successor legislation, and the rules and
regulations thereunder.
"Default" means an event which, upon the giving of notice or the
lapse of time or both, would constitute an Event of Default.
"Delivery Date" for the Airship means the date of the Original
Lease Supplement, which date was the date on which the Airship was (i) delivered
to and accepted by Lessor as provided for in the Purchase Agreement and Purchase
Agreement Assignment and (ii) simultaneously leased by Lessor to Lessee under
the terms of the Original Lease Agreement.
"Dollars" and the sign "$" mean lawful money of the United States
of America.
"DOT" means the United States Department of Transportation or any
successor agency thereto.
"Engine" means (i) each of the two Porsche Model 930/67 engines
listed by manufacturer's serial number in the Lease Supplement, whether or not
from time to time installed on the Gondola or installed on any other gondola or
airship, (ii) any and all Parts, so long as the same shall be attached to,
incorporated in or installed on such Engine or so long as title thereto shall be
vested in Lessor in accordance with the terms of Section 11 after removal
therefrom and (iii) insofar as the same belong to Lessor, all substitutions,
replacements or renewals from time to time made in or to such Engine or to any
of the items referred to in clauses (i) and (ii) above or to any part thereof as
required or permitted under this Lease.
"Envelope" means (i) the envelope listed by manufacturer's serial
number in the Lease Supplement and attached to the Gondola on the Delivery Date,
whether or not from time to time thereafter attached to the Gondola, (ii) any
Replacement Envelope, (iii) any and all Parts, so long as the same shall be
attached to, incorporated in or installed on such Envelope or so long as title
thereto shall be vested in Lessor in accordance with the terms of
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Section 11 after removal therefrom and (iv) replacements or renewals from time
to time made in or to such Envelope or to any of the items referred to in
clauses (i), (ii) and (iii) above or to any part thereof as required or
permitted under this Lease.
"ERISA" has the meaning specified in Section
7(a)(xiii).
"Event of Default" has the meaning specified in Section 17.
"Event of Loss" with respect to any property means any of the
following events with respect to such property: (i) loss of such property or the
use thereof due to destruction, damage beyond repair or rendition of such
property permanently unfit for normal use for any reason whatsoever, (ii) loss
of such property or the use thereof due to theft or disappearance for a period
of 30 or more consecutive days (or such shorter period ending on the date on
which an insurance settlement has been reached on the basis of a total loss),
(iii) any damage to such property which results in an insurance settlement with
respect to such property on the basis of an actual or constructive or
compromised total loss, (iv) any taking, seizure or confiscation of, or
requisition of title to or use of such property by condemnation or otherwise (in
the case of a requisition of use of such property, for a period stated to be or
in fact in excess of 30 days (or, if less, the remaining Term with respect to
such property)), or (v) as a result of any rule, regulation, order or other
action by any government or governmental authority having jurisdiction or any
court of competent jurisdiction, the use of such property in the normal course
of aerial advertising and promotion flights shall have been prohibited for a
period of six consecutive months. An Event of Loss with respect to the Airship
shall be deemed to have occurred if an Event of Loss occurs with respect to the
Gondola constituting part of such Airship. An Event of Loss with respect to the
Envelope or any Engine or Propeller without loss of the Gondola shall not be
deemed to be an Event of Loss with respect to the Airship.
"FAA" means the Federal Aviation Administration of the United
States of America or any successor agency thereto.
"FAA Bill of Sale" means the bill of sale for the Airship on AC
Form 8050-2 or such other form as may have been approved by the FAA delivered to
Lessor on the Delivery Date by Manufacturer.
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"FAR" means the Federal Aviation Regulations issued pursuant to
the Act from time to time, or any successor regulations thereto.
"Fair Market Rental Value" and "Fair Market Sales Value" of any
property mean the cash rental or price, respectively, which would apply in an
arm's-length transaction between an informed and willing lessee or purchaser
(other than a lessee or purchaser currently in possession or a used equipment
dealer) under no compulsion to lease or purchase and an informed and willing
lessor or seller under no compulsion to lease or sell, and shall be determined
in accordance with the Appraisal Procedure under this Lease.
"Gondola" means (i) the Airship Industries Model 1215 600 Series
Skyship Gondola, manufactured by Manufacturer bearing United States Registration
Number N600LP (formerly N603SK) and bearing Manufacturer's Serial Number 1215/05
and sold by Manufacturer to Lessor pursuant to the Purchase Agreement and the
Purchase Agreement Assignment, and leased hereunder by Lessor to Lessee under
the Lease Supplement pursuant to Section 2 hereof, (ii) any Replacement Gondola,
(iii) any and all Parts so long as the same shall be attached to, incorporated
in or installed on such gondola or so long as title thereto shall be vested in
Lessor in accordance with the terms of Section 11 after removal therefrom and
(iv) insofar as the same belong to Lessor, all substitutions, replacements or
renewals from time to time made in or to such gondola or any of the items
referred to in Clauses (i), (ii) and (iii) above or to any part thereof as
required or permitted under this Lease.
"Government" means the Federal government of the United States of
America or any instrumentality or agency thereof (provided that the credit of
such instrumentality or agency is explicitly backed by the full faith and credit
of the Federal government of the United States of America).
"Guarantors" means Louis J. Pearlman and Transcontinental
Airlines Inc.
"Indemnitee" means (i) Lessor, (ii) Lessor's stockholders
(including corporate stockholders), and (iii) the directors, officers,
employees, agents, legal representatives, affiliates, servants, successors and
assigns of Lessor.
"Initial Period" means the period commencing on the Initial Date
and ending on the date which is two years after the Initial Date.
"Initial Date" means June 2, 1995.
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"Lease Agreement", "this Agreement", "this Lease", "herein",
"hereunder", "hereby" or other like words mean this Amended and Restated Lease
Agreement in the Form of a Conditional Sales Agreement.
"Lease Supplement" means the Amended and Restated Lease
Supplement Number 1, substantially in the form of Exhibit A hereto, leasing the
Airship pursuant to the provisions of this Lease, as provided in such Amended
and Restated Lease Supplement.
"Lessor's Liens" means Liens which arise from (i) claims against
Lessor not related to the transactions contemplated by the Operative Agreements,
(ii) any act or omission of Lessor arising out of its gross negligence or
willful misconduct which is not related to the transactions contemplated by the
Operative Agreements, or any act of Lessor which is in violation of Lessee's
rights under any of the terms of this Lease, (iii) Taxes imposed against Lessor
for which Lessee is not obligated to indemnify pursuant hereto or (iv) claims
against Lessor arising out of any transfer by Lessor (other than a transfer
arising out of Section 4 or 12 hereof or a transfer pursuant to the exercise of
remedies set forth in Section 18) of Lessor's interest in the Airship.
"Lien" means any mortgage, pledge, lien, charge, encumbrance,
lease, exercise of rights, security interest or claim.
"Loss" has the meaning specified in Section 14.
"Manufacturer" means Airship Industries (UK) Limited, a
corporation organized under the laws of England and its successors.
"Manufacturer's Consent" means the Consent and Agreement of
Manufacturer attached to the Purchase Agreement Assignment.
"Mast Truck" means the mast truck described in Schedule III to
the Original Lease Supplement.
"Night Sign" means the computerized light message board and
related equipment installed on the Airship as more particularly described in
Schedule III to the Original Lease Supplement.
"Officer's Certificate" means a certificate signed by the
Chairman, the President, any Vice President, the Treasurer or the Secretary of
the Person providing such certificate.
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"Operative Agreements" means this Lease and the Lease Supplement,
the Purchase Agreement, the Purchase Agreement Assignment, the Bills of Sale,
and the Manufacturer's Consent, including any consents included in or attached
to any thereof.
"Original Equipment Cost" means an amount equal to $6,200,000.
"Original Lease" means the Lease Agreement dated as of November
2, 1989 between the Lessor, as lessor, and the Lessee, as lessee, which with the
Original Lease Supplement attached, was recorded as one instrument by the FAA on
November 8, 1989 and assigned Conveyance No. V78156 and as amended on May 10,
1994 and January 11, 1995 (which amendments were not filed with the FAA).
"Original Lease Supplement" means the Lease Supplement No. 1
dated November 3, 1989, leasing the Airship pursuant to the provisions of the
Original Lease, as provided in such Original Lease Supplement.
"Overdue Interest Rate" means the rate per annum equal to 18% or,
if less, the maximum rate allowable under applicable law.
"Parts" means any and all appliances, avionics, parts,
instruments, appurtenances, accessories, furnishings, seats and other equipment,
components or modules of whatever nature (other than a complete gondola,
envelope, Engine or engine or Propeller or propeller) including the Night Sign,
and any other Buyer Furnished Equipment, that may from time to time be
incorporated or installed in or attached to the Gondola or the Envelope or any
Engine or Propeller (other than in the case of complete Engines or Propellers,
an engine or propeller), or that remain the property of Lessor pursuant to the
terms of Section 11 despite removal therefrom. The Parts shall also include the
Spare Equipment whether or not any of it is ever incorporated or installed in or
attached to the Gondola or the Envelope or any Engine or Propeller.
"Pearlman" means Louis J. Pearlman.
"Pearlman Guaranty" means that certain Guaranty of Pearlman dated
as of November 1, 1989.
"Permitted Lien" means any Lien referred to in clauses (i)
through (v) of Section 9.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, limited liability company,
unincorporated
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organization or government or any agency or political subdivision thereof.
"Propeller" means (i) each of two Hoffman Model HOV 155 AR 137 CL
Propellers listed by manufacturer's serial number in the Lease Supplement and
installed on the Engines on the Delivery Date, whether or not from time to time
thereafter attached to an Engine or attached to another engine, (ii) any and all
Parts, so long as the same shall be attached to, incorporated in or installed on
such Propeller or so long as title thereto shall be vested in Lessor in
accordance with the terms of Section 11 after removal therefrom and (iii)
insofar as the same belong to Lessor, replacements or renewals from time to time
made in or to such Propeller or to any of the items referred to in clauses (i)
and (ii) above or any part thereof as required or permitted under this Lease.
"Purchase Agreement" means the Contract for Sale for 600 Series
Skyship dated as of July 21, 1989, between Manufacturer and Lessee, as amended
by that certain amendment dated as of November 2, 1989 among Manufacturer,
Airship Industries (USA), Inc. and Lessee.
"Purchase Agreement Assignment" means the Purchase Agreement
Assignment dated as of November 2, 1989 between Lessee and Lessor, together with
the Manufacturer's Consent.
"Remaining Balance" means an amount equal to $3,487,828.
"Rent" means, collectively, Basic Rent and Supplemental Rent.
"Rent Balance" means as of any date, the Remaining Balance minus
all payments of Basic Rent (less any interest component thereof) remitted to
Lessor prior to such date.
"Rent Calculation" has the meaning specified in Section 5(a)(ii).
"Rent Payment Date" means the Initial Date and the third day of
each month during the Term.
"Replacement Airship" means the Replacement Gondola and
Replacement Envelope.
"Replacement Engine" means a Porsche Model 930/67 Engine or an
improved model engine manufactured by Porsche and suitable for installation and
use on the Gondola and fully compatible with the other Engines and any other
engine installed on the Gondola which shall be substituted for an Engine
pursuant to Section 12 of this Lease.
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"Replacement Envelope" means an Airship Industries Model 205620
envelope or a model envelope suitable for installation and use with the Gondola
which shall be substituted for the Envelope pursuant to Section 12(b) of this
Lease.
"Replacement Gondola" means an Airship Industries Model 1215
gondola (including the same number of engines and propellers as Engines and
Propellers installed on the Gondola immediately prior to the Event of Loss)
which shall be substituted for the Gondola pursuant to Section 12(a)(ii) of this
Lease.
"Replacement Propeller" means a Hoffman Model HOV 155 AR 137 CL
propeller or an improved model propeller manufactured by Hoffman and suitable
for installation and use on an Engine and fully compatible with the other
Propellers and any other propeller installed on an Engine or engine which shall
be substituted for a Propeller pursuant to Section 12 of this Lease.
"Second Period" means the period commencing on the last day of
the Initial Period and ending on the earlier to occur of (i) the seventh
anniversary of the date hereof or (ii) the 30th day following payment of the
last scheduled payment of Basic Rent on a Rent Payment Date pursuant to the
terms hereof.
"Spare Equipment" means the line maintenance spares, identified
in Schedule 4 to the Purchase Agreement and delivered to Lessee on the Delivery
Date.
"Special FAA Counsel" has the meaning specified in Section 6(n).
"Stipulated Loss Value" means for the first twelve months of the
Initial Period, one hundred ten percent (110%) of the Remaining Balance.
"Stipulated Loss Value" for any date during (i) the second twelve months of the
Initial Period or (ii) the Second Period, shall be equal to one hundred ten
percent (110%) of the Remaining Balance as of such date minus all payments of
Basic Rent (less any interest component thereof) remitted to Lessor prior to
such date, which payments are not subject to avoidance as a fraudulent transfer
or conveyance under Sections 547 or 548 of Title 11 of the United States Code or
any applicable provisions of comparable state law. "Stipulated Loss Value" for
the Gondola, the Envelope or any Engine, Propeller or Part forming part of the
Airship, as of any date of determination, means a portion of the Stipulated Loss
Value for the Airship, calculated as of such date of determination, which bears
the same ratio to the Stipulated Loss Value for the Airship as the original cost
to Lessor of
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the Gondola, the Envelope or such Engine, Propeller or Part, as the case may be,
bears to the Original Equipment Cost for the Airship.
"Successor" has the meaning specified in Section 19(d)(i).
"Supplemental Rent" means all amounts, liabilities and
obligations (other than Basic Rent) which Lessee assumes or agrees to pay
hereunder or under any Operative Agreement to Lessor or to other Persons,
including without limitation payment of indemnities and Stipulated Loss Value
and any payments required under Section 4 hereof.
"Supplier" means Manufacturer and any other manufacturer,
supplier, contractor, subcontractor or vendor of the Airship or any component or
part thereof, including the Night Sign, the Buyer Furnished Equipment and the
Spare Equipment.
"Taxes" has the meaning specified in Section 15(a).
"Term" means (i) the Initial Period and (ii) the Second Period,
unless earlier terminated as provided herein.
"Trans Continental" means Trans Continental Airlines, Inc.
"Trans Continental Guaranty" means that certain Guaranty of Trans
Continental dated as of the date hereof.
"Warranty Bill of Sale" means a full warranty bill of sale
covering the Airship delivered to Lessor on the Delivery Date by Manufacturer.
SECTION 2. Lease and Acceptance.
(a) Lease of Airship. Subject to the satisfaction of the terms
and conditions hereof, Lessor hereby agrees to lease to Lessee hereunder, and
Lessee hereby agrees to lease from Lessor hereunder, the Airship for the Term,
which leasing shall be evidenced by the execution by Lessor and Lessee of the
Lease Supplement leasing the Airship hereunder.
(b) Acceptance. By execution and delivery of the Lease
Supplement, Lessee confirms to Lessor that Lessee has irrevocably accepted the
Airship for all purposes hereof.
SECTION 3. [Reserved].
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SECTION 4. Purchase Option. (a) Unless a Default shall have
occurred and be continuing, Lessee, upon irrevocable written notice to Lessor
not less than 10 days prior to the last day of the Second Period, may elect
irrevocably to purchase the Airship on the last day of the Second Period for
$1.00.
(b) If Lessee shall have elected to purchase the Airship pursuant
to paragraph (a) above, upon payment in full on the applicable date by Lessee to
Lessor of the purchase price for the Airship and of all other amounts due and
payable by Lessee hereunder, Lessor shall transfer all of its right, title and
interest in and to the Airship to Lessee on an "as is, where is" basis, free and
clear of any Lessor's Liens, but otherwise without recourse, representation or
warranty express or implied, including an express disclaimer of warranties,
representations and guarantees in a manner comparable to that set forth in
Section 7(b) hereof. Lessor shall execute and deliver such documents to Lessee
(at Lessee's cost) as are necessary or desirable to evidence such transfer.
SECTION 5. Rent.
(a) Basic Rent.
(i) During the Initial Period, Lessee shall pay to Lessor
Basic Rent in monthly installments, payable in advance on each
Rent Payment Date, in an amount equal to the amount indicated in
Schedule I to the Lease Supplement corresponding to such Rent
Payment Date.
(ii) During the Second Period, Lessee shall pay to Lessor
Basic Rent in monthly installments, payable in advance on each
Rent Payment Date, in an amount equal to the lesser of (A) the
greater of (i) $80,000 or (ii) fifty-percent (50%) of the Annual
Cash Flow for the fiscal year ended immediately prior to the
commencement of each applicable twelve-month (or shorter) period
commencing on the Rent Payment Date which is an anniversary of
the Initial Date during the Second Period, divided by the number
of months in such period (the "Rent Calculation") and (B) the
Rent Balance. The Rent Calculation shall be set for each
successive twelve-month period during the Second Period (or
shorter period ending at the end of the Second Period) upon
receipt by Lessee of a notice from Lessor to be delivered to
Lessee as soon as practicable following delivery by Lessee to
Lessor of its financial statements in accordance with Section
19(a)(i) hereof, but in
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any event within at least ten days prior to the commencement of
the next Rent Calculation period during the Second Period. During
the Second Period, each payment of Basic Rent shall also include
interest on the Rent Balance (prior to payment on such date) from
and including May 31, 1996 but excluding the date of payment, at
a rate of interest per annum equal to the prime rate of Morgan
Guaranty Company of New York as of 11:00 a.m. New York time on
May 31, 1996, plus one-percent.
(b) Supplemental Rent. Lessee also shall pay to Lessor, or to
whomever shall be entitled thereto, any and all Supplemental Rent promptly as
the same shall become due and owing, and, in the event of any failure on the
part of Lessee to pay any Supplemental Rent, Lessor shall have all rights,
powers and remedies provided for herein or by law or equity or otherwise in the
case of nonpayment of Basic Rent. Lessee will also pay to Lessor, on demand, as
Supplemental Rent, to the extent permitted by applicable law, interest at the
Overdue Interest Rate on any part of any installment of Basic Rent not paid when
due for any period for which the same shall be overdue and on any Supplemental
Rent not paid when due or demanded by Lessor, or the Person entitled thereto, as
the case may be, for the period commencing with the day on which such payment
was due until but not including the date on which the same shall be paid.
(c) Payment to Lessor; Non-Business Day Due Date. All Rent
payable to Lessor shall be paid by Lessee to Lessor prior to 11:00 a.m., New
York City time, on the date of payment, to Lessor's account number 251 508 283
at Sanwa Bank of California, Los Angeles Main Branch, (213) 613-3899, in
immediately available funds, or in such manner and at such place as Lessor may
otherwise elect. Unless otherwise provided herein, if the due date of any
payment hereunder shall not be a Business Day, such payment shall be due and
payable on the Business Day next preceding such due date.
SECTION 6. Conditions to Lease. The obligation of Lessor to lease
the Airship on the Closing Date is subject to the following conditions having
been complied with to the satisfaction of or waived by Lessor on or before such
Closing Date (each document, instrument, certificate, opinion or other paper
referred to below to be satisfactory in form and substance to Lessor and, unless
otherwise specified, to be dated the Closing Date:
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(a) Authorization, Execution and Delivery of Documents. The
following documents shall have been duly authorized, executed and delivered by
the respective party or parties thereto and shall be in full force and effect on
the Closing Date and an executed copy or photocopy of each document shall have
been delivered to Lessor: (i) the Lease; (ii) the Lease Supplement; (iii) the
Amended and Restated Pearlman Guaranty; and (iv) the Trans Continental Guaranty.
(b) Representations and Warranties Correct; Event of Default. (i)
The representations and warranties of Lessee contained in Section 7(a) hereof
and the representations and warranties of the Guarantors contained in Section 3
of the Pearlman Guaranty and the Trans Continental Guaranty shall be true and
correct on and as of the Initial Date and the Closing Date, as if such
representations had been made on and as of the Initial Date and the Closing
Date, as applicable, except to the extent that such representations and
warranties relate solely to an earlier date (in which case such representations
and warranties shall be correct on and as of such earlier date), (ii) no Event
of Default shall have occurred and be continuing, (iii) no event shall have
occurred that would materially adversely affect Lessee's ability to perform its
obligations under this Lease and the Lease Supplement, and (iv) the Lessor shall
have received an Officer's Certificate, dated the Closing Date, of Lessee as to
the matters referred to in the foregoing clauses (i) (with respect to Lessee's
representations and warranties), (ii) and (iii). No action or proceeding shall
have been instituted nor shall any action or proceeding be threatened before any
court or governmental agency, nor shall any order, judgment or decree have been
issued or proposed to be issued by any court or governmental agency at the time
of the Initial Date or the Closing Date to set aside, restrain, enjoin, or
prevent the execution and delivery of this Lease, the Lease Supplement, the
Pearlman Guaranty, the Trans Continental Guaranty or the completion and
consummation of the transactions contemplated hereby or thereby.
(c) Legality of Investments. No change shall have occurred after
the date of this Agreement in applicable law or regulations thereunder or
interpretations thereof by appropriate regulatory authorities and no change in
circumstances outside the control of Lessor shall have otherwise occurred which,
in the reasonable opinion of Lessor, would make it illegal for Lessor to
participate in the transactions contemplated by this Lease or the Lease
Supplement.
(d) Guaranties. (i) Pearlman shall have executed and delivered to
Lessor the Amended and Restated Pearlman
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Guaranty and it shall be in full force and effect, and (ii) Trans Continental
shall have executed and delivered to Lessor the Trans Continental Guaranty and
it shall be in full force and effect.
(e) Deliveries by Pearlman. The information required to be
delivered to Lessor under the provisions of Section 4.1 of the Pearlman Guaranty
with respect to the year 1994 shall have been delivered to Lessor.
(f) Proof of Corporate Action of Lessee. Lessor shall have
received copies of documents evidencing all corporate action taken by Lessee to
authorize the execution and delivery of this Lease and the Lease Supplement and
all other agreements, documents or action required or contemplated by such
agreements, certified by the Secretary or another duly authorized officer, and
all other documents which Lessor may reasonably request relating to the
existence of Lessee and the corporate authority for this Lease and the Lease
Supplement and other matters relevant thereto, all in form and substance
reasonably satisfactory to the Lessor.
(g) Proof of Corporate Action of Trans Continental. Lessor shall
have received copies of documents evidencing all corporate action taken by Trans
Continental to authorize the execution and delivery of the Trans Continental
Guaranty and all other documents or actions required or contemplated by such
agreement, certified by the Secretary or other duly authorized officer, and all
other documents which Lessor may reasonably request relating to the existence of
Trans Continental and the corporate authority for the Trans Continental Guaranty
and other matters relevant thereto, all in form and substance reasonably
satisfactory to the Lessor.
(h) Insurance Certificates. Lessor shall have received a broker's
report and insurance certificates, signed by an independent aircraft insurance
broker or brokers reasonably acceptable to Lessor evidencing Lessee's due
compliance with the insurance provisions hereof.
(i) Allstate Releases. Lessor shall have received evidence, in
form and substance satisfactory to Lessor, that Allstate Financial Corporation
has released any and all of its interest in the property of Lessee.
(j) Financial Condition. No material adverse change shall have
occurred in the business, operations or condition, financial or otherwise, of
Lessee since December 31, 1993.
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(k) Title, Airworthiness and Registration. On the Closing Date,
the following statements shall be correct, and Lessor shall have received
evidence satisfactory to it to the effect that:
(i) Title. Lessor has good and marketable title to the
Airship, including the Gondola and the Envelope free and clear of
all Liens.
(ii) Certification. The Airship has been duly certificated
by the FAA as to type and airworthiness in accordance with the terms of
the Purchase Agreement and has a currently valid United States Standard
Certificate of Airworthiness.
(iii) Registration. The Airship is duly registered under the
Act in the name of Lessee.
(iv) Night Sign. The FAA Form 337 issued by the FAA with
respect to the Night Sign shall be in full force and effect.
(l) Filing. On the Closing Date (i) the Lease, the Lease
Supplement for the Airship, and an application for registration of the Airship
on AC Form 8050-1 in the name of Lessee, shall have been duly filed or filed for
recordation, as the case may be, (or shall be in the process of being so duly
filed or filed for recordation) with the FAA pursuant to the Act, (ii) UCC
filings with respect hereto shall have been duly executed and delivered and
shall have been duly filed in the State and County of New York, the State of
Florida, and all places in which such filings are necessary or advisable, in the
opinion of counsel for Lessor, to establish and perfect Lessor's right, title
and interest in the Airship (including the Spare Equipment) and under the Lease
and (iii) all other action shall have been taken in accordance with the
Operative Agreements then in force as required thereunder or as is necessary or
advisable, in the opinion of counsel for the Lessor, to establish and perfect
Lessor's right, title or interest therein.
(m) Opinion of Counsel for Lessee and Guarantors. Lessor shall
have received a favorable opinion addressed to it from (i) Bear, Marks & Upham,
Special Counsel of Lessee and Pearlman in the form of Exhibit B-1 hereto, (ii)
Shaw, Pittman, Potts & Trowbridge, Special Counsel of Lessee in the form of
Exhibit B-2 hereto, and (iii) William B. Pringle, III, Counsel of Trans
Continental in the form of Exhibit B-3 hereto.
(n) Opinion of Oklahoma City Counsel. Lessor and
Lessee shall have received a favorable opinion addressed to
them from Daugherty, Fowler & Peregrin, special counsel in
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Oklahoma City ("Special FAA Counsel") in the form of Exhibit C hereto.
(o) Opinion of General Counsel to FAA. Lessor and Lessee shall
have received an opinion from the General Counsel to the FAA in the form of
Exhibit D hereto.
Promptly upon the registration of the Airship and the recordation
of the Lease and the Lease Supplement for the Airship pursuant to the Act,
Lessee will cause Special FAA Counsel to deliver to Lessor and Lessee a
favorable opinion with respect thereto addressed to each of them.
SECTION 7. Representations and Warranties.
(a) Lessee's Representations and Warranties.
Lessee represents and warrants and agrees that:
(i) Organization and Qualification. Lessee (A) is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of New York, (B) is a "citizen of the United
States," within the meaning of 49 U.S.C. Section 40102(a)(15)(C), (C)
has the corporate power and authority to carry on its business as
presently conducted, to own or hold under lease its properties and to
enter into and perform its obligations under the Operative Agreements to
which it is a party, (D) is duly qualified to do business as a foreign
corporation in good standing in each state in which the nature of its
business makes such qualification necessary or the failure to be so
qualified or so to be in good standing would have a material adverse
effect on its business or operations or would impair its ability to
perform its obligations under the Operative Agreements, (E) has no
subsidiaries, and (F) holds all licenses, certificates and permits from
Federal government authorities necessary for the conduct of its business
as presently conducted.
(ii) Corporate Authorization. The execution, delivery and
performance of the Operative Agreements to which Lessee is a party have
been duly authorized by all necessary corporate action on the part of
Lessee, do not require any stockholder approval or approval or consent
of any trustee or holders of indebtedness or obligations of, or of any
lessor under any lease to, Lessee except such as have been duly obtained
on or prior to the Closing Date, and do not and will not contravene any
law, judgment, governmental rule, regulation or order applicable to or
binding on Lessee or the certificate of incorporation or by-laws of
Lessee (each as amended to date), or contravene or
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result in any breach of, or constitute any default under, or result in
the creation of any Lien (other than Permitted Liens) upon any property
of Lessee under, any contract, agreement or instrument to which Lessee
is a party or by which Lessee or its properties may be bound or
affected.
(iii) Government Approval. Neither the execution and
delivery by Lessee of the Operative Agreements to which it is a party,
nor the consummation of the transactions by Lessee contemplated thereby,
requires the consent or approval of, or the giving of notice to, or the
registration with, or the taking of any other action in respect of, the
FAA, the DOT, the SEC, any court or any other federal or state or
foreign governmental authority or agency, except for the certification
and registration referred to in Section 6(k), the filings and recordings
referred to in Section 6(l), and filings pursuant to any routine
recording or regulatory requirements applicable to it, all of which have
been duly made.
(iv) Valid and Binding Agreements. The Operative
Agreements to which Lessee is a party have been duly authorized,
executed and delivered by Lessee and, assuming due authorization,
execution and delivery by the party or parties thereto other than
Lessee, constitute legal, valid and binding obligations of Lessee
enforceable against Lessee in accordance with the respective terms
thereof, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
and equitable principles relating to or limiting creditors' rights
generally.
(v) Litigation. There are no pending or, to Lessee's
knowledge, threatened actions or proceedings before any court or
administrative agency which, if adversely determined, would materially
adversely affect the business, operation or condition, financial or
otherwise, of Lessee or the ability of Lessee to perform its obligations
under the Operative Agreements to which it is a party.
(vi) Taxes. Lessee has filed all federal, state, local and
foreign tax returns which are required to be filed and has paid or
caused to be paid all taxes shown to be due and payable on such returns
or on any assessment received by Lessee to the extent that such taxes
have become due and payable (except to the extent contested in good
faith and by appropriate proceedings and for the payment of which
adequate reserves have been provided in accordance with generally
accepted
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accounting principles); the federal income tax liability of Lessee has
been determined by the Internal Revenue Service or is otherwise closed
and paid for all fiscal years prior to and including the fiscal year
ended December 31, 1994; Lessee has made adequate provisions in respect
to taxes and Lessee knows of no material additional or potential
assessments which are not covered by such provisions.
(vii) Financial Condition. The audited balance sheet of
Lessee as of December 31, 1993, and the related statements of
operations, changes in stockholders' equity and cash flows for the three
fiscal years then ended, and the unaudited balance sheet of Lessee as of
September 30, 1994 and the related statements of operations, changes in
stockholders' equity and cash flows for the three month period ended
September 30, 1994 have been prepared in accordance with generally
accepted accounting principles and correctly set forth the financial
condition of Lessee as of said dates and the results of operations,
changes in stockholders' equity and cash flows for such periods and,
since December 31, 1993, there has been no material adverse change in
the business, operations or condition, financial or otherwise, of
Lessee. Lessee has provided Lessor with a true and correct copy of
Lessee's Annual Report on Form 10K for the fiscal year ended December
31, 1993 and its Quarterly Reports on Form 10-Q for the periods ended
March 31, 1994, June 30, 1994 and September 30, 1994, which constitute
the latest such Annual Report and Quarterly Reports prepared by Lessee.
No audited financial statements have been prepared by Lessee for any
periods subsequent to December 31, 1993 and no unaudited balance sheets
or statements of operations or changes in cash flows or stockholders'
equity exist as of any date or for any period subsequent to September
30, 1994.
(viii) Registration and Recordation. Except for (A) the
filing and recordation of the instruments referred to in Section 6(l)
and (B) to the extent the UCC is applicable, the filing of the UCC
financing statements referred to in Section 6(l) (and continuation
statements at periodic intervals), no further action is necessary or
advisable in order to establish and perfect the Lessor's right, title or
interest in the Airship or any part thereof (including the Spare
Equipment) in any applicable jurisdiction within the United States of
America.
(ix) Chief Executive Office. The Chief Executive Office (as
such term is defined in Article 9
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of the UCC) of Lessee and the location of Lessee's records with respect
to the Airship is 7380 Sand Lake Road, Suite 350, Orlando, FL 32819.
(x) Securities Laws. Neither Lessee or anyone acting on
behalf of Lessee has directly or indirectly offered any beneficial
interest or security relating to the ownership of the Airship or the
Lease or any interest in the estate, for sale to, or solicited any offer
to acquire any such interest or security from, or has sold any such
interest or security to, any Person in violation of the Securities Act
of 1933, as amended or applicable states securities laws, or both.
(xi) All Disclosures Made. Neither the financial
statements referred to in Section 7(a)(vii) nor any other documents
furnished by Lessee, or on behalf of Lessee, by any person authorized or
employed by Lessee to Lessor, in connection with the transaction
contemplated by this Agreement or other Operative Agreements contains
any untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein, as of the date made,
not misleading.
(xii) Other Agreements. Lessee is not in breach of any
agreement to which it is a party which would have a material adverse
affect on the operation, business or condition (financial or otherwise)
of Lessee or the ability of Lessee to perform its obligations under the
Operative Agreements to which it is a party.
(xiii) ERISA. Lessee has not engaged in any transaction in
connection with which Lessee could be subject to either a material civil
penalty assessed pursuant to Section 502(i) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or a material tax
imposed by Section 4975 of the Code; no employee pension benefit plan
(within the meaning of Section 3(2) of ERISA) which is or has been
established or maintained, or to which contributions are or have been
made, by Lessee (a "Plan") or any trust created under any Plan has been
terminated since September 2, 1974; no material liability to the Pension
Benefit Guaranty Corporation has been or is expected by Lessee to be
incurred with respect to any Plan maintained by Lessee; there has been
no reportable event (within the meaning or Section 4043(b) of ERISA)
with respect to any Plan, or any other event or condition which presents
a material risk of termination of any Plan by the Pension Benefit
Guaranty Corporation; and no
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accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with respect to
any Plan; neither Lessee nor any Plan nor any trust created thereunder
has engaged in, and, the transactions contemplated by this Agreement do
not constitute, a "prohibited transaction," within the meaning of ERISA
or Section 4975 of the Code, which could subject Lessee or any party
dealing with any such Plan or trust to any material tax or penalty
imposed by such Section on prohibited transactions. Lessee is not
liable, including without limitation any potential or contingent
liability or withdrawal liability, with respect to any employee pension
benefit plan which is a "Multiemployer Plan" within the meaning of
Section 3 (37) of ERISA. Lessee is not required to provide security to
any employee pension benefit plan under Section 401(a)(29) of the Code
due to a plan amendment that results in an increase in current liability
for the current plan year.
(xiv) Broker's and Finder's Fees. Lessee agrees to save
Lessor harmless against any and all claims for broker's, finder's or
similar fees or expenses made or asserted by any person or entity
claiming to have been employed by or through Lessee, and against all
costs and expenses (including reasonable counsel fees) of investigating
and defending such claims.
(b) Lessor's Representations, Warranties and Covenants;
Disclaimer. Lessor represents, warrants and covenants that:
(i) Organization, Etc. Lessor is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority
to enter into and perform its obligations under this Lease.
(ii) Authorization, Etc. This Lease has been duly
authorized, executed and delivered by Lessor and assuming the due
authorization, execution, and delivery by the other parties thereto
constitutes legal, valid and binding obligations of Lessor enforceable
against it in accordance with its terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws and equitable principles relating to or
limiting creditors' rights generally.
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(iii) No Violation. Neither the execution, delivery or
performance by Lessor of this Lease nor the consummation of any of the
transactions by Lessor contemplated hereby contravenes any law,
regulation, order or judgment applicable to or binding on Lessor, or any
provision of the charter or by-laws (each as amended to date) of Lessor,
or will result in a breach of, or constitute a default under, or
contravene any provisions of, any contract, agreement or instrument to
which Lessor is a party or by which it is bound.
(iv) No Consents or Approvals. Neither the execution,
delivery or performance by Lessor of this Lease nor the consummation by
Lessor of any of the transactions contemplated hereby requires the
consent or approval of, the giving of notice to, the registration with,
the recording or filing of any documents with, or the taking of any
other action in respect of, any Federal, state or local governmental
commission, authority, agency or body except for the certification and
registration referred to in Section 6 hereof, the filings and recordings
referred in Section 6 hereof and filings, if any, made pursuant to any
routine recording or regulatory requirements applicable to it.
(v) Lessor's Liens. There are no Lessor's Liens on the
Airship attributable to Lessor and Lessor shall, at its own cost and
expense, promptly take such action as may be necessary to discharge duly
any Lessor's Liens on any part of the Airship attributable to it.
(vi) Disclaimer. Except as provided above, LESSOR LEASES
THE AIRSHIP HEREUNDER "AS-IS", "WHERE-IS" AND LESSOR, NEITHER MAKES NOR
SHALL BE DEEMED TO HAVE MADE OR TO MAKE, AND HEREBY EXPRESSLY DISCLAIMS,
ANY REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, STATUTORY
OR OTHERWISE, WITH RESPECT TO THE AIRSHIP, THE GONDOLA, THE ENVELOPE,
ANY ENGINE, ANY PROPELLER, ANY PART, ANY SPARE EQUIPMENT OR ANY OTHER
THING DELIVERED, LEASED, SOLD OR TRANSFERRED HEREUNDER INCLUDING WITHOUT
LIMITATION (I) THE TITLE, AIRWORTHINESS, VALUE, CONDITION, DESIGN OR
OPERATION OF, OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP IN, OR TITLE
TO, OR AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT
DISCOVERABLE IN, THE AIRSHIP, THE GONDOLA, THE ENVELOPE, ANY ENGINE, ANY
PROPELLER, ANY PART, ANY SPARE EQUIPMENT OR ANY OTHER THING DELIVERED,
LEASED, SOLD OR TRANSFERRED HEREUNDER, (II) ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, AGAINST
INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT OR
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THE LIKE, OR ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR
USAGE OF TRADE, (III) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY
IN TORT WITH RESPECT TO THE AIRSHIP, THE GONDOLA, THE ENVELOPE, ANY
ENGINE, ANY PROPELLER, ANY PART, ANY SPARE EQUIPMENT OR ANY OTHER THING
DELIVERED, LEASED, SOLD OR TRANSFERRED HEREUNDER, WHETHER OR NOT IN
STRICT OR ABSOLUTE LIABILITY, OR ARISING FROM THE NEGLIGENCE OF LESSOR,
ACTUAL OR IMPUTED, (IV) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR
REMEDY FOR LOSS OF, OR DAMAGE TO, THE AIRSHIP, THE GONDOLA, THE
ENVELOPE, ANY ENGINE, ANY PROPELLER, ANY PART, ANY SPARE EQUIPMENT OR
ANY OTHER THING DELIVERED, LEASED, SOLD OR TRANSFERRED HEREUNDER, FOR
ANY LOSS OF USE, REVENUE OR PROFIT, OR ANY OTHER DIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES, OR (V) ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRSHIP,
THE GONDOLA, THE ENVELOPE, ANY ENGINE, ANY PROPELLER, ANY PART, ANY
SPARE EQUIPMENT OR ANY OTHER THING DELIVERED, LEASED, SOLD OR
TRANSFERRED HEREUNDER. It is agreed that, as between Lessor and Lessee,
all risks incident to the matters discussed in the preceding sentence
are to be borne by Lessee. As and when any right of action shall arise
against any Supplier of any part of the Airship or any Spare Equipment,
Lessee shall be entitled unless and until a Default or Event of Default
shall have occurred and be continuing, at its own expense, to exercise
all rights of Lessor against such Supplier; provided, however, that (A)
Lessee shall not use Lessor's name without the prior written consent of
Lessor, and (B) if as a result of any such action any monies are
received from any Supplier as aforesaid, the same shall be paid (x) to
the extent such monies are being used to repair or improve (to the
extent permitted by Section 11(b)) the Airship or any part thereof or
any Spare Equipment, to the Person performing such repairs (unless a
Default has occurred and is continuing, in which event they shall be
paid to Lessor) and (y) otherwise, to Lessor. Lessee shall preserve and
protect Lessor's rights under any warranty, covenant or representation
made by any Supplier with respect to the Airship or any Spare Equipment,
and Lessee shall take no action which will impair such rights of Lessor
and shall act solely in compliance with any restrictions or requirements
prerequisite to the continued existence, enforcement, validity and
maintenance of any such warranty, covenant or representation.
SECTION 8. Return of Airship.
(a) Condition upon Return. Upon the termination of this Lease for
any reason other than (i) upon exercise by Lessee of the option in Section 4
hereof, or (ii) compliance
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by Lessee with Section 12(a)(i) hereof in the case of an Event of Loss of the
Airship, Lessee, at its own risk and expense, will return the Airship by
delivering the same in the same condition as when delivered to Lessor, ordinary
wear and tear excepted, at such location within the continental United States as
agreed to by Lessee and Lessor, fully equipped with an Envelope, Gondola and two
duly installed Engines and Propellers thereon, or other engines or propellers of
the same make and model or other engines or propellers of the same manufacturer
(in each case which have a value and utility at least equal to such Engines or
such Propellers, are of the same make and model as each other, are suitable for
installation and use on the Gondola without materially impairing the value or
utility of the Gondola and are in as good operating condition as such Engines or
such Propellers, assuming such engines or propellers were in the condition and
repair required by the terms hereof immediately prior to such termination) and
all other equipment installed therein at the Delivery Date or replacements
therefor made in accordance with the provisions of this Lease and the Spare
Equipment and any part of the Night Sign not installed in the Airship. At the
time of such return, the Airship shall have had an annual inspection performed
within one month and 150 operating hours of the date of such return, and shall
comply with all outstanding FARs and other regulations, mandatory maintenance
directives, airworthiness directives or other instructions of the FAA or other
United States governmental authorities having jurisdiction, in each case
requiring compliance prior to the date of return of the Airship to Lessor; but
if (i) any FAA waivers, variances or extensions are granted with respect to any
airworthiness directives, operating procedures or requirements or (ii) the
maintenance program of Lessee described in Section 10(b) permits carry-over or
deferral of maintenance items, performance of which would, absent such deferral
or carry-over, have otherwise been required hereby, Lessee shall nevertheless,
at Lessee's sole cost and expense, comply with all such airworthiness
directives, operating procedures and requirements and perform or cause to be
performed such maintenance items prior to such return. At the time of such
return the Airship (i) shall be in compliance with Section 10(b) and duly
certificated as an airworthy airship by the FAA and have an unexpired
airworthiness certificate, (ii) shall be free and clear of any Liens (except
Lessor's Liens), (iii) shall be clean by blimp operating standards, (iv) either
shall have a fully inflated Envelope or returned therewith in separate canisters
used for safe storage of such material, a sufficient amount of helium to fully
inflate the Envelope and (v) shall have a fully operational Night Sign.
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At the time of such return, the Envelope shall pass acceptable
helium purity tests as required by the ongoing maintenance program then in
effect in accordance with the terms of Section 10(b). In addition at the time of
such return each Engine or engine shall (i) have newly replaced cylinder heads
if immediately prior to such return there is remaining less than one-half the
time between replacements of the cylinder heads on such Engine or engine in
accordance with the maintenance program then in effect, and (ii) have had a full
power run performance test in accordance with the maintenance program's
operations checklist. Satisfactory evidence shall have been provided to Lessor
of the correction of any discrepancies discovered during such run.
(b) Return of Engines and Propellers. In the event that any
engine or propeller not owned by Lessor shall be delivered with the Gondola
pursuant to Section 8(a), Lessee, concurrently with such delivery, will, at its
own expense, furnish Lessor with a bill of sale, in form and substance
satisfactory to Lessor, with respect to each such engine or propeller and with a
written opinion of Lessee's counsel to the effect that, upon such return, Lessor
will acquire good and marketable title to such engine or propeller free and
clear of all Liens (except Lessor's Liens); and Lessee shall take such other
action in connection therewith as Lessor may reasonably request in order that
title to such replacement engine or propeller is duly and properly vested in
Lessor to the same extent as the Engine or Propeller replaced thereby.
Thereupon, unless a Default or Event of Default shall have occurred and be
continuing, Lessor will transfer to Lessee, "as is, where is, and with all
faults" and without recourse or warranty, but free of Liens of the types
described in clauses (ii) and (iii) of Section 9, all right, title and interest
received by Lessor on the Delivery Date (or subsequent date of transfer of title
to Lessor) in and to an Engine or Propeller constituting part of the Airship but
not installed on the Gondola at the time of the return of the Gondola.
(c) Manuals; Markings. Upon the return of the Airship, Lessee
shall deliver to Lessor all logs, overhaul, repair, maintenance and other
manuals and data, parts catalogues and inspection, modification, overhaul and
other records required to be maintained with respect thereto under applicable
rules and regulations of the FAA or under Section 10(e). Specifically all
records necessary and required by the FAA district offices to certify the
Airship and place it on an FAA approved maintenance program shall be delivered
with the Airship. All records required by FAR Part 91.173 which normally
accompany a used airship which has been operating in the type of service
provided for in this Lease shall accompany redelivery. All such records
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shall be made available to Lessor for review a minimum of seven (7) days prior
to the agreed date of return.
(d) [Reserved].
(e) Inspections. The Airship and all related records and
documents to be returned therewith shall be made available for ground inspection
at the facilities where maintenance is generally performed on the Airship no
more than 10 days immediately prior to return of the Airship to Lessor. Lessee
shall open or cause to be opened the areas of the Airship reasonably requested
by Lessor and shall allow Lessor to inspect the Airship to determine if it is in
the condition required by this Section 8. Lessee shall promptly correct any
discrepancies from the condition required by this Section 8 which are observed
during such inspection.
(f) Failure to Return Airship. If Lessee shall, for any reason
whatsoever, fail to return the Airship at the time and in the manner specified
in paragraphs (a), (b) and (e) hereof, the obligations of Lessee, including the
payment of Rent on a prorated daily basis at the prior monthly rate for any
period, as provided in this Lease shall continue in effect with respect to the
Airship until the Airship is returned to Lessor in compliance herewith; but this
paragraph (f) shall not be construed as permitting Lessee to fail to meet its
obligation to return the Airship or any part thereof in accordance with the
requirements of this Lease or constitute a waiver of an Event of Default.
SECTION 9. Liens. Lessee shall not directly or indirectly create,
incur, assume or suffer to exist any Lien on or with respect to the Airship or
any part thereof (including the Spare Equipment), title thereto or any interest
therein or in this Lease, except (i) the respective rights of the parties to
this Lease, (ii) Lessor's Liens, unless arising from acts taken when an Event of
Default has occurred and is continuing, (iii) Liens for Taxes not yet assessed
or, if assessed, either not yet due and payable or being contested in good faith
(and for the payment of which adequate reserves have been provided) by
appropriate proceedings so long as such proceedings do not involve any
significant likelihood of the sale, forfeiture or loss of the Airship or any
part thereof (including the Spare Equipment), title thereto or interest therein
or the use thereof, (iv) mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business for amounts the payment of
which is either not yet due and payable or is being contested in good faith (and
for the payment of which adequate reserves have been provided) by appropriate
proceedings so long as such proceedings do not involve any significant
likelihood of the sale,
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forfeiture or loss of the Airship or any part thereof, title thereto or interest
therein or the use thereof (including the Spare Equipment), and (v) the rights
of others under agreements or arrangements to the extent expressly permitted by
the terms of Section 10(a). Lessee shall promptly, at its own expense, take such
action as may be necessary duly to discharge any such Lien not excepted above if
the same shall arise at any time.
SECTION 10. Possession; Registration, Maintenance and Operation;
Maintenance Reserves; Insignia; Records.
(a) Possession. Lessee will not, without the prior written consent of
Lessor, sell, assign, sublease or otherwise in any manner deliver, transfer or
relinquish possession of the Airship, or any portion thereof, or install any
Engine, or permit any Engine or Propeller to be installed, on any gondola other
than on the Gondola; provided, however, that so long as no Default or Event of
Default shall have occurred and be continuing, Lessee may, without the prior
written consent of Lessor, but subject to Section 10(b):
(i) deliver possession of the Airship or any part thereof
to the Supplier for testing or other similar purposes or to any
organization for service, repair, maintenance or overhaul work on the
Airship or any part thereof or for alterations or modifications in or
additions to the Airship to the extent required or permitted by the
terms of Section 11; and
(ii) install an Engine and Propeller on a gondola (other
than the Gondola) owned by or leased to Lessee or purchased by Lessee
subject to a conditional sale or other security agreement if (A) such
gondola is free and clear of all Liens except the rights of parties to
the lease or conditional sale or other security agreement covering such
gondola, and (B) Lessee shall receive from the lessor, conditional
vendor or secured party of such gondola a written agreement (which may
be the lease or conditional sale or other security agreement)
satisfactory to Lessor (Lessor agrees that an agreement in form and
substance similar to the last paragraph of this Section 10(a) shall be
satisfactory), whereby such lessor, conditional vendor or secured party
expressly and effectively agrees that neither it nor its successors or
assigns will acquire or claim any right, title or interest in any Engine
or Propeller by reason of such Engine or Propeller being installed on
such gondola at any time while such Engine or Propeller is owned by
Lessor;
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provided, however, that:
(1) the rights of any Supplier or transferee shall be subject and
subordinate to all the terms of this Lease, and to Lessor's rights,
powers and remedies under this Lease, including the rights to
repossession pursuant to Section 18 and to terminate and avoid such
transfer upon such repossession and to require such transferee forthwith
to deliver the Airship or any part thereof subject to such transfer upon
such repossession;
(2) Lessee shall remain primarily liable hereunder for the
performance of all the terms of this Lease to the same extent as if such
transfer had not occurred;
(3) any such transfer shall (i) be consistent with the
requirements of this Lease, (ii) include appropriate provisions for the
continued registration, maintenance in accordance with FAA standards,
operation, insurance and return of the transferred property as required
hereunder, and (iii) provide that the transferee may not assign or
further transfer the Airship or any part thereof, other than as
expressly permitted hereunder;
(4) no permitted transfer, or other relinquishment of possession
permitted hereunder shall affect the registration of the Airship or
shall permit any action not permitted to Lessee in this Lease; and
(5) in connection with any such transfer, all necessary action
shall be taken which is required to continue the perfection of Lessor's
title and interest in and to the Airship or any part thereof and
Lessor's rights under this Lease.
No transfer or other relinquishment of possession of the Airship or any part
thereof shall in any way discharge or diminish any of Lessee's obligations to
Lessor hereunder or under any other Operative Agreement or constitute a waiver
of Lessor's rights or remedies hereunder or under any other Operative Agreement.
Lessor hereby agrees for the benefit of the lessor, conditional
vendor or secured party of any gondola leased to Lessee or purchased by Lessee
subject to a conditional sale or other security agreement that Lessor will not
acquire or claim, as against such lessor, conditional vendor or secured party,
any right, title or interest in any engine or propeller covered by any such
lease or conditional sale or other security agreement as a
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result of such engine or propeller being installed on the Gondola at any time
while such engine or propeller is subject to such lease or conditional sale or
other security agreement and owned by such lessor or subject to a security
interest in favor of such secured party.
(b) Registration, Maintenance and Operation. Lessee, at its own
cost and expense, shall: (i) maintain the registration of the Airship in the
name of Lessee in the United States of America under the Act and the recordation
with the FAA of this Lease and all other appropriate Operative Agreements and
shall promptly produce to Lessor true copies of all applications made in
relation to the Airship, of certificates of registration issued pursuant to such
applications and of all notifications given pursuant to such registration, and
shall not do, or permit to be done by any other Person, any act which might
cause the Airship to be ineligible for such registration; (ii) maintain,
inspect, service, repair, overhaul and test (or cause to be maintained,
inspected, serviced, repaired, overhauled and tested) the Airship and all parts
thereof so as to keep the Airship in as good operational repair and condition as
when delivered by Lessor hereunder, ordinary wear and tear excepted, and
airworthy in all respects, and to that end (but without limiting the generality
of the foregoing) carry out all maintenance, overhauls, replacements and repairs
to the Airship in accordance with an FAA-approved maintenance program for the
Airship (including all basic maintenance recommended by the Supplier of the
Airship or any part thereof) and in such condition as may be necessary to enable
all applicable airworthiness certifications of the Airship to be maintained in
good standing at all times under the Act, and make or cause to be made all
necessary adjustments, repairs and replacements thereto; (iii) maintain all
records, logs and other material required by the FAA to be maintained in respect
of the Airship and (iv) promptly furnish to Lessor such information to which
Lessee has or should have reasonable access as may be required to enable Lessor
to file any reports required to be filed by Lessor with any governmental
authority because of Lessor's interest in the Airship. In the event that Lessor
receives any written notice from the FAA with respect to the registration of the
Airship, Lessor shall promptly deliver such notice to the Lessee. Lessee's
maintenance program for the Airship described in this Section 10(b) shall
incorporate a corrosion-prevention program providing for the continuing
accomplishment of the cleaning, treating and correcting of mild, moderate and
severe or exfoliated corrosion, which shall be revised on an on-going basis to
include the incorporation of the latest corrosion-prevention procedures and
techniques recommended by the supplier of the Airship or any part thereof.
Lessee will maintain the Night Sign (including all maintenance recommended by
the Supplier
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thereof) so as to keep it in the same condition as when initially installed on
the Airship and shall update the software included as recommended by the
supplier of the Night Sign. Lessee will not permit the Airship to be maintained,
used or operated in violation of any law or any rule, regulation or order of any
government or governmental authority having jurisdiction or in violation of any
airworthiness certificate, license or registration relating to the Airship
issued by any such authority. In the event that any such law, rule, regulation
or order requires alteration of the Airship, Lessee will conform thereto or
obtain conformance therewith at no expense to Lessor and will maintain the
Airship in proper operating condition under such laws, rules, regulations and
orders. In the event of hostilities in any part of the world (whether war be
declared or not), Lessee shall not employ the Airship nor suffer it to enter any
zone which is declared a war zone by the United States Government or by any
insurer of the Airship against war risks, if any, or any zone in respect of
which any insurers of the Airship shall have withdrawn coverage for the Airship,
unless Lessee shall have notified Lessor and there shall have been effected such
special insurance coverage as Lessor may reasonably require. Lessee shall not
use the Airship nor suffer it to be used in any manner or for any purpose
excepted from any of the insurance on or in respect of the Airship or for the
purpose of carriage of goods of any description excepted from such insurance or
do or permit to be done anything which, or omit to do anything the omission of
which, may invalidate any of such insurance. Lessee shall not operate or use the
Airship, or permit the Airship to be operated or used by any Person to or from
any destination outside the United States of America if such use would result in
the Airship being used "predominantly outside the United States" within the
meaning of Section 168(g)(4) of the Code or any successor provision. Lessee
shall not, at any time, operate or use the Airship, or permit the Airship to be
operated or used by any Person (x) in any area in which the protection afforded
by the insurance coverage required by Section 13 shall not be applicable to all
risks required to be insured against by such Section or (y) in any area other
than a jurisdiction which maintains diplomatic relations with the United States
of America and which is either (i) a jurisdiction that has ratified and
implemented the Convention on the International Recognition of Rights in
Aircraft signed (ad referendum) at Geneva, Switzerland on June 19, 1948 and has
not formally denounced (or given notification of denunciation of) or repudiated
or withdrawn from said Convention or (ii) the United States, Canada, the United
Kingdom or a jurisdiction that is a member of the British Commonwealth, so long
as the possessory rights of Lessor therein are not adversely affected thereby.
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(c) [Reserved].
(d) Insignia. Lessee agrees to affix and maintain and not to
cover up in the cockpit of the Gondola adjacent to the airworthiness certificate
therein a metal nameplate bearing the inscription "OWNED BY AND LEASED FROM ORIX
USA CORPORATION, AS OWNER AND LESSOR" (such nameplate to be replaced, if
necessary, with a nameplate reflecting the name of any successor Lessor); such
nameplate also to state the type, manufacturer's serial number and current
registration letters of the Airship. Lessee will not place or permit to be
placed any other nameplates or other insignia dealing with the rights of any
Person other than Lessor in or on the Airship or any part thereof without the
prior written consent of Lessor, but Lessee may cause the Gondola and the
Envelope to be lettered or otherwise marked in an appropriate manner for
convenience of identification of the interest therein of Lessee.
(e) Records. Throughout the Term, Lessee shall keep or cause to
be kept accurate, complete and current records, logs and other material required
by the FAA (complying with the requirements of the FAA or any other applicable
regulations from time to time in force and with the recommendations of the
Supplier) of all use made of, and maintenance carried out with respect to, the
Airship and shall permit Lessor or any authorized representative of Lessor to
examine such records at any reasonable time. Lessor shall have the same right,
title and interest in and to such records as Lessor has in the Airship or any
part thereof, including the right of repossession upon the occurrence and
continuance of an Event of Default.
SECTION 11. Replacement of Parts; Alterations, Modifications and
Additions.
(a) Replacement of Parts. Lessee, at its own cost and expense,
will promptly replace or cause to be replaced all Parts which may from time to
time become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use for any reason whatsoever.
In addition, Lessee may, at its own cost and expense, remove in the ordinary
course of maintenance, service, repair, overhaul or testing, any Parts, whether
or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond
repair or permanently rendered unfit for use, but Lessee will, at its own cost
and expense, replace such Parts as promptly as possible. All replacement Parts
shall be free and clear of all Liens, shall be in compliance with Supplier's
specifications and shall be in as good operating condition as, and shall have a
value and utility at least equal to, the Parts replaced assuming such replaced
Parts were in the condition and repair required to be maintained
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by the terms hereof. All Parts at any time removed from the Airship, Gondola or
Envelope or from any Engine or Propeller shall remain the property of Lessor and
subject to this Lease, no matter where located, until such time as such Parts
shall be replaced by Parts which have been incorporated or installed in or
attached to the Airship, Gondola, Envelope, Engine or Propeller and which meet
the requirements for replacement Parts specified above. Immediately upon any
replacement Part becoming incorporated or installed in or attached to the
Airship, Gondola, Envelope or to any Engine or Propeller as above provided, or
becoming an item of Spare Equipment, without further act, (i) title to the
replaced Part shall thereupon vest in Lessee, free and clear of all rights of
Lessor, and shall no longer be deemed a Part hereunder, (ii) title to such
replacement Part shall thereupon vest in Lessor and (iii) such replacement Part
shall become subject to this Lease and be deemed part of the Airship, Gondola,
Envelope or such Engine or Propeller or Spare Equipment for all purposes hereof
to the same extent as the Parts originally incorporated or installed in or
attached to the Airship, Gondola, Envelope, Engine or Propeller or an item of
Spare Equipment.
(b) Alterations, Modifications and Additions. Lessee, at its own
expense, will make such alterations and modifications in and additions to the
Airship, Gondola, Envelope, Engines, Propellers and Night Sign as may be
required from time to time to meet the standards of the FAA or any other
governmental authority having jurisdiction and to maintain the United States
Certificate of Airworthiness for the Airship. In addition, Lessee, at its own
expense, may from time to time make such alterations and modifications in and
additions to the Airship, the Gondola, the Envelope, the Night Sign or any
Engine or Propeller as Lessee may deem desirable in the proper conduct of its
business; provided, however, that no such alteration, modification or addition
shall diminish the value, utility or remaining useful life of the Airship, the
Gondola, the Envelope, the Night Sign or any Engine or Propeller or impair the
condition or airworthiness thereof, below the value, utility, remaining useful
life, condition and airworthiness thereof immediately prior to such alteration,
modification or addition assuming the Airship, the Gondola, the Envelope or any
Engine or Propeller was then of the value and utility and in the condition and
airworthiness required to be maintained by the terms of this Lease. Title to all
Parts incorporated or installed in or attached or added to the Airship, the
Gondola, the Envelope, the Night Sign or any such Engine or Propeller as the
result of any alteration, modification or addition made as contemplated in this
Section 11(b) shall, without further act, vest in Lessor and become subject to
this Lease; provided, however,
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that so long as no Default or Event of Default shall have occurred and be
continuing, at any time during the Term, Lessee may remove any Part (other than
the complete Night Sign), provided that (i) such Part is in addition to, and not
in replacement of, or in substitution for, any Part originally incorporated or
installed in or attached to the Airship, the Gondola, the Envelope, the Night
Sign or such Engine or Propeller at the time of delivery thereof hereunder, any
Part in replacement of, or substitution for, any such original Part or an item
of Spare Equipment; (ii) such Part is not required to be incorporated or
installed in or attached or added to the Airship, the Gondola, the Envelope, the
Night Sign or such Engine or Propeller pursuant to the terms of Section 11(a) or
the first sentence of this Section 11(b); and (iii) such Part can be removed
from the Airship, the Gondola, the Envelope, the Night Sign or such Engine or
Propeller without diminishing or impairing the value, utility, remaining useful
life, condition or airworthiness which the Airship, the Gondola, the Envelope,
the Night Sign or such Engine or Propeller would have had at such time had such
alteration, modification or addition not occurred. Upon the removal by Lessee of
any such Part as above provided, title thereto shall, without further act, vest
in Lessee and such Part shall no longer be deemed a Part hereunder. Any Part not
removed by Lessee as above provided prior to the return to Lessor hereunder of
the Airship, the Gondola, the Envelope of any Engine or Propeller in which such
Part is incorporated or installed or to which such Part is attached shall remain
the property of Lessor and subject to this Lease.
SECTION 12. Loss; Destruction; Requisition; Etc.
(a) Event of Loss with Respect to the Airship or the Gondola.
Upon the occurrence of an Event of Loss with respect to the Airship or the
Gondola, Lessee shall forthwith (and, in any event, within 10 days after such
occurrence) give Lessor written notice of such Event of Loss and pay to Lessor
in the manner and in funds of the type specified in Section 5(c), on the earlier
to occur of (i) five days after the date the insurance proceeds from such Event
of Loss are paid or (ii) 60 days after the Event of Loss, the Stipulated Loss
Value of the Airship, determined by reference to the date of payment of
Stipulated Loss Value as set forth in the definition of "Stipulated Loss Value"
in Section 1, together with any accrued and unpaid Basic Rent through the SLV
Date, and all accrued and unpaid Supplemental Rent. Upon payment in full of such
Stipulated Loss Value, together with such accrued and unpaid Rent, (x) the
obligation of Lessee to pay Basic Rent shall terminate, (y) the Term shall end
with respect to the Airship and (z) Lessor shall transfer to Lessee, "as is,
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where is, and with all faults" and without recourse or warranty, all Lessor's
right, title and interest, if any, in and to the Airship, free and clear of
Lessor's Liens.
(b) Event of Loss with Respect to the Envelope or an Engine or
Propeller. Upon the occurrence of an Event of Loss with respect to the Envelope
or an Engine or Propeller under circumstances in which there has not occurred an
Event of Loss with respect to the Gondola, Lessee shall (i) give Lessor prompt
written notice thereof, (ii) within 15 days after such Event of Loss, take such
actions as are necessary to ensure that such Envelope, Engine or Propeller shall
be replaced as soon as possible and (iii) as soon as possible (but in any event
no later than 90 days after the occurrence of the Event of Loss), convey or
cause to be conveyed to Lessor, as replacement for the Envelope, Engine or
Propeller with respect to which such Event of Loss occurred title to a
Replacement Envelope, Replacement Engine or Replacement Propeller free and clear
of all Liens (except Lessor's Liens) and having a value and utility at least
equal to, and being in as good operating condition as, the Envelope, Engine or
Propeller with respect to which such Event of Loss occurred assuming it was of
the value and utility and in the condition and repair required by the terms
hereof immediately prior to the occurrence of such Event of Loss. If Lessee
shall not effect such replacement during the period of time provided herein,
Lessee shall immediately pay to Lessor the Stipulated Loss Value for the
Envelope, Engine or Propeller, as applicable, together with all other required
amounts, in accordance with Section 12(a). Lessee's right to comply with this
Section 12(b) shall be subject to the conditions that (x) no Default or Event of
Default shall have occurred and be continuing and (y) Lessee will promptly, or
will cause to be done promptly (all writings referred to below to be
satisfactory in form and substance to Lessor): (1) furnish Lessor with (a) a
full warranty bill of sale duly conveying to Lessor the Replacement Envelope,
Replacement Engines, Replacement Propellers and replacement items of Spare
Equipment, if any, together with such evidence of title as Lessor may reasonably
request and (b) an assignment of the purchase agreement with respect to the
Replacement Envelope, Replacement Engines and Replacement Propellers (if Lessee
shall have any rights thereunder) substantially in the form of the Purchase
Agreement Assignment and a consent and agreement of the manufacturer thereof
substantially in the form of the Manufacturer's Consent; (2) cause a supplement
to this Lease, subjecting such Replacement Envelope, Replacement Engines,
Replacement Propellers and replacement items of Spare Equipment to this Lease,
duly executed by Lessee, to be delivered to Lessor for execution and, upon such
execution, to be filed for recordation with the FAA pursuant to the Act; (3)
furnish Lessor with such evidence
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of compliance with the insurance provisions of Section 13 with respect to the
Replacement Envelope, Replacement Engines, Replacement Propellers and
replacement items of Spare Equipment as Lessor may reasonably request, (4)
furnish Lessor with an opinion or opinions of counsel satisfactory to Lessor to
the effect that upon such conveyance Lessor will acquire good and marketable
title to the Replacement Envelope, Replacement Engines, Replacement Propellers
and replacement items of Spare Equipment free and clear or all Liens (except
Lessor's Liens); that such Replacement Envelope, Replacement Engines,
Replacement Propellers and replacement items of Spare Equipment will be leased
hereunder to the same extent as the Envelope, Engines, Propellers and items of
Spare Equipment replaced thereby; and to such further effect as Lessor may
reasonably request; (5) furnish Lessor with an Officer's Certificate of Lessee
signed by its chief executive officer or chief financial officer certifying
that, upon consummation of such replacement, no Default or Event of Default will
exist; and (6) take such other actions and furnish such other certificates and
documents (including appropriate UCC-3 amendments to the financing statements
filed on or before the Delivery Date) as Lessor may reasonably request in order
that title to the Replacement Envelope, Replacement Engines, Replacement
Propellers and replacement items of Spare Equipment be duly and properly vested
in Lessor and leased hereunder to the same extent as the Envelope, Engines,
Propellers and replacement items of Spare Equipment replaced. Promptly upon the
recordation of the supplement to the Lease covering the Replacement Envelope,
Engine or Propeller, as applicable, and/or replacement items of Spare Equipment
pursuant to the Act, Lessee will cause to be delivered to Lessor an opinion of
counsel satisfactory to Lessor as to the due recordation of such supplements.
Upon full compliance by Lessee with the terms of this Section 12(b), Lessor
shall transfer to Lessee, "as is, where is, and with all faults" and without
recourse or warranty, all Lessor's right, title and interest, if any, in and to
the Envelope, Engine or Propeller free and clear of Lessor's Liens. No Event of
Loss with respect to an Envelope, Engine or Propeller under the circumstances
contemplated by the terms of this Section 12(b) shall result in any reduction in
Rent. At the time of delivery by Lessee of a Replacement Envelope such
Replacement Envelope shall be fully inflated with helium and shall include
replacement Parts for those parts of the Night Sign subject to the Event of
Loss.
(c) Application of Payments from Insurers With Respect to an
Event of Loss. Any payments received at any time by Lessor or by Lessee from any
insurer under insurance maintained by Lessee, or any other Person with respect
to an Event of Loss, will be applied as follows:
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(i) if such payments are received with respect to an Event
of Loss relating to the Airship, so much of such payments as shall not
exceed the Stipulated Loss Value and any other amounts required to be
paid by Lessee pursuant to Section 12(a) shall be applied in reduction
of Lessee's obligation to pay such Stipulated Loss Value and other
amounts, if not already paid by Lessee, or, if already paid by Lessee,
shall be applied to reimburse Lessee for its payment of such Stipulated
Loss Value and other amounts, and the balance, if any, of such payment
remaining thereafter will be paid over to or retained by Lessee; and
(ii) if such payments are received with respect to the
Envelope, or an Engine or Propeller, such payments shall be paid over
to, or retained by, Lessee if Lessee shall have fully performed or, with
respect to any payments by Lessee necessary for such performance, shall
immediately thereafter perform the terms of Section 12(b) with respect
to the Event of Loss for which such payments are made.
(d) Application of Payments During Existence of Default or Event
of Default. Any amount referred to in this Section 12 that is paid or payable to
or retainable by Lessee shall not be paid to or retained by Lessee if at the
time of such payment a Default or Event of Default shall have occurred and be
continuing, but shall be paid to and held by Lessor and may be applied against
the obligations of Lessee under this Lease when and as due or against any
obligation of Lessee to Lessor under any Operative Agreement and at such time as
there shall not be continuing any Default or Event of Default, such amount shall
be paid to Lessee to the extent not previously applied in accordance with this
Section 12(d).
SECTION 13. Insurance.
(a) Public Liability and Property Damage Insurance. Lessee will,
at Lessee's own expense, maintain or cause to be maintained and keep in full
force and effect liability insurance in respect of the Airship (including any
Engines or engines and Propellers or propellers installed from time to time on
the Gondola) in such amounts and against such risks as Lessor may from time to
time require, and in particular public liability risks (including, inter alia,
contractual liability (including without limitation the indemnification
obligations of Lessee hereunder), product liability and passenger liability
coverage and coverage against claims by employees (greater than or other than
claims covered by Lessee's workers' compensation insurance), agents or
subcontractors of Lessee or by their respective dependents and by other third
parties) and
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property damage insurance in all cases with respect to or arising out of the
servicing, maintenance, use, operation, ownership or leasing of the Airship (and
any Engines or engines and Propellers or propellers from time to time affixed to
the Gondola), including any part attached thereto not belonging to Lessor, and
the Night Sign and any Engines, Propellers and Spare Equipment for the time
being not affixed to the Gondola or the Envelope; provided, however, that all
such insurance shall be:
(i) in the minimum amounts of $150,000,000 per occurrence,
which number shall from time to time be adjusted (a) as necessary to be
equal to or greater than that customary in the industry generally or (b)
as shall be agreed to by Lessor to the extent the Airship is not
operational;
(ii) of the types usually carried by corporations engaged
in the same or a similar business, similarly situated with Lessee and
owning or operating similar airships and engines and which cover risks
of the kind customarily insured against by such corporations; and
(iii) carried with such insurers of recognized reputation
and responsibility as Lessor may from time to time approve.
Any policies of insurance carried in accordance with this Section
13(a):
(A) shall provide that neither Lessor nor any Indemnitee
shall be liable for any insurance premium;
(B) shall be amended to name Lessor and each
other Indemnitee as additional insureds;
(C) shall provide that, in respect of the interest of
Lessor and each other Indemnitee in such policies, such insurance shall
not be invalidated by any action or inaction of Lessee and shall insure
Lessor and each other Indemnitee regardless of any breach or violation
of any representation, warranty, declaration or condition contained in
such policies by Lessee or any other Person;
(D) shall provide that, if such insurance is cancelled for
any reason whatsoever or any material change is made in policy terms or
conditions, or if such insurance is allowed to lapse for nonpayment of
premium, such cancellation, change or lapse shall not be effective as to
Lessor or any other Indemnitee for
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30 days after receipt by Lessor of written notice from such insurers of
such cancellation, change or lapse;
(E) shall provide that such insurers shall hold harmless
and waive any rights of subrogation against Lessor and each other
Indemnitee;
(F) shall be primary without right of contribution from
any other insurance which may provide coverage to Lessor or other
Indemnitee with respect to its interest in the Airship or any part
thereof or its liabilities with respect to or arising out of the
transactions contemplated by the Operative Agreements;
(G) shall expressly provide that all provisions thereof,
except the limits of liability, shall operate in the same manner as if
there were a separate policy with and covering each insured; and
(H) shall waive any right of the insurers to any setoff,
recoupment, counterclaim or any other deduction, whether by attachment
or otherwise, in respect of any liability of Lessee, Lessor or any other
Indemnitee.
(b) Insurance Against Loss or Damage to Airship. Lessee, at
Lessee's own expense, will maintain in effect with such insurers of recognized
reputation and responsibility as Lessor may from time to time approve, property
loss and damage insurance in respect of the Airship in such amounts and against
such risks as Lessor may from time to time require, and in particular all-risk
ground and flight aircraft hull insurance (such hull insurance to the extent the
Airship is operational) covering the Airship (including without limitation
coverage against war risk and the perils of (i) strikes, riots, civil commotions
or labor disturbances, (ii) any malicious act or act of sabotage and (iii)
hijacking (air piracy), or any unlawful seizure or wrongful exercise of control
of the Airship or crew in flight (including any attempt at such seizure or
control) made by any person or persons on board the Airship acting without the
consent of the insured) and all-risk coverage (including without limitation
ingestion) with respect to the Engines, Propellers and Spare Equipment (whether
or not installed on the Airship) and, in each case, parts thereof removed from
any Engine or Propeller or the Gondola (including without limitation war risks,
governmental confiscation and expropriation and related insurance), such
insurance to be for an amount not less than Stipulated Loss Value for the
Airship from time to time, with flight deductible and ground deductible and
engine ingestion not exceeding such amount as is customarily carried and
maintained by corporations engaged in the same or a similar
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business, similarly situated with the Lessee with respect to airships and
engines similar to the Airship and Engines.
Any policies carried in accordance with this Section 13(b) shall
comply with paragraphs (A) through (H) of Section 13(a) and shall provide that,
upon the occurrence of an Event of Loss, proceeds of the insurance shall be paid
to Lessor and that on any loss other than an Event of Loss the proceeds of the
insurance under $350,000 shall be paid to Lessee and the proceeds equal to or in
excess of $350,000 shall be paid to Lessor but that, if a Default or Event of
Default has occurred and is continuing, all such proceeds shall be paid to
Lessor.
As between Lessor and Lessee, insurance payments received in
respect of (x) an Event of Loss shall be dealt with in the manner provided in
Section 12(c) and (y) any loss or damage not constituting an Event of Loss of
the Gondola or Envelope or of an Engine or Propeller will be applied in payment
(or, upon Lessee furnishing evidence that all such damage has been repaired, in
reimbursing Lessee) for repairs or for replacement property in accordance with
the terms of Section 11(a), if not already paid for by Lessee, and any balance
remaining after compliance with Section 11(a) with respect to such loss or
damage shall be paid to Lessee. Section 12(d) shall apply to this Section 13(b)
with respect to payments hereunder.
(c) Reports, Etc. On the Closing Date and on the renewal date of
any insurance (but in any event no less than once in each 12-month period)
during the Term, Lessee will furnish to Lessor a report signed by a firm of
independent aircraft insurance brokers of recognized standing (which broker
shall be the broker regularly retained by Lessee or another independent
insurance broker reasonably satisfactory to Lessor) or the insurers certifying
that the policies are in form, cover the risks and are in the amounts determined
in accordance with this Section 13 and that in the opinion of such firm or
insurers the insurance then carried and maintained on the Airship and the
Engines otherwise complies with the terms of this Section 13 and including (i)
confirmation that the insurance has been placed with insurers, giving the name
of each insurer and the period of the policy, (ii) certificates of insurance
from Lessee's insurers with respect to all insurance required to be maintained
hereunder or such other documents as to which Lessor may agree, (iii)
confirmation that all premiums due to the insurers have been paid and (iv)
confirmation that the deductibles under such insurance are not in excess of the
amount as is customarily carried and maintained by corporations engaged in the
same or a similar business, similarly situated with the Lessee with respect to
airships and engines similar to the Airship and Engines. Such
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insurance reports shall provide that no insurance provided pursuant to this
Section 13 shall expire or terminate prior to thirty (30) days or, with respect
to war risk and allied perils insurance, seven (7) days or such shorter periods
that may be generally available after Lessor has received written notice
thereof. Lessee will, and will instruct such firm or insurers to, advise Lessor
in writing promptly of any defaults in the payment of any premium and of any
other act or omission on the part of Lessee or of any event of which they have
knowledge and which might invalidate or render unenforceable, in whole or in
part, any insurance. The reports and certifications to be given under this
Section 13 shall confirm that the insurance extends to the Airship and the
Gondola and Envelope and any Parts while removed therefrom and the Spare
Equipment.
(d) Additional Insurance. Nothing in this Lease shall be
construed to prohibit Lessor from insuring the Airship or any Engine or its
interest therein at its own expense in an amount in excess of that required to
be maintained by Lessee hereunder. In the event that Lessee shall fail to
maintain or cause to be maintained insurance as herein provided, Lessor may at
its option (but shall not be obligated to) provide such insurance and in such
event, Lessee shall, upon demand, reimburse such Person, as Supplemental Rent,
for the cost thereof. No such payment, performance or compliance shall be deemed
to cure any Default or Event of Default hereunder or otherwise relieve Lessee of
its obligations with respect thereto. Nothing in this Section 13 shall limit or
prohibit Lessor from obtaining insurance for its own account, and any proceeds
payable thereunder shall be payable as provided in the insurance policy relating
thereto; provided, however, that no such insurance may be obtained which would
limit or otherwise adversely affect the availability or coverage or cost of any
insurance required to be obtained or maintained pursuant to this Section 13; and
provided further that any such property damage insurance shall contain a
provision that Lessor's underwriters will have no benefit of salvage. Lessee may
at its option insure, or cause to be insured, Lessee's leasehold interest in the
Airship for an amount in excess of that required to be maintained by Lessee
hereunder.
SECTION 14. General Indemnification and Expenses.
Lessee hereby agrees, whether or not any of the transactions
contemplated hereby shall be consummated, to indemnify and hold harmless each
Indemnitee from and against, on a net after-tax basis as provided in Section
15(c), any and all liabilities, obligations, losses, damages, settlements,
claims, actions, suits, penalties, costs and expenses to the extent not required
to be paid by
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Lessor pursuant to Section 28 hereof (including, without limitation, reasonable
legal (including in-house legal fees and expenses) and investigative fees and
expenses but excluding other internal overhead costs and expenses such as
salaries) of whatsoever kind and nature, including but not limited to
negligence, strict or absolute liability and liability in tort (any of the
foregoing being called a "Loss") which may from time to time be imposed on,
incurred by or asserted against any Indemnitee or the Airship or any part
thereof (whether or not any such Loss is also indemnified or insured against by
any other Person or such Indemnitee has also indemnified any other Person
against such Loss), in any way relating to or arising out of (a) any Operative
Agreement and the enforcement thereof or (b) the Airship or any part thereof,
any data or any other thing delivered or to be delivered under any Operative
Agreement, including without limitation the purchase, sale, acceptance,
rejection, ownership, delivery, financing, nondelivery, lease, assignment,
registration, reregistration, rental, possession, use, presence, operation,
condition, storage, preparation, installation, testing, manufacture, design,
modification, alteration, maintenance, repair, overhaul, release, sale, return,
transportation, transfer, abandonment or other disposition of the Airship or any
part thereof (including, without limitation, latent and other defects, whether
or not discoverable, and any claim for patent, trademark or copyright
infringement, or arising under environmental control, noise or pollution laws or
regulations, and loss of or damage to any property or the environment or death
or injury to any Person).
The indemnity set forth above shall not extend to any Loss with
respect to such Indemnitee (a) so long as no Default or Event of Default has
occurred and is continuing, to the extent such Loss is caused by acts or events
which occur after the Airship or, with respect to such part, any part thereof is
no longer subject to the Lease or (b) which is a Tax, whether or not Lessee is
required to indemnify therefor pursuant to Section 15, or (c) to the extent such
Loss results from the willful misconduct or gross negligence of such Indemnitee
(or any successor, assign, employee, servant or agent thereof acting on behalf
of such Indemnitee other than Lessee acting on behalf of such Indemnitee) or
resulting solely from any material misrepresentation or violation or breach of
or failure to comply with or perform any obligations of such Indemnitee
contained in the Operative Agreements, including the failure of Lessor to
discharge any Lessor's Liens attributable to it, unless such misrepresentation,
violation or breach is a result of Lessee's failure to comply with the terms of
any Operative Agreement to which it is a party.
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If written claim is made against any Indemnitee for any Loss or
upon the formal commencement against an Indemnitee of any judicial,
administrative or other proceeding involving one or more Losses, such Indemnitee
shall promptly, upon receiving written notice thereof, give notice of such
commencement to the Lessee. The failure by such Indemnitee so to notify the
Lessee shall not discharge, diminish or relieve Lessee of any liability for
indemnification that it may have to such Indemnitee hereunder, but any payment
by Lessee to an Indemnitee pursuant to this Section 14 shall not be deemed to
constitute a waiver or release of any right or remedy (including any remedy of
damages) which Lessee may have against such Indemnitee, if, solely as a result
of the failure by such Indemnitee to give Lessee notice in accordance with the
first sentence of this Paragraph, Lessee is unable to contest the Loss
indemnified against. Lessee shall be entitled, at its sole cost and expense,
acting through counsel reasonably acceptable to the respective Indemnitee, in
any judicial, administrative or other proceeding that involves a claim for one
or more Losses to assume responsibility for and control thereof. The Indemnitee
may participate at its own expense in any judicial proceeding controlled by
Lessee pursuant to the preceding provisions. Nothing in this Section 14 shall be
deemed to require an Indemnitee to contest any claim with respect to a Loss or
to assume responsibility for or control of any judicial proceeding with respect
thereto.
The Indemnitee shall supply Lessee with such information
reasonably requested by Lessee as is necessary or advisable for Lessee to
control any proceeding to the extent permitted hereby. So long as no Default or
Event of Default has occurred and is continuing such Indemnitee shall not enter
into a settlement or other compromise with respect to any matter that is the
subject of a claim for payment or indemnity under this Section 14 without the
prior written consent of Lessee which consent shall not be unreasonably withheld
or delayed unless such Indemnitee waives its right to be indemnified with
respect thereto under this Section 14.
Upon payment of indemnification of any amount pursuant to this
Section 14, Lessee shall be subrogated to any claims the Indemnitee may have
relating thereto other than with respect to insurance maintained by the
Indemnitee. The Indemnitee agrees to give such further assurances or agreements
and to cooperate with Lessee to permit Lessee to pursue such claims.
In the event that Lessee shall have paid an amount to an
Indemnitee pursuant to this Section 14, and such Indemnitee subsequently shall
be reimbursed in respect of
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such amount by any other Person other than by an Affiliate of such Indemnitee,
such Indemnitee shall, so long as no Default or Event of Default exists and is
continuing or if a Default or Event of Default has occurred and is continuing,
upon the cure of all continuing Defaults and Events of Defaults, promptly pay to
Lessee an amount equal to (i) the amount of such reimbursement net of all
expenses (including Taxes) incurred in obtaining the same plus (ii) the amount
of the net reduction in Taxes required to be paid by such Indemnitee resulting
from the payment of such reimbursed amount to Lessee (but in no event shall this
amount paid by an Indemnitee be in excess of the payment by Lessee pursuant to
this Section 14).
SECTION 15. General Tax Indemnity.
(a) General. Except as provided in subsection (b) below, Lessee
agrees that each payment of Rent shall be free of all withholdings of any nature
whatsoever, and in the event that any withholding is required, Lessee shall pay
an additional amount of Rent such that after the deduction of all amounts
required to be withheld, the net amount of Rent actually received by each
Indemnitee will equal the amount of Rent that would be due absent such
withholding. Lessor agrees to cooperate with Lessee to minimize any additional
amount of Rent to be paid pursuant to the preceding sentence and to further
cooperate with Lessee to permit Lessee to recover any such withholdings that
represent a mechanism for collecting a tax that is excluded from Lessee's
indemnification obligation hereunder. Further, except as provided in subsection
(b) below, Lessee hereby agrees, whether or not any of the transactions
contemplated hereby are consummated, to pay, assume liability for and indemnify,
protect, defend, save and keep harmless each Indemnitee from and against any and
all license, documentary, recording, registration and other fees and all taxes,
levies, imposts, duties, charges, assessments or withholdings (including, but
not limited to, income, franchise, gross receipts, sales, use, rental, value
added, turnover, excise, personal property, user, transfer and stamp taxes) of
any kind or nature whatsoever, including any payments in lieu thereof, together
with any penalties, fines, additions to tax or interest thereon or other
additions thereto (all of the above are herein collectively called "Taxes")
which may be imposed on or asserted against any Indemnitee, Lessee, the Airship
or any part thereof or any interest therein (whether or not indemnified against
by any other Person), by any federal, state, or local government or taxing
authority in the United States, or in any territory, possession or commonwealth
of the United States, or by any taxing authority or political subdivision of any
foreign country, or by any international authority or which may be imposed upon
or with respect to the Operative
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Agreements and the transactions contemplated thereby, including, but not limited
to, any Tax imposed upon or with respect to:
(i) the Airship or any part thereof, any data, or any
other thing delivered or to be delivered under an Operative Agreement;
(ii) any Operative Agreement;
(iii) the purchase, acceptance or rejection of the Airship
or any part thereof, any data, or any other thing delivered or to be
delivered under an Operative Agreement, or the ownership, transfer of
title, insuring, inspection, overhaul, abandonment, delivery,
nondelivery, lease, re-lease, assignment, possession, presence, use,
operation, condition, storage, maintenance, modification, alteration,
repair, release, sale, return, transfer or other disposition of the
Airship or any part thereof, any data or any other thing delivered or to
be delivered under an Operative Agreement;
(iv) the transactions to be effected by Lessor as provided
herein; or
(v) Rent, interest paid hereunder, fees or any other
income, proceeds, receipts, earnings or other amounts paid, whether
actual or deemed, arising upon, in connection with or in respect of any
of the Operative Agreements or the transactions contemplated thereby.
(b) Certain Exceptions. The provisions of subsection (a) above
shall not apply to, and Lessee shall have no indemnity liability to any
Indemnitee under subsection (a) above with respect to:
(i) Taxes imposed (whether by withholding or otherwise) on
any Indemnitee which are imposed on, measured in whole or in part by, or
based upon the income, earnings and profits, capital or net worth of
such Indemnitee or any Tax which is a franchise tax imposed for the
privilege of doing business, a capital gains tax, excess profits tax,
accumulated earnings tax, minimum or alternative minimum tax, tax
preference, personal holding company tax, or a gross receipts or gross
income tax (other than a tax in the nature of a sales or use, license,
value added, excise or property tax) provided, however, that,
notwithstanding the foregoing exclusions, there shall not be excluded
(A) any net increase in Taxes resulting from the imposition of Taxes by
any jurisdiction (other
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than the United States or a jurisdiction in which such Indemnitee has
its principal place of business) if such Indemnitee would not have been
required to file returns with respect to Taxes of such type had the
Airship not been used, operated or located, or Lessee had not conducted
its operations in, such jurisdiction or (B) in the case of Lessor, any
Taxes (other than Taxes based on or measured by net income) which are by
their terms in lieu of Taxes which would otherwise be indemnified;
(ii) Taxes imposed as a result of a sale, transfer or
other disposition (whether voluntary or involuntary) by the Indemnitee
of any interest of such Indemnitee in the Airship or any part thereof,
or any Operative Agreement (other than the leasing of the Airship to
Lessee pursuant hereto or the purchase of the Airship pursuant to the
Purchase Agreement Assignment and the Purchase Agreement, unless such
sale, transfer or other disposition shall have occurred (A) because of
any act or omission of Lessee under Sections 11 or 12 hereof or (B) at
any time while a Default or Event of Default shall be continuing;
(iii) Taxes to the extent incurred or imposed in respect
of any period (or portion thereof) after the expiration or earlier
termination hereof with respect to the Airship (other than pursuant to
Section 18 hereof); or
(iv) Taxes which result solely from acts or omissions of
any Indemnitee which are unrelated to the transactions contemplated by,
or are forbidden by, the Operative Agreements.
(c) Gross-Up and Certain Adjustments. Lessee further agrees that,
with respect to any payment or indemnity to an Indemnitee under Section 14 and
this Section 15, and notwithstanding clause (i) of subsection (b) above,
Lessee's indemnity obligations shall include any amount necessary to hold such
Indemnitee harmless on an after-tax basis from all Taxes required to be paid by
such Indemnitee with respect to such payment or indemnity (including any
payments under this Section 15(c). If any Indemnitee realizes a tax benefit or
an aggregate net reduction in Taxes by reason of any Taxes or other liabilities
paid or indemnified against by Lessee under Section 14 or this Section 15, such
Indemnitee shall, so long as no Default or Event of Default exists and is
continuing or if a Default or Event of Default has occurred and is continuing,
upon the cure of all continuing Defaults and Events of Default, pay to Lessee an
amount which is equal to the amount of such tax benefit or aggregate net
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reduction in Taxes plus the amount of any further tax savings such Indemnitee
determines it has recognized as a result of any payment pursuant to this
sentence, but only after Lessee shall have made all payments to such Indemnitee
theretofore due pursuant to Section 14 and this Section 15, provided, however,
that such payment by such Indemnitee shall not exceed the aggregate amount
previously paid by Lessee to or on behalf of such Indemnitee pursuant to Section
14 and this Section 15; and provided further that any amount not paid by such
Indemnitee pursuant to the previous proviso shall be carried forward and reduce
pro tanto any subsequent obligation of Lessee to make payments to such
Indemnitee pursuant to Section 14 or this Section 15. Each such Indemnitee shall
in good faith use reasonable efforts in filing its tax returns and in dealing
with taxing authorities to seek and claim any such tax benefit; provided,
however, that such Indemnitee shall not be required to file an amended United
States Federal, state or local income tax return if such Indemnitee provides
Lessee on a timely basis with an opinion of independent tax counsel, selected by
such Indemnitee and reasonably acceptable to Lessee, that it is more likely than
not that such Indemnitee will not obtain such tax benefit. Any Tax that is
incurred by an Indemnitee as a result of the disallowance or adjustment of the
tax benefit or aggregate net reduction in Taxes for which such Indemnitee shall
have made a payment to Lessee pursuant to this Section 15(c) shall be treated as
a Tax for which Lessee, notwithstanding subsection (b) above, is obligated to
indemnify such Indemnitee pursuant to this Section 15. If as a result of any
advance made by Lessee under Paragraph (e) below to an Indemnitee the aggregate
taxes paid or accrued by such Indemnitee for any taxable year shall be more than
the amount of such taxes which would have been payable by the Indemnitee had no
such advance been made, and if such increase in Taxes was not taken into account
in determining the amount of the advance, then such increase in Taxes will be
treated as a Tax for which Lessee must indemnify the Indemnitee pursuant to this
Section 15.
(d) Payment. Except as otherwise provided in the first sentence
of Section 15(a), the amount payable to any Indemnitee pursuant to this Section
15 shall be paid within thirty (30) days after receipt of a written demand
therefor from such Indemnitee accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the amount
so payable but not prior to the payment of the indemnified Taxes. Any amount
payable by any Indemnitee pursuant to subsection (c) above with respect to any
tax benefit or aggregate net reduction in Taxes shall be paid within 30 days
after such Indemnitee realizes such tax benefit or aggregate net reduction in
Taxes.
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(e) Contest. If written claim is made against any Indemnitee for
any Taxes required to be indemnified in this Section 15, such Indemnitee shall
within thirty (30) days notify Lessee; provided however, that any failure to
notify Lessee shall not diminish Lessee's obligations hereunder except to the
extent Lessee is prevented from effectively exercising its contest rights. If
requested by Lessee in writing (provided that Lessee shall furnish the
Indemnitee a written opinion of independent counsel selected by Lessee and
reasonably satisfactory to Indemnitee to the effect that a meritorious defense
to such claim exists), such Indemnitee shall in good faith contest, including an
appeal to the first court of competent jurisdiction (or, in the good faith
discretion of such Indemnitee, permit Lessee to contest in the name of Lessee or
in the name of such Indemnitee) the validity, applicability and amount of such
Taxes by (i) resisting payment thereof, if such Tax Indemnitee in its reasonable
discretion shall determine such course of action to be appropriate, (ii) paying
the same under protest, if protest is necessary and proper, or (iii) if payment
shall be made, attempting to obtain a refund thereof in appropriate
administrative and judicial proceedings, including an appeal to the first court
of competent jurisdiction, provided, however, that (A) prior to taking such
action Lessee shall have agreed to pay such Indemnitee on demand, (or, in the
case of item (II) below, advance to such Indemnitee on an interest-free basis)
all costs and expenses which such Indemnitee may incur in connection with
contesting such claim, including, without limitation, (I) all reasonable legal,
accountants' and investigatory fees and disbursements, and (II) if such contest
is to be initiated by the payment of, and the claiming of a refund for, such
Tax, sufficient funds on an after-tax basis to make such payment, and (B) such
proceedings do not, based on a good faith determination of such Indemnitee
involve any danger of the sale, forfeiture or loss of the Airship or any part
thereof or if there is such a risk, Lessee has provided to the Indemnitee
security in form and substance reasonably satisfactory to such Indemnitee. The
Indemnitee shall determine the method of any contest and (upon good faith
consultation with Lessee) control the conduct thereof. Notwithstanding anything
contained in this Section, an Indemnitee will not be required to contest, or to
continue to contest the validity, applicability or amount of any Tax (or portion
thereof) (x) the amount of the claim for which does not exceed $25,000 or (y) if
a Default or Event of Default has occurred and is continuing.
Any Indemnitee may in its sole discretion (by written notice to
Lessee) unconditionally waive its rights to the indemnities provided for in this
Section 15 and refrain from contesting, or continuing the contest of such
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Taxes, in which event Lessee shall have no liability to such Indemnitee
hereunder with respect to such Taxes and such Indemnitee shall refund to Lessee
any advance previously made by Lessee with respect to such Taxes, plus interest
thereon at the rate applicable to refunds of such Taxes under the laws of the
relevant jurisdiction.
(f) Refund. If (i) any Indemnitee shall obtain a refund of all or
any part of any Taxes which Lessee shall have paid or advanced for such
Indemnitee or for which Lessee shall have reimbursed such Indemnitee and (ii) no
Default or Event of Default shall have occurred and be continuing and none of
the remedies as provided in or permitted by the Lease or applicable law has been
exercised, such Indemnitee shall pay to Lessee in repayment of such taxes or
advance an amount equal to (x) the sum of (A) the amount of such refund, (B) any
interest received on such refund attributable to any Taxes paid or advanced by
Lessee to or for such Indemnitee, and (C) the amount of any Tax benefit realized
by such Indemnitee as the result of any payment pursuant to this sentence,
reduced by (y) any Taxes incurred by such Indemnitee by reason of the receipt of
such refund or the interest thereon; provided, however, that such amounts of
refund and interest, if any, shall not be payable before such time as Lessee
shall have made all payments or indemnities theretofore due to such Indemnitee
under this Section 15.
(g) Reports; Records. In case any report or return is required to
be made with respect to any Tax for which there is an indemnity obligation of
Lessee under this Section 15, Lessee will either make such report or return in
such manner as will show the ownership of the Airship in Lessor and send a copy
to the Indemnitee and, if the Indemnitee is not Lessor, to Lessor, or will
notify the Indemnitee of such requirement and make such report or returns in
such manner as shall be reasonably satisfactory to the Indemnitee, but the
Indemnitee may revoke such authority and assume responsibility for the filing of
such reports or returns, if such action is in good faith and not unreasonable.
Lessee will maintain such records and provide such information (including
withholding receipts) as any Indemnitee may reasonably require from Lessee to
enable such Indemnitee to timely and properly fulfill its tax filing
requirements. Each Indemnitee will provide such information ordinarily
maintained by such Indemnitee as Lessee may reasonably require from such
Indemnitee to enable Lessee to fulfill its tax filing requirements.
(h) Payments. Except as provided in the first sentence of Section
15(a), any payments made pursuant to Section 14 or 15 shall be made in Dollars
directly to the Person entitled thereto or to Lessee, as the case may be, in
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immediately available funds at such bank or to such account as specified by the
payee in written directives to the payor, or, if no such direction shall have
been given, by check of the payor payable to the order of the payee and mailed
to the payee by certified mail, postage prepaid at its address as set forth in
this Agreement.
(i) Interest on Overdue Amounts. If any amount payable by Lessee
or any Indemnitee, as the case may be, under Section 14 or 15 is not paid when
due, Lessee or such Indemnitee, as the case may be, shall pay an additional
amount equal to interest at the Overdue Interest Rate on the overdue amount for
the period from and including the due date for the overdue payment to but
excluding the date of payment of the overdue amount.
(j) Survival. All indemnities, obligations, adjustments and
payments provided for in Section 14 or 15 shall survive and remain in full force
and effect, notwithstanding the expiration or other termination of this
Agreement, or any other Operative Agreement. The obligations of Lessee in
respect of all such indemnities, obligations, adjustments and payments are
expressly made for the benefit of, and shall be enforceable by, the Indemnitee
entitled thereto, without declaring the Lease to be in default or taking other
action thereunder.
SECTION 16. Inspection. At all times Lessor or its agents or
authorized representatives may make such inspection of the Airship and the
books, records and documents of Lessee or those caused to be maintained by
Lessee relative thereto as Lessor reasonably requests. If an inspection is made,
to the extent practicable, Lessor shall make any such inspection of the Airship
during Lessee's regularly scheduled maintenance with respect thereto. Such
repairs as shall be shown by such inspection to be required shall be made by
Lessee at its expense within a reasonable time of Lessee receiving notice in
writing requiring it to do so. Such Persons shall not have any duty to make any
such inspection and shall not incur any liability or obligation by reason of not
making any such inspection.
SECTION 17. Events of Default. Each of the following events shall
constitute an Event of Default (whether any such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(a) Lessee shall fail to pay in full, in the manner and at the
place required by the terms hereof, any
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payment of Basic Rent, or Supplemental Rent in any such case whenever the same
shall become due, and such failure shall continue for a period of ten calendar
days; or
(b) Lessee shall fail to carry and maintain insurance on or with
respect to the Airship in accordance with the provisions of Section 13; or
(c) Lessee shall operate the Airship at a time when, or at a
place in which, any of the insurance required by Section 13 shall not be in
effect; or
(d) Lessee shall make or permit any unauthorized assignment or
transfer of this Lease, or any interest herein, or of the right to possession of
the Airship or any part thereof; or
(e) Lessee shall fail to perform or observe any other covenant,
warranty, condition or agreement to be performed or observed by it hereunder or
under any other Operative Agreement and such failure shall continue unremedied
for a period of 30 days after written notice thereof from Lessor to Lessee; or
(f) any representation or warranty made by Lessee herein or in
any other Operative Agreement or in any certificate required to be delivered
hereunder or thereunder shall at any time prove to have been incorrect in any
material respect at the time made; or
(g) Lessee shall fail to make any payment when due with respect
to any Debt (as defined below), or any event shall occur or any condition shall
exist with respect to any such Debt, and such failure, event or condition shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt, if as a result of such failure, event or
condition (in the case of any such payment other than a payment due upon the
final maturity or acceleration of such Debt) the maturity of such Debt is
accelerated (for the purposes of this clause , "Debt" means $100,000 or more of
(A) indebtedness for borrowed money, or evidenced by bonds, debentures, notes or
similar instruments or for the deferred purchase price of property or services
or in respect of letters of credit, for which Lessee is, at the time of such
acceleration, liable as obligor or guarantor or (B) obligations under leases in
respect of which Lessee is liable as obligor or guarantor); provided, however
that no Event of Default shall be deemed to exist with respect to an event or
condition, not including a failure to make a payment, under a lease (other than
a lease in which Lessor is lessor) so long as Lessee is contesting the
acceleration of the maturity of such debt in good faith and by
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appropriate proceedings and for the payment of which adequate reserves have been
provided in accordance with generally accepted accounting principles; or
(h) (a) Pearlman shall fail to perform or observe any covenant to
be performed or observed by him under the Amended and Restated Pearlman Guaranty
and such failure shall continue unremedied for a period of 15 days after written
notice from Lessor to Pearlman or the Amended and Restated Pearlman Guaranty
shall, for any reason, no longer be in full force and effect or (b) Trans
Continental shall fail to perform or observe any covenant to be performed or
observed by it under the Trans Continental Guaranty and such failure shall
continue unremedied for a period of 15 days after written notice from Lessor to
Trans Continental or the Trans Continental Guaranty shall, for any reason, no
longer be in full force and effect; or
(i) any representation or warranty by Pearlman or Trans
Continental under the applicable Guaranty shall at any time prove to have been
incorrect in any material respect at the time made; or
(j) (i) Lessee or either Guarantor shall apply for or consent to
the appointment of a custodian, receiver, trustee, liquidator or similar officer
for it or for all or any substantial part of its property, or shall make a
general assignment for the benefit of creditors or (ii) Lessee or either
Guarantor shall admit in writing its inability to pay its debts generally as
they become due, or Lessee or either Guarantor shall be generally not paying its
debts as they become due, or Lessee or either Guarantor shall file a voluntary
petition in bankruptcy or a voluntary petition or an answer seeking
reorganization in a proceeding under any bankruptcy law (as now or hereafter in
effect) or an answer admitting the material allegations of a petition filed
against Lessee or either Guarantor in any such proceeding, or Lessee or either
Guarantor shall by voluntary petition, application, answer, consent or otherwise
institute any proceeding, or seek relief under the provisions of any law now or
hereafter existing, relating to bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or the like in
respect of the reorganization or winding-up of corporations, or providing for an
agreement, composition, extension or adjustment with its creditors or (iii)
Lessee or Trans Continental shall take corporate action for the purpose of any
of the foregoing; or
(k) an order, judgment or decree shall be entered by any court or
governmental agency of competent jurisdiction appointing, without the
application or consent of Lessee or either Guarantor, a custodian, receiver,
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trustee, liquidator, sequestrator or similar officer for Lessee or Guarantor, as
the case may be, or for all or any substantial part of its property, or any
substantial part of the property of Lessee or either Guarantor shall be
sequestered, and any such order, judgment or decree of appointment or
sequestration shall remain in force undismissed, undischarged, unstayed and
unvacated for a period of 30 days after the date of entry thereof; or
(l) final judgment or judgments for the payment of money
aggregating in excess of $100,000 shall be rendered and outstanding against
Lessee or either Guarantor and the same shall remain undischarged and
outstanding for a period of 45 days during which execution of such judgment
shall not be stayed.
SECTION 18. Remedies. Upon the occurrence of any Event of Default
and at any time thereafter so long as the same shall be continuing, Lessor may,
at its option, declare this Lease to be in default and at any time thereafter,
so long as Lessee has not remedied all outstanding Events of Default, Lessor may
immediately do one or more of the following with respect to all or any part of
the Airship as Lessor in its sole discretion shall elect, to the extent
permitted by, and subject to compliance with any mandatory requirements of,
applicable law then in effect:
(a) cause Lessee, upon the written demand of Lessor and at
Lessee's expense, to return promptly, and Lessee shall return promptly, all or
such part of the Airship (including the Spare Equipment) as Lessor may so demand
to Lessor or as it may direct at any location within the United States of
America as may be designated by Lessor in the manner and condition required by,
and otherwise in accordance with all the provisions of (other than the notice
requirement set forth in Section 8(a) with respect to the return location),
Section 8 as if such Airship were being returned at the end of the Term or
Lessor, at its option, may enter upon the premises where all or any part of the
Airship is located and take immediate possession of and remove the same, all
without liability accruing to Lessor for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused by such
taking or otherwise;
(b) sell or cause to be sold all or any part of the Airship at
public or private sale, as Lessor may determine, or otherwise dispose of, hold,
use, operate, lease to others or keep idle all or any part of such Airship as
Lessor, in its sole discretion, may determine, all free and clear of any rights
of Lessee except as hereinafter set forth in this Section 18 and without any
duty to account to
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Lessee with respect to such action or inaction or for any proceeds with respect
thereto;
(c) whether or not Lessor shall have exercised, or shall
thereafter at any time exercise, any of its rights under paragraph (a) or (b)
above with respect to all or any part of the Airship, Lessor, by written notice
to Lessee specifying a payment date (which shall be a Rent Payment Date on or
after the date of such notice), may cause Lessee to pay to Lessor, and Lessee
shall pay to Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent
for the Airship due for periods commencing after the payment date specified in
such notice), any unpaid Basic Rent for the Airship due prior to the payment
date specified in such notice, plus whichever of the following amounts Lessor,
in its sole discretion, shall specify in such notice (together with interest, if
any, at the Overdue Interest Rate on the amount of any such unpaid Basic Rent
with respect thereto and on such specified amount from the respective due dates
to and including the actual date of payment): (i) an amount equal to the excess,
if any, of (A) the present worth as of the payment date specified in such notice
of all installments of Basic Rent for the Airship for the portion remaining
after such payment date of the Term, discounted monthly (effective on the Rent
Payment Dates) at a rate of 5% per annum, over (B) the aggregate Fair Market
Rental Value of the Airship for the portion remaining after such specified
payment date of the Term, discounted monthly (effective on the Rent Payment
Dates) at a rate of 5% per annum; or (ii) an amount equal to the excess, if any,
of (A) the Stipulated Loss Value for the Airship, computed as of the Rent
Payment Date specified in such notice, over (B) the Fair Market Sales Value of
the Airship as of the payment date specified in such notice;
(d) in the event Lessor, pursuant to paragraph (b) above, shall
have sold all or any part of the Airship, Lessor, in lieu of exercising its
rights under paragraph (c) above with respect to the Airship, may, if it shall
so elect, cause Lessee to pay Lessor, and Lessee shall pay to Lessor, on the
date of such sale, as liquidated damages for loss of a bargain and not as a
penalty (in lieu of Basic Rent for the Airship or part thereof due after the
next Rent Payment Date), any unpaid Basic Rent for the Airship or part thereof
due through such next Rent Payment Date, plus an amount equal to the excess, if
any, of (A) the Stipulated Loss Value of the Airship or part thereof computed as
of such next Rent Payment Date, over (B) the net proceeds (after deduction of
costs, expenses and sales taxes) of such sale; Lessee shall also pay to Lessor
interest, if any, at the Overdue Interest Rate on the amount of any such unpaid
Basic Rent and the amount of such excess
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<PAGE>
from the respective due dates to and including the date of actual payment;
(e) Lessor may terminate this Lease as to the Airship or may
exercise any other right or remedy which may be available to it under applicable
law;
(f) Lessor may by written notice to Lessee specifying a payment
date which shall be not earlier than 10 days after the date of such notice,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor on such payment
date (i) any unpaid Rent payable on or prior to such payment date, (ii) the
Stipulated Loss Value as of the immediately preceding SLV Date and (iii) any
damages and expenses, including reasonable attorneys' fees, which Lessor shall
have sustained by reason of the breach of any covenant or covenants of this
Lease other than for the payment of Basic Rent; provided that upon such payment
Lessor shall transfer the Airship to Lessee on an "as is, where is" basis, free
and clear of all Lessor's Liens and without recourse, representation or
warranty, express or implied, including an express disclaimer of representations
and warranties in a manner comparable to that set forth in Section 7(b); or
(g) proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof.
Lessee shall also be liable, except as otherwise provided above,
for any and all unpaid Rent, as the case may be, due before, after or during the
exercise of any of the foregoing remedies and for all legal fees and other costs
and expenses (including those of Lessor) incurred by reason of the occurrence of
any Event of Default or the exercise of Lessor's remedies with respect thereto,
including all costs and expenses incurred in connection with the return of the
Airship or any part thereof in accordance with the terms of Section 8 or in
placing the Airship or any part thereof in the condition or airworthiness
required by such Section.
At such sale of the Airship or any part thereof pursuant to this
Section 18, Lessor may bid for and purchase such property. Except as otherwise
expressly provided above, no remedy referred to in this Section 18 is intended
to be exclusive, but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in equity;
and the exercise or beginning of exercise by Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Lessor of any
of or all such other remedies. No express or implied waiver by Lessor of any
Event of Default shall in any way be, or be construed to be, a waiver of any
future or subsequent Event of Default. To the extent
53
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<PAGE>
permitted by applicable law, Lessee hereby waives any rights now or hereafter
conferred by statute or otherwise which may require Lessor to sell, lease or
otherwise use the Airship or any part thereof in mitigation of Lessor's damages
as set forth in this Section 18 or which may otherwise limit or modify any of
Lessor's rights or remedies under this Section 18.
SECTION 19. Certain Covenants of Lessee.
(a) Financial and Other Information. Lessee agrees to furnish
Lessor:
(i) within 90 days after the end of each fiscal year of
Lessee, annual financial statements of Lessee certified by Grant
Thornton or independent certified public accountants of recognized
national standing selected by Lessee and acceptable to Lessor;
(ii) within 45 days after the end of each of the first
three-quarters of each fiscal year, quarterly financial statements of
Lessee;
(iii) concurrently with the statements furnished pursuant
to either clause (i) or clause (ii), a certificate signed by the chief
executive officer or chief financial officer of Lessee certifying that
no Default occurred during the period covered by such statements or
exists at the date of such certificate or, if such Default occurred or
exists, specifying the nature and period of existence thereof and what
action Lessee has taken or proposes to take with respect thereto;
(iv) promptly after becoming aware thereof, notice in
writing of (A) any proceeding by or against Lessee the adverse
determination of which would materially adversely affect Lessee's
financial condition, affairs or operations and (B) any other matter
which materially adversely affects Lessee's business, operations or
condition (financial or otherwise) or Lessee's ability to perform under
this Lease;
(v) with reasonable promptness, such other information and
data with respect to Lessee and the Airship as from time to time may be
reasonably requested, including without limitation such information (in
sufficient number) as may be required to enable Lessor to file any
reports, including tax returns, required to be filed by Lessor with any
governmental authority because of Lessor's ownership of the Airship or
any part thereof or because of receipt of Rent;
54
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<PAGE>
(vi) forthwith upon the occurrence of any Default, Event
of Default, Event of Loss, event or circumstance which, with the passage
of time or the giving of notice, or both would constitute an Event of
Loss (including the institution of any condemnation proceedings), a
certificate of the chief financial officer of Lessee setting forth the
details thereof and the action which Lessee is taking with respect
thereto;
(vii) from time to time, at the time sent to Lessee's
stockholders, all reports, notices and other materials sent to Lessee's
stockholders;
(viii) promptly after the same are filed, copies of all
financial statements and reports (including copies of all reports on
Form 8-K, Form 10-K, Form 10-Q, all registration statements other than
on Form S-8, all proxy statements and all regular and periodic reports
(without exhibits thereto, provided that such exhibits will be so
furnished upon request)) which Lessee may make to or file with the
Securities Exchange Commission; and
(ix) prompt notice of any relocation of its chief
executive office or its records with respect to the Airship from their
present location.
(b) Corporate Existence. Lessee shall at all times maintain its
corporate existence. Lessee will do or cause to be done all things necessary to
preserve and keep in full force and effect its respective rights (charter and
statutory) and franchises; except that Lessee shall not be required to preserve
any right or franchise if it determines that the preservation thereof is no
longer desirable in the conduct of its business and if the loss thereof does not
materially adversely affect the rights of Lessor under the Operative Agreements.
(c) Citizen. Lessee will at all times remain a "citizen of the
United States" as defined in 49 U.S.C. Section 40102(a)(15)(C).
(d) Merger. Lessee shall not consolidate with or merge into any
other corporation, or convey, transfer or lease all or substantially all of its
assets as an entirety to any person, unless:
(i) The corporation formed by such consolidation or merger
or the Person which acquires by conveyance, transfer or lease all or
substantially all of the assets of Lessee, as the case may be, as an
entirety (the "Successor") (A) shall be a corporation organized and
existing under the laws of the United
55
<PAGE>
<PAGE>
States of America or any State or the District of Columbia, (b) shall be
a "citizen of the United States" as defined in Section 101(16) of the
Act, (C) shall execute and deliver to Lessor an agreement in form and
substance reasonably satisfactory to Lessor, containing an assumption by
the Successor of the due and punctual performance and observance of each
covenant and condition of the Operative Agreements to which it is a
party and to be performed or observed by Lessee and containing
representations and warranties of such Persons substantially in the form
of the representations and warranties of Lessee contained herein, (D)
shall make such filings and recordings, including any filing or
recording with the FAA pursuant to the Act, as shall be necessary to
evidence such consolidation, merger, conveyance, transfer or lease with
or to the Successor, and (E) shall have a tangible net worth, determined
in accordance with generally accepted accounting principles, of at least
two (2) times the present value as of the effective date of such
transaction of all installments of Basic Rent remaining, discounted
monthly at a rate of 5% per annum;
(ii) Immediately after giving effect to such transaction,
no Event of Default or Default shall have occurred and be continuing and
the financial or other ability of Lessee to perform its obligations
under the Operative Agreements to which it is a party shall not be
materially adversely affected by such transaction;
(iii) Lessee shall have delivered to Lessor, promptly upon
consummation of such transaction, an Officer's Certificate stating that
the conditions precedent set forth in paragraphs (i) and (ii) have been
complied with an opinion of counsel to Lessee reasonably satisfactory to
Lessor stating that the agreements entered into to effect such
consolidation, merger, conveyance, transfer or lease and such assumption
agreement are legal, valid and binding obligations of the Successor,
enforceable in accordance with their respective terms and that all
conditions precedent which are legal in nature herein provided for
relating to such transaction have been fulfilled; and
(iv) Upon any such consolidation, merger, conveyance,
transfer or lease, the Successor shall succeed to, be substituted for,
and may exercise every right and power of, Lessee under the applicable
Operative Agreements with the same effect as if the Successor had been
named as Lessee therein. No such conveyance, transfer or lease of
substantially all the assets of Lessee as an entirety shall have the
effect
56
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<PAGE>
of releasing Lessee or any successor which shall theretofore have become
such in the manner prescribed in this Subsection (d) from its liability
under the Operative Agreements to which it is a party.
(e) Observer Rights. During the term of this Agreement, Lessee
shall be required to give notice to Lessor of any regular or special meeting of
its Board of Directors (or any executive committee thereof) and permit a
representative of Lessor (to be selected by Lessor) to attend all meetings of
its Board of Directors in a nonvoting observer capacity and, in this respect,
shall give such representative copies of all notices, minutes, consents and
other materials that it provides to its directors and all such materials
provided to Lessee by any member of the Board of Directors; provided however,
that such representative shall agree to hold in confidence and trust all
information so provided.
(f) Location of Parts and Spare Equipment. Lessee shall keep all
Spare Equipment and all Parts that remain the property of Lessor pursuant to the
terms of Section 11 hereof (despite removal from the Gondola, Envelope, Engine
or Propeller) (i) on the Mast Truck, or (ii) at the place therefor specified on
Annex A annexed hereto, or (iii) upon 30 days' prior written notice to Lessor at
such other places in jurisdictions, where all action that may be necessary or
desirable or that Lessor may reasonably request, in order to perfect and protect
any security interest granted or purported to be granted hereby, or to enable
Lessor to exercise and enforce its rights and remedies hereunder, with respect
to such Parts and Spare Equipment shall have been taken.
SECTION 20. Further Assurances. All obligations of Lessee in this
Lease shall be done, performed or complied with at Lessee's cost and expense,
whether or not so expressed, unless otherwise expressly stated. Forthwith upon
the execution and delivery of this Lease, each Lease Supplement and each other
supplement hereto, Lessee will cause this Lease and each such Lease Supplement
or other supplement to be duly filed and recorded in accordance with the Act or
any successor law. In addition, Lessee will promptly and duly execute and
deliver to Lessor such further documents (including UCC financing statements and
continuation statements) and assurances and take such further action as Lessor
may from time to time reasonably request in order to carry out more effectively
the intent and purpose of this Lease and the other Operative Agreements and to
establish and perfect the rights and remedies created or intended to be created
in favor of Lessor hereunder, in accordance with the laws of such jurisdictions
as Lessor may from time to time deem advisable.
57
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<PAGE>
SECTION 21. Notices. All notices, requests, demands, waivers or
other communications required hereunder or given pursuant hereto shall be in
writing to the parties listed below unless otherwise expressly provided herein.
Any notice permitted hereunder shall become effective (i) when delivered
personally or (ii) five business days after being deposited in the mails,
certified or registered with appropriate postage prepaid for first-class mail,
or (iii) when dispatched by telex or by facsimile transmission (together with
written confirmation by mail as provided above), and shall be directed to the
following addresses, as appropriate:
If to Lessee, to:
Airship International Ltd.
7380 Sand Lake Road, Suite 350
Orlando, FL 32819
Attention: Louis J. Pearlman
Telex No.: 238869
Answerback: TCON
Telecopy No.: (212) 764-4430
With copies to:
Louis J. Pearlman
President
9235 Ridge Pine Trail
Orlando, Florida
32819
and
Baer, Marks & Upham
805 Third Avenue
New York, New York 10022
Attention: Samuel F. Ottensoser, Esq.
Telecopy No.: (212) 702-5941
58
<PAGE>
<PAGE>
and
Trans Continental Airlines, Inc.
7380 Sand Lake Road, Suite 350
Orlando, FL 32819
Attention: Louis J. Pearlman
If to Lessor, to:
ORIX USA Corporation
550 South Hope
Suite 1600
Los Angeles, California 90071
Attention: Vice President - Operations
Telecopy No.: (213) 955-6530
With a copy to:
O'Melveny & Myers
153 East 53rd Street
New York, New York 10128
Attention: Steven L. Grossman, Esq.
Telecopy No.: (212) 326-2061
or to such other address as Lessee or Lessor as the case may be, shall from time
to time designate by notice in writing to the other party.
SECTION 22. No Setoff, Counterclaim, Etc. Lessee's obligation to
pay all Rent payable hereunder or under any other Operative Agreement shall be
absolute and unconditional and shall not be affected by any circumstance,
including without limitation (i) any setoff, counterclaim, recoupment, defense
or other right which Lessee may have against Lessor, any Supplier, any
Indemnitee or any other Person for any reason whatsoever, (ii) any defect in the
title, airworthiness, condition, design, operation or fitness for use of, or any
damage to or loss or destruction of, the Airship or any part thereof, or any
interruption or cessation in the use or possession thereof by Lessee for any
reason whatsoever, (iii) any insolvency, bankruptcy, reorganization or similar
proceedings by or against Lessee or any other Person, (iv) any restriction,
prevention or curtailment of or interference with any use of the Airship or part
thereof; (v) any invalidity or unenforceability or disaffirmance of this Lease
or any provision hereof or any of the other Operative Agreements or any
provision thereof, in each case whether against or by Lessee or otherwise, or
(vi) any other circumstance, happening or event whatsoever,
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<PAGE>
whether or not similar to any of the foregoing. All Rent payable by Lessee shall
be paid without notice or demand (except as otherwise expressly provided) and
without abatement, suspension, deferment, deduction, diminution or proration by
reason of any circumstance or occurrence whatsoever. Lessee hereby waives, to
the extent permitted by applicable law, any and all right which it may now have
or which at any time hereafter may be conferred upon it, by statute or
otherwise, to terminate, cancel, quit or surrender this Lease except in
accordance with the express terms hereof. Each payment of Rent made by Lessee
shall be final and net as to Lessor and Lessee. Lessee will not seek to recover
all or any part of such payment of Rent from Lessor for any reason whatsoever.
SECTION 23. Quiet Enjoyment. So long as no Event of Default or
Default shall have occurred and be continuing, Lessee shall be entitled to
possession and use, during the Term and in accordance with and subject to the
terms hereof and of the Operative Agreements, of the Airship. So long as Lessee
shall be in compliance with each and all of its obligations and covenants set
forth herein and in the Operative Agreements to which Lessee is a party, Lessor
shall not, except as permitted herein, do any act which interferes with any
right of Lessee peaceably and quietly to hold, possess and use the Airship in
accordance with the terms of this Lease.
SECTION 24. Assignment. Except as otherwise provided herein,
Lessee will not, without the prior written consent of Lessor, assign all or any
of its rights, obligations or duties hereunder. The terms and provisions of this
Lease shall be binding upon and inure to the benefit of Lessor and Lessee and
their respective successors and permitted assigns. Notwithstanding the above, no
assignment by Lessee will be valid if it causes any of the representations in
the Purchase Agreement Assignment or herein to become untrue, and any such
purported assignment shall be null and void ab initio.
SECTION 25. Lessor's Right To Perform for Lessee. If Lessee fails
to pay any Supplemental Rent required to be paid by it hereunder or fails to
perform or comply with any of its agreements contained herein, Lessor may itself
make such payment or perform or comply with such agreement and the amount of
such payment and the amount of the reasonable expenses of Lessor incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, together with interest thereon at the Overdue
Interest Rate, shall be deemed Supplemental Rent, payable by Lessee upon demand.
60
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<PAGE>
SECTION 26. Survival. The representations, warranties,
indemnities and agreements of Lessee provided for in this Lease, and Lessee's
obligations under any and all provisions hereof, shall survive the expiration or
other termination of this Lease and are expressly made for the benefit of, and
shall be enforceable by, Lessor and its successors and assigns.
SECTION 27. SUITS; JURISDICTION; VENUE. LESSOR MAY AT ITS OPTION
BRING SUIT, OR INSTITUTE OTHER JUDICIAL PROCEEDINGS, AGAINST LESSEE IN ANY COURT
IN ANY PLACE WHERE LESSEE OR ANY OF ITS ASSETS MAY BE FOUND. LESSEE HEREBY
IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF THE FEDERAL AND
STATE COURTS LOCATED IN NEW YORK, NEW YORK, AND AGREES TO TAKE ANY AND ALL
FUTURE ACTION NECESSARY TO SUBMIT TO THE JURISDICTION OF SUCH COURTS. LESSEE
IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING BROUGHT IN ANY COURT IN NEW
YORK, NEW YORK AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIMS THAT ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
SECTION 28. Expenses. Each party hereto shall be solely
responsible for its own legal fees and expenses in connection with the
execution, delivery and preparation of this Lease and all related agreements.
All other costs, fees and expenses incurred by any party in connection with
entering into these transactions shall be paid by the party incurring such
costs, fees or expenses (without any right of reimbursement from the other
party).
SECTION 29. Miscellaneous. Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law Lessee hereby waives any provision of law which renders any
provision hereof prohibited or unenforceable in any respect. No term or
provision of this Lease may be changed, waived, discharged or terminated orally,
but only by an instrument in writing signed by the party against which the
enforcement of the change, waiver, discharge or termination is sought. This
Lease shall constitute an agreement of lease, and nothing herein shall be
construed as conveying to Lessee any right, title or interest in the Airship or
any part thereof except as a lessee only. The section and paragraph headings in
this Lease and the table of contents are for convenience of reference only and
shall not modify, define, expand or limit
61
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<PAGE>
any of the terms or provisions hereof and all references herein to numbered
Sections, unless otherwise indicated, are to Sections of this Lease. THIS LEASE
IS BEING DELIVERED IN THE STATE OF NEW YORK. THIS LEASE, INCLUDING ALL MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, SHALL IN ALL RESPECTS BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(DISREGARDING ANY CONFLICT OF LAWS RULE WHICH MIGHT RESULT IN THE APPLICATION OF
THE LAWS OF ANY OTHER JURISDICTION). This Lease, and any Lease Supplement
executed pursuant hereto, may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute but one and the same
instrument.
62
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<PAGE>
SECTION 30. Truth-in-Leasing Clause. Pursuant to Section 91.54 of
the Federal Aviation Regulations, Lessor and Lessee understand and agree as
follows:
LESSEE CERTIFIES THAT DURING THE 12-MONTH PERIOD IMMEDIATELY PRECEDING THE
EXECUTION OF THIS LEASE THE AIRSHIP HAS BEEN MAINTAINED UNDER PART 91 OF THE
FEDERAL AVIATION REGULATIONS. LESSEE FURTHER CERTIFIES THAT THE AIRSHIP WILL BE
MAINTAINED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO
BE CONDUCTED UNDER THIS LEASE. UPON EXECUTION OF THIS LEASE, AND DURING THE TERM
OF THIS LEASE, LESSEE, WHOSE NAME AND ADDRESS IS AS FOLLOWS: AIRSHIP
INTERNATIONAL LTD., 7380 SAND LAKE ROAD, SUITE 350, ORLANDO, FLORIDA 32819, AND
THE SIGNATURE AND TITLE OF THE PERSON BY AND THROUGH WHICH THE LESSEE WILL BE
RESPONSIBLE FOR THE OPERATIONAL CONTROL OF THE AIRSHIP, IS AS FOLLOWS:
_________________________ LOUIS J. PEARLMAN, PRESIDENT, WILL BE RESPONSIBLE FOR
THE OPERATIONAL CONTROL OF THE AIRSHIP, AND IT HEREBY CERTIFIES THAT IT
UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH ALL APPLICABLE FEDERAL
AVIATION REGULATIONS. AN EXPLANATION OF THE FACTORS BEARING ON OPERATIONAL
CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE
NEAREST FEDERAL AVIATION FLIGHT STANDARDS DISTRICT OFFICE, GENERAL AVIATION
DISTRICT OFFICE OR AIR CARRIER DISTRICT OFFICE.
63
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<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease
to be duly executed and delivered as of the day and year first above written.
Lessor:
ORIX USA CORPORATION
By BYRON SOUTHEY
-------------------------------------
Name: Byron Southey
Title: Vice President
Lessee:
AIRSHIP INTERNATIONAL LTD.
By ALAN SIEGEL
-------------------------------------
Name: Alan Siegel
Title: Secretary
S-1
<PAGE>
<PAGE>
Annex A
Location of Spare Equipment and Parts
2642 Michigan Avenue
Unit B
Kissimmee, Florida 34744
<PAGE>
<PAGE>
Exhibit A to the
Lease Agreement
THIS AMENDED AND RESTATED LEASE SUPPLEMENT
No. 1, dated _______ ___, 1995, between ORIX
USA CORPORATION (FORMERLY KNOWN AS ORIX
COMMERCIAL CREDIT CORPORATION), a Delaware
corporation ("Lessor"), and AIRSHIP
INTERNATIONAL LTD., a New York corporation
("Lessee").
Lessor and Lessee have heretofore entered into that certain
Amended and Restated Lease Agreement in the Form of a Conditional Sales Contract
dated as of June 2, 1995 (as at any time amended, modified or supplemented,
herein called the "Lease" and the terms defined therein being herein used with
the same meanings), which Lease provides in Section 2 for the execution of an
Amended and Restated Lease Supplement substantially in the form hereof for the
purpose of leasing a specific Airship under the Lease as and when delivered by
Lessor to Lessee in accordance with the terms thereof. The Lease relates, among
other matters, to the Gondola, the Envelope, Engines, Propellers, the Spare
Equipment and Buyer Furnished Equipment described below, and a counterpart of
the Lease is attached to and made a part of this Lease Supplement for purposes
of filing and recordation with the FAA pursuant to the Act.
NOW, THEREFORE, in consideration of the premises and other good
and sufficient consideration, and pursuant to Section 2 of the Lease, Lessor and
Lessee hereby agree as follows:
1. Lessor hereby delivers and leases to Lessee,
and Lessee hereby accepts and leases from Lessor, under the Lease, as herein
supplemented:
==============================================================================
This Amended and Restated Lease Supplement has been executed in
several counterparts of which this is counterpart __. Only original counterpart
Number 1 which has been delivered to Lessor constitutes chattel paper within the
meaning of the Uniform Commercial Code. No security interest in Lessor's right,
title and interest in and to this Amended and Restated Lease Supplement and the
Lease referred to herein may be created through the transfer or possession of
any counterpart other than original counterpart Number 1.
<PAGE>
<PAGE>
The following described Airship-UK 600 Series Airship (the "Delivered
Airship") which Delivered Airship as of the date hereof consists of the
following:
Gondola: U.S. Registration Number ______; Manufacturer's Serial
No. ______;
Envelope: Manufacturer's Serial No. ______ (which Envelope has
suffered an Event of Loss as a result of which Lessee agrees to replace said
Envelope in accordance with Section 12(b) of the Lease prior to the operation of
the Airship, and until replacement in accordance with said Section 12(b), title
to the above described envelope and any proceeds thereof, remains vested in
Lessor);
Engines: Two Porsche Model _______ Engines installed thereon
bearing Engine Manufacturer's Serial
Numbers as follows:
Position 1: ________
Position 2: ________;
(which engines are less than 750 rated takeoff horsepower);
Propellers: Two Hoffman Model _______ Propellers installed
thereon bearing Propeller Manufacturer's Serial
Numbers as follows:
Position 1: ________
Position 2: ________;
(which propellers are not capable of absorbing 750 rated
takeoff shaft horsepower);
2. Lessee hereby confirms to Lessor that the Delivered Airship
has been duly marked in accordance with the terms of Section 10(d) of the Lease.
3. The Remaining Balance for the Delivered Airship is $3,487,828.
4. All the provisions of the Lease are hereby incorporated by
reference in this Amended and Restated Lease Supplement, on and as of the date
of this Amended and Restated Lease Supplement, to the same extent as if fully
set forth herein.
5. The Stipulated Loss Value for the Delivered Airship shall be
as set forth in the Lease. The amount of each installment of Basic Rent with
respect to the Delivered Airship during the Initial Period, subject to the
provisions of the Lease, shall be as set forth in Schedule I to this Amended and
Restated Lease Supplement and with respect to
<PAGE>
<PAGE>
the Second Period, subject to the provisions of the Lease, shall be as set forth
in Section 5(b) of the Lease.
6. THIS AMENDED AND RESTATED LEASE SUPPLEMENT IS BEING DELIVERED
IN THE STATE OF NEW YORK AND, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE, SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (DISREGARDING ANY
CONFLICT OF LAWS RULE WHICH MIGHT RESULT IN THE APPLICATION OF THE LAWS OF ANY
OTHER JURISDICTION).
<PAGE>
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Amended
and Restated Lease Supplement to be duly executed as of the day and year first
above written.
LESSOR
ORIX USA CORPORATION
By __________________________
Name: __________________________
Title: ______________________
LESSEE
AIRSHIP INTERNATIONAL LTD.
By _________________________
Name: __________________________
Title: _____________________
<PAGE>
<PAGE>
Schedule I
Amended and Restated Lease Supplement No. 1
Basic Rent Payments
Initial Period
<TABLE>
<CAPTION>
Installment Amount
- ----------- -------
<S> <C>
1 $ 20,000
2 20,000
3 20,000
4 20,000
5 20,000
6 20,000
7 20,000
8 20,000
9 20,000
10 20,000
11 20,000
12 20,000
13 40,000 *
14 40,000 *
15 40,000 *
16 40,000 *
17 40,000 *
18 40,000 *
19 60,000 *
20 60,000 *
21 60,000 *
22 60,000 *
23 60,000 *
24 60,000 *
* Includes an interest component equal to interest on the Rent Balance
(prior to any payment on such date) from and including May 31, 1996 to
but excluding the date of payment, at a rate of interest per annum equal
to the prime rate of Morgan Guaranty Trust Company of New York as quoted
by Morgan Guaranty as of 11:00 a.m. New York time on May 31, 1996, plus
one-percent.
<PAGE>
</TABLE>
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF
PER SHARE EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Average shares outstanding 40,879,000 40,879,000 36,008,000
Average common and common equivalent
shares outstanding 40,879,000 40,879,000 36,008,000
Net loss $(2,506,000) $(2,506,000) $(4,867,000)
Preferred stock dividend $(1,725,000) $(1,725,000) $(1,725,000)
Computation of Earnings Per Share = Net
Income/Average common equivalent shares $(4,231,000) $(4,231,000) $(6,592,000)
40,879,000 40,879,000 36,008,000
Loss Per Share $(0.10) $(0.10) $(0.18)
</TABLE>
<PAGE>
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