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8. a) Deferred charges at December 31, 1967 consisted of: 
Development, training and other costs incurred in connection with the Boeing V-107 helicopters, less amortization on the basis of writing off these costs over a period ending June, 1972....$157,047 
Development, training and other costs incurred in connection with the Pan Am Building and Kennedy Airport, being written off over a fiver year period ending December, 1970......$133,272
Expenses incurred in obtaining extension of the Company's Certificate of Public Convenience and Necessity for an indefinite duration, plus unamortized balance of the costs associated with the prior seven year certificate, all being written off over ten years ending September, 1976......................... $84,105
Expenses incurred in connection with Instrument Flight Rules training of pilots to be amortized over a ten (10) year period commencing January 1968...... $252,776
Expenses in connection with application to establish Washington, D.C. service, deferred pending decision by government agency........... $63,505
Unamortized debt expense, less amortization on the basis of writing off these costs over the original period of the related loans.......... $110,470
Other deferred charges........................ $39,482
$840,657

b) It is estimated that approximately $218,000 of the above costs other than those in connection with the Washington, D.C. application will be unamortized at December 31, 1972, the earliest date on which the new airline operating agreements may be terminated without cause; the Washinton, D.C. costs of $63,505 are recoverable only from operations in that area when and if such operations are approved and initiated.

c) Certain of these costs were deducted from taxable income of the years in which they were incurred. The resulting reductions in income taxes for those years have been reflected as deferred federal income taxes in the balance sheet. As these deferred costs are amortized, the deferred tax liability is reduced in the related amount with a corresponding credit to Federal income tax expense.

9. The Company's 5 3/4% Secured Notes which were due December 31, 1966 are secured by a second mortgage on the Company's flight equipment and by a first mortgage on other fixed assets and inventories of the Company. Although these Notes were not paid when due, none of the holders has made a written demand for payment as provided in the Notes. Should such demand be made and payment is not made, the indebtedness described in the following Notes 10 and 11 can be declared immediately due and payable by such creditors.

10. The long-term note held by a bank is payable in monthly installments of $33,277 each to January 31, 1970, with interest at 5 3/4% per annum. In the accompanying balance sheet, the amount payable within one year, $399,324, is included under current liabilities. The loan is secure by a first mortgage on all flight equipment and accessories owned by the Company while the mortgage is in effect. The credit agreement provides certain requirements as to maintenance of working capital and restrictions on indebtedness, capital expenditures, new leases, cash dividends and acquisitions or retirements of capital stock. At December 31, 1967, the Company was technically in default with respect to the minimum working capital provision. However, the bank has waived its right to accelerate the terms of the note until the first of the following events occurs: (1) The Company obtains or fails to obtain the necessary approvals in connection with the operating and financing agreements discussed in Notes 2, 3, 5 and 6; or (2) An adverse change takes place in the Company's financial position subsequent to May 2, 1968.

11. The 6% Convertible Subordinated Debentures and interest coupons attached thereto are subordinated to all present and future unsubordinated indebtedness for money borrowed (amounting at December 31, 1967 t0 $1,448,984). 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 105% during the twelve-month period beginning June 1, 1967 and thereafter at prices decreasing 1/2 of 1% in each succeeding twelve-month period to 1977, and (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. During 1967, $22,900 of these debentures were surrendered for conversion into 2,862 shares of capital stock at $8 per share. The $20,034 excess over par value of the capital stock issued ws credited to Paid-in Capital. At December 31, 1967, 102,426 shares of capital stock were reserved for conversion of the remaining outstanding debentures.

12. At December 31, 1967, 13,750 shares of capital stock were reserved for options granted under the 1964 Employees' Restricted Stock Option Plan, exercisable at a price of $6 per share. These options will expire if not exercised by December 12, 1969. No options were exercised during 1967.

13. The Company has three pension plans covering substantially all of its employees. These plans are funded through trust funds. One is contributory and two are non-contributory. The Company's policy is to fund pension cost accrued. Total pension costs for 1967 and 1966 amounted to $119,329 and $92,187, respectively. The unfunded past service liability at December 31, 1967 aggregated $219,874 included initial past service liability of $81,000 for employee members of the International Association of Machinists admitted to the plan in 1967 and $148,900 at December 31, 1966. The actuarially computed value of vested benefits for all plans as of December 31, 1967 exceeded the total of the pension fund and balance sheet accruals by approximately $66,000.