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4. On June 3, 1964 the Company offered to its stockholders the right to subscribe to $1,480,700 of 6% Convertible Subordinated Debentures due June 1, 1979 at the rate of $100 principal amount of debentures for each 17 shares held of record at the close of business on June 3, 1964, and the privilege to subscribe (subject to allotment) at the same subscription price for any principal amount of debentures not subscribed for through the exercise of rights during the subscription offer. This subscription offer expired June 17, 1964. 

During the subscription period $587,600 principal amount was subscribed for upon the exercise of rights and $44,500 principal amount was subscribed for upon the exercise of the Additional Subscription Privilege. After the subscription period an additional $271,500 principal amount of debentures was sold, making a total of $903,600 principal amount sold and leaving an unsold balance of $577,100 at December 31, 1964. 

The 6% Convertible Subordinated Debentures and interest coupons attached thereto are subordinates to all present and future unsubordinated indebtedness for money borrowed. (Amounting at December 31, 1964 to $1,694,442.) In the absence of a default under the terms of the unsubordinated indebtedness the Company may (a) make timely payments of maturing debenture interest coupons, (b) at its option, redeem the debentures in whole or in part on any date prior to maturity at the following prices: during the twelve-month period beginning June 1, 1964-106%; 1965-1053/4%; 1966-1051/2%; thereafter at prices decreasing 1/2 of 1% in each succeeding twelve-month period to 1977, (c) deposit with the trustee on May 31 of each of the years 1970 through 1978, for a sinking fund, a sum sufficient to redeem at 100% and accrued interest 6,0782% of the aggregate principal amount of debentures issued prior to August 1, 1964. The debentures are convertible, at any time prior to maturity or redemption, into capital stock of the Company at the conversion rate of $8 per share. The indenture relating to the debentures contains restrictive covenants relating to cash dividends and acquisitions and retirements of the Company's capital stock. 

5. On April 21, 1964 the stockholders, at a special meeting, approved an amendment to the Certificate of Incorporation increasing the authorized $1 par value capital shares from 300,000 to 600,000. 

Of the 348,276 shares authorized and unissued at December 31, 1964, 112,950 shares are reserved for conversion of the outstanding 6% Convertible Subordinated Debentures due June 1, 1979 and 15,000 shares are reserved for employee stock options. 

On December 7, 1964 the Board of Directors amended the 1959 Employees' Stock Option Plan to permit the issuance of qualified stock options. Outstanding restricted options for 10,500 shares of capital stock were surrendered by the holders thereof and canceled. On December 14, 1964, options were granted for 15,000 shares, exercisable at the price of $6 per share, slightly in excess of the then prevailing market price. These options become exercisable as follows: 8,125 shares on and after December 14, 1965; 3,438 shares on and after December 14, 1966 and 3,437 shares on and after December 14, 1967; they will expire on December 12, 1969. None of the former options was exercised during 1964. The Company will make no charge to income in connection with this plan. 

6. The increase of $32,758 in paid-in capital during 1964 represents the excess of consideration received over the par value of 8,324 shares of capital stock issued during the year, less related legal expenses. 

7. On March 30, 1965, the Company received $122,371 in connection with losses associated with the destruction of one of its aircraft on October 14, 1963 and in connection with two emergency water landings in 1962. This amount is not reflected in the financial statements herewith. 

8. At December 31, 1964 the Company had unused carry-forward losses amounting to approximately $629,000, which are available as income tax deductions and expire as follows: December 31, 1968, $65,000; 1969, $242,000; 1970, $100,000; 1971, $222,000. In addition, the Company has available an investment credit carry-forward of approximately $250,000 for the years 1963 and 1964. Since the investment credit has not been recorded in the accounts.