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NOTES RELATING TO FINANCIAL STATEMENTS

1. The Uniform System of Accounts for Air Carriers, prescribed by the Civil Aeronautics Board, has been followed generally in the Company's accounts and in the financial statements herewith and reserves for depreciation have been provided at rates which are used for mail rate purposes by the Board.

The amounts set forth on the usual historical accounting basis which has been followed are not intended to represent present or future values.

2. Revenue classified as Federal subsidy is reflected herein, on the basis of final rates which were in effect throughout the year.

3. Non-operating property, at December 31, 1959, reflected in the balance sheet herewith, represents one Bell 47-J helicopter which was removed from regular service on November 16, 1959 pending sale; allowances for depreciation expense were discontinued on the same date.

4. The deferred charges, at December 31, 1959, described in the balance sheet herewith as "Developmental and pre-operating costs" represent (a) developmental, training and other costs incurred in connection with the introduction into service, in 1958, of 5 Vertol V-44B helicopters less amortization provided on the basis of writing off these costs over a period of 5 years from July 1, 1958; (b) expenses incurred with respect to the Company's application for renewal of its Certificate of Public Convenience and Necessity; (c) expenses incurred in connection with future aircraft and route development; and (d) unamortized costs and expenses incurred during the Company's pre-operating period for a route not yet activated.

5. Under an Employees' Stock Option Plan, adopted by the Board of Directors of the Company and approved by the stockholders in 1952, options were granted to 6 persons to purchase an aggregate of 13,000 shares of Capital Stock at a price of $11.87½ per share. All such options expired January 18, 1959 without being exercised, except one option to purchase 3,000 shares which became exercisable to the extent of 2,400 shares on April 4, 1959 and which becomes fully exercisable one year from that date.

Under a new Employees' Stock Option Plan, adopted by the Board of Directors of the Company and approved by the stockholders in 1959, options have been granted to 7 persons to purchase an aggregate of 13,800 shares of Capital Stock at a price of $11.87½ per share. With respect to one of these options, the number of shares under option will be reduced to the extent that the remaining option in effect under the old plan is exercised. The options granted under this new plan will be come exercisable during the 5 year period beginning April 4, 1960.

In 1956, an Incentive Stock Plan was adopted by the Board of Directors and approved by the stockholders of the Company. This plan runs through December 31, 1960 and provides for issuance and sale subject to certain restrictions of 10,000 shares of Capital Stock (but not more than 3,000 shares in any calendar year) to selected officers and other key employees of the Company at a price of $1.00 per share (par value). Pursuant to this plan, a total of 4,900 shares have been sold at December 31, 1959.

6. Notes payable to the Hanover Bank, Federation Bank & Trust Company and United States Trust Company of New York are secured by a chattel mortgage on the Company's five Vertol helicopters and accessory equipment and are guaranteed by the Civil Aeronautics Board to the extent of 90% of the unpaid principal amount. The credit agreement covering the notes payable provides, among other things, (1) for maintenance by the Company of working capital of not less than the greater of $700,000 or 25% of 12 months' cash operating expenses (as defined); (2) for the maintenance by the Company of an excess of tangible assets over total liabilities of at least $2,000,000; and (3) for certain restrictions upon cash dividends and acquisitions or retirements of the Company's Capital Stock. As a result of the foregoing provision approximately $370,000 of retained earnings at December 31, 1959 was so restricted.

7. On January 12, 1960 the Company entered into an agreement with Vertol Aircraft Corporation (which is scheduled to become a division of Boeing Airplane Company on or about March 31, 1960 as a result of purchase of Vertol Aircraft Corporation by Boeing Airplane Company) to purchase ten twin-engine, tandem rotor V-107, Model II-2 helicopters, five for anticipated delivery during the Spring of 1961, and five to be delivered at mutually agreeable future dates. The base price for the first five aircraft is $2,363,125 subject to adjustment for engines, installed and spare, optional equipment for installation in the aircraft, spare parts and ground support equipment. Payment for the new equipment is to be made in part by sale or trade-in to the Vertol Division of Boeing Airplane Company of the 5 Vertol 44B helicopters and spare parts which the Company now owns and the remainder is to be paid in cash.

At December 31, 1959, other known contingent liabilities not covered by insurance did not involve amounts large enough to be significant.

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