-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HsWB3PrcXND8HLYHkC35ugNve/MYB8kYUS+NHl5FNoP+yAiZTWGscQNJSbJF20il rHtNsnaaD5ShyUHrsGFOKQ== 0000950117-97-001419.txt : 19970826 0000950117-97-001419.hdr.sgml : 19970826 ACCESSION NUMBER: 0000950117-97-001419 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 31 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19970825 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRSHIP INTERNATIONAL LTD CENTRAL INDEX KEY: 0000764587 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 061113228 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14646 FILM NUMBER: 97669413 BUSINESS ADDRESS: STREET 1: 7380 SAND LAKE RD STE 350 CITY: ORLANDO STATE: FL ZIP: 32819 BUSINESS PHONE: 4073510011 MAIL ADDRESS: STREET 1: 7380 SAND LAKE RD STREET 2: STE 200 CITY: ORLANDO STATE: FL ZIP: 32819 10-K 1 AIRSHIP INTERNATIONAL LTD. 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, 1994 Commission File Number: 0-14646 AIRSHIP INTERNATIONAL LTD. -------------------------------------------------- (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 Common Stock Purchase Warrant, each warrant entitling the holder to purchase one share of Common Stock, $.01 par value (Title of Class) Class B Common Stock Purchase Warrant, each warrant entitling the holder to purchase one share of Common Stock, $.01 par value. (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 [ ] No [X] 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant including Preferred Stock as of August 21, 1997 was $3,967,500. The number of shares of Common Stock outstanding as of August 21, 1997 was 42,522,778. Documents Incorporated by Reference: The Company's Proxy Statement, dated March 20, 1995, is hereby incorporated by reference into this Annual Report on Form 10-K. A list of Exhibits to this Annual Report on Form 10-K begins on page ___. AIRSHIP INTERNATIONAL LTD. 1994 FORM 10-K REPORT TABLE OF CONTENTS PART I Item 1. BUSINESS...............................................................1 Item 2. PROPERTIES.............................................................9 Item 3. LEGAL PROCEEDINGS......................................................9 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................10 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................11 Item 6. SELECTED FINANCIAL DATA...............................................14 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................................15 Item 8. FINANCIAL STATEMENTS AND SCHEDULES....................................20 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................20 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................21 Item 11. EXECUTIVE COMPENSATION..............................................23 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .....26 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .....................27 1 PART I ITEM 1. BUSINESS GENERAL Airship International Ltd. (the "Company") operates lighter-than-air airships, also commonly known as blimps, which are used to advertise and promote the products and services of the Company's clients. The Company currently operates one airship (the "Airship"). The Company's clients utilize its airships at major sporting and special events and over urban and beach locations as an informative advertising and promotional vehicle. The Airship which was operating during 1994 was under an aerial advertising contract with Anheuser-Busch Companies, Inc. ("Anheuser Busch") to promote the products of Anheuser-Busch (the "Bud One Airship"). In addition, on December 15, 1994 the Company and its wholly-owned subsidiary Airship Operations, Inc. ("AOI") 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"). Subsequently, on May 24, 1995, prior to commencement of operations of the Argentina Airship and pursuant to an Aircraft Purchase and Lease Assignment and Assumption (the "Purchase and Assignment Agreement") between the Company and First Security Bank of Utah, as trustee ("First Security") 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. In addition, the Company had the option, by notifying First Security prior to December 15, 1995, 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 exercise period of such option was extended to January 15, 1996, at which time such option expired unexercised. 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, who held, indirectly through designees, approximately 4.0% of the Company's common stock, is an officer and stockholder of Aviation. See "Certain Relationships and Related Transactions". In addition to providing clients with aerial advertising and promotion with its airships, the Company also has acquired assets enabling it to construct additional airships either to service existing or potential clients of the Company or for lease or purchase by other parties. To date, the Company has assembled four airships. In November 1990, the Company acquired a substantial amount of airship related assets from the receivers of its former competitor, Airship Industries (UK) Limited ("Airship UK"). The Company believes that this acquisition enhanced the Company's ability to construct future airships and maintain its existing fleet. In December 1992 and in 1993, the Company purchased certain assets (but not the business) of the airship maintenance and assembly operations (the "Slingsby Assets") of Slingsby Aviation Ltd. ("Slingsby"), a division of ML Holdings Ltd., a United Kingdom company. The Company believes that the acquisition of these assets has enhanced the Company's self-maintenance capabilities and reduced maintenance, replacement and assembly costs. A maintenance facility in Weeksville, North Carolina that the Company had rented on a per diem basis was destroyed in a fire during 1995. The facility was owned by Westinghouse Airship, Inc. ("Westinghouse"), and used as a storage facility for airship spare parts. As Westinghouse's inventory of such spare parts was destroyed, the Company believes that it is currently one of few available sources in the United States with a significant inventory of such spare parts. 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. AIRSHIPS The Company's Airships were each approximately 194 feet long, 67 feet high and 50 feet wide. Each has an approximate volume of 235,000 cubic feet and is inflated with helium, a nonflammable gas. The Company's Airships were among the world's largest commercial airships available for advertising. The Company's airships, when fully assembled and operational, can be used as both daytime and nighttime advertising and promotional vehicles. The Argentina Airship is equipped on both sides with a computerized night sign, approximately 118 feet long and 29 feet high ("NightSign`tm'"). A NightSign`tm' is multicolored, contains approximately 8,500 bulbs and is designed to depict messages, logos, animation, cartoons and other designs. The fast-moving logos and visual effects, which can be seen from over a mile away, are used for twilight and night displays. Although not carrying a NightSign`tm', the Bud One Airship had a fixed NightSign`tm' depicting the client's name. 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 have utilized its Airships as an aerial ambassador and network- television camera platform for numerous major events. The Company's clients have utilized its airships at major sporting and special events (to maximize its exposure as a television "eye-in-the-sky"), as well as over urban and beach locations, as an innovative advertising and public relations goodwill ambassador. Generally, the Company's clients provided the television networks with the use of one of the Airships as a television camera platform in order to televise major sporting and other events and in return the client received certain on-the-air advertising exposure during the event. Although the Company did not receive any direct compensation for this usage, the Company believes that it benefited from the media coverage that the Airships received as a result. 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 have been 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 are flown according to a flight schedule provided by -2- the client, subject to weather conditions, government regulations and maintenance requirements. In the absence of availability of suitable replacements and/or rights of the Company to terminate outstanding advertising contracts, Termination of or substantial reduction in fees provided by the Company's operating Airships has had a material adverse impact on the Company's revenues. AERIAL ADVERTISING AND OTHER CONTRACTS Set forth below are descriptions of the Company's aerial advertising contracts which were in effect during the fiscal year ended December 31, 1994 (for further detail see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Comparison of Revenue and Operating Costs -- 1994 to 1993"). 600.05 AERIAL ADVERTISING AGREEMENT. On January 18, 1994,the Company entered into an Aerial Advertising Agreement (the "600.05 Aerial Advertising Agreement") with Kingstreet Tours Limited ("Kingstreet Tours") for the use of an airship (the "600.05 Airship"), to promote Pink Floyd. Pursuant to this agreement, the 600.05 Airship operated for approximately three months from March through May 1994. The 600.05 Airship was operated as the Met Life airship pursuant to an aerial advertising agreement ( the "Met Life Contract") with Metropolitan Life Insurance Company ("Met Life") from 1989 through October 1993. On June 20, 1994, subsequent to the termination of the 600.05 Aerial Advertising Agreement, the 600.05 Airship was damaged in a storm. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." GULF OIL CONTRACT. On May 28,1993, the Company entered into an Aerial Advertising Agreement, which was amended in October 1993 (the "Gulf Oil Contract"), with Catamount Petroleum Limited Partnership, ("Catamount" now known as Gulf Oil Limited Partnership ("Gulf Oil")) for the use of an airship to promote Gulf Oil Company (the "Gulf Oil Airship"). The Gulf Oil Contract had a three-year term ending on June 15, 1996 subject to an annual right of termination by either party; however, pursuant to the terms of the Gulf Oil Contract, the Gulf Oil Airship was not operated from November 1993 to April 14, 1994 and no operating fees for the Gulf Oil Airship were received by the Company for this period. The Gulf Oil Airship was then operated from April 15, 1994 until September 11, 1994, when it was damaged in an accident. As a result, as provided for in the Gulf Oil Contract, Gulf Oil terminated the Gulf Oil Contract as of October 15, 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." BUD ONE CONTRACT. On March 12, 1992, the Company entered into an agreement (the "Bud One Contract") with Anheuser-Busch for the use of the Bud One Airship. In March 1994, the Company and Anheuser-Busch agreed to reduce flight time and monthly fees under the Bud One Contract by approximately 50%, effective February 1994 through July 1994 (the "March Amendment"). On July 8, 1994 the Bud One Contract was amended and restated, pursuant to which amendment the Bud One Airship was to be operated from September 1, 1994 through December 31, 1996. Thereafter, Anheuser-Busch had the option to extend the agreement for one year. The airship was to be operated, in all material respects, in the same manner as it had been operated in the past, with contract payments being substantially equivalent to those under the Bud One Contract prior to the March Amendment. The Bud One Contract contained restrictions on the Company's ability to operate airships for potential clients which are competitive with Anheuser-Busch. ARGENTINA AGREEMENTS. On December 15, 1994 the Company and 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. -3- 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 in connection with the Argentina Airship. Such option expired unexercised on January 15, 1995. SEA WORLD PASSENGER CONTRACT. Following the cessation on June 30, 1993 of its previous contract with Anheuser-Busch covering an airship, (the "Sea World Airship") and the conclusion of flights thereunder in December 1993, the Company and Anheuser-Busch entered into a Limited Passenger Airship Agreement, dated as of January 2, 1994 (the "Sea World Passenger Contract"), pursuant to which the Company was able to use the Sea World Airship to provide passenger flights and to display advertising. This contract did not provide for usage fees or for a monthly operating fee, but permitted the Company to use this airship while it still Carried Sea World's logos/markings. The term of this agreement was to expire on December 31, 1994; however, the Company exercised its right under the contract to voluntarily suspend operations of the Airship in April 1994. The Company's revenues were historically dependent on the Company's aerial advertising contracts. For the years ended December 31, 1994 and 1993, 52% and 67%, respectively, of the Company's revenues were derived from Anheuser-Busch and 29% and 10% respectively, of the Company's revenues were derived from Gulf Oil. In addition, 19% of 1994 revenues were derived from Kingstreet Tours, and 23% of 1993 revenues were derived from the Met Life Contract which was terminated in October 1993. The Company has been adversely affected during the period between the time that any particular aerial advertising agreement terminated and the time a new contract commenced. ACQUISITIONS, LEASES AND FINANCINGS Set forth below is a description of the Company's financing arrangements in effect during the year ended December 31, 1994 and for the period from December 31, 1994 through August 24, 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 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, 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 -4- subject of the Amended Lease is not currently operational, at 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 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 was to maintain a security deposit of $2,500,000 in a cash account (the "Cash Escrow Account") with Trans Continental Airlines Inc., an affiliate of the Company ("Trans Continental") (see Note C to the Financial Statements included elsewhere herein). The Cash Escrow Account, from which the Company may withdraw its funds at any time upon demand, enabled the Company to maintain a lower amount of insurance coverage on the Gulf Oil Airship than otherwise would have been required under the WDL Lease. During the fiscal year ended December 31, 1995, the Company had withdrawn the funds from the Cash Escrow Account to pay certain obligations owing to WDL. As a result of the payment to WDL of such funds, the Company is currently indebted to WDL in the approximate amount of $1,000,000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 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 any payments due to them from the Company while the Allstate Loan is outstanding, and any payments that would otherwise be paid to the guarantors is to be paid to Allstate and applied against the Allstate Loan. Subsequently on June 22, 1995 the Allstate Loan was repaid when Transcontinental Leasing, Inc. ("TLI"), a wholly-owned subsidiary of Transcontinental Airlines, Inc., ("Transcontinental"), an affiliate of the Company, entered into a Sale-Leaseback Agreement the ("S/L Agreement") with the Company pursuant to -5- which the Bud One Airship was sold by the Company to TLI for the purchase price of $2,060,000, which in turn leased such airship back to the Company. TLI 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 Transcontinental. The lease payments to be made under the S/L Agreement are equal to the payments to be made under the Phoenixcor Loan. As TLI has no source of income other than the rental stream generated by lease of the airship to the Company, it is likely that a default in such lease payments would result in TLI's default under the Phoenixcor Loan and a foreclosure by Phoenixcor of its lien on the Bud One Airship and a potential sale of such airship. The Company has entered into an arrangement with Senstar Capital Corporation, ("Senstar") pursuant to which the sale leaseback arrangement with TLI has been reversed with the result that the Company reacquired Bud One Airship and the Company has 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 is repayable over 5 years in sixty monthly payments of approximately $63,371.06 each, with a balance due at the end of the five year term of approximately $700,000, and is secured by a lien on the Airship and a guaranty by Transcontinental. The Senstar Loan provided approximately $1,337,207.31 to the Company after payment of the Phoenixcor Loan. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources". The Phoenixcor Loan was structured as a sale-leaseback for financing purposes only. ADDITIONAL AIRSHIPS; AIRSHIP ASSEMBLY In addition to providing clients with aerial advertising and promotion with its airships, the Company also has 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." AIRSHIP OPERATIONS 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. During 1994, the Company rented a hangar facility in Weeksville, North Carolina from Westinghouse Airship, Inc. ("Westinghouse") and used a Santa Ana, California hangar owned by the U.S. Government for a nominal per diem fee. See "Properties". -6- During 1994, each airship's annual in-hangar maintenance was performed in the late summer by the Company's employees and routine maintenance was performed on an as-needed basis by the Company's employees wherever the airship was located. The Company also leases a warehouse in Kissimmee, Florida which is being used to store spare parts, including the components needed for additional airships. MARKETING The Company markets its airship services directly to potential clients through a sales effort conducted by its management, including a Director of Marketing. During 1994, the Company was in negotiations with several 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 600.05 and Argentina Airships were manufactured by Airship UK, a United Kingdom supplier no longer doing business. The Bud One Airship was manufactured by Slingsby and assembled by the Company. Due to asset purchases and expertise described above in "Additional Airships; Airship Assembly," the Company is in a position to manufacture or assemble up to five additional airships, subject to financing requirements. BLIMP PORT USA`tm' The Company had been to considering the construction of an airship hangar and maintenance facility to be called "Blimp Port USA,"`tm' which would be located at a site near its Orlando, Florida base of operations. Construction of Blimp Port USA`tm' was dependent upon the availability of additional financing and an increase in the number of aerial advertising contracts for the Company's airships, none of which materialized. Accordingly, the Company subsequently determined to forgo any further development of this project and that the $479,000 it spent in 1993 on architectural design services for the project should be written off in 1994. COMPETITION Historically, the Company's direct competition has been limited to those companies which have an airship 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 is a former client of the Company which did not renew its agreement with the Company in 1993, at least in part due to these alternative airship providers. In addition, Goodyear Tire & Rubber Company ("Goodyear") manufactures, owns and operates on a regular basis three airships in the United States. However, for over 30 years Goodyear has used its airships to advertise only its own products and has not leased or sold its airships to others. It is unknown at this time whether Goodyear will sell or lease the use of its airships to other companies or permit such entities to use Goodyear's airships for advertising. -7- In addition to the direct competition with other airship companies, the Company competes with other forms of aerial advertising, such as small-scale blimps, hot air balloons, aerostats (tethered blimps), skywriting and banner towing by fixed-wing aircraft, and with other forms of advertising and public relations media, such as print (including magazines and newspapers) and television and radio. 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. In addition, the Argentina Airship is subject to regulation by the Argentinean equivalent of the FAA. The Company is currently in compliance with the requirements of such governmental authority, and anticipates that it will be able to maintain such compliance in the foreseeable future. EMPLOYEES As of March 31, 1995, the Company had approximately 30 full-time employees, 11 of whom are administrative, 3 of whom are pilots and the balance of whom are field operating personnel including mechanics and others who have a high degree of knowledge and expertise in the airship industry as well as field workers who accompany and maintain the Airships. The number of employees fluctuates based in part on the number of Airships conducting flight operations. The Company's employees are not represented by any union. The Company considers its employee relations to be good. 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 2,000 square feet of such facility from -8- Trans Continental Airlines, Inc. on a month-to-month basis for monthly rental payments of approximately $1,800. The Company also maintains a small office in New York City for which it pays minimal rent. In December 1994, the Company renewed for one year a lease for a warehouse of approximately 5,000 square feet in Kissimmee, Florida for approximately $15,000 per year. The Company stores various spare parts for its existing airships at this warehouse and intends to do so for the foreseeable future. In May 1991, the Company and Westinghouse entered into a contract for the Company to use Westinghouse's Weeksville, North Carolina hangar for repair, renovation, maintenance, and related uses. The Westinghouse facility was destroyed in a fire during the third quarter of 1995. The Company rents space as available in Lakehurst, New Jersey, if needed, to perform maintenance and related functions previously performed at the Westinghouse facility. 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 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 September 19, 1995 and posted a cash bond in the amount of $24,190.76. The Company filed Appellant's Initial Brief on January 8, 1996, contending that the Company's payment was made in a timely manner as required by the Settlement Stipulation. The Circuit Court of the Eighteenth Judicial Circuit in and for Seminole County, Florida is reviewing the Briefs filed by the parties and no opinion has been received as of this date. Westinghouse. On September 14, 1994, Westinghouse Airships,Inc. filed a complaint against Airship International Ltd. ("AIL"). The Complaint alleges that AIL breached an agreement to purchase two Gondolas from WAI. Specifically, the complaint alleges that WAI delivered both Gondolas at issue and AIL failed to make certain installments to WAI under the Agreement. The complaint also alleges that AIL breached a sub-lease to occupy certain hangar space located at Elizabeth City, North Carolina. On October 31, 1994, WAI filed its Second Amended Complaint. On November 31, 1994, AIL filed its answer and raised its affirmative defenses to said complaint alleging payment, fraudulent concealment by WAI and estoppel. On June 19, 1995, the parties entered into Defendant's Consent to Entry of Judgment in the amount of $320,240.00. The Company has paid all sums of money due and owing under said Consent to Entry of Judgment. On July 27, 1995, a Satisfaction of Judgment was filed with the Court. 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 -9- 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. Sequel. In November 1992, Sequel Capital Corporation ("Sequel") filed an action against the Company asserting breach of an alleged contract to enter into a sale lease back agreement and a claim of fraudulently inducing Sequel to make a loan to the Company. Such action sought damages in excess of $3 million from the Company and Louis J. Pearlman, its President. In July 1993, the Federal District Court in Chicago entered a judgement on the jury verdict in the amount of $602,000 in favor of Sequel. In September 1993 the Company settled this lawsuit for the amount of $386,000. Total expenses after legal fees and other related costs were $742,000, which amounts were paid and expensed during 1993. 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 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, 1994. 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, 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's annual meeting of stockholders for the year ended December 31, 1993 was held on January 6, 1994. In connection with such meeting, a proxy statement was sent to the Company's stockholders with respect to the following items: (1) election of the Company's Board of Directors (2) ratification of Grant Thornton, as independent accountants of the Company, for the fiscal year ended December 31, 1993. At the meeting, the Company's directors were elected. For Louis Pearlman 26,122,020 shares were voted for and 463,159 shares were withheld, for Roy Belotti 26,116,454 shares were voted for and 468,725 shares were withheld; for Marvin Palmquist 26,115,863 shares were voted for and 469,316 shares were withheld for James Ryan 26,124,454 shares were voted for and 460,725 shares were withheld; and for Alan Siegel 26,126,574 shares were voted for and 458,605 shares were withheld. The appointment for Grant Thornton as the Company's independent accountants for the fiscal year was approved with 26,060,801 shares being cast for, 373,979 shares cast against, 114,899 shares abstaining, and 35,500 shares not voted. The Company's annual meeting of stockholders for the year ended December 31, 1994 was held on April 11, 1995. In connection with such meeting, a proxy statement was sent to the Company's stockholders with respect to the following items: (1) election of the Company's Board of Directors (2) ratification of Grant Thornton, as independent accountants of the Company, for the fiscal year ended December 31, 1994. (3) approval of a reverse stock split pursuant to which 100 shares of the Company's Common Stock would be combined into one share of Common Stock and 100 shares of the Company's Preferred Stock would be combined into one share of Preferred Stock (the "Reverse Stock Split"); (4) adoption of an Employee Share Purchase Plan of the Company to be effective as of November 1, 1994 (the "Share Purchase Plan") and (5) approval of a proposal to issue options to purchase Common Stock to certain employees of the Company (the "Employee Options"). At the meeting, the Company's directors were elected. For Louis Pearlman 18,396,603 shares were voted for and 1,266,328 shares were withheld, for Roy Belotti 18,510,594 shares were voted for and 1,152,337 shares were withheld; for Marvin Palmquist 18,540,217 shares were voted for and 1,122,714 shares were withheld; for James Ryan 18,554,134 shares were voted for and 1,108,747 shares were withheld; and for Alan Siegel 18,556,117 shares were voted for and 1,106,814 shares were withheld. The appointment for Grant Thornton as the Company's independent accountants for the fiscal year was approved with 18,487,369 shares being cast for, 526,545 shares cast against and 648,908 shares abstaining. The Reverse Stock Split was defeated, with 11,517,471 shares being cast for, 7,487,272 shares cast against, and 498,213 shares abstaining. -10- The Employee Share Purchase Plan was approved, with 16,677,446 shares being cast for, 2,487,272 shares cast against and 498,213 shares abstaining. The issuance of the Employee Options was approved, with 14,465,208 shares being cast for 4,653,011 shares cast against and 544,712 shares abstaining. -11- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock, Preferred Stock, Class A Warrants and Class B Warrants had been listed on the Nasdaq SmallCap Market under the symbols BLMP, BLMPP, BLMPW 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 Nasdaq SmallCap Market for periods prior to the Delisting and periods subsequent to the quarter of 1995, and as obtained from the National Quotation Bureau, Inc for the third quarter of 1995. The Nasdaq quotes represent prices between dealers and do not reflect mark-ups, markdowns or commissions and therefore may not necessarily represent actual transactions. Common Stock:
1994 High Bid Low Bid ---- -------- -------- 1st Quarter $ 9/8 $ 5/16 2nd Quarter $ 5/16 $ 1/8 3rd Quarter $ 5/32 $ 3/32 4th Quarter $ 1/8 $ 1/16 1995 High Bid Low Bid ---- -------- -------- 1st Quarter $.125 $.0625 2nd Quarter $.0625 $.03125 3rd Quarter* N/A N/A 4th Quarter $.125 $.3125 1996 High Bid Low Bid ---- -------- ------- 1st Quarter $.03125 $.03125 2nd Quarter $.03125 $.04 3rd Quarter $.1 $.04 4th Quarter $.085 $.05
- -------- * 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. N/A Not available. -12-
1997 High Bid Low Bid ---- -------- ------- 1st Quarter $.19 $.08 2nd Quarter $.2 $.09 Preferred Stock: 1994 High Bid Low Bid ---- -------- ------- 1st Quarter $3 1/4 $2 9/16 2nd Quarter $2 1/2 $1 1/6 3rd Quarter $1 5/32 $2 5/32 4th Quarter $1 3/16 $ 5/16 1995 High Bid Low Bid ---- -------- ------- 1st Quarter $.59375 $.40625 2nd Quarter $.46875 $.375 3rd Quarter* N/A N/A 4th Quarter N/A N/A 1996 High Bid Low Bid ---- -------- ------- 1st Quarter 2nd Quarter $1 5/8 $3/8 3rd Quarter $.71875 $.385 4th Quarter $.59375 $.28125 1997 High Bid Low Bid ---- -------- ------- 1st Quarter $1.125 $.51 2nd Quarter $1.09375 $.53125 Class A Warrants: 1994 High Bid Low Bid ---- -------- ------- 1st Quarter through February 6, 1994, at which time the Class A Warrants expired $ 1/32 $ 1/32
-13-
Class B Warrants: 1994 High Bid Low Bid ---- -------- ------- 1st Quarter $ 1/16 $ 1/32 2nd Quarter. The Class B Warrants expired on February 6, 1995. $ 1/32 $ 1/32
As reported by the Nasdaq OTC Bulletin Board, on August 21, 1997 the closing bid price of the Common Stock was $0.081 per share and the closing bid price of the Preferred Stock was $0.38. As of August 21, 1997, there were 1,496 holders of record of the Company's Common Stock and 83 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 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 has 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 currently exploring possible alternatives to such issuances, including submitting to the Company's shareholders a proposal to amend the terms of the Preferred Stock. -14- ITEM 6. SELECTED FINANCIAL DATA [1994 NUMBERS MUST BE REVISED BASED UPON AUDIT NUMBERS.] 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 Condition and Results of Operations appearing elsewhere herein. OPERATING STATEMENT DATA:
Year Ended December 31, -------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 -------------------------------------------------------------------------------- Gross Revenue $ 3,972,000 $ 9,748,000 $ 7,258,000 $ 7,015,000 $ 4,693,000 Net Income (loss) before cumulative effect of a change in accounting principal $(10,945,000) $ (5,406,000) $ 1,165,000 $ (4,418,000 $ (3,356,000) Net Income (loss) $(10,945,000) $ (5,406,000) $ 1,165,000 $ (4,418,000) $ (4,498,000) Net Income (loss) Per Share applicable to Common Stockholders: Before cumulative effect of a change in accounting principle $(0.41) $(0.24) $0.05 $(0.31) $(0.48) Net Income (loss) $(0.41) $(0.24) $0.05 $(0.31) $(0.65) BALANCE SHEET DATA: At December 31, -------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 -------------------------------------------------------------------------------- Total assets $ 19,384,000 $ 26,077,000 $ 21,690,000 $ 16,536,000 $ 14,315,000 Long term debt, excluding current maturities $ 1,126,000 $ 2,380,000 $ 12,394,000 $ 4,580,000 $ 7,915,000 Total liabilities $ 12,084,000 $ 7,842,000 $ 12,394,000 $ 13,909,000 $ 14,170,000 Stockholders' equity $ 7,300,000 $ 18,235,000 $ 9,296,000 $ 2,627,000 $ 145,000 Book value per common share $(0.23) $0.13 $0.36 $0.15 $0.02
-15- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GOING CONCERN AND MANAGEMENT'S PLANS 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 $39,977,000, at December 31, 1994. During the year ended December 31, 1994, the Company generated revenues from airship operations; however, it reported a net loss of $20,645,000 and has negative working capital of $9,754,000. 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. or other related parties common directorship and ownership, to provide funds on a monthly basis as a loan and acquiring assets and operations of one or more entities, with which the Company has been in negotiation. 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 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 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. OVERALL FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, WHICH CONTEMPLATE CONTINUATION OF THE COMPANY AS A GOING CONCERN. For its year ended December 31, 1993, the Company incurred a loss of $5,406,000 and had negative cash flows of $2,956,000 from operations. For its year ended December 31, 1994, the Company incurred a loss of $20,645,000 and had negative cash-flows of $2,144,000 from operations. The accompanying financial statements do not include any adjustments that might result from the Company's current liquidity shortage, including any adjustments relating to the values that would be realized from the Company's assets. The Company's stockholders' deficit at December 31, 1994 was $3,861,000, a decrease of $21,500,000 from stockholders' equity of $18,235,000 at December 31, 1993. The decrease was due primarily to the net loss of $20,645,000 in fiscal 1994. Issuance of Common Stock less the payment of cash dividends on Preferred Stock decreased equity by $852,000. As a result of these equity changes, during 1994 the Company's assets decreased $16,300,000 while liabilities increased $5,300,000. Compared to the year ended December 31, 1993, revenues, selling, general and administrative costs decreased 59.3% and 27.7%, respectively, while operating costs increased 75.2%. Interest expense less other income for 1994 was $599,000, an increase of $77,000 or 14.8%. In 1993 the Company incurred a nonrecurring cost of $741,000 in connection with the settlement of a lawsuit by a lender and related expenses and a $478,000 cost on disposition of airship components, while in 1994 the Company incurred losses of $3,443,000 when two airships were damaged. These changes in revenues and costs, as explained in more detail below, resulted in a net loss for fiscal 1994 of $20,645,000 compared to a net loss of $5,406,000 in fiscal 1993. The Company continues to experience negative cash flows from operating activities. Cash flow was adversely affected in 1994 through the termination, at the end of 1993, of contracts relating to the Met Life and Sea World Airships, and through the temporary cessation of flights and fees under the Gulf Oil Contract and its subsequent termination in 1994, as well as by the modification in certain terms of the Bud One Contract pursuant to the March Amendment. Cash flows for 1995 will also be adversely affected by the termination of the Gulf Oil Contract as liabilities at December 31, 1994 related to its termination and the damage to the Gulf Oil Airship approximates $3,220,000. The Company has made changes in its management, office and airship crew operations (the "Restructuring"). The Restructuring includes the reduction of salaries of certain of its management, office, and operations personnel ("Personnel"); the reduction of Personnel; the reduction of insurance costs and the reduction of recurring costs throughout its operations; (collectively, the "Cost Savings"). Certain of the Restructuring considerations were the result of the cessation of operations under both the 600.05 Aerial Advertising Agreement and the Sea World Passenger Contract. Additional Personnel reductions were made, and operating costs ceased, when the Gulf Oil Airship was destroyed in an accident on September 11, 1994. Comparison of Revenue and Operating Costs 1994 to 1993. Airship revenues for 1994 were $3,980,000, a decrease of $5,776,000 (or 59.2%) compared to revenues of $9,748,000 for 1993, primarily due to $3,454,000 of decreased revenues from the Sea World Airship contract which terminated on December 31, 1993. In addition, monthly fees under the Bud One Contract were reduced for a period of six months effective February 1994. The 600.05 Airship, formerly the -16- Met Life airship, operated for only three months during 1994, while the Met Life airship operated for six months during 1993, reducing revenues for 1994, as compared to 1993. These decreases were partially offset by approximately four months of revenues earned from operating the Gulf Oil Airship in 1994 compared to its operation for just over three months during 1993 when operations of that airship first began. Operating costs for 1994 were $17,453,000, an increase of $7,488,000 or 75.2% compared to 1993. This increase was primarily due to a write down in its airships and airship components by $9,634,000. See Note A to the financial statements "Impairment of Long-Lived Assets." Costs to operate the 600.05 Airship until it was damaged on June 20, 1994, primarily in connection with the 600.05 Aerial Advertising Agreement, were $1,349,000 lower than costs to operate that airship during 1993 under the former Met Life contract. The cost savings resulted primarily from a decrease in costs to operate the Bud One Airship of $710,000,or 34% compared to the 1993 fiscal year. Costs to operate the Sea World Airship declined 61% or $1,471,000 compared to the 1993 fiscal year as it began limited operations under the Sea World Passenger Contract beginning January 1994. These cost reductions were offset in part by cost increases resulting primarily from operation and lease of the Gulf Oil Airship of $231,000, and secondarily due to increased warehouse costs of $69,000, related to depreciation on airship components purchased during 1993. In addition, increased depreciation charges of $1,156,000 related to changes in accounting estimates and writedowns of $479,000 related to construction in progress were taken during 1994. Selling, General and Administrative expense Comparison 1994 to 1993. Selling, general and administrative costs were $2,480,000 for 1994, a decrease of $1,841,000 or 30.2% compared to 1993, primarily due to the non-recurrence of accounting, legal and other costs incurred in 1993 related to the Company's public offering of its Preferred Stock (the "1993 Offering") and the acquisition of the Slingsby Assets ($687,000). The Cost Savings reduced salaries and certain other costs by approximately $710,000. These savings were partially offset by restructuring costs of $135,000 and a net increase in other costs, primarily in connection with late fees incurred with respect to the Orix Lease plus costs incurred in connection with the Allstate Loan. Such costs resulted from the Company's liquidity shortage. See "Liquidity and Capital Resources", below. Interest Expense Interest expense in 1994 was $805,000, a decrease of $108,000 or 12.4% compared to 1993. Debt that was fully repaid in 1993 reduced interest costs by $102,000 in 1994 compared to 1993. Interest costs related to the Orix Lease and Mr. Pearlman's loan to the Company decreased $88,000 compared to 1993 as payments were made in both 1993 and 1994, (including the reduction of Mr. Pearlman's loan in connection with the June 1993 Loan. See "Certain Relationships and Related Transactions"). These decreases were partially offset by interest costs related to the Allstate Loan and the short term loans from private investors received and repaid in 1994 (See Note E to the Financial Statements included elsewhere herein). Ongoing interest expense, at the end of 1994, relates to the Orix Lease plus other loans payable and capital leases, mainly for vehicles, the loan from Mr. Pearlman and the Allstate Loan. Other Income (Expense) Interest and other income in 1994 was $206,000, a decrease of $185,000 or 47.3% compared to 1993. In 1993, proceeds from the 1993 Offering were placed in certificates of deposit and utilized throughout 1993 and interest was earned in 1993 on a receivable related to a sale of airship components in 1992. -17- Comparison of Revenue and Operating Costs 1993 to 1992. Revenues for 1993 were $9,748,000, an increase of $2,490,000 or 34.3% compared to revenues of $7,258,000 for 1992. The increase was primarily due to (i) revenues from the operation of the Bud One Airship for all of 1993 compared to its use as the Bud One Airship beginning May 1992 and as a passenger airship during the first quarter of 1992; (ii) revenues from the operation of the Gulf Oil Airship for approximately fourteen weeks between June and October 1993; (iii) revenues from the operation of the Met Life Airship until its contract ended in October 1993, compared to its operation for approximately four and one-half months in 1992 as the airship was in the hangar for repairs due to damage, plus (iv) increases in monthly revenues from operation of the Sea World Airship. Operating costs in 1993 were $9,964,000, an increase of $3,465,000 or 53.3% compared to 1992. Operation of the Gulf Oil Airship began in 1993 increasing costs by $2,014,000. Gulf Oil Airship costs included (i) $451,000 of net costs (after $100,000 was reimbursed to the Company by Catamount) to ship the airship from Germany and assemble it in the United States; (ii) $450,000 of lease payments on the airship from the time it was shipped from Germany until the end of 1993, representing approximately thirty one weeks compared to its operation for Catamount for fourteen weeks. The Company also maintained a full operating crew for the Gulf Oil Airship through the end of 1993. As a result of these costs, the 1993 operating costs for the Gulf Oil Airship exceeded 1993 revenues by $1,042,000. Operation of the Met Life airship increased operating costs by $855,000 or 53.4% in 1993 compared to 1992, mainly as a result of the airship being in the hangar for repairs from June 1, 1992 until October 15, 1992, for which time the Company received insurance proceeds of $585,000 for loss of use of the airship. The Company maintained a full operating crew through the end of 1993 since these employees were subsequently needed to operate the airship under the 600.05 Aerial Advertising Agreement in 1994. As a result of these net cost increases and reduced revenues in 1993 when the Met Life Contract ended, operating costs for the Met Life airship, including non-cash depreciation charges of $469,000, exceeded revenues by $180,000. Operating costs for the Sea World Airship increased by $242,000, or 11.2%, compared to 1992, including $83,000 in increased insurance costs due to the addition of loss of use coverage in 1993. For 1993, revenues exceeded operating costs (including non-cash depreciation charges of $270,000) by $1,053,000. The Sea World contract had ended on June 30, 1993 and the airship was operated under the terms of the expired contract until December 31, 1993 when such operations terminated. Operating costs for the Bud One Airship in 1993 were similar to those in 1992 when the airship was utilized as both a passenger airship and as the Bud One Airship beginning May 1992. Cost increases for normal maintenance of the airship plus insurance, including the addition of loss of use coverage, were offset by travel cost reimbursements beginning February 1993. Space rented at warehouse facilities in North Carolina and Florida increased costs by $373,000. These increases were mainly for payroll costs to service the airships, including the Gulf Oil Airship added in 1993, plus travel costs related to the acquisition of the Slingsby Assets. Airship components, parts and equipment purchases, including the acquisition of the Slingsby Assets in 1993 and the assets acquired in 1990 from Airship UK, resulted in a major increase in airship components and spare parts that are being stored. As a result, depreciation and insurance related to warehouse operations increased a total of $196,000. Selling, General, and Administrative Expense Comparison 1993 to 1992. These costs were $3,449,000 in 1993, an increase of $1,040,000 or 43.2% compared to 1992. Costs associated with the delay in filing the Company's annual report on Form 10-K for the year ended -18- December 31, 1992, mainly for accounting professional services, plus increases related to the change in accountants, increased costs approximately $350,000. Costs incurred with respect to the 1993 Offering increased costs by $112,000, mainly for travel, as compared to costs incurred during 1992 related to previous registration statements filed by the Company. Legal suits increased costs $69,000 and consulting fees related to the acquisition of the Slingsby Assets increased costs by $135,000. All other costs increased $374,000, or 15.5%. The primary increases in these other costs relate to (i) payroll ($233,000), including the addition of a sales manager and a manager for the Company's merchandising and mini blimp promotion programs, plus increases in health insurance and an average increase of 5.3% in all other payroll related costs; (ii) travel costs ($80,000), related to increased corporate activity including the acquisition of the Slingsby Assets, the operation of the Gulf Oil Airship and the related WDL Lease, (iii) a net increase in all other administrative costs ($67,000), related to the increased corporate activity plus increased rent costs. 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. The Company has incorporated adjustments for inflation in its contract with Anheuser-Busch. Liquidity and Capital Resources. In 1993 the Company completed the 1993 Offering, obtaining net proceeds of approximately $14,471,000. The 1993 Offering proceeds have been utilized to date: to repay short term debt ($3,600,000) and related interest ($120,000), for architectural and design services for Blimp Port USA(TM) ($479,000); to acquire parts for the assembly of an additional airship, including a Nightsign(TM) ($823,000); to acquire additional airship assets ($2,500,000); to fund a portion of dividend payments on the Preferred Stock ($600,000); and for working capital ($1,455,000). Of the 1993 Offering proceeds to be used for the purchase of land and a hangar for Blimp Port USA(TM) a significant portion had been used instead for working capital purposes due to net losses sustained by the Company. The Company continues to experience negative cash flows from operating activities. During 1994, the Company sustained a net change in cash and cash equivalents of ($623,000), with a reduction of $2,070,000 from operating activities. At December 31, 1994, available cash balances were represented by the $542,000 in cash plus $1,809,000 in funds contained in the Cash Escrow Account. The balance of the funds in the Cash Escrow Account were subsequently used by the Company to repay certain obligations owing to WDL. See "Business--WDL Lease". Cash flow has been adversely affected by the temporary cessation in November 1993 of flights and fees under the Gulf Oil Contract which recommenced on April 15, 1994 and which ended on September 11, 1994, the cessation of flights and fees under the 600.05 Aerial Advertising Agreement in April 1994, and by the changes in terms of both the Sea World and Bud One Contracts. The Gulf Oil Airship did not recommence operations until April 15, 1994, causing an approximate $650,000 negative cash flow. The accident involving the Gulf Oil Airship and its subsequent suspension of operations on September 11, 1994 resulted in a further negative operating cash flow for 1994 of approximately $400,000. The Gulf Oil Airship was returned to WDL in September 1994. Approximately $610,000 of the negative cash flow sustained in connection with the Gulf Oil Airship during 1994 resulted from rental and other costs due WDL. Including similar costs for 1993, the Company owed WDL $2,866,000 at December 31, 1994 including $1,978,000 representing the loss incurred when the Gulf Oil Airship was damaged. The Company will not incur additional operating cash costs relating to the Gulf Oil Airship. However, the Company's liability to WDL at December 31, 1994 was $2,866,000. Of such amount, approximately $1,800,000 was repaid to WDL from the Cash Escrow Account during 1995, leaving a balance owing from the Company to WDL of approximately $1,000,000. -19- The Sea World Airship commenced limited operations under the Sea World Passenger Contract, causing a $659,000 negative cash flow during 1994, including maintenance costs when it was disassembled for shipment to Argentina for use as the Argentina Airship. The 600.05 Airship was operated under an aerial advertising contract only during ____ months of 1994, causing a $128,000 negative cash flow for 1994. The 600.05 Airship was disassembled in June 1994, and ongoing cash costs will be minimal for this airship. The Company's negative cash flow for 1994 was $622,000. Operating activities utilized $2,144,000 principally as a result of the net loss for the period, which includes non-cash charges of approximately $14,122,000. In addition, the change in operating assets and liabilities offset the negative cash flow effect of the net loss by approximately $4,379,000 as liabilities at December 31, 1994 increased to approximately $13,070,000. All but approximately $1,000,000 of these liabilities are payable in 1995. Investing activities contributed $455,000 in the form of funds taken from the Cash Escrow Account. Financing activities contributed $1,067,000 principally from proceeds of the Allstate Loan, partially offset by the payment of dividends and repayment of loans. The Company has not had existing bank lines of credit available to provide additional working capital due to the Company's negative cash flow and existing encumbrances on assets, and has previously received substantial financing from Mr. Pearlman in the form of loans and guarantees which supplement the funds available from the Company's operations. There can be no assurance that Mr. Pearlman will make additional cash advances or loans or give personal guarantees if the Company requires additional capital. At December 31, 1994, the Company owed Mr. Pearlman $950,000 net of unauthorized discount and after offsetting $785,000 with respect to a loan made by the Company and guaranteed by Mr. Pearlman. As of December 31, 1994, the Company owed Mr. Pearlman $950,000 net of unamortized discount. The entire unpaid principal balance of the loan from Mr. Pearlman, together with all accrued and unpaid interest, becomes due and payable on May 31, 1997. In addition, Trans Continental has guaranteed the Company's obligations under the Allstate Loan and the Phoenixcor Loan. In consideration for these and other guarantees of the Company's obligations, Trans Continental has been granted 10% of the issued and outstanding common stock of the Company. See "Certain Relationships and Related Transactions." There can be no assurance that Trans Continental will continue to guaranty the Company's obligations in connection with any future financings. The Company is currently taking steps to improve its liquidity. On July 8, 1994, the Bud One Contract was amended, as explained in Note I to the Financial Statements included herein, on terms more favorable to the Company than those contained in the March Amendment. In addition, the Company has renegotiated the Orix Lease, and has completed refinancing of the Phoenixcor Loan. See "Business-Acquisitions, Leases and Financings." Cost Savings in operations and administration were instituted in 1994. Management has eliminated its hull insurance on certain airships and continues to attempt to renegotiate certain long term obligations. In addition, the Company anticipates decreases in ongoing costs resulting from the acquisition in 1993 of certain airship assets, and is seeking new aerial advertising contracts, although there can be no assurance that these anticipated results will be achieved. To date the Company has never paid a dividend on its Common Stock and does not anticipate paying one on its Common Stock in the foreseeable future. Dividends on the Company's Preferred Stock are payable in cash to the extent of available cash derived from the adjusted earnings of the Company for the fiscal quarter immediately preceding the Dividend Payment Date (according to a formula based on adjusted earnings). The Company has deferred and -20- accrued the cash dividend on the Preferred Stock due on August 15, 1994, and all subsequent quarterly dividend payment dates, until a later payment date. 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 On May 27, 1993, the Company and Wiss & Co. ("Wiss"), mutually agreed that Wiss would no longer serve as the Company's outside auditors. The Company had determined that in light of the fact that it is a growing public company, it would be more appropriate to seek a larger, full-service national accounting firm to serve as its outside auditors. This decision was approved by the Company's Board of Directors. On August 23, 1993, the Company engaged Grant Thornton as its new independent accountants. In April 1993, pursuant to discussions between the Company and its former independent auditor, the Company engaged Grant Thornton to examine the issue of revenue recognition described below. The Company and Wiss subsequently reached an agreement on this matter before Grant Thornton was in a position to reach a conclusion. Accordingly, no oral advice or written opinions on the issue in dispute were given by Grant Thornton. For further information relating to the replacement of Wiss by Grant Thornton, including an exchange of letters between Wiss and the Company, see the current Report on form 8-K-A filed by the Company with the Commission on July 12, 1993. In connection with their audit of the Company's financial statements for the year ended December 31, 1992, the Company and Wiss had a disagreement regarding gain recognition for a transaction that occurred in the fourth quarter of 1992. As reported on its reports on Form 8-K filed with the Securities and Exchange Commission (the "Commission") on April 16 and May 18, 1993, this disagreement was resolved to the satisfaction of both the Company and Wiss. In connection with their audit of the Company's financial statement for the year ended December 31, 1992, Wiss had preliminarily indicated to the Company their agreement with the Company's proposed accounting treatment that recognized that the gain on a sale of airship components could be recognized in 1992. However, shortly before the due date for the filing of the Company's annual report on Form 10-K with the Commission, Wiss indicated that they disagreed with the Company's position on the gain recognition and indicated instead that the gain should be recognized in 1993. After several discussions between Wiss and the Company and following the receipt of additional supporting documents and audit evidence, Wiss concluded that the gain could be recognized in 1992. Therefore, the Company's financial statements for the year ended December 31, 1992 were filed with the Company's Annual Report on Form 10-K (which was filed with the Commission on May 20, 1993) as originally prepared. The Company became delinquent in its financial filings subsequent to filing its Form 10-Q for the period ending September 30, 1994. In June 1997 the Company retained Charlie Meeks, C.P.A., P.A. as its independent auditor due to the added expense of continuing with a large audit firm such as Grant Thornton. The Company authorized Wiss to respond fully to inquiries of Grant Thornton concerning the aforementioned disagreement. The Wiss report on the Company's 1991 financial statements included a going concern qualification. However, the 1992 financial statements contained no such qualification. -21- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information, as of August 21, 1997, relating to each director and executive officer of the Company.**
POSITIONS WITH NAME AGE THE COMPANY POSITION HELD SINCE - ---- --- ---------------- -------------------- Louis J. Pearlman 43 Chairman of the Board of June 1982 Directors, President and Chief Executive and Operating Officer Marvin Palmquist 81 Director November 1984 James J. Ryan 49 Director July 1986 Alan A. Siegel 33 Secretary and Director October 1989 Seth M. Bobet(1) 34 Vice President of Finance and February 1990 Chief Financial Officer
- -------------------- (1) Mr. Bobet resigned as Chief Financial Officer in June 1995. Mr. Pearlman now acts as Chief Financial Officer of the Company. 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 10% of his time to Trans Continental and the remainder of his time to the Company. Marvin Palmquist has been a director of the Company since November 1984. Since August 1967, Mr. Palmquist has been Chairman of the Board of Directors and President of Lloyd American Corporation ("LAC") and its subsidiaries, including Lloyd Communications Group, Inc. which develops, owns and operates local television stations and a satellite receiving center associated with the Independent Network System. LAC also owns and operates the Midway Theater, an historic theater located in Rockford, Illinois. - -------- ** Mr. Roy Belotti, a director since November 1984, passed away in May, 1995. To date the Company's Board of Directors has not chosen a director to fill the vacancy on the Board created by Mr. Belotti's death. -22- Seth M. Bobet was appointed Vice President of Finance in February 1990. From June 1987 through February 1990, Mr. Bobet was the controller of the Company. Mr. Bobet graduated in June 1985 with a Bachelor of Science Degree in Accounting from the State University of New York. 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. 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 four members of the Board of Directors. The Company and its principal shareholders have agreed to use their best efforts to elect two designees of the underwriters of the 1993 Offering to the Company's Board of Directors. 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. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires officers and directors of the Company and persons who own more than ten percent of the Common Stock or the Preferred Stock, to file initial statements of beneficial ownership (Form 3), and statements of changes in beneficial ownership (Forms 4 or 5), of the Common Stock and the Preferred Stock with the Securities and Exchange Commission (the "SEC"). Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all such forms they file. To the Company's knowledge, based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no additional forms were required for those persons, the Company believes that during 1994 all filing requirements applicable to its officers, directors, and greater than ten percent beneficial owners were complied with. Mr. Pearlman filed one late Statement of Changes of Beneficial Ownership of Securities on Form 4 for the month of August 1994. -23- 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, 1994. No other executive officer's annual salary and bonus exceeded $100,000 during the Company's past three fiscal years. SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION AWARDS ---------------------------------------- -------------------------- SECURITIES FISCAL OTHER ANNUAL RESTRICTED UNDERLYING OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARD OPTIONS COMPENSATION - -------------------------- ----- ------ ----- ------------ ----------- --------- ------------ Louis J. Pearlman, Chairman, 1994 $252,101(1) $0 -- -- -- -- President, Chief Executive and 1993 $251,573 $0 -- -- -- -- Operating Officer 1992 $240,000 $0 -- -- -- -- 1991 $249,318 $100,000 -- -- -- --
(1) Mr. Pearlman had agreed to voluntarily defer approximately $100,000 of his salary for 1994, to which he is entitled pursuant to his employment agreement with the Company. On December 31, 1994, such deferred compensation was applied by the Company as an offset against the exercise price payable with respect to the exercise by Mr. Pearlman of certain options on such date. (See "Other Options"). INCENTIVE STOCK OPTION PLAN On November 1, 1984, the Company adopted an Incentive Stock Option Plan (the "Plan") for all management and other key employees. The Plan was intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The Board of Directors has sole authority to select participating employees. On December 22, 1991 the Plan was amended, increasing the number of shares reserved for issuance under the Plan to 750,000. The aggregate fair market value (determined as of the date the options are granted) of the shares for which an employee is granted options which are exercisable for the first time by the employee in any calendar year (granted pursuant to all of the stock option plans of the Company or any parent or subsidiary of the Company) may not exceed $100,000. These options may have a term of up to ten years (five years in the case of a 10% shareholder or director) and the Board may provide for the exercise of such options in installments over a period of up to ten years (five years in the case of a 10% shareholder or director). The option price may not be less than the fair market value of the shares on the date of grant (110% of such value in the case of a 10% shareholder or director). The Plan terminated on October 31, 1994. -24- The following options have been granted under the Plan to the following persons:
Name Number of Shares Price Per Share Date of Expiration - ---- ---------------- --------------- ------------------- Mike Fitzpatrick 20,000 $ .94 2/27/99 Alan A. Siegel 50,000 $ .94 2/27/99 Frank I. Sicoli 50,000 $ .94 2/27/99 Mary T. Iannerelli 5,000 $ .94 2/27/99 Mary T. Iannerelli 10,000 $1.28 10/1/01 Scott Bennett 10,000 $1.28 10/1/01 Frank Vazquez 10,000 $1.28 10/1/01
No options have been granted under the Plan since fiscal year 1992. 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 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 __, 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 The following table sets forth certain information regarding individual options granted in fiscal year 1994 to the Chief Executive Officer. In accordance with the rules of the Securities and Exchange Commission (the "Commission"), the table sets forth the hypothetical gains or "options spreads" that would exist for the options at the end of their respective terms. These gains are based on assumed rates of annual compound stock price appreciation of 5% and 10% from the date the option was granted to the end of the option term. -25- OPTION GRANTS IN 1994
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES PERCENTAGE OF OF STOCK PRICE SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE MARKET PRICE TERM OPTIONS EMPLOYEES IN PRICE ON DATE EXPIRATION ----------------------- NAME GRANTED FISCAL YEAR PER SHARE OF GRANT DATE 5% 10% - ---- ----------- ------------- ------------ ------------ ----------- ------- ------ LOUIS J. PEARLMAN 5,000,000(1) 100%(1) $.02 per share $625,000(2) August 11, 1999(3) $681,250 $837,500
- ---------- (1) On August 11, 1994, the Company issued to Mr. Pearlman five-year options to purchase 5,000,000 shares of Common Stock at an exercise price of $.125 per share, which was the closing market value of the Common Stock on August 10, 1994. These options were non-compensatory in nature and were issued in connection with Mr. Pearlman's guaranty of certain obligations pursuant to a restructuring of the Company's indebtedness. Thereafter, Mr. Pearlman personally guaranteed the Company's obligations under an Airship Lease Agreement between the Company and Mastellone Hnos. S.A. dated December 15, 1994, and in connection therewith the Company's Board of Directors lowered the exercise price of such options to $.02 per share. The closing market value of the Common Stock on such date was $.125. These options were granted in connection with the guaranty of certain obligations of the Company by Mr. Pearlman and were not issued as compensation. (2) Based upon the closing price of the Company's Common Stock on the National Association of Securities Dealers Automated Quotation System on August 11, 1994. (3) Mr. Pearlman exercised these options on December 31, 1994. (See Summary Compensation Table). AGGREGATED OPTION EXERCISE IN 1994 AND 1994 FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS ACQUIRED VALUE FISCAL YEAR-END AT FISCAL YEAR-END NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---- ----------- -------- ------------------------- ------------------------- LOUIS J. PEARLMAN 5,000,000(1) $525,000 - 0 - - 0 -
- ---------- (1) The option exercised by Mr. Pearlman was issued in consideration of Mr. Pearlman's guaranty of certain obligations of the Company. See " - Other Options." 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. The compensation of Mr. Pearlman, the Chief Executive and Operating Officer of the Company, is based solely upon the terms of his employment agreement with the Company. Similarly, the compensation of Mr. Siegel, the Secretary of the Company, is fixed by the terms of his employment agreement with the Company. See "Employment Agreements." -26- EMPLOYMENT AGREEMENTS The Company entered into an employment agreement as of February 15, 1993 with Louis J. Pearlman, superseding his prior agreement which was to expire December 31, 1994. Both agreements contemplate an annual salary to Mr. Pearlman of $200,000 during 1989 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 provided for an annual profit 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 the agreement, Mr. Pearlman's annual compensation, including salary and bonus was limited to $340,000 per year. In addition, Mr. Pearlman agreed in 1993 not to receive a bonus for the 1993 fiscal year. Mr. Pearlman received a bonus of $254,000 (including $100,000 applied to exercise of options) for the 1994 fiscal year. See "Option Grants in 1994." The Company is presently negotiating a new employment agreement with Mr. Pearlman. The Company entered into an employment agreement as of December 31, 1992 with Alan A. Siegel. Mr. Siegel's agreement expires on January 1, 1998. Mr. Siegel's agreement provides 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. PERFORMANCE GRAPH Set forth below is a line graph comparing the cumulative total shareholder return of the Company's Common Stock, based on the market price of the Common Stock, with the cumulative total return of companies on the Nasdaq Market Index. Because of the unique nature of the Company's business, the Company has been unable to identify a peer group consisting of companies in a similar line of business, and instead has provided a comparison with a "peer group" of companies with a similar market capitalization. Such peer group is comprised of companies with market capitalizations of between one million and ten million dollars on December 31, 1994 and whose stock is traded on Nasdaq. [INTENTIONALLY LEFT BLANK] -27- [GRAPHIC] -28- 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 the Record Date, 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 (iv) all executive officers and directors of the Company as a group (5 persons).
Shares Owned of Record Percentage of Outstanding Percentage of Outstanding Name and Address or Beneficially Shares of Common Stock Shares of Preferred Stock - ---------------- ----------------- ------------------------ ------------------------- Louis J. Pearlman(1) 9,302,291 23.9% * Alan A. Siegel(2) 51,130 * * Roy T. Belotti 1,250 * * Marvin Palmquist -0- * * James J. Ryan(3) 97,000 * * Transcontinental(4) 3,666,862 10% * All officers and directors 9,451,671 24.3% * as a group (5 persons)(2)(5)
- ---------- * 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. (2) Includes 50,000 options granted under the Company's Incentive Stock Option Plan. (3) Includes a warrant to purchase 67,000 shares of Common Stock. See "Certain Relationships and Related Transactions." (4) Such shares of Common Stock were granted to Transcontinental 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". (5) Includes the options described in footnotes (2) through (3), above. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As of January 1, 1993, the Company owed Mr. Pearlman an aggregate amount of approximately $1,900,000 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 the Company's obligation to repay principal and interest on Mr. Pearlman's loan to the -29- 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. As the result of further interest accruing on the amounts owing to Mr. Pearlman by the Company, at December 31, 1994, and after allowing for the offset described above with respect to the Loan, the Company owed Mr. Pearlman $950,000 net of unamortized discount. As of December 31, 1994 the Company owed Mr. Pearlman $950,000 net of unamortized discount. During the year ended December 31, 1994, the Company earned $164,000 of interest income on advances (the "Trans Continental Account") previously made to Trans Continental Airlines, Inc. ("Trans Continental"). Mr. Louis J. Pearlman owns 21% of Trans Continental and is the Company's Chairman of the Board, President and principal shareholder. The advances were made to obtain higher yields and, at December 31, 1994, totaled $1,809,000. Trans Continental has pledged a $2,500,000 money market account as collateral for this advance. This advance is returnable to the Company upon demand, and during the year ended December 31, 1994, an aggregate amount of $881,000 of the advances were returned to the Company including interest earned. The balance of the advances were returned to the Company during 1995 and were used by the Company to pay outstanding amounts owing to WDL. On October 9, 1995 the Company granted to Transcontinental 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 Transcontinental'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, Transcontinental has procured, for the Company's benefit, a corporate credit card. 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. Pursuant to an Agreement dated December 7, 1993, the Company made a $75,000 unsecured loan to Superbound Limited ("Superbound"), a United Kingdom corporation controlled by James Stuart Tucker, the former President of Slingsby. The loan bears interest at an annual rate of 10%. Principal is payable in two equal installments of $37,500 each on the first two anniversaries of the date the loan proceeds were paid to Superbound (within seven days of December 7, 1993). Mr. Tucker is a guarantor of this loan. During 1994 Mr. Tucker was able to procure, without cost to the Company, required maintenance service and parts which would otherwise have cost the Company over $100,000. In exchange for his services, $37,500 of the loan was cancelled as of December 3, 1994 and interest of $7,500 was received in February 1995. The remaining balance of the loan was subsequently repaid. -30- 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 31,1995, on which date the warrants expired unexercised. 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. For assisting in reducing the Company's insurance costs, on April 7, 1990, Mr. Ryan was granted a five year warrant to purchase 67,000 shares of Common Stock at $2.20 per share. -31- 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: August 25, 1997 By: /s/ LOUIS J. PEARLMAN -------------------------- Louis J. Pearlman Chairman of the Board of Directors, President and Treasurer (Principal Executive and Financial Officer) Dated: August 25, 1997 By: /s/ Alan A. Siegel -------------------------- Alan A. Siegel Secretary & Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Dated: August 25, 1997 By: /s/ Marvin Palmquist -------------------------- Marvin Palmquist Director Dated: August 25, 1997 By: /s/ James J. Ryan -------------------------- James J. Ryan Director -32- Item 14 - Exhibits, Financial Statements, Schedules and Reports on Form 8-K
Page ---- (a) (1) The following financial statements of the Company have been filed as part of this report: A. Report Independent Certified Public Accountant F-1 B. Balance Sheets as of December 31, 1994 and 1993 F-2 C. Statements of Operations for the years ended December 31, 1994, 1993 and 1992 F-3 D. Statements of Changes in Stockholders' (Deficit) Equity for the years ended December 31, 1994, 1993 and 1992 F-4 to F-5 E. Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 F-6 to F-7 F. Notes to Financial Statements F-7 to F-25 (a) (2) No Financial Statement Schedules are required to be filed by the Company other than the following which have been filed as part of this report: A. Report of Independent Certified Public Accountants on Schedules F-27 B. II - Amounts receivable from related parties F-27 C. IV - Indebtedness to related parties F-28 D. V - Airships and related equipment F-29 E. VI - Accumulated depreciation and amortization of airships and related equipment F-30 F. IX - Short-term borrowings F-31 -33- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT Board of Directors and Stockholders Airship International Ltd. I have audited the accompanying balance sheet of Airship International Ltd. as of December 31, 1994 and the related statement of operations, stockholders' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. The December 31, 1993 financial statements were audited by other auditors whose report, dated March 24, 1994 on those statements included an explanatory paragraph describing conditions that raised substantial doubt about the Company's ability to continue as a going concern. The December 31, 1992 financial statements were audited by other auditors whose report dated February 26, 1993, expressed an unqualified opinion on those statements. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit 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. I believe my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Airship International Ltd. at December 31, 1994, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. As discussed in Note B, the Company is subject to various matters giving rise to uncertainty, including matters giving rise to substantial doubt as to the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of such matters. CHARLIE M. MEEKS, C.P.A., P.A. Maitland, Florida August 22, 1997 F-1 Airship International Ltd. Balance Sheets December 31,
1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Airships and Related Equipment: Airships $ 2,104,000 $ 12,048,000 Vehicles 1,609,000 1,514,000 Parts and equipment 1,542,000 2,768,000 Airship components 2,730,000 6,762,000 Construction in progress -- 479,000 - ------------------------------------------------------------------------------------------------------------------------------------ 7,985,000 23,571,000 Less: Accumulated depreciation and amortization 1,492,000 3,257,000 - ------------------------------------------------------------------------------------------------------------------------------------ 6,493,000 20,314,000 Cash and cash equivalents 543,000 1,165,000 Prepaid insurance 626,000 1,433,000 Due from Transcontinental Airlines, Inc., an affiliate 1,809,000 2,526,000 Deferred financing and offering costs, net of accumulated amortization 157,000 196,000 Other assets 181,000 443,000 - ------------------------------------------------------------------------------------------------------------------------------------ $ 9,809,000 $ 26,077,000 - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) LIABILITIES Accounts payable - trade $ 4,068,000 $ 915,000 Customer payment on future services 1,367,000 250,000 Insurance financing 291,000 1,504,000 Accrued expenses and other liabilities 1,886,000 771,000 Obligations under capital leases 3,258,000 3,556,000 Loan payable 1,250,000 -- Due to related party 950,000 846,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 13,070,000 7,842,000 - ------------------------------------------------------------------------------------------------------------------------------------ CONTINGENCIES AND COMMITMENTS -- -- STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, $.01 par value: Authorized - 10,000,000 shares, issued and outstanding 2,875,000 29,000 29,000 Common stock, $.01 par value: Authorized - 80,000,000 shares, issued and outstanding - 31,400,000 shares in 1994 and 27,946,000 in 1993 314,000 279,000 Capital in excess of par value - Preferred Stock 14,442,000 14,442,000 Capital in excess of par value - Common Stock 21,931,000 21,136,000 Accumulated deficit (39,977,000) (17,651,000) - ------------------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity (deficit) (3,261,000) 18,235,000 - ------------------------------------------------------------------------------------------------------------------------------------ $ 9,809,000 $ 26,077,000 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. F-2 Airship International Ltd. Statements of Operations For the Year Ended December 31,
1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Airship Revenue $ 3,980,000 $ 9,748,000 $ 7,258,000 ------------ ------------ ------------ Costs and Expenses: Operating costs 17,452,000 9,964,000 6,499,000 Selling, general and administrative expenses 2,408,000 3,449,000 2,409,000 - ------------------------------------------------------------------------------------------------------------------------------------ 19,860,000 13,413,000 8,908,000 Loss from operations (15,880,000) (3,665,000) (1,650,000) - ------------------------------------------------------------------------------------------------------------------------------------ Other income (expense) Gain on sale of airship components, net of imputed interest of $69,000 -- -- 2,366,000 Gain (loss) on sale of airship components to a stockholder (659,000) -- 1,077,000 Gain (loss) on insurance settlement (3,443,000) -- 769,000 Interest expense (805,000) (913,000) (1,571,000) Interest capitalized -- -- 30,000 Interest, royalties and other income 206,000 391,000 144,000 Costs relating to settlement of litigation (64,000) (741,000) -- Loss on disposition of airship component -- (478,000) -- - ------------------------------------------------------------------------------------------------------------------------------------ (4,765,000) (1,741,000) 2,815,000 - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) $(20,645,000) $ (5,406,000) $ 1,165,000 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average number of common shares and equivalents outstanding 30,161,000 27,073,000 22,070,000 - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) applicable to common stock: Net income (loss) $(20,645,000) $ (5,406,000) $ 1,165,000 Less preferred stock dividend (1,683,000) (1,166,000) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) applicable to common stock $(22,328,000) $ (6,572,000) $ 1,165,000 - ------------------------------------------------------------------------------------------------------------------------------------ Net income (loss) per share $ (0.74) $ (0.24) $ 0.05 - ------------------------------------------------------------------------------------------------------------------------------------ SIGNIFICANT AMOUNTS APPLICABLE TO RELATED PARTIES Operating costs - Insurance expense $ 877,000 $ 1,319,000 $ 1,072,000 Selling, general and administrative: Travel $- $ 6,000 $ 115,000 Interest expense $ 105,000 $ 149,000 $ 292,000 Interest income $ 164,000 $ 184,000 $ 131,000
The accompanying notes are an integral part of these statements. F-3 Airship International Ltd. Statements of Changes in Stockholders' Equity (Deficit) For the Year Ended December 31,
Capital in Excess of Par Value Preferred Stock Common Stock ----------------------- ---------------------------------------------- Preferred Common Accumulated Shares Par Value Shares Par Value Stock Stock Deficit - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1991 -- $ -- 17,307,000 $ 173,000 $ -- $ 14,698,000 $(12,244,000) Sale of common stock and warrants issued to private investors, less related expenses of $360,000 -- -- 5,225,000 52,000 -- 3,972,000 -- Exercise of warrants, less expenses of $65,000 -- -- 3,069,000 31,000 -- 1,295,000 -- Conversions of debt into common stock, less related expenses of $15,000 -- -- 338,000 3,000 -- 223,000 -- Fair value of options issued in connection with loan to: President -- -- -- -- -- 25,000 -- Others -- -- -- -- -- 33,000 -- Expenses incurred in registration of previously outstanding shares and warrants -- -- -- -- -- (130,000) -- Net income -- -- -- -- -- -- 1,165,000 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1992 -- -- 25,939,000 259,000 -- 20,116,000 (11,079,000) Sale of common stock and warrants issued to private investors, less related expenses of $27,000 -- -- 318,000 3,000 -- 209,000 --
The accompanying notes are an integral part of these statements. F-4 Airship International Ltd. Statements of Changes in Stockholders' Equity (Deficit) For the Year Ended December 31,
Capital in Excess of Par Value Preferred Stock Common Stock ---------------------- ------------------------------------------------ Preferred Common Accumulated Shares Par Value Shares Par Value Stock Stock Deficit - ------------------------------------------------------------------------------------------------------------------------------------ Sale of preferred stock to public less related expenses of $2,779,000 2,875,000 29,000 -- -- 14,442,000 -- (11,079,000) Exercise of warrants into common stock -- -- 640,000 6,000 -- 396,000 -- Repurchase of warrants -- -- -- -- -- (222,000) -- Dividends paid on preferred stock: In cash -- -- -- -- -- -- (518,000) In common stock -- -- 1,049,000 11,000 -- 637,000 (648,000) Loss -- -- -- -- -- -- (5,406,000) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 2,875,000 29,000 27,946,000 279,000 14,442,000 21,136,000 (17,651,000) Issuance of common stock from private placement, less expenses of $7,000 -- -- 1,344,000 14,000 -- 169,000 -- Dividends paid on preferred stock: In cash -- -- -- -- -- -- (172,000) In common stock -- -- 2,066,000 21,000 -- 626,000 (647,000) Accrued common stock dividend -- -- -- -- -- -- (862,000) Loss -- -- -- -- -- -- (20,645,000) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 2,875,000 $29,000 31,356,000 $ 314,000 $ 14,442,000 $ 21,931,000 $(39,977,000) - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements. F-5 Airship International Ltd. Statements of Cash Flows For the Year Ended December 31, Increase (decrease) in cash and cash equivalents
1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities Net income (loss) $(20,645,000) $ (5,406,000) $ 1,165,000 Adjustments to reconcile net income (loss) to net cash flows used in operating activities: Depreciation and amortization 2,389,000 1,223,000 981,000 Gain on sale of airship components to J&B Enterprises Limited (UK) Corp. -- -- (2,366,000) Gain on sale of airship components to stockholder -- -- (1,077,000) Loss from impairment of long-lived assets 9,634,000 -- -- Gain (loss) on dispositon of airship components and related assets 153,000 -- (769,000) Loss on insurance settlement 1,467,000 -- -- Loss on abandonment of Blimp USA 479,000 -- -- Other - net -- 232,000 197,000 Loss on disposition of airship component -- 478,000 -- Changes in operating assets and liabilities: Prepaid insurance 807,000 (253,000) (224,000) Other assets 262,000 (136,000) (70,000) Accounts payable - trade 3,153,000 464,000 (451,000) Customer payments on future services 1,117,000 (57,000) (157,000) Insurance financing (1,213,000) 433,000 167,000 Accrued expense to principal stockholder -- 139,000 167,000 Accrued expenses and other liabilities 253,000 (73,000) 236,000 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash flows used in operating activities (2,144,000) (2,956,000) (2,201,000) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Net proceeds from insurance settlement -- -- 1,529,000 Proceeds from sale of airship components 55,000 2,228,000 500,000 Acquisition of airships and related equipment (317,000) (6,716,000) (3,008,000) Deposit for purchase of airships and related equipment -- -- (2,000,000) Net change in due from Trans Continental 717,000 (1,940,000) 770,000 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash flows provided by (used in) investing activities 455,000 (6,428,000) (2,209,000)
F-6 The accompanying notes are an integral part of these statements. Airship International Ltd. Statements of Cash Flows - Continued For the Year Ended December 31, Increase (decrease) in cash and cash equivalents
1994 1993 1992 - --------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of loans payable 1,432,000 420,000 1,800,000 Principal payments on capital leases and loans (479,000) (4,728,000) (1,450,000) Principal payments to related party 104,000 (1,150,000) (467,000) Net proceeds from issuance of common stock -- 614,000 5,205,000 Net proceeds from private placement of debt 183,000 -- -- Net proceeds from issuance of preferred stock -- 14,662,000 -- Payment of dividends (173,000) (518,000) -- Repurchase of warrants -- (222,000) -- Deferred financing and offering costs paid -- -- (271,000) - --------------------------------------------------------------------------------------------- Net cash flows from financing activities $ 1,067,000 $ 9,078,000 $ 4,817,000 - --------------------------------------------------------------------------------------------- Net changes in cash and equivalents (622,000) (306,000) 407,000 Cash and equivalents, beginning of year 1,165,000 1,471,000 1,064,000 - --------------------------------------------------------------------------------------------- Cash and equivalents, end of year $ 543,000 $ 1,165,000 $ 1,471,000 - ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. F-7 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 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, 1994, the Company operated two airships. 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 are being 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, 1994 or 1993. 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. Construction in Progress - The Company has abandoned its plans to build a manufacturing complex and aviation hangar to be called Blimp Port USA'tm' which will be located at a site near its Orlando, Florida base of operations. The Company intended to use this facility to manufacture, assemble and maintain airships for commercial and governmental use and provide offices for technical and executive personnel. The Company has acquired a Federal Aviation Administration (FAA) license necessary for the assembly and maintenance of airships. Capitalized costs, including interest, relating to the facilities amounted to $479,000 were written off during the year ended December 31, 1994. Such costs included incremental costs directly identifiable with the facility, such as land lease rental, property taxes, insurance and other costs directly associated with the acquisition, development and construction of the project. To date costs capitalized represent consulting, architectural and design fees. 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. F-8 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued 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. 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 $9,634,000 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. 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. Change in Accounting Estimate - Effective April 1, 1994, the Company revised its estimate of useful lives of airships and airship components. Previously, airship envelopes and Nightsigns'tm' on operating airships were depreciated over 20 years. The Company has changed the useful lives to 4'pp'1/2 on airship envelopes years and 10 years for Nightsigns'tm' resulting in an additional charge to income of $774,000 or $.03 per share. Net Income (Loss) Per Share - Net income (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. Recently Issued Pronouncements - In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS 123") which sets forth accounting and disclosure requirements for stock-based compensation arrangements. The new statement encourages, but does not require, companies to measure stock-based compensation cost using a fair-value method, rather than the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25 ("APB Opinion 25"). The Company will adopt the disclosure requirements of SFAS 123 in 1995 and will elect to continue to record stock-based compensation expense using the intrinsic-value approach prescribed by APB Opinion 25. Accordingly, the Company computes compensation cost for each employee stock option granted as the amount by which the quoted market price of the Company's Common Stock on the date of grant exceeds the F-9 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Continued amount the employee must pay to acquire the stock. The amount of compensation costs, if any, will be charged to operations over the vesting period. In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") and Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure ("SFAS 129"). SFAS 128 specifies the computation of earnings per share, and SFAS 129 specifies the presentation and disclosure requirements about an entity's capital structure. Both SFAS 128 and 129 shall be adopted in the fourth quarter of 1997 with restatement back to January 1, 1997. The initial adoption of these standards are not expected to have a material effect on the Company's earnings per share as disclosed. NOTE B - SIGNIFICANT UNCERTAINTIES AND MANAGEMENT'S PLANS TO OVERCOME OPERATING DIFFICULTIES AND MEET CASH REQUIREMENTS The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. For its year ended December 31, 1994 and 1993, the Company incurred losses of $20,571,000 and $5,406,000, respectively, and had negative cash flows of $ 2,144,000 and $2,956,000, respectively, from operations. Management believes that additional contracts, if obtained, may be sufficient to achieve positive cash flow. However, there can be no assurances that such positive cash flows would be achieved. As a result of the losses during the year, plus cancellation and modification of advertising agreements with clients, the Company postponed its original plans for purchase of land and the hangar for Blimp Port USA'tm' (a hangar and maintenance facility). Losses for 1993, which continuing into 1994, were funded by proceeds from the offering previously designated as capital expenditures for Blimp Port USA'tm'. In addition, the Company made the additional deposit of $1,940,000 and made a $789,000 loan to an individual who had previously facilitated financing for the Company (see disussion in Note C). The accompanying financial statements do not include any adjustments that might result from such matters. NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES AND OTHERS Due from Affiliate - At December 31, 1994 and 1993, the Company made advances of $1,809,000 and $2,526,000, respectively, to Transcontinental Airlines, Inc. ("Transcontinental"), an affiliated aircraft leasing company. Louis J. Pearlman ("Mr. Pearlman") owns 21% of Transcontinental and is the Company's Chairman of the Board, President and Principal Stockholder. Transcontinental has pledged a $2,500,000 money market account as collateral for this advance. The deposit may be returned to the Company upon demand. Interest earned on this deposit amounted to $164,000, $107,000 and $131,000 for years ended December 31, 1994, 1993 and 1992, respectively. Personal Guarantees - Mr. Pearlman has personally guaranteed all capital leases and loans of the Company (see Note E). F-10 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES AND OTHERS - Continued 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 is due in May 1997 and has been deferred by Mr. Pearlman for an indefinite period of time. If the Company's income before taxes had exceeded $500,000 in any of the three years ending December 31, 1994, the Company would have been required to pay Mr. Pearlman an amount equal to 20% of such annual pre-tax profit as a prepayment on this loan. Interest on the loan payable was $105,000, $144,000, and $167,000 for the years ended 1994, 1993, and 1992, 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 is due no later than June 30, 1995. Mr. Pearlman has guaranteed repayment of the Loan. In addition, 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, 1994 and 1993 totaled $950,000 and $846,000, respectively, net of unamortized discount. Transactions with Stockholder and His Affiliate - Mr. Julian Benscher ("Mr. Benscher") beneficially owned 4.0% of the common stock of the Company at December 31, 1994. Mr. Benscher is also a stockholder and director of J&B Enterprises Limited (UK) Corp. ("J&B"). The Company and Mr. Benscher have been involved in certain transactions as follows: Sale of Airship Components - The following transactions involve the sale of unassembled airship components acquired in the 1990 asset acquisition from Airship UK: 1. In December 1992, the Company entered into two agreements with J&B to sell for $2,790,000 ($2,721,000 net of imputed interest) an unassembled airship and its related components which had a cost basis to the Company of $355,000. The Company received a $500,000 initial payment in December 1992. The balance of the purchase price was paid in February and November 1993 and bore interest at the LIBOR rate. The unpaid balance of the purchase price was collateralized by the respective airship components and such other security as the parties were to mutually agree to be reasonable and guaranteed by Mr. Benscher. In addition, certain real property located in the United Kingdom and owned by a director of J&B who is a relative of Mr. Benscher was pledged and accepted by the Company in satisfaction of the unspecified collateral stated in the December 1992 agreement. Certain components at this time continue to remain in a warehouse leased by the Company in Florida. J&B reimburses the Company for occupancy costs for storage of the components. F-11 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES and OTHERS - Continued 2. In September 1992, the Company sold to Mr. Benscher a gondola, tail fins and certain other airship components for $1,150,000. Payment consisted of offsetting the $1,000,000 loan payable (and related interest) due to Mr. Benscher pursuant to the loans under a line-of-credit agreement discussed below. The transaction resulted in a gain of $1,077,000. Rental Arrangement and Travel Agency Service - Transcontinental 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. The Company paid the agency $6,000 and $115,000 for travel expenses in 1993 and 1992, respectively. During 1994 and 1993, 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 and 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 and, in 1990, was granted a five-year warrant to purchase 67,000 shares of common stock at $2.20 per share. Insurance expense for Alexander and Howden was $72,000, $1,319,000 and $1,072,000 in 1994, 1993, and 1992, respectively. Warrants - Reference should be made to Note H for warrants issued in connection with certain of the above transactions. Transaction with Slingsby Aviation Limited ("Slingsby") - On January 29, 1992, Slingsby exchanged the aforementioned airship components it had acquired from Airship UK for certain of the Airship components the Company had acquired from Airship UK. In connection with this exchange, Slingsby agreed to provide the Company storage for the components at no cost, not to increase certain prices to assemble that airship by more than 5% for twelve months and certain other items. The Company did not recognize gain or loss on this nonmonetary transaction as this was not considered the culmination of an earnings process. On December 31, 1992, Transcontinental, on behalf of the Company, paid $2,000,000 to Slingsby in connection with an understanding to acquire Slingsby airship components (the 'Slingsby Asset Purchase'). Slingsby had indicated that the Company was to receive airship parts with a fair market value equal to at least this sum if a definitive agreement was not entered into by March 31, 1993. During 1993, the Company concluded its acquisition of airship components from Slingsby for a total of $5,457,000. F-12 Airship international Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE C - TRANSACTIONS WITH STOCKHOLDERS, RELATED PARTIES and OTHERS - Continued Underwriter - Emanuel and Company ("Emanuel"), one of the two representatives of the several underwriters for the offering of Preferred Stock which was sold in February 1993 (see Note H) is a beneficial owner of 4.0% of the Company's common stock. Emanuel received warrants to purchase 1,450,000 shares of common stock at $1 per share for arranging the sale in April 1992 of 1,048,000 common shares to private investors. The private investors received three year warrants to purchase 1,048,000 shares of common stock at an exercise price of $1.25 per share, subject to adjustment. Emanuel will receive a 7% commission from the Company upon the exercise of the warrants held by the private investors. In addition, Emanuel is the custodian of the collateral pledged as security for amounts due from Transcontinental. Corporate Offices - The Company provides office space to affiliates free of charge. The Company is reimbursed by the affiliates for telephone charges. Loan Receivable - During 1993 the Company made an unsecured loan of $75,000 to a company controlled by and guaranteed by the former president of Slingsby. This loan bears interest at 10%, payable quarterly. Principal payments of $37,500 are due on December 7, 1995. NOTE D - INCOME TAXES At December 31, 1994, the Company had net operating loss carryforwards for income taxes of approximately $29,949,000 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 $15,268,000 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 2011. The company also has unused investment tax credits of $140,000 which expire principally in the year 2000. F-13 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE D - INCOME TAXES - Continued 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:
1994 1993 - -------------------------------------------------------------------------------- Deferred tax assets: Net operating loss $ 14,548,000 $ 4,900,000 Accrued expenses 291,000 300,000 - -------------------------------------------------------------------------------- 14,839,000 5,200,000 Less: Valuation allowance 11,962,000 2,600,000 - -------------------------------------------------------------------------------- 2,877,000 2,600,000 Deferred tax liabilities: Airships and related equipment (2,877,000) (2,600,000) - -------------------------------------------------------------------------------- (2,877,000) (2,600,000) - -------------------------------------------------------------------------------- Net deferred tax asset $ -- $ -- - --------------------------------------------------------------------------------
The net change in the valuation allowance was approximately $277,000 relating to net operating losses from 1994. NOTE E - CAPITAL LEASES AND LOANS PAYABLE Capital leases payable consist of the following:
1994 1993 - ------------------------------------------------------------------------------------ Capital lease of MetLife airship, payable monthly through November 1995 with an option to renew through November 1998, less amounts ($640,000 and $670,000) representing interest with an annual interest rate of 16%. The lease was renegotiated in January 1994 and June 1995 $2,904,000 $3,113,000 Other loans and capital leases with various annual interest rates 354,000 443,000 - ------------------------------------------------------------------------------------ $3,258,000 $3,556,000 - ------------------------------------------------------------------------------------
F-14 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE E - CAPITAL LEASES AND LOANS PAYABLE - Continued 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, 1994: 1995 $ 299,000 1996 540,000 1997 911,000 1998 979,000 1999 960,000 Thereafter 3,869,000 ---------- Total minimum lease payments 7,558,000 Less amount representing interest 4,300,000 ---------- Present value of net minimum lease payments $3,258,000 ==========
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 again calling for payments of $20,000 for twelve months, $40,000 for the next six months, $60,000 for an additional six months and the higher of $80,000 for the remaining term until the lease is paid off or a larger payment 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 airship and related equipment financed by the capital leases have 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. Loan Payable to Allstate - 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 pay off certain liabilities and provide a source of working capital. The balance due to Allstate as of December 31, 1994 amounted to $1,250,000. The loan was secured by accounts receivable, inventory, certain airships and equipment. F-15 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE E - CAPITAL LEASES AND LOANS PAYABLE - Continued Subsequently on June 22, 1995, the Allstate loan was repaid when Transcontinental Leasing, Inc. ("TLI"), a wholly-owned subsidiary of Transcontinental, an affiliate of the Company, entered into a sale-leaseback agreement with the Company pursuant to which the Bud One Airship was sold by the Company to TLI for the purchase price of $2,060,000, which in turn was leased back to the Company. Subsequently on November 30, 1995, the Company entered into an arrangement with Senstar Capital Corporation ("Senstar") pursuant to which the sale-leaseback arrangement with TLI 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 TLI'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 Transcontinental. Warrants - Reference should be made to Note H for warrants issued in connection with certain of these transactions. 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 against CFG. No balances have been returned to the Company as of December 31, 1994. 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 partners 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 F-16 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE F - LEGAL PROCEEDINGS - Continued 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. Sequel Capital Corporation - In December 1992 a lawsuit was filed against the Company, Mr. Pearlman and an advertising customer of the Company by Sequel Capital Corporation ("Sequel"). The complaint (as amended) contains claims for default on an $800,000 loan from Sequel (the "Sequel Loan") as a result of an alleged failure to provide collateral consisting of monthly payments being made to the Company by a third party on an airship advertising agreement. The proceeds of the Sequel Loan, which was personally guaranteed by Mr. Pearlman, were applied by the Company towards the purchase of a new airship from the Seoul Olympic Sports Promotion Foundation. The amended complaint also includes a claim for breach of an alleged contract to enter into a sale leaseback agreement with respect to one of the company's airships and a claim for allegedly fraudulently inducing Sequel to make the Loan to the Company. This claim was settled by the Company in 1993 for approximately $741,000 including legal expenses. 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. 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 ordinary course of its 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. F-17 Airship international Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 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. The State of Florida completed a sales tax audit of the Company in March 1992 covering all periods through December 31, 1991 and assessed the Company approximately $12,000, which was paid in March 1992. Employment Agreements - In 1993 the Company and Mr. Pearlman entered into an employment agreement which expires in December 1994. The agreement provides 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 provides 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 is limited to $340,000 per year. Accrued and unpaid salaries through December 31, 1994 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. Operating Leases - The Company has various operating leases which will expire at various dates through May 1996 with unrelated parties for its executive offices, warehouse space, maintenance facility, and the Gulf airship discussed in Note I. Future minimum payments under these operating leases at December 31, 1993 are as follows: 1994 $ 634,000 1995 93,000 1996 31,000 ---------- $ 758,000 ========== Rent expense was approximately $577,000 in 1993. F-18 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE H - STOCKHOLDERS' EQUITY Common Stock - In February 1991, the Company completed a public offering (the "Offering") of its units (the "Units"), consisting of two shares of Common Stock, two Class A Common Stock Purchase Warrants and two Class B Common Stock Purchase Warrants. Each Class A Warrant entitles the holder to purchase one share of Common Stock at a price of $1.50 until February 6, 1994. Each Class B Warrant entitles the, holder to purchase one share of Common Stock at a price of $2.00 until February 6, 1995. The warrants may be redeemed by the Company at a price of $.10 per Warrant at any time upon at lease 30 days, prior written notice if the closing bid price of the Common Stock during 20 of the 30 preceding trading days exceeds the exercise price of the Warrants by at least 40%. Convertible Subordinated Notes - In connection with a private placement of the Company's 15% Convertible Subordinated Notes (the "Notes") completed in December 1990, the placement agent received a commission of 10% of the aggregate principal amount of the notes sold and three-year warrants to purchase a total of 374,000 shares of common stock (254,000 and 120,000 shares of common stock at $1 and $.75 per share, respectively). In addition, the placement agent received a commission of 9% of the principal amount of each note converted to common stock and, upon exercise of each related warrant will receive a commission equal to 7% of the exercise price. For accounting purposes, the proceeds of the notes were allocated based upon the fair value of the debt and warrants. The resulting debt discount was amortized over the term of the debt and the amount of $22,000 assigned to the warrants was credited to capital in excess of par value. Substantially all of the above warrants were exercised as of December 31, 1993. The Company borrowed $100,000 in December 1990 at 10% interest per quarter plus three-year warrants to purchase 30,000 shares of common stock at $.75 per share, subject to anti-dilution adjustments. Effective December 31, 1990, the noteholder converted the $100,000 loan into 100,000 shares of common stock. In connection with this transaction, the placement agent received three-year warrants to purchase 30,000 shares of common stock at $.75 per share, subject to anti-dilution adjustments. All such warrants were exercised during 1992. 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 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. F-19 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE H - STOCKHOLDERS' EQUITY - Continued 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. Private Placement of Common Stock - During the first and second quarters of 1994, the Company sold common stock to certain investors pursuant to a share subscription agreement. The number of shares initially sold were 5,301,164 at an average purchase price of $.20 per share. These shares were not sold pursuant to a formal offering memorandum. Therefore, the Company offered a right of recession, which the majority of the purchasers of the common stock exercised. Warrants and Options - Outstanding warrants and options at December 31, 1994, all of which are currently exercisable, after giving effect to adjustments through such date for anti-dilution provisions and exercisable price reductions are as follows:
Exercise Shares Price Expiration Issuable Per Share Date - ---------------------------------------------------------------------------------------------------------- Warrants: Issued in connection with public offering in 1991: Class B Warrants 4,575,000 $ 2.00 February 1995 Underwriter's Warrants 567,000 $ 0.96 February 1996 Underwriter's Class B Warrants 567,000 $ 2.00 February 1995 Issued to consultants in 1991 710,000 $ 1.12 Various through May 1995 Issued to stockholder and certain others In 1992 19,000 $ 0.41 December 1994 Issued to placement agent in 1992 in Connection with sale of Common Stock to private investors 1,096,000 $ 0.96 April 1995 Issued to private investors in 1992 in Connection with purchase of Common Stock 519,000 $ 1.17 April 1995 Options: Issued to director in 1990 67,000 $ 2.20 April 1995 Incentive options issued to key Employees: Officer and director in 1989 50,000 $ 1.03 February 1994 Officer and others in 1989 and 1991 215,000 $0.94 to $1.28 February 1990 to October 2001
F-20 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE H - STOCKHOLDERS' EQUITY - Continued Issued to the Company's President in 1994 in connection with cancellation of certain warrants and for guarantee of Company debt 5,000,000 $.125 August 10, 1999 ----------- 13,385,000 ===========
The Company has an incentive stock option plan (the "Plan") for key employees under which it may grant options to purchase the Company's common stock over a term of up to ten years at the fair market value at the time of the grant. Options granted to a ten percent or more shareholder, an officer, or a director, may not be for less than 110% of fair market value and must be exercised within five years. The Plan was amended in December 1991 increasing to 750,000 the number of shares reserved for issuance. The Plan terminated on October 31, 1994. Options under the Plan are summarized as follows:
Year Ended December 31, ---------------------------------------------- 1994 1993 1992 - -------------------------------------------------------------------------------------------------- Options outstanding at beginning of year 265,000 265,000 265,000 Options granted -- -- Options exercised -- -- Options cancelled 265,000 -- -- - -------------------------------------------------------------------------------------------------- Options outstanding at end of year -- 265,000 265,000 - -------------------------------------------------------------------------------------------------- Option price per share $.94 - $1.28 $.94 - $1.28 $.94 - $1.28 Options exercisable: Number of shares -- 265,000 265,000 - --------------------------------------------------------------------------------------------------
Since inception, 24,000 options granted under the Plan have been exercised (none in 1994, 1993 or 1992). The Plan terminated on October 31, 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 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 F-21 Airship International, Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE H - STOCKHOLDERS' EQUITY - Continued 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 Metropolitan Life - During 1993, the Company derived airship revenue from Metropolitan Life Insurance Company ("MetLife") pursuant to an amended aerial advertising agreement which expired in October 1993. The agreement provided for minimum monthly revenues plus travel expense reimbursements. The Company was responsible for all costs associated with the ownership, use or operation of the MetLife airship, including repairs, maintenance supplies, insurance and taxes. In January 1994, the Company entered into an advertising agreement with Kingstreet Tours Limited (UK) for the use of the MetLife airship promoting Pink Floyd. The term of the agreement was originally for six months commencing January 18, 1994. The Company was responsible for all costs associated with the operations of the airship, including travel costs, repairs, maintenance, insurance and taxes. On June 20, 1994, the MetLife airship was damaged in a storm and the contract was cancelled (See Note E). No revenues were earned on the MetLife airship during the period subsequent to the airship accident described below until October 15, 1992. The Company collected $585,000 of business interruption insurance proceeds relating to the loss of revenues during the months that the MetLife airship was under repair due to damage. Anheuser-Busch/Sea World - In April 1990, the Company entered into an aerial advertising agreement with Anheuser-Busch Companies, Inc. ("Anheuser-Busch") granting Anheuser-Busch the exclusive use of the Sea World airship to advertise and promote Anheuser-Busch's products and business. The agreement was replaced in April 1991 (retroactive to January 1, 1991) to include the payment of $540,000 to the Company in January 1991 as an advance against the fees for the next 18 months. The $540,000 advance was recognized as airship revenue at the rate of $30,000 per month over the period of January 1, 1991 to June 30, 1992. The agreement also provided for additional monthly revenues through the expiration of the agreement on June 30, 1993. The Company continued to operate the airship for a monthly fee through December 1993, after which the lease was terminated. The Company was responsible for all costs associated with the ownership, use or operation of the airship, including repairs, maintenance supplies, insurance and taxes. The Company is also entitled to receive royalties from Anheuser-Busch on monthly sales of merchandise shaped like or containing an image of the airship and bearing Anheuser-Busch's trademarks during the term of the Sea World Contract and for two years thereafter. The amount of royalties recognized as revenue amounted to $7,000 and $18,000 for the years ended December 31, 1993 and 1992, respectively. F-22 Airship International Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE I - AIRSHIP REVENUES, MAJOR CUSTOMERS AND CREDIT CONCENTRATION - Continued On January 2, 1994 the Company entered into an agreement with Anheuser-Busch, whereby the Company was permitted to provide passenger rides and to display advertising. The contract did not provide for usage fees or for a monthly operating fee, but permits the Company to use this airship while it still carries Sea World's logos/markings. The term of this agreement was to expire on December 31, 1994. However, the Company exercised its right under the contract to voluntarily suspend operations of the airship in April 1994. Anheuser-Busch/Bud One - In March 1992, the Company entered into an agreement similar to the above 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 may 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. 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 when the airship will resume operations through October 1994. The Company is 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 operations for the Argentina Airship were never commenced by the Company due to a transaction with First Security Bank of Utah, as described below. Subsequently, 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. F-23 Airship international Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE I - AIRSHIP REVENUES, MAJOR CUSTOMERS AND CREDIT CONCENTRATION - Continued 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 approximately 4.0% of the Company's common stock, is a principal stockholder of Aviation. See Note C - Transactions With Stockholders, Related Parties And Others. Other Credit Concentrations - Reference should be made to Note C for advances to affiliate and deposit with Slingsby. In June 1992, the Company's MetLife airship was damaged during a test flight. The airship was in the hangar in North Carolina through October 15, 1992 undergoing repairs as a result of the damage, during which time no related airship revenues were received. In August 1992, the Company received $1,850,000 from its insurance carrier in settlement of such damages to the airship and loss of revenues from interruption of operations. The Company wrote off the net book value of the damaged components ($760,000, principally related to the envelope) and costs to repair the airship, including the cost of replacement components, of $321,000. The Company provided most of the replacement components from its existing stock. The cost of the new envelope ($711,000) and other reassembly costs were capitalized and totaled approximately $1,201,000. 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 Service annual contribution limit of 15% of the employee's salary. The Company matches 5% of each employee's contributions, 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 $11,000 for 1994. There were no matching contributions for 1992. F-24 Airship international Ltd. NOTES TO FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 NOTE K - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Cash paid during the year for: Interest $392,000 $832,000 $1,044,000 Supplemental non-cash activity: Conversion of debt to equity $ -- $ -- $ 241,000 Application of debt toward sales price of airship components and related equipment $ -- $ -- $1,150,000 Accrued common stock dividend $862,000 $ -- $ -- Warrants or options granted for loan guarantees or convertible subordinate notes $ -- $ -- $ 58,000
NOTE L - SUBSEQUENT EVENTS F-25 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES Board of Directors and Stockholders Airship International Ltd. In connection with our audit of the financial statements of Airship International Ltd. referred to in our report dated August 22, 1997 (that contains an explanatory paragraph pertaining to a going concern and other uncertainties), which is included in the Annual Report on SEC Form 10-K for the year ended December 31, 1994, we have also audited Schedules II, IV, V, VI, IX, and X for the year ended December 31, 1994. In our opinion, these schedules present fairly, in all material respects, the information required to be set forth therein. CHARLIE M. MEEKS, C.P.A., P.A. Orlando, Florida August 22, 1994 F-26 (b) Exhibits listed in the Exhibit Index below have been filed as part of this report:
Exhibit Index -------------- Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 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. * 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)
Exhibit Index -------------- Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 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. 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").
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Exhibit Index -------------- Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 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).
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Exhibit Index -------------- Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 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.
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Exhibit Index -------------- Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 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.
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Exhibit Index -------------- Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 10.68 Guarantee of James Stuart Tucker in favor of the Company dated as of Exhibit 10.68(15) December 7, 1993. 10.69 Kingstreet Tours Limited Aerial Advertising Agreement dated January 18, * 1994, by and between the Company and Kingstreet Tours Limited. 10.70 Amended and Restated Airship Advertising Agreement, dated July 8, 1994, * by and between the Company and Anheuser-Busch Companies, Inc. 10.71 Aircraft Lease Agreement, dated December 15, 1994, by and between the * Company and Mastellone Hnos., S.A. 10.72 Airship Operations Agreement, dated December 15, 1994, by and between * Airship Operations (USA), Inc. and Mastellone Hnos, S.A. 10.73 Passenger Airship Agreement, dated as of January 2, 1994, by and between * the Company and Anheuser-Busch Companies, Inc. 10.74 Letter Agreement Modification, dated January 11, 1994, by and between * the Company and ORIX USA Corporation. 10.75 Amendment to Lease, dated May 12, 1994, by and between the Company * and ORIX USA Corporation. 10.76 Collateral and Security Agreement, dated as of May 10, 1994, by and * between the Company and ORIX USA Corporation. 10.77 Aircraft Collateral Funding Repayment Agreement, dated as of November * 16, 1994, by and between the Company and Allstate Financial Corporation. 10.78 Guaranty, dated December 6, 1994, of Louis J. Pearlman. * 10.79 Guaranty, dated December 6, 1994, of Trans-Continental Airlines, Inc. * 10.80 Aircraft Lease Agreement, dated as of May 31, 1995, by and between * 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 * Trans Continental Leasing, Inc. 10.82 Credit Agreement, dated November 30, 1995, by and between the Company * and Senstar Capital Corporation. 10.83 Term Note, dated November 30, 1995, of the Company to Senstar Capital * Corporation. 10.84 Aircraft Mortgage and Security Agreement, dated November 30, 1995, by * and between the Company and Senstar Capital Corporation. 10.85 Assignment of Contract Rights, dated November 30, 1995, by and between * the Company and Senstar Capital Corporation. 10.86 Agreement of Guaranty and Suretyship, dated November 30, 1995, by and * between Trans Continental Airlines and Senstar Capital Corporation.
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Exhibit Index -------------- Exhibit Incorporated by Number Description Reference to - ------- ----------- --------------- 10.87 Release and Settlement Agreement, dated September 20, 1993, by and * between the Company and Sequel Capital Corporation and Louis J. Pearlman. 10.88 Promissory Note, dated October __, 1994, of Louis J. Pearlman to Airship * Airways, Inc. 10.89 Promissory Note, dated October 26, 1994, of Louis J. Pearlman to Airship * Airways, Inc. 10.90 Form of Share Subscription Agreement, dated August 11, 1994, between * the Company and _______________. 10.91 List of Purchasers in the 1994 Private Placement. * 10.92 Secured Promissory Note, dated October 26, 1994, of Airship Airways, Inc. to * the Company. 10.93 Option Agreement, dated as of August 11, 1994, between the Company and * Louis J. Pearlman. 10.94 Airship International Ltd. Employee Share Purchase Plan. Exhibit 1(18) 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 * 24.1 Consent of Charlie Meeks, CPA * 27.1 Financial Data Schedule *
*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. 7 (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 December31, 1993. (16) The Company's Report on Form 8-K, as filed with the SEC on July11, 1997. (17) The Company's Report on Form 8-K/A, as filed with the SEC on July22, 1997. (18) The Company's Proxy Statement, as filed with the SEC on March 20, 1995. (b) The Company had not filed any reports on form 8-K during the last quarter of the period covered by this report. 8 STATEMENT OF REFERENCES The copyright symbol shall be expressed as.............................`c' The registered trademark symbol shall be expressed as..................`r' The trademark symbol shall be expressed as.............................`tm' Characters normally expressed as superscript shall be preceded by.......`pp' EX-3 2 EXHIBIT 3.9 BY-LAWS OF AIRSHIP INTERNATIONAL LTD. Incorporated under the Business Corporation Law of the State of New York 1 PRINCIPAL OFFICE (1.1) INITIAL LOCATION The principal office of the corporation shall initially be located at 521 Fifth Avenue, Suite 1746, New York, New York 10017. (1.2) CHANGE OF LOCATION The board of directors may, upon reasonable written notice to all shareholders, relocate the principal office of the corporation. (1.3) OTHER OFFICES In addition to its principal office, the corporation may have such other offices, either within or without the State of incorporation, as the board of directors may designate. 2 DIRECTORS (2.1) NUMBER The number of directors shall be that number as may from time to time be fixed by the board of directors, but not less than. the minimum number required by law. (2.2) QUALIFICATION No person shall serve as a director unless qualified under the following rules: A. A director must be at least 18 years of age. B. A director need not be a shareholder. C. A director need not reside within the State of incorporation. (2.3) NOTICES Upon taking office, each director shall file with the secretary a written designation of the address that the director desires to be used for the purpose of giving notices to him/her. Until the director shall have effectively done so, he/she shall be deemed to have designated either the principal office of the corporation or any other address that the sender of the notice could reasonably believe to be an appropriate address. Any designated address may be redesignated by similar filing with the secretary. The secretary shall give each of the other directors prompt notice of every designation or redesignation filed. The designation or redesignation shall be effective three business days.after the secretary's action or upon earlier receipt. Any notice to a director shall be valid if sent to either (a) the director's designated address or (b) any other address used in good faith unless it be shown that prejudice resulted from use of such other address. All notices must be in writing. Any notice may be delivered by hand or sent by telecommunications device, by nail or by similar means. If a notice is sent by registered mail or return receipt requested, another copy shall at the same time be sent by ordinary first class mail. (2.4) RESIGNATION A director may resign at any time by, giving notice to each of the other directors. Unless otherwise specified, the notice shall be effective immediately and acceptance shall not be necessary to make it effective. A director need not assign cause for resigning. (2.5) REMOVAL A director may be removed by the shareholders without cause or by the board of directors with cause. 3 BOARD OF DIRECTORS (3.1) REGULAR MEETINGS A regular meeting shall be held immediately after and at the same place as the annual meeting of shareholders. The board of directors may provide for other regular meetings. Notice need not be given of any regular meeting. (3.2) SPECIAL MEETINGS The president or any two directors may call a special meeting upon not less than five business days' notice to every other director stating the time and place and business to be transacted. (3.3) ADJOURNED MEETINGS Whether or not a quorum is present, a majority of the directors present may adjourn any meeting to such time and place as they shall decide. Notice of any adjourned meeting need not be given. At any adjourned meeting, whether adjourned once or more, any business may be transacted that might have been transacted at the meeting of which it is an adjournment. Additional business may also be transacted if proper notice shall have been given. (3.4) ORGANIZATION The chairperson of the meeting shall be the president if taking part in the meeting or, if not, any director elected by a majority of the directors present. The secretary of the meeting shall be the secretary if taking part in the meeting or, if not, any director appointed by the chairman of the meeting. (3.5) COMMITTEES The board of directors may, by resolution passed by a majority of the full board of directors (a) designate three or more of its number to constitute an executive committee, or one or more other committees, which, so far as may be permitted by law and to the extent and in the manner provided in said resolution, shall have and may exercise, between meetings of the board of directors, the powers of the board of directors in the management of the affairs and business of the corporation, (b) at any time change the members of any such committee, (c) fill vacancies in any such committee, and (d) discharge any such committee, with or without cause. The board of directors may provide for regular meetings of any such -2- committee with or without notice as the board of directors may prescribe. To the extent authority of the board of directors has been delegated to any such committee, any reference in these by-laws to the board of directors shall be deemed a reference to such committee. (3.6) TELECOMMUNICATIONS PARTICIPATION Any one or more directors may participate in a meeting of the board or any committee by means of a conference telephone or other type of telecommunications equipment allowing persons participating in the meeting to hear each other at the same time. (3.7) REGULATIONS The board of directors may adopt rules and regulations, not inconsistent with law, the certificate of incorporation or these by-laws, for the conduct of its meetings and the management of all aspects of the affairs of the corporation. 4 SHARES AND CERTIFICATES (4.1) FORM OF CERTIFICATES Certificates representing shares shall be in the form determined by the board of directors. All certificates issued shall be consecutively numbered or otherwise appropriately identified. (4.2) SHARE TRANSFER LEDGER There shall be kept a share transfer ledger in which shall be entered full and accurate records including the names and addresses of all shareholders, the number of shares issued to each shareholder and the dates of issuance. All transfers of shares shall be promptly reflected in the share transfer ledger. Unless otherwise directed by the board of directors, the share transfer ledger shall be kept at the principal office of the corporation. (4.3) TRANSFER OF SHARES Upon (a) receipt of the certificate representing the shares to be transferred, either duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, (b) payment of any required transfer taxes, and (c) payment of any reasonable charge the board of directors may have established, the surrendered certificate shall be cancelled and a new certificate or certificates shall be issued to the person(s) entitled to it. (4.4) REPLACEMENT CERTIFICATES Replacement certificates will be issued at the request of the shareholder upon payment of any reasonable charge the board of directors may have established. In case of a lost, mislaid, destroyed or mutilated certificate, proof of the facts, by affidavit or otherwise, may also be required, as may be a bond or other proper indemnification for the corporation and its agents. (4.5) RECORD OWNER TO BE TREATED AS OWNER Unless otherwise directed by a court of competent jurisdiction, the corporation shall treat the holder of record of any share as the holder in fact and accordingly shall not recognize any equitable or -3- other claim to or interest in the shares on the part of any other persons, whether or not it shall have express or other notice of it. 5 SHAREHOLDERS' MEETINGS (5.1) ANNUAL MEETING The annual meeting of the shareholders shall be held at 10 A.M. on the third Tuesday of March in each year. If the day fixed for the annual meeting is a Saturday, Sunday or holiday at the place it is to be held, the meeting shall be held on the following day that is not such a day. Unless otherwise stated in the notice of the meeting pursuant to direction of the board of directors, the annual meeting shall be held at the principal office of the corporation. (5.2) SPECIAL MEETINGS A special meeting of the shareholders may be called by any two or more directors, the president or the holders of not less than 25% of all the shares entitled to vote at the meeting. (5.3) ADJOURNED MEETINGS Whether or not a quorum is present, a majority in voting power of the shareholders present in person or by proxy and entitled to vote may adjourn any meeting to a time and place as they shall decide. Notice of any adjourned meeting need not be given. At any adjourned meeting, whether adjourned once or more, any business may be transacted that might have been transacted at the meeting of which it is an adjournment. Additional business may also be transacted if proper notice shall have been given. (5.4) ORGANIZATION The president shall be chairman of the meeting. The secretary shall be secretary of the meeting. If neither the president nor any vice president is present, the shareholders shall choose a chairman of the meetings If neither the secretary nor any assistant secretary is present, the chairman of the meeting shall appoint a secretary of the meeting. (5.5) ORDER OF BUSINESS The order of business shall be as determined by the chairman of the meeting, but the order may be changed by a majority in voting power of the shareholders present in person or by proxy and entitled to vote. Unless otherwise determined as aforesaid, the order shall be as follows: 1. Roll call. 2. Proof of notice of meeting or waiver of notice. 3. Reading of minutes of preceding meeting. 4. Reports of officers. 5. Reports of committees. 6. Election of directors. 7. Unfinished business. 8. New business. -4- (5.6) VOTING Upon demand of any shareholder, voting shall be by ballot, in which event each ballot shall be signed by the shareholder or his proxy and shall state the number of shares voted. Otherwise, voting need not be in writing. 6 OFFICERS (6.1) ADDITIONAL OFFICERS In addition to the president, secretary, treasurer and any other officers required by law, the corporation may have one or more vice presidents elected by the board of directors, one of whom may be designated as executive vice president. The corporation may also have such other or assistant officers as may be elected by, or appointed in a manner prescribed by, the board of directors. (6.2) SENIORITY The executive vice president, if there is one, shall be deemed senior to all other vice presidents. Unless otherwise determined by, or under rules prescribed by, the board of directors, seniority of any officer shall be determined by length of continuous service in that office. (6.3) CONTINUATION IN OFFICE Unless otherwise provided by the board of directors, every officer shall serve until death, incapacity, resignation or removal by the board of directors. Any resignation or removal shall be without prejudice to any contractual rights of the corporation or the officer. (6.4) DUTIES IN GENERAL Subject to these by-laws, the authority and duties of all officers shall be determined by, or in the manner prescribed by, the board of directors. Except as may be specifically restricted by the board of directors, any officer may delegate any or his/her authority and duties to any subordinate officer. (6.5) DUTIES OF PRESIDENT The president shall be the principal executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise and control all of the business and affairs of the corporation. The president may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the board of directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments that the board of directors has authorized to be executed, except in cases where the signing and execution shall be expressly delegated by the board of directors or by these by-laws to some other officer or agent of the corporation or shall be required by law to be otherwise signed or executed, and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. (6.6) DUTIES OF VICE-PRESIDENTS In the absence or incapacity of the president, the senior vice president shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president. -5- Each vice president shall perform any other duties as may be assigned by the president or by the board of directors. (6.7) DUTIES OF SECRETARY The secretary shall keep the minutes of the shareholders' and the directors' meetings in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these by-laws or as otherwise required, be custodian of the corporate records and of the seal of the corporation, keep a register of the post office addresses of each shareholder, have general charge of the share transfer books of the corporation, and in general perform all duties incident to the office of secretary and other duties as may be assigned by the president or by the board of directors. (6.8) DUTIES OF TREASURER If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his/her duties in a sum and with any surety or sureties as the board of directors shall determine. The treasurer shall have charge and custody of and be responsible for all funds and securities of the corporation, receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such monies in the name of the corporation in the banks, trust companies or other depositories as shall be selected in accordance with these by-laws, and in general perform all the duties incident to the office of treasurer and such other duties as may be assigned by the president or the board of directors. (6.9) SALARIES No officer shall receive any salary unless provided or authorized by the board of directors. No officer shall be prevented from receiving a salary by reason of the fact that he/she is a director. 7 SEAL (7.1) FORM The seal of the corporation shall be in the form impressed in the margin. (7.2) USE The seal may be used by causing it to be impressed directly on the instrument or writing to be sealed, or upon an adhesive substance annexed. The seal on certificates for shares or other documents may be a facsimile, engraved or imprinted. 8 AMENDMENTS (8.1) BY BOARD These by-laws may be amended or repealed by the board of directors. -6- EX-10 3 EXHIBIT 10.69 KINGSTREET TOURS LIMITED AERIAL ADVERTISING AGREEMENT AGREEMENT made as of the 18th day of January 1994 by and between Airship International Ltd., a New York corporation ("Airship"), with its principal place of business at 7380 Sand Lake Road, Suite 200, Orlando, Florida 32819 and KINGSTREET TOURS LIMITED, a United Kingdom Company (the "Client"), with its principal place of business at 48 Woodstock Road, London, England W4 1US. Client and Airship are collectively referred to as the "Parties" to this Agreement: W I T N E S S E T H: WHEREAS, Airship is the owner and operator of a lighter-than air airship to be provided by Airship for use under this Agreement (the "Aircraft"); and WHEREAS, the Aircraft is suitable for aerial advertising; and WHEREAS, the Client wishes to utilize the Aircraft for aerial advertising and promotion of Client's (and its affiliates') products, merchandise and services on a fixed fee basis; and WHEREAS, Airship wishes to furnish the Aircraft and all equipment, supplies and personnel required to operate the Aircraft under this Agreement; NOW, THEREFORE, in consideration of the mutual promises, covenants and representations contained herein and for other good and valuable consideration also set forth herein, the parties hereto do hereby agree as follows: SECTION ONE OPERATING FEE, TERM OF THE AGREEMENT AND DELIVERY OF THE AIRCRAFT Operating Fee 1.1 Airship shall provide the Aircraft to the Client, with all equipment, instruments, engines, computers, camera mount facilities, ground support vehicles, mooring masts, fuel, personnel, (including pilots and ground crew), necessary for the operation of the Aircraft. 1.2 (a) Subject to the terms set forth in Section 1.4 below, Client shall pay an operating fee to Airship in the amount of $250,000 per month for each month for which the Airship shall be operated during the Term of this Agreement (as defined in Section 1.4(a) herein). (b) Upon execution of this Agreement, Client shall pay to Airship $250,000 representing the initial monthly fee. Thereafter, Client shall pay the monthly installments set forth in Section 1.2(a) (subject to credit or offset pursuant to this Agreement) on the first business day each month for which the Airship is operated during the term of this Agreement. (c) If the Commencement Date of this Agreement shall be other than the first day of a calendar month or if this Agreement is terminated as of a date that is not the last day of a calendar month, then the fee payable by Client to Airship for such -2- month shall be prorated based upon the actual number of days in the month advertising services are provided to Client. Any such excess sums paid by Client shall be either (i) returned to Client or (ii) applied against Client's second monthly installment payment, at Client's option. (d) Payment by Client shall be made to the order of Airship International Ltd., and shall be made at 7380 Sand Lake Road, Suite 200, Orlando, Florida 32819 or to such other place as may be designated in writing by Airship to Client in accordance with the Notice provisions of Section 11.2 of this Agreement. If any payment due under this Agreement remains unpaid for more than seven (7) days after the due date hereof, Client shall pay to Airship interest calculated at the rate of ten (10) percent per annum on the unpaid principal amount of any overdue payments from the date such payment was due to the date of payment. Any costs, including reasonable attorney's fees, incurred by Airship to recover sums due under this Agreement shall be paid by Client. Flight Time 1.3 (a) Airship shall provide to Client and Client shall schedule the Aircraft to fly, at least 120 hours of flight time per month of operation, subject to the limitations set forth in this Section 1.3. Flight time shall be measured from departure from Aircraft's mooring mast until mooring at said mast and will be determined by flight meter and/or pilot's log. (b) Airship shall perform its flight operation duties and Client shall schedule the Aircraft to fly, on eight (8) -3- consecutive hours per day for five (5) days in every week (including Saturdays and Sundays) during the term of this Agreement (and all extension renewals), including (i) travel from one base of operations to another; and (ii) required ground time for mooring, refueling, equipment installation as required, and boarding of passengers on the Aircraft; and (iii) pre-flight and post-flight activities, it being expressly understood by Client that during a normal eight hour work day, up to forty-five (45) minutes before and forty-five (45) minutes after flights ordinarily must be devoted to pre-flight and post-flight activities. (c) Subject to Section 1.3(e) below, if the actual flight time shall be less than 120 hours during any one full month of operation (or pro rata for any portion of a month), for any reason other than the scheduled hangar periods set forth in Section 1.3(g)(ii) of this Agreement, then Client shall be due compensable flight time as set forth in this Section 1.3. Compensable flight time shall be defined as one hour of flight time in excess of 120 hours during one full month of operation (or pro rata for any portion of a month), for each hour less than 120 hours not flown. (d) In the event Airship does not (i) provide compensable flight time to Client during the month succeeding the month in which the compensable flight time accrued, then Client shall have the option to either: (1) receive a pro rata reduction in the monthly installment payment due to Airship pursuant to Section 1.2(a) in the next succeeding month after Client elects to -4- take the credit; or (2) receive compensable flight time as defined in Section 1.3 during any portion of the balance of the term of this Agreement or any renewals thereof. Each hour of compensable flight time shall be assigned a value of $2,500 for the purpose of computing the pro rata reduction in compensation due Client under Section 1.3. In the event that the total operating fee provided for in Section 1.2 (a) has been paid to Airship and Client has opted to receive a pro rata reduction under this section, Airship shall reimburse Client for the amount of such reduction within ten business days after Client notifies Airship in writing that it opts to receive reimbursement rather than compensable flight time. Compensable time use shall be charged against the earliest accrued compensable time. (e) If the actual flight time shall be less than 120 hours during any one full month of operation (or pro rata for any portion of a month), as a result of Client's failure to schedule the Aircraft to fly for at least 120 hours in that month then Client shall not be due, under any circumstances, compensable flight time nor any credit against its monthly installment pay for such unused flight time. (f) The required 120 hours of flight time per month shall be prorated on a daily basis where this Agreement does not commence on the first day of the month and/or where this Agreement terminates on a day other than the last day of the month. (g) Airship shall have the right at its sole discretion, to withdraw the Aircraft from service (i) whenever -5- weather conditions, limitations of the Aircraft, mechanical difficulties, licensing requirements and/or governmental regulations prevent or limit air flight and/or may cause damage or injury to the Aircraft or its personnel; and (ii), after prior consultation with Client, but still at its sole discretion, for up to two 20-day hangar periods for scheduled airship maintenance. Term of this Agreement 1.4 The term of this Agreement shall commence on or about January 18, 1994 (the "Commencement Date"). The term of this Agreement shall terminate six months from the Commencement Date. The parties hereby agree that the Aircraft shall be operated for a minimum of three months during the Term. The Client shall notify Airship at last ten (10) days' in advance of each month for which the Airship will be operated. Notwithstanding anything in this Agreement to the contrary, Client shall receive a two-week period immediately following the Commencement Date during which the operating fee obligations of Section 1.2(b) shall not apply. Accordingly, the first month period for operating fee obligations under Section 1.2 shall consist of one month plus two weeks following execution of this Agreement. Upon termination of this Agreement, Airship shall take possession of the Aircraft from Client at the Aircraft's mooring mast at the geographic location where Client most recently utilized the Aircraft. SECTION TWO OPERATION AND USE OF THE AIRCRAFT AND AIRCRAFT CREWS -6- Use of the Aircraft 2.1 (a) The Aircraft shall be used, exclusively, for the advertising and promotion of products, services, and merchandise which are sold, marketed, or otherwise provided for by Client or Client's companies, subsidiaries or affiliates. Client shall have the right to communicate and make arrangements with television stations for coverage of the Aircraft during televised events. (b) Client shall have the right to advertise the products, merchandise or services of companies or persons other than those set forth in Section 2.1(a), including public service messages ("third party advertisers"), subject to the prior written consent of Airship, which consent shall not be unreasonably withheld or delayed; provided, however, that it shall not be considered unreasonable for Airship to withhold its consent to the advertising and promotion of products under this Section 2.1 where in Airship's discretion, such advertising (i) is offensive to, or violates community standards; or (ii) violates any applicable regulations and directives of any civil aviation authorities having jurisdiction over the Aircraft; or (iii) violates the terms of any other agreement executed or contemplated by Airship as of the date of this Agreement with Client or a third party; or (iv) violates any exclusive right granted another user of an Aircraft provided by Airship under an exclusive agreement (executed or contemplated as of the date of this Agreement) for a term of ninety (90) days or more, subject to the limitations of Section 10.2. -7- (c) Client shall inform Airship of its intention to sell advertising space on the Aircraft to a third party advertiser in writing, setting forth the identity of such advertiser and the terms of such party advertising. Where such third party advertiser does not then violate an existing exclusive advertising right granted by Airship under any other agreement entered into by Airship, Client may continue to sell space to such third party advertiser without regard to any subsequent agreements entered into by Airship with other third party advertisers under an agreement between Airship and another user of an Aircraft provided by Airship. (d) Airship shall inform Client of any objections to any proposed third party advertising by Client within five (5) days after Airship's receipt of written notice from Client of the proposed third party advertising. Operation of the Aircraft 2.2 (a) Client shall take no action nor require Airship to take any action that will prevent or limit Airship from operating the Aircraft, and Airship shall operate the Aircraft, in the following manner: (i) The Aircraft shall be operated in accordance with all applicable federal, state, municipal or other laws, rules, regulations, ordinances and orders now existing or enacted of any jurisdiction to, from, or through which Airship or Client shall use or operate the Aircraft; -8- (ii) The Aircraft shall be operated in accordance with the manufacturer's approved flight manual and Airship's operations manual for the Aircraft, engines, equipment, components and accessories under the guidance of the Federal Aviation Administration ("FAA") and the Department of Transportation ("DOT") and in accordance with the applicable regulations an any other civil aviation authorities having jurisdiction over the Aircraft; (iii) The Aircraft shall be operated by pilots and other qualified personnel holding valid licenses and other necessary authorizations as may be required by applicable laws, regulations and directives; and (iv) The Aircraft shall be operated for the purposes and in the manner set forth in any application for insurance executed in connection with the Aircraft and in accordance with the terms of any insurance policies relating to the Aircraft or its operations, and in accordance with the geographical area covered by the policies of insurance required hereunder, and in a manner which will not cause a suspension of insurance or make applicable any exclusionary provision of such policies. (b) The Aircraft shall not be used or operated: (i) at any time when the insurance referred to in Section 4 of this Agreement is not in full force and effect; (ii) to transport hazardous or perilous cargo; (iii) in a manner which endangers the Aircraft's appropriate airworthiness certificate, or in a manner which -9- violates or may cause Airship to violate any license, registration or directive relating to the Aircraft issued by any aviation authority having jurisdiction over the Aircraft; (iv) for any purpose for which, in Airship's discretion, the Aircraft is not designed or suited; (c) If weather conditions permit, the Aircraft flight shall generally operate at an altitude of 1,000 feet above ground level and shall be conducted pursuant to the FAA regulations for Visual Flight Rules; (d) The Aircraft is or will be permitted to operate in all areas in which general civil aviation is permitted to operate subject to weather conditions, physical limitations of the Aircraft and/or governmental regulations pertaining to the operation of the Aircraft. Schedules of Operation 2.3 (a) On a weekly or bi-weekly basis, Client and Airship shall establish the local regional area and hours of operations (the "Local Regional Schedule") for the Aircraft. Client may reasonably amend the Schedules, provided, however, that Airship can comply with Client's request. Airship shall use its best efforts to accommodate such regional changes when requested by Client, however, Airship specifically reserves the right to refuse its consent to such amendment whenever Airship (i) is unable to obtain clearance with the appropriate governmental agencies; and/or (ii) is unable to make appropriate ground arrangements. -10- (b) Airship shall have the right to refuse to fly the Aircraft in accordance with the Local Regional Schedules of Operations (and any amendments thereto) whenever in Airship's sole discretion, weather conditions, physical limitations of the Aircraft and/or applicable governmental rules or regulations prevent or limit adherence to the Local Regional Schedules of Operations. Guests Aboard the Aircraft 2.4 (a) Client shall be permitted to invite guests on board the Aircraft subject to (i) Airship's prior written consent; (ii) operational limits, schedules and capacity of the aircraft; and (iii) applicable governmental rules and regulations; provided however, that Client shall at no time require Airship to take either cargo or passengers for hire. (b) All guests of the Client approved by Airship shall sign a waiver of liability on a form provided by Airship, releasing Airship, Client, their officers, directors, stockholders, and all related or affiliated companies from liability for personal or property damage or injury to such guests. Airship shall obtain such waivers for Client. Airship and Client shall not permit any guest to board the Aircraft without execution and delivery to Airship of the required waiver. Demonstration Flight 2.5 During the term of this Agreement and any extensions thereof, Airship shall have the right, upon written notice to -11- Client, to conduct demonstration flights of the Aircraft during times which shall not otherwise interfere with the Client's advertising program. 2.6 At Client's option, either (i) Client shall provide all necessary uniforms for the Airship flight crews and all decals and logos for use on ground support vehicles or (ii) Airship shall provide such uniforms, decals or logos conforming to Client's requirements at Client's expense. Such uniforms, decals and logos shall be cleaned or replaced from time to time by Airship or Client, as the case may be, in order to main and presentable appearance to the public. Client's registered trademarks, trade names and other proprietary property connection with such uniforms, painted logos and decals shall remain the property of Client and/or subsidiaries and affiliates. In the event that Client does not require uniforms, decals or logos, the crew of the Aircraft shall wear Airship uniforms and Airship decals and logos shall be used, at Airship's expense. 2.7 (a) Notwithstanding anything to the contrary contained herein, the actual operation of the Aircraft shall remain Airship's sole responsibility. Airship which shall have sole discretion over the determination of actual conditions and through its pilot in command of the Aircraft, shall make the final determination whether geographic, topographic and/or weather conditions are within acceptable limits to permit the Aircraft to fly. (b) Where any proposed flight is cancelled, or there is a deviation from the Local Regional Schedule of Operations -12- as a result of (i) prevailing or forecast weather conditions; (ii) topographic problems; and/or (iii) physical limitations of the Aircraft, then the pilot in command of the Aircraft shall make a notation regarding the circumstances for such cancellation or deviation in the Aircraft's logs. SECTION 3 REPRESENTATIONS, WARRANTIES AND COVENANTS 3.1 (a) Airship represents, warrants and covenants that: (i) The Aircraft shall measure approximately 194 feet in length, 62 feet in height, and 50 feet in width; (ii) The Aircraft will be a certified standard type aircraft under the laws of the International Civil Aviation Organization (ICAO); (iii) As of the Commencement Date, Aircraft shall have a valid Certificate of Airworthiness issued by the country of origin or the FAA, and Airship shall maintain valid certificates of airworthiness for the Aircraft at all times. (iv) The Aircraft is, or will be on the Commencement Date, in good condition and usable for the purposes contemplated by this Agreement; and (v) Airship shall maintain registration of the Aircraft under applicable laws during the term of this Agreement, and shall obtain and maintain in effect, the required approvals of the FAA, DOT and any other aeronautical authorities having jurisdiction to operate the Aircraft in the United States. -13- (b) As owner and operator of the Aircraft, Airship shall be responsible for performance of all Aircraft overhaul, engine overhaul and maintenance required during the terms of this Agreement under the guidance of the regulations of the FAA, DOT or other governmental authority having jurisdiction over the Aircraft. (c) Airship shall maintain all records, logs and other materials required by the FAA, DOT, or other governmental authority having jurisdiction over the Aircraft. Airship agrees to permit Client, or its duly authorized agents or representatives, to inspect the Aircraft and its logs upon reasonable notice to Airship. (d) Prior to the Commencement Date, the Aircraft and ground support equipment shall be painted and/or decaled by Airship in an exterior paint or decal design in accordance with Client's specifications, which design is annexed hereto as Exhibit A. Airship shall maintain the paint and/or decals in a clean and orderly condition for the term of this Agreements. Client shall have the right to change the paint scheme of the Aircraft envelope and/or ground support equipment at any time during the term of this Agreement and all renewals thereof, provided Airship receives at least sixty (60) days written notice of the change. A charge of Fifty Thousand ($50,000) Dollars will be payable by the Client to Airship for each subsequent redesigned paint scheme for the Aircraft and support equipment, if any, which Client may require. All operating time lost on account of such change by the Client shall constitute "flight time" under Section 1 and Client shall not -14- receive any credit or compensable flight for such lost operating flight time. (e) Airship shall maintain, service and repair the Aircraft so as to (i) keep each component of the Aircraft in operating condition; (ii) meet the requirements of the maintenance plans recommended by the manufacturers of the engines, envelope and gondola comprising the Aircraft; (iii) keep the Aircraft certified as airworthy by the governmental agency with jurisdiction over the Aircraft; (iv) comply with any other governmental authority airworthiness directives applicable to the Aircraft; and (v) keep the Aircraft clean and in suitable condition to provide services required under this Agreement. (f) Airship shall maintain, service and repair all ground support vehicles and equipment supplied by so as to (i) keep the components thereof in good operating condition; (ii) keep such vehicles and equipment properly licensed and (iv) keep the vehicles and equipment clean and in good condition fit to provide the service required of Airship hereunder. (g) Airship represents and warrants that all necessary approvals, licenses and permits required by the DOT, FAA, or other required federal, state or local governmental authority necessary for the execution of this Agreement have been or will be obtained prior to the commencement of this Agreement and that if required, such approvals, licenses and permits shall be maintained in effect during the term of this Agreement. -15- 3.2 Airship represents and warrants that (i) Airship is a corporation duly organized and validly existing under the laws of the State New York; (ii) Airship is duly qualified and authorized to do business jurisdiction where the nature of its business makes such authorization necessary; (iii) Airship has the power, authority and legal right to enter into and perform this Agreement and the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action of Airship; (iv) the execution of this Agreement and compliance with its terms and conditions will not contravene any permit applicable to Airship, nor conflict with, or breach of the terms and condition hereof, nor constitute a default under the Articles of Incorporation or By-Laws of Airship or any agreement or instrument to which Airship is now a party; (v) this Agreement constitutes a legal, valid and binding obligation of Airship; and (vi) there are no suits, actions or proceedings pending, or to Airship's knowledge, threatened, in court or before or by any regulatory commission, board or other administrative agency which may have a material adverse effect on the business, operations or financial condition of Airship. 3.3 Client represents and warrants that (i) Client is a corporation duly organized and validly existing under the laws of the United Kingdom: (ii) Client is duly qualified and authorized to do business in each jurisdiction where the nature of its business makes such authorization necessary; (ii) Client has the power, authority and legal right to enter into and perform this Agreement -16- and the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Client; (iv) the execution of this Agreement and compliance with its terms and conditions will not contravene any franchise or permit applicable to Client, nor conflict with, or result in a breach of the terms and conditions here, nor constitute a default under the Articles of Incorporation or By-Laws of Client or any agreement or instrument to which the Client is now a party; (v) this Agreement constitutes a legal, valid and binding obligation of the Client; and (vi) there are no suits, actions or proceedings pending, or to Client's knowledge, threatened, in court or before or by any regulatory commission, board or other administrative agency which may have a material adverse effect on the business, operations or financial condition of Client. SECTION FOUR INSURANCE 4.1 (a) During the term of this Agreement, Airship shall procure and maintain the following insurance coverage: (i) Comprehensive Aviation Liability Insurance with respect to the use and operation of the Aircraft, having single limit of not less than $100,000,000.00, insuring and covering Airship and as an additional insured pursuant to section 4.1(b)(i) Client, against all liability for injury, damage or claims caused by or arising out of, or in connection with the injuries to, or deaths of passengers or third persons or damage to property; -17- (ii) Automobile Liability Insurance or other general liability insurance covering all owned and rented/hired automobiles, trucks, trailers, and other vehicles and ground support equipment used by Airship in the performance of its duties under this Agreement. Such insurance shall provide coverage of not less than the Standard Comprehensive automobile Liability Policy in limits not less than $10,000,000 combined single limit each occurrence for Bodily Injury and Property Damage; and (iii) Worker's compensation insurance in conformity with the statutory limits of the states in which Airship shall be required to carry such insurance. (b) The liability insurance as set forth in Section 4.1(a)(i) and (ii) shall include the following: (i) Additional Insured: Client and its subsidiaries and affiliates and their respective assigns, officers, directors and employees, and David Gilmour, Nicholas Mason, Richard Wright and Tourlight Inc., a Delaware corporation ("Tourlight"), shall be included as additional insured under Section 4.1(a)(i) and (ii) with respect to the use and operation of the Aircraft; (ii) Waiver of Subrogation: The insurers shall agree to waive their rights of subrogation against client and its subsidiaries and affiliates and their respective agents, assigns, officers, directors and employees; (iii) Breach of Warranty: Such insurance as is afforded Client shall not be invalidated by any act or neglect of Airship whether or not such act or neglect is a breach or -18- violation of any warranties, declarations of conditions of the policies; provided, however, that the policy or policies providing the Automobile Liability Insurance and other coverage provided for in Section 4.1 (a)(ii) may be interpreted by the insurance underwriter thereof in such a manner as to invalidate or restrict coverage for Client if the coverage for Airship shall have been invalidated or restricted due to a breach of warranty by Airship. (iv) Cross Liability: The inclusion of more than one corporation, person, organization, firm or entity as Insured under the policy of insurance shall not in any way affect the rights of any claim, demand, suit or judgment made, brought or recovered, by or in favor of any other insured, or by or in favor of any employee of such other insured. This policy shall protect each corporation, person, organization, firm or entity in the safe manner, as though a separate policy had been issued to each, but nothing herein shall operate to increase the insurer's liability as set forth as limits to the policy beyond the amount or amounts for which the Insurers would have been liable if only one person or interest had been named as insured. (v) Primary: With respect to such insurance as is afforded to the additional insured specified above, this insurance shall be primary with respect to damages or claims arising from acts or omissions by Airship without right or contribution from any other insurance which is carried by the Client. (vi) Cancellation: Insurers shall agree that, in the event they cancel or materially change such insurance policies, they will give (30) days advance written notice (seven days in the case of war risk) of such cancellation or material change to Client. (vii) Geographic Limits: The geographic limits of such insurance shall include all states within the continental United States. -19- (viii) Certificate of Insurance: At least ten (10) days prior to the commencement of this Agreement and from time to time as Client shall reasonably request, and prior to each renewal date of the insurance, Airship shall furnish to Client certificates and cover notes (summarizing policies) evidencing that the foregoing liability insurance is in full force and effect. SECTION FIVE INDEMNITY 5.1 Airship hereby assumes liability for, and hereby agrees to indemnify, reimburse, protect, save and hold harmless Client, its subsidiaries and affiliates and their successors, assigns, agents, employees and servants, and David Gilmour, Nicholas Mason, Richard Wright and Tourlight, from and against, all claims, actions, suits or legal proceedings, in connection with the purchase, ownership or, operation, lease of the aircraft, ground support vehicles and equipment. This indemnity shall not however extend to (i) claims arising from the advertising and promotion of Client's advertising copy on the Aircraft or the advertising copy of third party advertisers; (ii) any injury due to the negligence (in material part) or intentional acts of Client or its third party advertisers or their officers, directors, agents, employees or those of any affiliated company; and (iii) any sales, use or other similar tax assessed to a user of goods and/or services which shall be the sole obligation of the Client. -20- 5.2 Client hereby assumes liability for and hereby agrees to indemnify, reimburse, protect, save and hold harmless Airship, its successors, assigns, agents, employees and servants, from and against, any and all claims, actions, suits, or legal proceedings, in any way related to the advertising and promotion of Client's and its third-party advertiser's advertising copy on the Aircraft or, any injury due to the negligence (in material part) or intentional acts of Client or its third party advertisers, or their officers, directors, agents, employees or those of an affiliated company or any sales, use or other similar tax imposed on Airship as a result of the operation of the Aircraft on behalf of Client. SECTION SIX GRAPHIC, COPY AND PROGRAMING 6.1 Airship shall prepare and maintain a fixed electric NightSign(TM) on each side of the Aircraft. 6.2 All advertising of Client and its third-party advertisers shall be in good taste and conform to the community standards. Airship shall have the right to refuse to display copy which, in Airship's sole discretion, does not comply with community standards. SECTION SEVEN COMMERCIAL EXPLOITATION OF AIRCRAFT 7.1 (a) Client may commercially exploit the likeness of the Aircraft including the use of the Aircraft, for photographic purposes and the taping of commercials and on items of merchandise -21- during the term of this Agreement and for a period of 18 months after the termination or expiration of this Agreement, after which time Client agrees not to commercially exploit the Aircraft or its likeness. (b) Client shall have the right for a period of one (1) year after termination of this Agreement, to sell, distribute or give-away all merchandise or products already produced or manufactured by or for Client which commercially exploit the Aircraft or its likeness for the purposes of liquidating the merchandise or give-aways. Notwithstanding the foregoing, Client may use all of its existing inventory of brochures, souvenir books, and other materials which include a photograph of the Aircraft until the inventory is exhausted. SECTION EIGHT CONDITION PRECEDENT 8.1 The obligations of Client and Airship to perform its respective obligations under this Agreement are specifically conditioned upon the issuance and continuance by DOT and any other applicable governmental authorities of all necessary permits for commercial air operations of the Aircraft in connection with this Agreement and the Schedule of Operations by no later than the Commencement Date. SECTION NINE EVENT OF DEFAULT -22- 9.1 The occurrence of any one of the following events will be deemed to be and shall be treated as a default under this Agreement and just cause for its termination by the non-defaulting party: (a) Breach or failure by either party in the due observance or performance of any term, covenant, warranty, representation or agreement contained in this Agreement, which breach or failure continues unremedied or uncorrected for a period of ten (10) days after written notice by the non-breaching party to the defaulting party, which notice shall specify the breach and require that it be remedied; or (b) (i) Either party shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or (ii) any proceeding shall be instituted by or against either party seeking to adjudicate such party as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of its debts under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors, or seeking appointment of a receiver, trustee or other similar official for such party or for any substantial part of their property, and such proceeding shall not have been dismissed within ninety (90) days; or (iii) either party shall take any action to authorize any of the actions set forth above in this subsection (b); or (c) The operation of the Aircraft (i) without a valid Certificate of Airworthiness in effect; or (ii) by any -23- operator other than Airship, its authorized agents, servants or employees. SECTION TEN RESTRICTIVE COVENANT 10.1 Airship does hereby covenant and agree that during the term of this Agreement and all renewals thereof, that it shall not operate any lighter-than-air aircraft for the purpose of advertising for any other musical groups. 10.2 Client does hereby covenant and agree that during the term of this Agreement and all renewals thereof, nothing herein shall prevent Airship from operating any lighter-than-air aircraft for any other person or third party, and nothing herein shall prevent Airship from entering into negotiations and/or binding aerial advertising agreements with other clients for the operation of additional aircraft owned or acquired by Airship, subject to the restrictions set forth in Section 10.1 herein. SECTION ELEVEN MISCELLANEOUS 11.1 Client acknowledges and agrees that it does not and will not acquire by this Agreement, any legal or equitable right, title or interest whatsoever in the Aircraft or the proceeds of the sale of the Aircraft, or in Airship's equipment, instruments, engines, computers, ground support vehicles or mooring masts. Client acknowledges and agrees that it has not obtained nor will obtain any license to use the likeness of the Aircraft as a -24- result of this Agreement, except as may be expressly set forth herein. 11.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given unless otherwise provided herein, if delivered in person or mailed by certified mail, returned receipt requested, with first call postage prepaid; (a) If to Airship: 7380 Sand Lake Road, Suite 200 Orlando, Florida 32819 Attn: Louis J. Pearlman, President with a copy to: Baer Marks & Upham 805 Third Avenue New York, New York 10022 Attn: Samuel F. Ottensoser, Esq. (b) If to Client: Kingstreet Tours Limited 48 Woodstock Road London, England W4 1US with a copy to: Jerome Walton Walton & Co. Lanterns Lodge Bridge Lane London SW11 3AD such names and addresses may be changed by written notice to each person listed above, provided that any change of address shall be effective only on receipt. 11.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, -25- without giving effect to the principles of conflict of laws thereof. 11.4 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 11.5 Headings. The section headings contained in this Agreement are for reference purposes only and shall not effect in any way the meaning or interpretation of this Agreement. 11.6 Entire Agreement. This Agreement, including the schedules and documents annexed hereto, and the documents and the documents and agreements referred to herein, embodies the entire agreement and understanding of the parties with respect to the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understanding between the parties with respect to the subject matter of this Agreement. 11.7 Parties in Interest. This Agreement shall not be assignable, except with the express written consent of the other parties hereto. This Agreement shall inure to the benefit of and be binding upon the parties and their respective successors and permitted assigns. Except as otherwise expressly contemplated hereby, nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies under or by reason of this Agreement. -26- 11.8 Severability. If any term, covenant, condition or provision of this Agreement or the application thereof to any person or circumstances shall, at any time or to any extent, be rendered invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant, condition and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 11.9 Amendment and Modification. This Agreement may be amended or modified only by written agreement of the parties hereto or their successors or assigns. 11.10 No Third Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement. 11.11 Risk of Loss. (a) During the term of this Agreement, the risk of loss with respect to the aircraft shall be upon Airship. In the event that (i) the Aircraft is subject to minor damage or injury; and/or (ii) the Aircraft is grounded due to accident, mechanical failure and/or licensing, approval or permit difficulties (other than weather interference or Client's actions), then the obligations of the parties under this Agreement shall abate until such time as the Aircraft or a replacement aircraft is certified and authorized to fly, at which time continue in full force and effect; provided, however, this Agreement shall be null and void as -27- of the date the aircraft is grounded where the abatement exceeds three (3) months. (b) In the event that a total loss of all or substantially all of the Aircraft shall occur and a replacement aircraft cannot be provided by Airship, Airship shall promptly give written notice of such loss to Client, in which event this Agreement shall terminate and be of no further force and effect; provided, that in such event, a pro rata portion of the monthly fee (based on the number of days remaining, following such total loss, in the month of such total loss) paid pursuant to Section 1.2 by Client to Airship for the month in which such total loss occurs shall be reimbursed to Client by Airship. 11.12 Upon termination of this Agreement, Airship shall promptly fly to a suitable hangar and remove all logos and other materials belonging to Client within ninety (90) days after such termination. 11.13 Submission to Jurisdiction; Waiver of Jury Trial. A. The Client hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereto, to the non-exclusive general jurisdiction of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts, and waives any objection -28- that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company at its address set forth in subsection 11.2 or at such other address of which the Agent shall have been notified pursuant thereto; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. AIRSHIP INTERNATIONAL LTD. By: ALAN SIEGEL -------------------------- KINGSTREET TOURS LIMITED By: [signature] --------------------------- -29- EX-10 4 EXHIBIT 10.70 BUD I AMENDED AND RESTATED AIRSHIP ADVERTISING AGREEMENT THIS AGREEMENT is made as of the 8th day of July, 1994, by and between AIRSHIP INTERNATIONAL LTD., a New York corporation with its principal office at 7380 Sand Lake Road, Orlando, Florida 32819 ("Operator"), and ANHEUSER- BUSCH COMPANIES, INC., a Delaware corporation with its principal office at One Busch Place, St. Louis, Missouri 63118 ("Company"). (A) Operator is the owner of a SKYSHIP 500-HL aircraft, Registration No. N501LP (the "Airship"). (B) Company and Operator are parties to the BUD I Airship Advertising Agreement dated March 12, 1992 (together with all amendments thereto, the "1992 Agreement"). (C) Operator and Company desire for Operator to continue the operation of the Airship pursuant to the terms and conditions of this Agreement. (D) Operator and Company desire to amend and restate in full the 1992 Agreement. NOW THEREFORE, it is hereby agreed as follows: 1. Exclusive Use; Initial Period and Option Period. 1.1 During the Initial Period and Option Period, if any (as such terms are hereinafter defined), Operator shall use and operate the Airship at such locations within the contiguous 48 states of the United States of America as are designated by Company (the "Territory") exclusively for the purposes set forth in Section 1.3 below. Operator shall provide all equipment, instruments, engines, computers and other appurtenances used or required for operation of the Airship, as well as ground support vehicles, mooring masts, fuel, personnel (including pilots, ground crew, security and all other required personnel, and all other facilities, equipment and supplies necessary for fulfilling its obligations enumerated herein), subject to the terms and conditions of this Agreement. 1.2 The initial term of this Agreement (the "Initial Period") shall be from September 1, 1994 (the "Effective Date") through December 31, 1996; thereafter, Company shall have the right to extend the term of this Agreement through December 31, 1997 (the period from January 1, 1997 through December 31, 1997 is referred to herein as the "Option Period"), provided, however, that at any time after the Effective Date Company may terminate this Agreement by written notice to Operator, in which case this Agreement shall terminate one hundred eighty (180) days following the giving of such notice. The four month period from September 1, 1994 through December 31, 1994 and each successive six month period thereafter through the end of Initial Period and the Option Period, if any, is referred to herein as a "Contract Period." 1.3 Throughout the term of this Agreement the Airship shall be operated exclusively for the following purposes: (a) Advertising and promoting the products, goods, Services or businesses of Company and/or any of its subsidiaries or other affiliates (as determined exclusively by Company) by over-flight of heavily populated areas, including stadiums, open-air theaters, outdoor concerts, sporting events, amusement parks, theme parks and other large public gatherings; (b) Aerial filming of events for telecast and other uses, as and when directed by Company, and (c) The carriage of passengers, subject to the following limitations: (i) Only invited guests of Company may be carried as passengers on the Airship; (ii) Passenger flights shall originate and terminate at the same point; (iii) Passengers shall not pay for their carriage, nor will payment be made or accepted on their behalf; and (iv) The number of passenger flights per week shall be determined by Company, subject to safety and weather conditions as determined by the Airship pilot and applicable FAA regulations, if any. 2. Designated Base of Airship; Design and Color Scheme. 2.1 The base of operations for the Airship (the "Designated Base") will initially be at a mutually agreeable location (to be determined prior to the Effective Date) in the Orlando, Florida area. During the term of this Agreement Company shall have the right to change Designated Base to a new location in the Territory, provided that Company reimburses Operator for Travel Expenses (defined in 4.2 below) incurred by the Airship's crew members in connection with such relocation and provided further that any such change to the Designated Base shall remain in effect for a period of no less than six months. 2.2 Operator shall maintain its FAA Certificate of Airworthiness for the Airship in effect throughout the term of this Agreement and shall provide -2- Company with (i) a copy of the flight manual for the Airship approved by the Federal Aviation Administration ("FAA") and (ii) a copy of the Operator's Airship operations manual. 2.3 Operator shall maintain the current color and design pur- suant to the specifications submitted by Company under the 1992 Agreement, provided that the cost of any modifications to such color and design specifications requested by Company shall be paid by Company. 2.4 (a) Operator has assisted Company in the installation of, and has agreed to operate and maintain, an electric airship advertising sign (the "Sign") on the Airship. Company shall reimburse Operator for all reasonable and necessary maintenance costs of the Sign during the term of this Agreement upon receipt of an invoice therefor and sufficient supporting documentation. Operator agrees to procure the necessary insurance to cover the loss of or damage to the Sign or any of its components, in an amount and at a cost satisfactory to Company. Company shall reimburse Operator for the approved cost of such insurance upon receipt of an invoice therefor and sufficient supporting documentation. (b) Company has obtained an FAA Supplemental Type Certificate ("STC") for the installation of the Sign and associated equipment. Company agrees that in consideration of the aid of Operator in installing the sign, Company shall make the STC available to Operator for its future use. (c) Company intends to pursue and certify, at its sole expense, an electrical generation system modification in order to provide additional electrical capacity for the Airship (the "System"). If, in its sole discretion, Company completes the design of and acquisition of the components for such a System, Operator agrees to assist Company in the installation of such System onto the Airship in accordance with a schedule to be mutually agreed upon. Company agrees to reimburse Operator for any costs incurred as a direct result of aiding in the installation of the System, after receipt of an invoice therefor and sufficient supporting documentation. Company further agrees to reimburse Operator for reasonable and necessary maintenance costs for the System after receipt of an invoice therefor and sufficient supporting documentation. If an STC is required and obtained in conjunction with the installation of the System, Company shall permit Operator to have future use of the STC. (d) Both parties agree that upon termination of this Agreement, Company will reimburse Operator for the actual cost of removing the Sign from the Airship, such cost not to exceed $30,000.00, upon receipt of an invoice therefor and sufficient supporting documentation. 3. Airship Operations. -3- 3.1 Operator shall obtain, and maintain in effect throughout the term of this Agreement, all requisite permits, certificates and authorizations from all governmental agencies having jurisdiction over the use, operation and flight of the Airship within the Territory. Operator shall also use its best efforts to obtain all relevant permits and authorizations as may be required from any supervising governmental agency of any special event over which Company may ask Operator to fly the Airship. Company (and not Operator) shall be responsible for obtaining any permits required by any organizer or sponsor of such event. 3.2 Operator shall provide FAA certified and approved personnel to perform all maintenance, servicing and repair required to be performed on the Airship during the term of this Agreement in accordance with the Airship flight operations manual and the Airship maintenance manual and in compliance with standards prescribed by the FAA and all other governmental agencies having jurisdiction over the Airship, its use, operation and flights within the Territory. Except as otherwise provided herein, Operator shall also provide the necessary ground and flight crew for the Airship and shall pay all costs associated with the ownership, use or operation of the Airship. Such costs shall include, but shall not be limited to, the following: (a) Helium gas replenishment; (b) All operational and administrative premises and personnel; (c) All ground support equipment and personnel required for the operation, maintenance and security of the Airship; (d) All insurance, taxes, maintenance and repair costs (excluding sales taxes, if any, which shall be borne by Company); (e) Lubricating oil; (f) Fuel; and (g) Airship mooring fees. 3.3 Operator shall not be required to operate the Airship in any manner which violates any law or regulation of any governmental agency of the United States or any state thereof, the country of registration of the Airship or any country or state to, from or over which the Airship flies. Operator has represented to Company that it is conversant with all such laws and regulations and shall notify Company's representatives if operation of the Airship might violate such laws or regulations. 3.4 In addition to the sums specified in Section 4, Company shall pay for, provide or reimburse Operator (within 30 days of receipt of an invoice for -4- same accompanied by adequate documentation) for any sum Operator shall expend on the following: (a) The actual cost of any change in the Airship's exterior design required by Company after the date hereof (except as otherwise provided in Sections 2.3 and 2.4 above); and (b) Any special equipment not part of the normal equipment of the Airship, other than the Sign, which is required by Company for advertising or any other mutually agreed purposes. 3.5 (a) Company shall determine from time to time the dates, times and locations for flight operations of the Airship, which shall be set forth on a schedule of operations (the "Schedule"). Thirty-day Schedules shall be submitted by Company to Operator at least fifteen (15) days prior to the expiration of the previous Schedule. The Schedule may be amended by Company from time to time during the Initial Period and Option Period, if any, upon reasonable notice to Operator. Operator shall adhere to the flight plan established by Company in the Schedule, subject only to the physical constraints of adverse weather conditions as determined by Operator's pilot, design limitations of the Airship and applicable governmental regulations in effect from time to time. Operator will cooperate with Company in making Airship flights during the times of the day and days of the week to meet the Schedule. Changes in the geographic location of the Airship (300 miles or more) from the location in the Schedule shall be given to Operator at least thirty (30) days in advance of the changes; provided, however, that Operator shall use its best efforts to accommodate Company when Company requests a change in location on shorter notice. Company shall provide Operator reasonable assistance in locating lodging facilities for the Airship's crew when travel is requested on short notice. (b) The Schedule and any amendments thereto shall be subject to the reasonable approval of Operator based upon operational (but not economic) considerations. (c) Company and Operator shall, on a weekly or bi- weekly basis, establish the local flight schedule in the Designated Base area and hours of operation of the Airship. Any changes by Company in the local flight schedule shall be submitted to Operator at least forty-eight hours prior to the proposed effective date and time of such changes. Any changes required by Company in the Schedule which will require the geographic relocation of the ground crew and support vehicles (but within 300 miles of the Designated Base) will be submitted at least fifteen (15) days in advance for clearance with the appropriate governmental agencies and to make appropriate ground arrangements. Operator will use its best efforts to accommodate all Schedule changes when requested by Company and to fly the Airship in accordance with the Schedule. -5- 3.6 (a) Operator shall make the Airship available for operation according to the Schedule up to six days per week (except for the weeks which include Super Bowl Sunday, Easter Sunday, Memorial Day, Labor Day and Christmas Day, which shall be seven-day weeks). Company shall be entitled to schedule flights on weekends, with the "off day" being a week day (normally Monday). Operator shall provide, and Company will schedule, eight (8) hours per day of flight time. Scheduled flight time for any given day shall be measured from the first departure from the Airship's mooring mast until its mooring at said mast at the completion of such day's operation and will include airborne flight time for the purposes set forth in Section 1.3 above, as well as time between flights for operational requirements such as refueling, crew changes, and pick-up or drop-off of passengers, and time spent travelling to and from Operator's closest maintenance facility. The Airship's flight meter, pilots' log and maintenance and repair records will be available for review by Company at all reasonable times upon reasonable prior notice from Company. A representative of Company, if available, shall also sign the log at the completion of each day's flights. (b) If force majeure conditions (as defined in Section 10.2 below) preclude Operator from adhering to the Schedule, there shall be no reduction in the then applicable Monthly Fee unless Operator fails to achieve at least 100 hours of airborne flight time in any given month. In such case, the Monthly Fee shall be reduced pro rata. (To illustrate, if only 80 hours of airborne flight time are achieved in any given month due to force majeure conditions, the Monthly Fee for such month shall be reduced by 20%, either by reimbursement to Company or by reduction of the Monthly Fee the following month.) With respect to time lost from the Schedule for which there is no reduction in the Monthly Fee, Operator shall use its best efforts to re-schedule such time, at no additional cost to Company, as soon as reasonably practical thereafter. (c) If the Schedule cannot be adhered to for reasons other than force majeure, for each day of lost time the Monthly Fee shall be reduced by $6,667 if such day of lost time occurs during the period from September 1, 1994 through December 31, 1994 and by $8,546 if such day of lost time occurs at any other time during the Initial Period or the Option Period, if any, or Operator shall reimburse Company by such amount if no additional Monthly Fee payments are due; provided, however, that in lieu of such reduction in or reimbursement of the Monthly Fee, Operator shall have the option to provide make-up flight time during a period of up to ninety (90) days following the date on which this Agreement would otherwise terminate, such make-up flight time to be at no additional cost to Company. However, such makeup time can be waived by Company, in which case Operator's obligation under this paragraph (c) shall terminate. In no event shall such additional 90-day period (or any portion thereof) extend the Exclusivity Period provided for in Section 7.1 below. Each eight hours of scheduled flight time lost shall equal a day of lost time (pro rated for fractional days). (d) Notwithstanding the preceding paragraphs (a) - (c), during each Contract Period, Operator shall withdraw the Airship from service for scheduled maintenance and service when necessary for a period of fifteen (15) days no -6- fewer than ten of which shall be consecutive days (each such period a "Maintenance Period" and each day of any such Maintenance Period a "Maintenance Day") (excluding time spent on travel to and from Operator's maintenance facility or time spent on unscheduled maintenance), taking into consideration inspections or maintenance which is mandated by the FAR's (hereinafter defined), the manufacturer's maintenance manual or the instruction manual (as may be required for continued airworthiness) or by the Operator's approved inspection and maintenance program. There shall be no reduction in any Monthly Fee payment payable hereunder with respect to any such withdrawal of the Airship for maintenance in accordance with this Section, subject to Sections 3.6(d)(i) and (ii) below. In the event that the total number of Maintenance Days required during the period from September 1, 1994 through December 31, 1994 exceeds fifteen (15), or the total number of Maintenance Days required during any calendar year during the Initial Term and the Option Term, if any, exceeds thirty (30), then, in any such case the Monthly Fee payment next coming due shall be reduced as follows: (i) If such excess Maintenance Day(s) occurs during the period from September 1, 1994 through December 31, 1994, such reduction shall be made to the January 1, 1995 Monthly Fee payment and shall be equal to the total number of such excess Maintenance Days multiplied by $6,667; (ii) If such excess Maintenance Day(s) occurs during the period from January 1, 1995 through the end of the Initial Period and the Option Period, if any, such reduction shall be equal to $8,546 for each such excess Maintenance Day and each such reduction shall be made to the Monthly Fee payment that is due following the month in which such excess Maintenance Day(s) occurs. (e) At the end of the Initial Period (but only if there shall be no Option Period) or at the end of the Option Period, or upon termination of this Agreement for any reason, any lost flight time for which Company has not been compensated by make-up time, by reimbursement or by a reduction of the Monthly Fee as provided above shall be paid back to Company by Operator at the rate of $8,546 per day of lost time (pro rated for fractional days). Such payment obligation shall survive any such termination and shall be made within three (3) days following termination by wire transfer of immediately available U.S. funds to an account designated by Company. 3.7 (a) Operator shall provide all necessary flight and ground crew personnel necessary to accommodate the Schedule. All crew members shall obtain and maintain all licenses required by the FAA and any other governmental agencies having jurisdiction over the Airship or its use and flight within the Territory during the Initial Period and the Option Period, if any. Each member of the crew shall be acceptable to Company in the reasonable exercise of its judgment. (b) Operator shall comply with the reasonable requests of Company to the best of its ability in order that Company may obtain the optimum -7- utilization of the Airship with respect to its advertising and promotional activities, provided that all crew activities shall be within Operator's pilots' discretion. Notwithstanding the foregoing, the parties acknowledge that Operator has full operational control of the Airship, and Company shall have no liability whatsoever for any loss of or damage to the Airship. (c) The Airship shall be piloted only by CAA or FAA licensed pilots. (d) Except when the authorized and licensed pilots are at the flight controls or on duty, the ground crew chief shall be in command of the Airship. (e) No flight of the Airship shall take place unless Operator's pilots on board shall be satisfied as to the prevailing weather conditions and any geographical limitations, the load required to be carried and the proposed places of take-off and landing. Operator's pilots shall have the absolute right to cancel, terminate or divert any flights when such action is deemed by them to be necessary due to the weather or to other conditions beyond their control. The said pilots shall also have absolute discretion to prohibit any goods or passengers on the Airship if, in the pilots' opinion, they may adversely affect the safe flight of the Airship. (f) Notwithstanding any of the foregoing provisions of this Section 3.7, Operator expressly undertakes the obligation to have available and on call such back-up pilot or pilots as may be necessary to guarantee the performance of the Schedule. Operator acknowledges its obligation to monitor the number of hours being flown by each of its pilots in a given month so as to make certain that if a replacement pilot will be necessary due to the number of hours projected to be flown, a replacement pilot will be made available promptly so that the Schedule shall be maintained. Operator further undertakes to provide a replacement pilot within 24 hours after it learns that any regular pilot is unavailable due to illness or any other non-planned absence. (g) Operator further acknowledges that its operations are subject to regulation by the FAA as described in the Federal Aviation Regulations (the "FAR's"). Operator hereby certifies that it has made a full and complete investigation of all applicable FAR'S, and that it has such certificate or certificates as may be required under the FAR's to engage in the operations contemplated herein. Operator agrees to furnish copies of current certificates to Company on request. (h) Operator will establish and implement, at Operator's sole cost and expense, an alcohol testing program for all individuals who are in any way involved with the maintenance or operation of the Airship under the provisions of this Agreement, specifically including all pilots, ground support mechanics and riggers, and any other crew members, which program shall be, in all respects, subject to applicable law. -8- (i) The testing program shall be conducted in such manner as to ensure that the crew members of the Airship are at all times in compliance with the requirements of FAR 91.17(a)(1), (2), (3) and (4) and that all other employees, when performing any function required by the provisions of this Agreement, shall not have consumed any alcoholic beverages within the preceding 8 hours; are not under the influence of alcohol; and do not have a blood alcohol concentration ("BAC") of .04 percent or more; (ii) The testing shall be conducted (1) upon a violation of an FAR; (2) upon a reasonable suspicion of a Company representative or one or more supervisors of the employee that the employee's ability to perform his functions is impaired; and (3) on a random basis; (iii) There shall be a screening test and, if necessary, a confirmation test. The screening portion of the test shall involve the use of devices, selected by the Operator and approved by the Company, that give an immediate indication either of positive or negative. Anyone testing positive on the screening shall be immediately removed from any duties relating to the maintenance or operation of the Airship. Those testing positive shall immediately agree to allow a blood sample to be taken or to provide, under reasonable supervision, a urine sample. The blood sample or urine sample shall be sent to a qualified laboratory for determination of BAC level. If the laboratory result indicates that the employee was in compliance with the requirements set forth above, he may be allowed to resume duties related to the Airship. If an employee refuses to provide the blood or urine sample, or by the confirmation test, is determined not to have been in compliance with requirements set forth above, that employee shall not be permitted to perform any functions under this Agreement. (iv) At Company's request, operator shall provide a copy of its testing procedures, meeting the requirements set forth above, for Company's approval. Operator agrees to amend said procedures as reasonably required by Company; and (v) If, during the term of this Agreement, the FAA or U.S. Department of Transportation ("DOT") adopts regulations relating to alcohol testing, Operator agrees to comply with those requirements, not only as to personnel whose specific functions are described in the regulations, but also as to all personnel who are in any way related to the operation or maintenance of the Airship under this Agreement. (i) Operator agrees, whether or not otherwise required to do so under the FAR's or other statutory or regulatory provisions, that Operator shall engage in drug testing of all its employees and contractors as Company may reasonably request from time to time, following procedures similar to those used in the Company's drug testing program for its own employees. Operator agrees to include in such drug testing all employees and contractors who are involved in any manner in the operation or maintenance of the Airship under the provisions of this Agreement, specifically -9- including all pilots, ground support mechanics and riggers and any other member of the ground crew. Notwithstanding the foregoing provisions of this paragraph (i), if Operator wishes to use an alternative drug testing program, it may do so if such program has been approved by Company in writing. Such drug testing program shall be, in all respects, subject to applicable law, and all costs of the program shall be paid by Operator. (j) Company shall provide, at its sole cost and expense, (i) all special uniforms which must be worn by Operator's flight and ground crew members, (ii) any decals or painted logos (and replacements thereof) which Company requires Operator to use on Operator's ground support vehicles, and (iii) the patches and other logos for crew members' uniforms. Such uniforms, painted logos and decals shall be cleaned from time to time by Operator in order to maintain a neat and clean appearance to the public. All registered trademarks, trade names and other proprietary property used in connection with such uniforms, as well as painted logos and decals, shall remain the exclusive property of Company. 3.8 On reasonable notice from Company, Operator shall cause a camera to be temporarily installed on the Airship for use in taping television commercials, televising sporting or other events, or other photographic or filming purposes. Company shall reimburse Operator for any actual incremental costs it may incur in providing the camera for use in the Airship, such reimbursement to be made within 30 days of receipt of an invoice and documentation for same from Operator. 4. Consideration; Reimbursement of Expenses. 4.1 (a) In consideration of all services to be provided and obligations to be performed by Operator hereunder, Company agrees to pay to Operator a fee (the "Monthly Fee") as follows:
Month Monthly Fee Payment Terms (i) September 1994-December 1994 $200,000 Payable in one lump sum of $800,000 upon execution of this Agreement by both parties (ii) January 1995 $512,750 Payable on January 1, 1995 (iii) February 1995-October 1995 $256,375 Payable on first day of each month (iv) November 1995 - December 1995 -0-
-10- (v) January 1996 $512,750 Payable on January 1, 1996 (vi) February 1996-October 1996 $256,375 Payable on first day of each month (vii) November 1996 - December 1996 -0- (viii) January 1997 $512,750 Payable on January 1, 1997 (ix) February 1997-October 1997 $256,375 Payable on first day of each month (x) November 1997 - December 1997 -0-
Payments in (viii), (ix) and (x) above shall not be due if Company does not elect to extend the term hereof for the Option Period. (b) Payment by Company of the applicable Monthly Fee may be reduced due to lost flight time as provided in Section 3.6 above. (c) All Monthly Fee payments shall be made in U.S. dollars by wire transfer to an account designated by Operator. If any payment due under this Agreement from any party remains unpaid for more than seven days after the due date thereof, it shall bear interest at the prime rate of interest in effect at Morgan Guaranty Trust Company of New York from the date such payment was due to the date of payment. Any costs (including reasonable attorneys' fees) incurred by any party to recover sums due under this Agreement shall be paid by the party failing to pay such sums when due. 4.2 During the term of this Agreement, Company shall reimburse Operator in the amount of $2,200 per day for all out-of-pocket travel, accommodation, subsistence and similar expenses incurred by the Airship's crew (collectively, "Travel Expenses") whenever the Schedule requires the Airship to spend the night at a mooring mast away from the Designated Base. Company shall reimburse Operator for Travel Expenses within thirty (30) days of receipt of an invoice for same. -11- 5. Loss of Airship. 5.1 The risk of loss or damage with respect to the Airship shall be solely upon Operator. If there shall occur a loss of all or substantially all of the Airship, or if the Airship is grounded due to an accident or other damage to the Airship, then the parties' respective obligations hereunder shall abate until such time as the Airship has been repaired or replaced, at which time this Agreement shall continue in effect for the remainder of the Initial Period and Option Period, if any, which Initial Period and Option Period, if any, shall be extended by the abatement period; provided, however, that if the abatement period exceeds one hundred fifty (150) days, then this Agreement shall, at Company's option, be deemed to have been terminated as of the date of the loss or damage, and neither party shall have any further obligations to the other. (a) If this Agreement is terminated pursuant to the preceding paragraph (a) and the Airship shall thereafter be repaired and is prepared to be placed in service within ninety (90) days of said termination, then, before making any agreement(s) with any other party for the use of the Airship, Operator shall first notify Company that Company has the right and option to acquire the exclusive use of the Airship for a period of time equal to the unexpired portion of the Initial Period and Option Period, if any, at the time of termination on the same terms and conditions as are contained in this Agreement. Such option shall be exercised, if at all, within fifteen (15) days following Company's receipt of such notice. 6. Representations, Warranties and Covenants. 6.1 Operator represents, warrants and covenants to Company that: (a) The Airship is certificated as a standard type aircraft under the laws of the United States of America; (b) A valid Certificate of Airworthiness has been issued for the Airship by the United States of America, and Operator shall take all necessary actions to ensure the continued effectiveness of the Airship's Airworthiness Certificate as set forth in FAR 21.181(a)(1), so that a valid Certificate of Airworthiness for the Airship is maintained at all times. The Airship is in airworthy condition and usable for the purposes contemplated by this Agreement; (c) The execution of this Agreement by Operator will not constitute a breach of any other agreement to which Operator is a party or which involves the Airship; (d) Registration of the Airship under the laws of the United States of America shall be maintained, and Operator shall obtain and maintain (or cause to be obtained and maintained) in effect all required approvals of the FAA, or any -12- other governmental authorities having jurisdiction over use and operation of the Airship in the Territory; (e) Operator shall be responsible for performance of all Airship overhaul, engine overhaul and maintenance required during the Initial Period and Option Period, if any, under the FAR'S, as well as any applicable airworthiness directives requiring modifications to the Airship, and shall make such alterations and modifications in each component of the Airship as may be required from time to time to meet the standards of the FAA or any other governmental authority having jurisdiction over the Airship; (f) Operator shall maintain all records, logs and other materials required by the FAA or other governmental authority having jurisdiction over the Airship and shall permit Company or its duly authorized agents or representatives or any other person designated by Company to inspect the Airship and its flight logs and maintenance records at any reasonable time and shall furnish Company and its duly authorized agents or representatives any information with regard to the operation of the Airship as any of them may reasonably request; (g) Operator shall maintain the paint and decals on the Airship in a clean and orderly condition to Company's reasonable satisfaction during the Initial Period and Option Period, if any; (h) Operator shall maintain, service, operate, repair and test the Airship (i) so as to keep each component of the Airship in good operating condition, (ii) so as to meet the requirements of the maintenance plans recommended by the manufacturers of the engines, envelope and gondola comprising the Airship, (iii) so as to keep the Airship duly certified as airworthy by the FAA or any other governmental agencies having jurisdiction over the Airship, (iv) so as to comply with any FAA or other governmental authority airworthiness directives, as well as "mandatory" and "recommended" service bulletins applicable to the Airship, as well as licensing and relicensing with respect thereto which may be required by any governmental agencies having jurisdiction over the Airship, and (v) so as to keep the Airship clean and in top condition and repair suitable to provide the services required of Operator hereunder to Company's reasonable satisfaction; (i) Operator shall maintain, service, operate, repair and test all ground support vehicles and equipment supplied by Operator hereunder so as (i) to keep the components thereof in good operating condition, (ii) to meet all required maintenance schedules, (iii) to keep such vehicles and equipment properly licensed, and (iv) to keep the vehicles and equipment clean and in good condition and repair, suitable to provide the services required of Operator hereunder to Company's reasonable satisfaction; and (j) Operator has taken all action (including, without limitation, the giving of notices and the obtaining of consents, licenses and permits) -13- required by any governmental authority as a condition to the execution and delivery of this Agreement, its validity and enforceability, and the consummation of any of the transactions contemplated hereby. 6.2 Each party hereto represents and warrants to the other that: (a) It is a duly organized and valid entity in good standing under the laws of its jurisdiction of organization and has full authority to conduct its business as presently conducted and to enter into and perform its obligations under this Agreement; (b) Each of the persons executing this Agreement is a duly authorized officer or agent of such entity and has been duly authorized by all necessary action to execute and deliver this Agreement; (c) This Agreement has been duly and validly executed and delivered by such party and constitutes a valid and binding agreement of such party, enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies; and (d) No consent or approval of any third party is required for such party's execution, delivery or performance of this Agreement. 7. Exclusivity. 7.1 Operator hereby covenants and agrees that following the termination of this Agreement and continuing for a period (the "Exclusivity Period") which is the lesser of (i) the time which has elapsed between the Effective Date and the date on which this Agreement terminates, and (ii) three (3) years, Operator shall not, directly or indirectly, sell, lease or operate any lighter-than-air aircraft, or otherwise provide any lighter-than-air aircraft, which is used or is expected to be used to advertise or promote any amusement park or theme park, any malt beverage or any snack food, other than the amusement parks or theme parks, malt beverages and snack foods owned, operated or produced by Company or its subsidiaries; provided, however, that (i) nothing herein shall prevent Operator from operating another aircraft on behalf of another client in or about an amusement park or theme park so long as such aircraft does not promote an amusement park or theme park, a malt beverage or a snack food product; and (ii) the exclusivity granted to Company hereunder with respect to malt beverages applies only in the United States and Mexico; snack foods only in the United States; and amusement parks and theme parks only in the United States, Canada and Mexico. The provisions of this Section shall apply notwithstanding any early termination or cancellation of the Initial Period or Option Period, if any, including but not limited to termination under Section 10.3. -14- 7.2 As used herein "snack foods" means salted snacks such as potato chips, corn chips, peanuts, pretzels, cheese curls, popcorn and similar items. It does not include candy or fast-food such as hamburgers, french fries or basic meal items. 7.3 Operator represents and warrants to Company that it has not previously entered into any agreement with any third party which, if performed after the date hereof, would violate the exclusivity granted to Company in Section 7.l. 7.4 During the term of this Agreement, Operator agrees that each of its employees, crew members, any of Operator's agents, authorized representatives or any subcontractors retained by Operator while wearing a uniform containing Company's logo will not in any public place in the Territory display any alcoholic or non-alcoholic malt beverage other than those produced and distributed by Company and that said persons,if they choose to drink beer or a non-alcoholic malt beverage in any public place, will drink the Company's products. 8. Licensing and Royalties. 8.1 Company shall have the worldwide right, exclusively and in perpetuity, to commercially exploit the likeness of the Airship bearing one or more of Company's trademarks. The Company's right includes, but is not limited to, the right to manufacture, market, sell, and distribute merchandise bearing a likeness of an airship and any of the Company's trademarks; provided that any such merchandise bearing the trademarks Budweiser, Bud (but not Bud Dry or Bud Light) or King of Beers shall be deemed to be "Airship Merchandise" for purposes of this Agreement. If the Company elects to discontinue the use of the Airship for the promotion of the BUDWEISER brand (through the use of Budweiser, Bud and/or King of Beers) and instead paint the Airship by using color and design specifications (subject to the provisions of Section 3.4(a) hereof) which promote a brand of beer other than Budweiser, including Bud Dry and/or Bud Light, then when such other brand is included on merchandise bearing a likeness of an airship, such merchandise shall also be deemed "Airship Merchandise." (a) Operator shall be entitled to receive royalties from Company only on Net Sales (hereinafter defined) from the date hereof until the end of the Exclusivity Period. Company shall pay the Operator a royalty equal to four percent (4%) of Net Sales. (b) "Net Sales" shall mean all monies actually received by the Promotional Products Group of Anheuser-Busch, Incorporated ("PPG") and PPG's sales of Airship Merchandise to Anheuser-Busch, Incorporated brewery gift shops and to third parties, excluding PPG's sales to wholesalers of Company's beverage products and sales to Operator. Net Sales shall not include sales taxes included therein or refunds, credits and allowances actually allowed to customers for returned Airship Merchandise. If any other Company organization assumes PPG's responsibility for selling promotional -15- merchandise bearing Anheuser-Busch, Incorporated trademarks, the definition of Net Sales shall include monies actually received by that Company organization. (c) Within forty-five (45) days after the close of each calendar quarter during the Initial Period and Option Period, if any, Company shall furnish Operator an accounting of Net Sales during that quarter and shall pay Operator any royalty due for those Net Sales. Company is under no duty or obligation to sell Airship Merchandise, and the duty to pay a royalty shall exist only if Company, in its discretion, determines to sell Airship Merchandise. All such royalty payments shall be in addition to any other payments under this Agreement. Except as set forth above in this Section, Company shall not be liable to Operator or any other party for any royalties, licensing fees or other similar charges in connection with any commercial exploitation of the Airship. (d) Company will consider ideas for Airship Merchandise items submitted by Operator, but selection of items for production shall be in Company's sole discretion. 8.2 Company acknowledges and agrees that it has not obtained any right, title or interest in the Airship other than as specifically set forth herein. 8.3 (a) Nothing contained in this Agreement shall constitute a license of or shall entitle Operator to use any of the Company's trademarks, trade names or service marks, whether or not registered, in connection with the manufacture, marketing, distribution, conduct or sale of Operator's merchandise or services, other than through operation of the Airship as provided herein. Any violation of this provision by Operator may subject Operator to liability for infringement of Company's rights. (b) Notwithstanding the foregoing paragraph, during the Initial Period and Option Period, if any, Operator shall have the right to purchase Airship Merchandise from PPG at PPG's then current price to wholesalers of Company's beverage products; provided, however, that Company shall have the right to approve the method and location of any distribution or resale of all such Airship Merchandise. 8.4 Upon the termination of this Agreement, Operator shall remove from the Airship and all ground support vehicles and equipment all trademarks, logo designs, color schemes and signage belonging to the Company or any of its subsidiaries, affiliates or related entities. Operator shall not allow the Airship, vehicles or equipment to be used commercially until the design graphics and other materials of Company are removed, which shall occur as soon as practicable following the termination of this Agreement; provided, however, that this provision shall not preclude Operator from disposing of Airship Merchandise on hand as of the date of termination of this Agreement. -16- 9. Insurance. 9.1 Operator shall, during the Initial Period and Option Period, if any, procure and maintain, at its sole cost and expense, a policy or policies of insurance in form and content and with responsible insurers reasonably acceptable to Company, in the following types and amounts: (a) Comprehensive aviation liability insurance with respect to the use and operation of the Airship, having a combined single limit of not less than $150,000,000, insuring and covering Operator and, as an additional insured pursuant to Section 9.2(a), Company, as their interests may appear, against all liability for injury, damage or claims caused by or arising out of, or in connection with, ownership, operation, maintenance or use of the Airship, including injuries to or deaths of passengers or third persons or damage to property. (b) Automobile liability insurance or other general liability insurance covering all owned, non-owned and leased automobiles, trucks, trailers, and other vehicles and ground support equipment used by Operator in the performance of its duties under this Agreement. Such insurance shall provide coverage of not less than that provided for in the Standard Comprehensive Automobile Liability Policy in limits of not less than $10,000,000 combined single limit each occurrence for bodily injury and property damage. (c) Workers' compensation insurance in conformity with the statutory limits of the states in which Operator shall be required to carry such insurance. Employees liability shall be carried with a limit of not less than $1,000,000 for accident or disease. 9.2 All insurance required hereby shall include the following: (a) Company and its subsidiaries, affiliates and licensees and their respective assigns, officers, directors and employees shall be included as additional insureds as their interests may appear (excluding coverage under Section 9.1 (c) above); (b) The insurers shall agree to waive their rights of subrogation against Company and its parent companies, subsidiaries, affiliates and licensees and their respective agents, assigns, officers, directors and employees; (c) The inclusion of more than one corporation, person, organization, firm or entity as insured or additional insured under the policy of insurance shall not in any way affect the rights of any claim, demand, suit or judgment made, brought or recovered, by or in favor of any employee of such other insured. Each policy shall protect each corporation, person, organization, firm or entity in the same manner as though a separate policy had been issued to each, but nothing herein shall operate to increase the insurer's liability as set forth as limits to the policy beyond the amount or -17- amounts for which the insurers would have been liable if only one person or interest had been named as insured; (d) With respect to liability arising out of work performed by Operator under this Agreement, the insurance afforded the Company as additional insured shall be primary, and any insurance maintained by Company shall be excess and not contributing with Operator's insurance; (e) The insurers shall agree that, in the event they cancel or materially change such insurance policies, they will give thirty (30) days' advance written notice (seven days in the case of war risk) of such cancellation or material change to Company; and (f) The geographic limits of such insurance shall include at a minimum the entire Territory. 9.3 Operator shall, from time to time as Company shall reasonably request, and prior to each renewal date of the insurance, furnish to Company certificates evidencing that the foregoing insurance is in full force and effect with financially sound and responsible insurers. 10. Termination; Force Majeure. 10.1 The occurrence of any of the following events will be deemed to be, and shall be treated as, a default under this Agreement and just cause for its termination by the non-defaulting party, which termination shall be effective upon notice given in accordance with Section 13 hereof, and/or, at Company's option, if Company is the non-defaulting party, abatement by Company or reimbursement to Company of the compensation to be paid by Company pursuant to this Agreement or previously paid but unearned: (a) Breach or failure by either party in the due observance or performance of any material term, covenant, warranty, representation or agreement contained in this Agreement, which breach or failure continues unremedied or uncorrected for a period of ten days after written notice thereof from the non- breaching party, which notice specifies such breach or failure in reasonable detail and requires it to be remedied; provided that, such ten-day period shall be extended if (i) such breach or failure is not capable of being remedied within such ten-day period, (ii) the breaching party has diligently and in good faith commenced efforts to remedy the same within such ten-day period, and (iii) such breach or failure is remedied within 30 days after such notice. (b) Either party shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against such party seeking to adjudicate it a bankrupt -18- or insolvent, or seeking reorganization, arrangement, adjustment or composition of its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee or other similar official for said party or for any substantial part of its property, and such proceeding shall not have been dismissed within ninety (90) days; or either party shall take any action to authorize any of the actions set forth above in this subsection. 10.2 (a) The provisions of this Agreement are binding upon the parties hereto except where performance by a party, or the ability to achieve the material purposes set forth in Section 1.3(a), is prevented, delayed or interfered with by causes beyond the reasonable control of the non-performing party, including, without limitation, riot, war or hostilities between nations, governmental action (other than action taken in response to Operator's or Company's violation of any law or governmental regulation, in which case the party at fault shall not be permitted to claim the benefit of this Section 10.2), acts of God, mechanical or equipment failures caused by foreign objects, fire, accidents, strikes or adverse weather conditions (collectively, force majeure) provided however, that force majeure shall not include mechanical or equipment failures (other than as provided above) or unavailability of flight crew or ground crew personnel unless attributable to act(s) of God. (b) The party affected by force majeure shall give notice to the other party of said force majeure event promptly after the occurrence thereof, stating therein the nature of the suspension of performance and reasons therefor. Such party shall use its best efforts to resume performance as soon as reasonably possible. Upon restoration of the affected party's ability to perform its obligations hereunder, the affected party will give immediate notice to the other party. (c) Subject to Section 5.1 (a), if a force majeure condition which prevents a party's performance hereunder shall continue for a period of 60 days, and after such 60 day period there shall be no reasonable prospect for the prompt cure thereof despite the best efforts of the affected party to cure the same, then either party shall have the right to terminate this Agreement in its entirety upon 30 days' prior notice to the other party; provided that such termination shall be effective as of the date on which the non-performing party ceased performing hereunder due to a force majeure condition, and upon such termination (i) Operator shall return any payments advanced but unearned as of the termination date, (ii) Company shall make any payments earned but not paid as of such termination date, and (iii) neither party hereto shall have any further liability or obligation whatsoever to the other, other than under the terms of those provisions which specifically survive the termination of this Agreement. 10.3 Notwithstanding anything to the contrary in this Agreement, if during the Initial Period and Option Period, if any, it becomes necessary to cancel operations pursuant to this Agreement due to the inability of Operator to maintain necessary permits or authorizations from the FAA, DOT or any other governmental agency having jurisdiction over the Airship or its use or operation, such cancellation of operations shall continue for a period of 60 days, and after such 60-day period there shall -19- be no reasonable prospect for the prompt cure thereof despite the best efforts of the Operator to remedy the same, then Company shall have the right after such 60 day period to terminate this Agreement in its entirety upon 30 days' notice to Operator, whereupon (i) Operator shall return any payments advanced but unearned as of the termination date, (ii) Company shall make any payments earned but not paid as of such termination date, and (iii) neither party hereto shall have any further liability or obligation whatsoever to the other, other than under the terms of those provisions which specifically survive the termination of this Agreement. If such condition is remedied within the aforementioned 60 day period, the Agreement shall continue in effect for the remainder of the Initial Period and Option Period, if any, provided that the Initial Period and Option Period, if any, shall be extended by the number of days during which such condition existed, and the respective obligations of the parties shall be abated for that same period. If an event or circumstance which would otherwise constitute a default with respect to the Company under Section 10.1 (a) also is subject to this Section 10.3, it shall be governed by this Section 10.3 and will not constitute a default. 11. Confidentiality. Except as may be required by law or to obtain a permit or other authorization for the operation of the Airship, no party to this Agreement shall divulge to any third party the contents of this Agreement or any other agreement between the parties or any information (which is not publicly available) gained in the performance of this Agreement or such other agreements, except to the extent necessary, normal or appropriate for the purposes contemplated hereunder, and information by way of plans or other documentation marked "Confidential" by a party and made available to the other parties shall not be made available to any third party without the written consent of the disclosing party. The parties shall consult with one another regarding the contents of any proposed press release relating to this Agreement or the 1992 Agreement prior to issuing such press release. 12. Audit Rights. 12.1 Company (or its representatives) shall have the right at any time during the term of this Agreement, during normal business hours and upon seventy- two (72) hours' notice, to examine Operator's pertinent books and records, which books and records shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, to determine whether all invoices and other charges submitted to Company by Operator are in all respects in accordance with this Agreement. Operator (or its representatives) shall have the right, at any time during the term of this Agreement during normal business hours and upon seventy-two (72) hours' notice, to examine Company's pertinent books and records, which books and records shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, to determine whether Company has paid all royalties due to Operator in accordance with this Agreement. -20- 12.2 In the event a discrepancy is discovered during an audit referred to in 12.1 above, the discovering party shall provide written notice to the other party explaining such asserted discrepancy in detail. In the event the other party agrees with such asserted discrepancy, appropriate reimbursement shall be promptly made. In the event the other party disagrees with the asserted discrepancy, such dispute shall be submitted to a firm of nationally recognized independent certified public accountants mutually acceptable to Company and Operator, and the decision of such firm shall be binding. The losing party shall be solely responsible for the fees and expenses of such independent accounting firm. The provisions of this paragraph shall survive the expiration or termination of this Agreement. 12.3 For a period of two (2) years following the termination of this Agreement, Operator shall maintain such books and records (collectively, "Records") as are necessary (i) to substantiate that all invoices and other charges submitted to Company for payment hereunder were valid and proper, and (ii) to determine whether any payments have been made, directly or indirectly, by or on behalf of Operator to or for the benefit of any Company employee or agent who may reasonably be expected to influence either Company's decision to enter into this Agreement or the amount to be paid by Company pursuant hereto. (As used herein, "payments" shall include money, property, services and all other forms of consideration.) All Records shall be maintained in accordance with generally accepted accounting principles consistently applied. Company and/or its representative shall have the right at any time during normal business hours, upon twenty-four (24) hours' notice, to examine said Records. The provisions of this paragraph shall survive the expiration or earlier termination of this Agreement. 13. Notices. All notices, requests, demands, claims and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed duly given when delivered personally or three business days after having been sent by registered airmail or when received by facsimile transmission, in each case addressed as follows: If to Operator: AIRSHIP INTERNATIONAL LTD. 7380 Sand Lake Road Orlando, Florida 32819 Attn: Louis J. Pearlman, President Fax 407-345-0888 -21- If to Company: ANHEUSER-BUSCH COMPANIES, INC. One Busch Place St. Louis, Missouri 63118 Attn: Carl E. Henke Fax: 314-532-2574 The parties may at any time change their addresses or telefax numbers for the purpose hereof by giving notice to the others in the manner specified above. 14. Liability and Indemnity. Operator hereby assumes liability for, and hereby agrees to indemnify, reimburse, protect, save and hold harmless Company, its subsidiaries, affiliates and related entities, their successors, assigns, officers, agents, employees and servants, from and against, and to pay Company promptly upon demand the amount of, any and all liabilities, obligations, losses, damages, penalties, fines, claims, actions, suits, legal proceedings, whether civil or criminal, costs, expenses and disbursements, including legal fees and expenses, of whatsoever kind and nature, imposed on, incurred by or asserted against Company or any other indemnified entity, in any way relating to, connected with or arising out of (i) the ownership, use or operation of the Airship or its ground support vehicles and equipment (or any component thereof) pursuant to this Agreement, whether in the air or on the ground; or (ii) the death of, or injury to, or damages to, any person or property, including, but not limited to, the property of Company, its officers, employees, agents, invitees, guests or clients, caused by, arising out of or in any way connected with the possession, use, operation or maintenance of the Airship and its ground support vehicles and equipment. The obligations contained in this Section shall continue in full force and effect, notwithstanding the expiration or other termination of this Agreement. 15. Independent Contractors. 15.1 The parties shall be and act as independent contractors, and under no circumstances shall this Agreement be construed as one of agency, partnership, joint venture or employment between the parties. Each party acknowledges and agrees that it neither has nor will give the appearance or impression of having any legal authority to bind or commit the other party in any way. 15.2 Notwithstanding anything in this Agreement to the contrary, the parties hereto acknowledge that the essential purpose of this Agreement is aerial advertising and promotion on behalf of Company and its affiliates and that Company undertakes and shall have no greater responsibility or liability with respect to the Airship -22- (including all support equipment and staff) than it would in acquiring any other advertising space. 16. Governing Law. The interpretation, validity and performance of this Agreement shall be governed by the laws of the State of New York. 17. No Assignment; Company Subsidiaries Included. Neither party shall assign its rights and/or obligations under this Agreement without the prior written approval of the other party. This agreement and all of the terms and provisions hereof will be binding upon, and will inure to the benefit of, the parties hereto and their respective successors and approved assigns. Notwithstanding the foregoing, (i) Operator acknowledges and agrees that all references to "Company" in this Agreement shall include, at the option of Anheuser- Busch Companies, Inc., any of its direct or indirect subsidiaries; provided, however, that Anheuser-Busch Companies Inc. shall be ultimately responsible for the due and punctual performance of all obligations of "Company" herein; and (ii) Company acknowledges that Operator's right to receive the Monthly Fee and/or any other payments due from Company may be assigned by Operator to a bank which is financing the Airship. 18. Miscellaneous. 18.1 This Agreement is the only agreement existing between the parties hereto regarding BUD I Airship, and there are no representations, covenants, warranties or agreements between the parties hereto concerning the BUD I Airship which are not contained herein and set forth in full herein. Any prior agreements or understandings regarding the BUD I Airship are hereby revoked and canceled. This Agreement may be amended only by an agreement in writing executed by both parties. 18.2 The failure of either party to object to or to take affirmative action with respect to any conduct of the other party which is in violation of the terms of this Agreement shall not be construed as a waiver thereof, nor of any future breach or subsequent wrongful conduct. 18.3 Except as otherwise specifically provided in this Agreement, each party shall be responsible for any expenses it incurs in connection with performance of its obligations under this Agreement. -23- 18.4 The rights and remedies set forth herein are intended to be cumulative, and the exercise of any one right or remedy by either party shall not preclude or waive its exercise of any other rights or remedies hereunder or pursuant to law or equity. 18.5 The Section headings set forth herein are for convenience only and do not constitute a substantive part of this Agreement. 18.6 The rights and privileges granted to Company hereunder are special, unique, extraordinary and impossible of replacement, which gives them a peculiar value, the loss of which could not be reasonably or adequately compensated in damages in an action at law, and Operator's failure or refusal to perform its obligations hereunder would cause Company irreparable loss and damage. If Operator fails or refuses to perform such obligations, Company shall be entitled to injunctive or other equitable relief against Operator to prevent the continuance of such failure or refusal or to prevent Operator from granting rights to others in violation of this Agreement. In no event, however, shall Company be entitled to consequential damages arising from the loss of use of the Airship, including but not limited to sales revenues or profits which may have been lost due to loss of the Airship for advertising and promotional purposes. 18.7 Notwithstanding termination of this Agreement pursuant to any provision hereof, such termination shall not relieve any party of any obligation hereunder which, by its terms, survives or is to be performed after such termination, including without limitation those relating to exclusivity as set forth in Section 7 above. 18.8 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, taken together, shall be one and the same instrument. 18.9 The 1992 Agreement shall terminate on the Effective Date. 18.10 Nothing in this Agreement shall be deemed to modify, supersede or replace any provision or term of the Airship Advertising Agreement between the parties dated January 1, 1991. -24- IN WITNESS WHEREOF, this Agreement is executed on behalf of the parties hereto by their duly authorized representatives as of the day and year first above written. AIRSHIP INTERNATIONAL LTD. By: /s/ LOUIS J. PEARLMAN ------------------------- Name: Louis J. Pearlman Title: President ANHEUSER-BUSCH COMPANIES, INC. By: /s/ TONY PONTURO -------------------------- Name: Tony Ponturo Title: Vice President: Corporate Media & Sports Marketing -25- EX-10 5 EXHIBIT 10.71 AIRCRAFT LEASE AGREEMENT This AIRCRAFT LEASE AGREEMENT (the "Agreement") is entered into this 15th day of December, 1994, by and between AIRSHIP INTERNATIONAL LTD., a New York corporation (hereinafter referred to as "AIL") and MASTELLONE HNOS., S.A., a corporation existing under the laws of Argentina (hereinafter referred to as "MASTELLONE"). R E C I T A L S A. AIL is the owner of all right, title and interest in and to that certain airship Skyship 500-HL, FAA Registration Number N-601-LP to be assembled in Buenos Aires, Argentina, described on Exhibit "A" attached hereto and made a part hereof (the "Airship") and of the ground support equipment for the Airship ("GSE"). B. AIL is desirous of leasing the Airship and GSE to MASTELLONE, and MASTELLONE is desirous of leasing the same from AIL, subject to the terms and conditions set forth herein. W I T N E S S E T H NOW, THEREFORE, for and in consideration of the mutual covenants herein contained, the sums of money to be paid hereunder and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant, stipulate and agree as follows, to wit: ARTICLE I - LEASE AND OPERATION 1.1 RECITALS. The above recitals are true and correct and incorporated by reference as if set forth in full herein. 1.2 LEASE OF AIRSHIP. Subject to the terms and conditions set forth herein, AIL hereby agrees to lease to MASTELLONE hereunder, and MASTELLONE hereby agrees to lease from AIL hereunder, the Airship and GSE for the Term described herein. 1.3 OPERATION. AIL and MASTELLONE hereby agree that the Airship and GSE will be operated by Airship Operations, Inc. (hereinafter referred to as "AOI") pursuant to such terms and conditions as the parties to that certain Airship Operations Agreement dated the date hereof between MASTELLONE and AOI (the "Airship Operations Agreement") agree. ARTICLE II - TERM AND RENEWAL OPTION 2.1 TERM. The Term of this Agreement shall be for four months immediately following the Effective Date (the "Initial Term"). 2.2 RENEWAL OPTION. Upon irrevocable written notice to AIL, not less than 30 days prior to expiration of the Initial Term, MASTELLONE shall have the right and ability to extend the Initial Term for an additional term of ten months (the "Renewal Term"); provided that: (a) any such notice shall not be binding on AIL if an Event of Default or Default shall have occurred or be continuing on the 2 date of such notice or on the commencement date of the Renewal Term. (b) any such notice shall be of no effect unless MASTELLONE has extended the Airship Operation Agreement for a term at least equal to the Renewal Term pursuant to which this Agreement is extended. ARTICLE III - RENT 3.1 RENT. MASTELLONE shall pay to AIL the sum of Five Hundred Sixty-Eight Thousand and 00/100 Dollars ($568,000) (the "Initial Payment") upon signing this agreement (which payment shall cover the rent for the first and fourth month of the Term); and, thereafter, the sum of Two Hundred Eighty-Four Thousand and 00/100 Dollars ($284,000) as monthly rent (the "Monthly Fee"). The above amounts include the twelve percent (12%) governmental tax that MASTELLONE, as retention agent, must retain and deposit on the behalf of the Argentinean government. After allowance for such tax, the net amount to be received by AIL hereunder is: (a) $500,000 with respect to the Initial Payment; and (b) $250,000 with respect to each Monthly Fee payment. All sums described herein are due and payable by the fifth day of each month of the Term (excluding the rental payments for the first and fourth months of the Term). Notwithstanding the foregoing, the Monthly Fee during the Renewal Term shall be Two Hundred Fifty One Thousand and 00/100 Dollars ($251,000). 3 3.2 EXPIRATION. Upon expiration of the Term, MASTELLONE shall immediately authorize AOI to relinquish possession of the Airship and GSE to AIL. MASTELLONE acknowledges that AOI will have sole operational control of the Airship and GSE during the Term of this Agreement. MASTELLONE shall also authorize AOI to return the Airship to AIL subject to the terms and conditions set forth in the Airship Operations Agreement. ARTICLE IV - OBLIGATIONS OF AIL AIL agrees to do, or cause to be done, each of the following: 4.1 (a) Deliver the Airship in perfect flying condition (and to maintain such condition during the entire duration of this Agreement); properly disassembled and conditioned for transport to Argentina; and (b) provide the support vehicles on land ("GSVs") described in Appendix A, the helium gas and the special paint for the art designated by MASTELLONE to decorate the Airship. The GSVs will embark already painted with the colors and designs that MASTELLONE designates. 4.2 Send the professional personnel and technicians needed to assemble the Airship and cause it to be functional until its delivery to its designated operator, AOI. 4.3 At its expense, as soon as practicable, provide the documentation or other assistance necessary for the Airship to be certified by the National Director of Aerial Navigation (DNA). 4 4.4 Technically and mechanically assist AOI with any damaged and/or missing parts and/or with other problems which may arise during the Term of this Agreement. 4.5 Provide the special tools for the Airship's maintenance, as well as those tools not available in Argentina. 4.6 Disassemble and condition the Airship and the GSVs at the end of the Term such that it may be reshipped to its origin at a time to be determined by the parties, at which time MASTELLONE shall take whatever actions are required by the Temporary Import Administration relating to the export of the Airship to the United States. 4.7 Deliver to MASTELLONE the guarantee of Louis J. Pearlman and Transcontinental Airlines, Inc. attached hereto as Appendix B. 4.8 Maintain during the Term the following insurance policies: (a) Insurance against third parties and/or material damages which could arise during the operation of the Airship, in the amount of Fifty Million United States Dollars. (b) Insurance covering injury or damage to each person transported in the Airship (including luggage) in the amount of Fifteen Million United States dollars. This insurance will be provided by Lloyd's of London. (c) Insurance for the GSVs against third parties, material damages and injury to persons transported. 5 Copies of each of the insurance policies referred to above are attached hereto as Appendix C. 4.9 Deliver the Airship ready to fly to AOI during the first week of February 1995. 4.10 Paint the exterior and interior of the Airship and the GSVs in accordance with the art designated by MASTELLONE. 4.11 Provide for the illumination system NIGHTSIGN to make it function according to the tests and/or designs chosen by MASTELLONE. 4.12 Comply with the laws and regulations of local flights as provided by local authorities. 4.13 Pay directly all personnel, (including lodging and travel, as provided in the Airship Operations Agreement). This shall be the exclusive responsibility of AIL and MASTELLONE shall be exempt for any type of responsibility from any judicial and/or administrative claims with regard to these matters. 4.14 Pay directly to AOI the costs related to inflating the Airship and its support vehicles 4.15 Inspect the hangar whenever necessary. ARTICLE V - OBLIGATIONS OF MASTELLONE MASTELLONE agrees to do, or cause to be done, each of the following: 5.1 Pay on time all sums indicated in Article 3 hereof. 6 5.2 Pay the costs related to the Airship and of the GSVs, the helium and the transport of the paint to decorate the Airship from Miami (USA) to the Airship's place of assembly in Argentina which shall be designated by MASTELLONE. 5.3 AIL confirms that it has approved the terms and conditions of the Airship Operations Agreement. 5.4 Pay all amounts relating to the hangar and for the auxiliary technical personnel necessary to collaborate with the technical and professional personnel AIL designates for the assembly and disassembly of the apparatus (which AIL agrees shall number no more than 5). 5.5 Provide for the required retention of income tax and deliver the required certificate corresponding to each lease payment to be made hereunder, all as required by the United States Internal Revenue Service. ARTICLE VI - GENERAL CONSIDERATIONS 6.1 Either party hereto may terminate this Agreement in the event of breach or failure the other party in the due observance or performance of any material term, covenant, warranty, representation or agreement contained in this Agreement, which breach or failure continues unremedied or uncorrected for a period of ten days after written notice thereof from the non-breaching party, which notice specifies such breach or failure in reasonable detail and requires it to be remedied; provided that, such ten-day period shall be extended if (i) such breach or failure is not capable of being remedied within such ten-day period, (ii) the breaching party has diligently and 7 in good faith commenced efforts to remedy the same within such ten-day period, and (iii) such breach or failure is remedied within 30 days after such notice. ARTICLE VII- ASSIGNMENT AND SUBLEASE 7.1 MASTELLONE will be able to assign or transfer its rights under this Agreement, in whole or in part. MASTELLONE may enter into a sublease with respect to the Airship. ARTICLE VIII- ADDITIONAL AGREEMENTS AIL further agrees as follows: 8.1 AIL agrees to immediately send or otherwise provide all documentation pertaining to AIL to the Argentinean aerial authorities described herein and to the DNA, including all documentation and/or complete clarification which may be requested by such authorities. 8.2 AIL agrees that Westinghouse Airship Inc. ("Westinghouse") may send the technical personnel to supervise the assembly and shipment of the Airship if so requested by the FAA and/or DNA. 8.3 AIL agrees that it shall deliver or cause Westinghouse to deliver a "Type Certificate" satisfactory to DNA relating to the Airship. ARTICLE IX- INITIAL PAYMENT 9.1 In accordance with Article III, MASTELLONE gives AIL and AIL receives the agreed sum of U.S. $500,000, after the payment of the corresponding 8 taxes, representing the lease payments with respect to the first and fourth months of this Agreement, this serving as receipt. ARTICLE X - MISCELLANEOUS 10.1 NOTICES. All notices, demands, requests, claims and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed duly given when delivered personally or three business days after having been sent registered air mail or when received by facsimile transmission, in each case addressed as follows: If to Operator: Airship International Ltd. 7380 Sand Lake Road Suite 200 Orlando, Florida 32519 Attn: Louis J. Pearlman Fax: (407) 345-0888 With a copy to: Baer Marks & Upham 805 Third Avenue New York, New York 10022 Attn: Joseph A. Marinello, Esq. If to Company: Mastellone Hnos, S.A. Av. L.N. Alem 720 1001 Buenos Aires Republica Argentina Fax: 54-1-3136822 54-1-3121560 9 The parties may at any time change their addresses of telefax numbers for the purpose hereof by giving notice to the other parties in the manner specified above. 10.2 GOVERNING LAW; VENUE. This Agreement will be interpreted and construed under the laws of the State of Florida, regardless of the domicile of any party, and will be deemed for such purposes to have been made, executed and performed in the State of Florida. 10.3 COUNTERPART EXECUTION. This Agreement may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. 10.4 CONSTRUCTION. The words "herein", "hereof", "hereunder", and other similar compounds of the word "here" when used in this Agreement shall refer to the entire Agreement and not to any particular provision or section. If the last day of any time period stated herein shall fall on a Saturday, Sunday or legal holiday, then the duration of such time period shall be extended so that it shall end on the next succeeding day which is not a Saturday, Sunday or legal holiday. 10.5 INVALID PROVISION. If any one or more of the provisions of this Agreement, or the applicability of any such provision to a specific situation, shall be held invalid or unenforceable, such provision shall be modified to the minimum extent necessary to make it or its application valid and enforceable, and the validity and enforceability of all other provisions of this Agreement and all other applications of any such provision shall not be affected thereby, provided that this section will be 10 valid only if no alteration to the intention and/or the spirit and/or the philosophy and/or the application that the parties hereto had at the moment of agreement. 10.6 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of AIL and MASTELLONE and their respective heirs, personal representatives, successors and assigns. Except as expressly provided herein, nothing in this Agreement is intended to confer on any person, other than the parties hereto and their respective heirs, personal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. 10.7 DATE OF AGREEMENT. As used herein, the phrase "Effective Date" shall mean the date upon which operations of the Airship begin pursuant to the terms of Section 1.2 of the Airship Operations Agreement. That date shall be entered as the Effective Date at the top of the first page hereof. 10.8 TIME OF ESSENCE. It is expressly agreed by both parties that time is of the essence of this Agreement and in the performance of all conditions, covenants, requirements, obligations and warranties to be performed or satisfied by the parties hereto. Waiver of performance or satisfaction of timely performance or satisfaction of any condition, covenant, requirement, obligation or warranty by one party shall not be deemed to be a waiver of the performance or satisfaction of any other condition, covenant, requirement, obligation or warranty unless specifically consented to in writing. 10.9 INDEPENDENT CONTRACTORS. AIL's and MASTELLONE's relationship is that of independent contractors and nothing contained in this Agreement shall be 11 deemed to create a partnership or joint venture between AIL and MASTELLONE, or to cause AIL or MASTELLONE to be liable or responsible in any way for the actions, liabilities, debts or obligations of the other. 10.10 PREPARATION OF DOCUMENT. This Agreement shall not be construed more strongly against either party regardless of who is responsible for its preparation and the parties acknowledge that each contributed and are equally responsible for its preparation. 10.11 SURVIVAL. All representations, warranties, covenants and agreements contained in this Agreement shall survive the execution and delivery of this Agreement. Signed, sealed and delivered: AIRSHIP INTERNATIONAL LTD. By: LOUIS J. PEARLMAN --------------------------------------- Louis J. Pearlman, President MASTELLONE HNOS, S.A. By: DR. GUILLERMO LOZANO --------------------------------------- Dr. Guillermo Lozano, General Counsel JOSE ALDO MALTAGLIATI --------------------------------------- Jose Aldo Maltagliati, Accountant 12 EX-10 6 EXHIBIT 10.72 AIRSHIP OPERATIONS AGREEMENT THIS AGREEMENT is made as of the 15th day of December, 1994, by and between AIRSHIP OPERATIONS, INC., a Florida corporation with its principal office at 2642 Michigan Avenue, Unit B, Kissimmee, Florida 34744 ("Operator"), and MASTELLONE HNOS, S.A., a corporation existing under the laws of Argentina with its principal office at Avda L.N. Alem No. 720, 1001 Buenos Aires, Republica Argentina ("Company"). (A) Operator declares that Airship International Ltd. ("AIL") is the owner of a SKYSHIP 500-HL aircraft, FAA Registration Number N-601-LP to be assembled in Buenos Aires, Argentina described in Exhibit "A" attached hereto and made a part hereof (the "Airship") and of the ground support equipment for the Airship. (B) Company wishes to have the exclusive use of the Airship for advertising and promotional purposes pursuant to the terms and conditions hereof, and Operator wishes to make the Airship available to Company for such purposes. NOW THEREFORE, it is hereby agreed as follows: 1. Exclusive Use; Term. 1.1 During the Term (as hereinafter defined), Operator shall use and operate the Airship at such locations within Argentina and/or Uruguay as are designated by Company (the "Territory") exclusively for the purposes set forth in Section 1.3 below. Operator shall operate all equipment, instruments, engines, computers and other appurtenances used or required for operation of the Airship, as well as ground support vehicles, mooring masts, fuel, personnel (including pilots, ground crew, and all other required personnel, and all other facilities, equipment and supplies necessary for fulfilling its obligations enumerated herein), subject to the terms and conditions of this Agreement. 1.2 The term of this Agreement (the "Term") shall commence on or about February 10, 1995 (the "Delivery Date"), and shall continue through June 10, 1995. Company shall have the right and ability to extend the Term for an additional ten month term (the "Additional Term") upon thirty (30) day advance written notice to Operator during the Term. 1.3 Throughout the term of this Agreement the Airship shall be operated on behalf of Company exclusively for the following purposes: (a) Advertising and promoting the products, goods, services or businesses of Company and/or any of its subsidiaries or other affiliates (as determined exclusively by Company) by over-flight of heavily populated areas, including stadiums, open-air theaters, outdoor concerts, sporting events, amusement parks, theme parks and other large public gatherings; (b) Aerial filming of events for telecast and other uses, as and when directed by Company, and (c) The carriage of passengers, subject to the following limitations: (i) Only invited guests of Company may be carried as passengers on the Airship; (ii) Passenger flights shall originate and terminate at the same point; (iii) Company's passengers shall not pay for their carriage, nor will payment be made or accepted on their behalf; and (iv) The number of passenger flights per week shall be determined by Company, subject to safety and weather conditions as determined by the Airship pilot and applicable rules and regulations of all governmental agencies within the Territory, if any. 2. Delivery of Airship; Designated Base of Airship; Design and Color Scheme. 2.1 Operator is obligated to cause the Airship to be in a serviceable, fully operational and airworthy condition on the Delivery Date. The parties agree that the initial base of operations for the Airship will be at Buenos Aires, Argentina at a specific location to be designated by Company (the "Designated Base"), subject to the reasonable approval of Operator. 2.2 Prior to the Delivery Date, Operator shall obtain a Certificate of Airworthiness from the FAA and shall maintain such Certificate of Airworthiness in effect throughout the Term. 2.3 Company's proposal for the design and color scheme of the exterior of the Airship shall be delivered to and accepted by Operator within 14 days upon signing of this agreement. Operator agrees to execute the Company's design and color scheme (the "Work") on the exterior of the Airship. The execution of the design and color scheme shall be considered a work-made-for-hire within the meaning of the United States Copyright Act. All sketches and any other graphic material for the Work, 2 whether preliminary or in partial or final form, shall be the exclusive property of the Company, and Operator assigns all right, title and interest therein, including the copyright, to the Company. Any design problems or difficulties relating to the proposed exterior design shall be resolved by discussion between the parties hereto, it being understood that Company's artistic and design preferences and Operator's experience in the field of Airship exterior design are of paramount importance. If Company requires any changes in the exterior design after initial acceptance during the Term, it shall notify Operator and provide artwork on a timely basis. Company shall pay to Operator the actual cost of each such change in the exterior design within 30 days of receipt of an invoice for such amount from Operator. 2.4 Operator shall install and maintain to Company's specifications, at no cost to Company, electric sign graphics (the "Night Sign") on each side of the Airship to display such advertising, promotion or other copy as may be directed by Company from time to time. The electric sign graphics shall be displayed using state-of-the-art computerized lights in four colors operated from the Airship's gondola. The space for such electric sign graphics on the Airship shall have a dimension of approximately 118 feet x 29 feet. 3. Airship Operations. 3.1 Operator shall obtain, and maintain in effect throughout the Term, all requisite permits, certificates and authorizations as required by the FAA Company shall be responsible for obtaining all requisite permits, certificates and authorizations from all governmental agencies within the Territory, including but not limited to the National Airship Board of Argentina ("DNA"). 3.2 Operator shall provide personnel to perform all maintenance, servicing and repair required to be performed on the Airship during the Term in accordance with the Airship flight operations manual and the Airship maintenance manual and in compliance with standards prescribed by the FAA. Except as otherwise provided herein, Operator shall also provide the necessary ground and flight crew for the Airship and shall pay all costs associated with the ownership, use or operation of the Airship. Such costs shall include, but shall not be limited to, the following: (a) The helium necessary for the complete operation of the Airship will be provided by Operator in appropriate export packages in any port on the east coast of the United States. Company will be responsible for the transport of the helium to Argentina and the payment of the import duties that the Argentinian government will require; (b) All operational and administrative personnel; 3 (c) All ground support equipment (painted with the colors and designs designated by Company) and personnel (provided that the number of ground crewmen shall not exceed twelve) required for the operation and maintenance of the Airship; (d) All insurance, maintenance and repair costs (excluding sales taxes, if any, which shall be borne by Company); (e) Lubricating oil; and (f) Fuel. Company shall be responsible for all Airship mooring fees, costs of delivery of the Airship and all equipment used or required for the Airship as described in Section 1 above to the Designated Location at the beginning and end of the Term, the costs to provide and replenish helium gas as set forth in Section 3.2(a) above. All other fees and costs not outlined hereinabove shall be borne by Company including, but not limited to, costs related to disassembly and return of the Airship (including insurance on shipment), ground support vehicles and related equipment to Miami, Florida. Operator will provide necessary personnel in order to perform disassembly. 3.3 Operator shall not be required to operate the Airship in any manner which violates any law or regulation of any governmental agency of Argentina and/or Uruguay, the country of registration of the Airship or any country or state to, from or over which the Airship flies. 3.4 In addition to the sums specified in Section 4, Company shall pay for, provide or reimburse Operator (within 30 days of receipt of an invoice for same accompanied by adequate documentation) for any sum Operator shall expend on the following: (a) The actual cost of any change in the Airship's exterior design required by Company after the date hereof (except as otherwise provided in Sections 2.3 and 2.4 above); and (b) Any special equipment not part of the normal equipment of the Airship (other than the electric sign graphics referred to in Section 2.4) which is required by Company for advertising or any other mutually agreed purposes. 3.5 (a) Company shall determine from time to time the dates, times and locations for flight operations of the Airship, which shall be set forth on a schedule of operations of the Airship (the "Schedule"). The initial Schedule, covering the first thirty (30) days of operation, shall be submitted by Company to Operator at least ten (10) days prior to the Delivery Date. Thereafter, thirty-day 4 Schedules shall be submitted by Company to Operator at least ten (10) days prior to the expiration of the previous Schedule. The Schedule may be amended by Company from time to time during the Term, upon reasonable notice to Operator. Operator shall adhere to the flight plan established by Company in the Schedule, subject only to the physical constraints of adverse weather conditions as determined by Operator's pilot, design limitations of the Airship and applicable governmental regulations in effect from time to time. Operator will cooperate with Company in making Airship flights during the times of the day and days of the week to meet the Schedule. Changes in the geographic location of the Airship (300 miles or more) from the location in the Schedule shall be given to Operator at least ten (10) days in advance of the changes; provided, however, that Operator shall use its best efforts to accommodate Company when Company requests a change in location on shorter notice. Company shall provide Operator reasonable assistance in locating lodging facilities for the Airship's crew when travel is requested on short notice. (b) The Schedule and any amendments thereto shall be subject to the reasonable approval of Operator based upon operational considerations. (c) Company and Operator shall, on a weekly or bi- weekly basis, establish the local flight schedule in the Designated Base area and hours of operation of the Airship. Any changes by Company in the local flight schedule shall be submitted to Operator at least forty-eight hours prior to the proposed effective date and time of such changes. Any changes required by Company in the Schedule which will require the geographic relocation of the ground crew and support vehicles (but within 300 miles of the Designated Base) will be submitted at least ten (10) days in advance for clearance with the appropriate governmental agencies and to make appropriate ground arrangements. Operator will use its best efforts to accommodate all Schedule changes when requested by Company and to fly the Airship in accordance with the Schedule. 3.6 (a) Operator shall make the Airship available for operation according to the Schedule up to six days per week. Company shall be entitled to schedule flights on weekends, with the "off day" being a week day (normally Monday). Operator shall provide, and Company will schedule, eight (8) hours per day of flight time. Scheduled flight time for any given day shall be measured from the first departure from the Airship's mooring mast until its mooring at said mast at the completion of such day's operation and will include airborne flight time for the purposes set forth in Section 1.3 above, as well as time between flights for operational requirements such as refueling, crew changes, and pick-up or drop-off of passengers, and time spent travelling to and from Operator's closest maintenance facility. The Airship's pilots' log and maintenance and repair records will be available for review by Company at all reasonable times upon reasonable prior notice from Company. A representative of Company, if available, shall also sign the log at the completion of each day's flights. 5 With respect to time lost from the Schedule for reasons beyond Operator's reasonable control, Operator shall use its best efforts to re-schedule such time as soon as reasonably practical thereafter. (b) Notwithstanding the preceding paragraph (a) above during each six month period of the Term, Operator shall have the right to withdraw the Airship from service for scheduled maintenance and service when necessary for a period of fifteen (15) days, no fewer than ten of which shall be consecutive days (each such period a "Maintenance Period" and each day of any such Maintenance Period a "Maintenance Day"), taking into consideration inspections or maintenance which is mandated by Federal Aviation Regulations ("FARs"), the manufacturer's maintenance manual or the instruction manual (as may be required for continued airworthiness) or by the Operator's approved inspection and maintenance program. There shall be no reduction in any Monthly Fee payment payable hereunder with respect to any such withdrawal of the Airship for maintenance in accordance with this Section. 3.7 (a) Operator shall provide all necessary flight and ground crew personnel necessary to accommodate the Schedule. (b) Operator shall comply with the reasonable requests of Company to the best of its ability in order that Company may obtain the optimum utilization of the Airship with respect to its advertising and promotional activities, provided that all crew activities shall be within Operator's pilots' sole discretion. Notwithstanding the foregoing, the parties acknowledge that Operator has full operational control of the Airship, and Company shall have no liability whatsoever for any loss of or damage to the Airship. (c) Except when the authorized and licensed pilots are at the flight controls or on duty, the ground crew chief shall be in command of the Airship. (d) No flight of the Airship shall take place unless Operator's pilots on board shall be satisfied as to the prevailing weather conditions and any geographical limitations, the load required to be carried and the proposed places of take-off and landing. Operator's pilots shall have the absolute right to cancel, terminate or divert any flights when such action is deemed by them to be necessary due to the weather or to other conditions beyond their control. Said pilots shall also have absolute discretion to prohibit any goods or passengers on the Airship if, in the pilots' opinion, they may adversely affect the safe flight of the Airship. (e) Company shall provide, at its sole cost and expense, (i) all uniforms which must be worn by Operator's flight and ground crew members, (ii) any decals or painted logos (and replacements thereof) which Company requires Operator to use on Operator's ground support vehicles, and (iii) the patches and other logos for 6 crew members' uniforms. Such uniforms, painted logos and decals shall be cleaned from time to time by Operator in order to maintain a neat and clean appearance to the public. All registered trademarks, trade names and other proprietary property used in connection with such uniforms, as well as painted logos and decals, shall remain the exclusive property of Company. 3.8 On reasonable notice from Company, Operator shall cause a camera to be temporarily installed on the Airship when permissible by law for use in taping television commercials, televising sporting or other events, or other photographic or filming purposes. Company shall reimburse Operator for any actual incremental costs it may incur in providing the camera for use in the Airship. 4. Consideration; Reimbursement of Expenses. 4.1 (a) In consideration of all services to be provided and obligations to be performed by Operator hereunder, Company agrees to pay to Operator (i) the sum of Two Hundred Sixty Thousand and 00/100 U.S. Dollars ($260,000) upon signing of this Agreement (which payment shall cover the first and fourth month of the Term); and (ii) thereafter, the sum of One Hundred Thirty Thousand and 00/100 U.S. Dollars ($130,000) per month (which amounts include governmental taxes calculated at a maximum rate of twenty seven percent (27%)) plus travel reimbursement (the "Monthly Fee"). All amounts described herein are due and payable on the first day of each month of the Term (except for the Monthly Fee covering the first and fourth months of the Term). (b) In the event that the Company exercises its option to extend the Term in accordance with Section 1.2, the Monthly Fee payable during the Additional Term shall be One Hundred Fifteen Thousand and 00/100 U.S. Dollars ($115,000) plus travel reimbursement. Travel reimbursement will consist of 100% of hotel costs in addition to a weekly expense allowance of $350 for each member of the Airship's crew including the groundcrew and each pilot. 5. Representations, Warranties and Covenants. 5.1 Operator represents, warrants and covenants to Company that: (a) The Airship will be certificated as a standard type aircraft under the laws of the United States of America; 7 (b) As of the Delivery Date, Operator shall have a valid Certificate of Airworthiness issued for the Airship by the United States of America, and Operator shall take all necessary actions to ensure the continued effectiveness of the Airship's Airworthiness Certificate as set forth in FAR Section 21.181(a)(1), so that a valid Certificate of Airworthiness for the Airship is maintained at all times. The Airship is, or will be on the Delivery Date, in airworthy condition and technically and legally usable for the purposes contemplated by this Agreement; (c) Registration of the Airship under the laws of the United States of America shall be maintained, and Operator shall obtain and maintain (or cause to be obtained and maintained) in effect all required approvals of the FAA. Company shall be responsible for any other governmental registrations of governmental agencies having jurisdiction over the use and operation of the Airship within the Territory, including, but not limited to, DNA. (d) Operator shall be responsible for performance of all Airship overhaul, engine overhaul and maintenance required during the Term, if under the FAR'S, as well as any applicable airworthiness directives requiring modifications to each component of the Airship, and shall make such alterations and modifications in each component of the Airship as may be required from time to time to meet the standards of the FAA; and (e) Operator shall maintain all records, logs and other materials required by the FAA or other governmental authority having jurisdiction over the Airship and shall permit Company or its duly authorized agents or representatives or any other person designated by Company to inspect the Airship and its flight logs and maintenance records at any reasonable time and shall furnish Company and its duly authorized agents or representatives any information with regard to the operation of the Airship as any of them may reasonably request. 5.2 The Company represents and warrants to Operator that it has obtained or shall obtain and maintain in effect throughout the Term all permits, certificates and authorizations as are required by DNA or any governmental agency having jurisdiction over the use, operation and flight of the Airship in the Territory. 5.3 Each party hereto represents and warrants to the other that: (a) It is a duly organized and valid entity in good standing under the laws of its jurisdiction of organization and has full authority to conduct its business as presently conducted and to enter into and perform its obligations under this Agreement; 8 (b) Each of the persons executing this Agreement is a duly authorized officer or agent of such entity and has been duly authorized by all necessary action to execute and deliver this Agreement; and (c) This Agreement has been duly and validly executed and delivered by such party and constitutes a valid and binding agreement of such party, enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. 6. Licensing. 6.1 Upon the termination of this Agreement, Operator shall, at Company's expense, remove from all ground support vehicles and equipment all trademarks, logo designs, color schemes and signage belonging to the Company or any of its subsidiaries, affiliates or related entities. Operator shall not allow the Airship, vehicles or equipment to be used commercially until the design graphics and other materials of Company are removed, which shall occur as soon as practicable following the termination of this Agreement. In any event, Company shall be responsible for all expenses incurred as a result of exporting the Airship to Miami, Florida, including, but not limited to, Argentinian personnel. 7. Insurance. 7.1 Operator shall, during the Term, procure and maintain, at its sole cost and expense, a policy or policies of insurance in form and content and with responsible insurers reasonably acceptable to Company, in the following types and amounts: (a) Comprehensive aviation liability insurance placed through Lloyd's of London with respect to the use and operation of the Airship, having a combined single limit of not less than $50,000,000, insuring and covering Operator and, as an additional insured pursuant to Section 7.2(a), Company, as their interests may appear, against all liability for injury, damage or claims caused by or arising out of, or in connection with, ownership, operation, maintenance or use of the Airship, including injuries to or deaths of passengers or third persons or damage to property. (b) Automobile liability insurance or other general liability insurance covering all owned, non-owned and leased automobiles, trucks, trailers, and other vehicles and ground support equipment used by Operator in the performance of its duties under this Agreement. Such insurance shall provide coverage of not less than that provided for in the Standard Comprehensive Automobile Liability 9 Policy in limits of not less than $10,000,000 combined single limit each occurrence for bodily injury and property damage. 7.2 All insurance required hereby shall include the following: (a) Company and its subsidiaries, affiliates and licensees and their respective assigns, officers, directors and employees shall be included as additional insureds as their interests may appear; (b) With respect to liability arising out of work performed by Operator under this Agreement, the insurance afforded the Company as additional insured shall be primary, and any insurance maintained by Company shall be excess and not contributing with Operator's insurance; 7.3 Operator shall, from time to time as Company shall reasonably request, and prior to each renewal date of the insurance, furnish to Company certificates evidencing that the foregoing insurance is in full force and effect with financially sound and responsible insurers. 8. Termination; Force Majeure. 8.1 The occurrence of any of the following events will be deemed to be, and shall be treated as, a default under this Agreement and just cause for its termination by the non-defaulting party, which termination shall be effective upon notice given in accordance with Section 10 hereof, and/or, at Company's option, if Company is the non-defaulting party, abatement by Company or reimbursement to Company of the compensation to be paid by Company pursuant to this Agreement or previously paid but unearned: (a) Breach or failure by either party in the due observance or performance of any material term, covenant, warranty, representation or agreement contained in this Agreement, which breach or failure continues unremedied or uncorrected for a period of ten days after written notice thereof from the nonbreaching party, which notice specifies such breach or failure in reasonable detail and requires it to be remedied; provided that, such ten-day period shall be extended if (i) such breach or failure is not capable of being remedied within such ten-day period, (ii) the breaching party has diligently and in good faith commenced efforts to remedy the same within such ten-day period, and (iii) such breach or failure is remedied within 30 days after such notice. (b) Either party shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or any 10 proceeding shall be instituted by or against such party seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee or other similar official for said party or for any substantial part of its property, and such proceeding shall not have been dismissed within ninety (90) days; or either party shall take any action to authorize any of the actions set forth above in this subsection. 8.2 (a) The provisions of this Agreement are binding upon the parties hereto except where performance by a party, or the ability to achieve the material purposes set forth in Section 1.3(a), is prevented, delayed or interfered with by causes beyond the reasonable control of the non-performing party, including, without limitation, riot, war or hostilities between nations, governmental action (other than action taken in response to Operator's or Company's violation of any law or governmental regulation, in which case the party at fault shall not be permitted to claim the benefit of this Section 8.2), acts of God, mechanical or equipment failures caused by foreign objects, fire, accidents, strikes or adverse weather conditions (collectively, force majeure) provided however, that force majeure shall not include mechanical or equipment failures (other than as provided above) or unavailability of flight crew or ground crew personnel unless attributable to act(s) of God. (b) The party affected by force majeure shall give notice to the other party of said force majeure event promptly after the occurrence thereof, stating therein the nature of the suspension of performance and reasons therefor. Such party shall use its best efforts to resume performance as soon as reasonably possible. Upon restoration of the affected party's ability to perform its obligations hereunder, the affected party will give immediate notice to the other party. (c) If a force majeure condition which prevents a party's performance hereunder shall continue for a period of 60 days, and after such 60 day period there shall be no reasonable prospect for the prompt cure thereof despite the best efforts of the affected party to cure the same, then either party shall have the right to terminate this Agreement in its entirety upon 30 days' prior notice to the other party; provided that such termination shall be effective as of the date on which the non-performing party ceased performing hereunder due to a force majeure condition, and upon such termination (i) Operator shall return any payments advanced but unearned as of the termination date, (ii) Company shall make any payments earned but not paid as of such termination date, and (iii) neither party hereto shall have any further liability or obligation whatsoever to the other, other than under the terms of those provisions which specifically survive the termination of this Agreement. 8.3 Notwithstanding anything to the contrary in this Agreement, if during the Term it becomes necessary to cancel operations pursuant to this Agreement due to the inability of Operator to maintain necessary permits or authorizations from the 11 FAA, DOT or any other governmental agency having jurisdiction over the Airship or its use or operation, such cancellation of operations shall continue for a period of 60 days, and after such 60-day period there shall be no reasonable prospect for the prompt cure thereof despite the best efforts of the Operator to remedy the same, then Company shall have the right after such 60 day period to terminate this Agreement in its entirety upon 30 days' notice to Operator, whereupon (i) Operator shall return any payments advanced but unearned as of the termination date, (ii) Company shall make any payments earned but not paid as of such termination date, and (iii) neither party hereto shall have any further liability or obligation whatsoever to the other, other than under the terms of those provisions which specifically survive the termination of this Agreement. If such condition is remedied within the aforementioned 60 day period, the Agreement shall continue in effect for the remainder of the Term provided that the Term shall be extended by the number of days during which such condition existed, and the respective obligations of the parties shall be abated for that same period. If an event or circumstance which would otherwise constitute a default with respect to the Company under Section 8.1(a) also is subject to this Section 8.3, it shall be governed by this Section 8.3 and will not constitute a default. 9. Confidentiality. Except as may be required by law or to obtain a permit or other authorization for the operation of the Airship, no party to this Agreement shall divulge to any third party the contents of this Agreement or any other agreement between the parties or any information (which is not publicly available) gained in the performance of this Agreement or such other agreements, except to the extent necessary, normal or appropriate for the purposes contemplated hereunder, and information by way of plans or other documentation marked "Confidential" by a party and made available to the other parties shall not be made available to any third party without the written consent of the disclosing party. The parties shall consult with one another regarding the contents of any proposed press release relating to this Agreement prior to issuing such press release. 10. Notices. All notices, requests, demands, claims and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed duly given when delivered personally or three business days after having been sent by registered airmail or when received by facsimile transmission, in each case addressed as follows: 12 If to Operator: Airship Operations, Inc. 2642 Michigan Avenue, Unit B Kissimmee, FL 34744 Attention: Frank Sicoli Fax: 407-345-0888 with a copy to: Baer Marks & Upham 805 Third Avenue New York, New York 10022 Attn: Joseph A. Marinello, Esq. If to Company: Mastellone Hnos S.A. Avda L.N. Alem 720 1001 Buenos Aires Republica Argentina Attn: Dr. Guillermo Lozano Fax: 54-1-3136822 54-1-3121560 The parties may at any time change their addresses or telefax numbers for the purpose hereof by giving notice to the others in the manner specified above. 11. Liability and Indemnity. (a) Operator hereby assumes liability for, and hereby agrees to indemnify, reimburse, protect, save and hold harmless Company, its subsidiaries, affiliates and related entities, their successors, assigns, officers, agents, employees and servants, from and against, and to pay Company promptly upon demand the amount of, any and all liabilities, obligations, losses, damages, penalties, fines, claims, actions, suits, legal proceedings, whether civil or criminal, costs, expenses and disbursements, including legal fees and expenses, of whatsoever kind and nature (collectively, "Damages"), imposed on, incurred by or asserted against Company or any other indemnified entity, in any way relating to, connected with or arising out of (i) the ownership, use or operation of the Airship or its ground support vehicles and equipment (or any component thereof) pursuant to this Agreement, whether in the air or on the ground (except for damages resulting from failure of Company to obtain or maintain any 13 governmental approvals or licenses that it is required to obtain or maintain pursuant to the terms of this Agreement); or (ii) the death of, or injury to, or damages to, any person or property, including, but not limited to, the property of Company, its officers, employees, agents, invitees, guests or clients, caused by, arising out of or in any way connected with the possession, use, operation or maintenance of the Airship and its ground support vehicles and equipment. (b) Company hereby assumes liability for, and hereby agrees to indemnify, reimburse, protect, save and hold harmless Operator, its subsidiaries, affiliates and related entities, their successors, assigns, officers, agents, employees and servants, from and against, and to pay Operator promptly upon demand, Damages imposed on, incurred by or asserted against Operator or any other indemnified entity, in any way relating to, connected with or arising out of failure by Company to obtain or maintain any governmental approvals or licenses that it is required to obtain or maintain hereunder. The obligations contained in this Section shall continue in full force and effect, notwithstanding the expiration or other termination of this Agreement. 12. Independent Contractors. 12.1 The parties shall be and act as independent contractors, and under no circumstances shall this Agreement be construed as one of agency, partnership, joint venture or employment between the parties. Each party acknowledges and agrees that it neither has nor will give the appearance or impression of having any legal authority to bind or commit the other party in any way. 12.2 Notwithstanding anything in this Agreement to the contrary, the parties hereto acknowledge that the essential purpose of this Agreement is aerial advertising and promotion on behalf of Company and its affiliates and that Company undertakes and shall have no greater responsibility or liability with respect to the Airship (including all support equipment and staff) than it would in acquiring any other advertising space. 13. Governing Law/Venue. The interpretation, validity and performance of this Agreement shall be governed by the laws of the State of Florida regardless of the domicile of any party, and will be deemed for such purposes to have been made, executed and performed in Florida. 14 14. Assignment. 14.1 Company may assign or transfer its rights under this Agreement, in whole or in part. 14.2 Operator shall not assign its rights and/or obligations under this Agreement without the prior written approval of Company. This agreement and all of the terms and provisions hereof will be binding upon, and will inure to the benefit of, the parties hereto and their respective successors and approved assigns. 15. Miscellaneous. 15.1 The parties hereto acknowledge a separate Lease Agreement by and between AIL as owner of the Airship and its related ground support vehicles and Mastellone Brothers dated the date hereof relating to the Airship. Notwithstanding the foregoing, this Agreement is the only agreement existing between the parties hereto regarding the operation of the Airship, and there are no representations, covenants, warranties or agreements between the parties hereto concerning the Airship which are not contained herein and set forth in full herein. Any prior agreements or understandings regarding the Airship are hereby revoked and canceled. This Agreement may be amended only by an agreement in writing executed by both parties. 15.2 The failure of either party to object to or to take affirmative action with respect to any conduct of the other party which is in violation of the terms of this Agreement shall not be construed as a waiver thereof, nor of any future breach or subsequent wrongful conduct. 15.3 Except as otherwise specifically provided in this Agreement, each party shall be responsible for any expenses it incurs in connection with performance of its obligations under this Agreement. 15.4 The rights and remedies set forth herein are intended to be cumulative, and the exercise of any one right or remedy by either party shall not preclude or waive its exercise of any other rights or remedies hereunder or pursuant to law or equity. 15.5 The Section headings set forth herein are for convenience only and do not constitute a substantive part of this Agreement. 15.6 The rights and privileges granted to Company hereunder are special, unique, extraordinary and impossible of replacement, which gives them a peculiar value, the loss of which could not be reasonably or adequately compensated in 15 damages in an action at law, and Operator's failure or refusal to perform its obligations hereunder would cause Company irreparable loss and damage. If Operator fails or refuses to perform such obligations, Company shall be entitled to injunctive or other equitable relief against Operator to prevent the continuance of such failure or refusal or to prevent Operator from granting rights to others in violation of this Agreement. In no event, however, shall Company be entitled to consequential damages arising from the loss of use of the Airship, including but not limited to sales revenues or profits which may have been lost due to loss of the Airship for advertising and promotional purposes. 15.7 Notwithstanding termination of this Agreement pursuant to any provision hereof, such termination shall not relieve any party of any obligation hereunder which, by its terms, survives or is to be performed after such termination. 15.8 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, taken together, shall be one and the same instrument. IN WITNESS WHEREOF, this Agreement is executed on behalf of the parties hereto by their duly authorized representatives as of the day and year first above written. AIRSHIP OPERATIONS, INC. By: FRANK SICOLI Name: Frank Sicoli Title: Vice President MASTELLONE HNOS, S.A. By: DR. GUIllERMO LOZANO Name: Dr. Guillermo Lozano Title: General Counsel By: JOSE ALDO MALTAGLIATI Name: Jose Aldo Maltagliati Title: Accountant 16 EX-10 7 EXHIBIT 10.73 January 24, 1994 PASSENGER AIRSHIP AGREEMENT THIS AGREEMENT is made as of the 2nd day of January, 1994, by and between AIRSHIP INTERNATIONAL LTD., a New York corporation, with its principal office at 7380 Sand Lake Road, Orlando, Florida 32819 ("Operator"), and ANHEUSER-BUSCH COMPANIES, INC., a Delaware corporation, with its principal office at One Busch Place, St. Louis, Missouri 63118 ("Company"). RECITALS (A) Operator is the owner of a SKYSHIP 500 H/L aircraft, United States Federal Aviation Administration ("FAA") Registration No. 601LP (the "Airship"). (C) Operator desires to operate the Airship for passenger sight-seeing trips pursuant to the terms and conditions of this Agreement, while the Airship bears trademarks owned by Company's Sea World theme park ("Sea World"). (D) Company is, on its own behalf or through its affiliated company, Sea World, Inc., ("SWI"), owner of the following service marks and copyrights: SEA WORLD, SHAMU, AIRSHIP SHAMU, Whale Logo and the configuration of the design and color scheme of the Airship (collectively, the "Service Marks and Copyright Works"), which Company wishes to license to Operator, and Operator wishes to use in connection with the offer and sale of sight-seeing trip services. NOW, THEREFORE, it is hereby agreed as follows: 1. Term 1.1 During the Term (as hereinafter defined), Operator shall operate the Airship (i) within the southwest Orlando "attractions" area, encompassing the Disney World, Universal Studios, Sea World and International Drive tourist areas (the "Territory"), (ii) in other areas permitted by Company from time to time in writing, and (iii) outside the Territory as provided for in Section 3.7 hereof, all on the terms and conditions set forth herein. Operator shall provide and be fully responsible for all equipment, instruments, engines and other appurtenances used or required for operation of the Airship, which shall be fully operational with ground support vehicles, mooring masts, fuel, personnel (including pilots, ground crew, security and all other required personnel), facilities, equipment and supplies necessary for fulfilling its obligations enumerated herein, subject to the terms and conditions of this Agreement. 1.2 The term of this Agreement (the "Term") shall be deemed to have commenced on January 2, 1994, and shall continue through December 31, 1994. The Term may be extended upon mutual agreement of the parties. 1.3 Throughout the Term the Airship shall be operated exclusively for the following purposes: (a) Advertising and promoting Sea World and its products, goods, services or businesses by over-flight of the Territory and, upon exercise of the Option (as hereinafter defined), outside the Territory; (b) The carriage of passengers, subject to the following limitations: (i) Only passengers paying a fee to the Operator for sight-seeing in the Territory may be carried as passengers on the Airship; (ii) Passenger flights for fee-paying passengers shall originate and terminate at the Landing Area (as hereinafter defined) (iii) The passenger flights shall be performed with due consideration for safety and weather conditions as determined by the Airship pilot and applicable FAA regulations. 1.4 Passenger flights of the Airship shall commence on a date mutually agreeable to Operator and Company, which the parties anticipate shall be on or about January 24, 1994, provided that if regularly scheduled passenger flights have not commenced by February 15, 1994, either party may terminate this Agreement upon at least 14 days' written notice, unless regularly scheduled passenger flights have commenced during such 14-day notice period. 1.5 Each party hereto shall have the right to terminate this Agreement at any time and for any reason by giving the other party hereto at least fourteen (14) days' prior written notice of its intent to do so. 2. Passenger Base and Landing Area 2.1 (a) Initial operations of the Airship shall be from the Kissimmee Airport (the "Landing Area"). Company will make an effort to lease a suitable site closer to Sea World for use as a landing area and shall allow Operator the use of this site pursuant to terms of a mutually-agreed amendment to this Agreement to be entered into at such time. Operator shall pay the cost of any improvements it desires to make to the site, plus utilities and taxes on any improvements. Operator shall comply with all conditions of Company's land lease as a condition of use. In the event Company's leased site becomes unavailable or unusable, Company shall have the right but not be obligated to, substitute a replacement site, subject to the consent of Operator, which shall not be unreasonably withheld. (b) In order to protect the interests of Company, Company shall have the right to inspect the Landing Area. 2 3. Airship Operations 3.1 Operator has provided Company with a copy of the flight manual for the Airship approved by the FAA, and shall provide Company with a copy of the Operator's Airship operations manual. Operator shall maintain its FAA Certificate of Airworthiness for the Airship in effect throughout the Term. Operator shall obtain and maintain in effect throughout the Term all requisite permits, certificates and authorizations from all governmental agencies having jurisdiction over the use, operation and flight of the Airship within the Territory. Operator shall also use its best efforts to obtain all relevant permits and authorizations as may be required from any supervising governmental agency. Operator shall not operate the Airship in any manner which violates any law or regulation of any governmental agency of the United States or any state thereof, the country of registration of the Airship or any country or state to, from or over which the Airship flies. Operator has represented to Company that it is conversant with all such laws and regulations. 3.2 Company shall approve the execution of the design and color scheme for the Airship, which design and color scheme (the "Work") shall be considered a work-made-for-hire within the meaning of the United States Copyright Act. All sketches and any other graphic material for the Work, whether preliminary or in partial or final form, shall be the exclusive property of Company, and Operator assigns all right, title and interest therein, including the copyright, to Company. If Company requires any changes in the exterior design during the Term, it shall notify Operator and provide art work on a timely basis. Any design problems or difficulties relating to a proposed change in the exterior design shall be resolved by discussion between the parties hereto, it being understood that Company's artistic and design preferences and Operator's experience in the field of Airship exterior design are of paramount importance. Company shall pay to Operator the actual cost of each such change in the exterior design within ten days of receipt of an invoice for such amount from Operator. Upon the expiration or early termination of this Agreement, Operator shall not operate the Airship (except for trips to its maintenance hangar or for other refurbishing) unless the work has been deleted. 3.3 Operator, in its sole discretion, shall have the right to operate and maintain, at no cost to Company, an electric sign on each side of the Airship (collectively, the "Signs") which display the advertising, promotion or other copy as may be requested, but not required, by Company from time to time; provided, however, that at least twenty-five percent (25%) of the Signs' operating time shall be used for Company's messages. Company's use of the Signs shall be non-exclusive and shall not preclude Operator from advertising the passenger services and displaying other advertising on the Signs, provided that all advertising shall be approved in advance by Company. The Signs' graphics shall be displayed using state-of-the-art computerized lights in four colors operated from the Airship's gondola. The space for the Signs' graphics on the Airship shall have a dimension of approximately 118 feet x 29 feet. 3 3.4 Operator shall provide FAA certified and approved personnel to perform all maintenance, servicing and repair required to be performed on the Airship during the Term in accordance with the Airship flight operations manual and the Airship maintenance manual and in compliance with standards prescribed by the FAA and all other governmental agencies having jurisdiction over the Airship, its use, operation and flights within the Territory. Operator shall also provide the necessary ground and flight crew for the Airship and shall pay all costs associated with the ownership, use or operation of the Airship. Such costs shall include, but shall not be limited to, the following: (a) Helium gas replenishments; (b) All operational and administrative personnel; (c) All ground support equipment and personnel required for the operation, maintenance and security of the Airship; (d) All insurance, taxes, maintenance and repair costs; (e) Lubricating oil; (f) Fuel; (g) Airship mooring fees (if any) incurred away from the Base; and (h) All travel accommodation, subsistence, and other expenses associated with the provision and removal of the personnel and facilities provided by Operator, except as otherwise set forth below. 3.5 In addition to the sums specified in Section 3.2, Company shall pay for, provide or reimburse Operator (within 10 days of receipt of an invoice for same accompanied by adequate documentation) for any sum it shall expend on the following: (a) The actual cast of any change in the Airship's exterior design required by Company; (b) Any special equipment not part of the normal equipment of the Airship, other than the Sign referred to in Section 3.3, which is required by Company for advertising or any other mutually agreed purposes. 3.6 (a) Operator shall schedule passenger flight operations of the Airship pursuant to the terms set forth in Section 3.6(b) below upon the earlier of: (i) One hundred twenty (120) days after commencement of passenger flights of the Airship by Operator; or 4 (ii) Operator and Company entering into an amendment to this Agreement pursuant to Section 2.1(a) hereof. (b) Operator shall determine from time to time the dates and times for passenger flight operations of the Airship, which shall be set forth on a schedule of operations (the "Schedule"), which Schedule shall normally include a minimum of eight flight hours per day over a six day week (subject to whether the Airship is providing passenger rides or non-Company paid advertising on the Signs; provided, however, that Operator shall provide Airship a minimum of eight hours per day over a six day week once Operator and Company shall have entered into an amendment to this Agreement pursuant to Section 2.1(a) hereof). The Schedule may be amended by Operator from time to time during the Term upon reasonable notice to Company, so long as it includes a minimum of flight hours as set forth in the preceding sentence. Operator shall adhere to the flight plan established in the Schedule, subject only to the physical constraints of adverse weather conditions as determined by Operator's pilot, design limitations of the Airship, and applicable governmental regulations in effect from time to time. Operator will consult with Company in establishing the Schedule. Except as otherwise set forth below, all operations pursuant to the Schedule shall begin and end at the Passenger Base and be limited to flights over the Territory. (c) Scheduled flight time shall be measured from departure from the Airship's mooring mast at the commencement of the day's operation until its mooring at said mast at the completion of the day's operation and will include airborne flight time, as well as time between flights for operational requirements such as refueling, crew changes, and pick-up or drop-off of passengers. The Airship's flight meter, pilots' log, and maintenance and repair records will be available for review by Company at all reasonable times. (d) Notwithstanding the preceding paragraphs, Operator shall have the right to withdraw the Airship from service for scheduled maintenance and service when necessary for periods not in excess of 30 days in the aggregate (excluding travel time to and from Operator's maintenance facility), taking into consideration inspections or maintenance which is mandated by the FAR's (hereinafter defined), the manufacturer's maintenance manual, or the instruction manual (as may be required for continued airworthiness) or by the Operator's approved inspection and maintenance program. There shall be no penalty for the flight time lost on such days. 3.7 (a) Company shall have the option ("Option") to request Operator, so long as such request does not conflict with any of Operator's scheduled passenger flight or Sign advertising commitments, to operate the Airship away from the Territory for the exclusive use of Company upon 30 days' written notice. Such notice shall include the date of and purpose for the exercise of the Option. (b) Company shall determine the dates, times and locations for flight operations of the Airship pursuant to the Option, which shall be set forth on a schedule of operations (the "Option Schedule"). Option Schedules shall be submitted by Company to 5 Operator 30 days prior to the scheduled departure of the Airship pursuant to such Option Schedule. The Option Schedule may be amended by Company from time to time upon reasonable notice to Operator. Operator shall adhere to the flight plan established by Company in the Option Schedule, subject only to the physical constraints of adverse weather conditions as determined by Operator's pilot, design limitations of the Airship and applicable governmental regulations in effect from time to time. Operator will cooperate with Company in making Airship flights during the times of the day and days of the week to meet the Option Schedule. Company shall provide Operator reasonable assistance, if requested, in locating lodging facilities for the Airship's crew. (c) The Option Schedule and any amendments thereto shall be subject to the reasonable approval of Operator based upon operational and economic considerations. (d) When the Airship is operating away from the Territory, Operator shall provide, and Company shall be allowed to schedule, eight (8) hours per day of flight time. If requested by Company, Operator may, in its sole discretion, schedule more than eight (8) hours of flight time per day. Scheduled flight time shall be measured from departure from the Airship's mooring mast in the morning until its mooring at said mast at the completion of the day's operation and will include airborne flight time, as well as time between flights for operational requirements such as refueling, crew changes, and pick-up or drop-off of passengers. Company (and not Operator) shall be responsible for obtaining any permits required by any organizer or sponsor of any special event over which Company asks Operator to fly the Airship. (e) Upon receipt by the Company of an invoice and appropriate substantiating documentation, Company shall pay Operator within 10 days for each exercise of the Option the following (the "Option Fee"): (i) $15,000 per day from the day the Airship departs the Territory until the day the Airship returns; plus (ii) $2000 per day for traveling expenses. (f) If force majeure conditions (as defined in Section 9.2 below), which would not have occurred but for Operator's being required to operate the Airship away from the Territory, preclude Operator from adhering to the Schedule, there shall be no reduction in the Option Fee. (g) Simultaneously with delivery of an Option Schedule, Company may request Operator to temporarily install a camera on the Airship for use in taping television commercials, televising sporting or other events, or other photographic or filming purposes. Company shall reimburse Operator for any costs it may incur in providing the camera for use in the Airship, such reimbursement to be made within 10 days of receipt of 6 an invoice and documentation for same from Operator. Company shall have the option to install and operate its own camera system, at Company's expense, without charge by or to Operator. 3.8 (a) Operator shall provide all necessary flight and ground crew personnel necessary to accommodate the Schedule. All crew members shall obtain and maintain all licenses required by the FAA and any other governmental agencies having jurisdiction over the Airship or its use and flight within the Territory during the Term. Each member of the crew shall be acceptable to Company in the reasonable exercise of its judgment. (b) Operator shall comply with the reasonable requests of Company to the best of its ability in order that Company may obtain the optimum utilization of the Airship with respect to its advertising and promotional activities, provided that all crew activities shall be within the discretion of Operator's pilots. Notwithstanding the foregoing, the parties acknowledge that Operator has full operational control of the Airship, and Company shall have no liability whatsoever for any loss of or damage to the Airship. (c) The Airship shall be piloted only by FAA licensed pilots. (d) Except when the authorized and licensed pilots are at the flight controls or on duty, the ground crew chief shall be in command of the Airship. (e) No flight of the Airship shall take place unless Operator's pilots on board shall be satisfied as to the prevailing weather conditions and any geographical limitations, the load required to be carried and the proposed places of take-off and landing. Operator's pilots shall have the absolute right to cancel, terminate or divert any flights when such action is deemed by them to be necessary due to the weather or to other conditions beyond their control. The said pilots shall also have absolute discretion to prohibit any goods or passengers on the Airship if, in the pilots' opinion, they may adversely affect the safe flight of the Airship. (f) Notwithstanding any of the foregoing provisions of this Section 3.8, Operator expressly undertakes the obligation to have available and on call such back-up pilot or pilots as may be necessary to guarantee the performance of the Schedule. Operator acknowledges its obligation to monitor the number of hours being flown by each of its pilots in a given month so as to make certain that if a replacement pilot will be necessary due to the number of hours projected to be flown, a replacement pilot will be made available promptly so that the Schedule shall be maintained. Operator further undertakes to provide a replacement pilot within 24 hours after it learns that any regular pilot is unavailable due to illness or any other non-planned absence. (g) Operator further acknowledges that its operations are subject to regulation by the FAA as described in the Federal Aviation Regulations ("FAR's"). 7 Operator hereby certifies that it has made a full and complete investigation of all applicable FAR'S. It further certifies that it has such certificate or certificates as may be required under the FAR's to engage in the operation contemplated herein. Operator agrees to furnish copies of current certificates to Company on request. (h) Operator will establish an alcohol testing program for all employees who are in any way involved with the maintenance or operation of the Airship under the provisions of this Agreement, specifically including all pilots, ground support mechanics and riggers, and any other crew members, which program shall be, in all respects, subject to applicable law. The testing program shall be conducted in such manner as to ensure that the crew members of the Airship are at all times in compliance with the requirements of FAR 91.17(a)(1), (2), (3) and (4) and that all other employees, when performing any function required by the provisions of this Agreement, shall not have consumed any alcoholic beverages within the preceding 8 hours; are not under the influence of alcohol; and do not have a blood alcohol concentration (BAC) of .04 percent or more. The testing shall be conducted (1) upon a violation of an FAR; (2) upon reasonable suspicion of a Company representative or one or more supervisors of the employee that the employee's ability to perform his functions is impaired; and (3) on a random basis. There shall be a screening test and, if necessary, a confirmation test. The screening portion of the test shall involve the use of devices, selected by the Operator and approved by the Company, that give an immediate indication either of positive or negative. Anyone testing positive on the screening shall be immediately removed from any duties relating to the maintenance or operation of the Airship. Employees testing positive shall immediately agree to allow a blood sample to be taken or to provide, under reasonable supervision, a urine sample. The blood sample or urine sample shall be sent to a qualified laboratory for determination of BAC level. If the laboratory result indicates that the employee was in compliance with the requirements set forth above, he may be allowed to resume duties related to the Airship. If an employee refuses to provide the blood or urine sample, or by the confirmation test, is determined not to have been in compliance with requirements set forth above, that employee shall not be permitted to perform any functions under this Agreement. At Company's request, Operator shall provide a copy of its testing procedures, meeting the requirements set forth above, for Company's approval. Operator agrees to amend said procedures as reasonably required by Company. If during the Term the FAA or U.S. Department of Transportation ("DOT") adopts regulations relating to alcohol testing, Operator agrees to comply with those requirements, not only as to employees whose specific functions are described in the regulations, but also as to all employees that are in any way related to the operation or maintenance of the Airship under this Agreement. 8 (i) Operator agrees, whether or not otherwise required to do so under the FAR's or other statutory or regulatory provisions, that Operator shall engage in drug testing of all its employees and contractors as Company may reasonably request from time to time, following procedures similar to those used in the Company's drug testing program for its own employees. Operator agrees to include in such drug testing all employees and contractors who are involved in any manner in the operation or maintenance of the Airship under the provisions of this Agreement, specifically including all pilots, ground support mechanics and riggers and any other member of the ground crew. Notwithstanding the foregoing provisions of this paragraph (i), if Operator wishes to use an alternative drug testing program, it may do so if such program has been approved by Company in writing. Such drug testing program shall be, in all respects, subject to applicable law. (j) Company, in its discretion, may require Operator's flight crews and/or ground support personnel to wear uniforms displaying Company's trademark, tradenames, painted logos or decals. Company shall provide Operator only with such uniforms that Company requires Operator personnel to wear. All uniforms, painted logos and decals shall conform to Company's requirements and shall be cleaned from time to time by Operator in order to maintain a neat and clean appearance to the public consistent with other personnel of Sea World. All registered trademarks, trade names and other proprietary property used in connection with such uniforms, as well as painted logos and decals, shall remain the exclusive property of Company. 3.9 (a) Copy of advertising and promotion of the name of Company or its services, products or businesses for use on the Airship's Sign shall be submitted to Operator forty-eight (48) hours prior to the display when possible. For complex graphics and logos, the material shall be submitted by Company to Operator ten (10) days in advance of the date required for use when possible. (b) All of Company's advertising copy shall be in good taste and conform to community standards. Operator shall have the right to refuse to display copy that does not comply with such standards. 4. Consideration The parties agree that until the date that other than special fees as set forth elsewhere in this Agreement, no monthly fee shall be paid for the services rendered hereunder. 5. Loss of Airship 5.1 (a) The risk of loss or damage with respect to the Airship shall be solely upon Operator. If there shall occur a loss of all or substantially all of the Airship, or if the Airship is grounded due to an accident or other damage to the Airship, then the 9 parties' respective obligations hereunder shall abate until such time as the Airship has been repaired or replaced, at which time this Agreement shall continue in effect for the remainder of the Term, which Term shall be extended by the abatement period; provided however, that if the abatement period exceeds one hundred fifty (150) days, then this Agreement shall, at Company's option, be deemed to have been terminated as of the date of the loss or damage, and none of the parties shall have any further obligations to the other parties. (b) If this Agreement is terminated pursuant to the preceding paragraph (a) and the Airship shall thereafter be repaired and is prepared to be placed in service within ninety (90) days of said termination, then, before making any agreement(s) with any other party for the use of the Airship, Operator shall first notify the Company that the Company has the right and option to acquire the exclusive use of the Airship for a period of time equal to the unexpired portion of the Term at the time of termination on the same terms and conditions as are contained in this Agreement. Such option shall be exercised, if at all, within fifteen (15) days following Company's receipt of such notice. 6. Representations, Warranties and Covenants 6.1 Operator represents, warrants and covenants to Company that: (a) The Airship is certificated as a standard type aircraft under the laws of the United States of America; (b) A valid Certificate of Airworthiness has been issued for the Airship by the United States of America, and Operator shall take all necessary actions to ensure the continued effectiveness of the Airship's Airworthiness Certificate as set forth in FAR 21.181(a)(1), so that a valid Certificate of Airworthiness for the Airship is maintained at all times. The Airship is in airworthy condition and usable for the purposes contemplated by this Agreement; (c) The execution of this Agreement by operator will not constitute a breach of any other agreement to which Operator is a party or which involves the Airship; (d) Registration of the Airship under the laws of the U.S. shall be maintained, and Operator shall obtain and maintain (or cause to be obtained and maintained) in effect all required approvals of the FAA, DOT and any other governmental authorities having jurisdiction over use and operation of the Airship in the Territory; (e) Operator shall be responsible for performance of all Airship overhaul, engine overhaul and maintenance required during the Term, under the FAR's, as well as any applicable airworthiness directives requiring modifications to the Airship, and shall make such alterations and modifications in each component of the Airship as may be required from time to time to meet the standards of the FAA or any other governmental authority having jurisdiction over the Airship; 10 (f) Operator shall maintain all records, logs and other materials required by the FAA or other governmental authority having jurisdiction over the Airship and shall permit Company or its duly authorized agents or representatives or any other person designated by Company to inspect the Airship and its flight logs and maintenance records at any reasonable time and shall furnish Company and its duly authorized agents or representatives any information with regard to the operation of the Airship as any of them may reasonably request; (g) Operator shall maintain the paint and decals on the Airship in a clean and orderly condition to Company's reasonable satisfaction during the Term; (h) Operator shall maintain, service, operate, repair and test the Airship (i) so as to keep each component of the Airship in good operating condition, (ii) so as to meet the requirements of the maintenance plans recommended by the manufacturers of the engines, envelope and gondola comprising the Airship, (iii) so as to keep the Airship duly certified as airworthy by the FAA or any other governmental agencies having jurisdiction over the Airship, (iv) so as to comply with any FAA or other governmental authority airworthiness directives, as well as "mandatory" and "recommended" service bulletins applicable to the Airship, as well as licensing and relicensing with respect thereto which may be required by any governmental agencies having jurisdiction over the Airship, and (v) so as to keep the Airship clean and in top condition and repair suitable to provide the services required of Operator hereunder to Company's reasonable satisfaction; (i) Operator shall maintain, service, operate, repair and test all ground support vehicles and equipment supplied by Operator hereunder so as (i) to keep the components thereof in good operating condition, (ii) to meet all required maintenance schedules, (iii) to keep such vehicles and equipment properly licensed, and (iv) to keep, the vehicles and equipment clean and in good condition and repair, suitable to provide the services required of Operator hereunder to Company's reasonable satisfaction; and (j) Operator has taken all action (including, without limitation, the giving of notices and the obtaining of consents, licenses and permits) required by any governmental authority as a condition to the execution and delivery of this Agreement, its validity and enforceability, and the consummation of any of the transactions contemplated hereby. 6.2 Each party hereto represents and warrants to the other that: (a) It is a duly organized and valid entity in good standing under the laws of its jurisdiction of organization and has full authority to conduct its business as presently conducted and to enter into and perform its obligations under this Agreement; 11 (b) Each of the persons executing this Agreement is a duly authorized officer or agent of such entity and has been duly authorized by all necessary action to execute and deliver this Agreement; (c) This Agreement has been duly and validly executed and delivered by such party and constitutes a valid and binding agreement of such party, enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies; and (d) No consent or approval of any third party is required for such party's execution, delivery or performance of this Agreement. 7. Exclusivity 7.1 Operator hereby covenants and agrees that during the period beginning the date hereof and ending on the termination of this Agreement (the "Exclusivity Period"), it will not, directly or indirectly, sell, lease or operate any lighter-than-air aircraft, or otherwise provide any lighter-than-air aircraft, which is used or is expected to be used to advertise or promote any amusement park or theme park, any malt beverage or any snack food, other than the amusement parks or theme parks, malt beverages and snack foods owned, operated or produced by Company or its subsidiaries; provided, however, that (i) nothing herein shall prevent Operator from operating another aircraft on behalf of another client in or about an amusement park or theme park so long as such aircraft does not promote an amusement park or theme park, a malt beverage or a snack food product; (ii) the exclusivity granted to Company hereunder with respect to malt beverages applies only in the United States and Mexico; snack foods only in the United States; and amusement parks and theme parks only in the United States, Canada and Mexico; (iii) nothing herein shall prevent Operator from operating either its blimp parking area in Kissimmee, Florida or a blimp-oriented theme park. The provisions of this Section shall apply notwithstanding any early termination or cancellation of the Term, including but not limited to termination under Section 9.3. 7.2 As used herein "snack foods" means salted snacks such as potato chips, corn chips, peanuts, pretzels, cheese curls, popcorn and similar items. It does not include candy or fast-food such as hamburgers, french fries or basic meal items. 7.3 Operator represents and warrants to Company that it has not previously entered into any agreement with any third party which, if performed after the date hereof, would violate the exclusivity granted to Company in Section 7.1. 12 8. Insurance 8.1 Operator shall, during the Term, procure and maintain, at its sole cost and expense, a policy or policies of insurance in form and content and with responsible insurers reasonably acceptable to Company, insurance in the following types and amounts: (a) Comprehensive aircraft and premises liability insurance with respect to the use and operation of the Airship, Passenger Base and Landing Area having a combined single limit of not less than $150,000,000, insuring and covering Operator and Company, as their interests may appear, against all liability for injury, damage or claims caused by or arising out of, or in connection with, ownership, operation, maintenance or use of the Airship Passenger Base and Landing Area, including injuries to or deaths of passengers or third persons or damage to property. (b) Automobile liability insurance or other general liability insurance covering all owned, non-owned and leased automobiles, trucks, trailers, and other vehicles and ground support equipment used by Operator in the performance of its duties under this Agreement. Such insurance shall provide coverage of not less than that provided for in the Standard Comprehensive Automobile Liability Policy in limits of not less than $10,000,000 combined single limit each occurrence for bodily injury and property damage. (c) Worker's compensation insurance in conformity with the statutory limits of the states in which Operator shall be required to carry such insurance. Employer's liability shall be carried with a limit of not less than $1,000,000 for accident or disease. 8.2 All insurance required hereby shall include the following: (a) Company and its subsidiaries, affiliates and licensees and their respective assigns, officers, directors and employees shall be included as additional insureds as their interests may appear (excluding coverage under Section 8.1(c) above); (b) The insurers shall agree to waive their rights of subrogation against Company and its parent companies, subsidiaries, affiliates and licensees and their respective agents, assigns, officers, directors and employees; (c) The inclusion of more than one corporation, person, organization, firm or entity as insured or additional insured under the policy of insurance shall not in any way affect the rights of any claim, demand, suit or judgment made, brought or recovered, by or in favor of any employee of such other insured. Each policy shall protect each corporation, person, organization, firm or entity in the same manner, as though a separate policy had been issued to each, but nothing herein shall operate to increase the insurer's liability as set forth as limits to the policy beyond the amount or amounts for which the insurers would have been liable if only one person or interest had been named as insured; 13 (d) With respect to such insurance as is afforded the additional insureds specified above, this insurance shall be primary without right of contribution from any other insurance which is carried by any additional insured; (e) Insurers agree that, in the event they cancel or materially change such insurance policies, they will give thirty (30) days' advance written notice of such cancellation or material change to Company; and (f) The geographic limits of such insurance shall include at a minimum the entire Territory. 8.3 Operator shall, upon execution of this Agreement and from time to time as Company shall reasonably request, and prior to each renewal date of the insurance, furnish to Company certificates evidencing that the foregoing insurance is in full force and effect with financially sound and responsible insurers. 9. Termination; Force Majeure 9.1 The occurrence of any of the following events will be deemed to be, and shall be treated as, a default under this Agreement and just cause for its termination by the nondefaulting party, which termination shall be effective upon notice given in accordance with Section 13 hereof, and/or, at Company's option, if Company is the non-defaulting party, extension by this Agreement: (a) Breach or failure by either party in the due observance or performance of any material term, covenant, warranty, representation or agreement contained in this Agreement, which breach or failure continues unremedied or uncorrected for a period of ten (10) days after written notice thereof, specifying such breach and requiring it to be remedied, shall have been given to the breaching party. (b) Either party shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against such party seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of its debts under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors, or seeking appointment of a receiver, trustee or other similar official for said party or for any substantial part of its property, and such proceeding shall not have been dismissed within ninety (90) days; or either party shall take any action to authorize any of the actions set forth above in this subsection. 9.2 (a) The provisions of this Agreement are binding upon the parties hereto except where performance by a party, or the ability to achieve the material purposes set forth in Section 1.3, is prevented, delayed or interfered with by causes beyond the reasonable control of the non-performing party, including without limitation, riot, war or 14 hostilities between nations, governmental action (other than action taken in response to Operator's or Company's violation of any law or governmental regulation, in which case the party at fault shall not be permitted to claim the benefit of this Section 9.2), acts of God, mechanical or equipment failures caused by foreign objects, fire, accidents, strikes or adverse weather conditions ("force majeure"); provided however, that force majeure shall not include mechanical or equipment failures (other than as provided above) or unavailability of flight crew or ground crew personnel unless attributable to act(s) of God. (b) The party affected by force majeure shall give notice to the other party of said force majeure event promptly after the occurrence thereof, stating therein the nature of the suspension of performance and reasons therefor. Such party shall use its best efforts to resume performance as soon as reasonably possible. Upon restoration of the affected party's ability to perform its obligations hereunder, the affected party will give immediate notice to the other party. (c) Subject to Section 5.1(a), if a force majeure condition which prevents a party's performance hereunder shall continue for a period of 60 days, and after such 60-day period there shall be no reasonable prospect for the prompt cure thereof despite the best efforts of the affected party to cure the same, then either party shall have the right to terminate this Agreement in its entirety upon 30 days' prior notice to the other party, provided that such termination shall be effective as of the date on which the non-performing party ceased performing hereunder due to a force majeure condition, and upon such termination neither party hereto shall have any further liability or obligation whatsoever to the other, other than under the terms of those provisions which specifically survive the termination of this Agreement. 9.3 Notwithstanding anything to the contrary in this Agreement, if during the Term it becomes necessary to cancel operations pursuant to this Agreement due to the inability of Operator to maintain necessary permits or authorizations from the FAA, DOT or any other governmental agency having jurisdiction over the Airship or its use or operation, such cancellation of operations shall continue for a period of 60 days, and after such 60-day period there shall be no reasonable prospect for the prompt cure thereof despite the best efforts of the Operator to remedy the same, then Company shall have the right after such 60-day period to terminate this Agreement in its entirety upon 30 days' notice to Operator, whereupon neither party hereto shall have any further liability or obligation whatsoever to the other, other than under the terms of those provisions which specifically survive the termination of this Agreement. If such condition is remedied within the aforementioned 60-day period, the Agreement shall continue in effect for the remainder of the Term, provided that the Term shall be extended by the number of days during which such condition existed, and the respective obligations of the parties shall be abated for that same period. If an event or circumstance which would otherwise constitute a default with respect to the Company under Section 9.1(a) also is subject to this Section 9.3, it shall be governed by this Section 9.3 and will not constitute a default. 15 9.4 Upon the termination of this Agreement, Operator shall, at its expense, remove from the Airship and all ground support vehicles and equipment all trademarks, logo designs, color schemes and signage belonging to Company or any of its subsidiaries, affiliates or related entities. Operator shall not allow the Airship, vehicles or equipment to be used commercially until the design graphics and other materials of Company are removed, which shall occur as soon as practicable following the termination of this Agreement. All rights to manufacture, promote, advertise or market any merchandise bearing any of the Service Marks and Copyright Works shall expire upon the termination of this Agreement; provided, however, that this provision shall not preclude Operator from disposing of such merchandise on hand as of the date of termination of this Agreement. 10. Service Marks and Copyright Works 10.1 Company grants to Operator, subject to the terms and conditions of this Agreement, the non-exclusive, non-transferable and non-sublicensable right to use the Service Marks and Copyright Works in connection with Operator's use and operation of the Airship in accordance herewith (such use and operation referred to herein as the "Services"). Nothing in this Agreement shall be deemed to give Operator any rights to sell or distribute promotional goods or premium, including, but not limited to, toys, games, models, banners and the like, bearing any of the trademarks or service marks or Copyright Works owned by Company on its own behalf or through one of its affiliated companies, including Sea World, Inc., except as expressly approved in writing by Company. The terms "promotional material" as used throughout this Section shall be deemed not to include such promotional goods or premium, but includes only brochures, billboards, pamphlets, television or radio advertisements and the like. 10.2 In order to maintain the quality reputation of the Service Marks and the rights in the Copyright Works, all Services and promotional material relating to the Services must receive the prior written approval of the Company, which approval shall not be unreasonably withheld. 10.3 If requested, Operator shall provide a pre-service flight, at Operator's own expense, to individuals designated by the Company at a mutually agreed upon time prior to the offering of the Services for sale to the public. The Operator shall submit at its own cost proposed promotional material relating to the Services prior to the Services being offered for sale to the public. The Operator shall not offer for sale to the public the Services without first obtaining in writing the Company's approval of Services, promotional material and facilities. Within ten (10) days of the aforementioned pre-service flight, submission of promotional materials and inspection of facilities, the Company shall provide the Operator, in writing, with approval or disapproval of the Services, promotional material or facilities. 10.4 (a) Operator shall maintain the same quality of Services, promotions and facilities relating to the Services as that offered to and approved by the Company. Operator agrees to provide upon prior request, the opportunity for representatives of the 16 Company to take a reasonable number of flights on the Airship. Operator shall also provide to the Company the opportunity to inspect the facilities at reasonable periodic intervals at the prior request of the Company and at no cost to the Company. Operator also agrees to provide upon demand a reasonable number of samples of the promotional material relating to the Services at no cost to the Company for the periodic quality control inspection of the promotional materials. (b) If during the term of this Agreement there is to be any change in the Services, the promotion of the Services, or in the facilities where the Services are being offered, the Operator must comply with the provisions of Section 10.3 for the changed Services, promotion materials or facilities before the change is made. (c) Operator shall not sell, offer for sale, market, distribute or use for any purpose, or permit any third party to sell, offer for sale, market, distribute or use for any purpose, Services or promotional materials relating to the Services which are defective or otherwise fail to meet Company's specifications, previously approved quality standards, or the service mark and copyright usage and notice requirements of this agreement. If, in the Company's reasonable judgment, the Services, or any promotional material or facilities relating to the Services, are defective or otherwise fail to meet the previously approved quality standards of the Company or the service mark or copyright usage and notice requirements of this Agreement, then, upon Company's demand, Operator will cease the sale and the offering for sale of the Services and will cease distribution of such promotional materials until the failure is corrected and Company's written approval of the correction is given, which approval shall not be unreasonably withheld. If requested by the Company, Operator will recall any substandard promotional material relating to the Services to Operator's facilities at Operator's sole expense. 10.5 (a) Operator covenants and agrees not to make any unlicensed uses or to file any application for registration of any of the Service Marks, Copyright Works or any marks or works similar thereto. (b) Operator acknowledges the validity of and Company's title, on its own behalf or through its affiliated company, Sea World, Inc., to the Service Marks and the Copyright Works and shall not at any time do or suffer to be done any act or thing which will in any way impair the rights of Company in and to the Service Marks and Copyright Works. Company and Operator understand and agree that Operator shall not acquire and shall not claim any title to the Service Marks or Copyright Works by virtue of the license granted to Operator or through Operator's use of the Service Marks or Copyright Works. 10.6 (a) If Operator learns of any infringements of the Service Marks or Copyright Works or of the existence, use or promotion of any mark or design similar to the Service Marks or the Copyright Works, Operator shall promptly notify Company. Company has the right to decide at Company's sole discretion what legal proceedings or other action, if any, shall be taken, by whom, how such proceedings or other action shall be conducted 17 and in whose name such proceedings or other action shall be performed. Any legal proceedings or other action instituted pursuant to this section shall be for the sole benefit, and at the sole expense, of Company. (b) Operator agrees to cooperate with Company in the prosecution of any Service Mark or Copyright Works applications that Company may desire to file or in the conduct of any litigation relating to the Service Marks or Copyright Works, at the cost of Company. Operator shall supply to Company such sales information, invoices, promotional materials, advertisements, photograph and similar material and, upon Company's request, shall procure evidence, give testimony and cooperate with Company as may reasonably be required in connection with any such application or litigation. Furthermore, if Company makes modifications in the appearance of any of the Service Marks, the Operator, if required by Company, shall use only the new version of the modified Service Mark. Operator shall also provide Company with a duplicate original of invoices, receipts or other evidence showing sales of the Services were actually completed. 10.7 (a) Operator's use of any of the Service Marks shall, depending upon the directions provided by Company, in every instance be combined with one of the following notices: (i) Reg. U.S. Pat. & TM. Off.; (ii) 'r'; (iii) Service Mark of Sea World, Inc.; or (iv) such other similar language as shall have the prior, written approval of Company. Operator shall not use any language or display the Service Marks in such a way as to create the impression that the Service Marks belong to Operator. Operator waives all claims to any rights in Operator's use, advertising or display of the Service Marks beyond the limited permission to use the Service Marks granted in this Agreement. (b) Operator's use of any of the Copyright Works shall display in every instance the appropriate copyright notice as provided by Company. Operator shall not use any language or display the Copyright Works in such a way as to create the impression that the Copyright Works belong to Operator. Operator waives all claims to any rights in Operator's use, advertising or display of the Copyright Works beyond the limited permission to use the Copyright Works granted in this Agreement. (c) In addition to the provisions set forth in Section 3.2 hereof, Company and Operator agree and intend that all artwork and designs created by Operator or any other entity and used with the Service Marks or in the sale of the Services are works made for hire within the meaning of the United States Copyright Act and shall be the property of the Company which shall be entitled to use and license others to use such artwork and designs subject to the provisions of this Agreement. To the extent any artwork or design created by Operator or any other entity and used with the Service Marks are not works made for hire, Operator assigns to Company the copyright in such artwork or designs. Upon request, Operator will provide Company with a writing acknowledging that artwork and designs created by Operator or any other entity and used with the Service Marks or in the sale of the Services are works made for hire. Likewise, upon request, Operator will provide Company with a writing assigning the copyrights in any artwork and designs created 18 by Operator or any other entity and used with the Service Marks or in the sale of the Services. One of the following notices (or such other notice as shall have the prior, written approval of Company) shall appear at least once on each piece of promotional material for the Service using such artwork or designs used with the Service Marks or in the sale of the Services: (i) 'c' (year of first publication) Sea World, Inc.; (ii) 'c' (year of first publication) Anheuser-Busch Companies, Inc. (d) The use of any word, name, symbol or device to identify or distinguish the Services shall inure to the benefit of Company. The use of any such word, name, symbol or device in connection with the Services shall be made only with Company's prior written approval. All service mark rights in any such work, name, symbol or device shall belong to Company and shall be exercised by Operator only pursuant to Company's prior written approval. 11. Confidentiality Except as may be required by law or to obtain a permit or other authorization for the operation of the Airship, no party to this Agreement shall divulge to any third party the contents of this Agreement or any information (which is not publicly available) gained in the performance of this Agreement, except to the extent necessary, normal or appropriate for the purposes contemplated hereunder, and information by way of plans or other documentation marked "Confidential" by a party and made available to the other parties shall not be made available to third party without the written consent of the disclosing party. Neither party shall issue any press release or otherwise publicly divulge any information relating to this Agreement without the prior approval of the other party, which approval shall not be unreasonably withheld. 12. Audit Rights 12.1 Company (or its representatives) shall have the right at any time during the Term during normal business hours, upon seventy-two (72) hours' notice, to examine Operator's pertinent books and records which books and records shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, to determine whether all invoices and other charges submitted to Company by Operator are in all respects in accordance with this Agreement. 12.2 In the event a discrepancy is discovered during an audit referred to in 12.1 above, the discovering party shall provide written notice to the other party explaining such asserted discrepancy in detail. In the event the other party agrees with such asserted discrepancy, appropriate reimbursement shall be promptly made. In the event the other party disagrees with the asserted discrepancy, such dispute shall be submitted to a firm of nationally recognized independent certified public accountants mutually acceptable to Company and Operator, and the decision of such firm shall be binding. The losing party shall be solely responsible for the fees and expenses of such independent accounting firm. 19 The provisions of this paragraph shall survive the expiration or termination of this Agreement. 12.3 For a period of two (2) years following the termination of this Agreement, Operator shall maintain such books and records (collectively, "Records") as are necessary to substantiate that (i) all in invoices and other charges submitted to Company for, payment hereunder were valid and proper and (ii) no payments have been made, directly or indirectly, by or on behalf of Operator to or for the benefit of any Company employee or agent who may reasonably be expected to influence either Company's decision to enter into this Agreement or the amount to be paid by Company pursuant hereto. (As used herein, "payments" shall include money, property, services and all other forms of consideration.) All Records shall be maintained in accordance with generally accepted accounting principles consistently applied. Company and/or its representative shall have the right at any time during normal business hours, upon twenty-four (24) hours' notice, to examine said Records. The provisions of this paragraph shall survive the expiration or earlier termination of this Agreement. 13. Notices All notices, requests, demands, claims and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed duly given if delivered personally or sent by registered airmail, overnight courier, telecopy or telex addressed as follows. If to Operator: AIRSHIP INTERNATIONAL LTD. 7380 Sand Lake Road Orlando, Florida 32819 Attn: Louis J. Pearlman Fax: 407-351-0978 with a copy to: Baer Marks & Upham 805 Third Avenue New York, NY 10022 Attn: Samuel F. Ottensoser, Esq. Fax: 212-702-5797 20 If to Company: ANHEUSER-BUSCH COMPANIES, INC. - Flight Operations 18130 Edison Chesterfield, Missouri 63005 Attn: Carl E. Henke Fax: 314-532-2574 with a copy to: ANHEUSER-BUSCH COMPANIES, INC. One Busch Place St. Louis, Missouri 63118 Attn: James E. Schobel, Esq. Fax: 314-577-0776 The parties may at any time change their address, telex or telefax numbers for the purpose hereof by giving notice to the others in the manner specified above. Notices shall be effective upon the date of transmission in the case of a telex or fax, seventy-two (72) hours after mailing in the case of a registered letter, and the day after mailing in the case of overnight courier. 14. Liability and Indemnity 14.1 Operator hereby assumes liability for, and hereby agrees to indemnify, reimburse, protect, save and hold harmless the Company, its subsidiaries and affiliates and their successors, assigns, agents, employees and servants from and against, all claims, actions, suits or legal proceedings, in connection with the design, manufacture, purchase, ownership or operation of the aircraft, ground support vehicles and equipment. This indemnity shall not however extend to (i) claims arising from the advertising and promotion of the Company's advertising copy on the Airship or; (ii) any injury due solely to the negligence or intentional acts of the Company or its officers, directors, agents or employees. 14.2 The Company hereby assumes liability for and hereby agrees to indemnify, reimburse, protect, save and hold harmless Operator, its successors, assigns, agents, employees and servants, from and against, any and all claims, actions, suits, or legal proceedings, in any way related to the advertising and promotion of Client's and its third-party advertiser's advertising copy on the Airship or, any injury due solely to the negligence or intentional acts of the Company or its officers, directors, agents or employees. 15. Independent Contractors 15.1 The parties shall be and act as independent contractors, and under no circumstances shall this Agreement be construed as one of agency, partnership, joint venture 21 or employment between the parties. Each party acknowledges and agrees that it neither has nor will give the appearance or impression of having any legal authority to bind or commit the other party in any way. 15.2 Notwithstanding anything in this Agreement to the contrary, the parties hereto acknowledge that the essential purpose of this Agreement is aerial advertising and promotion on behalf of Company and its affiliate and that Company undertakes and shall have no greater responsibility or liability with respect to the Airship (including all support equipment and staff) than it would in acquiring any other advertising space. 16. Governing Law The interpretation, validity and performance of this Agreement shall be governed by the laws of the State of New York. 17. No Assignment: Company Subsidiaries Included Neither party shall assign its rights and/or obligations under this agreement without the prior written approval of the other party. This agreement and all of the terms and provisions hereof will be binding upon, and will inure to the benefit of, the parties hereto and their respective successors and approved assigns. Notwithstanding the foregoing, (i) Operator acknowledges and agrees that all references to "Company" in this Agreement shall include, at the option of Anheuser-Busch Companies, Inc., any of its direct or indirect subsidiaries; provided, however, that Anheuser-Busch Companies Inc. shall be ultimately responsible for the due and punctual performance of all obligations of "Company" herein; and (ii) Company acknowledges that Operator may assign Operator's right to receive any payments due from Company. 18. Miscellaneous 18.1 This Agreement is the only agreement existing between the parties hereto regarding the subject matter hereof and there are no other representations, covenants, warranties or agreements between the parties hereto not therein contained and set forth in full. Any prior agreements and understandings regarding the subject matter hereof are hereby revoked and cancelled. This Agreement may be amended only by an agreement in writing executed by all parties. 18.2 The failure of any party to object to or to take affirmative action with respect to any conduct of any other party which is in violation of the terms of this Agreement shall not be construed as a waiver thereof, nor of any future breach or subsequent wrongful conduct. 22 18.3 Except as otherwise specifically provided in this Agreement, each party shall be responsible for any expenses incurred by such party in connection with performance of its obligations under this Agreement. 18.4 The rights and remedies set forth herein are intended to be cumulative, and the exercise of any one right or remedy by either party shall not preclude or waive its exercise of any other rights or remedies hereunder or pursuant to law or equity. 18.5 The Section headings set forth herein are for convenience only and do not constitute a substantive part of this Agreement. 18.6 The rights and privileges granted to Company hereunder are special, unique, extraordinary and impossible of replacement, which gives them a peculiar value, the loss of which could not be reasonably or adequately compensated in damages in an action at law, and Operator's failure or refusal to perform its obligations hereunder would cause Company irreparable loss and damage. If Operator fails or refuses to perform such obligations, Company shall be entitled to injunctive or other equitable relief against Operator to prevent the continuance of such failure or refusal or to prevent Operator from granting rights to others in violation of this Agreement. In no event, however, shall Company be entitled to consequential damages arising from the loss of use of the Airship, including but not limited to sales revenues or profits which may have been lost due to loss of the Airship for advertising and promotional purposes. 18.7 Notwithstanding termination of this Agreement pursuant to any provision hereof, such termination shall not relieve any party of any obligation hereunder which, by its terms, survives or is to be performed after such termination, including without limitation those relating to exclusivity as set forth in Section 7 above and the Passenger Base as set forth in Section 2.1 above. 18.8 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which, taken together, shall be one and the same instrument. 23 IN WITNESS WHEREOF, this Agreement is executed on behalf of the parties hereto by their duly, authorized representatives as of the day and year first above written. AIRSHIP INTERNATIONAL LTD. /s/ LOUIS J. PEARLMAN By:_______________________________ President Title:_____________________________ ANHEUSER-BUSCH COMPANIES, INC. /s/ Carl E. Henke By:_______________________________ Title:_____________________________ 24 SCHEDULE A Royalties The sale of any Airship merchandise by Operator or the royalties on the sale of any Airship Merchandise by Company shall be subject to the Permission Agreement, dated as of January 1, 1994, between Operator and Anheuser-Busch, Incorporated. 25 EX-10 8 EXHIBIT 10.74 ORIX USA Corporation 600 Wilshire Boulevard Suite 1460 Los Angeles, CA 90017 TEL 213-955-6500/FAX: 213-955-6530 January 11, 1994 Louis Pearlman, President Airship International Ltd. 7380 Sandlake Road Suite 200 Orlando, Florida 32801 Re: Airship N600LP; Lease No. 25232, Letter Agreement Modification to payment terms Dear Lou: At your request, we have presented a request for a reduction in monthly payments for the months of December, 1993, January, February and March, 1994. Your request being reasoned on the fact of reduction in monthly cash flow occasioned by the cancellation of the "MetLife" aerial advertising agreement and six-month interruption in the Cumberland ("Gulf") aerial advertising agreement. ORIX has agreed as follows: 1. Monthly payments will be reduced from $121,000 to $80,000 for 12/93, 1/94, 2/94 and 3/94. 2. Full payments of $121,000 per month will resume in April, 1994. 3. Commencing (a) concurrent with revenue generating contracts for four airships, whether these contracts are month to month or longer fixed term, or (b) on July 4, 1994, whichever comes first, the monthly payments shall be increased by $20,000 per month until such time as the total of the prior reductions have been brought current (4 mos. x $41M = $164 due divided by $20M = 8 months at $141,000 and 1 month @ 125,000). 4. In addition, provided there are no defaults under the terms of this Letter Agreement, no late charges will be assessed during the months of reduced payments. January 10, 1994 Page 2 We sincerely wish you every success in finalization of the Sony contract, resolution of the Cumberland contract, and a swift determination for a long term commitment on Shamu. Very truly yours, Byron Southey SVP, Credit & Operations Agreed to and accepted this 13th day of January, 1994. Airship International Ltd. Louis Pearlman, as Individual Guarantor /s/ Louis J. Pearlman /s/ Louis J. Pearlman ______________________________ ____________________________ Louis Pearlman, President EX-10 9 EXHIBIT 10.75 AMENDMENT TO LEASE THIS AMENDMENT TO LEASE dated as of May 10, 1994 between AIRSHIP INTERNATIONAL LTD., a New York corporation ("Airship") and ORIX USA CORPORATION ("ORIX"). WHEREAS, Airship and ORIX are parties to a Lease Agreement dated as of November 2, 1989, as amended by the Letter Agreement between Airship and ORIX dated January 11, 1994, pursuant to which Airship leases from ORIX Airship N600LP (the "Lease"); WHEREAS, Airship and ORIX desire to further amend the Lease; NOW, THEREFORE, in consideration the agreements and covenants set forth below, Lessor and Lessee hereby agree to amend the Lease as follows: 1. Terms. All capitalized terms used herein which are not defined herein shall have the same meaning as in the Lease. Except as provided herein or in the Lease, all terms of the Lease, as amended, shall continue in full force and effect. 2. Elimination of Certain Insurance. Effective May 10, 1994, Lessee shall no longer be required to maintain in effect the insurance required by Section 13(b) of the Lease (entitled "Insurance Against Loss or Damage to Airship"). 3. Security Interest in Airship. Airship shall execute and deliver to ORIX a Collateral and Security Agreement pursuant to which Airship's obligations under the Lease shall be secured through the grant of a security interest in the following aircraft: One (1) Airship Industries Model 500-HL Skyship (the "Aircraft"), Manufacturer's Serial Number 1214/06, FAA Registration Number N 601LP (the "Collateral"). 4. Deferral of Lease Payments; Payment of Interest on Balance. Rent payable pursuant to Section 5 of the Lease for the month of April 1994 shall be payable in two installments, the first for $60,000 shall be due and payable on the date hereof, and the second for $61,000 shall be due and payable on June 10, 1994. The Rent payable pursuant to Section 5 of the Lease for the months of May 1994, June 1994, July 1994 and August 1994 shall be deferred and shall not be due and payable until such later dates as are set forth below (the Rent payable for such months being collectively referred to herein as the "Deferred Payments"). 1 In consideration for such deferral, until the Resumption Date (as defined below) Airship shall pay interest, at the rate of 8% per annum, to ORIX on the total balance of Rent payments payable for the remainder of the first Renewal Term of the Lease (not including any future Renewal Term) ("Deferral Interest"). It is hereby agreed that such balance, including amounts due and payable in the future, is $4,024,950, resulting in a monthly interest payment until the Resumption Date of $26,833. The interest payment with respect to the deferral of May 1994 Rent shall be made on June 15, 1994, for the June 1994 Rent, on June 24, 1994, for the July 1994 Rent, on July 24, 1994, and for the August 1994 Rent, on August 24, 1994 (collectively, the "Interest Payments"). Commencing upon the occurrence of (the "Resumption Date") the earlier of (i) September 12, 1994 or (ii) completion of a public offering by Airship (the "Public Offering") of its securities, payments of Rent shall be paid in accordance with the Lease; provided, however, that the payment of Rent for September and October 1994 shall be deferred (and Deferral Interest paid thereon) if in the view of Airship on such date, it and the Underwriter of the Public Offering are proceeding in good faith toward completion of the Public Offering and a registration statement for which has been filed with the Securities and Exchange Commission (the "S.E.C.") or is expected to be filed with the S.E.C. within 60 days. No late charges shall be assessed with respect to the revision in the Rent payment schedule set forth in this Amendment. 5. Payments from Possible Offering. Airship agrees that in the event that it completes a Public Offering of its securities by September 12, 1994, that a portion of the net proceeds of the Public Offering shall be used to pay Rent under the Lease, including the Deferred Payments; provided, however, that the amount of such payment shall be determined by Airship and the underwriter of the Public Offering but shall not be less than approximately $1,000,000. Any portion of the Deferred Payments not paid with the proceeds of the Public Offering shall be paid, commencing on the Resumption Date, pro rata over the remaining term of the Lease. 6. Representations and Warranties of Airship. (a) Absence of Liens and Encumbrances. Airship has good and marketable title to the Aircraft, free and clear of all liens, security interests and encumbrances. 2 (b) Due Organization. Airship is a corporation duly organized, validly existing and in good standing under the laws of New York, with full corporate power and authority to execute, deliver and perform this Amendment to Lease. 7. Counterparts. This Amendment to Lease may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. 8. Termination. (a) Upon payment in full of all of Airship's payment obligations under the Lease, the liens and security interests created by this Amendment to Lease shall terminate forthwith and all right, title and interest of ORIX in and to the Collateral shall revert to Lessee, its successors and assigns. (b) Upon the termination of the security interest and the release of the Collateral in accordance with Section 8(a) of this Amendment to Lease, ORIX will promptly, at Lessee's written request and expense, (i) execute and deliver to Lessee such documents as Lessee shall reasonably request to evidence the termination of such security interest or the release of the Collateral and (ii) deliver or cause to be delivered to Lessee all property of Lessee then held by ORIX. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to Lease to be duly executed by their respective authorized officers as of the day and year first above written. AIRSHIP INTERNATIONAL LTD. By LOUIS J. PEARLMAN -------------------------------- Name: Louis J. Pearlman Title: President ORIX USA CORPORATION By BYRON M. SOUTHEY -------------------------------- Name: Byron M. Southey Title: Sr. V.P. 3 EX-10 10 EXHIBIT 10.76 COLLATERAL AND SECURITY AGREEMENT By and Between AIRSHIP INTERNATIONAL LTD. and ORIX USA CORPORATION Dated as of May 10, 1994 COLLATERAL AND SECURITY AGREEMENT TABLE OF CONTENTS Page ARTICLE 1............................................................1 ARTICLE 2............................................................2 2.1 Grant of Collateral....................................2 2.2 Collateral as Security Only............................3 ARTICLE 3............................................................3 3.1 Title..................................................3 3.2 Preservation of Rights.................................3 3.3 Perfection of Liens....................................3 3.4 Other Assurances.......................................3 3.5 Maintenance of Name, etc...............................4 3.6 No Other Financing Statements..........................4 3.7 Maintenance of Records.................................4 3.8 Schedules and Reports..................................5 3.9 Maintenance of Office..................................5 3.10 No Negotiable Documents................................5 3.11 Taxes and Assessments..................................5 3.12 Notices................................................5 3.13 Release of Collateral..................................5 ARTICLE 4............................................................6 4.1 Maintenance and Repair.................................6 4.2 Right of Inspection....................................6 ARTICLE 5............................................................6 5.1 Events of Default......................................6 5.2 Remedies Generally.....................................7 5.3 Application of Moneys..................................9 ARTICLE 6...........................................................10 6.1 Notices...............................................10 6.2 No Waivers............................................10 6.3 Amendments............................................11 6.4 Indemnification.......................................11 6.5 Headings..............................................11 6.6 Severability..........................................11 6.7 Successors and Assigns................................11 6.8 Governing Law.........................................12 6.9 Counterparts..........................................12 6.10 Termination...........................................12 -i- COLLATERAL AND SECURITY AGREEMENT THIS COLLATERAL AND SECURITY AGREEMENT is entered into as of May 10, 1994, by and between AIRSHIP INTERNATIONAL LTD., a New York corporation (together with all of its subsidiaries and its successors and assigns, "Lessee"), and ORIX USA CORPORATION ("Secured Party"). Capitalized terms used herein but not herein defined shall have the meanings given in the Loan Agreement (as hereafter defined). W I T N E S S E T H: WHEREAS, Lessee, as borrower, has entered into a Lease Agreement (as amended by the Letter Agreement dated January 11, 1994 and the Amendment to Lease dated as of May 10, 1994) (the "Lease") dated as of November 2, 1989 with Secured Party, as Lessor, pursuant to which Lessee has leased Airship No. N600LP; and WHEREAS, the Amendment to Lease requires, the execution and delivery of this Collateral and Security Agreement ("Collateral and Security Agreement") in order to secure performance by Lessee of all its obligations under the Lease and under this Collateral and Security Agreement ("Secured Obligations"). NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Capitalized terms used herein but not defined herein shall have the meanings given in the Loan Agreement. The following terms shall have the respective meanings set forth below: "Aircraft Security Agreement" shall mean the Aircraft Security Agreement between Lessee and Secured Party, substantially in the form of Exhibit A to this Collateral and Security Agreement. "Chattel Paper" shall have the meaning given to such term in the Code. "Code" shall mean the Uniform Commercial Code as in effect in any applicable jurisdiction. "Collateral" shall have the meaning given in section 2.1. "Contracts" shall mean all contracts, leases, undertakings or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Lessee may now or hereafter have any right, title or interest that do not specifically relate to the ownership operation, maintenance or leasing of a specific airship (other than the airship to which the Aircraft Security Agreement relates). "Customer Contracts" shall mean all Contracts entered into between Lessee and customers of Lessee. "Lessee" shall mean Airship International Ltd., 7380 Sand Lake Road, Suite 200, Orlando, FL 32819. "Distribution Date" shall have the meaning given in Section 6.3(a). "Documents" shall have the meaning given to such term in the Code. "Document of Title" shall have the meaning given in the Code. "Equipment" shall have the meaning given in Section 2.1(a). "Instrument" shall mean any "instrument," as such term is defined in the Code. "Other Assurances" shall have the meaning given in Section 3.4. "Sale Proceeds" shall have the meaning given in section 2.1(d). "Secured Party" shall mean ORIX USA CORPORATION, 600 Wilshire Blvd, Suite 1460, Los Angeles, CA 90017. ARTICLE 2 COLLATERAL 2.1 Grant of Collateral. In order to secure the due and punctual payment and performance of each of the Secured Obligations, Lessee hereby, and by its execution and delivery of this Collateral and Security Agreement, grants, transfers, warrants, conveys, assigns and mortgages to Secured Party, and grants to Secured Party a security interest in, the following property, wherever located, including without limitation all present and future proceeds and products of, increases, replacements and accessions to, and rights to insurance and documents covering or received by Lessee on account of any such property, all for the benefit and security of Secured Party: -2- The Airship Industries Model 500-HL Skyship, Serial No. 1214/06, FAA Registration Number N 601LP, as more specifically described in the Aircraft Security Agreement attached as Exhibit A to this Collateral and Security Agreement (the "Collateral"). 2.2 Collateral as Security Only. The grant of Collateral to Secured Party hereunder is as security only and shall not subject Secured Party to, or transfer or in any way affect or modify, any obligation or liability of Lessee under any of the Collateral or any transactions which gave rise thereto. ARTICLE 3 LESSEE'S GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS Lessee represents, warrants, covenants and agrees to and with Secured Party as follows: 3.1 Title. Lessee has and will at all times have and maintain good title to all Collateral that is owned by Lessee free of all security interests, liens and encumbrances; the liens and security interests hereunder will be perfected on or prior to the Closing Date and otherwise will be and remain perfected. 3.2 Preservation of Rights. Lessee shall at its expense protect, warrant and defend forever its rights in the Collateral, and the rights of Secured Party therein and thereto against the claims and demands of all persons whomsoever, and this covenant shall not be extinguished by any exercise of power of sale, foreclosure or sale thereof or other remedy hereunder or provided by law. 3.3 Perfection of Liens. Lessee has caused and shall cause this Collateral and Security Agreement to be filed, registered or recorded and to be kept, filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect, perfect and continue the liens and security interests hereof upon, and the rights and interest of Secured Party in, the Collateral. 3.4 Other Assurances. Without limiting the provisions of Section 3.3, Lessee (i) shall do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, supplemental agreements, assignments, instruments, notices of assignments, financing statements, continuation statements, assignments of rents or leases, transfers, assurances and other instruments, documents, writings and agreements as Secured Party may from time to time deem necessary or advisable, for the better assuring, conveying, assigning, transferring, hypothecating, pledging and confirming unto Secured Party the Collateral and rights hereby granted, conveyed or assigned, or which Lessee may be or may hereafter become bound to convey or assign to, or for carrying out the intention of or facilitating the performance of the -3- terms of this Collateral and Security Agreement, or for filing, registering or recording this Collateral and Security Agreement or subjecting any portion of the Collateral to the lien and security interest hereof with the priority therefor required hereunder, or for facilitating Secured Party's exercise of its rights and remedies hereunder; and (ii) hereby irrevocably appoints Secured Party to be its attorney for and in its name and on its behalf for such purposes, and generally to use its name in the exercise of all or any of the powers hereby conferred on Secured Party with full power of substitution. The power and authority hereby given and granted by Lessee to Secured Party shall be deemed coupled with an interest and shall not be revocable by Lessee until termination pursuant to Section 7.10 of the security interests created in the Collateral hereby. 3.5 Maintenance of Name, etc. Lessee will not change its name, identity or corporate structure in any manner which might make any financing or continuation statement filed in respect of the Collateral seriously misleading within the meaning of Section 9-402(7) (or any other then applicable provision) of the Code unless Lessee shall have given Secured Party at least 30 days' prior written notice thereof. 3.6 No Other Financing Statements. Without the prior written consent of Secured Party, Lessee will not file or authorize or permit to be filed in any jurisdiction any financing statement or like instrument covering or relating to any Collateral in which Secured Party is not named as the secured party. 3.7 Maintenance of Records. Lessee shall keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of any and all payments received and any and all credits granted with respect to the Collateral and all other dealings with the Collateral. Lessee shall take such steps as may be necessary to make employees of Lessee aware of this Collateral and Security Agreement and the security interests granted hereby. For Secured Party's further security, Lessee agrees that Secured Party shall have a special property interest in all of the Lessee's books and records pertaining to the Collateral and, upon the occurrence and during the continuation of any Event of Default, Lessee shall deliver and turn over any such books and records to Secured Party or its representative at any time upon demand of Secured Party. Prior to the appearance of an Event of Default and upon reasonable notice from Secured Party, Lessee shall permit any representative of Secured Party to inspect such books and records and shall provide photocopies thereof to Secured Party. 3.8 Schedules and Reports. Lessee shall furnish to Secured Party from time to time, as promptly as feasible upon Secured Party's reasonable request, schedules identifying and describing the Collateral (including, without limitation, the locations thereof) and other reports in connection with the Collateral, all as Secured Party may reasonably request. 3.9 Maintenance of Office. Lessee represents and warrants that its chief executive office is located at 7380 Sand Lake Road, Suite 200, Orlando, FL 32819. -4- Lessee will not change the location of its chief executive office unless Lessee, at least 30 days prior to such change, notifies Secured Party of such change and takes all action necessary or that Secured Party may reasonably request to preserve, perfect, confirm and protect (to the extent contemplated hereby and by the Loan Agreement) Secured Party's liens and security interests in the Collateral. Lessee will at all times maintain its chief executive office within one of the states in the 48 contiguous states (other than Maryland or Tennessee), in which Article 9 of the Code (Secured Transactions) is in effect. 3.10 No Negotiable Documents. Lessee shall not deposit any Collateral in exchange for a negotiable Document of Title. 3.11 Taxes and Assessments. Lessee shall furnish to Secured Party such official receipts as Secured Party may reasonably request evidencing the payment in full, when required hereby or by the Lease, of all general taxes and assessments, special taxes, special assessments, and all other charges against the Collateral. 3.12 Notices. Lessee shall advise Secured Party promptly, in reasonable detail, of any material lien or other encumbrance attaching to or asserted against any of the Collateral. 3.13 Release of Collateral. Lessee shall have the right to sell or dispose of Collateral only to the extent and subject to the conditions set forth herein. In the event of any such permitted sale or disposition, the lien and security interest created by this Collateral and Security Agreement shall be released from the property so disposed of, and Secured Party shall execute and deliver any releases, instruments or documents necessary to accomplish the foregoing, provided that any such release, execution or delivery shall be without recourse or warranty of any kind. ARTICLE 4 MAINTENANCE, REPAIR AND INSPECTION 4.1 Maintenance and Repair. Lessee shall keep the Collateral in sufficient operating order, repair and condition for the performance of its business. 4.2 Right of Inspection. Upon reasonable notice to Lessee, Secured Party and its representatives shall also have the right to enter into and upon any premises where any of the Collateral is located for the purposes of inspecting the same, observing its use or otherwise protecting Secured Party's interest therein. -5- ARTICLE 5 DEFAULT 5.1 Events of Default. For all purposes of this Collateral and Security Agreement, the term "Event of Default" shall have the meaning given to it in the Lease. Notwithstanding anything herein, and without limiting any other rights provided hereunder or by law, upon the occurrence of an Event of Default, Secured Party may execute and cause to be recorded a notice or other declaration of default required by any applicable laws providing for a cure or other moratorium before the Collateral or any portion thereof may be foreclosed judicially or nonjudicially; provided, however, that any notice of intention to accelerate indebtedness contained in said notice or other declaration of default shall refer to acceleration no sooner than the later of the cure or other period provided by any applicable laws or any applicable period provided by the Lease or this Collateral and Security Agreement. 5.2 Remedies Generally. After an Event of Default has occurred and is continuing (and has not been rescinded, cured or waived), in addition to, and not by way of limitation of, any right which Secured Party may have hereunder or under applicable law or otherwise: (a) Secured Party shall have all of the rights and remedies of a secured party under the Code, including without limitation, the right and power to sell, or otherwise dispose of, any personal property constituting Collateral, wherever situated, and remove the same without being deemed guilty of trespass and without liability for damages thereby occasioned, or, at its option and upon its demand, to cause Lessee to assemble any Collateral and make it available at the place and time designated in such demand. Secured Party without notice to or demand upon Lessee, may make such payments and do such acts as Secured Party deems necessary to protect the lien and security interest hereof (including without limitation paying, purchasing, contesting or compromising any encumbrance, charge or lien which is prior to or superior to the lien and security interest granted hereunder), and in exercising any such powers or authority may pay all expenses incurred in connection therewith, and shall be entitled to hold, maintain, preserve and prepare any Collateral for sale, and may render such Collateral unusable and dispose of it on any premises. Notice of any sale or other disposition of any Collateral shall be given to Lessee by notice via certified mail at Lessee's address for notice under this Collateral and Security Agreement at least ten days before the time of the sale or disposition. (b) Secured Party may, with or without entry, personally or by its agents or attorneys, insofar as applicable: (i) sell the Collateral and all estate, right, title and interest, claim and demand therein, and any right of redemption thereof, at one -6- or more sales as an entirety or in parcels, and at such times and places and after such notices thereof as may be required or permitted by law at private sale or at a public auction to the highest bidder for cash, in lawful money of the United States, payable at the time of such private or public sale; (ii) apply to any court of competent jurisdiction for the appointment of a receiver or receivers for Collateral or any portion thereof, and of all the rents thereof, and Lessee hereby consents to such appointment; or (iii) take such steps to protect and enforce its rights, whether by action, suit or proceeding in equity or at law, for the specific performance of any covenant, condition or agreement in this Collateral and Security Agreement or in any agreements governing, instruments evidencing or documents securing Secured Obligations, or in aid of the execution of any power herein or therein granted, or for the enforcement of any other appropriate legal or equitable remedy or otherwise as Secured Party shall elect. (c) Secured Party may file such proofs of claim and other papers or documents as may be deemed necessary or advisable in order to have the claims of Secured Party allowed in any judicial proceedings relative to Lessee or the creditors, or property, of Lessee. (d) Secured Party may adjourn from time to time any sale by it to be made under or by virtue of this Collateral and Security Agreement by announcement at the time and place appointed for such sale or for such adjourned sale or sales; and, except as otherwise provided by any applicable provision of law, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned. (e) Upon the completion of any sale or sales made by Secured Party under or by virtue of this Article, Secured Party shall execute and deliver to the accepted purchaser or purchasers a good and sufficient instrument, or good and sufficient instruments, conveying, assigning and transferring all estate, right, title and interest in and to the property and rights sold, but without any covenant or warranty, express or implied. The recitals in such instrument of any matters or facts shall be conclusive proof of the truthfulness thereof. Any such sale or sales made under or by virtue of this Article 5 whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgement or decree of foreclosure and sale shall operate to absolutely divest all the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of Lessee in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against Lessee and against any and all persons claiming or who may claim the same, -7- or any part thereof from, through or under Lessee, and to the extent permitted by law Lessee hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any rule of law or statute now existing or hereafter in force. (f) Lessee on its own behalf and on behalf of its successors and assigns hereby expressly waives all rights to require (i) a marshalling of assets by Secured Party or (ii) Secured Party to first resort to some or any portion of the Collateral before foreclosing upon and selling any other portion thereof. 5.3 Application of Moneys. (a) All moneys held by Secured Party or proceeds received by Secured Party pursuant to this Section 5, to the extent available for distribution, shall be distributed by Secured Party on the last business day of each calendar month (the "Distribution Date") in the following order of priority, to the extent permitted by law: First: To Secured Party for any unpaid fees and other amounts payable to the Secured Party under the Lease, in an amount equal to such unpaid amounts on such Distribution Date; Second: Any surplus then remaining shall be distributed without recourse or warranty to the Person or Persons entitled thereto. (b) Secured Party may, to the extent permitted by law, make distributions hereunder in cash or in kind or in any combination thereof. (c) All distributions made by Secured Party pursuant to this Section 5.3 shall be final. However, if at any time Secured Party determines a distribution previously made pursuant to this Section 5.3 was based on a mistake of fact, Secured Party shall adjust subsequent distributions hereunder so that on a cumulative basis Secured Party and all other persons shall receive the distributions to which they would have been entitled it such mistake of fact had not been made. ARTICLE 6 MISCELLANEOUS 6.1 Notices. Any notice which the Lessee or the Secured Party may be required or may desire to give to the other party under any provision of this Collateral and Security Agreement shall be in writing and shall be delivered by hand or transmitted by electronic facsimile transmission and shall be deemed to have been given or made when so delivered or transmitted and addressed as follows: -8- To the Lessee: Airship International Ltd. 7380 Sand Lake Road, Suite 200 Orlando, FL 32819 Attention: Louis J. Pearlman Telecopier: (407) 345-0888 Copies to: Louis J. Pearlman 9235 Ridge Pine Trail Orlando, FL 32819 Telecopier: (407) 876-0468 and Baer Marks & Upham 805 Third Avenue New York, New York 10022 Attention: Samuel F. Ottensoser, Esq. Telecopier: (212) 702-5941 To the Secured Party: ORIX USA CORPORATION 600 Wilshire Blvd, Ste 1460 Los Angeles, CA 90017 Attention: Byron Southey Telecopier: (213) 955-6530 Any party may change the address to which all notices, requests and other communications are to be sent to it by giving written notice of such address change to the other parties in conformity with this paragraph, but such change shall not be effective until notice of such change has been received by the other parties. 6.2 No Waivers. No failure on the part of Secured Party to exercise, no course of dealing with respect to, and no delay in exercising, any right, power or privilege under this Collateral and Security Agreement shall operate as a waiver thereof nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 6.3 Amendments. This Collateral and Security Agreement may not be amended or modified except by an instrument in writing signed by Lessee and Secured Party. -9- 6.4 Indemnification. (a) Lessee shall pay, indemnify, and hold Secured Party harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgements, suits, costs, expenses (including, without limitation, the reasonable fees of counsel) or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Collateral and Security Agreement unless arising from the gross negligence or willful misconduct of the Secured Party (including, without limitation, indemnification of Secured Party for liabilities of Secured Party for the net amount of taxes (after taking account of any deduction, credit or other tax reduction or benefit available by reason of the imposition of any such tax) in any jurisdiction in which such Secured Party would not otherwise be subject to tax except by reason of its acting under this Collateral and Security Agreement (directly or through any agent, co-agent or trustee) and any filing fee or excise tax paid by Secured Party pursuant hereto. As security for payments under the aforesaid indemnity, Secured Party shall have a lien upon all the Collateral. (b) In any suit, proceeding or action brought by Secured Party under or with respect to the Collateral for any sum owing hereunder or to enforce any provisions hereof, Lessee will save, indemnify and keep Secured Party harmless from and against all expense, loss or damage suffered by reason of any defense, offset, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by Lessee or any of its affiliates of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such obligor or its successors from Lessee, and all such obligations of Lessee shall be and remain enforceable against and only against Lessee and shall not be enforceable against Secured Party, its agents or employees. 6.5 Headings. The table of contents and the headings of Articles and Sections have been included herein for convenience only and shall not be considered in interpreting this Collateral and Security Agreement. 6.6 Severability. Any provision of this Collateral and Security Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate 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. 6.7 Successors and Assigns. This Collateral and Security Agreement shall be binding upon and inure to the benefit of the parties hereto and shall inure to the benefit of Secured Party and its respective successors and assigns, and nothing herein is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Collateral and Security Agreement or any Collateral. -10- 6.8 Governing Law. This Collateral and Security Agreement shall be governed by, and construed and interpreted 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 laws of any other jurisdiction). All judicial proceedings brought against Lessee with respect to this Collateral and Security Agreement may be brought in any State or federal court of competent jurisdiction in the State of New York, and Lessee accepts for itself and its assets and properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts. 6.9 Counterparts. This Collateral and Security Agreement may be signed in any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. 6.10 Termination. (a) Upon payment in full of all Secured Obligations, the liens and security interests created by this Collateral and Security Agreement shall terminate forthwith and all right, title and interest of Secured Party in and to the Collateral shall revert to Lessee, its successors and assigns. (b) Upon the termination of Secured Party liens and security interest and the release of the Collateral in accordance with Section 6.10 (a) , Secured Party will promptly, at Lessee I s written request and expense, (i) execute and deliver to Lessee such documents as Lessee shall reasonably request to evidence the termination of such security interest or the release of the Collateral and (ii) deliver or cause to be delivered to Lessee all property of Lessee then held by Secured Party. IN WITNESS WHEREOF, the parties hereto have caused this Collateral and Security Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AIRSHIP INTERNATIONAL LTD. By /s/ LOUIS J. PEARLMAN --------------------------- Name: Title: President ORIX USA CORPORATION By /s/ Byron M. Southey --------------------------- Name: Title: Senior Vice President -11- Exhibit A to Collateral and Security Agreement DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION FAA AIRCRAFT REGISTRY P.O. Box 25504 Oklahoma City, Oklahoma 73125 AIRCRAFT SECURITY AGREEMENT NAME & ADDRESS OF DEBTOR AIRSHIP INTERNATIONAL LTD. 7380 Sand Lake Road, Ste 200 Orlando, FL 32819 NAME & ADDRESS OF SECURED PARTY ORIX USA CORPORATION 600 Wilshire Blvd, Ste 1460 Los Angeles, CA 90017 NAME OF SECURED PARTY'S ASSIGNOR NOT APPLICABLE Date: May 10, 1994 Complete description of collateral being mortgaged: AIRCRAFT (FAA registration number, manufacturer, model, and serial number): One (1) Airship Industries UK LTD Model 500-HL Skyship, Manufacturer's Serial Number 1214/06, FAA Registration Number N 601LP. ENGINES (manufacturer, model, and serial number): [See Aircraft above] PROPELLERS (manufacturer, model, and serial number): [See Aircraft above] SPARE PARTS LOCATIONS (air carrier's name, city and state) Not Applicable together with all equipment and accessories attached thereto or used in connection therewith, all of which are included in the term aircraft as used herein. The above described aircraft is hereby mortgaged to the secured party for the purpose of securing in the order named: FIRST: The performance by Debtor of its obligations under the Lease Agreement dated as of November 2, 1989, as amended, between Debtor and the Secured Party. SECOND: The prompt and faithful discharge and performance of each agreement of the debtor herein contained or made with or for the benefit of the secured party in connection with the indebtedness to secure which this instrument is executed and the repayment of any sums expended or advanced by the Secured Party for the maintenance or preservation of the property mortgaged hereby or in enforcing his rights hereunder. Said debtor hereby declares and hereby warrants to the said secured party that he is the absolute owner of the legal and beneficial title to the said aircraft and in possession thereof, and that the same is free and clear of all liens, encumbrances, and adverse claims whatsoever. It is the intention of the parties to deliver this instrument in the State of New York. Provided, however, that if the debtor, his heirs, administrators, successors, or assigns shall pay said note and the interest thereon in accordance with the terms thereof and shall keep and perform all and singular the terms, covenants, and agreements in this security agreement, then this security agreement shall be null and void. Time is of the essence of this security agreement. It is hereby agreed that, if default be made in the payment of any part of the principal or interest of the Lease secured hereby at the time and in the manner therein specified, or if any breach be made of any obligation or promise of the Debtor herein contained or secured hereby, or if any or all of the property covered hereby be hereafter sold, leased, transferred, mortgaged, or otherwise encumbered without first obtaining the written consent of the Secured Party, or in the event of the seizure of the Aircraft under execution or other legal process, or if for any other reason the secured party may deem himself insecure, then the whole principal sum unpaid upon said Lease, with the interest accrued -2- thereon, or advanced under the terms of this security agreement, or secured thereby, and the interest thereon, shall immediately become due and payable at the option of the Secured Party. Upon default, the Secured Party may at once proceed to foreclose this mortgage in any manner provided by law, or he may at his option, and he is hereby empowered so to do, with or without foreclosure action, enter upon the premises where the said aircraft may be and take possession thereof, and remove and sell and dispose of the same at public or private sale, and from the proceeds of such sale retain all costs and charges incurred by him in the taking or sale of said aircraft, including any reasonable attorney's fees incurred; also all sums due him on said Lease, under any provisions thereof, or advanced under the terms of this security agreement or the Collateral and Security Agreement dated the date hereof between debtor and the Secured Party, and interest thereon, or due or owing to the Secured Party, under any provisions of this security agreement, or secured hereby, with the interest thereon, and any surplus of such remaining shall be paid to the debtor, or whomever may be lawfully entitled to receive the same. If a deficiency occurs, the debtor agrees to pay such deficiency forthwith. The Secured Party or its agent may bid and purchase at any sale made under this mortgage or herein authorized, or at any sale made upon foreclosure of this mortgage. In witness whereof, the debtor has hereunto set its hand and seal on the day and year first above written. ACKNOWLEDGMENT: (If required by applicable law) SIGNATURE(S) --------------------------------------------- (In ink) (If executed for co-ownership, all must sign) TITLE --------------------------------------------- (If signed for a corporation, partnership, owner, or agent) -3- EX-10 11 EXHIBIT 10.77 AIRCRAFT COLLATERAL FUNDING REPAYMENT AGREEMENT This AIRCRAFT COLLATERAL FUNDING REPAYMENT AGREEMENT (as modified, supplemented or amended from time to time, this "Aircraft CFR Agreement") dated as of November 16, 1994, is entered into by and between Allstate Financial Corporation ("AFC"), and AIRSHIP INTERNATIONAL LTD. ("Client"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings provided in the Accounts Receivable Factoring and Security Agreement dated November 16, 1994, by and between AFC and Client (as modified, supplemented, amended, restated or superseded from time to time, the "Factoring Agreement"). WITNESSETH WHEREAS, AFC and Client have entered into the Factoring Agreement providing for the making of certain financial accommodations as contemplated therein; WHEREAS, Client has requested, pursuant to Paragraph 6 of the Factoring Agreement, that AFC make a prefunding (as defined in the Factoring Agreement) to Client; WHEREAS, it is a condition to the making of the prefunding referred to in the immediately preceding paragraph that Client execute and deliver this Aircraft CFR Agreement; WHEREAS, Client desires to execute and deliver this Aircraft CFR Agreement in order to satisfy the condition described in the immediately preceding paragraph; NOW, THEREFORE, it is agreed: SECTION 1. AMOUNT AND TERMS OF THE PREFUNDING (a) Net Cash Amount of Prefunding; Etc. Subject to and upon the terms and conditions set forth in the Factoring Agreement and in Section 1(b) below, AFC agrees to make, on a single date (such date, the "Prefunding Date") a prefunding (the "Prefunding"), provided, that the initial amount of the Prefunding shall in no event exceed the Funding Base (as defined in Section 2(c) below). The Prefunding and the discounts earned by AFC in connection with the Prefunding (the "Earnings") shall be repaid in full in accordance with Section 2 below. Once repaid, no portion of the Prefunding may be reincurred. If Client desires additional prefundings (as defined in the Factoring Agreement) from time to time, such prefundings shall be made and governed exclusively by the terms and conditions of the Factoring Agreement and any supplemental agreements entered into in connection with the Factoring Agreement and related to such prefundings. (b) Conditions Precedent. In addition to and without in any way limiting any conditions set forth in the Factoring Agreement, the obligation of AFC to make the Prefunding on the Prefunding Date is subject to the satisfaction (in AFC's sole discretion) of each of the following conditions: (i) Client shall have duly authorized, executed and delivered this Aircraft CFR Agreement, the Factoring Agreement, the Aircraft Security Agreement to be executed concurrently herewith between AFC and Client (the "Aircraft Agreement"), and the agreements and instruments related hereto and thereto, and such agreements and instruments shall be in full force and effect; (ii) AFC shall have completed its review of the results of its onsite collateral review of Client and such results shall be satisfactory to AFC (in its sole discretion) in all respects; (iii) AFC shall have received an appraisal from an appraiser acceptable to AFC (the "Appraisal") in form and substance satisfactory to AFC in its sole discretion setting forth a forced liquidation value of Client's Aircraft Collateral (as defined in the Aircraft Agreement); (iv) AFC shall have received evidence satisfactory to it demonstrating that Client owns all of the Aircraft Collateral outright, free and clear of liens and encumbrances (other than the lien in favor of AFC) and that the Aircraft Collateral currently held by Client is the same as the Aircraft Collateral listed in the Appraisal; (v) AFC shall have received evidence satisfactory in its sole discretion that all representations of Client under the Aircraft Agreement are true and correct; (vi) Client shall have duly authorized, executed and delivered to AFC UCC1 financing statements in form, substance and number satisfactory to AFC (the "Financing Statements") and AFC shall have received evidence satisfactory to it that the Financing Statements have been filed under the Uniform Commercial Code of each jurisdiction as may be necessary or, in the judgement of AFC, desirable to perfect the security interests purported to be created by the Factoring Agreement and the Aircraft Agreement including, without limitation, AFC's security interest in the Aircraft Collateral. To the extent any additional filings or actions by Client (including, without limitation, the execution and filing of any documents or notices in connection with any state or federal statute regarding certificates of title) may be deemed by AFC to be necessary or desirable to perfect the interest of AFC in any Collateral including, without limitation, the Aircraft Collateral, Client shall have duly authorized, executed and delivered all such documents, notices and any other writings and done all such acts as AFC may deem necessary or desirable for such purpose; (vii) Each of Louis J. Pearlman, Trans Continental Airlines, Inc. and such other persons or entities may require. (the "Guarantors") shall have duly executed and 2 delivered to AFC a Guaranty in form and substance satisfactory to AFC (each as modified, supplemented or amended from time to time, individually, a "Guaranty" and collectively, the "Guaranties") , each Guaranty shall be in full force and effect and AFC shall have received such security for the obligations of the Guarantors under the Guaranties as AFC may deem necessary or desirable in its sole discretion; (viii) Each of the Guarantors and Client shall have duly executed and delivered a Subordination Agreement in form and substance satisfactory to AFC subordinating any rights of the Guarantors to receive payments from Client to the rights of AFC (the "Subordination Agreement"); (ix) AFC shall, to the extent deemed necessary or desirable by AFC (in its sole discretion) , have received an opinion of counsel for Client, which counsel shall be satisfactory to AFC and which opinion shall be in form and substance satisfactory to AFC (in its sole discretion) and shall cover such matters incident to this Aircraft CFR Agreement, the Aircraft Agreement and the Factoring Agreement as AFC may (in its sole discretion) request; (x) Client shall have paid all fees and expenses incurred by Client and/or AFC in connection with this Aircraft CFR Agreement, the Aircraft Agreement and the Factoring Agreement, without limitation, appraisal fees and expenses, filing and recordation fees insurance premiums and legal fees and expenses; (xi) on the Prefunding Date, both before and after giving effect to the Prefunding (A) there shall exist no Event of Default (as defined below) and (B) all representations and warrants contained herein, in the Aircraft Agreement and in the Factoring Agreement shall be true and correct in all material respects; (xii) Any and all unpaid tax obligations and/or tax liens (whether arising by operation of law, the filing of a lien or a notice of lien or otherwise) , which could, in AFC's opinion, affect any of the Collateral (as defined in the Factoring Agreement) and the Aircraft Collateral shall have been released in full, subordinated in a manner acceptable to AFC (in its sole discretion) or otherwise resolved in a manner acceptable to AFC (in its sole discretion); (xiii) AFC shall have made an initial purchase of accounts receivable of Client under the Factoring Agreement; and (xiv) AFC shall have received such financial or other information and copies of all documents, papers, instruments, agreements, including records of corporate proceedings and governmental or other public records and approvals, as AFC may have requested or received in connection with this Aircraft CFR Agreement, the Factoring Agreement, or the agreements referred to herein or therein or in connection with the transactions contemplated herein or therein, and all of the foregoing shall be satisfactory in form and substance to AFC. 3 SECTION 2. EARNINGS; PAYMENT OF EARNINGS; REPAYMENT OF PREFUNDING; ETC. (a) Earnings; Payment of Earnings. Notwithstanding anything to the contrary contained in the Factoring Agreement (or any document or other written instrument related thereto), Earnings with respect to the Prefunding shall be charged (commencing on the Prefunding Date) on the outstanding amount of the Prefunding based on the CFR Earnings Rate Schedule attached hereto as Exhibit A. Earnings accrued during each calendar month shall be due and payable in full on or before the fifth calendar day of the immediately succeeding calendar month. (b) Voluntary Prepayments. Client may, at any time or from time to time, without premium or penalty, prepay all or a portion of the Prefunding. (c) Mandatory Prepayments. Notwithstanding anything to the contrary contained herein, on any day on which the dollar amount of the Prefunding exceeds the Funding Base, then Client shall immediately prepay the Prefunding in an amount that reduces the dollar amount of the Prefunding to not more than the Funding Base. As used in this Aircraft CFR Agreement, the Funding Base means on any day an amount equal to the lesser of (i) 50% of the forced liquidation value of the Aircraft Collateral as set forth in the Appraisal (or any updated or additional appraisal of the Aircraft Collateral that may be required by AFC in its sole discretion in form and substance satisfactory to AFC in its sole discretion) and (ii) an amount which equals $1,750,000.00 minus all other amounts outstanding under the other agreements between Client and AFC (including, without limitation, accrued and unpaid fees, discount and earnings). (d) Scheduled Prefunding Repayment. Notwithstanding anything to the contrary contained herein or in the Factoring Agreement, unless sooner repaid under the terms hereof or of the Factoring Agreement (whether upon the occurrence of an Event of Default or otherwise), the Prefunding and all accrued but unpaid Earnings and other amounts due from Client under this Aircraft CFR Agreement shall be repaid to AFC in full no later than the earlier of (i) the last day of the Sale Period (as defined in the Factoring Agreement) and (ii) November 16, 1996. (e) Methods of Payment. Except as otherwise specifically provided herein, any payment required or permitted to be made pursuant to this Aircraft CFR Agreement may, at the option of Client be made by one or any combination of the following methods: (i) Client may make such payment in cash (including, without limitation, by wire transfer of immediately available funds); (ii) Client may authorize and direct AFC to apply all or a portion of amounts, if any, otherwise due Client under the Factoring Agreement to such payment; and/or (iii) Client may authorize and direct AFC to apply all or a portion of the proceeds from the purchases (s) of Accounts by AFC pursuant to the Factoring Agreement (which proceeds have not theretofore been paid to (or on behalf of) Client) to such payment. 4 If Client fails to pay all or any portion of the Prefunding or Earnings when due (including, without limitation, following the acceleration of the maturity thereof in accordance with the terms hereof), Client shall be deemed to have irrevocably authorized and directed AFC to make such payment in accordance with clause (ii) and/or (iii), as determined by AFC, of the immediately preceding paragraph, and Client shall remain liable for any deficiency in such payment. Whenever any payment to be made hereunder shall be stated to be due (or required to be made) on a day which is not a Business Day (as defined below), the due date thereof shall be extended to the next succeeding Business Day and, with respect to repayments of the Prefunding (but not Earnings), Earnings shall continue to accrue during such extension. For purposes hereof, "Business Day" shall mean any day other than Saturday, Sunday and any other day on which AFC is not open for business. SECTION 3. REPRESENTATIONS AND WARRANTIES In order to induce AFC (i) to enter into this Aircraft t CFR Agreement and to make the Prefunding and (ii) to enter into the Factoring Agreement and to make advances and other financial accommodations thereunder, Client makes the following representations, warranties and agreements with respect to itself as of the Prefunding Date and at all times thereafter, all of which shall survive the execution and delivery of this Aircraft CFR Agreement and the making of the Prefunding: (a) Execution of Agreement. This Aircraft CFR Agreement, the Aircraft Agreement and the Factoring Agreement have been duly authorized, executed and delivered by the Client and constitute the legal, valid and binding obligations of the Client enforceable in accordance with their respective terms. (b) No Violation. Neither the execution, delivery or performance by the Client of this Aircraft CFR Agreement, the Aircraft Agreement or the Factoring Agreement, nor compliance by the Client with the terms hereof or thereof, nor the use of the proceeds of the Prefunding (x) will contravene any provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or governmental instrumentality, (y) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation of imposition of (or the obligation to create or impose) any lien (except pursuant to this Aircraft CFR Agreement, the Factoring Agreement or the Aircraft Agreement) upon any of the property or assets of the Client pursuant to the terms of any indenture, mortgage, deed of trust, credit agreement, loan agreement or any other agreement, contract or instrument to which any of them is a party or by which any of them or any of their property or assets is bound or to which any of them may be subject or (z) will violate any provision of the Certificate or Articles of Incorporation or ByLaws of the Client. (b) True and Complete Disclosure. All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of Client in writing to AFC 5 including, without limitation, all information contained herein, in the Aircraft Agreement or in the Factoring Agreement for purposes of or in connection with any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of the Client in writing to AFC will be, true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. SECTION 4. AFFIRMATIVE COVENANTS Client covenants and agrees that on and after the Prefunding Date and until the Prefunding together with Earnings and all other obligations incurred hereunder and under the Factoring Agreement are paid in full: (a) Performance of Obligations. Client will perform all of its obligations under the terms hereof, of the Factoring Agreement, the Aircraft Agreement and each and every mortgage, indenture, security agreement, debt instrument and other contract by which it is bound. (b) Further Assurances. Client, shall at its own expense, make, execute, endorse, acknowledge, file and/or deliver to AFC from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, instruments and documents, and take such further steps relating to the Collateral covered by the Factoring Agreement and the Aircraft Collateral covered by the Aircraft Agreement, as AFC may require. SECTION 5. EVENTS OF DEFAULT Upon the occurrence of any of the following specified events (each an "Event of Default"): (i) Payments. Client shall default in the payment when due of all or any portion of the Prefunding, Earnings or any other amounts owing hereunder, under the Factoring Agreement, under the Aircraft Agreement or under any other Collateral Funding Repayment Agreement entered into from time to time by and between Client and AFC; or (ii) Representations, etc. Any representation, warranty or statement made by Client in the Factoring Agreement, the Aircraft Agreement, this Aircraft CFR Agreement, in any other Collateral Funding Repayment Agreement by and between one or more of the Clients and AFC, or in any certificate delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made; or (iii) Covenants. Client shall default in the due performance or observance of any term, covenant or agreement (other than those referred to in clause (i) or (ii) of this Section 6 6) contained in this Aircraft CFR Agreement, in the Aircraft Agreement or in any other Collateral Funding Repayment Agreement by and between Client and AFC, or the Factoring Agreement; or (iv) Security Documents. Any one of the Factoring Agreement, the Aircraft Agreement and/or any mortgage granted to AFC as security for the obligations of any Guarantor shall cease to be in full force or effect, or shall cease to give AFC (or a trustee for the benefit of AFC), the liens, lien priorities, rights, remedies, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and lien on, the collateral described therein; or (v) Guaranties. One or more of the Guaranties or any provision thereof shall cease to be in full force or effect, or any Guarantor (or any person or entity acting by or on behalf of any Guarantor) shall deny or disaffirm the obligations of such Guarantor under a Guaranty, or any Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to a Guaranty or any mortgage granted as security for the obligations of such Guarantor; or (vi) Judgments. One or more judgments or decrees shall be entered after the date hereof against Client involving in the aggregate a liability of $10,000.00 or more, and all such judgments or decrees shall not have been vacated, discharged, or stayed or bonded pending appeal within 30 days after the entry thereof; or (vii) Default Under Other Agreements. Client shall (i) default in any payment of any material indebtedness or obligations (other than obligations incurred hereunder, under the Aircraft Agreement or under the Factoring Agreement) beyond the period of grace, if any, provided in the instrument or agreement under which such indebtedness or obligation was created or (ii) default in the observance or performance of any agreement or condition relating to any material indebtedness or obligation (other than obligations incurred hereunder, under the Aircraft Agreement or under the Factoring Agreement) or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such indebtedness or obligation (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice is required), any such indebtedness or obligation to become due prior to its stated maturity; or any material indebtedness or obligation of any of the parties shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof; (viii) Bankruptcy, etc. Client shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against it, and the petition is not controverted within 10 days, or is not dismissed within 30 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, 7 or takes charge of, all or substantially all of the property of Client or Client commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Client, or there is commenced against Client any such proceeding which remains undismissed for a period of 30 days, or Client is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or Client suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 30 days; or Client makes a general assignment for the benefit of creditors; or any corporate, partnership or other action is taken by Client for the purpose of effecting any of the foregoing; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, AFC may, by written notice to Client, take any or all of the following actions (provided, that, if an Event of Default specified in Section 6 (six) shall occur with respect to Client, the result which would occur upon the giving of written notice by AFC to Client as specified below shall occur automatically without the giving of any such notice) (i) declare the Prefunding and any accrued Earnings in respect thereof and all obligations owing hereunder, under the Aircraft Agreement and any other Collateral Funding Repayment Agreement by and between Client and AFC and under the Factoring Agreement to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Client, and (ii) exercise any and all of its rights, remedies and powers under the Factoring Agreement, the Aircraft Agreement and/or the Guaranties. Without limiting the generality of the foregoing, Client acknowledges and agrees that AFC may, at any time or from time to time following the occurrence and during the continuation of an Event of Default, apply any and all amounts which may otherwise be due (or may otherwise from time to time become due) to Client under the Factoring Agreement to obligations of Client to AFC hereunder or otherwise, at such times and in such manner as AFC, in its sole discretion, shall determine. Client hereby expressly waives any and all rights to require a marshalling of assets upon the foreclosure (or other realization) by AFC upon any of its liens on, or security interests, in the real or personal property of Client or of any guarantors of the obligations of Client. SECTION 6. THE AIRCRAFT CFR AGREEMENT AND THE FACTORING AGREEMENT. Except as expressly set forth herein, this Aircraft CFR Agreement shall not constitute a modification, acceptance or waiver of any provision of the Factoring Agreement or any other document or instrument related thereto. Without in any way limiting the foregoing, to the extent this Aircraft CFR Agreement expressly modifies any provision of the Factoring Agreement such modification shall apply to the Factoring Agreement only as such modification relates to the Prefunding. 8 SECTION 7. MAXIMUM PERMITTED EARNINGS To the extent that the Earnings payable hereunder exceed any applicable maximum rate permitted by law, the charge applied under Section 2(a) to the Prefunding shall be deemed at all times since the Prefunding Date to have been equal to the maximum permitted rate, and any amount collected by AFC in excess of the maximum permitted rate shall be credited to payment of the Prefunding and/or other obligations of Client to AFC hereunder or under any other agreement or document between AFC and Client. It is the express intent of the parties hereto that Client shall not pay, and AFC shall not receive, directly or indirectly, Earnings in excess of what may be lawfully paid by Client or received by AFC under applicable law. SECTION 8. REIMBURSEMENT AND INDEMNITY Client shall: (i) whether or not transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of (x) AFC (including, without limitation, the reasonable fees and disbursements of counsel for AFC) in connection with the preparation, execution and delivery of this Aircraft CFR Agreement and the documents and instruments referred to herein and any amendment, waiver or consent relating hereto or thereto and (y) AFC in connection with the enforcement of this Aircraft CFR Agreement and the documents and instruments referred to herein (including, without limitation, the reasonable fees and disbursements of counsel for AFC); (ii) pay and hold AFC harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save AFC harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes; and (iii) indemnify AFC, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all liabilities,' obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, any investigation, litigation or other proceeding (whether or not AFC is a party thereto) related to the entering into and/or performance of this Aircraft CFR Agreement, the Aircraft Agreement and/or the Factoring Agreement or the use of the proceeds of the Prefunding or the consummation of any of the transactions contemplated herein or therein (including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding, whether or not AFC is a party thereto) , including, without limitation, any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses and disbursements resulting from, arising out of or based upon the presence, release, use, manufacture, installation, generation, discharge, storage or disposal at any time of hazardous materials (as such terms or any similar terms may be defined under or in connection with any and all applicable local, state or federal law) including, without limitation, any and all chemicals, materials or substances, the exposure to which is regulated, limited or prohibited by any governmental authority or applicable law, on, under, in or about, or the transportation of any such material to or from, any of the real property owned, leased or operated by Client (but, excluding any such liabilities, obligations, losses, etc. , to the extent incurred by reason of the gross negligence or willful misconduct of the person or entity to be indemnified). The provisions of this Section 9 shall 9 survive the repayment of the Prefunding and the termination, if any, of this Aircraft CFR Agreement, the Aircraft Agreement and/or the Factoring Agreement. SECTION 9. MISCELLANEOUS (a) Counterparts. This Aircraft CFR Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterpart when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with Client and AFC. (b) Governing Law; Waiver of Jury Trial; Consent to Jurisdiction. This Aircraft CFR Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Virginia (without giving effect to the conflict of laws principles thereof). The Client, who is represented by counsel, in recognition of the greater costs and delays incurred by a jury trial, hereby waives any and all right to a jury in any jurisdiction in any court in any action brought by AFC with respect hereto. In any such action, the Client hereby consents to the exclusive jurisdiction of any court of competent jurisdiction of the Commonwealth of Virginia and of any Federal Court located in such Commonwealth and venue in either the United States District Court for the Eastern District of Virginia or the Circuit Court for the County of Arlington or the General District Court of Arlington County for a determination of any dispute as to any matters whatsoever arising out of or in any way connected with this Aircraft CFR Agreement and the Client hereby authorizes the service of process on it at its address set forth in the Factoring Agreement. (b) Effectiveness. This Aircraft CFR Agreement shall become effective as of the date first above written when each of the parties hereto shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of telecopier) the same to AFC at its offices in Arlington, Virginia. (c) Benefit of Agreement. This Aircraft CFR Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, that Client may not assign or transfer any of its rights or obligations hereunder without the prior written consent of AFC and, provided further, that AFC may assign or transfer all or any portion of its rights hereunder without the consent of Client. (d) No Waiver; Remedies Cumulative. No failure or delay on the part of AFC in exercising any right, power or privilege hereunder or under the Factoring Agreement, any other Collateral Funding Repayment Agreement by and between Client and AFC and/or the Guaranties, and no course of dealing between Client and AFC, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under the Factoring Agreement and/or the Guaranties, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights, 10 powers and remedies herein and in the Factoring Agreement and/or the Guaranties are cumulative and not exclusive of any rights, powers or remedies which AFC may otherwise have. No notice to or demand on Client in any case shall entitle Client to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of AFC to any other or further action in any circumstances without notice or demand. (e) Headings Descriptive. The headings of the several sections and subsections of this Aircraft CFR Agreement are inserted for convenience only and shall not in any way effect the meaning of construction of any provision of this Aircraft CFR Agreement. (f) Amendment or Waiver. Neither this Aircraft CFR Agreement nor any terms hereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing and signed by Client and AFC. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Aircraft CFR Agreement to be duly executed and delivered as of the date first above written. AIRSHIP INTERNATIONAL LTD. By: /s/ LOUIS J. PEARLMAN ---------------------------- Louis J. Pearlman, President ALLSTATE FINANCIAL CORPORATION By: /s/ ---------------------------- Name: Title: 11 EXHIBIT A CFR EARNINGS RATE SCHEDULE Earnings to be charged under the Aircraft Collateral Funding Repayment Agreement dated November 16, 1994, by and between Airship International Ltd. and Allstate Financial Corporation shall be based on the outstanding amount of the Prefunding made thereunder. The earnings will be charged on the highest outstanding amount of the Prefunding during the relevant period set forth below, and will be calculated based on the number of days from and including the Prefunding Date to and including the fifth business day following receipt of payment on the Prefunding, as follows: 1 - 30 Days ....................................... 3.125% Earnings 31 - 45 Days ....................................... 4.688% Earnings 46 - 60 Days ....................................... 6.251% Earnings 61 - 75 Days ....................................... 7.814% Earnings 76 - 90 Days ....................................... 9.377% Earnings Plus an additional 1.563% for each additional 15 day period, or portion thereof thereafter. ADDENDUM In addition to the provisions of the Accounts Receivable Factoring and Security Agreement (together with all documents related thereto as modified, amended or supplemented from time to time, the "Agreement") executed by and between Allstate Financial Corporation ("AFC") and Airship International Ltd. ("Client") on or about November 16, 1994, the parties do hereby acknowledge and agree with each other as follows: 1. Subject to the terms and conditions of the Agreement, AFC has committed to Client the availability of up to $1,750,000.00 net funds outstanding to Client at any one time. In consideration of this commitment Client has agreed to pay AFC a fee of .125% per month (or any fraction thereof) payable monthly in arrears no later than the fifth calendar day of each month with respect to the immediately preceding calendar month calculated on the higher of the highest net funds outstanding on any day during such preceding month and $1,750,000.00. The term "net funds outstanding to Client" and/or "net funds outstanding" as used herein shall include the sum total at any given time of (i) advances made by AFC to Client (whether or not made under the Agreement or any Collateral Funding Repayment Agreement), (ii) discount and other fees and charges then accrued (but not yet collected) pursuant to the terms of the Agreement, (iii) all contingent obligations of Client under or in respect of any Letter of Guaranty or Letter of Credit issued by (or arranged for by) AFC for Client, and (iv) any other amounts due to AFC (whether under the Agreement or otherwise) which have not then been paid or repaid to AFC. AFC may deduct any commitment fee or fees provided for herein from Client's subsequent funding or fundings or as otherwise provided in the Agreement. Client acknowledges and agrees that the available amount (and therefore the permitted "net funds outstanding") shall decrease automatically by $75,000.00 on the first day of each month beginning on December 1, 1994 and Client shall pay to AFC all amounts required so that the net funds outstanding in each month do not exceed the available amount for such month. 2. Client understands and agrees that notwithstanding any other provisions hereof or of the Agreement or any other agreement or document entered into between AFC and Client, it is intended that AFC receive no less than $75,000.00 each month in collections from Debtors or from Client directly. Such collections shall be applied by AFC first to accrued and unpaid fees and expenses of AFC payable to AFC and to accrued and unpaid earnings with respect to any and all Accounts purchased and any outstanding prefunds in any order in the sole discretion of AFC and next to outstanding advances made in connection with the purchase of Accounts or the making of any prefunding. In the event AFC does not receive collections totalling $75,000.00 in any month either from Debtors or from Client, then and in such event (and without limiting or modifying any terms or provisions hereof or of the Agreement), a default shall be deemed to have occurred under the Agreement. 3. Client further understands and agrees that notwithstanding the provision for an availability of up to $1,750,000.00 under paragraph 1 above, any amounts advanced by AFC in excess of $1,500,000.00 shall be held in a form acceptable to AFC in its sole discretion and shall be put under the control of AFC in a manner acceptable to AFC in its sole discretion. 4. Client and certain guarantors of the obligations of Client have executed and delivered to AFC in connection herewith certain Confessed Judgment Demand Notes each in an amount equal to the amount of the commitment referenced above ($1,750,000.00) plus ten percent (100%). In the event the net funds outstanding ever exceeds $1,750,000.00, then and in such event, Client and such guarantors shall enter into new Confessed Judgment Demand Notes as requested by AFC in its sole discretion each in an amount equal to the increased amount plus ten percent (10%). Client acknowledges and confirms that any failure or delay by Client or any guarantor to execute a new Confessed Judgment Demand Note on request by AFC shall be a default under the terms of the agreement. 4. Client has paid to AFC a nonrefundable closing fee of $10,000.00 (the "Closing Fee"). Client shall in addition to the Closing Fee, pay to (or reimburse) AFC for any additional costs incurred by AFC during the initial audit of Client, to include but not be limited to the cost of travel, hotel and meals for one auditor and any additional costs related to the perfection of AFC's interests in the Collateral or any other property in which AFC is granted an interest in connection with any transactions between the Client and AFC, including without limitation, the filing of UCC financing statements beyond the initial filings against Client's corporate name and headquarters address, the searching of records related to any name other than Client's corporate name and/or locations beyond Client's corporate headquarters and/or all costs and disbursements (including all attorney fees and disbursements) related to the perfection of AFC's security interest in the Aircraft Collateral (as defined in the Aircraft Security Agreement of even date herewith) (collectively, "Additional Expenses"). Any unpaid Additional Expenses shall be paid out of the initial funding of Client. If a determination is made that no funding shall take place, then Client shall be immediately responsible for payment of all Additional Expenses and shall make immediate payment to AFC therefor. 5. The Client may repurchase all Accounts and repay in full all obligations outstanding hereunder at any time. In the event Client wishes to repurchase all Accounts and repay all amounts outstanding hereunder, Client shall notify AFC in writing of its intent to do so not less than 15 days prior to the date on which such repurchase and repayment is to be made (the "Repayment Date") On the Repayment Date, Client shall pay to AFC in full all outstanding advances under the Agreement and any Collateral Funding Repayment Agreement entered into in connection therewith or otherwise, all accrued and unpaid discount and all other fees and expenses (including without limitation supplemental discount for each of the remaining unused months of the Sale Period) payable to AFC under the Agreement and any Collateral Funding Repayment Agreement entered into in connection therewith or otherwise. Upon receipt of (i) all such amounts and (ii) Mutual Releases in form and substance satisfactory to AFC in its sole discretion executed by Client, AFC agrees that this Agreement shall be terminated as described in Section 17(a) Agreement. 6. Notwithstanding any other provision hereof or of the Agreement or any other agreement or document entered into in connection herewith or therewith, unless and until a default shall have occurred and be continuing under the Agreement, AFC shall not notify or otherwise attempt to directly collect payments from any Debtors of Client. 7. Except as modified hereby all other terms and conditions of the Agreement remain the same and in full force and effect. IN WITNESS WHEREOF the parties execute this Addendum this 16th day of November, 1994. AIRSHIP INTERNATIONAL LTD. By: LOUIS J. PEARLMAN ---------------------------- Louis J. Pearlman, President ALLSTATE FINANCIAL CORPORATION By: ---------------------------- Name: Title: STATE OF VIRGINIA COUNTY OF ARLINGTON On this 16th day of November, 1994, before me, a Notary Public, personally appeared Louis J. Pearlman as President of Airship International Ltd., a corporation, and that as such officer he is authorized to execute and acknowledge the foregoing instrument on behalf of said corporation for the purposes contained therein, by signing the name of the corporation by himself as President and that he in fact so executed and acknowledged the instrument before me on the date written above. --------------------------------- Notary Public My Commission expires: STATE OF VIRGINIA COUNTY OF ARLINGTON On this 16th day of November, 1994, before me, a Notary Public, personally appeared _______________________ of ALLSTATE FINANCIAL CORPORATION a corporation and that as such officer he(she) is authorized to execute and acknowledge the foregoing instrument on behalf of said corporation for the purposes contained therein, by signing the name of the corporation by himself(herself) as _______________________________________ and that he(she) in fact so executed and acknowledged the instrument before me on the date written above. --------------------------------- Notary Public My Commission expires: EX-10 12 EXHIBIT 10.78 AMENDED AND RESTATED GUARANTY BY LOUIS A. PEARLMAN IN FAVOR OF ORIX USA CORPORATION (FORMERLY KNOWN AS ORIX COMMERCIAL CREDIT CORPORATION) AMENDED AND RESTATED GUARANTY This Amended and Restated Guaranty is delivered as of June 2, 1995 by LOUIS J. PEARLMAN, an individual ("Guarantor"), in favor of ORIX USA CORPORATION (FORMERLY KNOWN AS ORIX COMMERCIAL CREDIT CORPORATION), a Delaware Corporation ("Lessor"). RECITALS A. AIRSHIP INTERNATIONAL LTD., a New York corporation ("Lessee,,), and Lessor entered into a Lease Agreement dated as of November 2, 1989 (the "Original Lease") for the lease of a 600 Series Skyship. B. Lessee and Lessor have amended and restated the Original Lease as of the date hereof pursuant to an Amended and Restated Lease Agreement in the form of a Conditional Sales Agreement (the "Lease"). C. Lessee's obligations related to the original Lease were guarantied by Guarantor pursuant to an agreement dated November 2, 1989 (the "Original Guaranty"). D. it is a condition to the making of the Lease that Lessee's Obligations be guarantied by Guarantor. E. Guarantor is willing irrevocably and unconditionally to guaranty the Obligations of Lessee pursuant to the terms of this Amended and Restated Guaranty. NOW, THEREFORE, based upon the foregoing and ocher good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce Lessor to enter into the Lease, Guarantor hereby agrees with Lessor as follows: SECTION 1. DEFINITIONS 1.1 Certain Defined Terms. As used in this Guaranty, the following terms shall have the following meanings, unless the context otherwise requires: "Airship" means the Gondola, the Envelope, the Engines and Propellers all as more specifically described in the Amended and Restated Lease Supplement dated the date hereof for the Airship together with the equipment, components, written materials, data and accessories installed thereon or delivered therewith, including the Buyer Furnished Equipment, the Night Sign, the Spare Equipment and any replacements and substitutions thereof as permitted under the Lease. "Guaranty" means this Amended and Restated Guaranty of Guarantor, as it may be amended, modified or supplemented. "Obligations" has the meaning assigned to that term in subsection 2.1. "Payment in full", "paid in full" or any such similar term means payment in full of the Obligations including, without limitation, all principal, interest, costs, fees and expenses (including, without limitation, legal fees and expenses) of Lessor as required under the Lease. All capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Lease. SECTION 2. THE GUARANTY 2.1 Guaranty of the Obligations. Guarantor hereby irrevocably and unconditionally guaranties the due and punctual payment in full and performance otherwise of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, acceleration, demand or otherwise. The word "Obligations" includes (a) all obligations of Lessee arising out of the Lease; (b) any and all other agreements, indebtedness, fees, costs, expenses (including, without limitation, legal fees and expenses of counsel), indemnities and liabilities of Lessee now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, whether due or not due, and however arising out of the Lease whether recovery upon such Obligations may be or hereafter become barred by any statute of limitations, or whether such Obligations may be or hereafter become otherwise unenforceable; (c) an amount equal to interest on the foregoing monetary amounts (including any interest that would have accrued but for the commencement of a case or proceeding under the federal bankruptcy laws) at the Overdue Interest Rate as defined in the Lease; (d) those expenses set forth in Section 7 hereof; and (e) all or any portion of the foregoing obligations that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Lessor as a preference, fraudulent transfer or otherwise. 2.2 Liability of Guarantor. Guarantor agrees that his obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than indefeasible payment and performance in full of the Obligations. in furtherance of the foregoing, Guarantor agrees as follows: (a) This Guaranty is a guaranty of payment and performance and not of collectibility and is not conditional or contingent upon the genuineness, validity, regularity or enforceability of the Lease or the pursuit by Lessor of any remedies that it now has or may hereafter have under the Lease, at law, in equity or otherwise. (b) Lessor may enforce this Guaranty upon the occurrence of an Event of Default under the Lease, notwithstanding (i) the existence of any dispute between Lessor and Lessee with respect to the existence'. of an Event of Default; (ii) any counterclaim, set-off or other claim which Lessee may allege against Lessor with respect thereto; or (iii) any defect in the title, compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, or any redelivery, repossession, surrender or other interruption or cessation in the use of, the Airship by the Lessee or any other person for any reason whatsoever (including, without limitation, any governmental prohibition or restriction, condemnation, requisition, seizure or any other act an the part of any governmental or military authority, or any act of God or of the public enemy) regardless of the duration thereof (even though such duration would otherwise constitute a frustration of a lease), whether or not resulting from accident and whether or not without fault on the part of the Lessee or any other person. (c) The obligations of Guarantor hereunder are independent of the obligations of Lessee under the Lease, and a separate action or actions may be brought and prosecuted against Guarantor whether or not any action is brought against Lessee or whether or not Lessee is joined in any such action or actions. Guarantor's liability under this Guaranty shall not be reduced by virtue of any partial payment or other performance by Lessee of any amount due or obligation owing under the Lease, except to the extent of any such payment that is not avoided or recovered directly or indirectly from Lessor as a preference, fraudulent transfer or otherwise, or by recourse to any collateral or security. (d) Guarantor's payment or performance of a portion, but not all, of the Obligations shall in no way limit, affect, modify or abridge Guarantor's liability for that portion of the Obligations which is not paid or performed. Without limiting the generality of the foregoing, if Lessor is awarded a judgment in any suit brought to enforce Guarantor's covenant. to pay or perform a portion of the Obligations, such judgment shall not be deemed to release Guarantor from his covenant to pay or perform the portion of the Obligations that is not the subject of such suit. (e) Lessor, upon such terms as it deems appropriate, without notice or demand and without affecting Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate or otherwise change the time, place, manner or terms of payment or performance of the Obligations; (ii) settle, compromise, release, discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Obligations or any agreement relating thereto and/or subordinate the payment of the same to payment of other obligations; (iii) take and hold security for the payment or performance of this Guaranty or the Obligations, and enforce any such security consistent with any applicable security agreement; (iv) release, surrender, exchange, compromise, settle, rescind, waive, subordinate or modify, any security for payment or performance of the Obligations, any other guaranties of the Obligations, or any other obligation of any Person with respect to the Obligations; (v) elect to abstain from repossessing the Airship or taking advantage of or realizing upon any security interests or other guaranty; (vi) elect to repossess the Airship or to foreclose on any security held by or for the benefit of Lessor by one or more judicial or nonjudicial sales or exercise any other right or remedy Lessor may have against Lessee, the Airship or any security, even though any such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of Guarantor against Lessee or any security for the Obligations; (vii) re-lease or sell the Airship or apply any security and direct the order or manner of sale thereof as Lessor in its discretion may determine consistent with the Lease and any applicable security agreement; (viii) release or substitute any one or more endorsers or guarantors of the Obligations; and (ix) exercise any rights available to it under the Lease. (t) This Guaranty shall be valid and enforceable and shall not be impaired or affected by the occurrence of any of the following, whether or not Guarantor shall have had notice or knowledge of any of them: (i.) any failure or omission to enforce or agreement not to enforce, or the stay or enjoining by order of court, by operation of law or otherwise, of the exercise of, any right, power or remedy with respect to the obligations or any agreement relating thereto, or with respect to any security for the payment or performance of the Obligations; (ii) any amendment or waiver, whether or not in accordance with the terms of the Lease, of any right, power or remedy or of any default with respect to the obligations or any agreement relating thereto, or with respect to any security for the obligations; (iii) the obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the payment of indebtedness other than the Obligations), even though Lessor might have elected to apply such payment to any part or all of the Obligations; (v) LESSOR'S acceptance of new or additional documents, instruments or agreements relating to the Obligations; (vi) Lessor's consent to the change, reorganization or termination of the corporate structure or existence of Lessee and to any corresponding restructuring of the obligations; (vii) any failure to perfect or continue perfection of a security interest in any collateral; and (viii) any defenses which Lessee may assert on the underlying indebtedness or agreements. 2.3 Waivers by Guarantor. Guarantor hereby waives for the benefit of Lessor: (a) any right to require Lessor, as a condition of payment or performance by Guarantor to (i) proceed against Lessee or any other Person, (ii) proceed against or exhaust any security held from Lessee, or any other Person, or (iii) pursue any other remedy in the power of Lessor whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Lessee including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Obligations or any agreement or instrument relating thereto or by reason of the cessation from any cause of the liability of Lessee other than indefeasible payment and performance in full of the Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal, or based upon Lessor's errors or omissions in the administration of the Obligations, except behavior which amounts to bad faith; (d) any (i) principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty, any legal or equitable discharge of its obligations hereunder and the benefit of any statute of limitations affecting its liability hereunder or the enforcement hereof, (ii) rights to set-offs, recoupments and counterclaims, rights to deferral or modification of Guarantor's obligations hereunder by reason of any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, (iv) promptness, diligence and any requirement that Lessor protect, secure, perfect or insure any security interest or lien or any property subject thereto, or exhaust any right or take any action against Lessee, any other Person, the Airship or any collateral.; and (e) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Guaranty, notices of default under the Lease or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Obligations or any agreement related thereto, notices of any other extension of credit to Lessee and notices of any of the matters referred to in Section 2.2 and any right to consent to any thereof. 2.4 Subrogation. Until the Obligations shall have been indefeasibly paid and performed in full, Guarantor shall withhold exercise of (a) any right of subrogation, (b) any right to enforce any remedy which Lessor now has or may hereafter have against Lessee (c) any right of contribution Guarantor may have against any other guarantor of any of the Obligations under any other guaranty relating to the Lease, or (d) any benefit of, and any right to participate in, (i) any sale or re-lease of the Airship or (ii) any security now or hereafter held by Lessor; provided, however, that once the Obligations have been indefeasibly paid and performed in full Guarantor shall be entitled to exercise any right of subrogation available to it against Lessee. 2.5 Subordination of Other Obligations. Any indebtedness of Lessee for borrowed money now or hereafter held by Guarantor and any right of Guarantor to subrogation against Lessee, shall in all respects be subordinated in right of payment to the Obligations, and in the event Lessee shall default in the payment or performance of the obligations, any indebtedness of-Lessee to Guarantor collected or received by Guarantor shall be held in trust for Lessor and shall be paid over to Lessor. 2.6 Bankruptcy. The obligations of Guarantor under this Guaranty shall not be altered, limited or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Lessee or by any defense which Lessee may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. Guarantor acknowledges and agrees that any interest on the Obligations which accrues after the commencement of any such proceeding (or, if interest on any portion of the Obligations ceases to accrue by operation of law by-reason of the commencement of said proceeding, such interest as would have accrued on any such portion of the Obligations if said proceedings had not been commenced) shall be included in the Obligations because it is the intention of the parties that the Obligations which are guaranteed by Guarantor pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve. Lessee of any portion of such Obligations. SECTION 3. REPRESENTATIONS AND WARRANTIES In order to induce Lessor to accept this Guaranty and enter into the Lease, Guarantor hereby represents and warrants to Lessor that the following statements are true and correct: 3.1 Existence. Guarantor is an individual resident in the state of Florida and has the legal capacity to own his assets and to transact the business in which he is now engaged. 3.2 Authorization. Enforceable Obligations. Guarantor has the authority and legal right to execute, deliver and perform this Guaranty on the terms and conditions hereof. No consent of any other Person including, without limitation, creditors of Guarantor, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by Guarantor in connection with this Guaranty or the execution, delivery, performance, validity or enforceability of this Guaranty and all obligations required hereunder. This Guaranty has been, and each instrument or document required hereunder will be, duly executed and delivered, and this Guaranty constitutes, and each instrument or document required hereunder when executed and delivered hereunder will constitute, the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and subject, as to enforceability to general principles of equity, regardless of whether enforcement is sought in equity or at law. 3.3 No Legal Bar to this Guaranty. The execution, delivery and performance of this Guaranty and the documents or instruments required hereunder, will not violate any provision of any existing law or regulation binding on Guarantor, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on Guarantor, or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which Guarantor is a party or by which Guarantor or any of his assets may be bound, the violation of which would have a material adverse effect on the assets or financial condition of Guarantor and will not result in, or require, the creation or imposition of any lien on any of his property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking. SECTION 4. ADDITIONAL COVENANTS. SO LONG AS GUARANTOR MAY BE OBLIGATED to perform or make any payment hereunder, Guarantor will duly perform and observe the following covenants and agreements. 4.1 Periodic Information. Guarantor will furnish to Lessor: (i) by April 20 each year, or if Guarantor has obtained,an extension of the date for filing without incurring a penalty for late payment or filing, within five days of filing or the end of such extension, whichever occurs first, copies of federal income tax returns of Guarantor for the prior year. (ii) from time to time, such other information regarding the business and properties or the condition, financial or otherwise, of Guarantor as Lessor may reasonably request. 4.2 Consents. Guarantor will promptly obtain from time to time any and all such consents, approvals, licenses and authorizations and make any and all such filings and registrations as shall now or hereafter be required under applicable law and regulations for the making and performance by Guarantor of this Guaranty and will promptly furnish copies thereof to Lessor. 4.3 Compliance with Laws. Guarantor will comply with the requirements of all applicable laws, rules, regulations and orders of any governmental agency or authority having jurisdiction other than requirements being contested in good faith and by proper proceedings, provided that such noncompliance is not in any event likely to result in any material adverse effect on Guarantor. 4.4 Taxes. Guarantor will pay and discharge any and all taxes, assessments and governmental charges or levies imposed upon him or on his income or profits or on any of his property or assets prior to the date on which penalties attach thereto, except that Guarantor shall not be required to pay any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings. 4.5 Notice. Guarantor will promptly give notice in writing to Lessor of any material adverse change in Guarantor's financial condition or Guarantor's ability to perform this Guaranty. SECTION 5. LESSOR MAY PERFORM. If Guarantor fails to perform any agreement contained herein, Lessor may itself perform, or cause performance of, such agreement, and the expenses of Lessor incurred in connection therewith shall be payable by Guarantor under Section 7. SECTION 6. RIGHTS CUMULATIVE. The rights, powers and remedies given to Lessor by this Guaranty are cumulative and shall be in addition to and independent of all rights, powers and remedies given to Lessor by virtue of any statute or rule of law or in the Lease. Any forbearance or failure to delay by Lessor in exercising any right, power or remedy hereunder shall not preclude the further exercise thereof. SECTION 7. EXPENSES. Guarantor agrees to pay, or cause to be paid, and to save Lessor harmless against liability for its reasonable out-of-pocket expenses (including fees and expenses of counsel), incurred or expended in connection with the enforcement of or preservation of rights under this Guaranty. SECTION 8. MISCELLANEOUS 8.1 Survival of Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery Of this Guaranty, and the execution and delivery of the Lease. 8.2 Severability. The illegality or unenforceability of any provision of this Guaranty or any instrument or agreement contemplated hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Guaranty or any instrument or agreement contemplated hereunder. In case any provision in or obligation under this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of such provision or obligation or of the remaining provisions or obligations in any other jurisdiction shall not in any way be affected or impaired thereby. 8.3 Headings. Section and subsection headings in this Guaranty a r e included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect. 8.4 Applicable Law. THIS GUARANTY IS BEING DELIVERED IN THE STATE OF NEW YORK. THIS GUARANTY, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORCE, 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). 8.5 Successors and Assigns. This Guaranty shall be binding upon the Guarantor and his heirs, executors, estate, successors and assigns. This Guaranty shall inure to the benefit of Lessor and its successors and assigns. Guarantor shall not assign this Guaranty or any of the rights or obligations of Guarantor hereunder without the prior written consent of Lessor. The terms and provisions of this Guaranty shall inure to the benefit of any assignee or transferee of Lessor's interest in the Lease, and in the event of such transfer or assignment, the rights and privileges herein conferred upon Lessor shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. 8.6 consent to Jurisdiction: Waiver of Immunities. Guarantor hereby irrevocably submits to the jurisdiction of any state or federal court of competent jurisdiction in the State of New York in any action or proceeding arising out of or relating to this Guaranty, and Guarantor hereby irrevocably agrees chat all claims in respect of such action or proceeding may be heard and determined in such New York state or federal court. Guarantor hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. Guarantor hereby irrevocably appoints Samuel F. Ottensoser, Esq., Baer, Marks & Upham, 805 Third Avenue, New York, New York 10022, as its agent to receive on behalf of Guarantor and his property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mail or delivering a copy of such process to Guarantor in care of the agent named above, and Guarantor hereby irrevocably authorizes and directs such agent to accept such service on his behalf. As an alternative method of service, Guarantor also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to Guarantor at his address as specified in the Lease. 8.7 No Other Writing. This writing is intended by the parties as the final expression of this Guaranty and is also intended as a complete and exclusive statement of-the terms of their agreement. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms. 8.8 Further Assurances. Guarantor agrees that at any time and from time to time, at the expense of Guarantor, Guarantor will promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or desirable, or that Lessor may request, in order to effect fully the purposes of this Guaranty or to enable Lessor to exercise and enforce its rights and remedies hereunder. IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the date first above written. By: /s/ LOUIS J. PEARLMAN __________________________________ LOUIS J. PEARLMAN EX-10 13 EXHIBIT 10.79 GUARANTY This Guaranty is delivered as of June 2, 1995 by TRANS CONTINENTAL AIRLINES, INC., a Florida corporation ("Guarantor"), in favor of ORIX USA CORPORATION, a Delaware Corporation ("Lessor"). RECITALS A. AIRSHIP INTERNATIONAL LTD., a New York corporation ("Lessee"), and Lessor have entered into an Amended and Restated Lease Agreement in the form of a Conditional Sales Agreement dated as of the date hereof (the "Lease") for the lease of a 600 Series Skyship. B. It is a condition to the making of the Lease that Lessee's Obligations be guarantied by Guarantor. C. Guarantor is willing irrevocably and unconditionally to guaranty the Obligations of Lessee pursuant to the terms of this Guaranty. NOW, THEREFORE, based upon the foregoing and other good and valuable consideration, the receipt and sufficiency, of which are hereby acknowledged, and in order to induce Lessor to enter into the Lease, Guarantor hereby agrees with Lessor as follows: SECTION 1. DEFINITIONS 1.1 Certain Defined Terms. As used in this Guaranty, the following terms shall have the following meanings, unless the context otherwise requires: "Airship" means the Gondola, the Envelope, the Engines and Propellers all as more specifically described in the Lease Supplement dated the date hereof for the Airship together with the equipment, components, written materials, data and accessories installed thereon or delivered therewith, including the Buyer Furnished Equipment, the Night Sign, the Spare Equipment and any replacements and substitutions thereof as permitted under the Lease. "Guaranty" means this Guaranty of Guarantor, as it may be amended, modified or supplemented. "Obligations" has the meaning assigned to that term in subsection 2.1. "Payment in full", "paid in full" or any such similar term means payment in full of the Obligations including, without limitation, all principal, interest, costs, fees and expenses (including, without limitation, legal fees and expenses) of Lessor as required under the Lease. All capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms in the Lease. SECTION 2. THE GUARANTY 2.1 Guaranty of the Obligations. Guarantor hereby irrevocably and unconditionally guaranties the due and punctual payment in full and performance otherwise of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, acceleration, demand or otherwise. The word "Obligations" includes: (a) all obligations of Lessee arising out of the Lease; (b) any and all other agreements, indebtedness, fees, costs, expenses (including, without limitation, legal fees and expenses of counsel), indemnities and liabilities of Lessee now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, whether due or not due, and however arising out of the Lease whether recovery upon such Obligations may be or hereafter become barred by any statute of limitations, or whether such obligations may be or hereafter become otherwise unenforceable; (c) an amount equal to interest on the foregoing monetary amounts (including any interest that would have accrued but for the commencement of a case or proceeding under the federal bankruptcy laws) at the Overdue Rate as defined in the Lease; (d) those expenses set forth in Section 7 hereof, and (e) all or any portion of the foregoing Obligations that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Lessor as a preference, fraudulent transfer or otherwise. 2.2 Liability of Guarantor. Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than indefeasible payment and performance in full of the Obligations. In furtherance of the foregoing, Guarantor agrees as follows: (a) This Guaranty is a guaranty of payment and performance and not of collectibility and is not conditional or contingent upon the genuineness, validity, regularity or enforceability of the Lease or the pursuit by Lessor of any remedies that it now has or may hereafter have under the Lease, at law, in equity or otherwise. 2 (b) Lessor may enforce this Guaranty upon the occurrence of an Event of Default under the Lease, notwithstanding (i) the existence of any dispute between Lessor and Lessee with respect to the existence of an Event of Default; (ii) any counterclaim, set-off or other claim which Lessee may allege against Lessor with respect thereto; or (iii) any defect in the title compliance with specifications, condition, design, operation or fitness for use of, or any damage to or loss or destruction of, or any redelivery, repossession, surrender or other interruption or cessation in the use of, the Airship by the Lessee or any other person for any reason whatsoever (including, without limitation, any governmental prohibition or restriction, condemnation, requisition, seizure or any other act on the part of any governmental or military authority, or any act of God or of the public enemy) regardless of the duration thereof (even though such duration would otherwise constitute a frustration of a lease), whether or not resulting from accident and whether or not without fault on the part of the Lessee or any other person. (c) The obligations of Guarantor hereunder are independent of the obligations of Lessee under the Lease, and a separate action or actions may be brought and prosecuted against Guarantor whether or not any action is brought against Lessee or whether or not Lessee is joined in any such action or actions. Guarantor's liability under this Guaranty shall not be reduced by virtue of any partial payment or other performance by Lessee of any amount due or obligation owing under the Lease, except to the extent of any such payment that is not avoided or recovered directly or indirectly from Lessor as a preference, fraudulent transfer or otherwise, or by recourse to any collateral or security. (d) Guarantor's payment or performance of a portion, but not all, of the Obligations shall in no way limit, affect, modify or abridge Guarantor's liability for that portion of the Obligations which is not paid or performed. Without limiting the generality of the foregoing, if Lessor is awarded a judgment in any suit brought to enforce Guarantor's covenant to pay or perform a portion of the Obligations, such judgment shall not be deemed to release Guarantor from its covenant to pay or perform the portion of the Obligations that is not the subject of such suit. (e) Lessor, upon such terms as it deems appropriate, without notice or demand and without affecting Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate or otherwise change the time, place, manner or terms of payment or performance of the Obligations; (ii) settle, compromise, release, discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Obligations or any agreement relating thereto and/or subordinate the payment of the same to payment of other obligations; (iii) take and hold security for the payment or performance of this Guaranty or the Obligations, and enforce any such security consistent with any applicable security agreement; (iv) release, surrender, exchange, compromise, settle, rescind, waive, subordinate or modify, any security for payment or performance of the Obligations, any other guaranties of the 3 Obligations, or any other obligation of any Person with respect to the obligations; (v) elect to abstain from repossessing the Airship or taking advantage of or realizing upon any security interests or other guaranty; (vi) elect to repossess the Airship or to foreclose on any security held by or for the benefit of Lessor by one or more judicial or nonjudicial sales or exercise any other right or remedy Lessor may have against Lessee, the Airship or any security, even though any such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of Guarantor against Lessee or any security for the Obligations; (vii) re-lease or sell the Airship or apply any security and direct the order or manner of sale thereof as Lessor in its discretion may determine consistent with the Lease and any applicable security agreement; (viii) release or substitute any one or more endorsers or guarantors of the Obligations; and (ix) exercise any rights available to it under the Lease. (f) This Guaranty shall be valid and enforceable and shall not be impaired or affected by the occurrence of any of the following, whether or not Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to enforce or agreement not to enforce, or the stay or enjoining by order of court, by operation of law or otherwise, of the exercise of, any right, power or remedy with respect to the Obligations or any agreement relating thereto, or with respect to any security for the payment or performance of the obligations; (ii) any amendment or waiver, whether or not in accordance with the terms of the Lease, of any right, power or remedy or of any default with respect to the Obligations or any agreement relating thereto, or with respect to any security for the Obligations; (iii) the obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the payment of indebtedness other than the obligations), even though Lessor might have elected to apply such payment to any part or all of the Obligations; (v) Lessor's acceptance of new or additional documents, instruments or agreements relating to the Obligations; (vi) Lessor's consent to the change, reorganization or termination of the corporate structure or existence of Lessee and to any corresponding restructuring of the Obligations; (vii) any failure to perfect or continue perfection of a security interest in any collateral; and (viii) any defenses which Lessee may assert on the underlying indebtedness or agreements. 2.3 Waivers by Guarantor. Guarantor hereby waives for the benefit of Lessor: (a) any right to require Lessor, as a condition of payment or performance by Guarantor to (i) proceed against Lessee or any other Person, (ii) proceed against or exhaust any security held from Lessee, or any other Person, or (iii) pursue any other remedy in the power of Lessor whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Lessee including, without limitation, any defense based 4 on or arising out of the lack of validity or the unenforceability of the Obligations or any agreement or instrument relating thereto or by reason of the cessation from any cause of the liability of Lessee other than indefeasible payment and performance in full of the Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal, or based upon Lessor's errors or omissions in the administration of the Obligations, except behavior which amounts to bad faith; (d) any (i) principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty, any legal or equitable discharge of its obligations hereunder and the benefit of any statute of limitations affecting its liability hereunder or the enforcement hereof, (ii) rights to set-offs, recoupments and counterclaims, (iii) rights to deferral or modification of Guarantor's obligations hereunder by reason of any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, (iv) promptness, diligence and any requirement that Lessor protect, secure, perfect or insure any security interest or lien or any property subject thereto, or exhaust any right or take any action against Lessee, any other Person, the Airship or any collateral; and (e) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Guaranty, notices of default under the Lease or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Obligations or any agreement related thereto, notices of any other extension of credit to Lessee and notices of any of the matters referred to in Section 2.2 and any right to consent to any thereof. 2.4 Subrogation. Until the Obligations shall have been indefeasibly paid and performed in full, Guarantor shall withhold exercise of (a) any right of subrogation, (b) any right to enforce any remedy which Lessor now has or may hereafter have against Lessee, (c) any right of contribution Guarantor may have against any other guarantor of any of the Obligations under any other guaranty relating to the Lease, or (d) any benefit of, and any right to participate in, (i) any sale or re-lease of the Airship or (ii) any security now or hereafter held by Lessor; provided, however, that once the Obligations have been indefeasibly paid and performed in full Guarantor shall be entitled to exercise any right of subrogation available to it against Lessee. 2.5 Subordination of Other Obligations. Any indebtedness of Lessee for borrowed money now or hereafter held by Guarantor and any right of Guarantor to subrogation against Lessee, shall in all respects be subordinated in right of payment to the Obligations, and in the event Lessee shall default in the payment or performance of the obligations, any indebtedness of Lessee to Guarantor collected or received by Guarantor shall be held in trust for Lessor and shall be paid over to Lessor. 5 2.6 Bankruptcy. The obligations of Guarantor under this Guaranty shall not be altered, limited or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Lessee or by any defense which Lessee may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. Guarantor acknowledges and agrees that any interest on the obligations which accrues after the commencement of any such proceeding (or, if interest on any portion of the obligations ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on any such portion of the Obligations if said proceedings had not been commenced) shall be included in the Obligations because it is the intention of the parties that the Obligations which are guaranteed by Guarantor pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve Lessee of any portion of such obligations. SECTION 3. REPRESENTATIONS AND WARRANTIES In order to induce Lessor to accept this Guaranty and enter into the Lease, Guarantor hereby represents and warrants to Lessor that the following statements are true and correct: 3.1 Existence. Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, has the power to own its assets and to transact the business in which it is now engaged and is qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except for failure to be so qualified, authorized or licensed that would not in the aggregate have a material adverse effect on the business, operations, assets or financial condition of Guarantor. 3.2 Authorization; Enforceable Obligations. Guarantor has the power, authority and legal right to execute, deliver and perform this Guaranty on the terms and conditions hereof and has taken all necessary action to authorize its Guaranty hereunder on the terms and conditions hereof and its execution, delivery and performance of this Guaranty and all obligations required hereunder. No consent of any other Person including, without limitation, stockholders and creditors of Guarantor, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by Guarantor in connection with this Guaranty or the execution, delivery, performance, validity or enforceability of this Guaranty and all obligations required hereunder. This Guaranty has been, and each instrument or document required hereunder will be, duly executed and delivered by a duly authorized officer of Guarantor, and this Guaranty constitutes, and each instrument or document required hereunder when executed and delivered hereunder will constitute, the legal, valid and binding obligation of Guarantor enforceable against Guarantor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and subject, as to enforceability to general principles of equity, regardless of whether enforcement is sought in equity or at law. 6 3.3 No Legal Bar to this Guaranty. The execution, delivery and performance of this Guaranty and the documents or instruments required hereunder, will not violate any provision of any existing law or regulation binding on Guarantor, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding on Guarantor, or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which Guarantor is a party or by which Guarantor or any of its assets may be bound, or of the Certificate of Incorporation or By-Laws of Guarantor, the violation of which would have a material adverse effect on the assets or financial condition of Guarantor and will not result in, or require, the creation or imposition of any lien on any of its property, assets or revenues pursuant,to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking. SECTION 4. ADDITIONAL COVENANTS. So long as Guarantor may be obligated to perform or make any payment hereunder, Guarantor will duly perform and observe the following covenants and agreements. 4.1 Corporate Existence, Etc. Guarantor will at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to its business. 4.2 Restriction on Fundamental Changes. Guarantor will not enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), discontinue its business or convey, sell, transfer or otherwise dispose of, in one transaction or in a series of transactions, all or any substantial part of its business or property, whether now or hereafter acquired. 4.3 Periodic Information. Guarantor will furnish to Lessor: (i) within 90 days after the end of each fiscal year of Guarantor, annual financial statements of Guarantor certified by Cohen & Siegel or independent certified public accountants of recognized national standing selected by Guarantor 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 Guarantor; (iii) from time to time, such other information regarding the business and properties or the condition, financial or otherwise, of Guarantor as Lessor may reasonably request. 4.4 Consents. Guarantor will promptly obtain from time to time any and all such consents, approvals, licenses and authorizations and make any and all such filings and registrations as shall now or hereafter be required under applicable law and regulations for the making and performance by Guarantor of this Guaranty and will promptly furnish copies thereof to Lessor. 7 4.5 Compliance with Laws. Guarantor will comply with the requirements of all applicable laws, rules, regulations and orders of any governmental agency or authority having jurisdiction other than requirements being contested in good faith and by proper proceedings, provided that such noncompliance is not in any event likely to result in any material adverse effect on Guarantor. 4.6 Taxes. Guarantor will pay and discharge airy and all taxes, assessments and governmental charges or levies imposed upon it or on its income or profits or on any of its property or assets prior to the date on which penalties attach thereto, except that Guarantor shall not be required to pay any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings. 4.7 Notice. Guarantor will promptly give notice in writing to Lessor of any material adverse change in Guarantor's financial condition or Guarantor's ability to perform this Guaranty. SECTION 5. LESSOR MAY PERFORM. If Guarantor fails to perform any agreement contained herein, Lessor may itself perform, or cause performance of, such agreement, and. the expenses of Lessor incurred in connection therewith shall be payable by Guarantor under Section 7. SECTION 6. RIGHTS CUMULATIVE. The rights, powers and remedies given to Lessor by this Guaranty are cumulative and shall be in addition to and independent of all rights, powers and remedies given to Lessor by virtue of any statute or rule of law or in the Lease. Any forbearance or failure to delay by Lessor in exercising any right, power or remedy hereunder shall not preclude the further exercise thereof. SECTION 7. EXPENSES. Guarantor agrees to pay, or cause to be paid, and to save Lessor harmless against liability for its reasonable out-of-pocket expenses (including fees and expenses of its respective counsel), incurred or expended in connection with the enforcement of or preservation of rights under this Guaranty. SECTION 8. MISCELLANEOUS 8.1 Survival of Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Guaranty, and the execution and delivery of the Lease. 8.2 Severability. The illegality or unenforceability of any provision of this Guaranty or any instrument or agreement contemplated hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Guaranty or any instrument or agreement contemplated hereunder. In case any provision in or obligation under this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of such provision or obligation or of the remaining provisions or 8 obligations in any other jurisdiction shall not in any way be affected or impaired thereby. 8.3 Headings. Section and subsection headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect. 8.4 Applicable Law. THIS GUARANTY IS BEING DELIVERED IN THE STATE OF NEW YORK. THIS GUARANTY, 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). 8.5 Successors and Assigns. This Guaranty shall be binding upon the Guarantor and its successors and assigns. This Guaranty shall inure to the benefit of Lessor and its successors and assigns. Guarantor shall not assign this Guaranty or any of the rights or obligations of Guarantor hereunder without the prior written consent of Lessor. The terms and provisions of this Guaranty shall inure to the benefit of any assignee or transferee of Lessor's interest in the Lease, and in the event of such transfer or assignment, the rights and privileges herein conferred upon Lessor shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. 8.6 Consent to Jurisdiction; Waiver of Immunities. Guarantor hereby irrevocably submits to the jurisdiction of any state or federal court of competent jurisdiction in the State of New York in any action or proceeding arising out of or relating to this Guaranty, and Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York state or federal court. Guarantor hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. Guarantor hereby irrevocably appoints Samuel F. Ottensoser, Esq., Baer Marks & Upham, 805 Third Avenue, New York, New York 10022, as its agent to receive on behalf of Guarantor and its property service of copies of the summons and complaint and any other process which may be served in any such action or proceeding. Such service may be made by mail or delivering a copy of such process to Guarantor in care of the agent named above, and Guarantor hereby irrevocably authorizes and directs such agent to accept such service on its behalf. As an alternative method of service, Guarantor also irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to Guarantor at its address as specified in the Lease. 8.7 No Other Writing. This writing is intended by the parties as the final expression of this Guaranty and is also intended as a complete and exclusive statement of the terms of their agreement. No course of dealing, course of performance or trade usage, and no parol.evidence of any nature, shall be used to supplement or modify any terms. 9 8.8 Further Assurances. Guarantor agrees that at any time and from time to time, at the expense of Guarantor, Guarantor will promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or desirable, or that Lessor may request, in order to effect fully the purposes of this Guaranty or to enable Lessor to exercise and enforce its rights and remedies hereunder. IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the date first above written. TRANS CONTINENTAL AIRLINES, INC. By: /s/ LOUIS J. PEARLMAN _________________________________ Name: _________________________________ Title: President _________________________________ 10 EX-10 14 EXHIBIT 10.80 AIRCRAFT LEASE AGREEMENT dated as of May 31, 1995 between TRANS CONTINENTAL LEASING, INC., as Lessor and AIRSHIP INTERNATIONAL LTD., as Lessee True Lease of One (1) 1991 Airship Industries Series 500HL Skyship Registration Number N50lLP, Manufacturer's Serial Number 1214-04 CERTAIN RIGHTS OF THE LESSOR UNDER THIS AIRCRAFT LEASE AGREEMENT AND IN THE AIRCRAFT COVERED HEREBY HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF PHOENIXCOR, INC. UNDER A LOAN AND SECURITY AGREEMENT, DATED AS OF MAY 31, 1995. THE ONE AND ONLY ORIGINAL OF THIS AIRCRAFT LEASE AGREEMENT IS MARKED "ORIGINAL" AT THE TOP OF THIS PAGE AND SHALL CONSTITUTE THE ONLY CHATTEL PAPER ORIGINAL HEREOF FOR THE PURPOSES OF ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE. EACH OTHER SIGNED VERSION IS MARKED "DUPLICATE." TABLE OF CONTENTS 1. AGREEMENT TO LEASE; TERM . . . . . . . . . . . . . . . . 1 2. RENT; NET LEASE . . . . . . . . . . . . . . . . . . . . 1 3. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS . . . 3 4. FINANCIAL INFORMATION; FURTHER ASSURANCES . . . . . . . 6 5. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . 6 6. DELIVERY; INSPECTION AND ACCEPTANCE BY LESSEE . . . . . 10 7. IDENTIFICATION OF AIRCRAFT . . . . . . . . . . . . . . 10 8. REGISTRATION, USE AND MAINTENANCE . . . . . . . . . . . 10 9. DISCLAIMER OF WARRANTIES. . . . . . . . . . . . . . . . 13 10. FEES AND TAXES . . . . . . . . . . . . . . . . . . . . 14 11. INTENT; TITLE; GRANT OF SECURITY INTEREST IN ANHEUSER BUSCH COLLATERAL. . . . . . . . . . . . . . . . . . . . 16 12. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . 18 13. LOSS AND DAMAGE . . . . . . . . . . . . . . . . . . . . 20 14. REDELIVERY. . . . . . . . . . . . . . . . . . . . . . . 23 15. RESERVED. . . . . . . . . . . . . . . . . . . . . . . . 25 16. RESERVED. . . . . . . . . . . . . . . . . . . . . . . . 26 17. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . 26 18. DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . 27 19. ASSIGNMENT BY LESSOR AND LESSEE . . . . . . . . . . . . 31 20. QUIET POSSESSION . . . . . . . . . . . . . . . . . . . 32 21. LESSOR'S RIGHT TO PERFORM FOR LESSEE. . . . . . . . . . 32 22. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . 33 23. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 33 24. CONNECTICUT LAW GOVERNS; JURISDICTION . . . . . . . . . 34 25. TRUE LEASE. . . . . . . . . . . . . . . . . . . . . . . 34 26. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . 34 27. TRUTH-IN-LEASING. . . . . . . . . . . . . . . . . . . . 35 i AIRCRAFT LEASE AGREEMENT THIS AIRCRAFT LEASE AGREEMENT (this "Lease Agreement") is made as of the 31st day of May, 1995, by and between TRANS CONTINENTAL LEASING, INC., a New York corporation ("Lessor"), as lessor, and AIRSHIP INTERNATIONAL LTD., a New York corporation ("Lessee"). Lessee desires to sell to and lease back from Lessor the Aircraft (as defined in Section 1 of this Lease Agreement); Lessor is willing to purchase from Lessee the Aircraft and lease to Lessee the Aircraft pursuant to the terms and conditions herein. Lessor intends to borrow the purchase price of the Aircraft from Phoenixcor, Inc. (together with its successors and assigns, "Lender") pursuant to a Loan and Security Agreement or even date herewith (the "Loan Agreement") between Lender, as lender, and Lessor, as borrower. The loan to be made by Lender to Lessor pursuant to the Loan Agreement shall be evidenced by Lessor's Promissory Note ("Note") dated the Closing Date (as defined in Section 5) in an original principal amount equal to the loan made by Lender to Lessor on such date. In order to secure its obligations under the Loan Agreement, the Note and the other documents executed and delivered by Lessor in connection therewith, Lessor has granted and assigned to Lender, among other things, a first priority security interest in the Aircraft and all of its right, title and interest in, to and under the Lease (as defined in Section 1.1), and certain other collateral described therein, pursuant to the terms and conditions of the Loan Agreement ("Lender's Lien"). NOW, THEREFORE, in consideration of the mutual agreements herein contained, and such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. AGREEMENT TO LEASE; TERM. 1.1 AGREEMENT TO LEASE. The parties agree that on the Closing Date Lessee shall lease from Lessor, the property, together with all components, parts, additions, accessions and attachments incorporated therein (collectively referred to as the "Aircraft") described in the Equipment Schedule to be executed pursuant hereto (the "Equipment Schedule", and collectively with this Lease Agreement, "the Lease" or "this Lease"), subject to the terms and conditions set forth in the Equipment Schedule and herein. All capitalized terms used without definition herein shall HAVE THE MEANINGS PROVIDED FOR SUCH CAPITALIZED TERMS IN THE Equipment Schedule. 1.2 TERM. THE TERM OF THIS LEASE WITH RESPECT TO ANY item comprising the Aircraft ("Item") shall consist of the term set forth in the Equipment Schedule; provided, however, that THIS LEASE Agreement shall be effective from and after the date of execution hereof. 2. RENT; NET LEASE. 2.1 RENT. Lessee shall pay Lessor rent for the Aircraft in the aggregate amounts specified in Section 3 of the Equipment Schedule (the "Base Rent" or "rent") and all other amounts due hereunder, without any deduction or setoff and without prior notice or demand, promptly as such rent and other amounts shall become due and owing. 2.2 NET LEASE. This is a non-cancelable net lease, and Lessee shall not be entitled to any abatement or reduction of rent or any other amounts due hereunder for any reason. Without limiting the foregoing, Lessee's obligation to pay rent and any other amounts due hereunder, and to otherwise perform its obligations under the Lease, are and shall be absolute and unconditional until this Lease terminates in accordance with its terms and shall not be affected by any circumstances, including: (a) any setoff, counterclaim, recoupment, deduction, defense or other right which Lessee may have against Lessor, Lender, any holder of the Note, the manufacturer or vendor of the Aircraft, or anyone else for any reason whatsoever; (b) any defect in the title, or other ownership interests, condition, design, operation, merchantability or fitness for use of the Aircraft; (c) the existence of any liens, with respect to the Aircraft, whether or not resulting from claims against Lessor not related to the ownership of the Aircraft or Lender not related to the Lender's Lien; (d) any loss, destruction or contamination of, or damage to, the Aircraft or any interruption or cessation in the use or possession thereof for any reason whatsoever and of whatever duration; (e) the invalidity or unenforceability of the Lease, any of the Operative Documents (as hereafter defined in this Section 2.2) or any other infirmity therein or any lack of power or authority of Lessor, Lessee, Lender or any other person to enter into the Lease or any Operative Document; (f) any insolvency, bankruptcy, reorganization or similar proceedings by or against Lessee, Lessor, Lender or any other person; or (g) any other circumstances, happenings or events whatsoever, whether or not similar to any of the foregoing. For the purposes of the Lease, the term "Operative Documents" shall mean the Loan Agreement, the Note, the Individual Guaranty of even date herewith by Louis J. Pearlman in favor of Lender, the Corporate Guaranty of even date herewith by Trans Continental Airlines, Inc. in favor of Lender, all Lease Documents and each other document, instrument or certificate executed and delivered in connection with the Loan Agreement, the Lease and the transactions contemplated thereby. 2.3 MANNER OF PAYMENT. Rent is payable as and when specified in the Equipment Schedule by wire transfer of immediately available funds to Lender's Account No. 52-40409 at First Chicago National Bank, Chicago, Illinois, ABA Routing No. 071-000-013, or 2 by mailing the same to Lender at 65 Water Street, South Norwalk, Connecticut 06854 or at such other address as Lender shall from time to time designate in writing to Lessee; and shall be effective upon receipt. All rent and any other amounts due hereunder shall be payable directly to Lender until Lessee shall have received notice from Lender that the Lender's Lien has been discharged, after which date all payments of rent due shall be paid to Lessor at its payment address provided below its signature hereto or at such other address as Lessor may direct by notice in writing to Lessee. 2.4 LATE CHARGES. Time is of the essence. If any payment due hereunder is not paid on the due date, Lessor may collect, and Lessee agrees to pay, a charge calculated as the product of the Late Charge Rate (as such term is defined in the Equipment Schedule) and the amount in arrears for the period such amount remains unpaid (or such lesser amount as may be permitted by law). 2.5 SUFFICIENCY. Notwithstanding any provision to the contrary in this Lease or in any of the other Lease Documents, in all events any computation of Base Rent, Stipulated Loss Value or monetary damages payable pursuant to Section 18.2 hereof, including without limitation any liquidated damages (all such monetary damages, "Lease Damages") shall provide for payment in respect of Base Rent, Stipulated Loss Value or Lease Damages, as the case may be, on any date on which payment thereof is due, in an amount (and in any event the amount of any such payment due by Lessee hereunder shall in all cases be not less than an amount) which is at least sufficient to pay in full, as of such date, any payments of principal, interest, premium, acceleration fee and other Indebtedness (as defined in the Loan Agreement) then required to be made in respect of the Note and the Loan Agreement. 3 . LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Lessee represents, warrants and covenants that: 3.1 DUE ORGANIZATION. Lessee is a corporation duly organized and validly existing in good standing under the laws of the state of its incorporation, has the full corporate power and authority to carry on its business as currently conducted, and has full power and authority to hold property under lease and to enter into, and to perform its obligations under, this Lease Agreement, the Equipment Schedule and each other document, instrument or certificate to which it is a party, including without limitation, those referenced in Section 5.1 hereof (collectively, the "Lease Documents"). Lessee is in good standing as a foreign corporation in each jurisdiction where failure to so qualify would have a material adverse effect on Lessee, Lessee's business or financial condition or its ability to perform and comply with the provisions of the Lease Documents. Lessee is and will continue to be a "citizen of the United States" within the meaning of 49 U.S.C. 40102(a)(15). 3 3.2 DUE AUTHORIZATION ETC. The execution, delivery and performance of the Lease and the other Lease Documents, (a) have been duly authorized by all necessary corporate action on the part of Lessee; (b) do not require the consent of any stockholder, trustee or holders of any indebtedness of Lessee except such as have been duly obtained; and (c) do not and will not contravene any law, governmental rule, regulation or order now binding on Lessee, or the charter or by-laws of Lessee, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Lessee under, any indenture, mortgage, contract or other agreement to which Lessee is a party or by which it or its property is bound. 3.3 NO CONSENT. Neither the execution and delivery by Lessee of the Lease and all of the other Lease Documents, nor the consummation of any of the transactions by Lessee contemplated hereby or thereby, nor the establishment or perfection of the right, title or interest of Lessor under the Lease or in and to the Aircraft, requires the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any Federal, state or foreign governmental authority or agency, except as further provided herein. 3.4 ENFORCEABLE. The Lease and all other of the other Lease Documents, when entered into, will constitute legal, valid and binding obligations of Lessee enforceable against Lessee, in accordance with the terms hereof and thereof. 3.5 NO PENDING ACTION ETC. (a) There are no pending actions or proceedings to which Lessee is a party, and there are no other pending or threatened actions or proceedings of which Lessee has actual knowledge, before any court, arbitrator or administrative agency, and there are no final judgments of record against Lessee of which Lessee has actual knowledge, which, either individually or in the aggregate, would materially adversely affect the financial condition of Lessee, or the ability of Lessee to perform its obligations under the Lease or under the other Lease Documents; (b) Lessee is not in default under any material obligation for the payment of borrowed money, for the deferred purchase price of property or for the payment of any rent which, either individually or in the aggregate, would have the same such effect nor is Lessee in violation of any law, order, injunction, decree, rule or regulation applicable to Lessee of any court or administrative body, which violation would materially and adversely affect the financial condition of Lessee; and (c) no event has occurred and is continuing which, under the provisions of any indenture, mortgage, loan agreement or other material agreement or instrument, with the lapse of time or the giving of notice, or both, would constitute a default thereunder which, either individually or in the aggregate, would materially adversely affect Lessee's ability to perform its obligations hereunder. 4 3.6 ERISA. Lessee is not entering into the Lease or the transaction contemplated hereby, directly or indirectly in connection with any arrangement or understanding by it in any way involving any employee benefit plan (other than a governmental plan) with respect to which it is a party in interest, all within the meaning of the Employee Retirement Income Security Act of 1974, as amended. 3.7 FINANCIAL STATEMENTS. The financial statements of Lessee (copies of which have been furnished to Lessor) have been prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), and accurately and completely present Lessee's financial condition in all material respects and the results of its operations in all material respects as of the date of and for the period covered by such statements, and since the date of such statements there has been no material adverse change in such conditions or operations. 3.8 CHIEF EXECUTIVE OFFICE. The address stated below the signature of Lessee is the chief place of business and chief executive office (as either of such terms is used in Article 9 of the Uniform Commercial Code of Florida) of Lessee and Lessee agrees to give Lessor and Lender prior written notice of any relocation of said chief executive office or chief place of business from its present location. Lessee does not conduct business under a trade, assumed or fictitious name. 3.9 SALE-LEASEBACK. The Full Warranty Bill of Sale of even date herewith (the "Warranty Bill of Sale") from Lessee to Lessor transfers to Lessor valid title to the Aircraft and the equipment described therein free and clear of any and all encumbrances, liens, charges or defects. No filing or recordation must be made, no notice must be given, and no other action must be taken with respect to any state or local jurisdiction, or any person, in order to preserve to Lessor all the rights transferred by the Warranty Bill of Sale. 3.10 ANHEUSER BUSCH COLLATERAL. (a) The Anheuser Busch Contract (as defined in Section 5.1.11) has been duly and validly authorized, executed and delivered by Lessee and Anheuser; is in full force and effect with respect to Lessee and Anheuser; and constitutes legal, valid and binding obligations of Lessee and Anheuser, enforceable against each such party by the other in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally, and by applicable laws (including any applicable common law and equity) and judicial decisions which may affect the remedies provided therein. (b) To Lessee's knowledge, no default or event which, with the giving of notice or lapse of time or both, would become a default, has occurred under the Anheuser Busch Contract. (c) The copy of the Anheuser Busch Contract delivered to Lessor pursuant to Section 5.1.11 hereof constitutes the entire agreement of the 5 parties with respect to the transactions evidenced thereby. (d) Lessee is the sole owner of, and has not heretofore assigned or pledged or caused, permitted or suffered to exist any lien, claim or encumbrance against, the Anheuser Busch Collateral (as defined in Section 11.4). (e) The Anheuser Busch Contract is not subject to any defense, claim, counterclaim, set-off or any right to cancellation or termination. (f) The grant of security interest in Section 11.4 hereof creates in favor of Lessor a first priority perfected security interest in the Anheuser Busch Collateral, effective against all persons; Lessor's rights as secured party pursuant to such grant were assigned to Lender pursuant to the Loan Agreement; and any filing, recordation or any other action or procedure permitted or required by law to perfect and give first priority to Lender's security interest in the Anheuser Busch Collateral has been accomplished. (g) Lessee has no knowledge of any facts impairing the value or validity of the Anheuser Busch Contract, any rights created thereby, the Anheuser Busch Collateral or this Lease. 4. FINANCIAL INFORMATION; FURTHER ASSURANCES. 4.1 FINANCIAL INFORMATION. Lessee will furnish Lessor (a) within ninety (90) days after the end of each fiscal year of Lessee, a balance sheet for Lessee as at the end of such year, and the related statement of income and statement of cash flows of Lessee, prepared in accordance with GAAP, all in reasonable detail and certified by independent certified public accountants of recognized standing selected by Lessee and reasonably acceptable to Lessor; (b) within sixty (60) days after the end of each quarter of each of Lessee's fiscal years, a balance sheet for Lessee as at the end of such quarter, and the related statement of income and statement of cash flows of Lessee, prepared in accordance with GAAP; and (c) within thirty (30) days after the date on which they are filed, all regular periodic reports, forms and other filings required to be made by Lessee to the Securities and Exchange Commission. 4.2 FURTHER ASSURANCES. Lessee promptly will execute and deliver to Lessor and Lender such further documents, instruments and assurances and take such further action as Lessor or Lender from time to time reasonably requests to carry out the intent and purpose of the Lease and the other Operative Documents and to establish and protect the rights and remedies intended to be created in favor of Lessor and Lender hereunder and thereunder. Lessee, forthwith upon delivery of the Aircraft under the Lease, shall cause the Aircraft to be duly registered, and at all times thereafter to remain duly registered, in the name of Lessor under Title 49 of the United States Code, as amended (such title, including all future amendments thereto, and any similar legislation of the United States enacted in substitution or replacement thereof, "Title 49"), and, subject to the Lender's Lien until discharged. 6 5. CONDITIONS PRECEDENT. Lessor's obligations hereunder and under the other Lease Documents are conditioned upon satisfaction of all of the following on the dates and in the manner provided below: 5.1 RECEIPT OF DOCUMENTS, ETC. Lessor having received the following, in form and substance satisfactory to Lessor prior to May 31, 1995, or on such other date mutually agreed to by the parties in writing as the closing date (the "Closing Date"), all dated as of such date (or by such other date provided for below): 5.1.1 Secretary's Certificate. Certificate of the Secretary or an Assistant Secretary of Lessee certifying: (a) resolutions of the Board of Directors or validly authorized Executive Committee of Lessee duly authorizing the sale and leasing of the Aircraft hereunder, the collateral assignment and grant of security interests hereunder and the execution, delivery and performance of the Lease and all related instruments and documents; and (b) the incumbency and signature of the officers of Lessee authorized to execute such documents. 5.1.2 Insurance. Evidence as to due compliance with the insurance provisions hereof. 5.1.3 UCCs. Uniform Commercial Code financing statements as required by Lessor. 5.1.4 Opinion of Lessee's Counsel. An opinion of counsel for Lessee as to each of the matters set forth in Sections 3.1 through 3.5 and 3.9, or in form otherwise acceptable to Lessor. 5.1.5 Chattel Paper. The chattel paper designated original of this Lease Agreement and the Equipment Schedule (marked as being the "Original" thereof). 5.1.6 FAA Opinions. Certain opinions by telephone on the Closing Date (with a letter to following after recordation) from Crowe & Dunlevy, P.C., special FAA counsel ("FAA Counsel") regarding the status of the title to the airframe comprising a portion of the Aircraft (the "Airframe") and each engine comprising a portion of the Aircraft (each, an "Engine"), the filing of the Lease Agreement and the Equipment Schedule and various other matters related thereto. 5.1.7 Bills of Sale. The Warranty Bill of Sale pursuant to which Lessee shall convey to Lessor good and marketable title to the Aircraft and the equipment described therein, free and clear of all claims, liens and legal processes (other than the rights of Lessee under the Lease); and such instruments and documents as reasonably may be required to permit registration of the Aircraft in the name of Lessor, including AC Form 8050-2 Aircraft Bill of Sale with respect to the Aircraft. Lessee shall also provide Lessor with copies of the bills of sale and other 7 evidence of its having acquired good title to the aircraft, and an assignment by Lessee to Lessor of all warranties provided by the vendor with respect thereto (and an acknowledgment of such assignment). 5.1.8 Airworthiness Certificate. Evidence that: (a) the Aircraft has been duly certified as to type and airworthiness by the Federal Aviation Administration ("FAA") and fully conforms to such type certificate; and (b) Lessee shall be operating the Aircraft pursuant to an operating certificate and appropriate operations specifications issued under Part 91 of the Federal Aviation Requlations. 5.1.9 Appraisal. A report from an appraiser selected by Lessor containing such information and opinions as Lessor deems appropriate. 5.1.10 Transaction Costs. An amount equal to all of the transaction costs incurred by Lessor and Lender in connection with this transaction, including without limitation, the costs of making the filings and recordings required hereunder (including, without limitation, the fees and disbursements of FAA Counsel and special counsel for each such party), which costs, Lessee hereby acknowledges and agrees, shall be the sole responsibility of, and paid to Lessor and Lender, respectively (or their respective designees, as the case may be) in good collected funds on such date by, Lessee; provided, however, with respect to any such costs that are accrued and/or invoiced after the Closing Date, Lessee shall remain responsible for and pay or reimburse Lessor or Lender, as applicable, for the same immediately upon receiving such person's written instructions, and in accordance therewith. 5.1.11 Anheuser Busch Contract. A copy of the Bud I Advertising Agreement dated March 12, 1992, as amended and restated on July 8, 1994, between Lessee and Anheuser Busch Companies, Inc. ("Anheuser") and any and all amendments, supplements or modifications thereto (as the same has or may at any time and from time to time be amended, supplemented or modified, the "Anheuser Busch Contract") certified by a duly authorized officer of Lessee as being a true, correct and complete copy thereof. 5.1.12 Notice, Acknowledgement and Agreement. A notice, acknowledgement and agreement executed and delivered by Anheuser, in form and substance satisfactory to Lessor, whereby, among other things, Anheuser acknowledges the collateral assignment and grant of security interest described in Section 11.4 of this Lease Agreement, the further assignment thereof by Lessor to Lender pursuant to the Loan Agreement, and Lessor's and Lender's respective rights relating thereto. 8 5.2 FAA AND OTHER FILINGS. The following shall have been complied with to Lessor's satisfaction on the dates set forth below: 5.2.1 Delivery to FAA Counsel. Two (2) manually executed original counterparts of this Lease Agreement and the Equipment Schedule, each marked as being the "Duplicate" thereof, shall have been delivered to FAA Counsel at least one (1) business day prior to the Closing Date. 5.2.2 Filings. On the Closing Date, such duplicate counterpart documents and all such other filings shall have been filed for recordation at the FAA and at such other appropriate filing offices, each in recordable form, and delivered together with all filing fees, recordation and other taxes and all other charges required to be paid as a condition to their being so filed and recorded. 5.2.3 Termination of Allstate Lien. A release of lien, in recordable form, executed and delivered by Allstate Financial Corporation ("Allstate") which releases all of Allstate's security interests, collateral assignments and any other rights, title or interests in, under and relating to the Aircraft and the Anheuser Busch Contract (including, without limitation, all proceeds thereof) and the execution and delivery of any other documents, agreements or instruments, including but not limited to, Uniform Commercial Code termination statements, that Lessor may request for the purpose of effectuating such release. 5.3 REPRESENTATIONS AND WARRANTS. The representations and warranties contained in Section 3 hereof being true and accurate on and as of the date hereof and the effective date of the Equipment Schedule as though made on and as of such dates, except to the extent that such representations and warranties expressly relate solely to an earlier date and Lessee's execution of such documents shall be deemed a certification by each such party of the foregoing. 5.4 OTHER CONDITIONS. Lessee shall have delivered any and all other documents, and complied with or caused to have been complied with any and all of the other requirements set forth in the closing memorandum prepared by Lender and distributed to Lessee and Lessor prior to the date on which the advance of the loan evidenced by the Note is anticipated. 6. DELIVERY; INSPECTION AND ACCEPTANCE BY LESSEE. Upon tender of delivery, Lessee shall cause an inspection of the Aircraft to be made and, if the same is found to be in good order Lessee shall accept delivery of the same and shall execute and deliver to Lessor the Equipment Schedule containing a complete description of each item comprising the Aircraft so delivered and accepted; whereupon, as between Lessor and Lessee, the same shall be deemed to have been finally accepted by Lessee pursuant to this Lease Agreement. 9 7. IDENTIFICATION OF AIRCRAFT. Lessee will cause the Aircraft to be continually marked, in a plain, distinct and conspicuous manner adjacent to the airworthiness certificate with (a) the name of Lessor followed by the words "Owner and Lessor", or other appropriate words designated by Lessor on a metal nameplate, and (b) until the Lender's Lien is discharged, the name of Lender followed by the words "Secured Party", or other appropriate words designated by Lender on a metal nameplate; with appropriate changes thereof and additions thereto as from time to time may be required in order to protect the title of Lessor to the Aircraft and Lessor's rights under this Lease, and the first priority security interest of the Lender's Lien on the Aircraft and Lender's rights under the Operative Documents. Lessee shall maintain and prominently display the "N" number specified on the Schedule of Aircraft attached to the Equipment Schedule. 8. REGISTRATION, USE AND MAINTENANCE. 8.1 REGISTRATION, USE AND MAINTENANCE. During the term of this Lease, Lessee, at its own cost and expense, shall (a) cause the Aircraft to be duly registered in the name of Lessor under the Title 49 and shall not register the Aircraft under the laws of any other country; (b) maintain, inspect, service, repair, overhaul and test the Aircraft and in accordance with (i) all maintenance manuals initially furnished with the Aircraft, including any subsequent amendments or supplements to such manuals issued by the manufacturer from time to time, (ii) all mandatory service bulletins with respect to the Aircraft issued, supplied or available by or through the manufacturer and/or the manufacturers of any engine or part, (iii) all airworthiness alerts and directives issued by the FAA or similar regulatory agency having jurisdictional authority, and as promptly as possible causing compliance with such airworthiness alerts and directives to be completed through corrective modification in lieu of operating manual restrictions, (iv) the manufacturer's approved maintenance program (as modified and supplemented from time to time); (c) maintain all records, logs and other materials required by the FAA, or any other governmental authority having jurisdiction, to be maintained in respect of the Aircraft or by the manufacturer thereof for enforcement of any warranties; (d) promptly furnish to Lessor such information as may be required to enable Lessor to file any reports required by any governmental authority as a result of Lessor's ownership of the Aircraft; (e) operate the Aircraft solely within the territory of the United States of America; (f) keep at appropriate levels under applicable government guidelines and pay for all oil, fuel and lubricants consumed by and required for the operation of the Aircraft; (g) make such alterations, modifications and additions to the Aircraft as may be required from time to time under any law, rule, or any airworthiness directive, or alert, regulation or order of the FAA, or other governmental authority having jurisdiction or mandatory service bulletin or similar notice issued by the manufacturer thereof; (h) comply with (i) all Federal Aviation Regulations ("FARs") and any amendments, supplements, or 10 changes thereto and all other governmental requirements, rules and regulations, within the applicable compliance period thereof, including all airworthiness directives promulgated or issued by the FAA and any other governmental authority having jurisdiction over the Aircraft or Lessee's operation thereof, (ii) the operating certificate and operation specifications specified in Section 5.1.8 and (iii) with all maintenance manuals (including any subsequent amendments or supplements to such manuals) issued by the manufacturer from time to time, and all service bulletins and similar notices issued or supplied by or available through the manufacturer of the Aircraft, engines or any part (a "Part"); (i) maintain corrosion control through its maintenance program and any supplemental inspection programs or directives established or issued by the manufacturer or the FAA; and (j) without limiting any of the requirements set forth in clauses (a) through (i) above, or otherwise under this Section 8, keep the Aircraft in at least as good condition as when delivered to Lessee hereunder (reasonable wear and tear from normal and proper use consistent with the terms of this Lease excepted), and in such condition as may be necessary to enable the airworthiness certificate of such Aircraft to be maintained in good standing at all times under Title 49. All maintenance procedures required herein shall be undertaken and completed in accordance with manufacturer's recommended procedures and applicable FARs and all other applicable laws, and only by properly trained, licensed, and certificated maintenance sources and maintenance personnel. Throughout the term of this Lease, the possession, use and maintenance of the Aircraft shall be at the sole risk and expense of Lessee and the Aircraft shall be based and properly hangared at the hangar location set forth in the Equipment Schedule. Lessee shall not attach or incorporate any Item to or in any other item of equipment in such a manner that such Item comprising the Aircraft becomes or may be deemed to have become an accession to or a part of such other item of equipment. 8.2 REPLACEMENTS AND ALTERATIONS. 8.2.1 Emplacements. Lessee, at its own expense, will within a reasonable time replace, or cause to be replaced, any and all Parts that from time to time become worn out, lost, destroyed, damaged beyond repair or otherwise permanently rendered unfit for use, or are removed pursuant to the terms of this Lease, including without limitation, the airship envelope being used as a part of the Aircraft on the Closing Date. In furtherance of the foregoing, Lessee agrees that it shall replace such airship envelope with the replacement airship envelope referenced in the Schedule of Equipment; and each of the original airship envelope and replacement airship envelope shall be deemed a "Part" for all purposes of this Lease. All such replacement Parts and/or accessories must be free and clear of all liens, encumbrances or rights of others (except, so long as the Lender's Lien shall not have been discharged, the Lender's Lien) and be in a condition and have a value and utility equal to the greater of (a) the Parts replaced or (b) the value, condition and utility of such replaced 11 Parts would have had if maintained in the condition and repair required by the terms hereof. All Parts at any time removed from the Aircraft shall remain the property of Lessor and subject to the Lender's Lien, 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 Aircraft and which meet the requirements for replacement Parts specified above. Immediately upon any replacement Part becoming incorporated or installed in or attached to the Aircraft as above provided, without further act, (i) title to the removed Part shall thereupon vest in Lessee, on an "as is, where is" and "with all faults" basis, 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 become subject to the Lender's Lien, and (iii) such replacement Part shall become subject to this Lease and be deemed part of the Aircraft, for all purposes hereof to the same extent as the Parts originally incorporated or installed in or attached to the Aircraft. Lessee agrees to prepare, execute and file, at its own expense, such documents as may be reasonably required to create, protect and/or perfect Lessor's ownership or other interest in any such replacement Part and the Lender's Lien in any such replacement Part. 8.2.2 Alterations. Except as provided in Section 8.4 hereof, Lessee shall not make any material alterations to the Aircraft without the prior written consent of Lessor, which consent shall not be unreasonably withheld; provided, however, that until the Lender's Lien has been discharged, any such material alterations shall require Lender's prior written consent. 8.3 INSPECTION. Upon reasonable advance notice, Lessor and Lender shall have the right to inspect the Aircraft and all logs, flight manuals, and maintenance records and any other books and records identified by Lessor and/or Lender with respect thereto, at any reasonable time during normal business hours; provided, that Lessor and Lender shall not have any duty to inspect and shall not incur any liability or obligation by reason of not making any such inspection. 8.4 COMPLIANCE WITH LAWS. Without limiting the generality of Section 8.l hereof, Lessee agrees that the Aircraft will be maintained, used and operated in compliance with any and all statutes, laws, rules, ordinances, regulations and all directives and mandatory standards issued by any governmental agency applicable to the Aircraft. 9. DISCLAIMER OF WARRANTIES. 9.1 DISCLAIMER. LESSEE HEREBY ACKNOWLEDGES AND AGREES THAT: NEITHER LESSOR NOR LENDER IS A SELLER (AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE) NOR A SELLER'S AGENT, AND THE AIRCRAFT AND THE RIGHTS AND INTERESTS CONVEYED HEREIN WITH RESPECT THERETO ARE BEING CONVEYED AND DELIVERED TO LESSEE "AS IS" 12 AND "WHERE IS" WITHOUT ANY RECOURSE TO LESSOR OR LENDER, AND LESSOR AND LENDER HAVE NOT MADE, AND HEREBY DISCLAIM, LIABILITY FOR, AND LESSEE HEREBY WAIVES ALL RIGHTS AGAINST LESSOR AND LENDER RELATING TO, ANY AND ALL WARRANTIES, GUARANTIES, REPRESENTATIONS OR OBLIGATIONS OF ANY KIND WITH RESPECT TO THE AIRCRAFT (OR ANY PART), EITHER EXPRESS OR IMPLIED, ARISING BY APPLICABLE LAW (INCLUDING ANY ENVIRONMENTAL LAW) OR OTHERWISE, INCLUDING (a) ANY EXPRESS OR IMPLIED WARRANTIES, GUARANTIES, REPRESENTATIONS OR OBLIGATIONS OF OR ARISING FROM OR IN (i) MERCHANTABILITY OR FITNESS FOR PARTICULAR USE OR PURPOSE, (ii) COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, OR (iii) TORT (WHETHER OR NOT ARISING FROM THE ACTUAL, IMPLIED OR IMPUTED NEGLIGENCE OF LESSOR OR LENDER OR STRICT LIABILITY) OR UNDER THE UNIFORM COMMERCIAL CODE OR OTHER APPLICABLE LAW WITH RESPECT TO THE AIRCRAFT, INCLUDING ITS TITLE (INCLUDING ANY WARRANTY OF GOOD OR MARKETABLE TITLE OR FREEDOM FROM LIENS), FREEDOM FROM TRADEMARK, PATENT OR COPYRIGHT INFRINGEMENT, LATENT DEFECTS (WHETHER OR NOT DISCOVERABLE), CONDITION, MANUFACTURE, DESIGN, SERVICING OR COMPLIANCE WITH APPLICABLE LAW (INCLUDING ALL ENVIRONMENTAL LAWS) AND (b) ALL OBLIGATIONS, LIABILITIES, RIGHTS AND REMEDIES, HOWSOEVER ARISING UNDER ANY APPLICABLE LAW (INCLUDING ANY ENVIRONMENTAL LAW) WITH RESPECT TO THE MATTERS WAIVED AND DISCLAIMED, INCLUDING FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE EQUIPMENT, OR ANY LIABILITY OF LESSEE, LESSOR OR LENDER TO ANY THIRD PARTY, OR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (AS SUCH TERMS ARE USED IN THE UNIFORM COMMERCIAL CODE, OR OTHER APPLICABLE LAW), ALL SUCH RISKS, AS BETWEEN LESSOR, LENDER AND LESSEE, ARE TO BE BORNE BY LESSEE. 9.2 FURTHER ACKNOWLEDGEMENTS. Lessee further acknowledges and agrees that: Lessor has made the Aircraft available to Lessee for examination prior to Lessee's entering into the Lease, and demanded that Lessee inspect the Aircraft using a professional in the field of inspections pertaining to aircraft of this type, and Lessee has pursuant to such demand examined the Aircraft (using such an experienced inspector); the Aircraft was selected by Lessee on the basis of its own respective judgment; Lessee has not asked for, been given or relied upon any statements, representations, guaranties or warranties of Lessor; Lessor is not in the business of manufacturing or assembling aircraft (including the Aircraft) or otherwise in the business of being a vendor or supplier, but is instead in the business of providing financial accommodations including lease financing; and Lessor's agreement to enter into this Lease is in reliance upon the freedom from liability or responsibility for the matters waived and disclaimed herein. Without limiting the foregoing, disclaimers, acknowledgements and agreements, Lessor is not responsible or liable for any direct, indirect, incidental or consequential damage to or losses arising in connection with the Aircraft or any Part, including, without limitation, any of the same resulting from the manufacture, installation, operation, use, service, testing, inspection, alteration, modification or other undertaking with respect to the aircraft or any part thereof. 13 9.3 WARRANTIES. All assignable warranties made by the manufacturer or supplier to Lessor are hereby assigned to Lessee for and during the term of this Lease, subject to Lender's Lien and Lender's rights arising thereunder with respect to such warranties, and Lessee agrees to resolve all such claims directly with the manufacturer or supplier. Provided that Lessee is not then in Default (as hereinafter defined) hereunder, Lessor shall cooperate fully with Lessee with respect to the resolution of such claims, in good faith and by appropriate proceedings at Lessee's expense. Any such claim shall not affect in any manner the unconditional obligation of Lessee to make rent payments hereunder. 10. FEES AND TAXES. 10.1 INDEMNIFICATION. To the extent permitted by law and except as otherwise provided herein, Lessee shall file any necessary report and return for, shall pay promptly when due, shall otherwise be liable to reimburse Lessor and Lender (on an after-tax basis) for, and agrees to indemnify and hold Lessor and Lender harmless from: (a) all titling, recordation, documentary stamp and other similar fees; (b) taxes (other than Income Taxes as defined herein), including but not limited to sales, use and personal property taxes; and (c) assessments and all other charges or withholdings of any nature (other than Income Taxes as defined herein) (together with any penalties, fines or interest thereon); any and all of the foregoing, arising at any time upon or relating to the Aircraft, this Lease or any other Operative Document or with respect to the acquisition, ownership, use, operation, leasing, delivery, return or other disposition of the Aircraft, or upon the rentals payable hereunder, whether the same be assessed to Lessor, Lender or Lessee. 10.2 CONTESTS AND REFUNDS. If any report or return for, or property listing in connection with, or any, fee, tax or assessment described in Section 10.1 hereof ("Imposition") for which Lessee is responsible hereunder is, by law, required to be filed by, assessed or billed to, or paid by, Lessor or Lender, Lessee at its own expense will do any and all things required to be done by Lessor and/or Lender (to the extent permitted by law) in connection therewith and is hereby authorized by Lessor and/or Lender, as the case may be, to act on behalf of Lessor and/or Lender, as the case may be, in any and all respects, including (but not limited to), after obtaining the prior written consent of Lessor and/or Lender, as the case may be, (which shall not unreasonably be withheld), the contest or protest, in good faith and by appropriate proceedings, of the validity of any Imposition or the amount thereof. Lessor and Lender agree fully to cooperate with Lessee in any such contest, and Lessee agrees promptly to indemnify Lessor and/or Lender, as the case may be, for all reasonable expenses incurred by Lessor and/or Lender, as the case may be, in the course of such cooperation. A claim for an Imposition shall be paid, subject to refund proceedings, if failure to pay would adversely affect the title or rights of Lessor 14 hereunder or Lender under the Operative Documents. Provided that Lessee is not then in Default (or if such Default is subsequently cured, upon such cure), if Lessor or Lender, as the case may be, shall obtain a refund of any such Imposition which has been paid (by Lessee or, by Lessor and for which Lessor has been reimbursed by Lessee, or by Lender and for which Lender has been reimbursed by Lessor), Lessor or Lender, as the case may be, promptly shall pay such refund to Lessee. 10.3 OWNERSHIP. Lessee will cause all billings relating to such Impositions to Lessor to be made to Lessor in care of Lessee and will, in preparing any report or return required by law, show the ownership of the Aircraft in Lessor, and shall send a copy of any such report or return to Lessor. 10.4 LESSORS RIGHT TO PERFORM. If Lessee fails to pay any such charges when due, except any Imposition being contested in good faith and by appropriate proceedings as above provided, Lessor or Lender, as the case may be, at their option may do so, in which event the amount so paid (including any penalty or interest incurred as a result of Lessee's failure), plus interest thereon at the Late Charge Rate, shall be paid by Lessee to Lessor or Lender, as the case may be, with the next periodic payment of rent. 10.5 EXCLUSIONS. The provisions of Section 10.1 shall not apply: (a) to any Imposition imposed as a result of a voluntary transfer or disposition by Lessor or Lender, or their respective successors or assigns, of all or any portion of Lessor's equitable legal or equitable ownership interest or Lender's first priority security interest in the Aircraft, the Airframe, the Engines, any Item, this Lease or any Operative Documents, unless such transfer or disposition is being made pursuant to any provisions of this Lease (other than Section 19.2) or any Operative Document; or (b) to any Imposition that Lessee is contesting in good faith and permitted to do so by the provisions of this Lease until the conclusion of such contest; except, that Lessee's right to contest any Imposition and thereby avoid its obligation to pay any such Imposition, is conditioned upon such contest not involving any material danger of the sale, forfeiture or loss of the Aircraft (including the Airframe or any Engine or any material Part). 10.6 "INCOME TAX". For purposes of this Section 10, the term "Income Tax" means any tax based on or measured by or with respect to gross or net income (including, without limitation, capital gains taxes, minimum taxes, income taxes collected by withholding and taxes on tax preference items) or receipts (provided, however, that sales, use, rental, license, ad valorem or property taxes, or taxes imposed in lieu of such taxes, shall not constitute an Income Tax) and taxes that are capital, doing business, franchise, excess profits, net worth taxes or taxes imposed in lieu of an Income Tax, as well as any and all interest, additions to tax, penalties or other charges in respect thereof. 15 10.7 PERFORMANCE OF INDEMNITIES. Unless otherwise expressly provided, all payments to be made by Lessee under this Section 10 or Section 17 hereof or otherwise under the Operative Documents will be free of withholdings and of expense to Lessor, Lender or any Indemnitee for collection or other charges. Lessee's obligations under the indemnities provided for in this Lease shall be those of a primary obligor whether or not Lessor, Lender or any Indemnitee shall also be indemnified with respect to the same matter under the terms of any other agreement contemplated hereby, or any other document or instrument whether or not related to the transactions contemplated hereby, and the persons seeking indemnification from Lessee pursuant to any provisions of this Lease or the other Operative Documents may proceed directly against Lessee without first seeking to enforce any other right of indemnification. 11. INTENT; TITLE; GRANT OF SECURITY INTEREST IN ANHEUSER BUSCH COLLATERAL. 11.1 TRUE LEASE. It is the express intent of the parties that this agreement constitute a true lease and in no event shall this agreement be construed as a sale of the Aircraft. Title to the Aircraft shall at all times remain in Lessor, and Lessee shall acquire no ownership, title, property, right, equity, or interest in the Aircraft other than its leasehold interest solely as Lessee subject to all the terms and conditions hereof. The parties agree that this Lease is a "Finance Lease" as defined in Article 2A -- Leases of the Uniform Commercial Code as adopted in any applicable jurisdiction ("Article 2A"). Lessee acknowledges that Lessee has selected the Supplier (as defined in Article 2A) and directed Lessor to purchase the goods from the Supplier. To the extent permitted by applicable law, Lessee hereby waives any and all rights and remedies conferred upon a lessee in Article 2A and Lessee also hereby waives any rights now or hereafter conferred by statute or otherwise which may limit or modify any of Lessor's rights or remedies under Section 18.2 of this Lease. 11.2 CONDITIONAL GRANT. Notwithstanding the express intent of the parties, should a court of competent jurisdiction determine that this Lease is not a true lease, but rather one intended as security, then solely in that event and for the expressly limited purposes thereof, Lessee shall be deemed to have hereby granted Lessor a security interest in this Lease, the Aircraft, and all accessions thereto, substitutions and replacements therefor, and proceeds (including insurance proceeds) thereof (but without the power of Lessee to dispose of the Aircraft); to secure the prompt payment and performance as and when due of all obligations and indebtedness of Lessee (or any affiliate of Lessee) to Lessor, now existing or hereafter created. 11.3 NO LIENS. Lessee agrees to maintain the Aircraft free from all claims, liens and legal processes of creditors of Lessee other than the Lender's Lien and liens for fees, taxes, 16 levies, duties or other governmental charges of any kind, liens of mechanics, materialmen, laborers, employees or suppliers and similar liens arising by operation of law incurred by Lessee in the ordinary course of business for sums that are not yet delinquent or are being contested in good faith by negotiations or by appropriate proceedings which suspend the collection thereof (provided, however, that such proceedings do not involve any substantial danger of the sale, forfeiture or loss of the Aircraft or any interest therein). Lessee will defend, at its own expense, Lessor's title to the Aircraft and the Lender's Lien from such claims, liens or legal processes. Lessee shall also notify Lessor and Lender immediately upon receipt of notice of any lien, attachment or judicial proceeding affecting the Aircraft in whole or in part. Lessee shall not create, incur, assume or suffer to exist any mortgage, lien, pledge or other encumbrance or attachment of any kind whatsoever upon, affecting or with respect to this Lease or any of the other Operative Documents or any of Lessor's interests hereunder or of Lender's interest under any of the Operative Documents. 11.4 ANHEUSER BUNCH COLLATERAL. 11.4.1 Collateral Assignment and Grant of Security Interest. In order to secure the prompt payment and performance as and when due of all obligations and indebtedness of Lessee (or any other affiliate of Lessee) to Lessor, now existing or hereafter created, Lessee hereby pledges, assigns and grants to Lessor a continuing first priority lien and security interest in and to all of Lessee's right, title and interest in, to and under the Anheuser Busch Contract and any Substitute Agreement (as defined in Section 18 of this Lease Agreement), including without limitation, all payments due thereunder, together with any and all cash and noncash proceeds thereof (all such property being herein collectively referred to as the "Anheuser Busch Collateral"). The collateral assignment of, and security interest granted in, the Anheuser Busch Collateral hereunder are being made to secure Lessee's obligations to Lessor and shall not subject Lessor to, or transfer or in any way affect or modify, any obligation or liability of Lessee with respect to any of the Anheuser Busch Collateral or any transaction relating thereto. 11.4.2 No Unpermitted Dispositions. Without the prior written consent of Lessor and (until the Lender's Lien is discharged) Lender, Lessee will neither (a) sell, assign, transfer, dispose of, pledge or grant or permit a lien, security interest or other encumbrance to exist on, the Anheuser Busch Collateral, other than the Lender's Lien, nor (b) amend, supplement or modify the Anheuser Busch Contract or any Substitute Agreement. Upon the request of Lessor and/or Lender, as the case may be, Lessee will immediately deliver to the Lessor and Lender all records, agreements and any other papers constituting, evidencing or relating to any of the Anheuser Busch Collateral or any such Substitute Agreement, as the case may be. 17 11.4.3 Continuing Rights. Until Lessee's authority to do so is terminated by the Lessor pursuant to sub-subsection 11.4.4 below, Lessee shall have the authority, and Lessee agrees (a) at Lessee's sole cost and expense and in accordance with the collection practices customary in Lessee's business, to enforce and collect payment of all amounts due and payable on or in respect of the Anheuser Busch Contract or any Substitute Agreement on Lessor's behalf and for Lessor's account as Lessor's property in trust for Lessor and (b) to use the proceeds of all such payments for Lessee's general business purposes so long as such use is not inconsistent with the provisions of this Lease. 11.4.4 Lessor's Rights. At any time upon or after the occurrence of a Default, Lessor, in addition to any other of its rights and remedies, may terminate the authority given to Lessee in sub-subsection 11.4.3 above, whereupon (a) Lessor shall have the right to notify and direct, and/or require the Lessee to notify and direct, Anheuser Busch or the obliger ("Substitute Obligor") under any Substitute Agreement to make all payments on or in respect of the Anheuser Busch Contract or such Substitute Agreement, as the case may be, directly to Lessor for deposit into a special account maintained by Lessor over which Lessor has exclusive dominion, control and power of access and withdrawal (the "Collection Account"); (b) unless otherwise agreed by Lessor, any cash, checks, instruments or other remittances on or with respect to the Anheuser Busch Contract or such Substitute Agreement, as the case may be, received by Lessee shall be delivered to Lessor within one day of receipt thereof by Lessee for deposit to the Collection Account in precisely the form in which received, except for the addition thereto of the endorsement of Lessee where required for collection of any checks, instruments or other remittances which endorsement Lessee agrees to make and with respect thereto Lessee hereby waives notice of presentment, protest and non-payment; (c) pending such deposit, Lessee will not commingle any such cash, checks, instruments or other remittances with other funds or property but will hold them separate and apart and in trust for Lessor subject to the security interests hereunder; and (d) Lessor shall have the right at any time and from time to time to apply funds held by it in the Collection Account to the payment of all or any part of the obligations secured hereunder, whether matured or unmatured, in such order and manner as Lessor may determine in its sole discretion. Without limiting the generality of the provisions of Section 15, until the Lender's Lien has been discharged, all of Lessor's rights hereunder, including without limitation, the right to maintain the Collection Account, to receive remittances and to apply funds in the Collection Account, shall be held and exercised by Lender, to the exclusion of Lessor. 12. INSURANCE. 12.1 CASUALTY INSURANCE. Lessee shall maintain in effect, at its own expense, with insurers having a rating of A + VIII or better in AM Best Co., Best Insurance Reports - Property- 18 Casualty, all-risk ground and flight aircraft hull insurance covering the Aircraft, including F.O.D. (foreign object damage), fire and explosion coverage, ingestion and lightning and electrical damage, and with respect to any engines or other Parts while removed from the Aircraft, and with respect to any engines or parts while temporarily installed on the Aircraft, provided that such insurance shall at all times be for an amount which, when paid, will be for not less than the greater of the full replacement value or the Stipulated Loss Value (as defined in Section 13 hereof). 12.2 LIABILITY INSURANCE. Lessee shall also carry public liability insurance, both bodily injury and property damage (including, without limitation, third party aircraft liability insurance, passenger legal liability insurance and property damage liability insurance), covering the Aircraft, with a combined limit of not less than One Hundred Fifty Million Dollars ($150,000,000.00) per occurrence (or such higher amount as may from time to time be required by the insurer for geographical coverage or by any applicable authority in any jurisdiction within which the Aircraft is flown, including the airport authority of any airport into which the Aircraft is flown), or such lesser amount as Lessor may from time to time permit on notice to Lessee. Lessee shall obtain and maintain such insurance at its own expense and with carriers having the rating required in Section 12.1 above. 12.3 POLICY TERMS AND ENDORSEMENTS. Each insurance policy and its respective cover amounts obtained in accordance with the requirements set forth in this Section 12 shall (a) be primary without right of contribution from any other insurance which is carried by Lessor or Lender, (b) as to the coverage required by Section 12.2 hereof, expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured, (c) waive any right of the insurers to any set-off or counterclaim or any other deduction, by attachment or otherwise, in respect of Lessor, Lender or Lessee other than in respect of premiums, and (d) provide that Lessor or Lender shall not be required to pay or be liable for any premiums with respect to such insurance. All insurance for loss or damage to the Aircraft shall provide that losses shall be payable solely to Lessor (or, so long as the Lender's Lien shall not have been discharged, Lender), and Lessee shall utilize its best efforts to have all checks relating to any such losses delivered promptly to Lessor (or, so long as the Lender's Lien shall not have been discharged, Lender). Lessor and Lender shall each be named as an additional insured with respect to all such liability insurance. Lessee shall cause to be provided to Lessor and Lender, not less than thirty (30) days prior to the scheduled expiration or lapse of such insurance coverage, evidence satisfactory to Lessor and Lender of renewal or replacement coverage. Each insurer shall agree, by endorsement upon the policy or by independent instrument furnished to Lessor and Lender, (a) that it will give each of Lessor and Lender thirty (30) days' prior written notice of the effective date of any material 19 alteration or cancellation of such policy; (b) that insurance as to the interest of any named additional insured or loss payee other than Lessee shall not be invalidated by any actions, inactions, breach of warranty or conditions or negligence of Lessee or other person (other than such additional insured) with respect to such policy or policies; and (c) that it waives any rights of subrogation against each additional insured. All insurance carried in accordance with this Section 12 shall be in full force and effect throughout any geographical areas at any time traversed by the Aircraft. The proceeds of such insurance payable as a result of loss of or damage to the Aircraft shall be applied as required by the provisions of Section 13 hereof and the Loan Agreement. 13. LOSS AND DAMAGE. 13.1 RISK OF LOSS. Lessee assumes the entire risk of direct and consequential loss and damage to the Aircraft from all causes during the term of this Lease. Except as provided in this Section for discharge upon payment of the Stipulated Loss Value and other required amounts, no loss or damage to the Aircraft or any part thereof shall release or impair any obligations of Lessee under this Lease, which shall continue in full force and effect and shall be absolute during the term hereof. Lessee agrees that Lessor shall not incur any liability to Lessee for any loss of business, loss of profits, expenses, or any other damages resulting to Lessee by reason of any failure of or delay in delivery or any delay caused by any non-performance, defective performance, or breakdown of the Aircraft, nor shall Lessor at any time be responsible for personal injury or the loss or destruction of any other property resulting from the Aircraft. 13.2 REPAIRS. In the event of loss or damage to any Item (including, without limitation, any engine or the airship envelope) which does not also constitute a Total Loss (as hereinafter defined) of the Aircraft, Lessee shall, at its sole cost and expense, promptly repair and restore such Item to the condition required by this Lease. Provided that Lessee is not then in Default (or if such Default is subsequently cured, upon such cure), upon receipt of evidence reasonably satisfactory to Lessor (or, so long as the Lender's Lien shall not have been discharged, Lender) of completion of such repairs, Lessor shall (or, so long as the Lender's Lien shall not have been discharged, cause Lender to) apply any insurance proceeds received by Lessor or Lender, as the case may be, on account of such loss or damage to the cost of such repairs; provided, however, in the event Lessee is required to pay for such repairs in stages as repairs are being made, Lessor shall, or shall cause Lender to, apply any insurance proceeds received by Lessor or Lender, as the case may be, on account of such loss or damage to the cost of such stages of repairs. 13.3 TOTAL LOSS. Upon the occurrence of: (a) the actual or constructive total loss of the Aircraft; or (b) (i) the loss, disappearance, theft or destruction of the Aircraft, or (ii) 20 damage to the Aircraft to such extent as shall make repair thereof uneconomical or shall render it permanently unfit for normal use for any reason whatsoever; or (c) the condemnation, or other taking of title to the Aircraft (as established to the reasonable satisfaction of Lessor (or, so long as the Lender's Lien shall not have been discharged, Lender); or (d) the confiscation, seizure or requisition of use of the Aircraft for a period in excess of ninety (90) consecutive days or for a period which continues beyond the date on which Lessee is required to return the Aircraft upon the termination of this Lease; or (e) as a result of any rule, regulation, order or other action by the FAA, the use of the Aircraft in the normal course of Lessee's business shall have been prohibited for a period of three (3) consecutive months, or beyond the date on which this Lease is scheduled to expire; any such occurrence being herein referred to as a "Total Loss"; and for the purposes of Section 13.7, the Term "Total Loss" shall also mean the occurrence of any of the events specified in clauses (a), (b), (c), (d) or (e) above, solely with respect to the airship envelope or any engine. Upon the occurrence of any Total Loss during the term of this Lease, Lessee shall give prompt notice thereof to Lessor and Lender. 13.4 TOTAL LOSS PAYMENT. Not later than the earlier of (a) the thirtieth (30th) day following the occurrence of such Total Loss or (b) the second (2nd) day following receipt by the loss payee of the insurance proceeds in respect of such Total Loss (the "Payment Due Date"), Lessee shall pay to Lessor (or, so long as the Lender's Lien shall not have been discharged, Lender) the rent and any other amounts which would have been due on that date pursuant to the terms of this Lease, plus the Stipulated Loss Value of the Aircraft, calculated as of the next scheduled rent payment date after such Total Loss (the "Calculation Date"), plus interest thereon, at the Late Charge Rate from the Payment Due Date until such amount is paid in full (less any net insurance proceeds or net condemnation award actually paid). Without waiving Lessee's obligation to pay such amounts on a timely basis, Lessee shall continue to make all scheduled rent and other payments to Lessor (or, so long as the Lender's Lien shall not have been discharged, Lender) on the due date therefor until the Stipulated Loss Value is fully and finally paid; and Lessee shall be entitled to a credit against its obligation to pay the Stipulated Loss Value in the amount of any rental payments payable and received in good collected funds after the Calculation Date or with respect to any period after the Payment Due Date. 13.5 LESSOR'S CONVEYANCE. Upon Lessor's (or, so long as the Lender's Lien shall not have been discharged, Lender's) receipt of all of the amounts specified in Section 13.4 in good collected funds in respect of the Aircraft, this Lease and the obligation to make future Base Rent payments shall terminate and (to the extent applicable) Lessee thereupon shall become entitled to the Aircraft "as is" and "where is," without recourse to Lessor or Lender, and without representation or warranty, express or implied, with 21 respect to any matter whatsoever. Lessor shall deliver to Lessee a bill of sale transferring and assigning to Lessee, all of Lessor's title and interest in and to the Aircraft without recourse or warranty except (as to Lessor's title) in respect of Lessor's acts. Except as expressly provided herein, Lessor shall not be required to make and may specifically disclaim any representation or warranty as to the condition of the Aircraft or any other matters whatsoever. Notwithstanding the foregoing, the Aircraft shall not be conveyed to Lessee, and Lender's rights, title and interests with respect thereto shall not be conveyed, terminated or otherwise affected by its receipt of the amounts to be paid upon a Total Loss unless such payment results in the discharge of the Lender's Lien pursuant to the Loan Agreement. 13.6 CALCULATION OF SLV. As used herein. "Stipulated Loss Value" shall mean the product of the Total Invoice Cost (as designated on the appropriate Equipment Schedule) of the Aircraft and the applicable percentage factor set forth on the Schedule of Stipulated Loss Values attached to the Equipment Schedule. The Stipulated Loss Value shall be calculated in accordance with Section 13.4. 13.7 LOSS OF ENGINES OR ENVELOPE. Notwithstanding anything to the contrary contained in this Section 13: 13.7.1 Notice. Upon the occurrence of a Total Loss with respect to any engine or airship envelope comprising the Aircraft, provided such occurrence does not constitute or happen in connection with a Total Loss with respect to the Aircraft as provided herein, Lessee shall give written notice thereof to Lessor and Lender within fifteen (15) days of the occurrence thereof. 13.7.2 Replacement. As promptly as is reasonably practicable, but no later than one hundred twenty (120) days after such Total Loss, Lessee shall duly convey to Lessor, as replacement for such Item having suffered a Total Loss, good and marketable title to another engine or envelope, as the case may be, of the same manufacturer and of the same or an improved model, as suitable for installation and use on the Aircraft as the engine or envelope, as the case may be, being so replaced. Such replacement engine or envelope shall be free and clear of all liens (except that it shall immediately become subject to the Lender's Lien upon Lessee's conveyance thereof to Lessor) and have a value and utility at least equal to, and be in as good condition as, such engine or envelope, as the case may be, immediately prior to such Total Loss, assuming such engine or envelope was in the condition and repair required by Section 8 hereof prior to such Total Loss. 13.7.3 Additional Requirements. Lessee shall also at its expense promptly furnish to Lessor and Lender such documents, instruments, certificates, and agreements and take such other action as may be necessary or as Lessor and/or Lender, as the case may be, may reasonably request in order that such replacement 22 engine or envelope, as the case may be, be duly and properly titled in Lessor, subject to the Lender's Lien, covered by the insurance policies required under Section 12 hereof and leased hereunder to the same extent as the engine or envelope, as the case may be, having suffered such Total Loss. No Total Loss with respect to any engine or envelope, as the case may be, under the circumstances contemplated by the terms of this Section 13.7 shall result in any reduction of rent with respect to the Aircraft. 14. REDELIVERY. 14.1 REDELIVERY. Upon Lessor's demand pursuant to Section 18.2 hereof, Lessee shall, at its own expense, return the Aircraft to Lessor to such place within the Continental United States as Lessor shall specify, (a) in the condition specified herein, (b) in flight ready status, and (c) free and clear of all liens, encumbrances or rights of others whatsoever, except (i) liens or encumbrances resulting from claims against Lessor, the responsibility for which have not been delegated to Lessee under this Lease, or (ii) the Lender's Lien (provided that Lessee shall have complied with all of its accrued obligations set forth in the Operative Documents). Until the Aircraft is returned to Lessor pursuant to the provisions of this Section 14, all of the provisions of this Lease with respect thereto shall continue in full force and effect. Lessee shall pay all reasonable costs and expenses in connection with or incidental to the return of the Aircraft, including, without limitation, the cost of insuring and transporting the Aircraft. Lessee shall also execute, if requested by Lessor, a lease termination statement. 14.2 RETURN CONDITION. Upon return of the Aircraft, all of the following shall have been complied with to Lessor's satisfaction: 14.2.1 Airworthy. The Aircraft shall be duly certificated as an airworthy aircraft by the FAA and have a currently valid airworthiness certificate issued by the FAA (and be in such a condition to be eligible therefor). 14.2.2 Good Condition. The Aircraft shall be in good condition (ordinary wear and tear from proper and normal use thereof excepted) and in the same configuration as when delivered to Lessee hereunder and in such condition and configuration as is capable of performing its originally intended use; and Lessee shall have permanently repaired any damages to the Aircraft. 14.2.3 Cosmetic Condition. The Aircraft shall be clean, its interior and exterior appearance cosmetically acceptable, interior complete and prepared to place into United States normal business usage; and Lessee shall, at its own expense, remove from the exterior of the Aircraft all insignias and other distinctive markings in a workmanlike manner, and such areas on the Aircraft shall be repainted in a good quality paint of the same 23 color as the surrounding area so as to produce a uniform appearance. 14.2.4 Due Registration. The Airframe shall be duly registered in accordance with the terms of Title 49 in the name of Lessor. 14.2.5 Continuously Maintained. The Aircraft shall have been continuously and currently maintained in compliance with this Lease, all alert bulletins and other service bulletins, supplemental inspection programs (or other aging aircraft requirements), the manufacturer's maintenance program and all other requirements of the Aircraft (and other applicable) manufacturers, and all "on condition" and "condition monitored" components shall be serviceable. 14.2.6 Fully Equipped. The Aircraft shall (a) comply with the manufacturer's original type certificate specifications therefor, as revised up to the date of return hereunder, (b) be complete and fully equipped for operation under applicable FARs, and (c) function and perform in accordance with the manufacturer's specifications and all discrepancies noted during the pre-return inspections and acceptance flights shall be corrected in accordance with the manufacturers' manuals. 14.2.7 Acceptable Repairs. (a) All Parts and Engines shall be documented to have been repaired or overhauled by certified FAA repair stations or by those approved by the FAA through reciprocal agreements; (b) all overhaul and repair procedures shall be further verified to meet all FAA requirements for quality and documentation necessary to enable immediate transferral to operation within the continental limits of the United States under applicable FARs; and (c) all major repairs performed since the delivery, and which are still in existence on the Aircraft, (i) are in conformity with the manufacturer's structural repair manual and have received or are immediately eligible to receive FAA approval, if so required by Lessor, and (ii) shall be accompanied by all data and documentation necessary to substantiate their certification and approval, as required by Lessor. 14.2.8 Modifications. All modifications (a) performed since the delivery which deviate from the certified configuration and which are still in existence on the Aircraft shall have FAA approval or certification or be removed by Lessee unless otherwise deemed acceptable in writing by Lessor in its sole discretion, and (b) shall be accompanied by complete data and documentation necessary to substantiate their certification and approval. 14.2.9 Compliance with Laws. Btc.. All applicable laws, including without limitation, all FAA Airworthiness Directives, Part 91 of the FARs and any other FARs applicable to 24 the Aircraft during the term hereof, shall have been complied with, by terminating action (and without Lessee availing itself of any waiver, deviation, exemption or right to defer by inspection) in accordance with the issuing agency's specific instructions. 14.2.10 Records, Etc. All records necessary and required by the FAA, the Department of Transportation, or any other government agency, or by applicable law, shall be (i) in English and delivered with the Aircraft, and if hard, noncomputerized copies of maintenance records are not available, then Lessee shall take action with pertinent regulatory agencies to ensure that Lessor and the FAA are provided with all requested guarantees of methods of compliance, component overhaul and management, quality control, serial number verification, etc., and (ii) all inclusive to the Aircraft and, as a minimum, shall extend to include all activities associated with each of the last completed maintenance checks, repairs, scheduled inspections and functional tests, and overhauls performed to Lessee's MSR. All Parts identified with safe life limits shall be identified with their service histories, accumulated cycles or flight hours, as applicable, and remaining service lives on a separate listing. All components and assemblies which are identified on the maintenance records by part numbers and serial numbers other than the manufacturers shall be provided with interchange or cross reference listing necessary to establish complete traceability. 14.2.11 FAA Condition. Lessee will be responsible for ensuring that the Aircraft meets all conditions necessary to facilitate transference of the FAA certificate of airworthiness. 14.3 Storage. If Lessor so requests, Lessee will provide Lessor, or cause Lessor to be provided, with hangered storage for the Aircraft, at Lessee's risk and at Lessee's cost for maintenance for a period not exceeding ninety (90) days commencing on the date of such termination, at the return location. Lessee will, if possible and upon written request from Lessor, maintain, in the name of Lessor but at Lessee's sole expenes, insurance for the Aircraft during such period, as may be customarily obtained during storage periods for the Aircraft by Lessee. If so requested by Lessor, Lessee shall provide Lessor with up to thirty (30) additional days storage pursuant to the foregoing terms. 15. RESERVED. 16. RESERVED. 17. INDEMNITY. Lessee assumes and agrees to indemnify, defend, and keep harmless Lessor, Lender, any holder of the Note, and their respective agents and employees (individually, an "Indemnitee" and collectively, the "Indemnitees"), from and against any and all losses, damages, injuries, claims, demands and expenses, including legal expenses (other than such as may directly and proximately result from the negligence or willful misconduct of 25 an Indemnitee), whether or not such Indemnitee shall also be indemnified as to any such claim by any other person, in any way relating to or arising on account of (i) the Lease, the Equipment Schedule, any other Operative Document, or any other documents, instrument or certificate delivered in connection with this Lease or any other Operative Document, (ii) in any way related to or arising out of the offer, sale, delivery or resale of the Note, or (iii) the Aircraft, any engine, or Part, including without limitation, the ordering, acquisition, delivery, installation or rejection of the Aircraft, the possession, maintenance, use, condition (including without limitation, latent and other defects and whether or not discoverable by Lessor, Lessee, Lender or any other person, any claim in tort for strict liability, and any claim for patent, trademark or copyright infringement) or operation of any Item, and by whomsoever used or operated, during the term of this Lease with respect to that Item, the loss, damage, destruction, removal, return, surrender, sale or other disposition of the Aircraft, or any item thereof or for whatever other reason whatsoever. Each Indemnitee shall give Lessee prompt notice of any claim or liability suffered by it and the subject of this indemnity and Lessee shall be entitled to control the defense thereof, so long as Lessee is not in Default hereunder; provided, however, such Indemnitee shall have the right to approve defense counsel selected by Lessee. 18. DEFAULT; REMEDIES. 18.1 DEFAULTS. Lessee shall be deemed to be in default hereunder ("Default") if (a) Lessee shall fail to make any payment of rent or any other payment hereunder within five (5) days after the same shall have become due; or (b) Lessee shall fail to obtain and maintain the insurance required herein; or (c) Lessee shall fail to perform or observe any other covenant, condition or agreement to be performed or observed by it hereunder and such failure shall continue unremedied for a period of thirty (30) days after the earlier of the actual knowledge of Lessee or written notice thereof to Lessee by Lessor; or (d) Lessee shall (i) be generally not paying its debts as they become due, or (ii) take action for the purpose of invoking the protection of any bankruptcy or insolvency law, or any such law is invoked against or with respect to Lessee or its property and such petition filed against Lessee is not dismissed within sixty (60) days; or (e) Lessee shall make or permit any unauthorized assignment or transfer of this Lease, the Aircraft or any interest therein; or (f) any certificate, statement, representation, warranty or audit contained herein or heretofore or hereafter furnished with respect hereto by or on behalf of Lessee proving to have been false in any material respect at the time as of which the facts therein set forth were stated or certified (or at any time, with respect to any representations or warranties that are continuing in nature), or having omitted any substantial contingent or unliquidated liability or claims against Lessee; or (g) Lessee shall be in default under any material obligation for the payment of borrowed money, for the 26 deferred purchase price of property or for the payment of any rent under any lease agreement, and the applicable grace period with respect thereto shall have expired; or (h) Lessee shall have terminated its corporate existence, consolidated with, merged into, or conveyed or leased substantially all of its assets as an entirety to (such action as being referred to as an "Events"), any person, unless: (i) such person is organized and existing under the laws of the United States or any state and is a "citizen of the United States" within the meaning of 49 U.S.C. 40102(a)(15), and not less than thirty (30) days prior to such Event, executes and delivers to Lessor and Lender an agreement containing an effective assumption by such person of the due and punctual performance of this Lease, and all of the other documents and instruments to which it is a party; and (ii) Lessor and Lender are reasonably satisfied as to the creditworthiness of such person; or (i) there is an anticipatory repudiation of Lessee's obligations under the Lease, or any other document or instrument delivered pursuant hereto to which Lessee is a party; or (j) the Anheuser Busch Contract expires, or is terminated, cancelled or materially modified in a manner that reduces its collateral value, unless, within sixty (60) days thereof, Lessee enters into an agreement ("Substitute Agreement") having terms and conditions (including, but not limited to, the term of such agreement and the payments to be made thereunder) substantially the same as the Anheuser Busch Contract as determined in the reasonable discretion of Lessor and Lender, and with a Substitute Obligor having a creditworthiness and meeting such other requirements as Lessor and Lender may then require (in their reasonable discretion); or (k) Lessee shall fail to perform or observe any agreement set forth in Section 11.4.2(a) or (b). 18.2 REMEDIES. Upon the occurrence of a Default, Lessor (or if the Lender's Lien has not been discharged, Lender; it being understood and agreed that, any reference hereinafter in this Section 18.2 to Lessor shall be deemed to mean Lender, as long as the Lender's Lien has not been discharged) may, at its option, declare this Lease to be in default with or without written notice to Lessee (such notice to be given, if at all, at Lessor's sole option) (without election of remedies), and at any time thereafter, may do any one or more of the following, all of which are hereby authorized by Lessee: 18.2.1 Return the Aircraft. Require Lessee to return the Aircraft at the location to which the Aircraft was delivered or the location to which such Aircraft may have been moved by Lessee or such other location in reasonable proximity to either of the foregoing as Lessor shall designate; and/or to return promptly, at Lessee's expense, the Aircraft to Lessor at the location, in the condition and otherwise in accordance with all of the terms of Section 14 hereof; and/or take possession of and render unusable by Lessee the Aircraft, wherever it may be located, without any court order or other process of law and without liability for any damages occasioned by such taking of possession (any such taking of possession shall constitute an 27 automatic cancellation of this Lease as it applies to those items taken without further notice, and such taking of possession shall not prohibit Lessor from exercising its other remedies hereunder). 18.2.2 Liquidated Damages. Sell, re-lease or otherwise dispose of the Aircraft, whether or not in Lessor's possession, in a commercially reasonable manner at public or private sale with notice to Lessee (the parties agreeing that ten (10) days' prior written notice shall constitute adequate notice of such sale), with the right of Lessor to purchase and apply the net proceeds of such disposition, after deducting all costs of such disposition (including but not limited to costs of transportation, possession, storage, refurbishing, advertising and brokers' fees), to the obligations of Lessee pursuant to this Section 18.2, with Lessee remaining liable for any deficiency and with any excess being retained by Lessor; or retain any or all of the Aircraft, and recover from Lessee damages, not as a penalty, but herein liquidated for all purposes as follows: (a) if Lessor elects to dispose of the Aircraft pursuant to a lease which is substantially similar to this Lease: in an amount equal to the sum of (i) any accrued and unpaid rent under this Lease as of the date of commencement (the "Commencement Date") of the term of the new lease, and (ii) (A) the present value as of the Commencement Date of the total rent for the then remaining term of this Lease, minus (B) the present value as of the Commencement Date of the rent under the new lease applicable to that period of the new lease term which is comparable to the then remaining term of this Lease, and (iii) any incidental damages allowed under Article 2A, less expenses saved by Lessor in consequence of the Default ("Incidental Damages"); (b) if Lessor elects to retain the Aircraft or to dispose of the Aircraft by sale, by re-lease (pursuant to a lease which is not substantially similar to this Lease), or otherwise: in an amount equal to the sum of (i) any accrued and unpaid rent as of the date Lessor repossesses the Aircraft or such earlier date as Lessee tenders possession of the Aircraft to Lessor, (ii) (A) the present value as of the date determined under clause (i) of the total rent for the then remaining term of this Lease, minus (B) the present value as of the same date of the "market rent" (as defined in Article 2A) at the place where the Aircraft was located on that date computed for the same lease term, and (iii) any Incidental Damages (provided, however, that if the measure of damages provided is inadequate to put Lessor in as good a position as performance would have, the damages shall be the present value of the profit, including reasonable overhead, Lessor would have made from full performance by Lessee, together with any incidental damages allowed under Article 2A, due allowance for costs reasonably incurred and due credit for payments or proceeds of disposition); and/or 28 (c) if Lessor has not repossessed the Aircraft, or if Lessor has repossessed the Aircraft or Lessee has tendered possession of the Aircraft to Lessor and Lessor is unable after reasonable effort to dispose of the Aircraft at a reasonable price or the circumstances reasonably indicate that such an effort will be unavailing: in an amount equal to the sum of (i) accrued and unpaid rent as of the date of entry of judgment in favor of Lessor, (ii) the present value as of the date determined under clause (i) of the rent for the then remaining term of this Lease, and (iii) any Incidental Damages. Lessor may dispose of the Aircraft at any time before collection of a judgment for damages. If the disposition is before the end of the remaining term of this Lease, Lessor's recovery against Lessee for damages will be governed by Section 18.2.2(a) or (b) (as applicable), and Lessor will cause an appropriate credit to be provided against any judgment for damages to the extent that the amount of the judgment exceeds the applicable recovery pursuant to Section 18.2.2(a) or (b). 18.2.3 Other Liquidated Damages. In lieu of the damages specified in Section 18.2.2, Lessor may recover from Lessee, as liquidated damages for loss of a bargain and not as a penalty, an amount calculated as the sum of: (a) the greater of either (i) the Stipulated Loss Value of the Aircraft (determined as of the next date on which a payment is or would have been due after the declaration of a Default), together with all other sums due hereunder as of such determination date with respect to such Aircraft, or (ii) all sums due and to become due under the Lease for the full term of the Lease, including any tax indemnities becoming due as a result of the Default (provided that all sums becoming due after the declaration of Default shall be discounted to present value as of the date of payment by Lessee), plus Lessor's estimated residual interest in the Aircraft; plus (b) the amount of all commercially reasonable costs and expenses incurred by Lessor in connection with repossession, recovery, storage, repair, sale, re-lease or other disposition of the Aircraft, including reasonable attorneys' fees and costs incurred in connection therewith or otherwise resulting from Lessee's default; minus (c) if Lessor has repossessed the Aircraft, the amount calculated pursuant to clause (ii)(B) of paragraph (a) or paragraph (b) (as applicable) of Section 18.2.2. 18.2.4 Cancellation. Cancel this Lease as to the Aircraft. 18.2.5 Specific Performance and Other Remedies. Proceed by appropriate court action, either at law or in equity, to enforce performance by Lessee or to recover damages for the breach hereof; or exercise any other right or remedy available to Lessor pursuant to Article 2A of the Uniform Commercial Code as then in effect in the applicable jurisdiction or otherwise available at law or in equity. Without limiting the generality of any of the foregoing provisions, the return of the Aircraft as hereinbefore 29 provided is of the essence of this Lease, and upon application to any court of equity having jurisdiction in the premises, Lessor shall be entitled to a decree against Lessee requiring specific performance of the covenants of Lessee so to return the Aircraft, and otherwise fully comply with Section 14 and this Section 18. 18.2.6 Present Value and Other Considerations. All amounts to be present valued shall be discounted at a rate equal to six percent (6%) per annum. Unless otherwise provided above, a cancellation hereunder shall occur only upon written notice by Lessor to Lessee. Except with respect to such a cancellation, this Lease shall remain in full force and effect and Lessee shall be and remain liable for the full performance of all its obligations hereunder; and any such cancellation shall not relieve Lessee from any payment or other obligations arising in connection with events occurring prior to such cancellation. 18.2.7 Costs of Enforcement. In addition, and without limiting the generality of Section 17 hereof, Lessee shall be liable for (a) all of Lessor's and Lender's legal fees and other costs and expenses (including all reasonable attorneys' fees, court costs and other legal expenses) incurred by reason of any Default or the exercise of lessor's remedies, including all out-of-pocket costs and expenses incurred in connection with the repossession, recovery, storage, repair, sale, re-lease or other disposition of the Aircraft, or otherwise relating to the return of any Aircraft in accordance with the terms of Section 14 hereof or in placing such Aircraft in the condition required by said Section, plus (b) interest at the Late Charge Rate on any and all amounts payable under this Section 18, from and after the due date thereof and until all such amounts are fully and finally paid. Unless the context expressly requires otherwise, no right or remedy referred to in this Section is intended to be exclusive, but each shall be cumulative, and shall be in addition to any other remedy referred to above or otherwise available at law or in equity, and may be exercised concurrently or separately from time to time. 18.2.8 No Waiver. The failure of Lessor to exercise the rights granted hereunder upon any Default by Lessee shall not constitute a waiver of any such right upon the continuation or reoccurrence of any such Default. In no event shall the execution of an Equipment Schedule constitute a waiver by Lessor of any pre-existing Default in the performance of the terms and conditions hereof. 18.2.9 Anheuser Busch Collateral. Upon and after the occurrence of a Default, Lessor, without notice or demand other than as expressly provided for under the provisions of this Lease, may exercise in any jurisdiction in which enforcement hereof is sought, the rights and remedies available to Lessor under the other provisions of this Lease, the rights and remedies of a secured party under the applicable Uniform Commercial Code and all other rights and remedies available to Lessor under applicable law, all 30 such rights and remedies being cumulative and enforceable alternatively, successively or concurrently, including, but not limited to, the right (and Lessee hereby irrevocably designates and appoints Lessor and its designees as the attorney-in-fact of Lessee, with power of substitution and with power and authority in Lessee's name, Lessor's name or otherwise and for the use and benefit of Lessor) (a) to notify Anheuser Busch or any Substitute Obligor to make payments or other remittances on or with respect to the Anheuser Busch Collateral directly to Lessor, (b) to perform any provision of any document, agreement or other instrument relating to the Anheuser Busch Collateral and/or cure any default under any such document, agreement or other instrument and (c) to assign or otherwise dispose of any or all of the Anheuser Busch Collateral on such terms and conditions as Lessor, in its sole discretion, may determine. 19. ASSIGNMENT BY LESSOR AND LESSEE. 19.1 NO ASSIGNMENT, SUBLEASE, ETC. BY LESSEE. LESSEE WILL NOT ASSIGN OR IN ANY WAY DISPOSE OF ALL OR ANY OF ITS RIGHTS OR OBLIGATIONS HEREUNDER, SUBLET THE AIRCRAFT OR OTHERWISE PERMIT THE AIRCRAFT TO BE OPERATED OR USED BY, OR TO COME INTO OR REMAIN IN THE POSSESSION OF, ANYONE BUT LESSEE; and no attempted assignment or sublease, shall relieve Lessee of its obligations hereunder and Lessee shall remain primarily liable hereunder. 19.2 LESSOR'S ASSIGNMENT, TRANSFER, ETC. 19.2.1 Generally. LESSOR MAY AT ANY TIME ASSIGN OR TRANSFER ANY OR ALL OF ITS RIGHTS, OBLIGATIONS, TITLE AND INTEREST HEREUNDER, OR LESSOR'S INTEREST IN THE AIRCRAFT, TO ANY OTHER PERSON. LESSOR AGREES TO PROVIDE NOTICE OF ANY SUCH ASSIGNMENT OR TRANSFER TO LESSEE. If Lessee is given notice of any such assignment, Lessee shall acknowledge receipt thereof in writing. In the event Lessor retains the obligations of the lessor hereunder in any such assignment, Lessor's assignee shall not be obligated to perform any duty, covenant or condition required to be performed by the lessor under the terms of this Lease (other than the covenant of quiet enjoyment specified in Section 20 hereof); and no breach or default by Lessor hereunder or pursuant to any other agreement between Lessor and Lessee, should there be one, shall excuse performance by Lessee of any provision hereof; it being understood that in the event of a default or breach by Lessor that Lessee shall pursue any rights on account thereof solely against Lessor. Lessee acknowledges that any assignment or transfer by Lessor shall not materially change Lessee's duties or obligations under this Lease nor materially increase the burdens or risks imposed on Lessee. 19.2.2 Consent to Assignment of Lease. Lessee hereby acknowledges, and consents in all respects to, the assignment of this Lease by Lessor to Lender under and pursuant to the Loan Agreement and acknowledges and agrees as follows: 31 (a) Lessee agrees that it shall make each payment of Base Rent and any other amounts payable by Lessee under the Lease, whenever due or to become due under the Lease, directly to Lender pursuant to the instructions set forth in Section 2.3 hereof, unless and until Lessee has received written notice to the contrary from Lender. (b) Recovery of Payments. Lessee agrees that it shall not seek to recover any payment (other than a payment made in mistake) made to Lender in accordance with the Loan Agreement once such payment is made. (c) Lessee acknowledges and agrees that (i) notwithstanding any provision of this Lease, or elsewhere, to the contrary, this Lease is expressly subject and subordinate to the Lender's Lien in, under and to this Lease, the Aircraft and the other collateral described in the Loan Agreement, and all of Lenders rights and remedies under the Loan Agreement; (ii) upon the occurrence of any Default as defined in the Loan Agreement (a "Loan Default"), Lender may, at its option, exercise any and all of such rights and remedies under the Loan Agreement as it may then (in its sole and absolute discretion) deem appropriate, irrespective of Lessee's rights under this Lease, and any leasehold interest created hereby; and (iii) without limiting the generality of the foregoing, upon the occurrence of any Loan Default, Lender may, at its option, cancel this Lease and require that Lessee, and Lessee shall, return the Aircraft in accordance with Section 14 of the Lease, and exercise all such other rights and remedies available to it under the Lease or any of the other Operative Documents or at law or in equity (including the equitable remedy of specific performance). (d) As long as the Lender's Lien shall not have been discharged, Lender shall have the exclusive right to make all decisions and take all actions reserved to "Lessor" under the Lease, whether or not expressly reserved to Lender herein, including, without limitation, the right to give any consent, waiver, authorization or approval hereunder, the right (but not the obligation) to perform Lessee's obligations hereunder or the right to execute, endorse or deliver any documents and checks or drafts under any power of attorney granted to "Lessor" hereunder. (e) Lender shall be deemed a third party beneficiary of all of the representations, warranties and covenants made herein for its benefit, whether directly or as Lessor's assignee, notwithstanding its not being a signatory to this Lease. 19.3 SUCCESSORS AND ASSIGNS. Subject always to the foregoing, the Lease inures to the benefit of, and is binding upon, the successors and assigns of the parties hereto. 32 20. QUIET POSSESSION. Lessor represents and covenants to Lessee that Lessor has full authority to enter into this Lease, and that, conditioned upon Lessee performing all of the covenants and conditions hereof, as to claims of Lessor or persons claiming under Lessor, Lessee shall, except as provided in Section 19.2., peaceably and quietly hold, possess and use the Aircraft during the term of this Lease subject to the terms and provisions hereof. Any action by Lessee against Lessor for any default by Lessor under this Lease, including breach of this representation and covenant, shall be commenced within one (1) year after Lessee is deprived of possession and use of the Aircraft in violation of this Section 20. 21. LESSOR'S RIGHT TO PERFORM FOR LESSEE. 21.1 RIGHT TO PERFORM. If Lessee fails to perform or comply with any of its obligations hereunder, Lessor or Lender, as the case may be, shall have the right, but shall not be obligated, to effect such performance, and the amount of any out of pocket expenses and other reasonable expenses of Lessor or Lender, as the case may be, incurred in connection with such performance, together with interest thereon at the Late Charge Rate, shall be payable by Lessee to such party upon demand. 21.2 POWER OF ATTORNEY. Lessee hereby irrevocably appoints Lessor as Lessee's attorney-in-fact (which power shall be deemed coupled with an interest) to execute, endorse and deliver any documents and checks or drafts relating to or received in payment for any loss or damage under the policies of insurance required by the provisions of Section 12 hereof, but only to the extent that the same relates to the Aircraft. 22. NOTICE. All notices (excluding billings and communications in the ordinary course of business) hereunder shall be in writing, personally delivered, sent by facsimile or by certified mail, return receipt requested, addressed to the other party at its respective address stated below the signature of such party or at such other address as such party shall from time to time designate in writing to the other party; and shall be effective from the date of receipt. 23. MISCELLANEOUS. 23.1 ENTIRE AGREEMENT. This Lease Agreement and the Equipment Schedule collectively constitute the entire agreement between the parties with respect to the subject matter hereof and shall not be amended or altered in any manner except by a document in writing executed by both parties. 23.2 SEVERABLE. 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 33 jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 23.3 JURY TRIAL WAIVER. LESSEE HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LESSEE AND LESSOR MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS LEASE OR ANY OTHER OPERATIVE DOCUMENT. IT IS HEREBY AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS LEASE OR ANY OTHER OPERATIVE DOCUMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY LESSEE AND LESSEE HEREBY ACKNOWLEDGES THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. LESSEE FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 23.4 SURVIVAL. The representations, warranties and covenants of Lessee herein and in any other Operative Document shall be deemed to be continuing and to survive the closing hereunder. Each execution by Lessee of an Equipment Schedule shall be deemed a reaffirmation and warranty that there shall have been no material adverse change in the business or financial condition of Lessee from the date of execution hereof. The obligations of Lessee under Sections 10, 14, 17, and 18 which arise in connection with events occurring during the term of the Lease (or occurring after any cancellation or termination by Lessor pursuant to Section 18.2), shall survive the termination or cancellation of the Lease. 23.5 CAPTIONS; LAWS. The captions in this Lease are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. All references in this Lease to any rules, regulations or statutes shall also mean as hereafter amended and succeeded, from time to time. 24. CONNECTICUT LAW GOVERNS; JURISDICTION. 24.1 GOVERNING LAW. THIS LEASE SHALL NOT BE EFFECTIVE UNLESS AND UNTIL ACCEPTED BY EXECUTION BY AN OFFICER OF LESSOR, AND COUNTERSIGNED BY LENDER IN THE STATE OF CONNECTICUT, AND, IN FURTHERANCE OF THE FOREGOING, AND AS AN INDUCEMENT TO LENDER TO MAKE THE LOAN TO LESSOR EVIDENCED BY THE NOTE, THIS LEASE SHALL BE DEEMED TO HAVE BEEN DELIVERED IN THE STATE OF CONNECTICUT, FOR ALL PURPOSES. ACCORDINGLY, THIS LEASE AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE AIRCRAFT. 34 24.2 JURISDICTION. The parties agree that any action or proceeding arising out of or relating to this Lease may be commenced in any state or Federal court of competent jurisdiction in the State of Connecticut and each party agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served personally or by certified mail to it at its address designated pursuant hereto, or as otherwise provided under the laws of the State of Connecticut. The parties hereto acknowledge and agree that (a) the parties have agreed to have this Lease governed by the laws of, and permit the commencement of proceedings in, the State of Connecticut at the request of Lender and that such choice of governing law and jurisdiction was a condition precedent to Lender's execution and delivery of the Loan Agreement, (b) Lender has required the law of the State of Connecticut to govern this Lease so that, among other things, the provisions of this Lease, the Loan Agreement and the Note will be interpreted in a consistent manner, and (c) the choice of law herein bears a reasonable relationship to this Lease and the transactions contemplated hereby. 25. TRUE LEASE. Lessor and Lessee acknowledge and agree that they intend that this Lease be a true lease and not a "conditional sale" within the meaning provided in Title 49. 26. COUNTERPARTS. This Lease Agreement, the Equipment Schedule and any other schedules, riders, supplements, amendments, and attachments delivered pursuant to this Lease may be executed in one or more counterparts, each such executed counterpart of any such document shall be deemed an original, but all such executed counterparts of any such document together shall constitute one and the same instrument; provided, however, the only copy of any such document that shall constitute the "chattel paper" thereof, shall be that certain copy marked as the "Original". 27. TRUTH-IN-LEASING. 27.1 COMPLIANCE WITH PART 91. LESSEE HAS REVIEWED THE AIRCRAFT'S MAINTENANCE AND OPERATING LOGS SINCE ITS DATE OF MANUFACTURE AND HAS FOUND THAT THE AIRCRAFT HAS BEEN MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS LESSEE CERTIFIES THAT THE AIRCRAFT PRESENTLY COMPLIES WITH THE APPLICABLE MAINTENANCE AND INSPECTION REQUIREMENTS OF PART 91 OF THE FEDERAL AVIATION REGULATIONS. 27.2 LESSEE'S RESPONSIBILITY. LESSEE CERTIFIES THAT LESSEE, AND NOT LESSOR, IS RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF. LESSEE FURTHER CERTIFIES THAT LESSEE UNDERSTANDS ITS RESPONSIBILITY FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. 35 27.3 MAINTENANCE AND CONTROL. LESSEE CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. LESSEE UNDERSTANDS THAT AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE. [INTENTIONALLY LEFT BLANK] 36 IN WITNESS WHEREOF, the parties hereto have caused this Aircraft Lease Agreement to be duly executed as of the day and year first above set forth. TRANS CONTINENTAL LEASING, INC. AIRSHIP INTERNATIONAL LTD. Lessor Lessee By: /s/ LOUIS J. PEARLMAN By: /s/ ALAN SIEGEL ---------------------------- -------------------------- Name: Louis J. Pearlman Name: Alan Siegel -------------------------- ----------------------- Title: President Title: Secretary ------------------------ ---------------------- 7380 Sand Lake Road 7380 Sand Lake Road Suite ??? Suite ??? Orlando, Florida 32819 Orlando, Florida 32819 [SIGNATURE PAGE] ORIGINAL/DUPLICATE CERTAIN RIGHTS OF THE LESSOR UNDER THIS EQUIPMENT SCHEDULE NO. 1 AND IN THE AIRCRAFT COVERED HEREBY HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF PROENIXCOR, INC. UNDER A LOAN AND SECURITY AGREEMENT, DATED AS OF MAY 31, 1995. THE ONE AND ONLY ORIGINAL OF THIS EQUIPMENT SCHEDULE IS MARKED "ORIGINAL" AT THE TOP OF THIS PAGE AND SHALL CONSTITUTE THE ONLY CHATTEL PAPER ORIGINAL FOR THE PURPOSES OF ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE. EACH OTHER SIGNED VERSION IS MARKED "DUPLICATE". EQUIPMENT SCHEDULE NO. 1 forming a part of Aircraft Lease Agreement dated as of May 31, 1995 This Equipment Schedule is entered into between TRANS CONTINENTAL LEASING, INC., as lessor ("Lessor") and AIRSHIP INTERNATIONAL LTD., as lessee ("Lessee"), effective as of the date set forth below, pursuant to the Aircraft Lease Agreement dated as of May 31, 1995, between Lessor and Lessee (the "Lease Agreement"). Capitalized terms used without definition in this Equipment Schedule shall have the meanings ascribed to them in the Lease Agreement. The Lease Agreement is hereby incorporated into, and shall be deemed a part of this Equipment Schedule. The Aircraft described below is hereby leased by Lessor to Lessee on the terms and conditions of the Lease Agreement, this Equipment Schedule and any other documents and agreements entered into by both parties in connection herewith. 1. AIRCRAFT. The Aircraft leased hereunder shall be as set forth in the Schedule of Equipment attached hereto and made a part hereof (the "Schedule"). TOTAL INVOICE COST: $2,060,000.00 2. TERM. Upon and after the effective date hereof, the Aircraft shall be subject to the terms and conditions provided herein and in the Lease Agreement. A full term of lease with respect to said Aircraft shall commence on the date hereof and shall extend for sixty (60) months after the thirty-first day of May, 1995 (the "Commencement Date"). 3. BASE RENT. The "Base Rent" shall be comprised of and paid as follows: 3.1 [RESERVED] 3.2 Monthly Rent. From and after the Commencement Date, the monthly rent for said Equipment during the term of this Lease shall be $44,741.97. Rent payments shall be made, in advance, on the first day of the month for each month during the term of the Lease. 4. LESSEE'S CONFIRMATION. Lessee hereby confirms and warrants to Lessor that the Aircraft: (a) was duly delivered to Lessee at Executive Airport, Orlando, Florida; (b) has been received, inspected and determined to be in compliance with all applicable specifications and that the Aircraft is hereby accepted for all purposes of the Lease; and (c) is a part of the "Aircraft" referred to in the Lease and is taken subject to all terms and conditions therein and herein provided. 5. LATE CHARGE RATE. The "Late Charge Rate" shall be two (2) percent per month of the amount in arrears for the period such amount remains unpaid (or such lesser amount as may be permitted by law). 6. SCHEDULE OF STIPULATED LOSS VALUES. The Schedule of Stipulated Loss Values attached hereto is incorporated herein by reference, and shall be applicable solely to the Aircraft described in this Equipment Schedule. 7. COUNTERPARTS. This Equipment Schedule may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument; provided, however, the only copy of this Equipment Schedule that shall constitute the "chattel paper" hereof, shall be that certain copy marked as the "Original". [INTENTIONALLY LEFT BLANK] 2 IN WITNESS WHEREOF, the parties hereto have caused this Equipment Schedule No. 1 to be duly executed as of the 31st day of May, 1995. TRANS CONTINENTAL LEASING, INC. AIRSHIP INTERNATIONAL LTD. Lessor Lessee By: LOUIS J. PEARLMAN By: ALAN SIEGEL ---------------------------- -------------------------- Name: Louis J. Pearlman Name: Alan Siegel -------------------------- ----------------------- Title: President Title: Secretary ------------------------ ---------------------- 3 STIPULATED LOSS VALUE SCHEDULE TO AND A PART OF EQUIPMENT SCHEDULE NO. 1 between TRANS CONTINENTAL LEASING, INC. as lessor and AIRSHIP INTERNATIONAL LTD. as lessee [Lessor - please prepare] SCHEDULE OF EQUIPTMENT TO AND A PART OF EQUIPMENT SCHEDULE NO. 1 between TRANS CONTINENTAL LEASING, INC. as lessor and AIRSHIP INTERNATIONAL LTD. as lessee For the purposes of Equipment Schedule No. 1 (to which this Schedule is attached and a part of) and that certain Aircraft Lease Agreement, between TRANS CONTINENTAL LEASING, INC., as lessor ("Lessor"), and AIRSHIP INTERNATIONAL LTD. as lessee ("Lessee"), dated May 31, 1995 (the "Lease") unless the context otherwise requires, the following terms shall have the following meanings (the following definitions to be equally applicable both to the singular and plural forms of the terms herein defined): "Aircraft" means the 1991 Airship Industries Series 500HL Skyship having Federal Aviation Administration registration number N501LP and manufacturer's serial number 1214-04, to be delivered and leased under the Lease together with the engines initially installed thereon described herein (or any engine substituted for any of such engines hereunder, as the case may be), whether or not any of such initial or substituted engines, as the case may be, may from time to time be installed thereon or may be installed on any other aircraft, any and all Parts so long as the same shall be incorporated or installed in or attached to the Aircraft, or so long as title thereto or any interest therein shall remain vested in Lessor in accordance with the terms of the Lease after removal from the Aircraft, and all books, records, documents, logs, manuals, cards, printouts, notices, bulletins, correspondence, and general intangibles (including all licenses, patents, copyrights, maskworks and trade secrets) pertaining to the Aircraft and/or the avionics whether required to be or voluntarily kept pursuant to the Lease or the other documents executed in connection therewith. "Engine" means (i) each of the two (2) Porsche 930 engines, having serial numbers 63C4932 (port engine) and 6313496 (starboard engine) with less than 750/horsepower (each engine has 225/horsepower) relating to the Aircraft on which such engines are initially installed, whether or not from time to time installed on such Aircraft or installed on any other aircraft, and (ii) any engine which may from time to time be substituted, pursuant to the Lease, for an engine leased under the Lease; together in each case with any and all Parts incorporated or installed in or attached thereto or any and all Parts removed therefrom so long as title thereto or any interest therein shall remain vested in Lessor in accordance with the terms of the Lease after removal from such engine. The term engines means, as of the date of determination, if the context so requires, all engines then leased under the Lease. "Parts" means the Replacement Envelope (as hereinafter defined), the airship envelope incorporated in the Aircraft at this time and the avionics and all parts, appliances, components, instruments, accessories and furnishings which may from time to time be installed in or attached to the Aircraft, the airship envelope incorporated in the Aircraft at this time, the Replacement Envelope, the avionics or any engine, including, but not limited to, the Parts described in Exhibit A hereto. "Replacement Envelope" means the Aerazur airship envelope with serial number 500HL and any and all Parts now and hereafter incorporated or installed in or attached thereto. 2 EXHIBIT A [AIRSHIP INTERNATIONAL LTD. LOGO] Airship International Skyship Statistics Dimensions: Length 194 feet Height 67 feet Width 63 feet Volume 235,400 cubic feet Lifting Gas: Helium (non-flammable) Maximum Passenger Capacity: Six, plus captain and co-pilot Performance: Cruising Speed 35 mph Maximum Speed 62 mph Two Porsche 930 Engines 225 hp each Cruising Altitude 1,000 to 3,000 feet Maximum Altitude 10,000 feet Range 300 miles Gondola Dimensions: Length 38.3 feet Width 8.4 feet Headroom 6.3 feet Envelope Fabric: Polyurethane-coated Polyester Synthetic NightSign 'TM': Height of Sign 29 feet Length of Sign 118 feet Readability 1 mile Colors Blue, Green, Red, Yellow [LETTERHEAD LOGO OF AIRSHIP INTERNATIONAL LTD.] EXHIBIT A (CONTINUED) N 501 LP AT 6676.7 HOURS DATE 12/6/94
COMPONENT NAME S/N POSITION REMOVE HRS RUN REMAIN 1 ENGINE 63C4932 PORT 6742.6 1163.6 67.9 2 ENGINE 6313496 STRB 7408.7 516.0 734 3 PROP PITCH ACTUATOR 175 PORT 7253.9 420.8 579.2 4 PROP PITCH ACTUATOR 138 STRB 7396.9 277.8 722.2 5 GENERATOR S098906.0 PORT 7103.8 320.9 429.1 6 GENERATOR G0185.02 STRB 6908.7 515.0 224 7 FUEL PUMP 125 X/PORT 6958.7 516.0 284 8 FUEL PUMP 129 X/STRB 7299.5 186.2 615.8 9 PROPELLER V-175 PORT 7606.8 567.9 932.1 10 PROPOLLER Y-200 STRB 7606.8 557.3 932.1 11 G/BOX ADC3187 PORT 7606.8 567.8 932.1 12 G/BOX ABD1927 STRB 7606.8 567.9 932.1 13 VECT G/BOX 0022/R PORT 7337.1 1337.6 662.4 14 VECT G/BOX 0028/R STRB 7413.8 1260.9 739.1 15 VECT MOTOR 101530 PORT 7340.4 334.3 668.7 16 VECT MOTOR 105916 STRB 7413.4 259.3 740.7 17 LIQUID SPRING EVA070173 6798.8 386.1 124.1 18 IGN BOX 1086 PORT 7506.6 168.1 831.9 19 IGN BOX 1066 STRB 7521.6 153.1 846.9 20 BAL FAN RELAY N/A PORT MAY 2, 1997 4158.9 N/A 21 BAL FAN RELAY STRB MAY 2, 1997 4158.9 N/A 22 NOSE PROBE KA-7N APR 15, 1993 2822.1 N/A 23 ENG FIRE EXTINGUISH 09975A1 PORT AUG 19, 1996 5199.5 N/A 24 ENG FIRE EXTINGUISH 09973A1 STRB AUG 19, 1996 5195.5 N/A 25 LIFEJACKETS N/A OCT 31, 1995 194.2 N/A 26 CABIN FIRE EXTINGUISH N/A FRB 27, 1995 516.0 N/A 27 BATT CAP CHECK G01530886 DEC 28, 1994 184.2 N/A 28 SPARK PLUGS PORT 6868.8 55.9 194.1 29 SPARK PLUGS N/A STRB 6874.8 49.9 200.1 30 RUD KEY CABLE N/A PORT 7511.1 1163.6 836.4 31 RUD KEV CABLE N/A STRB 7511.1 1163.6 836.4 32 ELEV KEV CABLE N/A PORT 7511.1 1163.1 836.4 33 ELEV KEV CABLE N/A STRB 7511.1 1163.6 836.4 34 VECT CORT RELAY N/A 7408.9 765.8 734.2 35 NOSE CONE LACING N/A AUG 20, 1995 5195.5 N/A 36 NOSE BATT LACING N/A AUG 20, 1995 5195.5 N/A 37 TAILFIN ROOT CORD N/A AUG 20, 1995 5195.5 N/A 38 BRAC CABLE VERS CORD N/A APR 18, 1995 2622.1 N/A 39 EXTERN BE RIP CORD N/A OCT 2, 1995 1863.6 N/A 40 MAN LINE 934258 OCT 1, 1995 329.8 N/A 41 FIRE MINING CARTRIGE N/A NOV 10, 1995 5195.5 N/A 42 CHECK B N/A 6707.5 42.2 32.8 43 150 HR OUT OF PHASE N/A 6750.5 74.3 75.7 44 300 HR OUT OF PHASE N/A 6790.9 223.8 76.2 45 CHECK 1 N/A FEB 22, 1995 516.0 N/A 46 CHECK 2 N/A MAR 24 1995 1163.6 N/A 47 CHECK 3 N/A APR 18, 1995 2622.1 N/A 48 CHECK 4 N/A AUG 20, 1995 5195.3 N/A 49 FUEL PUMP; CLK ERS ELRA 543 AUX PORT 800 666.0 134 50 FUEL PUMP; CLK ERS ELRA 602 AUX STRB 800 666.0 134 51 BAL FAN; CLK ERS 1013 PORT 3275.4 332.0 357.8 52 BAL FAN; CLK ERS 892 STRB 3387.5 280.1 469.9
EX-10 15 EXHIBIT 10.81 FULL WARRANTY BILL OF SALE THIS FULL WARRANTY BILL OF SALE is given by AIRSHIP INTERNATIONAL LTD. (herein the "Seller") to TRANS CONTINENTAL LEASING, INC. (herein the "Buyers"). WITNESSETH: THAT FOR TEN DOLLAR.5 ($10.00) AND OTHER GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, Seller does hereby bargain, sell, assign, transfer and set over to Buyer, its successors and assigns, the items of equipment listed on the schedule attached hereto (being referred to herein as the "Equipment"). TO HAVE AND TO HOLD said Equipment, unto Buyer, its successors and assigns, forever. Seller covenants that it has good and marketable title to said Equipment conveyed hereunder and does hereby transfer good and valid title thereto free and clear of any and all mortgages, pledges, claims, dispositions of title, leases, security interests, encumbrances, liens, charges or defects. Seller further represents and warrants that the Equipment sold hereunder is transferable by Seller by its sole act and deed and that all corporate action required to authorize, approve and validate such transfer has been duly and lawfully taken. AND Seller covenants that it will from time to time on demand execute any and all such further instruments which Buyer, its successors and assigns, may deem necessary, desirable or proper to effect the complete transfer of the Equipment or any interest therein unto Buyer, its successors and assigns, or better to evidence the right, title and interest of Buyer, its successors and assigns. AND Seller further covenants that it will warrant and defend such title forever against all claims and demands whatsoever. AND Seller does hereby hake, constitute and appoint Buyer, its successors and assigns, its true and lawful attorneys, irrevocably in its name or otherwise, to have, use and take all lawful ways and means for the recovery of any of said property or right or interest therein herein assigned to Buyer which Seller may have or could take if this Bill of Sale had not been made. This Full Warranty Bill of Sale has been delivered in, and each of Seller and Buyer hereby agrees that the rights and obligations of Seller and Buyer hereunder shall in all respects be governed by, and construed in accordance with, the internal laws of the State of New York (without regard to the conflict of laws principles of such state), including all matters of construction, validity and performance, regardless of the location of the Equipment (which has been delivered in the State of Florida). IN WITNESS WHEREOF, Seller has caused this Full Warranty Bill of Sale to be duly executed as of the day of May, 1995. AIRSHIP INTERNATIONAL LTD. By: /s/ Alan Siegel ----------------------------------- Name: Alan Siegel --------------------------------- Title: Secretary -------------------------------- 2 EX-10 16 EXHIBIT 10.82 CREDIT AGREEMENT BETWEEN AIRSHIP INTERNATIONAL LTD., Borrower AND SENSTAR CAPITAL CORPORATION, Lender Dated November 30, 1995 CREDIT AGREEMENT THIS AGREEMENT, dated November 30, 1995, by and between Airship International LTD., a New York corporation (the "Borrower"), and Senstar Capital Corporation, a Delaware corporation (the "Lender"). WITNESSETH THAT: WHEREAS, the Borrower has requested that the Lender extend a term loan to the Borrower in an amount equal to $3,500,000; and WHEREAS, the Lender is willing to make such loan, subject to and upon the terms and conditions hereinafter set forth. NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements herein contained and intending to be legally bound hereby, covenant and agree as follows: ARTICLE I CERTAIN DEFINITIONS 1.01 Certain Definitions. In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, Agreement shall mean this Credit Agreement as the same may be supplemented or amended from time to time. Anheuser-Busch shall mean Anheuser-Busch Companies, Inc., a Delaware corporation. Aircraft Mortgage shall mean the Aircraft Mortgage in the form of Exhibit "A" hereto to be executed and delivered by Borrower in favor of Senstar and pursuant to which Lender shall receive a first priority lien on and security interest in the Skyship, as now or hereafter amended. Assignment of Contract shall mean the Assignment of Contract in the form of Exhibit "D" hereto to be executed and delivered by Borrower in favor of Senstar and pursuant to which Lender shall be granted a first priority security interest in the Bud I Contract. 1 Benefit Arrangement shall mean at any time an "employee benefit plan", within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or otherwise contributed to, by any member of the ERISA Group. Thus, a Benefit Arrangement includes, e.g., an "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA, a money purchase pension plan, a funded deferred profit sharing plan, and an employee stock ownership plan. Bud I Contract shall mean that certain Amended and Restated Airship Advertising Agreement, dated as of July 8, 1994, between Borrower and Anheuser-Busch as now or hereafter amended in accordance with the provisions of the Loan Documents. Business Day shall mean, as to notices to or matters affecting the Lender, a day other than a Saturday or Sunday or a public holiday under the laws of the Commonwealth of Pennsylvania or other day on which lending institutions are authorized or obligated to close in a municipality where the principal office of the Lender is situated. Capitalized Lease shall mean any lease under which the obligations of the lessee therein would, in accordance with generally accepted accounting principles, be included in determining total liabilities of the lessee as shown on the liability side of its balance sheet. Closing Date shall mean the date of this Agreement. COBRA Violation shall mean a failure by the Borrower to comply with group health plan continuation coverage requirements of Sections 601 et seq. of ERISA. Controlled Group shall mean (a) the controlled group of corporations as defined in Section 1563 of the Internal Revenue Code and (b) the group of trades or businesses under common control as defined in Section 414(c) of the Internal Revenue Code, in either case of which the Borrower is a part or may become a part. Environmental Condition shall mean any condition affecting any natural resource, including without limitation the air, soil, surface and groundwater which must be reported to a Governmental Authority or which must be remedied under any of the Environmental Laws. Environmental Laws shall mean all federal, state, local and foreign laws, rules and regulations pertaining to human health, the environment and worker safety. ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and the rules and regulations, as from time to time in effect, promulgated thereunder. 2 ERISA Group shall mean, at any time, the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code. Event of Default shall mean any of the Events of Default described in Section 7.01 of the Agreement. Governmental Authority shall mean any federal, state, local or foreign government and any agency, commission or other entity thereof authorized to enforce any of the Environmental Laws. Guaranty shall mean the Agreement of Guaranty and Suretyship to be executed and delivered contemporaneously herewith by Trans Air in favor of Senstar in substantially the form of Exhibit "B" hereto. Indebtedness shall mean, as to any Person, all items of indebtedness, obligation or liability, whether matured or unmatured, liquidated or unliquidated, direct, indirect or contingent, joint or several, including, but without limitation: (a) all indebtedness guaranteed, directly or indirectly, in any manner, or endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse; (b) all indebtedness in effect guaranteed, directly or indirectly, through agreements, contingent or otherwise: (i) to purchase such indebtedness; (ii) to purchase, sell or lease (as lessee or lessor) property, products, materials or supplies or to purchase or sell services, in any case primarily for the purpose of enabling the debtor to make payment of such indebtedness or to assure the owner of the indebtedness against loss; or (iii) to supply funds to or in any other manner invest in the debtor; (c) all indebtedness secured by (or for which the holder of such indebtedness has a right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon property owned or acquired subject thereto, whether or not the liabilities secured thereby have been assumed; and (d) all indebtedness incurred as the lessee of real or personal property or services under any Capitalized Lease. Internal Revenue Code shall mean the Internal Revenue Code of 1986, as amended from time to time. 3 Loan Documents shall mean the Agreement, the Term Note, the Aircraft Mortgage, the Guaranty, the Assignment of Contract and any other instruments, certificates or documents delivered or contemplated to be delivered hereunder or in connection herewith. Material Adverse Change shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition, results of operations or prospects of the Borrower, (c) impairs materially or could reasonably be expected to impair materially the ability of the Borrower to duly and punctually pay or perform its Indebtedness, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Lender, to the extent permitted, to enforce its legal remedies pursuant to this Agreement or any other Loan Document delivered thereunder. Multiemployer Plan shall mean any employee benefit plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to which the Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five plan years, has made or had an obligation to make such contributions. Multiple Employer Plan shall mean a Plan which has two or more contributing sponsors (including the Borrower or any member of the ERISA Group) at least two of whom are not under common control, as such a plan is described in Sections 4063 and 4064 of ERISA. PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor. Person shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof. Plan shall mean at any time an employee pension benefit plan (including a Multiple Employer Plan but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group. 4 Prohibited Transaction shall mean any prohibited transaction as defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which neither an individual nor a class exemption has been issued by the United States Department of Labor. Regulated Substances shall mean any substance the manufacture, storage, use, generation, treatment, disposal, transportation or other management of which is regulated by any of the Environmental Laws. Skyship shall mean that certain Skyship 500-HL Aircraft, Registration No. N501LP and all equipment described on Schedule 1.01 hereto and all replacements, substitutions, and alterations thereof and additions, attachments, accessories and accessions thereto, whether now owned or hereafter acquired. Term Loan shall mean the loan to be made by Senstar to Borrower pursuant to Section 2.01 hereof Term Note shall mean the promissory note of the Borrower referred to in Section 2.02 hereof and any amendment or allonge thereto and any replacement or substitution therefor. Trans Air means Trans Continental Airlines, Inc., a Florida corporation. Trans Leasing means Trans Continental Leasing, Inc., a New York corporation. ARTICLE II TERM LOAN 2.01 Term Loan. Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, and provided no Event of Default exists or will exist with the mere passage of time, notice or both, the Lender will make a $3,500,000 term loan to the Borrower on Closing Date (the "Term Loan"). 2.02 Term Note. The Term Loan made by the Lender under Section 2.01 shall be evidenced by a term note in substantially the form attached hereto as Exhibit "C", with the blanks appropriately completed, delivered by the Borrower to the Lender on or before the Closing Date (the "Term Note"). The Term Note shall be payable in installments and shall bear interest from the date thereof on the unpaid balance, all as provided in the Term Note. ARTICLE III PAYMENTS AND PREPAYMENTS 3.01 Payments and Prepayments. All payments of the principal of and interest on the Term Note shall be made to the Lender at its office designated therein in lawful money of the United States of America and in immediately available funds. The Borrower shall have the right, at its option, to prepay on any Business Day, the Term Note in whole or in part; provided, however, each prepayment shall be accompanied by a premium, based upon the amount of the prepayment, equal to 3% if prior to the first anniversary of the Closing Date, 2-1/4% if between the first and second anniversary of the Closing Date, 1-1/2% if between the second and third anniversary of the Closing Date, 1% if between the third and fourth anniversary, and 1/2% if subsequent to the fourth anniversary. Each partial prepayment with respect to the Term Note shall be applied to the unpaid installments of the principal amount thereof in the inverse order of their scheduled maturities. The Borrower shall give the Lender not less than three Business Days' prior written or telegraphic notice of each prepayment, specifying the principal amount of the Term Note to be prepaid and the prepayment date. Notice of prepayment having been given by the Borrower as aforesaid, the principal amount of the Term Note specified in such notice, together with interest accrued and unpaid thereon to the date of prepayment, shall become due and payable on such prepayment date. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01 Representations and Warranties. The Borrower represents and warrants to the Lender that: (a) Organization and Qualification. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of New York; the Borrower has the lawful power to own or lease its properties and to engage in the business it presently conducts and contemplates conducting; and the Borrower is duly licensed or qualified and in good standing as a foreign corporation in each jurisdiction where the failure to be qualified and in good standing could have a Material Adverse Change. (b) Power and Authority. The Borrower has the power to make and carry out the Loan Documents, to execute and deliver the Loan Documents, and to make the borrowings contemplated hereby and to perform its obligations under the Loan Documents and all such actions have been duly authorized by all necessary corporate proceedings. 6 (c) Validity and Binding Effect. The Agreement has been duly and validly executed and delivered by the Borrower. The Agreement constitutes and the Term Note and any other Loan Documents when duly executed and delivered by the Borrower and any other parties hereto or thereto pursuant to the provisions hereof will constitute legal, valid and binding obligations of the Borrower enforceable in accordance with the respective terms of the Agreement, the Term Note and any such other Loan Documents, except to the extent that enforceability of the foregoing Loan Documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or by laws or judicial decisions limiting the right of specific performance. No authorization, approval, exemption or consent by any governmental or public body or authority is required in connection with the authorization, execution, delivery and carrying out of the terms of the Loan Documents by the Borrower. (d) No Conflict. Neither the execution and delivery of the Loan Documents nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof will conflict with or result in any breach of the terms and conditions of the articles of incorporation or bylaws of the Borrower or of any law or regulation or any order, writ, injunction or decree of any court or governmental instrumentality or of any agreement or instrument to which the Borrower is a party or by which the Borrower is bound or to which it is subject, will constitute a default thereunder or will result in the creation or enforcement of any lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of the Borrower. All material contracts and agreements of the Borrower which require the consent of any party to the transactions contemplated herein are set forth on Schedule 4.01(d). (e) Litigatio. Except as set forth on Schedule 4.01(e) hereto, there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Borrower or its officers, against it at law or equity before any court or before any federal, state, municipal or any governmental department, commission, board, agency or instrumentality whether or not covered by insurance which individually or in the aggregate may result in any materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of the Borrower or in any impairment in the Borrower's ability to perform its obligations under the Agreement, the Term Note or any of the other Loan Documents. Neither the Borrower nor any of its officers has knowledge of any default with respect to any order, writ, injunction or any decree of any court or any federal, state, municipal or other governmental department, commission or bureau, agency or instrumentality which may result in any such materially adverse effect or impairment. (f) Audited Financial Condition. The Borrower has heretofore delivered to the Lender copies of the balance sheet of the Borrower as of December 31, 1993 and 7 the statements of income, retained earnings and changes in financial position of the Borrower for the fiscal year ended on such date, which have been certified by Grant Thornton, independent certified public accountants. Such financial statements (including the related notes) are correct and complete and fairly present the financial condition of the Borrower as of December 31, 1993 and the results of its operations for the fiscal year then ended and have been prepared in accordance with generally accepted accounting principles consistently applied by the Borrower; there were no material liabilities as of December 31, 1993, contingent or otherwise, of the Borrower not reflected in said balance sheet (including the related notes) as of said date. (g) Title to Skyship. Contemporaneously herewith, the Borrower is acquiring and will, subsequent to the Closing Date, possess good and marketable title to the Skyship, free and clear of all liens, security interests, encumbrances and claims of others, except for the lien granted by Borrower to Lender pursuant to the Aircraft Mortgage. (h) Tax Returns and Taxes. The Borrower has filed all federal, state and local tax returns and other reports it was required by law to file prior to the date hereof and which were material to the conduct its respective businesses, has paid or caused to be paid all taxes, assessments and other governmental charges that were due and payable prior to the date hereof, and has made adequate provision in its financial statements for the payment of such taxes, assessments and other charges accruing but not yet payable; the Borrower has no knowledge of any deficiency or additional assessment in a materially important amount in connection with any taxes, assessments or charges which is not provided for on its books. (i) Compliance with Laws. The Borrower has complied with all applicable laws such that it has not been subject to any fines, penalties, injunctive relief or similar criminal liabilities which in the aggregate have materially affected the business operations or financial condition of the Borrower or the ability of the Borrower to perform its obligations under the Agreement or the Term Note. (j) Plans and Benefit Arrangements. (i) The Borrower and each member of the ERISA Group are in compliance in all material respects with any applicable provisions of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer Plans. There have been no COBRA Violations by the Borrower which could result in any material liability to the Borrower. There has been no Prohibited Transaction with respect to any Benefit Arrangement or any Plan or, to the best knowledge of the Borrower, with respect to any Multiemployer Plan or Multiple Employer Plan, which could result in any material liability to the Borrower or any other member of the ERISA Group. The Borrower and all members of the ERISA Group have made when due any and all payments required to be made under any agreement relating to a Multiemployer Plan or a 8 Multiple Employer Plan or any law pertaining thereto. With respect to each Plan, Multiemployer Plan, and Benefit Arrangement that is a defined contribution plan, the Borrower and each member of the ERISA Group (A) have fulfilled in all material respects their obligations under the minimum funding standards of ERISA, if applicable, or contractual obligations to contribute to such plans, (B) have not incurred any liability to the PBGC and (C) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA. (ii) To the best of the Borrower's knowledge, each Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder when due. (iii) Neither the Borrower nor any other member of the ERISA Group has instituted or intends to institute proceedings to terminate any Plan. (iv) No event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with respect to any Plan, and no amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Plan. (v) The aggregate actuarial present value of all benefit liabilities (whether or not vested) under each Plan, determined on a plan termination basis, as disclosed in, and as of the date of, the most recent actuarial report for such Plan, does not exceed the aggregate fair market value of the assets of such Plan. (vi) Neither the Borrower nor any other member of the ERISA Group has incurred or reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any other member of the ERISA Group has been notified by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or Multiple Employer Plan has been terminated within the meaning of Title IV of ERISA and, to the best knowledge of the Borrower, no Multiemployer Plan or Multiple Employer Plan is reasonably expected to be reorganized or terminated, within the meaning of Title IV of ERISA. (vii) To the extent that any Benefit Arrangement is insured, the Borrower and all members of the ERISA Group have paid when due all premiums required to be paid for all periods through and including the Closing Date. To the extent that any Benefit Arrangement is funded other than with insurance, the Borrower and all members of the ERISA Group have made when due all contributions required to be paid for all periods through and including the Closing Date. 9 (k) Environmental Matters. (i) The operations of the Borrower comply in all material respects with all of the Environmental Laws; (ii) To the best of Borrower's knowledge there have been no Regulated Substances disposed of on any of the properties owned or leased by the Borrower; (iii) To the best of Borrower's knowledge there are no Environmental Conditions present on any of the properties owned or leased by the Borrower; (iv) The Borrower has received no notice from a Governmental Authority that it is, or is considered potentially, liable for any Environmental Conditions; (v) To the best of Borrower's knowledge there are no underground storage tanks, asbestos or equipment containing polychlorinated biphenyls on the property owned or leased by the Borrower other than those present and utilized in compliance with all of the Environmental Laws; and (vi) The Borrower does not manufacture, store, use, generate, treat, dispose or manage any Regulated Substances except in material compliance with all of the Environmental Laws. (l) General Validity. No representation or warranty by the Borrower contained herein or in any other Loan Document contains or will contain any untrue statement of material fact or omits or will omit to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made. (m) Principal Place of Business. The address of the Borrower's chief executive office and principal place of business is set forth on Schedule 4.01(n) hereto; and Borrower does not have any other place of business or conduct its business under a trade, assumed or fictitious name. (n) Storage Locations of Skyship. The base of operations for the Skyship is as set forth on Schedule 4.01(o) and will for the foreseeable future be in the Orlando, Florida area. (o) Bud I Contract. The Bud I Contract (i) is in full force and effect, (ii) to the best of Borrower's knowledge, constitutes the legal, valid and binding obligation of Anheuser-Busch, enforceable in accordance with its terms, (iii) to the best of Borrower's 10 knowledge, is not in default or subject to an event which with the passage of time or the giving of notice, or both, would constitute a default, (iv) has not been prepaid in any respect by Anheuser-Busch and (v) is not subject to any liens, security interests, or encumbrances other than in favor of Lender. (p) Solvency. After giving effect to the transactions described herein and in the other Loan Documents, Borrower is not insolvent as such term is defined in any applicable state or federal statute including without limitation the Bankruptcy Reform Act of 1978, as amended. Borrower is not engaged or about to engage in any business or transaction for which the assets retained by it shall be unreasonably small capital, taking into consideration the obligations and liabilities to the Lender incurred pursuant hereto. Borrower does not intend to, nor believes that it will, incur debts beyond its ability to pay them as they mature. Borrower agrees that it is paying fair and reasonable consideration in connection with the acquisition by the Borrower of the Skyship. ARTICLE V CONDITIONS OF LENDING The obligation of the Lender to make Term Loan hereunder is subject to the performance by the Borrower of its obligations to be performed hereunder at or prior to the making of the Term Loan and to the satisfaction of the following further conditions: 5.01 At the time of the making of the Term Loan: (a) The representations and warranties of the Borrower contained in Article IV hereof shall be true and accurate on and as of such date; no Event of Default and no condition, event or action which, with the giving of notice or the lapse of time or both, would constitute an Event of Default shall have occurred and be continuing or shall exist. (b) The following corporate information shall be delivered by the Borrower, which shall be acceptable to Lender in its sole discretion: (i) copies of the articles of incorporation of the Borrower certified by the Secretary of State of the State of New York as of a date reasonably near the Closing Date and accompanied by a certificate from an appropriate officer of Borrower stating that the copy is complete and that the articles of incorporation have not been amended, annulled, rescinded or revoked since the date of the certificate of the Secretary of State; 11 (ii) a copy of the bylaws of Borrower in effect on the Closing Date, accompanied by a certificate from an appropriate officer of Borrower stating that the copy is true and complete and that the bylaws have not been amended, annulled, rescinded or revoked since the date of the bylaws or the last amendment reflected in the copy, if any; (iii) a copy of resolutions of the Board of Directors of Borrower authorizing the execution, delivery and performance of the Loan Documents to which Borrower is a party and specifying the officer of Borrower authorized to execute the Loan Documents, accompanied by a certificate from an appropriate officer of Borrower stating that the resolutions are true and complete, were duly adopted at a properly called meeting at which a quorum was present and acting throughout, or were duly adopted by appropriate written action, and have not been amended, annulled, rescinded or revoked in any respect and remain in full force and effect on the date of the certificate; (iv) an incumbency certificate containing the names, titles and genuine signatures of all duly elected officers of Borrower who are authorized to execute any of the Loan Documents or any other documents or instruments to be executed and delivered to the Lender in connection herewith, accompanied by a certificate from an appropriate officer of Borrower stating that the information is true and complete; (c) The following corporate information shall be delivered by Trans Air, which shall be acceptable to Lender in its sole discretion: (i) copies of the articles of incorporation of Trans Air certified by the Secretary of State of the State of Florida as of a date reasonably near the Closing Date and accompanied by a certificate from an appropriate officer of Trans Air stating that the copy is complete and that the articles of incorporation have not been amended, annulled, rescinded or revoked since the date of the certificate of the Secretary of State; (ii) a copy of the bylaws of Trans Air in effect on the Closing Date, accompanied by a certificate from an appropriate officer of Trans Air stating that the copy is true and complete and that the bylaws have not been amended, annulled, rescinded or revoked since the date of the bylaws or the last amendment reflected in the copy, if any; (iii) a copy of resolutions of the Board of Directors of Trans Air authorizing the execution, delivery and performance of the Loan 12 Documents to which Trans Air is a party and specifying the officer or officers Trans Air authorized to execute the Guaranty, accompanied by a certificate from an appropriate officer of Trans Air stating that the resolutions are true and complete, were duly adopted at a properly called meeting at which a quorum was present and acting throughout, or were duly adopted by appropriate written action, and have not been amended, annulled, rescinded or revoked in any respect and remain in full force and effect on the date of the certificate; (iv) an incumbency certificate containing the names, titles and genuine signatures of all duly elected officers of Trans Air who are authorized to execute any of the Loan Documents or any other documents or instruments to be executed and delivered to the Lender in connection herewith, accompanied by a certificate from an appropriate officer of Trans Air stating that the information is true and complete; (d) The Borrower shall have executed and delivered to Lender the Term Note, Assignment of Contract, Aircraft Mortgage and such financing statements and other documents and instruments as may be requested by Lender; (e) Trans Air shall execute and deliver the Guaranty to Lender; (f) Borrower shall have acquired title (satisfactory to Lender) to the Skyship from Trans Leasing pursuant to a bill of sale and/or purchase agreement in form and substance (including, purchase price) acceptable to Lender in its sole discretion; (g) Lender shall have received an opinion of Trans Air's independent public accountants in form and substance and related to such matters as Lender may request; (h) Borrower shall have delivered copies of insurance policies, confirming compliance with the insurance provisions required under this Agreement, accompanied by an endorsement naming Lender as additional insured and loss payee thereunder; (i) Lender shall have received satisfactory lien/judgment reports confirming that Lender will upon the making of the Term Loan and the filing of the financing statements, and Aircraft Mortgage have a first priority perfected security interest in and lien on the Skyship and the Bud I Contract; (j) The lease of the Skyship between Trans Leasing and the Borrower shall be terminated on terms and conditions acceptable to Lender; 13 (k) Anheuser-Busch shall have executed a Notice and Acknowledgment of Assignment and Reassignment acceptable to the Lender; (1) There shall be delivered to the Lender a written opinion of Messrs. Baer Marks & Upham, counsel for the Borrower, dated as of the Closing Date and in form and substance satisfactory to Buchanan Ingersoll Professional Corporation, special counsel for the Lender. (m) There shall be delivered to the Lender a written opinion of Mr. William Pringle, Esquire, counsel for the Trans Air and Trans Leasing, dated as of the Closing Date and in form and substance satisfactory to Buchanan Ingersoll Professional Corporation, special counsel for the Lender. (n) All legal details and proceedings in connection with the transactions contemplated by the Agreement and all Loan Documents delivered to the Lender pursuant to this Section 5.01 shall be in form and substance reasonably satisfactory to the Lender and to Buchanan Ingersoll Professional Corporation, counsel for the Lender, and the Lender shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to Me Lender and said counsel, as the Lender or said counsel may reasonably request. ARTICLE VI COVENANTS 6.01 Affirmative Covenants Other Than Reporting Requirements. The Borrower covenants that, until payment in full of the Term Note and interest thereon, it will, unless otherwise consented to in writing by the Lender: (a) Preservation of Corporate Existence, etc. Maintain its corporate existence and its license or qualification and good standing in each jurisdiction in which the failure to qualify would have a Material Adverse Change and maintain and keep all its property in good repair, working order and condition, ordinary wear and tear alone excepted, and make or cause to be made all necessary or appropriate repairs, renewals, replacements, substitutions, additions, betterments and improvements thereto so that the efficiency and suitability for their use or intended uses within the business of all such properties shall at all times be properly preserved and maintained; (b) Payment of Liabilities, Including Taxes, etc. Duly pay and discharge all Indebtedness to which it is subject or which is asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental 14 charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such Indebtedness, including taxes, assessments or charges, is being contested in good faith and by appropriate proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made, but only to the extent that failure to discharge any such Indebtedness would not result in any liability which would adversely affect to a material extent the financial condition of the Borrower; (c) Maintenance of Insurance. Maintain insurance, at its own expense, with insurers and reinsurers of recognized reputation and responsibility satisfactory to Lender: (A) all-risk ground and flight aircraft hull insurance covering the Skyship; (B) all-risk coverage with respect to all engines, equipment and parts while removed from the aircraft; and (C) war risk and hijacking (including political/non-political hijacking and acts of terrorism). All such insurance shall be in full force and effect throughout any geographical areas at any time traversed by the Skyship, shall be payable in United States of America dollars and shall be in the amount of not less than the casualty value determined by Lender (which shall be $3,500,000 as of the Closing Date) and with liability coverage of not less than $50,000,000. Any policies carried under this section: (1 ) shall be primary without right of contribution from any other insurance; (2) be subject to a deductible no greater than $500,000; (3) shall provide that if such insurance is canceled or materially changed for any reason whatsoever, or the same is allowed to lapse for non-payment of premium, such cancellation, change or lapse shall not be effective as to Lender for thirty (30) days after receipt by Lender of written notice from such insurers of such cancellation or lapse or material change in policy terms and conditions; (4) shall provide that partial losses of less than $25,000 shall be adjusted by and payable to Borrower (so long as no Event of Default exists hereunder), but that in the event of a greater loss the entire insurance shall be adjusted by Borrower and Lender and payable to Lender alone; (5) shall provide that in respect of the interest of Borrower in such policies, the insurance shall insure Borrower regardless of any breach or violation of any warranties, declarations or conditions contained in such policies by Borrower or any other Person; (6) shall waive any rights of set off, counterclaim or deduction, whether by attachment or otherwise, and all rights of subrogation against Lender and its successors, assignors, agents, officers, employees and servants; (7) shall name Lender as additional insured and loss payee on all insurance policies maintained by Borrower with respect to the Skyship, including those policies generally described above; (8) shall provide that Lender shall have no liability for any premiums, commission or calls in connection with such insurance; and (9) to the extent of reinsurance, include a cut-through provision permitting Lender to file claims and to obtain payment directly form the reinsurers under the reinsurance policies; (d) Visitation Rights. Permit any of the officers or authorized employees or representatives of the Lender to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as the Lender may reasonably 15 request; provided, however, so long as no Event of Default exists or will exist with the mere passage of time, notice or both, all of the foregoing shall be on reasonable prior notice (i.e., no longer than seven (7) calendar days), during usual business hours and shall be conducted in a manner reasonably calculated to not materially interfere with Borrower's daily operations; (e) Keeping of Records and Books of Account. Maintain and keep proper books of record and account in accordance with generally accepted accounting practices applied on a consistent basis and in which full, true and correct entries shall be made of all its dealings and business and financial affairs; (f) Maintenance of Patents, Trademarks, etc. Maintain in full force and effect all patents, trademarks, trade names, copyrights, licenses, franchises, permits and other authorizations necessary for the ownership and operation of its properties and business if the failure so to maintain the same would substantially interfere with the normal operations of the Borrower or adversely affect to a material extent the financial condition, business or operations of the Borrower; (g) Plans and Benefit Arrangements. Comply, and cause each member of the ERISA Group to comply, with ERISA, the Internal Revenue Code and other applicable laws applicable to Plans and Benefit Arrangements except where such failure, alone or in conjunction with any other failure, would not result in a Material Adverse Change. Without limiting the generality of the foregoing, the Borrower shall cause all of its Plans and all Plans maintained by any member of the ERISA Group to be funded in accordance with the minimum funding requirements of ERISA and shall make, and cause each member of the ERISA Group to make, in a timely manner, all contributions due to Plans, Benefit Arrangements and Multiemployer Plans; (h) Environmental Indemnification. Indemnify and hold the Lender harmless from and against all liability, directly or indirectly arising out of any Environmental Condition on or associated with or emanating from any property of the Borrower or out of the use, generation, storage or disposal of Regulated Substances, including, without limitation, the cost of any required or necessary repair, clean-up or detoxification and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following transfer to the Lender of title or operation of the property, to the full extent that such action is attributable, directly or indirectly, to any such Environmental Condition or to the use, generation, storage or disposal of Hazardous Materials on any property of the Borrower. Notwithstanding the provisions of Section 8.09, this indemnification shall survive the full repayment of the Term Note; (i) Compliance with Laws. Comply with all applicable laws in all respects provided that the Borrower shall not be deemed to be in violation of this subsection (i) 16 of Section 8.01 hereof as the result of any failure to comply which would not result in fines, penalties, injunctive relief or other similar criminal liabilities which in the aggregate materially affect the business operations or financial condition of the Borrower or the ability of the Borrower to perform its obligations under the Agreement or the Term Note; (j) Application of Proceeds. Apply a portion of the proceeds of the Term Loan to acquire the Skyship from Trans Continental Leasing and the remaining proceeds in connection with Borrower's business; (k) Change of Base for Skyship. Prior to making any change of the Skyship's base of operations and in the event that the Skyship is to be temporarily based outside of Florida for more than thirty (30) consecutive days at any one particular location, notify Lender of the new base of operations or temporary base, as the case may be, and execute such additional financing statements and other documents and instruments as Lender may request to continue its perfected security interest in and lien on the Skyship; (l) Guaranty. Cause Trans Air to unconditionally guarantee and become surety for all Indebtedness of Borrower to Lender pursuant to the Guaranty and comply with all terms and conditions of the Guaranty; (m) Aircraft Mortgage. Grant Lender a first priority perfected lien on and security interest in the Skyship as security for all Indebtedness of Borrower to Lender pursuant to the Aircraft Mortgage and comply with all terms and conditions set forth therein; and (n) Bud I Contract. Grant Lender a first priority perfected security interest in the Bud I Contract as security for all Indebtedness of Borrower to Lender pursuant to the Assignment of Contract and comply with all terms and conditions set forth therein. 6.02 Negative Covenants. The Borrower covenants until payment in full of the Term Note and interest thereon, it will not, unless otherwise consented to in writing by the Lender: (a) Liens on Skyship and Bud I Contract. Create, incur, assume or suffer to exist any mortgage, security interest, lien or encumbrance whatsoever on the Skyship or the Bud I Contract; (b) Liquidation, Merger, etc. (i) Liquidate, merge or consolidate with or into any other Person or take any action in furtherance of any thereof; (ii) permit any other Person to consolidate with or merge into it, or (iii) sale, assign or dispose of substantially all of its assets in one or a series transactions; and 17 (c) Sale of Skyship or Bud I Contract. Sell, convey, assign or otherwise transfer or dispose of (i) Skyship or any portion thereof except for ordinary repairs and replacements of components of the Skyship or (ii) the Bud I Contract. 6.03 Reporting Requirements. The Borrower covenants that, until payment in full of the Term Note and interest thereon, it will furnish to the Lender: (a) Quarter-Fiscal Year Financial Statements. Within 60 days after the close of each of the first three quarter-fiscal year periods of each fiscal year of the Borrower, unaudited statements of income, retained earnings and changes in financial position of the Borrower for such quarter-fiscal year period, and an unaudited balance sheet of the Borrower as of the close of such quarter-fiscal year period, all in reasonable detail and certified by the chief accounting officer of the Borrower, subject to year-end audit adjustments, as having been prepared in accordance with generally accepted accounting principles consistent with those applied in the preparation of the annual financial statements last furnished under Section 4.01(f) hereof or subsection (b) below. (b) Annual Financial Statements. Within 120 days after the close of each fiscal year of the Borrower, statements of income, retained earnings and changes in financial position of the Borrower for such fiscal year and a balance sheet of the Borrower as of the close of such fiscal year, all in reasonable detail, such financial statements to be certified by independent certified public accountants of recognized standing selected by the Borrower and satisfactory to the Lender, whose certificate or opinion accompanying such financial statements shall not contain any material qualification or exception not satisfactory to the Lender. (c) Shareholder Reports and SEC Filings. Promptly upon their filing or distribution (i) any reports distributed by the Borrower to its shareholders on a date no later than the date supplied to the shareholders, and (ii) periodic reports filed by the Borrower with the Securities and Exchange Commission, including Borrower's 10Q and 10K filings. (d) Notice of Default. As soon as possible and in any event within five days after the occurrence of each Event of Default (other than a payment default arising under Section 7.01(a)) or each event which, with the giving of notice or lapse of time or both, would constitute an Event of Default, a certificate signed by its President, a Vice President or its chief financial officer and setting forth the details of such Event of Default and the action which the Borrower proposes to take with respect thereto. (e) Notices of Litigation. Promptly after the commencement thereof, notice of all actions, suits and proceedings before any court or governmental or administrative 18 body or agency, domestic or foreign, of the type described in Section 4.01(e) hereof affecting the Borrower. (f) Other Information. Such other information respecting the business, properties or condition of operations, financial or otherwise, of the Borrower as the Lender may from time to time reasonably request. ARTICLE VII DEFAULT 7.01 Events of Default. An Event of Default with respect to the Term Loan shall mean the occurrence of any one or more of the following described events: (a) The Borrower shall fail to make any payment when under the Term Note, whether such payment be (i) the payment of any installment (other than the final installment) of principal and interest on the Term Note as specified therein; provided, however, the Borrower shall have the right, which may be exercised up to two (2) times each twelve (12) month period, to cure any failure to make a payment when due on the Term Note within five (5) calendar days of the due date prior to such failure constituting an Event of Default under this subparagraph (a)(i), or (ii) any payment due at the maturity of the Term Note as specified therein; (b) The Borrower shall default in any payment of principal of or interest on any other Indebtedness for money borrowed beyond any period of grace provided with respect thereto or in the performance of any other agreement, or any term or condition contained in any agreement or instrument, under or by which any such Indebtedness is created, evidenced or secured, if the effect of such default is to cause, or permit the holder or holders of such Indebtedness or a trustee on behalf of such holder or holders to cause, such Indebtedness to become due prior to its stated maturity unless such default is waived by the holders thereof; (c) Any representation or warranty made by the Borrower herein or by any party in any of the Loan Documents, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof, shall prove to have been false or misleading in any material respect as of the time made or furnished; (d) The Borrower shall default in the observance or performance of any covenant contained in Section 6.01(c) or Section 6.02 hereof; (e) An "Event of Default" shall occur under any other Loan Document; 19 (f) Trans Air shall default in the observance or performance of any covenant contained in Section 9(i) of the Guaranty; (g) The Borrower or, Trans Air or any other party thereto shall default in the observance or performance of any other covenant, condition or provision hereof or any other Loan Document delivered in connection herewith and such default shall continue unremedied for a period of thirty (30) calendar days after written notice thereof shall have been given to the Borrower or Trans Air, as the case may be; (h) A default or event which, with the passage of time or giving of notice, or both, would constitute a default exists under the Bud I Contract or Anheuser-Busch shall cancel or terminate the Bud I Contract or assert that the Bud I Contract is not a legal, valid or binding obligation of Anheuser-Busch; (i) Borrower or Trans Air shall have final judgments aggregating an excess of $100,000 or $250,000, respectively, rendered against it which shall remain outstanding and undischarged for thirty (30) calendar days or have rendered against it any levy, seizure, garnishment or attachment which has or may have a material adverse affect on Borrower's or Trans Air's financial condition; (j) A proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of the Borrower, Trans Air or any other Person who shall have guaranteed the payment of the Term Note (the "Guarantor") in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower, Trans Air or any Guarantor or for any substantial part of its, his or her property, or for the winding-up or liquidation of its, his or her affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of 30 consecutive days or such court shall enter a decree or order granting any of the relief sought in such proceeding; (k) The Borrower, Trans Air or any Guarantor shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Borrower, Trans Air or any Guarantor or for any substantial part of its, his or her property, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its, his or her debts as they become due, or shall take any action in furtherance of any of the foregoing. 20 7.02 Consequences of Event of Default. (a) If an Event of Default specified under subsections (a)(i) or (b) through (i) of Section 7.01 hereof shall occur, the Lender may by written notice to the Borrower declare the unpaid balance of the principal of the Term Note then outstanding and all interest accrued thereon and all other Indebtedness of the Borrower to the Lender to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. (b) If an Event of Default specified under subsections (a)(ii), (j) or (k) of Section 7.01 hereof shall occur, the unpaid principal balance of the Term Note then outstanding and all interest accrued thereon and all other Indebtedness of the Borrower to the Lender shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. ARTICLE VIII MISCELLANEOUS 8.01 No Implied Waiver; Cumulative Remedies; Writing Required. No delay or failure of the Lender in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The rights and remedies provided hereunder are cumulative and not exclusive of any rights or remedies (including, without limitation, the right of specific performance) which the Lender would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of the Lender of any breach or default under the Agreement, Term Note or any other Loan Documents or any such waiver of any provision or condition hereof or thereof must be in writing and shall be effective only to the extent in such writing specifically set forth. The Borrower acknowledges that with respect to this Agreement and its terms the Borrower is neither authorized nor entitled to rely on any representations, modifications or assurances in any form or as to any subject from any officer of the Lender unless and until such representation, modification or assurance is set forth in writing and signed by such officer of the Lender. 8.02 Taxes. The Borrower agrees to pay or cause to be paid any and all stamp, document, transfer or recording taxes, and similar impositions payable or hereafter determined to be payable in connection with the Loan Documents, and agrees to save the Lender harmless from and against any and all present or future claims or liabilities with respect to, or resulting from, any delay in paying, or omission to pay, any such taxes or similar impositions. 21 8.03 Holidays. Whenever any payment or action to be made or taken hereunder or under the Term Note shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next succeeding Business Day and such extension of time shall be included in computing interest or fees, if any, in connection with such payment or action. 8.04 Notices. All notices and other communications given to or made upon any party hereto in connection with the Agreement, the Term Note, or any other Loan Documents shall, except as herein or therein otherwise expressly provided, be in writing and delivered by personal delivery, overnight courier, express mail or certified mail return receipt requested, telefaxed or telexed with confirmation in writing mailed first class, telefaxed, telegraphed or delivered, in all cases with charges prepaid, (i) if to the Borrower, at the address set forth below the signature of the Borrower or at such other single address as shall be designated in the latest written notice signed by the President of the Borrower and mailed or delivered in accordance with the provisions of this Section 8.04 with a copy to Baer Marks & Upham, 805 Third Avenue, New York, NY 10022, Attn: Samuel F. Ottensoser, Esquire, and (ii) if to the Lender, at the address set forth below its signature hereto or at such other address as shall be designated in the latest written notice given by such party in accordance with the provisions of this Section 8.04 with a copy to Buchanan Ingersoll Professional Corporation, 301 Grant Street, 20th Floor, One Oxford Centre, Pittsburgh, PA 15219, Attn: Donald E. Malecki, Esquire. All such properly given notices or other communications shall be effective when received. 8.05 Reimbursement for Certain Expenses. The Borrower agrees to pay or cause to be paid and save the Lender harmless against liability for the payment of all reasonable out-of-pocket expenses, including legal fees and costs, incurred by the Lender (i) arising in connection with the development, preparation, execution and performance of the Agreement, the Term Note, any other Loan Documents and the related transactions, (ii) relating to any requested amendments, waivers or consents pursuant to the provisions hereof, and (iii) arising out of or in connection with any action or proceeding (including any action or proceeding arising in or related to any insolvency, bankruptcy or reorganization involving or affecting the Borrower) taken to protect, enforce, determine or assert any right or remedy under this Agreement, the Term Note or any of the other Loan Documents or any collateral securing the same. Any legal fees to which Lender shall be entitled pursuant to the immediately preceding sentence shall be offset to the extent of the amount of legal fees which the Lender shall collect pursuant to the "Confession of Judgment" clause included in the Term Note. 8.06 Severability. The provisions of the Agreement are severable, and if any clause or provision of the Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such clause or provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or 22 enforceability of such clause or provision in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 8.07 Governing Law. The Agreement, the Term Note and any other Loan Documents and the rights and obligations of the parties hereto and thereto shall be governed by and construed and enforced in accordance with the substantive law of the Commonwealth of Pennsylvania without giving effect to the principles of conflict of laws. 8.08 Prior Understandings. The Agreement supersedes all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein and therein. 8.09 Survival. All representations, warranties, covenants and agreements of the Borrower contained in the Agreement, the Term Note or any other Loan Documents shall survive the execution and delivery hereof and thereof, the making of Term Loan hereunder and the issuance of the Term. 8.10 Section Headings. The underlined section headings herein are for convenience of reference only and shall not in any way affect the interpretation or construction hereof or thereof. 8.11 Successors and Assigns. The Agreement shall be binding upon and inure to the benefit of the Lender, the Borrower, and their respective successors and assigns, except that the Borrower may not assign or transfer its rights hereunder or any interest herein. 8.12 Attorney-in-Fact. Borrower hereby irrevocably appoints Lender as Borrower's attorney-in-fact (which power shall be deemed coupled with an interest) to execute, endorse and deliver any deed, conveyance, assignment or other instrument in writing as may be required to vest in Lender any right, title or power which by the terms hereof are expressed to be conveyed to or conferred upon Lender, including, without limitation, filings to be made at the Federal Aviation Administration, Uniform Commercial Code financing statements (including continuation statements), real property waivers, and documents and checks or drafts relating to or received in payment for any loss or damage under the policies of insurance required by the provisions of Section 6.01(c) hereof, but only to the extent that the same relates to the Skyship. 8.13 Jurisdiction. The parties agree that any action or proceeding arising out of or relating to this Agreement may be commenced in any state or Federal court of competent jurisdiction in the Commonwealth of Pennsylvania and each party submits to the jurisdiction of such court and agrees that a summons and compliant commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served personally or 23 by certified mail to it at its address designated pursuant hereto, or as otherwise provided under the laws of the Commonwealth of Pennsylvania. 8.14 Counterparts. The Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto, by their officers hereunto duly authorized, have executed the Agreement as of the day and year first above written. [CORPORATE SEAL] WITNESS: AIRSHIP INTERNATIONAL LTD. /s/ Alan Siegel NAME /s/ LOUIS J. PEARLMAN - ----------------------------------- ------------------------- Title: President ------------------------ Address: 7380 Sand Lake Road Suite 350 Orlando, FL 32819 WITNESS: SENSTAR CAPITAL CORPORATION /s/ Illegible NAME /s/ Illegible - ----------------------------------- ------------------------- Title: Credit Manager ------------------------ Address: One Oxford Centre Pittsburgh, PA 15219 24 Aircraft Description: One (l) 1991 Airship Industries Series 500HL Skyship Registration Number N501LP, Manufacturer's Serial Number 1214-04 AIRSHIP INTERNATIONAL LTD. Airship International Skyship Statistics Dimensions: Length 194 feet Height 67 feet Width 63 feet Volume 235,400 cubic feet Lifting Gas Helium (non-flammable) Maximum Passenger Capacity: Six, plus captain and co-pilot Perfortmance: Cruising Speed 35 mph Maximum Speed 62 mph Two Porsche 930 Engines 225 hp each Cruising Altitude 1,000 to 3,000 feet Maximum Altitude 10,000 feet Range 300 miles Gondola Dimensions: Length 38.3 feet Width 8.4 feet Headroom 6.3 feet Envelope Fabric: Polyurethane-coated Polyester Synthetic NightSign'tm': Height of Sign 29 feet Length of Sign 118 feet Readability 1 mile Colors Blue, Green, Red, Yellow AIRSHIP INTERNATIONAL LTD. 7360 Sand Lake Road . Suite 200 . Orlando, Florida 32819, Telephone: (407) 351-0011 . Telefax (407) 345-0888 SCHEDULE 1.01 TO CREDIT AGREEMENT
N 501 LP AT 8276.7 HOURS DATE 11/27/95 COMPONENT NAME S\N POSITION REMOVE HRS RUN REMAIN 1 ENGINE 09D1033 PORT 8569.1 957.6 292.4 2 ENGINE 09D1031 STRB 8632.8 893.9 356.1 3 PROP PITCH ACTVATOR 01R PORT 8915.8 360.9 639.1 4 PROP PITCH ACTUATOR 176 STRB 9253.9 22.8 977.2 5 GENERATOR H098906.0 PORT 8940.2 86.5 663.5 6 GENERATOR A3088.12 STRB 8399.3 516.4 122.6 7 FUEL PUMP 134 M\PORT 8493.3 583.4 216.6 8 FUEL PUMP RAV012 H\STRB 8900.2 176.5 623.5 9 FUEL PUMP ELRA402 AUX PORT 8560.3 516.4 283.6 10 FUEL PUMP ELRA543 AUX STRB 8560.3 516.4 283.6 11 PROPELLER V-173 PORT 9193.3 583.4 916.6 12 PROPELLER V-201 STRB 9193.3 583.4 916.6 13 G\BOX AAN0636 PORT 9193.3 583.4 916.6 14 G\BOX ABP7068 STRB 9193.3 583.4 916.6 15 VECT G\BOX BAT0001/R PORT 9078.5 1198.2 801.8 16 VECT G\BOX 0029/R STRB 9078.5 1198.2 801.8 17 VECT MOTOR 101530 PORT 8296.9 979.8 20.2 18 VECT MOTOR 103201 STRB 8382.8 893.9 106.1 19 LIQUID SPRING JES/ACC/16/57 8965.3 311.4 688.6 20 IGN BOX 1032 PORT 8486.3 790.4 209.6 21 IGH BOX 1060 STRB 8572.7 704.0 296 22 BAL FAN RELAY N\A PORT MAY 2,1997 5760.9 N\A 23 BAL FAN RELAY STRB MAY 2,1997 576O.9 N\A 24 NOSE PROBE KA3 MAR 15, 97 1198.2 N\A 25 ENG FIRE EXTINGUISH 11974A1 PORT JULY 24,00 311.4 N\A 26 ENG FIRE EXTINGUISH 09973A1 STRB AUG 19, 96 6797.5 N\A 27 LIFEJACKETS N\A NOV 12, 96 22.8 N\A 28 CABIN FIRE EXTINGUISH N\A MAR 20, 96 311.4 N\A 29 BATT CAP CHECK G01530172 FEB 11, 96 22.8 N\A 30 SPARK PLUGS PORT 8421.1 105.6 144.4 31 SPARK PLUGS N\A STRB 8421.1 105.6 144.4 32 RUD KEV CABLE N\A PORT 9078.5 1198.2 801.8 33 RUD KEV CABLE N\A STRB 9078.5 1198.2 601.8 34 ELEV KEV CABLE N\A PORT 9078.5 1198.2 801.8 35 ELEV KEV CABLE N\A STRB 9078.5 119B.2 801.8 36 VECT CONT RELAY N\A 8882.8 893.9 606.1 37 NOSE CONE LACING N\A MAR 15, 99 1l98.2 N\A 38 NOSE BATT LACING N\A MAR 15, 99 1198.2 N\A 39 TAILFIN ROOT CORD N\A MAR 15, 99 1198.2 N\A 40 BRAC CABLE TENS CORD N\A MAR 15, 97 1198.2 N\A 41 EXTERN HE RIP CORD N\A SEPT 19,97 311.4 N\A 42 MAN LINE 947010 SEPT 25,96 284.3 N\A 43 FIRE EXTING CARTRIGE N\A NOV 10,95 6797.5 N\A 44 CHECK B N\A 8351.7 0.0 75 45 150 HR OCT OF PHASE N\A 8416.3 10.4 139.6 46 300 HR OUT OF PHASE N\A 8566.3 10.4 289.6 47 CHECK 1 N\A MAR 21, 96 311.4 N\A 48 CHECK 2 N\A MAR 15, 96 1198.2 N\A 49 CHECK 3 N\A MAR 15, 97 1198.2 N\A 50 CHECK 4 N\A MAR 15, 99 1198.2 N\A 51 BAL FAN; CLK HRS 1048 PORT 3824 80.0 670 52 BAL FAN; CLK HRS 992 STRB 3387.5 516.5 233.5
Consents required with respect to the Credit Agreement None, assuming the contemporaneous termination of the existing lease between the Borrower and Trans Air, the purchase of the Skyship by the Borrower from Trans Air and the payout of obligations owed to Phoenixcor, Inc., as well as obtaining contemporaneously the consent of Anheuser-Busch to the assignment of the Bud I Contract. SCHEDULE 4.01(d) TO CREDIT AGREEMENT Litigations, Suits and Proceedings None SCHEDULE 4.01(e) TO CREDIT AGREEMENT Borrower's Chief Executive Office and Principal Place of Business 7380 Sand Lake Road Suite 350 Orlando, Florida 32819 SCHEDULE 4.01(n) TO CREDIT AGREEMENT Base of Operations for the Skyship: Executive or Kissimmee Airports in Orlando, Florida SCHEDULE 4.01(o) TO CREDIT AGREEMENT EX-10 17 EXHIBIT 10.83 TERM NOTE $3,500,000.00 Pittsburgh, Pennsylvania November 30 _________________ , 1995 FOR VALUE RECEIVED, the undersigned, Airship International LTD ("Maker"), a New York corporation, having its principal office at 7380 Sand Lake Road, Suite 350, Orlando, Florida 32819, promises to pay to the order of Senstar Capital Corporation ("Lender") in lawful money of the United States of America in immediately available funds at the Pittsburgh, Pennsylvania office of Lender at 36th Floor One Oxford Centre, Pittsburgh, Pennsylvania 15219, or at such other location as the holder hereof may designate from time to time, the principal sum of Three Million Five Hundred Thousand Dollars ($3,500,000.00), together with interest from the date hereof on the unpaid principal balance at a rate of nine and one-quarter percent (9.25%) per annum. This Note shall be payable as follows: Sixty Three Thousand Three Hundred Seventy One Dollars and 06/100 ($63,371.06), on November 30, 1995, and a like and equal sum on the thirtieth (30th) day of each succeeding calendar month (in the event any month has less than 30 days, then on the last day of such month) thereafter to and including October 30, 2000 and the entire outstanding balance of principal and accrued and unpaid interest on this Note on November 30, 2000. If the Maker fails (i) to make any payment hereunder or under any other document executed in connection with this Note, or (ii) fails to pay this Note at maturity, whether by acceleration, demand or otherwise, then in either such event, each such payment or accelerated balance shall bear interest at the lower of 18% or the highest rate permitted by law. The aforesaid interest rates shall continue to apply whether or not judgment shall be entered on this Note. If any payment of principal or interest on this Note shall become due on a Saturday, Sunday or on any other day on which Lender is not open for business, such payment shall be made on the next succeeding business day and such extension of time shall in such case be included in computing interest in connection with such payment. Notwithstanding any provision of this Note to the contrary, it is the intent of Maker and Lender that Lender shall not at any time be entitled to receive, collect or apply, and Maker and Lender shall not be deemed to have contracted for, as interest on the principal indebtedness evidenced hereby, any amount in excess of the maximum rate of interest permitted to be charged by applicable law, and in the event Lender ever receives, collects or applies as interest any such excess, such excess shall be deemed partial payment of the principal indebtedness evidenced hereby, and if such principal shall be paid in full, any such excess shall EXHIBIT "C" TO CREDIT AGREEMENT NOT FOR EXECUTION forthwith be paid to Maker. In the event that, but for this paragraph, the rate of interest applicable to this Note would at any time exceed the maximum lawful rate, then this Note and all interest hereon shall thereupon be immediately due and payable. This Note is the Term Note referred to in and issued pursuant to the Credit Agreement, dated of even date herewith, between Maker and Lender ("Credit Agreement"). The Credit Agreement contains provisions, among other things, for the acceleration of the stated maturity of this Note upon the happening of certain stated events recited therein and also for prepayments on account of the principal hereof prior to maturity as provided therein. Maker hereby waives presentment, demand, protest or notice of any kind in connection with this Note. This Note shall bind Maker and the successors and assigns of Maker, and the benefits hereof shall inure to the benefit of Lender and its successors and assigns. All references herein to "Maker" shall be deemed to apply to Maker and to the successors and assigns of Maker, and all references herein to "Lender" shall be deemed to apply to Lender and its successors and assigns. This Note shall be governed by and enforced in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to conflict of laws principles. Maker hereby consents that jurisdiction and venue for action, suit or other legal proceeding arising under this Note shall lie in the appropriate courts of competent jurisdiction in Allegheny County, Pennsylvania. MAKER DOES HEREBY EMPOWER THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA TO APPEAR FOR MAKER AND, WITH OR WITHOUT ONE OR MORE COMPLAINTS FILED, CONFESS JUDGMENT OR JUDGMENTS AGAINST MAKER IN ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA AT ANY TIME AFTER THE DATE OF THIS NOTE AND, WHETHER OR NOT THIS NOTE IS THEN DUE OR IN DEFAULT, IN FAVOR OF LENDER, ITS SUCCESSORS AND ASSIGNS, FOR THE UNPAID PRINCIPAL BALANCE OF THIS NOTE AND ALL INTEREST ACCRUED HEREON, TOGETHER WITH COSTS OF SUIT AND AN ATTORNEY'S COMMISSION OF TWENTY PERCENT (20%) FOR COLLECTION OF SUCH SUMS, AND MAKER HEREBY FOREVER WAIVES AND RELEASES ANY AND ALL ERRORS IN SAID PROCEEDINGS AND WAIVES STAY OF EXECUTION AND STAY, CONTINUANCE OR ADJOURNMENT OF SALE ON EXECUTION. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST MAKER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, AND MAY BE EXERCISED FROM TIME TO TIME AND AS OFTEN AS LENDER OR ITS SUCCESSORS AND ASSIGNS SHALL DEEM NECESSARY OR DESIRABLE. 2 IN WITNESS WHEREOF, Maker, intending to be legally bound, has executed this Note on the day and year first above written with the intention that this Note shall constitute a sealed instrument. ATTEST: AIRSHIP INTERNATIONAL LTD. _______________________ By: /s/ LOUIS J. PEARLMAN ______________________ Name: ______________________ [SEALl Title: President ______________________ 3 EX-10 18 EXHIBIT 10.84 This Aircraft Mortgage and Security Agreement encumbers the following aircraft: Make: Skyship Model/Serial No.: 500HL Registration No.: N501LP AIRCRAFT MORTGAGE AND SECURITY AGREEMENT THIS AIRCRAFT MORTGAGE AND SECURITY AGREEMENT (hereinafter called the "Mortgage") dated November 30, 1995, from Airship International Ltd., a New York corporation, (hereinafter called the "Borrower"), as the Mortgagor, to Senstar Capital Corporation, a Delaware corporation, having its principal office at One Oxford Centre, 31st Floor, 301 Grant Street, Pittsburgh, Pennsylvania 15219 (hereinafter called the "Mortgagee" or the "Lender"), as the Mortgagee. WHEREAS, the Borrower has entered into a Credit Agreement of even date herewith with the Mortgagee, (as now or hereafter amended hereinafter called the "Credit Agreement"), pursuant to which the Mortgagee has agreed, subject to the terms and conditions set forth in the Credit Agreement, to make a $3,500,000 loan to the Borrower, which is evidenced by a $3,500,000 Term Note, dated of even date herewith, from Borrower in favor of Lender (as now or hereafter amended or replaced the "Term Note"); WHEREAS, the Borrower desires to execute and to deliver this Mortgage for the purpose, among other things, of securing payment of the Term Note and the payment when due of any and all Indebtedness and liability of every kind, nature and character (including all renewals, extensions and modifications thereof) from the Borrower to the Mortgagee, including but not limited to indebtedness created, or arising, or evidenced or acquired under the Credit Agreement (hereinafter collectively called the "Obligations"), and for the purpose of subjecting the Mortgaged Property (as hereinafter defined) including, without limitation, the aircraft, aircraft engines, propellers and flight equipment, as hereinbelow described, to the lien of this Mortgage; WHEREAS, the Borrower is the legal and beneficial owner, free and clear of all security interests, mortgages, liens, charges and encumbrances of the Mortgaged Property; EXHIBIT "A" TO CREDIT AGREEMENT NOT FOR EXECUTION NOW, THEREFORE, THIS INSTRUMENT WITNESSETH that, to secure the Obligations, the Borrower, intending to be legally bound hereby, does bargain, sell, transfer, convey, hypothecate and mortgage unto the Mortgagee, its successors and assigns, and grants to the Mortgagee a security interest in and to the following described property (hereinafter called the "Mortgaged Property"), to wit: (i) All the property described in the Supplement attached to this Mortgage; (ii) All proceeds from the sale or other disposition of the Mortgaged Property and all proceeds of insurance on and all proceeds of any condemnation (being any condemnation, confiscation, expropriation or seizure of, or requisition of title to or use of, the Mortgaged Property by any government or instrumentality or agency thereof) with respect to the Mortgaged Property; (iii) All additions, accessories, attachments, replacements and renewals of all property subjected or required to be subjected to the lien hereof and all property which shall hereafter become physically attached to or incorporated in all property subjected or required to be subjected to the lien hereof, in each case whether the same are now or are hereafter subjected to the lien hereof; and (iv) All rents, issues, profits, revenues and other income of the property subjected or required to be subjected to the lien hereof, and all the estate, right, title and interest of every nature whatsoever of the Borrower, at law or in equity, in and to such property and every part and parcel thereof. Title to or a lien upon all property mortgaged hereby, or intended to be hereafter acquired by the Borrower or to which it may at any time hereafter be, in any manner, entitled at law or in equity, and required to be subjected hereto or intended so to be, shall vest in the Mortgagee, under the terms and conditions of this Mortgage, forthwith on acquisition thereof by the Borrower, and such property shall be as fully embraced within the provisions of this Mortgage and subject to the lien hereof as if such property were now owned by the Borrower and were specifically described herein and mortgaged hereby. All property which is hereinafter subjected to the lien of this Mortgage shall thereupon become Mortgaged Property. TO HAVE AND TO HOLD all and singular said property unto the Mortgagee, its successors and assigns, as security as aforesaid. ON CONDITION that, until the happening of an "Event of Default" (as defined herein), the Borrower shall have the right to possess the Mortgaged Property and to collect and enjoy the rents, issues, profits, revenues and income thereof. 2 All collateral described or referred to in the foregoing granting clauses and included in the Mortgaged Property, whenever acquired by the Borrower, shall secure the Obligations. IT IS HEREBY COVENANTED AND DECLARED by and between the parties hereto and their respective successors and assigns that the terms on which the Mortgaged Property shall be held, used and operated are as follows: ARTICLE I DEFINITIONS Section 1.1 For all purposes of this instrument, unless the context otherwise requires: A. "Aircraft," "aircraft engines" and "spare parts" shall have the respective meanings given to these terms in the Federal Aviation Act as in effect on the date of this Mortgage and shall mean the aircraft, aircraft engines, and spare parts included in the Mortgaged Property. B. "Event of Default" shall mean the occurrence of any one or more of the events described in Section 3.1 hereof which shall not be remedied in the grace period, if any, provided therein. C. "Federal Aviation Act" shall mean the Federal Aviation Act of 1958, as amended, as in effect on the date of this Mortgage, or any successor or substituted legislation at the time in effect and applicable. D. "Federal Aviation Administration" shall mean the Federal Aviation Administration provided for in the Federal Aviation Act as in effect on the date of this Mortgage, or any successor or substituted governmental authority at the time having jurisdiction. ARTICLE II PARTICULAR COVENANTS OF THE COMPANY The Borrower covenants, agrees and warrants as hereinafter in this Article set forth: Section 2.1 Warranty of Title. The Borrower warrants that it is the legal and beneficial owner of the Mortgaged Property free and clear of all security interests, mortgages, liens, charges and encumbrances whatsoever (excepting only the lien of the Mortgagee), and has full power and authority to grant, bargain, sell, transfer, convey, hypothecate and mortgage, and give a security interest in, said Mortgaged Property. The Borrower hereby does and shall forever warrant and 3 defend the title to and possession of the Mortgaged Property against the claims and demands of all persons whomsoever. Section 2.2 Recording. The Borrower shall bear the expense of and be responsible for recording and re-recording, registering and re-registering, and filing and refiling this Mortgage and each amendment hereto with respect to the Mortgaged Property and such other instruments from time to time as reasonably may be requested by the Mortgagee in all such jurisdictions and offices as the Mortgagee shall from time to time require in order that the lien granted herein is a first lien on all of the Mortgaged Property, senior to all liens. Section 2.3 Priority of Lien: Payment of Taxes. Until the Obligations have been paid in full, this Mortgage always shall be kept a first lien upon the Mortgaged Property as from time to time constituted, and senior to all liens, and the Borrower will not create or suffer to be created any lien or charge of any kind or nature whatsoever upon the Mortgaged Property or any part thereof or upon the income or proceeds therefrom. The Borrower shall from time to time pay or cause to be paid as they become due and payable all taxes, fees, assessments and governmental charges lawfully levied, assessed or imposed upon the Mortgaged Property or any part thereof or upon any income or proceeds therefrom and all taxes, fees, assessments and governmental charges lawfully levied or assessed or imposed upon the security interest of the Mortgagee in the Mortgaged Property, so that the lien of and security interest created by this Mortgage shall, until the Obligations have been paid in full, be wholly preserved at the cost of the Borrower and without expense to the Mortgagee. The Borrower shall not suffer any other matter or thing whatsoever whereby the lien of or security interest created by this Mortgage might be impaired; provided, however, that nothing in this Section shall require the Borrower to discharge any lien for taxes, assessments or governmental charges that are not delinquent or that in good faith are being contested or litigated by appropriate proceedings, and pending such contest, the Borrower may defer the payment thereof, so long as such deferment in payment shall not, in the reasonable opinion of the Mortgagee, subject the property or any part thereof to forfeiture or loss and the Borrower shall have on its books reserves deemed by the Mortgagee adequate with respect thereto or the Borrower shall otherwise post adequate security. Section 2.4 Indemnification. The Borrower shall indemnify and protect the Mortgagee against all claims arising out of or connected with the ownership or use of any of the Mortgaged Property including, without limitation, any and all claims arising out of the use of any patented inventions employed in or in connection with the Mortgaged Property. Section 2.5 Maintenance of Mortgaged Property. The Borrower shall at all times cause all of the Mortgaged Property as from time to time constituted and every part thereof to be maintained in good order and repair and fit for use at no cost to the Mortgagee. The Borrower shall from time to time make all needed and proper repairs, so that at all times the efficiency and the fitness for use of the Mortgaged Property will be fully maintained. 4 The Borrower shall at all times cause the Mortgaged Property to be maintained and repaired in accordance with the higher of the requirements of Section 2.6 or as suggested by the manufacturer of the Aircraft or any insurance policy in effect with respect to the Mortgaged Property. In addition to any and all other causes and conditions rendering the Aircraft unfit for use within the meaning of this Section, the withdrawal of the airworthiness certificate issued under the Federal Aviation Act with respect to the Aircraft, or the existence, with respect to the Aircraft or with respect to any aircraft engine included in the Mortgaged Property, of any order, rule or regulation of the Federal Aviation Administration which prohibits the use of such Aircraft or aircraft engine in normal Aircraft or aircraft engine operations shall be deemed to render the same unfit for use. The Borrower shall promptly notify the Mortgagee in writing of any such withdrawal, order, rule or regulation. The Borrower shall promptly notify the Mortgagee of any aircraft engine included in the Mortgaged Property becoming condemned, worn out, lost, destroyed or rendered unfit for use. The Borrower shall promptly replace all parts which may from time to time be incorporated or installed in or attached to the Aircraft or aircraft engines and 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. The Borrower will at all times comply in all material respects with all orders, rules and regulations of governmental authorities having jurisdiction with respect to any part of the Mortgaged Property, unless the same are being contested in good faith by the Borrower. At all times, the Aircraft shall be operated subject to this Mortgage and only in accordance and compliance in all material respects with the laws, rules and regulations of the United States of America, or any state or municipality thereof, or any other sovereign jurisdiction with respect to any aspect of such operation. The Borrower hereby irrevocably assigns, transfers and sets over the Mortgagee all rights of the Borrower to any award or payment on account of any confiscation of any part of the Mortgaged Property and irrevocably authorizes and empowers the Mortgagee, in the name of the Borrower or otherwise, to file and prosecute what would otherwise be the Borrower's claim for any such award or payment and to collect, receipt for and retain the same. The Borrower will pay all costs, fees and expenses incurred by the Mortgagee in connection with any expropriation or confiscation and seeking and obtaining any reward or payment on account thereof Section 2.6 Service and Repair. So long as any of the Obligations are outstanding (the "Term") the Borrower, at its sole cost and expense, shall maintain, service, repair, overhaul, test, alter, modify and add equipment (the "Borrower-Furnished Equipment") to the Aircraft and any 5 spare engine(s) used with the Aircraft (the "Spare Engine") (i) so as to keep them in as good operating condition as they were in as of the date of the Mortgage, ordinary wear and tear excepted, and (ii) as required to meet all applicable service, maintenance, repair and overhaul regulations, directions, and instructions of the Civil Aeronautics Board, Federal Aviation Administration and/or the Administration of the Federal Aviation Administration or any person, governmental department, bureau, commission or agency succeeding to the functions of the foregoing (the "Aeronautics Authority") regardless of on whom such requirements are by their terms imposed, as well as any other appropriate governmental agency having jurisdiction over the Borrower's operation and maintenance of the Aircraft. During the Term, the Borrower, at its sole cost and expense, shall maintain, service, repair, overhaul, test, alter, modify and add to the Borrower-Furnished Equipment so as to keep them in good operating condition. During the Term, the Borrower, at its sole cost and expense, shall promptly replace all parts, including Borrower- Furnished Equipment, which may from time to time be incorporated or installed in or attached to the Airframe and Engines or any item thereof and 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, the Borrower may, at its sole cost and expense, remove in the ordinary course of maintenance, service, repair, overhaul or testing, any parts, whether or not worn out, destroyed, damaged beyond repair or permanently rendered unfit for use; provided, however, that the Borrower will, at its sole cost and expense, replace such parts, including Borrower-Furnished Equipment, as promptly as possible. All such replacement parts shall be free and clear of all Liens (except those in favor of the Lender) 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 by the terms hereof. All parts, including the Borrower-Furnished Equipment, at any time removed from the airframe and engines as herein provided shall remain part of the Collateral of the Lender, 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 airframe or any engine as above provided, without further act and (i) title to such replacement part thereupon must vest in the Borrower, free and clear of all Liens (except those in favor of the Lender), (ii) such replacement part shall become subject to the Credit Agreement and this Agreement and be deemed a part of the airframe or engine for all purposes hereof to the same extent as parts originally incorporated or installed in or attached to the airframe or engine and (iii) title to the replaced part shall thereafter vest in the Borrower free and clear of all rights of the Lender and all Liens created or incurred by the Lender, and shall no longer be deemed a part hereunder. During the Term, the Borrower, without expense to the Lender, may from time to time make alterations and modifications in and additions to the Aircraft and any spare engine as the Borrower may deem desirable in the proper conduct of its business; provided that the Borrower shall not, without the Lender's prior written consent, make any such alteration, modification or addition which (i) diminishes the value and utility of the Aircraft, airframe or any engine below 6 the value and utility thereof immediately prior to such change or alternation, assuming the Aircraft, or airframe was at such time in the condition and repair as required by the terms hereof, or (ii) materially and adversely affects the costs of performing airframe or engine maintenance. The Lender shall bear no liability whatsoever for the alteration or modification of or addition to the Aircraft, whether in the event of grounding, suspension of certification or for any other cause whatsoever. Title to all Parts, including Borrower-Furnished Equipment, incorporated or installed in or attached to or added to the Aircraft and any spare engine as the result of such alternation, modification or addition shall, without further act, vest in the Borrower, free and clear of all Liens (except those in favor of the Lender). During the Term, the Borrower shall operate the Mortgaged Property in the continental United States of America and shall comply in all material respects with all laws of the jurisdiction in which the Aircraft may be operated and with all laws, rules, regulations, orders (including, without limitation, paying when due all taxes, assessments and governmental charges imposed on it or upon its property) and airworthiness directives of the Federal Aviation Administration and any other legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Borrower's operation and maintenance of the Aircraft, and will maintain the Aircraft in proper condition for operation under such laws, rules and airworthiness directives; provided, however, that the Borrower may in good faith contest the validity and application of any such law, rule, regulation, order or airworthiness directive in any reasonable manner which does not affect the Aircraft or rights of the Lender hereunder or the duties and obligations of the Borrower hereunder (except as provided in this Subsection 2.6) and if the Borrower shall have obtained in writing from the appropriate authorities permissions, extensions, variances or continuances to perform any acts required of the Borrower hereunder, provided the Borrower shall perform or cause to be performed on the Aircraft prior to the end of the Term any and all requirements or conditions set forth in such permissions, extensions, variances or continuances. The Borrower shall at all times during the Term hereof hold such form of certificate, if any, as may be necessary to permit the Borrower's title to the Aircraft to be recorded, and to be entitled to the benefits of recordation, under the Act or under similar provisions of any statute enacted in lieu thereof and the pertinent regulations of the Federal Aviation Administration relating to recordation. Section 2.7 Record Keeping. The Borrower shall maintain all records, logs, and other materials required by the Federal Aviation Administration to be maintained in respect of the Aircraft, regardless of whether such requirements are by their terms imposed on the Borrower or the Lender, and in the event that the Aircraft or any item thereof is repossessed by the Lender, the Borrower shall forthwith deliver to the Lender all such records, logs and other materials relating to the Aircraft so repossessed. Section 2.8 Annual Reports. Upon Lender's request, the Borrower shall furnish the Lender with annual reports reasonably detailing the hours of usage of the Aircraft and major 7 maintenance, service repair and overhaul performed on the Aircraft in accordance with the requirements of this Section 2. Section 2.9 Insurance. The Borrower shall at its expense at all times maintain with financially sound and reputable insurers, satisfactory to the Mortgagee, insurance as required under the terms of the Credit Agreement and as follows: A. Delivery of Policies: Insurance Certificates. The Borrower will deliver to the Mortgagee, as soon as possible upon request, the copies of all insurance policies, or certificate thereof, with respect to the Mortgaged Property which the Borrower is required to maintain pursuant to the Credit Agreement, together with evidence as to the payment of all premiums then due thereon. Each certificate shall be signed by an independent insurance broker satisfactory to the Lender stating that the insurance in force covering risks relating to the Mortgaged Property is carried and maintained with financially sound and reputable insurers and otherwise complies with the provisions of this Credit Agreement is in such amounts and covers such risks so that the protection afforded is not less than that which would be customarily maintained for properties of a similar character for entities engaged in a similar business, Mortgagee shall be named as a loss payee and additional insured with respect to all insurance policies. B. Borrower Not to Cancel, etc., Insurance. The Borrower will not, without the written consent of the Mortgagee, cancel, amend or alter any insurance required by Section 2.9 above and will not mortgage, pledge, hypothecate, sell, assign or transfer its interest in any such insurance or in any rights to cancel such insurance or to obtain the return of the unearned premiums therefor. C. Uninsured Aircraft to be Grounded. At any time when all insurance required by any provision of Section 2.9 above shall not be in effect with respect to the Aircraft, the Borrower will promptly ground the Aircraft and will not permit the same to be flown until such insurance is again in effect. Section 2.10 Inspection by Mortgagee; Information. The Borrower will at any and all times, on reasonable notice and request of the Mortgagee during usual business hours, permit the Mortgagee by its representatives to inspect the Mortgaged Property and the records, reports and other papers of the Borrower relating thereto and to take copies and extracts therefrom and will afford and procure a reasonable opportunity to make any such inspection and will furnish the Mortgagee any and all such other information as the Mortgagee may reasonably request with respect to the Mortgaged Property, provided the foregoing is reasonably calculated not to materially interfere with the operation of the Mortgaged Property or Borrower's daily operations. 8 Section 2.11 Advances by Mortgagee. If the Borrower shall fail to perform any of its covenants in this Mortgage, the Mortgagee may, in its sole discretion, at any time and from time to time make advances to effect performance of such covenant on behalf of the Borrower, and all moneys so advanced by the Mortgagee, together with interest at the highest default rate provided for in the Note shall be repaid by the Borrower on demand, but no such advance shall relieve the Borrower from any Event of Default. Section 2.12 Location of Mortgaged Property; Registration. The Mortgaged Property will at all times be based at the location specified in the Supplement attached hereto. If the Borrower proposes at any time to base the Mortgaged Property at any locations other than the location specified in said Supplement, the Borrower will obtain the prior written consent of the Mortgagee to such proposed change. The Borrower shall cause the Aircraft to remain duly registered in the name of the Borrower pursuant to the Federal Aviation Act. The Borrower will at all times maintain its eligibility so to register the Aircraft in its name. Section 2.13 Insignia. At the Mortgagee's option, the Borrower shall plainly, distinctly and conspicuously place and leave in the cockpit of the Aircraft and on each aircraft engine included in the Mortgaged Property and upon such other place as may reasonably be designated by the Mortgagee from time to time, a plate, insignia or other identification bearing the following words in letters of a size reasonable under the circumstances and acceptable to the Mortgagee: Airship International Ltd., Owner Senstar Capital Corporation, Mortgagee Section 2.14 Operation of Mortgaged Property. The Borrower will not fly the Aircraft or suffer the Aircraft to be flown in violation of any provision of any insurance policy in effect with respect to the Mortgaged Property. The Borrower will not operate the Aircraft or suffer the Aircraft to be operated except by pilots currently certified by the Federal Aviation Administration for the operation of the Aircraft and meeting the requirements of any insurance policy in effect with respect to such Aircraft. Section 2.15 No Claims Against Mortgagee. Nothing contained in this Mortgage shall constitute any consent or request by the Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Mortgaged Property or any part thereof, nor as giving the Borrower any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against the Mortgagee in respect thereof. Borrower shall promptly pay and discharge any claim for labor or services or the furnishing of any materials or other property which may give rise to a claim or lien prior to the lien of this Mortgage. 9 Section 2.16 Use of Mortgaged Property; Assignment of Interest. Except as the Mortgagee may permit by prior written consent in accordance with the terms of this Mortgage, use of the Mortgaged Property will be limited to the air transportation as permitted by Borrower's insurance policy. Borrower shall not, by operation of law or otherwise, assign, transfer, dispose of or convey any interest in the Mortgaged Property. ARTICLE III EVENTS OF DEFAULT AND ACCELERATION Section 3.1 Events of Default. Each of the following events shall constitute an "Event of Default" under this Mortgage: A. An Event of Default, as defined in the Credit Agreement, shall occur; or B. The Borrower shall default in the performance of or compliance: (1) with any term, condition or commitment contained in this Mortgage; or (2) any of the other terms, conditions or commitments contained in any of the Obligations; or C. Any representation or warranty made by the Borrower in this Mortgage or any statement made in any certificate, statement or report of the Borrower furnished to the Mortgagee in accordance with the provisions of this Mortgage shall prove to have been false or breached in any material respect; or D. All or a substantial portion of the Mortgaged Property shall be declared unfit for use or condemned, seized or otherwise expropriated, or the possession, control, use or management of such Mortgaged Property shall be assumed, by any government or any officer or instrumentality thereof, and shall be retained for any period of thirty (30) consecutive days, unless within such period the Mortgagee shall receive assurances, reasonably satisfactory to the Mortgagee, that the Borrower will be compensated therefor in amount, time and manner satisfactory to the Mortgagee, in its sole discretion; or E. An administrator, custodian, or other representative shall take possession, control, use or management of the Mortgaged Property. Section 3.2 Acceleration. If any Event of Default exists, the Mortgagee shall have the right to exercise all its rights and remedies under the Credit Agreement, the Assignment of Contract, and in addition to all other remedies available to it hereunder or by law, may, by written 10 notice declare the Note and any other of the Obligations and all fees, premiums or other amounts required to be paid to the Mortgagee to be forthwith due and payable, whereupon the Note, Obligations, accrued interest, fees, premiums and other amounts shall forthwith become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything herein or in any note or any security agreement to the contrary notwithstanding. ARTICLE IV REMEDIES Section 4.1 Repossession. The Borrower agrees, to the full extent that it lawfully may, that, in case one or more of the Events of Default shall have occurred and shall not have been remedied or waived, then, and in every such case, (i) the Mortgagee shall have the rights and remedies with respect to the Mortgaged Property of a secured party under the Uniform Commercial Code in effect in the Commonwealth of Pennsylvania (whether or not the Uniform Commercial Code is in effect in the jurisdiction where the rights and remedies are asserted); and in accordance therewith and subject to the provisions thereof, the Mortgagee shall have the rights and powers provided for in this Mortgage, and (ii) the Mortgagee, by agent or representative, shall have the right and power to take possession of all or any part of the Mortgaged Property, with or without legal proceedings and with or without notice, and to exclude the Borrower and, all persons claiming under the Borrower, wholly or partly therefrom and thereafter to hold, store and/or use, operate, manage and control the same. At the request of the Mortgagee, the Borrower shall promptly deliver or cause to be delivered to the Mortgagee or to an agent or representative designated by the Mortgagee all of the Mortgaged Property to whose possession the Mortgagee shall at the time be entitled hereunder, and the Mortgagee, its agents and representatives, shall have the right to enter upon any or all of the Borrower's premises and promptly to exercise the Mortgagee's rights hereunder or to compel the Borrower to retake possession of the Aircraft from whomsoever shall have possession thereof so that the Mortgagee can promptly exercise its rights hereunder. On taking possession of the Mortgaged Property, the Mortgagee, from time to time, at the expense of the Borrower, may but shall not be required to make all such repairs, replacements, alterations, additions and improvements to and of the Mortgaged Property as to the Mortgagee may seem proper and shall have the right to manage and control the Mortgaged Property and to carry on the business and to exercise all rights and powers of the Borrower in respect to the Mortgaged Property as the Mortgagee shall deem best, including the right to enter into any and all such agreements with respect to the leasing and/or operation of the Mortgaged Property or any part thereof as the Mortgagee may see fit (the Mortgagee being entitled to collect and receive all rents, 11 issues, profits, revenues and other income of the same and every part thereof); provided, however, Borrower shall have no liability for expenses incurred for repairs, replacements, alterations, additions and improvements to and of the Mortgaged Property which are incurred subsequent to Mortgagee (i) selling the Mortgaged Property, or (ii) leasing the Mortgaged Property for more than ninety (90) calendar days except to the extent of any rents, issues, profits, revenues, proceeds and other income received from the leasing operation and/or disposition of the Mortgaged Property. Any rents, issues, profits, revenues and other income collected and received by or on behalf of the Mortgagee shall be applied to pay the expenses of holding and operating the Mortgaged Property, of conducting such business and of all maintenance, repairs, replacements, alterations, additions and improvements of or to the Mortgaged Property and to make all payments which the Mortgagee may be required or may elect to make, if any, for taxes, assessments, insurance and other proper charges upon the Mortgaged Property or any part thereof, and all other payments which the Mortgagee may be required or authorized to make under any provision of this Mortgage. The remainder of the rents, issues, profits, revenues and other income shall be applied only in accordance with Section 4.5. The Mortgagee may, in its sole and absolute discretion, lease the Mortgaged Property and thereby receive all profits, rents, revenues and other income associated with such rental, including without limitation, renting the Mortgaged Property to any party agreeing to perform under the Bud I Contract (as defined in the Credit Agreement). Section 4.2 Power of Sale and Suits for Enforcement. In case one or more of the Events of Default shall have occurred and shall not have been remedied or waived, the Mortgagee, personally or by agents, with or without possession of the Mortgaged Property: A. may, to the extent permitted by law, sell at one or more sales, as an entirety or in components hereinafter provided, all or any part of the Mortgaged Property; such sale or sales to be made at public auction or private sale at such place or places, and at such time or times and on such terms as the Mortgagee may fix and briefly specify in the notice of sale to be given as herein provided or as may be required by law; or B. may proceed to protect and enforce the rights of the Mortgagee under this Mortgage by suit, whether for specific performance of any covenant herein contained, in aid of the execution of any power herein granted, for the foreclosure of this Mortgage and the sale of the Mortgaged Property under the judgment or decree of a court of competent jurisdiction, or for the enforcement of any other right, as the Mortgagee shall determine; and the Mortgagee shall be entitled, as a matter of right, to the appointment of a receiver of all or any part of the Mortgaged Property. Section 4.3 Notice of Sale. Notice of sale under this Article shall state the time when and the place where the same is to be made, shall contain a brief description of the property to be sold, and shall be sufficiently given if sent to the Borrower in accordance with the notice provisions hereof and as may be required by applicable law. For the aforesaid purposes, all notice of sale, advertisement and other notice or demand, any right or equity of redemption and any 12 obligation of a prospective purchaser to inquire as to the power and authority of the Mortgagee to sell or the application by the Mortgagee of the proceeds of sale or otherwise, which would otherwise be required by, or available to the Borrower under, applicable law are hereby expressly waived by the Borrower to the fullest extent permitted by such law. Section 4.4 Delivery to Purchaser. On the completion of any sale under this Article, the Borrower shall use its best efforts to deliver all of the property sold to the purchaser or purchasers at such sale on the date of sale, or within a reasonable time thereafter if it shall be impractical to make immediate delivery, but in any event full title and right of possession to such property shall pass to such purchaser or purchasers forthwith on the completion of such sale. Nevertheless, if so requested by the Mortgagee or by any purchaser, the Borrower shall confirm any such sale or transfer by executing and delivering to such purchaser all proper instruments of conveyance and transfer and releases as may be designated in any such request. Every sale shall operate to divest all right, title, interest, claim and demand whatsoever of the Borrower of, in and to the property so sold, and shall be a perpetual bar, both at law and in equity, against the Borrower, all persons claiming the property sold or any part thereof through the Borrower and its successors or assigns. Section 4.5 Application of Proceeds. The proceeds of any sale, lease or other disposition of the Mortgaged Property, or any part thereof, received by the Mortgagee under this Mortgage, together with any other sums then held by the Mortgagee, as part of the Mortgaged Property, shall be applied as follows: A. First. To the payment of the costs and expenses expended or incurred by the Mortgagee in the location, protection, taking possession of, repair, rehabilitation, storage, transportation to the Mortgagee or place of sale and sale of the Mortgaged Property (including reasonable compensation to the Mortgagee's agents, attorneys and counsel and all charges, expenses, liabilities and advances incurred or made by the Mortgagee, and all other sums payable by the Borrower under this Mortgage) and to the payment of all taxes, assessments or liens, if any, prior to the lien of this Mortgage, except any taxes, assessments or liens subject to which such sale shall have been made; B. Second. To the payment of the Obligations, in such order as Mortgagee elects in its sole discretion; C. Third. The surplus, if any, shall be paid to the Borrower, its successors or assigns, or to whomever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. Section 4.6 Mortgagee May Purchase. At any sale under this Article, the Mortgagee may bid for and purchase the property offered for sale and, on compliance with the terms of sale, may hold, retain and dispose of such property without further accountability therefor. 13 Section 4.7 Right to Possession. In accordance with the provisions of Section 1110 of Title 11 of the United States Code, the right of the Mortgagee to take possession of and to sell or cause the sale of the Mortgaged Property in compliance with the provisions of the terms of this Mortgage shall not be affected by the provisions of Section 362 and 363 of Title 11 of the United States Code as amended from time to time, except as provided for in Section 1110. Section 4.8 No Waiver. No failure or delay by the Mortgagee to insist on the strict performance of any term hereof or to exercise any right, remedy, power or privilege consequent on an Event of Default and no acceptance of any payment of the principal of or interest on the Term Note payable to the Mortgagee during the continuance of any such Event of Default shall constitute a waiver of any such term or default or of any such right, remedy, power or privilege, nor shall any single or partial exercise of any such right, remedy, power or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. No waiver of any Event of Default hereunder or under the Credit Agreement shall affect or alter this Mortgage, which shall continue in full force and effect, or the rights of the Mortgagee with respect to any other then existing or subsequent Event of Default. Section 4.9 Remedies Cumulative. Each right, power and remedy of the Mortgagee provided for in this Mortgage or now or hereafter existing at law, in equity, by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Mortgage or now or hereafter existing at law, in equity, by statute or otherwise, and the exercise or beginning of the exercise by the Mortgagee of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise of any or all such other rights, powers or remedies. Section 4.10 Waiver of Appraisement, etc., Laws. The Borrower agrees, to the full extent that it may lawfully so agree, that neither it nor anyone claiming through or under it, will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption law now or hereafter in force in any locality where any property subject to the lien hereof may be situated, in order to prevent, hinder or delay the enforcement or foreclosure of this Mortgage, the absolute sale of the Mortgaged Property or any part thereof, or the final and absolute putting into possession thereof, immediately after such sale, of the purchasers thereat; and the Borrower, for itself and all who may at any time claim through or under it, hereby waives, to the full extent that it may be lawful so to do, the benefit of all such laws and any and all right to have any of the properties or assets comprising the Mortgaged Property marshalled on any such sale and agrees that the Mortgagee or any court having jurisdiction to foreclose the lien hereof may sell the Mortgaged Property as an entirety or in such components as the Mortgagee may determine. 14 ARTICLE V MISCELLANEOUS PROVISIONS Section 5.1 Payment of Indebtedness; Satisfaction. On the payment in full and discharge of the Tern Note and the satisfaction of all other Obligations, this Mortgage and the lien, rights and interests hereby granted shall cease and become null and void, and the Mortgagee, on the written request of the Borrower and at the Borrower's expense, shall execute and deliver to the Borrower all instruments of satisfaction as may be necessary to satisfy and discharge this Mortgage. Section 5.2 Notices. Any request, order, direction, approval, consent, notice or other document provided or permitted by this Mortgage to be made, given or furnished shall be sufficiently served or given for all purposes when sent in accordance with the notice provisions of the Credit Agreement. Section 5.3 Construction. This Mortgage shall be construed in accordance with the internal law, and not the law of conflicts, of the Commonwealth of Pennsylvania and the rights and remedies of the parties hereunder shall be determined in accordance with such laws, except to the extent that the law of some other jurisdiction may be mandatorily applicable to proceedings taken for the enforcement of the rights of the Mortgagee hereunder. Borrower hereby consents to the jurisdiction and venue of any court residing in the Commonwealth of Pennsylvania. Section 5.4 Counterparts. This Mortgage may be executed in any number of counterparts, and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same Mortgage. IN WITNESS WHEREOF, the Borrower and the Mortgagee have caused this instrument to be duly executed as of the day and year first above written. ATTEST AIRSHIP INTERNATIONAL LTD. By /s/ LOUIS J. PEARLMAN ___________________________ ----------------------- Name: ----------------------- Title: President ----------------------- [SEAL] 15 WITNESS: SENSTAR CAPITAL CORPORATION /s/ Illegible By: /s/ Illegible ___________________________ ----------------------- Name: _______________________ Title: Credit Manager _______________________ STATE OF______________ ) ) COUNTY OF_____________ ) On this day of , 199_, before me, a notary public, personally appeared _________________________, who acknowledged himself to be the______________________ of AIRSHIP INTERNATIONAL LTD, a New York corporation, and that he, as such officer, being authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. _________________________ Notary Public My commission expires: 16 COMMONWEALTH OF PENNSYLVANIA ) ) COUNTY OF ALLEGHENY ) On this________ day of__________________, 199_, before me, a notary public, personally appeared______________________, who acknowledged himself to be the ________________________________ of SENSTAR CAPITAL CORPORATION, a Delaware corporation, and that he, as such officer, authorized to do so, executed the foregoing instrument for the purposes therein contained by signing the name of the corporation by himself as such officer. IN WITNESS WHEREOF, I hereunto set my hand and official seal. ________________________ Notary Public My commission expires: 17 EX-10 19 EXHIBIT 10.85 ASSIGNMENT OF CONTRACT RIGHTS THIS ASSIGNMENT is made and entered into the 30th day of November, 1995, by AIRSHIP INTERNATIONAL LTD., a New York corporation ("Assignor"), in favor of SENSTAR CAPITAL CORPORATION, a Delaware corporation ("Assignee"). WITNESSETH: WHEREAS, pursuant to that certain Credit Agreement (as it may hereafter from time to time be restated, amended, modified or supplemented, the "Credit Agreement") of even date herewith between Assignor and Assignee, Assignee has agreed to provide a certain term loan to the Assignor; and WHEREAS, in order to provide additional security for the repayment of such loan, the parties hereto desire that Assignee be granted an assignment and security interest in all rights of Assignor under that certain Amended and Restated Airship Advertising Agreement (the "Assigned Contract") between Assignor and Anheuser-Busch Companies, Inc., dated July 8, 1994. NOW, THEREFORE, in consideration of the promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by Assignor, and intending to be legally bound, Assignor assigns to Assignee all of its right, title and interest in and to the Assigned Contract to the extent assignable and to the fullest extent permitted by Law. 1. Except as otherwise expressly provided herein, capitalized terms used in this Assignment shall have the respective meanings given to them in the Credit Agreement. 2. As collateral security for all Indebtedness, now outstanding or hereafter arising, of Assignor to Assignee, Assignor has granted, bargained, sold, assigned, transferred and set over and by these presents does hereby grant, bargain, sell, assign, transfer and set over unto Assignee, its respective successors and assigns, all the rights, interests and privileges which the Assignor has or may have in or under the Assigned Contract, including without limiting the generality of the foregoing, the present and continuing right with full power and authority, in its own name, or in the name of the Assignor, or otherwise, but subject to the provisions and limitations of Section 3 hereof, (i) to make claim for, enforce, perform, collect and receive any and all rights under the Assigned Contract, (ii) to do any and all things which Assignor is or may become entitled to do under the Assigned Contract, and (iii) to make all waivers and agreements, give all notices, consents and releases and other instruments and to do any and all other things whatsoever which Assignor is or may become entitled to do under the Assigned Contract. 3. The acceptance of this Assignment and the payment or performance under the Assigned Contract shall not constitute a waiver of any rights of Assignee under the terms of the Term Note, the Credit Agreement or any other Loan Documents, it being understood that, until the occurrence of an Event of Default, and the exercise of Assignee's rights under Section 4 hereof, Assignor shall have all rights to the Assigned Contract and to retain, use and enjoy the same. 4. Assignor, upon the occurrence of an Event of Default, hereby authorizes Assignee, at Assignee's option, to do all acts required or permitted under the Assigned Contract as Assignee in its sole discretion may deem proper. Assignor does hereby irrevocably constitute EXHIBIT "D" TO CREDIT AGREEMENT NOT FOR EXECUTION and appoint Assignee, while this Assignment remains in force and effect and, in each instance, to the full extent permitted by applicable Law, its true and lawful attorney in fact, coupled with an interest and with full power of substitution and revocation, for Assignor and in its name, place and stead, to demand and enforce compliance with all the terms and conditions of the Assigned Contract and all benefits accrued thereunder, whether at law, in equity or otherwise; Provided, however, that Assignee shall not exercise any such power unless and until an Event of Default shall have occurred. 5. Assignee shall not be obligated to perform or discharge any obligation or duty to be performed or discharged by Assignor under the Assigned Contract, and Assignor hereby agrees to indemnify Assignee for, and to save Assignee harmless from, any and all liability arising under the Assigned Contract, other than arising or resulting from Assignee's (or its agents, employees or contractors) gross negligence or willful misconduct. 6. Assignor agrees that this Assignment and the designation and directions herein set forth are irrevocable. 7. Neither this Assignment nor any action or inaction on the part of Assignee shall constitute an assumption on the part of Assignee of any obligations or duties under the Assigned Contract. 8. Assignor covenants and warrants that: (a) it has the power and authority to assign the Assigned Contract and there have been no prior assignments of the Assigned Contract; (b) the Assigned Contract is and shall be a legal, valid and binding contract on the Assignor and, to the best of Assignor's knowledge, on Anehuser-Busch Companies, Inc., and that there are and shall be, to the extent ascertainable by Assignor, no defaults on the part of any of the parties thereto; (c) the Assigned Contract is not subject to any pledge, security interest, lien or encumbrance (except for Phoenixcor, Inc.'s interest, which is contemporaneously herewith being released) and Assignor will not assign, pledge or otherwise encumber the Assigned Contract without the prior written consent of Assignee at Assignee's sole discretion; (d) it will not cancel, terminate or accept any surrender of the Assigned Contract, or amend or modify the same directly or indirectly in any respect whatsoever, without having obtained the prior written consent of Assignee thereto at Assignee's sole discretion; (e) it will not waive or give any consent with respect to any default or material variation in the performance under the Assigned Contract, it will at all times take proper steps to enforce all of the provisions and conditions thereof, and it will forthwith notify Assignee of any material default under the Assigned Contract; (f) it will perform and observe, or cause to be performed and observed, all of the terms, covenants and conditions on its part to be performed and observed with respect to the Assigned Contract; and (g) it will execute from time to time any and all additional assignments or instruments of further assurance to Assignee, as Assignee may at any time reasonably request. 2 9. At such time as the Term Loan is indefeasibly paid in full, this Assignment and all of Assignee's right, title and interest hereunder with respect to the Assigned Contract shall terminate without regard to its conflicts of law principles. 10. This Assignment shall inure to the benefit of Assignee, its respective successors and assigns, and shall be binding upon Assignor, its successors, successors in title and assigns. 11. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania without regard to its conflicts of law principles. IN WITNESS WHEREOF, the parties have executed this instrument under seal as of the day and year first above written. ATTEST: AIRSHIP INTERNATIONAL LTD. By: By: /s/ LOUIS J. PEARLMAN ----------------------------- ------------------------- Title: Title: President -------------------------- ---------------------- [SEAL] WITNESS: SENSTAR CAPITAL CORPORATION By: /s/ Illegible - --------------------------------- ------------------------- Title: Credit Manager ---------------------- 3 EX-10 20 EXHIBIT 10.86 AGREEMENT OF GUARANTY AND SURETYSHIP (PAYMENT) MADE as of the 30th day of November, 1995, by TRANS CONTINENTAL AIRLINES, INC., a ___________________________ corporation, ("Guarantor"), to and for the benefit SENSTAR CAPITAL CORPORATION, a Delaware corporation ("Lender"). WITNESSETH: WHEREAS, as more fully provided in that certain Credit Agreement (the "Credit Agreement") of even date herewith between Lender and Airship International, LTD. (the "Borrower"), Lender has agreed to make a term loan in the original principal amount of $3,500,000 (the "Term Loan"); WHEREAS, the proceeds of the Term Loan are being advanced to the Borrower to enable the Borrower to, among other things, acquire a certain Series 500HP Skyship, Registration No. N501LP ("Skyship") from Trans Continental Leasing, Inc., a wholly owned subsidiary of Guarantor ("Trans Continental Leasing"); WHEREAS, Guarantor will benefit from Lender making the Term Loan and Borrower purchasing the Skyship from Trans Continental Leasing. NOW, THEREFORE, to induce Lender to make the Term Loan and for other good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound, Guarantor hereby covenants and agrees as follows: 1. Defined Terms. Capitalized terms used, but not defined, herein shall have the meaning ascribed to such terms under the Credit Agreement. 2. Guaranteed Obligations. Guarantor unconditionally guarantees and becomes surety for the full and timely payment, whether by declaration, acceleration or otherwise, by Borrower of all the following (hereinafter collectively referred to as the "Obligations"): (i) all obligations, now outstanding or hereafter arising, of Borrower to Lender, including without limitation, those obligations evidenced by the Term Note and those arising under the Credit Agreement, as the same may be amended, supplemented, renewed or replaced from time, and (ii) all sums now or hereafter to be paid by Borrower under all other agreements, instruments and documents given to Lender to evidence, secure or otherwise support the Borrower's obligations under the Credit Agreement (all such agreements, instruments and documents, including the Credit Agreement, as the same may be amended, supplemented, renewed or replaced from time to time being hereinafter referred to as the "Loan Documents"). EXHIBIT "B" TO CREDIT AGREEMENT NOT FOR EXECUTION 3. Unconditional Guaranty and Suretyship. Guarantor agrees to pay the Obligations immediately when due, irrespective of whether or not any one or more of the following events have occurred: (i) Lender has made any demand on Borrower; (ii) Lender has taken any action of any nature against Borrower; (iii) Lender has pursued any rights which Lender has against any other person who may be liable for any of the Obligations; (iv) Lender holds or has resorted to any security for any of the Obligations; or (v) Lender has invoked any other remedies or rights Lender has available with respect to any of the Obligations. The liability of Guarantor as surety and Guarantor is unconditional. Guarantor therefore agrees to pay the Obligations even if any of the Loan Documents, or any part thereof, are for any reason invalid or unenforceable. Guarantor further agrees to make full payment to Lender even if circumstances exist which otherwise constitute a legal or equitable discharge of Guarantor as surety or guarantor. 4. Subrogation; Marshalling; Subordination. Guarantor waives and agrees not to enforce any of the rights of Guarantor against Borrower unless and until Borrower is no longer liable in any respect to Lender, including, but not limited to: (i) any right of Guarantor to be subrogated in whole or in part to any right or claim with respect to any of the Obligations or any portion thereof to Lender which might otherwise arise from partial payment or performance by Guarantor to Lender on account of the Obligations or any portion thereof; and (ii) any right of Guarantor to require the marshalling of assets of Borrower which might otherwise arise from partial payment or performance by Guarantor to Lender on account of the Obligations or any portion thereof Guarantor agrees that (i) all of the obligations of Borrower to Guarantor, whether now existing or hereafter arising, are subordinated to the prior payment in full of all of the Obligations and (ii) it will not, without the prior written consent of Lender, enforce any right or remedy it may have to collect any of the obligations of Borrower to Guarantor. 5. Waiver of Notice. Guarantor waives any and all notice with respect to: (i) acceptance by Lender of this Agreement or any of the Loan Documents; and (ii) the provisions of any of the Loan Documents or any other instrument or agreement relating to the Obligations; and (iii) any default in connection with the Obligations. 6. Waiver of Presentment, etc. Guarantor waives any presentment, demand, notice of dishonor or nonpayment, protest, notice of protest and notice of non-payment in connection with the Obligations. 7. Waiver of Guarantor Defenses. Guarantor agrees that Lender may do any of the following without notice to Guarantor and without adversely affecting the validity or enforceability of this Agreement or any other agreement, document or instrument given by Guarantor to Lender in connection with this Agreement or the Obligations: (i) release, surrender, exchange, compromise or settle the Obligations, or any part thereof; (ii) change, renew or waive the terms of the Obligations, or any part thereof; (iii) change, renew or waive the terms of any of the Loan Documents or any other note, instrument or agreement relating to the Obligations, such rights in Lender to include without limitation the right to change the rate of interest charged to Borrower (in which event the Obligations shall be deemed also to include all interest at such changed rate); 2 (iv) grant any extension or indulgence with respect to the payment or performance of the Obligations or any part thereof; (v) enter into any agreement of forbearance with respect to the Obligations, or any part thereof; (vi) release, surrender, exchange or compromise any security held by Lender for any of the Obligations; (vii) release any person who is a Guarantor or surety or who has agreed to purchase the Obligations or any part thereof; and (viii) release, surrender, exchange or compromise any security or lien held by Lender for the liabilities of any person who is guarantor or surety for the Obligations or any part thereof agrees that Lender may do any of the above as Lender deems necessary or advisable, in Lender's sole discretion, without giving any notice to Guarantor, and that Guarantor will remain liable for full payment and performance of the Obligations. If at any time all or any part of any payment theretofore applied by Lender to any of the liabilities is or must be rescinded or returned by Lender for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of Borrower), such liability shall, for the purposes of this Agreement, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by Lender, and this Agreement shall continue to be effective or be reinstated, as the case may be, as to such liabilities, all as though such application by Lender had not been made. 8. Representations and Warranties. The Guarantor represents and warrants to the Lender that (which representations and warranties shall continue to be true and correct until the Obligations are paid in full, except for representations which expressly relate to an earlier date in time): (a) Organization and Qualification. The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of ______________; has the lawful power to own or lease its properties and to engage in the business it presently conducts and contemplates conducting; and is duly licensed or qualified and in good standing as a foreign corporation in each jurisdiction wherein the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary. (b) Power and Authority. The Guarantor has the power to make and carry out this Guaranty, to execute and deliver this Guaranty, and to perform its obligations under this Guaranty and all such actions have been duly authorized by all necessary corporate proceedings. (c) Validity and Binding Effect. This Guaranty has been duly and validly executed and delivered by the Guarantor. This Guaranty constitutes a legal, valid and binding obligation of the Guarantor, enforceable in accordance with its respective terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally or by laws or judicial decisions limiting the right of specific performance. No authorization, approval, exemption or consent by any governmental or public body or authority is required in connection with the authorization, execution, delivery and carrying out of the terms of this Guaranty by the Guarantor. 3 (d) No Conflict. Neither the execution and delivery of this Guaranty nor the consummation of the transactions herein contemplated or compliance with the terms and provisions hereof will conflict with or result in any breach of the terms and conditions of the articles of incorporation or bylaws of the Guarantor or of any law or regulation or any order, writ, injunction or decree of any court or governmental instrumentality or of any agreement or instrument to which the Guarantor is a party or by which the Guarantor is bound or to which it is subject, will constitute a default thereunder or will result in the creation or enforcement of any lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of the Guarantor. (e) Litigation. There are no actions, suits, proceedings or investigations pending or, to the knowledge of the Guarantor or its officers, against it at law or equity before any court or before any federal, state, municipal or any governmental department, commission, board, agency or instrumentality whether or not covered by insurance which individually or in the aggregate may result in any materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of the Guarantor or in any impairment in the Guarantor's ability to perform its obligations under this Guaranty. Neither the Guarantor nor any of its officers has knowledge of any default with respect to any order, writ, injunction or any decree of any court or any federal, state, municipal or other governmental department, commission or bureau, agency or instrumentality which may result in any such materially adverse effect or impairment. (f) Audited Financial Condition. The Guarantor has heretofore delivered to the Lender copies of the balance sheet of the Guarantor as of April 30, 1995 and the statements of income, retained earnings and changes in financial position of the Guarantor for the fiscal year ended on such date, which have been certified by Cohen & Siegel, independent certified public accountants. Such financial statements (including the related notes) are correct and complete and fairly present the financial condition of the Guarantor as of April 30, 1995 and the results of its operations for the fiscal year then ended and have been prepared in accordance with generally accepted accounting principles consistently applied by the Guarantor; there were no material liabilities as of April 30, 1995, contingent or otherwise, of the Guarantor not reflected in said balance sheet (including the related notes) as of said date. (g) Changes in Financial Condition. Since April 30, 1995, the date of the last audited balance sheet of the Guarantor delivered to the Lender, there has been no Material Adverse Change in the business, assets, liabilities, contingent or otherwise, or financial condition of the Guarantor from those set forth in said balance sheet (including the related notes) as of that date. (h) Tax Returns and Taxes. The Guarantor has filed all federal, state and local tax returns and other reports it was required by law to file prior to the date hereof and which were material to the conduct its respective businesses, has paid or caused to be paid all taxes, assessments and other governmental charges that were due and payable prior to the date hereof, and has made adequate provision in its financial statements for the payment of such taxes, 4 assessments and other charges accruing but not yet payable; the Guarantor has no knowledge of any deficiency or additional assessment in a materially important amount in connection with any taxes, assessments or charges which is not provided for on its books. (i) Compliance with Laws. The Guarantor has complied with all applicable laws such that it has not been subject to any fines, penalties, injunctive relief or similar criminal liabilities which in the aggregate have materially affected the business operations or financial condition of the Guarantor or the ability of the Guarantor to perform its obligations under this Guaranty. (j) Plans and Benefit Arrangements. (i) The Guarantor and each member of the ERISA Group are in compliance in all material respects with any applicable provisions of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer Plans. There have been no COBRA Violations by the Guarantor which could result in any material liability to the Guarantor. There has been no Prohibited Transaction with respect to any Benefit Arrangement or any Plan or, to the best knowledge of the Guarantor, with respect to any Multiemployer Plan or Multiple Employer Plan, which could result in any material liability to the Guarantor or any other member of the ERISA Group. The Guarantor and all members of the ERISA Group have made when due any and all payments required to be made under any agreement relating to a Multiemployer Plan or a Multiple Employer Plan or any law pertaining thereto. With respect to each Plan, Multiemployer Plan, and Benefit Arrangement that is a defined contribution plan, the Guarantor and each member of the ERISA Group (A) have fulfilled in all material respects their obligations under the minimum funding standards of ERISA, if applicable, or contractual obligations to contribute to such plans, (B) have not incurred any liability to the PBGC and (C) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA. (k) Environmental Matters. (i) The operations of the Guarantor comply with all of the Environmental Laws; (ii) There have been no Regulated Substances disposed of on any of the properties owned or leased by the Guarantor; (iii) There are no Environmental Conditions present on any of the properties owned or leased by the Guarantor; (iv) The Guarantor has received no notice from a Governmental Authority that it is, or is considered potentially, liable for any Environmental Conditions; 5 (v) There are no underground storage tanks, asbestos or equipment containing polychlorinated biphenyls on the property owned or leased by the Guarantor other than those present and utilized in compliance with all of the Environmental Laws; and (vi) The Guarantor does not manufacture, store, use, generate, treat, dispose or manage any Regulated Substances except in compliance with all of the Environmental Laws. (l) Ownership of Guarantor. All of the issued and outstanding capital stock of the Guarantor is owned as follows: ________________________. (m) Participations as General Partner. The Guarantor is currently the general partner of _________ limited partnerships and all borrowings under each limited partnership are non-recourse to the assets of Guarantor; and none of Guarantor's rights under any limited partnership, in which it is the general partner, has been pledged, assigned or encumbered in any fashion. (n) Line of Credit. The Guarantor has an available credit line of $10,000,000 and no borrowings are outstanding under such line of credit at this time. (o) Accounting Matters. All of Guarantor's financial books and records reflect (i) assets, liabilities, revenues and expenses associated with its interests in limited partnerships in an amount corresponding to the Guarantor's proportional interest in each limited partnership and (ii) the net asset value maintained by Guarantor for each limited partnership interest is restated (i.e. reduced) from time to time to the extent that any annual appraisal of the equipment owned by such partnership reflects a net asset value of such equipment 15% or more below the net asset value that such equipment is maintained on the books and records of the limited partnership. (p) General Validity. No representation or warranty by the Guarantor contained herein or in any other Loan Document contains or will contain any untrue statement of material fact or omits or will omit to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made. 9. Affirmation Covenants. The Guarantor covenants that, until payment in full of the Obligations, it will, unless otherwise consented to in writing by the Lender: (a) Preservation of Corporate Existence, etc. Maintain its corporate existence and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary, and maintain and keep all its property in good repair, working order and condition, ordinary wear and tear alone excepted, and make or cause to be made all necessary or appropriate repairs, renewals, replacements, substitutions, additions, betterments and improvements thereto so that the efficiency and suitability for their use or intended uses within the business of all such properties shall at all times be properly preserved and maintained; 6 (b) Payment of Liabilities, Including Taxes, etc. Duly pay and discharge all Indebtedness to which it is subject or which is asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such Indebtedness, including taxes, assessments or charges, is being contested in good faith and by appropriate proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made, but only to the extent that failure to discharge any such Indebtedness would not result in any liability which would adversely affect to a material extent the financial condition of the Guarantor; (c) Maintenance of Insurance. Maintain, at its own expense, insurance in an amount and of a type standard in the industry with insurers and reinsurers of recognized reputation and responsibility, all of which shall be satisfactory to Lender; (d) Visitation Rights. Permit any of the officers or authorized employees or representatives of the Lender to visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as the Lender may reasonably request; (e) Keeping of Records and Books of Account. Maintain and keep proper books of record and account in accordance with generally accepted accounting practices applied on a consistent basis and in which full, true and correct entries shall be made of all its dealings and business and financial affairs; (f) Maintenance of Limited Partnership Interests, Trademarks, etc. Maintain in full force and effect all limited partnership interests held by Guarantor and all patents, trademarks, trade names, copyrights, licenses, franchises, permits and other authorizations necessary for the ownership and operation of its properties and business if the failure so to maintain the same would substantially interfere with the normal operations of the Guarantor or adversely affect to a material extent the financial condition, business or operations of the Guarantor; (g) Plans and Benefit Arrangements. Comply, and cause each member of the ERISA Group to comply, with ERISA, the Internal Revenue Code and other applicable laws applicable to Plans and Benefit Arrangements except where such failure, alone or in conjunction with any other failure, would not result in a Material Adverse Change; (h) Compliance with Laws. Comply with all applicable laws in all respects provided that the Guarantor shall not be deemed to be in violation of this subsection (i) as the result of any failure to comply which would not result in fines, penalties, injunctive relief or other similar criminal liabilities which in the aggregate materially affect the business operations or financial condition of the Guarantor or the ability of the Guarantor to perform its obligations under this Guaranty; and 7 (i) Liquidation, Merger, etc. Neither (i) Liquidate, merge or consolidate with or into any other person or take any action in furtherance of any thereof; (ii) permit any other person to consolidate with or merge into it, nor (iii) sale, assign or dispose of substantially all of its assets in one or a series transactions. 10. Financial Reporting Covenants. The Guarantor covenants that, until payment in full of the Obligations, it will furnish to the Lender: (a) Quarter-Fiscal Year Financial Statements. Within 60 days after the close of each of the first three quarter-fiscal year periods of each fiscal year of the Guarantor, unaudited statements of income, retained earnings and changes in financial position of the Guarantor for such quarter-fiscal year period, and an unaudited balance sheet of the Guarantor as of the close of such quarter-fiscal year period, all in reasonable detail and certified by the chief accounting officer the Guarantor, subject to year-end audit adjustments, as having been prepared in accordance with generally accepted accounting principles consistent with those applied in the preparation of the annual financial statements last furnished under Lender. (b) Annual Financial Statements. Within 120 days after the close of each fiscal year of the Guarantor, statements of income, retained earnings and changes in financial position of the Guarantor for such fiscal year and a balance sheet of the Guarantor as of the close of such fiscal year, all in reasonable detail, such financial statements to be certified by independent certified public accountants of recognized standing selected by the Guarantor and satisfactory to the Lender, whose certificate or opinion accompanying such financial statements shall not contain any material qualification or exception not satisfactory to the Lender. (c) Other Information. Such other information respecting the business, properties or condition of operations, financial or otherwise, of the Guarantor as the Lender may from time to time reasonably request.[qp] 11. Set-Off. Guarantor, as security for the Obligations and for the obligations of the Guarantor hereunder, pledges to Lender, and grants to Lender a security interest in and a right of act-off against, all moneys, deposits and other property of any kind owned by Guarantor or in which Guarantor has an interest and which are or shall be in the possession or control of Lender at any time for any reason whatsoever. 12. Waivers by Lender. Guarantor agrees that no failure on the part of Lender to exercise any of its rights under this Agreement shall be a waiver of such rights or a waiver of any default by Guarantor. Guarantor further agrees that no waiver or modification of any rights of Lender under this Agreement shall be effective unless in writing and signed by an authorized officer of Lender. Guarantor further agrees that each written waiver shall extend only to the specific instance actually recited in such written waiver and shall not impair the rights of Lender in any other respect. 8 13. Costs and Expenses. Guarantor agrees to pay all costs and expenses, including reasonable attorney's fees, incurred by Lender in enforcing this Agreement against Guarantor. Guarantor further agrees to pay all costs and expenses, including attorney's fees, incurred by Lender in collecting or enforcing or attempting to collect or enforce the Obligations. 14. Successors and Assigns. Guarantor agrees that this Agreement shall be binding upon Guarantor, and Guarantor's respective successors or assigns. Guarantor further agrees that this Agreement shall inure to the benefit of Lender, its successors and assigns. 15. Governing Law. Guarantor agrees that this Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to its principles of conflict of laws. 16. Sealed Instrument. Guarantor recognizes that this Agreement when executed constitutes a sealed instrument and as a result the instrument will be enforceable as such without regard to any statute of limitations which might otherwise be applicable and without any consideration. 17. Counterpart. This Agreement may be executed in several counterparts, each of which shall be an original and all of which together shall constitute but one and the same instrument. 18. Jurisdiction. The Guarantor agrees that any action or proceeding arising out of or relating to this Guaranty may be commenced in-any state or Federal court of competent jurisdiction in the Commonwealth of Pennsylvania and the Guarantor submits to the personal jurisdiction of such court and agrees that a confession of judgment, summons or complaint commencing in action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if personally served or by certified mail to it at its address designated beneath its signature hereto, or as otherwise provided under the laws of the Commonwealth of Pennsylvania. 19. Section Headings. The underlined section headings are for convenience of reference only and shall not in any way affect the interpretation or construction hereof. 20. Confession of Judgment. GUARANTOR HEREBY EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA, TO APPEAR FOR GUARANTOR AND, WITH OR WITHOUT A COMPLAINT OR DECLARATION FILED, CONFESS A JUDGMENT OR JUDGMENTS AGAINST GUARANTOR IN ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA, AT ANY TIME AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE REIMBURSEMENT DOCUMENTS, IN FAVOR OF LENDER OR ITS SUCCESSORS OR ASSIGNS FOR THE UNPAID PRINCIPAL BALANCE OF THE OBLIGATIONS, AND ALL INTEREST THEREON, TOGETHER WITH COSTS OF SUIT AND AN ATTORNEY'S COMMISSION OF 20% FOR COLLECTION. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST GUARANTOR 9 SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, AND MAY BE EXERCISED FROM TIME TO TIME AND AS OFTEN AS LENDER OR ITS SUCCESSORS OR ASSIGNS SHALL DEEM NECESSARY OR DESIRABLE. THE VALIDITY OF ANY JUDGMENT ENTERED UNDER THE AUTHORITY OF THIS WARRANT SHALL NOT BE ADVERSELY AFFECTED BY THE OCCURRENCE OF ANY OF THE EVENTS DESCRIBED IN PARAGRAPH 7 OF THIS AGREEMENT AND ANY SUCH JUDGMENT SHALL BE FULLY ENFORCEABLE UP TO THE AMOUNT OF THE OBLIGATIONS AT THE TIME ENFORCEMENT OF THE JUDGMENT IS SOUGHT, PLUS AN ATTORNEY'S COMMISSION OF 20% FOR COLLECTION, EVEN THOUGH ANY OF THE EVENTS DESCRIBED IN PARAGRAPH 7 HAVE OCCURRED. GUARANTOR HEREBY FOREVER WAIVES AND RELEASES ANY AND ALL ERRORS IN SAID PROCEEDINGS, WAIVES STAY OF EXECUTION, STAY, CONTINUANCE OR ADJOURNMENT OF SALE ON EXECUTION, THE RIGHT TO PETITION TO SET ASIDE OR ORDER A RESALE, THE RIGHT TO EXCEPT TO THE SHERIFF'S SCHEDULE OF PROPOSED DISTRIBUTION, THE RIGHT OF INQUISITION AND EXTENSION OF TIME OF PAYMENT, AND AGREES TO CONDEMNATION OF ANY PROPERTY LEVIED UPON BY VIRTUE OF ANY EXECUTION ISSUED ON ANY SUCH JUDGMENT, AND GUARANTOR SPECIFICALLY WAIVES ALL EXEMPTIONS FROM LEVY AND SALE OF ANY PROPERTY THAT NOW IS OR MAY HEREAFTER BE EXEMPT UNDER ANY EXISTING OR FUTURE LAWS OF THE UNITED STATES OF AMERICA OR THE COMMONWEALTH OF PENNSYLVANIA OR OF ANY OTHER JURISDICTION. 21. Severability. In the event that any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 22. Waiver of Jury Trial. GUARANTOR WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON OR RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE OTHER REIMBURSEMENT DOCUMENTS OR ANY OF THE TRANSACTIONS RELATED TO ANY OF THE REIMBURSEMENT DOCUMENTS. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY GUARANTOR AND GUARANTOR ACKNOWLEDGES THAT NEITHER LENDER NOR ANY PERSON ACTING ON BEHALF OF LENDER HAS OR HAVE MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. GUARANTOR FURTHER ACKNOWLEDGES THAT GUARANTOR HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT GUARANTOR HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 10 IN WITNESS WHEREOF, Guarantor, intending to be legally bound, has executed this Agreement as of the 30th day of November, 1995. ATTEST: TRANS CONTINENTAL AIRLINES, INC. ___________________ By: /s/ LOUIS J. PEARLMAN ___________________ ______________________ [SEAL] Title: President ______________________ Address: 7380 Sand Lake Road, Suite 200 Orlando, Florida 32819 11 EX-10 21 EXHIBIT 10.87 RELEASE AND SETTLEMENT AGREEMENT THIS RELEASE AND SETTLEMENT AGREEMENT (the "Agreement") is made and entered on this 20th day of September, 1993 by and between SEQUEL CAPITAL CORPORATION (hereinafter sometimes referred to as "Plaintiff"), and AIRSHIP INTERNATIONAL LTD. ("A.I.L.") and LOUIS J. PEARLMAN ("PEARLMAN") (hereinafter sometimes referred to collectively as "Defendants"). W I T N E S S E T H: WHEREAS, there is now pending in the United States District Court for the Northern District of Illinois, Eastern Division, a lawsuit entitled Sequel Capital Corporation v. Airship International Ltd. and Louis J. Pearlman, Case No. 92 C 7794 (hereinafter referred to as the "Lawsuit"); WHEREAS, Plaintiff claims in the Lawsuit that Defendants A.I.L. and Pearlman breached an alleged Leaseback Agreement, Loan Agreement and Aircraft Mortgage with Plaintiff; WHEREAS, Plaintiff initially also brought this action against Anheuser-Busch Companies, Inc. ("Anheuser-Busch"), claiming that certain payments due under an agreement between A.I.L. and Anheuser-Busch should have been paid to Plaintiff; WHEREAS, Defendants deny the allegations asserted against each of them in the Lawsuit; WHEREAS, the Plaintiff and each Defendant have agreed to fully settle and compromise all claims and issues that have been asserted or which can be asserted by the Plaintiff in the Lawsuit; NOW THEREFORE, in consideration of the premises and of the mutual promises contained herein and of other good and valuable consideration, the sufficiency of which is admitted, the parties agree as follows: 1. Defendants shall pay to Plaintiff the sum of Three Hundred Eighty-Six Thousand Dollars and No/100 ($386,000.00) by wire transfer no later than Monday, September 20, 1993. 2. Plaintiff acknowledges that all principal, interest, attorneys, fees and other costs due under the Loan Agreement and Promissory Note, dated October 14, 1992, have been paid in full and that it has released the Guaranty dated October 14, 1992 previously given by Louis J. Pearlman. 3. For and in consideration of the payments described immediately above, and specifically conditioned on the making of said payment on or before October 20, 1993, and other good and valuable consideration, Plaintiff Sequel Capital Corporation releases and forever discharges Defendant, Airship International Ltd. and Anheuser-Busch Companies, Inc. (previously dismissed as a defendant in this action), their respective officers, directors, employees, attorneys, assigns and agents, parents, subsidiaries and affiliated entities, and Louis J. Pearlman, his heirs, devisees, agents, attorneys, successors and assigns, from any and all claims, debts, damages, dues, obligations, demands, actions or causes of action of every kind and nature, at law or in equity, whether known or unknown to Plaintiff at the present time, Page 2 of 6 which Plaintiff has or claims to have or which may hereinafter accrue against Airship International Ltd. and/or Anheuser-Busch Companies, Inc., and each of their respective officers, directors, employees, attorneys, assigns and agents, parents, subsidiaries and affiliated entities, and Louis J. Pearlman, his heirs, devisees, agents, attorneys, successors and assigns, arising from or growing out of any incident or event or by reason of any act done or omitted to be done by A.I.L., Anheuser-Busch and/or Pearlman prior to the date of this Agreement, including but without limiting the generality of the foregoing, all claims, demands, debts, dues, actions or causes of action and obligations, of every kind or nature for all known or unknown injuries, damages or losses arising from or growing out of the transactions alleged in the Lawsuit, including the alleged Lease Agreement, the Loan Agreement and Promissory Note dated October 14, 1992, and the Guaranty by Louis J. Pearlman, dated October 14, 1992. 4. For and in consideration of the promises herein, and other good and valuation consideration, Defendants Airship International Ltd. and Louis J. Pearlman release and forever discharge Plaintiff Sequel Capital Corporation, its respective officers, directors, employees, attorneys, assigns and agents, parents, subsidiaries and affiliated entities, from any and all claims, debts, damages, dues, obligations, demands, actions or causes of action of every kind and nature, at law or in equity, whether known or unknown to Defendants at the present time, which Defendants have or claim to have or which may hereinafter accrue against Sequel Capital Corporation and each of its respective officers, directors, employees, attorneys, assigns and agents, parents, subsidiaries and affiliated entities, arising from or growing out of any incident or event or by reason of any act done or omitted to be done by Sequel prior to the date of this Agreement, including but without limiting the generality of the foregoing, all claims, demands, Page 3 of 6 debts, dues, actions or causes of action and obligations, of every kind or nature for all known or unknown injuries, damages or losses arising from or growing out of the transactions alleged in the Lawsuit, including the alleged Lease Agreement, the Loan Agreement and Promissory Note dated October 14, 1992, and the Guaranty by Louis J. Pearlman, dated October 14, 1992. 5. The making of this Agreement is not an admission of any liability or wrongdoing on the part of Defendants and, in fact, Defendants expressly deny any liability or wrongdoing in any manner contrary to statutory or common law. Plaintiff agrees that the fact of this Settlement and its terms will be kept confidential and will not be disclosed in any manner or to any person without the written consent of each of the Defendants, except as may be required by law. 6. Plaintiff shall join with Defendants in filing a joint motion to vacate the judgment entered against the Defendants on July 27, 1993 on the grounds that all matters have been settled and compromised, prior to resolution of post-trial motions and appeal. Plaintiff shall indicate its support of this motion to the Court, but shall not be obligated to prepare any pleadings or take other actions in addition thereto, except as may reasonably be requested by Defendants. All out-of-pocket costs reasonably sustained by Plaintiff in compliance with this paragraph shall be reimbursed by Defendants promptly upon request. Page 4 of 6 7. Plaintiff shall cause the pending Lawsuit to be dismissed against Defendants with prejudice, apart from the $6,375.35 claimed in Plaintiff Is Bill of Costs which Defendants have agreed to pay by wire transfer within 48 hours, each party to bear its own costs and attorneys' fees. 8. Plaintiff Sequel Capital Corporation will cause to be done, executed, acknowledged and delivered all and every such further releases, acts, conveyances and assurances as any Defendant shall reasonably require for accomplishing the purposes of this Release and Settlement Agreement, and that certain Receipt and Release of Indebtedness previously executed and delivered by Plaintiff to Airship International Ltd. and Louis J. Pearlman in April, 1993 with respect to the Promissory Note and Loan Agreement, each dated October 14, 1992. All out-of-pocket costs reasonably sustained by Plaintiff in compliance with this Paragraph shall be reimbursed by Defendants promptly upon request. 9. This Agreement and the performance hereunder shall be governed by the laws of the State of Illinois. 10. This Agreement and each of its provisions shall bind and inure to the benefit of the parties hereto and their respective officers, directors, agents, employees, heirs, successors transferees and assigns. Page 5 of 6 11. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties, hereby execute this Agreement on the day and year indicated below. SEQUEL CAPITAL CORPORATION AIRSHIP INTERNATIONAL LTD., By: /s/ HARVEY KINZELBERG By: /s/ LOUIS J. PEARLMAN ________________________________ _______________________________ Harvey Kinzelberg Title: President President _______________________________ Date: September 20, 1993 Date: September 20, 1993 ________________________________ _______________________________ APPROVED: /s/ LOUIS J. PEARLMAN _______________________________ Louis J. Pearlman /s/ HOWARD C. EMMERMAN Date: September 20, 1993 __________________________________ ------------------------------- Howard C. Emmerman Its Attorney APPROVED: /s/ TAMI J. REDING-BRUBAKER ______________________________________ Tami J. Reding-Brubaker Their Attorney Page 6 of 6 EX-10 22 EXHIBIT 10.88 PROMISSORY NOTE $30,400.00 ORLANDO, FLORIDA WHEN PAYABLE: See below October 1994 For the value received, I or we, promise to pay to the order of AIRSHIP AIRWAYS, INC. ("AAI") the sum of Thirty Thousand Four Hundred Dollars and .00/100 Cents ($30,400.00), and said principal shall be due and payable as follows: Nineteen (19) payments at $1,600.00 per month with no interest payable to AAI as monies are paid to Sand Lake IV Limited Partnership by All Star Cafe, Inc. It is agreed that time is of the essence of this contract and that in the event of default in the making of any payment as herein provided, the holder of this note may, at his option, declare all the remainder of said debt due and collectible, and any failure to exercise the said option shall not constitute a waiver of the right to exercise the same at any other time. In the event of default in the making of any payments herein provided and in the event the whole of said debt is declared to be due. If any amount payable hereunder is not paid when due or declared due, this note may-be placed in the hands of an attorney at law for collection and,-in that event the undersigned agree to pay all attorney fees and costs. Such attorney's fees and costs shall include, but not be limited to, fees and costs incurred in all matters of collection and enforcement, before, during and after trial proceedings and appeals, as well as appearances in and connected with any bankruptcy proceedings, creditors' reorganization proceedings, and probate proceedings. I, or we, each of us whether maker, surety, guarantor, endorser, or other party hereto agree to be jointly and severally bound. I, or we, each further waive presentment for payment, demand, protest, and notice of demand, protest and nonpayment, and assent to each and every extension or postponement of the time of payment or other indulgence, or to any substitution, addition, exchange or release of the security held by holder. As used herein the word "holder" shall include the payee and any subsequent holder hereof, and the word "note" shall include this note and any extension or renewal thereof - The word "undersigned" whenever used shall be deemed to include any and all makers, endorsers and guarantors. The Undersigned hereby acknowledge that they have received a completed copy of this note, and agree to all of the terms contained herein. IN WITNESS WHEREOF, the Undersigned have executed this promissory note on the date above written. Witnesses: AIRSHIP INTERNATIONAL, LTD. ________________________________ By: /s/ LOUIS J. PEARLMAN _________________________ ________________________________ Louis Pearlman, Pres. 2 EX-10 23 EXHIBIT 10.89 PROMISSORY NOTE $25,000.00 ORLANDO, FLORIDA WHEN PAYABLE: See below October 26, 1994 For the value received, I or we, promise to pay to the order of AIRSHIP AIRWAYS, INC. the sum of Twenty Five Thousand Dollars and .00/100 Cents ($25,000.00), and said principal shall be due and payable as follows: One balloon payment of $25,000.00 shall be due and payable to AAI on or before February 23, 1995 with no pre-payment penalty. It is agreed that time is of the essence of this contract and that in the event of default in the making of any payment as herein provided, the holder of this note may, at his option, declare all the remainder of said debt due and collectible, and any failure to exercise the said option shall not constitute a waiver of the right to exercise the same at any other time. In the event of default in the making of any payments herein provided and in the event the whole of said debt is declared to be due. If any amount payable hereunder is not paid when due or declared due, this note may be placed in the hands of an attorney at law for collection and, in that event the undersigned agree to pay all attorney fees and costs. Such attorney's fees and costs shall include, but not be limited to, fees and costs incurred in all matters of collection and enforcement, before, during and after trial proceedings and appeals, as well as appearances in and connected with any bankruptcy proceedings, creditors' reorganization proceedings, and probate proceedings. I, or we, each of us whether maker, surety, guarantor, endorser, or other party hereto agree to be jointly and severally bound. I, or we, each further waive presentment for payment, demand, protest, and notice of demand, protest and nonpayment, and assent to each and every extension or postponement of the time of payment or other indulgence, or to any substitution, addition, exchange or release of the security held by holder. As used herein the word "holder" shall include the payee and any subsequent holder hereof, and the word "note" shall include this note and any extension or renewal thereof. The word "undersigned" whenever used shall be deemed to include any and all makers, endorsers and guarantors. The Undersigned hereby acknowledge that they have received a completed copy of this note, and agree to all of the terms contained herein. 1 PROMISSORY NOTE $30,400.OO ORLANDO,FLORIDA WHEN PAYABLE: See below October 26, 1994 For the value received, I or we, promise to pay to the order of AIRSHIP AIRWAYS, INC. ("AAI") the sum of Thirty Thousand Four Hundred Dollars and .00/100 Cents ($30,400.00), and said principal shall be due and payable as follows: Nineteen (19) payments at $1,600.00 per month with no interest payable to AAI as monies are paid to Sand Lake IV Limited Partnership by All Star Cafe, Inc. It is agreed that time is of the essence of this contract and that in the event of default in the making of any payment as herein provided, the holder of this note may, at his option, declare all the remainder of said debt due and collectible, and any failure to exercise the said option shall not constitute a waiver of the right to exercise the same at any other time. In the event of default in the making of any payments herein provided and in the event the whole of said debt is declared to be due. If any amount payable hereunder is not paid when due or declared due, this note may be placed in the hands of an attorney at law for collection and, in that event the undersigned agree to pay all attorney fees and costs. Such attorney's fees and costs shall include, but not be limited to, fees and costs incurred in all matters of collection and enforcement, before, during and after trial proceedings and appeals, as well as appearances in and connected with any bankruptcy proceedings, creditors' reorganization proceedings, and probate proceedings. I, or we, each of us whether maker, surety, guarantor, endorser, or other party hereto agree to be jointly and severally bound. I, or we, each further waive presentment for payment, demand, protest, and notice of demand, protest and nonpayment, and assent to each and every extension or postponement of the time of payment or other indulgence, or to any substitution, addition, exchange or release of the security held by holder. As used herein the word "holder" shall include the payee and any subsequent holder hereof, and the word "note" shall include this note and any extension or renewal thereof. The word "undersigned" whenever used shall be deemed to include any and all makers, endorsers and guarantors. The Undersigned hereby acknowledge that they have received a completed copy of this note, and agree to all of the terms contained herein. 1 IN WITNESS WHEREOF, the Undersigned have executed this promissory note on the date above written. Witnesses: AIRSHIP INTERNATIONAL, LTD. /s/ LOUIS J. PEARLMAN ______________________________ By:___________________________ LOUIS J. PEARLMAN, Pres. ______________________________ 2 EX-10 24 EXHIBIT 10.90 FORM OF SHARE SUBSCRIPTION AGREEMENT AGREEMENT dated as of March _, 1994 by and between AIRSHIP INTERNATIONAL LTD., a New York corporation (the "Company"), and ____________________________ having an address at _______________________ (the "Purchaser"). WITNESSETH WHEREAS, the Company is in the business of operating lighter-than-air crafts, also known as airships, blimps or dirigibles; WHEREAS, the Purchaser desires to subscribe for and purchase, and the Company desires to sell and issue to the Purchaser, the number of shares of the Company's common stock, par value $.01 per share, set forth below. NOW, THEREFORE, in consideration of the premises and the respective mutual agreements, covenants, representations and warranties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties agree as follows: 1. Purchase and Sale of Shares. Subject to all of the terms and conditions of this Agreement, the Purchaser hereby subscribes for and shall purchase, and the Company shall sell to the Purchaser, ___________ common shares (the "Shares") of its capital stock for a total purchase price of $_____________ (the "Purchase Price"). 2. Closing. (a) Time and Place. The closing (the "Closing") of the transaction contemplated by this Agreement shall be held at the offices of Airship International Ltd., 7380 Sand Lake Road, Suite 200, Orlando, Florida, 32819, at 4:00 p.m. Local time on the date hereof or at such other place and time as may be agreed upon by the parties (the time and date upon which the Closing occurs herein called the "Closing Date"). (b) Delivery by Company. At the Closing, against payment by Purchaser of the Purchase Price, the Company shall deliver to the Purchaser a share certificate registered in the purchaser's name and representing the Shares, which certificate shall bear the legend set forth in Section 3 (e) hereof. (c) Payment of the Purchase Price the Purchaser. At the Closing, the Purchaser shall pay the Purchase Price by means of a bank wire transfer to an account designated by the Company or by such other means as the parties may mutually agree upon. 3. Purchaser's Representations, Warranties and Covenants. Purchaser represents and warrants to, and covenants with, the Company as follows: (a) Investment Intention. Purchaser is acquiring the Shares for Purchaser's own account and not with a present intention to make any sale, disposition, distribution or other transfer of the Shares in a manner that will be in violation of any applicable securities laws. (b) Access to Information. Purchaser has the financial sophistication necessary to enable him to make an informed decision relating to his investment in the Company and he has been given adequate opportunity (i) to obtain information and documents relating to the Purchaser's investment in the Shares and (ii) to ask questions and receive answers about such documents and Company, its business and future prospects; and that these opportunities have provided the Purchaser with the information necessary or desirable to make an evaluation of the merits and risks relating to Purchaser's investment. (c) Status of and Accredited Investor. Purchaser is an "accredited investor" (as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act"), a copy of which definition is annexed hereto as Exhibit A. (d) Restrictions on Transferability. Purchaser understands that the Shares have not been registered under the Securities Act or under the securities law of any state, and, except as provided in Section 6, that the Company will be under no obligation to register any of the Shares. Purchaser agrees that he will not sell, transfer, encumber or otherwise dispose (collectively, "transfer") his Shares or any interest therein except in accordance with applicable securities laws. (e) Legend. To give effect to the restrictions on transfer set forth in Section 3 (d) hereof, Purchaser understands that the certificate representing the Shares shall bear a legend in substantially the following form, and Purchaser shall not transfer any or all of the Shares or any interest therein, except in accordance with the terms of such legend: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), and no transfer of such securities may be made in violation of the of the 1933 Act and the rules and regulation promulgated thereunder. Such securities were issued pursuant to a Share Subscription Agreement (the "Agreement") between the registered owner hereof and the issuing corporation which, among other things, restricts the sale, transfer or other disposition of such securities. No sale, transfer or other disposition of such securities or any rights attaching or attendant thereto shall be valid unless made in accordance with the terms, and subject to the conditions, of the Agreement. A copy of Agreement is on file at the office of the issuing corporation." 2 4. Representations, Warranties and Covenants of the CompanY. The Company represents and warrants to, and covenants with the Purchaser as follows: (a) Authorization. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized and approved by all necessary corporate actions of the Company. (b) SEC Reports. The Company has previously furnished Purchaser with true and complete copies of its (i) annual reports on Form 10-K for the years ended December 31, 1992 and December 31, 1991, respectively, as filed with the Securities and Exchange Commission (the "SEC"),(ii) proxy statements relating to all meetings of its shareholders during fiscal year 1993 and (iii) all other reports or registration statements filed by the Company with the SEC since December 31, 1993 (collectively, the "SEC Reports"). As of their respective dates, the SEC Reports did not contain any untrue statements of a material fact or omit to state any material fact required to be stated misleading. (c) Capitalization. As of the date of this Agreement, the authorized capital stock of the Company consists of (i) 10,000,000 shares of preferred stock, par values $.01 per share of which 2,875,000 shares are outstanding and (ii) 80,000,000 shares of common stock, par value $.01 per share, of which 27,448,000 shares are issued and outstanding. Except for the outstanding options and warrants to purchase shares of the Company's common stock, which are disclosed in Footnote 8 to the Company's audited financial statements included in the 1992 10-K, there are no outstanding or authorized options, warrants or rights to purchase or acquire any capital stock of the Company or any securities convertible into or evidencing the right to subscribe for any shares of its capital stock. (d) Validity of Shares. The Shares, when issued, delivered and paid for in accordance with the terms hereof, will be duly delivered and paid for in accordance with the terms hereof, will be duly and validly issued, fully paid and non-assessable and shall be free and clear of all liens, claims and encumbrances. 5. Mutual Representations. Each party hereto represents and warrants to the other that: (a) The execution and delivery of this Agreement and fulfillment of the terms hereof (i) will not constitute a default under or conflict with any agreement or other instrument to which such party is a party or by which such party is bound and (ii) do not require the consent of any person or entity; and (b) This Agreement constitutes the valid and binding obligation of such party enforceable against such party in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors rights generally, and (ii) general principles governing the availability of equitable remedies. 3 6. Registration Rights. (a) Piggyback and Demand Registration Rights. The Company agrees that prior to June 30, 1994, the Board of Directors of the Company shall authorize the filing of a registration statement under the Securities Act registering shares of its stock of any class on a form other than Form S-4, or Form S-8, it will give notice to Purchaser at least 30 days prior to the date of filing of the proposed registration statement. Upon request by Purchaser with 15 days after receipt of such notice, the Company will use reasonable efforts to include the securities to be registered by such registration statement all of the Shares of the Purchaser. (b) Limitations. With respect to any registration statement in which Purchaser's Shares may be included pursuant to the provisions of this Section 6, the Company agrees to use its best efforts to register Purchaser's Shares for Sale, and maintain such registration in effect for a period of two years, subject to the following limitations: (i) In no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not so qualified or to take any action that would subject it to tax or to service of process (other than service of process under state securities laws) in any jurisdiction where it is not subject thereto. (ii) The Company will not be obligated to furnish any audited financial statements other than the audited financial statements customarily prepared at the end of the fiscal year or to furnish any unaudited financial information with respect to any period other than interim quarterly periods, unless Purchaser undertakes to pay the additional cost to the Company for such financial statements or financial information. (iii) The Company will pay the expenses of such registration, except that the Purchaser shall pay all underwriting discounts and commissions applicable to his Shares and all legal fees and expenses of his own counsel, if any. (iv) The right of the Purchaser to have his Shares included in any registration statement may not be exercised more than once. (c) Indemnification. (i) In connection with any registration of securities pursuant to this Agreement, to the extent permitted by law, the Company shall indemnify the Purchaser and the Purchaser shall indemnify the Company in the manner provided in the Section 6(c). (ii) The Company will indemnify and hold harmless the Purchaser and each underwriter of the Shares being so registered, and each other person, if any, who controls the Purchaser or such underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as the case may be, against any losses, 4 claims, damages or liabilities, joint or several, to which the Purchaser or such underwriter or controlling person may become subject under the Securities Act, insofar as such losses, claims, damages or liabilities (or action in respect thereof) arise out of or are based upon any untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus of final prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Purchaser or such underwriter and each such controlling person for any legal or any other expenses reasonable incurred by the Purchaser or such underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, said preliminary prospectus or said prospectus or said amendment or supplement in reliance upon written information furnished to the Company by the Purchaser or such underwriter specifically for use in the preparation thereof, and provided, further however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of the Purchaser or any such underwriter and each such controlling person of such underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased the Shares, if a copy of the final prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given to such person by or on behalf of the Purchaser or any such underwriter if required by law so to have been delivered, at or prior to written confirmation of the sale of the Shares to such person, and if the final prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. (iii) The Purchaser will indemnify and hold harmless the Company, each officer and director and representative of the company and each person who controls the Company to the same extent that the Company agrees to indemnify it but only with respect to the written information relating to the Purchaser specifically for use in the registration statement concerned. (iv) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought hereunder, such person (hereinafter called the indemnified party) shall promptly notify the person against whom such indemnity may be sought (hereinafter called the indemnifying party) in writing of the commencement thereof and the indemnifying party shall have the defense thereof with counsel reasonably satisfactory to the parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be final judgement for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment 5 (v) If for any reason the indemnification provided for in the preceding clauses of this Section 6 is unavailable to any indemnified party or insufficient to hold it harmless as contemplated by the preceding clauses of this Section 6, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of the relative benefits received by the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided, no person guilty of fraudulent misrepresentation (within the meaning of Section ll(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 7. Miscellaneous. (a) Cooperation. Subject to the terms and conditions herein provided, each of the parties hereto shall use its best efforts to take, or cause to be taken, such action, to execute and deliver, or cause to be executed and delivered, such additional documents and the provisions of this Agreement and under applicable law to consummate and make effective the transactions contemplated hereby. (b) Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed by certified or registered mail, five days after the date of deposit in the mails, as follows: if to the Company, one copy to: with a copy to: Airship International Ltd. Baer, Marks & Upham 7380 Sand Lake Road, Suite 200 805 Third Avenue, 20th Floor Orlando, Florida, 32819 New York, New York, 10022 Attention: Louis J. Pearlman Attention: David Mathus Telecopier: (407) 345-0888 Telecopier: (212) 702-5797 If to the Purchaser, one copy to: (See front page.) Any party, by notice given in accordance with this Section to the other party, may designate another address or person for receipt of notices hereunder. Notices by a party may be given by counsel to such party. 6 (c) Entire Agreement. This Agreement contains the entire agreement among the parties with respect to the subject matter hereof and superseded all prior agreements or undertakings, written or oral, of any nature whatsoever, (d) Amendments. This Agreement may not be amended nor shall any waiver, change modification, consent or discharge be effected except by an instrument in writing executed by or on behalf of the party seeding or against whom enforcement of any amendment, waiver, change, modification, consent or discharge is sought. (e) No Waiver. Any failure or delay on the party of a party in exercising any power or right hereunder shall not operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder or otherwise available in law or in equity. (f) Severability. If any provisions of this Agreement for any reason shall be held to be illegal, invalid, or unenforceable, such illegality shall not effect any other provision of this Agreement, but this Agreement shall be construed as if such illegal, invalid or unenforceable provision had never been herein. (g) Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such State. (h) Binding Effect. This Agreement and all of its provisions, rights and obligations shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. This Agreement may not be assigned by either party without the express written consent of the other and any purported assignment, unless so consented to, shall be void and without effect. Nothing herein express or implied is intended or shall be construed to confer upon or to give anyone other than the parties hereto and their respective representatives and successors any rights or benefits under or by reason of this Agreement. Accordingly, no party that has not executed this Agreement shall have any right to enforce any of the provisions of this Agreement. (i) Counterparts. The Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. (j) Captions. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. AIRSHIP INTERNATIONAL, LTD. By: /s/ LOUIS J. PEARLMAN _______________________________ Name: Louis J. Pearlman Title: President By: /s/ _______________________________ Name: Allen & Shelley Glushakow (Purchaser) 8 EX-10 25 EXHIBIT 10.91
List of Purchasers ------------------ REGISTRATION LIST 1: Shares Investment Investor Agreement (@ $.20 ea.) Total - ------------------------------------------------------------------------------- 1 Abatti, James A. Yes 175,000 $35,000 2 Alexander, Joseph C. Yes 61,500 $12,300 3 Bloom, Benjamin Yes 18,000 $3,600 4 Christensen, Robert F. Yes 1,500,000 $300,000 5 Desai, Parimel Yes 15,000 $3,000 6 Holub, Wayne Yes 15,000 $3,000 7 Hudson, Willie J. Yes 75,000 $15,000 8 Jackson, Dr. Rodney W. Yes 15,000 $3,000 9 Jeff Lang TTEE FBO Gales Creek Ins. Yes 50,000 $10,000 10 Lalumia, J. Yes 33,625 $6,725 11 Laursen, Henrik Yes 19,800 $3,960 12 Merrity, John L. Yes 500,000 $100,000 13 Nesheim, Mark & Noel Yes 50,000 $10,000 14 Rangi, Sreekanth Yes 7,500 $1,500 15 Rosenberg, Mark Yes 30,000 $6,000 16 Ryk, Joe Yes 7,500 $1,500 17 Shackelford, Roy Yes 15,000 $3,000 18 Sikkema, Ralph P. Yes 100,000 $20,000 19 Spitzer, Henry Yes 112,500 $22,500 --------- --------- Totals 2,800,425 $560,085 ========= =========
REGISTRATION LIST 2:
SHARES INVESTMENT INVESTOR AGREEMENT (@ $.20 EA.) TOTAL - ------------------------------------------------------------ --------- ------------- 1 Andrews, Robert F. Yes 15,000 $ 3,000 2 Barrington, Cynthia A. Yes 11,000 $ 2,200 3 Carr, Robert J. Yes 45,000 $ 9,000 4 Connor, Mary Yes 22,500 $ 4,500 5 Elvin L. Booth Revocable Trust Yes 30,000 $ 6,000 6 Emerson, Marie B. Yes 25,000 $ 5,000 7 Esch, David E. Yes 60,000 $ 12,000 8 Fox, Stella Yes 27,500 $ 5,500 9 Gagliolo, Bruce F. Yes 125,000 $ 25,000 10 Garrett, W. Jay & Judy B. Yes 13,750 $ 2,750 11 Heckrodt, Margaret Yes 15,000 $ 3,000 12 Hogan, William E. Yes 45,000 $ 9,000 13 Hogan, William J. Yes 65,000 $ 13,000 14 Huff, Tom C. Yes 7,500 $ 1,500 15 Hultgren, Paul J. Yes 125,000 $ 25,000 16 Johnson, Neil Yes 9,000 $ 1,800 17 Kriskovich, Robert Yes 25,000 $ 5,000 18 Kris, Steven Yes 200,000 $ 40,000 19 Mathis, David Yes 200,000 $ 40,000 20 Millar, James S. Yes 30,000 $ 6,000 21 Milne, Ronald R. Yes 30,000 $ 6,000 22 Mitchell, Mary Lou Yes 34,995 $ 6,999 23 Nelson, Curtis Yes 139,500 $ 27,900 24 Nemeth, Peter P. Yes 243,910 $ 48,782 25 Roos, W. Rodger Yes 15,000 $ 3,000 26 Schaffner, Edwin K. Yes 60,000 $ 12,000 27 Shaffer, Betty J. Yes 55,500 $ 11,100 28 Shemaria, Barry Yes 200,000 $ 40,000 29 Simmons, Dennis & Margaret Yes 10,000 $ 2,000 30 Solberg, Richard L. Yes 7,500 $ 1,500 31 Suazo, Treve Yes 3,000 $ 600 32 Sullivan, James W. Yes 15,000 $ 3,000 33 Teune, Garret Yes 5,000 $ 1,000 34 Weinstein, Paul Yes 50,000 $ 10,000 35 White, William B. Yes 18,750 $ 3,750 36 Wieburg, Jack L. Yes 20,000 $ 4,000 37 Willis, Bill & Michelle Yes 10,500 $ 2100 38 Woods, Stan Yes 7,500 $ 1,500 39 Young, Michael Aaron Yes 45,000 $ 9,000 40 Henderson, Thomas A. Yes 33,333 $ 5,000 41 Prober, Elaine Yes 66,667 $ 10,000 42 Serafini Jr., John R. Yes 266,667 $ 40,000 43 Serafini, Serafini & Darling Yes 66,667 $ 10,000 ------------- ---------- Total 2,500,739 $ 478,481 ===========================
INVESTMENT REFUNDS 1 Alexander, Joseph C. $ 12,000 2 Andrews, Robert F. $ 3,000 3 Belodoff, Ellis $ 40,000 4 Bloom, Ben $ 3,600 5 Booth, Elvin L. & Jacque M. $ 6,000 6 Christensen, Robert F. $300,000 7 Connor, Mary and Lark, Carol $ 4,500 8 Carr, Robert J. $ 9,000 9 Esch, David E. $ 12,000 10 Gagliolo, G. Suzanne & Bruce F. $ 25,000 11 Garrett, W. Jay and Judy B. $ 2,750 12 Heckrodt, Margaret and Stanly $ 3,000 13 Hogan, William E. $ 9,000 14 Hogan, William J. & Florence M. $ 13,000 15 Hudson, Willie J. & Linda S. $ 15,000 16 Hultgren, Paul J. $ 25,000 17 Jackson, Dr. Rodney W. $ 3,000 18 Huff, Tom C. & Eleanor $ 1,500 19 Kriskovich, Robert $ 5,000 20 Laursen, Henrick $ 3,960 21 Lazenby & Merrity $100,000 22 Mathis, David D. $ 40,000 23 Millar, James S. $ 6,000 24 Roos, W. Rodger & Patricia J. $ 3,000 25 Rosenberg, Mark S. $ 6,000 26 Schaffner, Edwin K. $ 12,000 27 Shackelford, Roy & Betty $ 3,000 28 Simmons, Dennis & Margaret $ 2,000 29 Sullivan, James W. and Carol R. $ 3,000 30 White, William B. $ 3,750 31 Wieburg, Jack L. & Vonda E. $ 4,000 32 Willis, Bill & Michelle $ 2,100 33 Woods, Stan $ 1,500 34 Young, Michael Aaron $ 9,000 35 Polese, Marcia A. $ 10,000 36 Serafini, Paul M. $ 1,000 37 Abatti, Jim $ 35,000 38 Barrington, Cynthia Allison $ 2,200 39 Desai, Parimal $ 3,000 40 Dorough, Thomas G. (Trust) $ 15,000 41 Fox, Stella $ 5,500 42 Holub, Wayne $ 3,000 43 Johnson, Neil and Andy $ 1,800 44 Kramer, George $ 10,000 45 Lalumia Jr., Joseph A. $ 6,725 46 Lang Jeff TTEE F/B/O $ 10,000 47 Nemeth, Peter P. $ 48,782 48 Nesheim, Mark & Noel $ 10,000 49 Ryk, Joe $ 1,500 50 Sikkema, Dr. Ralph P. $ 20,000 51 Solberg Richard and Barbara $ 1,500 52 Suazo, Treve $ 600 53 Teune, Garrett $ 1,000 54 Emerson, Marie B. $ 5,000 -------- TOTAL $883,567 ========
EX-10 26 EXHIBIT 10.92 SECURED NOTE $137,500.00 October 26, 1994 FOR VALUE RECEIVED, AIRSHIP AIRWAYS, INC. (f/k/a Federal Airlines, Inc.) a Florida corporation (the "Maker"), having an office at 7380 Sand Lake Road, Suite 200, Orlando, Florida 32819 hereby promises to pay to the order of AIRSHIP INTERNATIONAL LTD, (the "Payee") at its office at 7380 Sand Lake Road, Suite 350, Orlando, Florida 32819 or at such other place as Payee may, from time to time, designate, the principal sum of One Hundred Thirty Seven Thousand Five Hundred Dollars ($137,500.00) in lawful money of the United STATES due and payable as set forth below. 1. Interest. Maker further promises to pay interest on unpaid principal balance hereof of 8% per annum from the date hereof. Such interest shall be due and payable together with principal as provided below. Interest shall be calculated on the basis of a 360 day year (12 equal 30 day periods). In no event shall the interest charged hereunder exceed the maximum permitted under the laws of the State of Florida. 2. Principal. The entire unpaid principal balance hereof, and all accrued and unpaid interest shall be due and payable on or before February 23, 1995, or such later date to which the Payee may agree in writing, unless accelerated as a result of a default as set forth below. 3. Covenants. Maker agrees to use the proceeds of the loan evidenced hereby as deposit monies paid in connection with aircraft acquisition and to defray the costs of Maker's FAA certification. a) Maker shall not, without the prior written consent of the Payee, create, incur, assume or suffer to exist any mortgage, pledge, security interest, assignment, lien (statutory or other) or claims in or upon the assets described in Exhibit "A". 4. Representations and Warranties. The Maker hereby represents and warrants as follows, which representations and warranties shall continue to be true while any obligations pursuant to this Note remain outstanding: a) it is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has the corporate power and authority to carry on its business as it is now being conducted and to own, operate and lease its properties and assets and is duly qualified or licensed to do business as a foreign corporation and is in good standing in all the jurisdictions in which the ownership or leasing of its property or conduct of its business requires such qualifications or licensing. b) it has full power, authority and legal right to execute and deliver this Note, the Collateral and Security Agreement dated the date hereof between Maker and Payee (the "Security Agreement"), the foregoing have been duly authorized by all necessary corporate action on its part and each of this Notice and the Security Agreement is the legal, valid and binding obligation of Maker enforceable against is in accordance with the terms hereof and thereof. c) it is not in default under any material indenture, mortgage, deed of trust, agreement or other instrument to which it is a party or by which it or any of its assets may be bound. The execution and delivery of this Note and the Security Agreement and compliance with provisions hereof shall not violate any United States or foreign law, regulation or any order or decree of any United States or foreign court or governmental instrumentality in any material respect, nor shall the same violate its charter or by-laws or result in the breach of, constitute any material default under,or conflict with any indenture, mortgage, material agreement or other instrument to which it is party or by which it or any of its assets may be bound or result in the creation or imposition of any lien, security interest or claim upon any of its assets. d) except for filings required to perfect the security interest granted in the Security Agreement, no action of or filing with or consent of any United States or foreign governmental or public body or authority and no approval or consent of any other party is required to authorize or is otherwise required in connection with the execution, delivery or performance of this Note or the Security Agreement. e) notwithstanding issues raised in the pending litigation styled V-3 Travel, Inc. v. Federal Airlines, Inc. and Louis J. Pearlman, Case No.: 93-1034-CIV-ORL-18, there is no suits, proceedings or investigations pending or, to its knowledge, threatened against it which, individually or in the aggregate, if determined adversely, would have a material adverse effect on it, its business, operation or assets. 5. Default. Notwithstanding the fact that this Note is payable on the due date set forth above, the entire unpaid principal balance of this Note and interest accrued with respect thereto as well as any other costs, fees and expenses incurred in connection herewith shall be immediately due and payable, without notice or demand, upon the occurrence of any of the following: a) the Maker becoming insolvent (however defined or evidenced), committing an act of bankruptcy, making an assignment for the benefit of creditors or making or sending a notice of intended bulk transfer, or if a meeting of creditors is convened or a committee of creditors is appointed for, or any petition or proceeding for any relief under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute now or hereinafter in effect (whether at law or in equity) is filed or commenced by or against Maker or any of its properties or the appointment of a receiver or trustee for Maker or any of its properties; b) any merger, consolidation or other business combination involving the Maker (other then a merger of consolidation between Maker and Payee) or the sale of all or substantially all of the assets of Maker; c) the filing of a lien, the issuance of a levy or execution, or the seizure, attachment or garnishment, or the entry of judgment on or against Maker or any of its properties which, individually or in the aggregate, exceeds $50,000.00 and which shall not be released, satisfied of record or bonded within thirty (30) days thereafter; d) the occurrence of a default of any kind or the breach of any covenant under this Note, the Security Agreement or any present or future document, instrument or agreement between the Maker and Payee, which remains uncured for the length of the grace period specified therein, if any; or e) should any representation or warranty made by Maker in this Note, the Security Agreement or any present or future document, instrument or agreement between Maker and Payee prove to be untrue or inaccurate in any material respect as of the date on which such representation or warranty is made. 6. Remedies. All rights and remedies available to the Payee pursuant to the provisions of this Note, the Security Agreement, applicable law and otherwise are cumulative, not exclusive, and enforceable alternatively, successively and/or concurrently after default by Maker. 7. Waivers. maker waives demand, presentment, protest and notice of any kind and consents to the extension of time of payments, the release, surrender or substitution of any and all security or guarantees for the obligations evidenced hereby or other indulgence with respect to this Note, all without notice. In the event of any litigation with respect to the obligations evidenced by this Note, or with respect to the Security Agreement, the MAKER WAIVES THE RIGHT TO A TRIAL BY JURY. 8. Modification. This Note may not be changed, modified or terminated orally, but only by an agreement in writing, signed by the party to be charged. The Maker hereby authorizes the Payee to complete the blanks, if any, in this Note or the Security Agreement and any particulars relating thereto according to the terms of the indebtedness evidenced hereby. 9. Governing Law; Venue. The laws of the State of Florida shall govern the validity, enforcement and interpretation of this Note, and any lawsuit hereunder shall be venued in the Circuit Court of Orange County, Florida. 10. Invalidity Assignment. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note shall be binding upon the successors and assigns of the Maker and enure to the benefit of the Payee, its successors, endorsers and assigns. 11. Set Off. Maker reserves the right and ability to offset monies owed in connection with other Promissory Notes between Maker and Payee in the event Payee defaults on said Notes. IN WITNESS WHEREOF, the Maker has executed this Secured Note as of the date set forth above. AIRSHIP AIRWAYS, INC. By: /s/ PETER GARRAMBONE ____________________________________________ Peter Garrambone, Chief Executive Officer EX-10 27 EXHIBIT 10.93 OPTION AGREEMENT Option Agreement, dated as of August 11, 1994, between Airship International, Ltd., a corporation organized under the laws of the State of New York (the "Company") and Louis J. Pearlman (the "Optionee"). -------------------- NOW, THEREFORE, the parties, intending to be legally bound agree as follows: 1. Grant of Option. In consideration of the agreement of the Optionee to cancel certain warrants owing from the Company to the Optionee and the guaranty of certain obligations of the Company by the Optionee the Company hereby grants the Optionee an option to purchase 5,000,000 shares of the common stock, par value $.01 per share (the "Common Stock") of the Company (the "Option Shares"). 2. Exercise Price. The exercise price for the purchase of Option Shares under this Option is $.125 per share. 3. Exercise of Option. The Option may be exercised by Optionee any time prior to its termination in whole or in parts, which cumulatively shall not exceed the whole, by giving the Company written notice of the number of Option Shares to be purchased on each exercise of the Option. 4. Termination. The Option will terminate at 5:00 P.M., New York time, on August 10, 1999. 5. Adjustments. In case the Company shall (i) pay a dividend in Common Stock or make a distribution in Common Stock, (ii) subdivide the shares of the Common Stock, (iii) combine the outstanding shares of the Common Stock into a smaller number of shares, (iv) issue any securities by reclassification of shares of the Common Stock, or (v) distribute to all holders of the Common Stock, other securities, evidences of indebtedness or assets (excluding cash dividends or distributions out of retained earnings), then the number of Option Shares purchasable by Optionee upon exercise of the Option immediately prior to such event shall be adjusted so that Optionee shall be entitled to receive the kind and number of Option Shares, other securities, evidences of indebtedness or assets which he would have owned and have been entitled to receive after the happening of any such event had the Option been exercised immediately prior to the happening of such event or any record date with respect thereto, whichever is earlier. Any such adjustment shall be made without changing the aggregate exercise price applicable to the then unexercised portion of the Option Shares. 6. Entire Agreement. This Agreement contains the entire agreement and understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties, both written and oral, and all contemporaneous oral agreements and understandings, with respect to its subject matter. 7. Governing Law. This Agreement and the Option shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflict of laws principles applied in the State of New York. -2- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written. AIRSHIP INTERNATIONAL LTD. By: /s/ Alan Siegel _____________________ Alan Siegel /s/ LOUIS J. PEARLMAN _____________________ Louis J. Pearlman -3- AMENDMENT NO. 1 TO OPTION AGREEMENT WHEREAS, Airship International Ltd. (the "Company") and Louis J. Pearlman ("Optionee") have entered into an Option Agreement dated as of December 11, 1994 (the "Agreement"); and WHEREAS, the parties now desire to amend the Agreement; NOW WHEREFORE, in consideration of the Optionee's guaranty of certain obligations of the Company existing pursuant to an Aerial Advertising Agreement between the Company and Mastellone Hnos, S.A., the parties hereby amend the Agreement as follows: Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Agreement. Paragraph 2 of the Agreement is hereby amended by deleting therefrom the exercise price of $.125 per Option Share referred to therein and replacing it with an exercise price of $.02 per Option Share. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the 15th day of December, 1994. AIRSHIP INTERNATIONAL LTD. By: /s Alan Siegel _____________________ Alan Siegel /s/ LOUIS J. PEARLMAN ______________________ Louis J. Pearlman EX-11 28 EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
YEARS ENDED JUNE 30 -------------------------------------------- 1994 1993 1992 ------------ ------------ ------------ Average shares outstanding 30,161,000 27,073,000 22,070,000 Average common and common equivalent shares outstanding 30,161,000 27,073,000 22,070,000 Net income $(20,645,000) $(5,406,000) $ 1,165,000 Preferred stock dividend $ (1,683,000) $(1,166,000) 0 Computation of Earnings Per Share = Net Income/Average common equivalent shares $(22,328,000) $(6,572,000) $ 1,165,000 30,161,000 27,073,000 22,070,000 Earnings Per Share $(0.74) $(0.24) $0.05
EX-21 29 EXHIBIT 21.1 EXHIBIT 21.1 AIRSHIP INTERNATIONAL LTD. SUBSIDIARIES OF THE REGISTRANT Name of Subsidiary Jurisdiction of Incorporation - ------------------ ----------------------------- Airship Operations, Inc.(1) Florida Airship International (USA), Inc. Delaware - -------- (1) The registrant sold all of the outstanding stock of Airship Operations, Inc. to Mr. Julian Benscher on May 24, 1995. EX-23 30 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT As independent public accountants, I hereby consent to the incorporation of my reports on the financial statements and schedules of Airship International Ltd, dated August 22, 1997, to be included in this annual report on Form 10-K, which includes an explanatory paragraph describing matters giving rise to substantial doubt as to the Company's ability to continue as a going concern. Charlie M. Meeks, C.P.A., P.A. Charlie M. Meeks, C.P.A., P.A. Maitland, Florida August 22, 1997 EX-27 31 EXHIBIT 27
5 1,000 YEAR DEC-31-1994 DEC-31-1994 543,000 0 1,809,000 0 0 964,000 7,985,000 (1,492,000) 9,809,000 13,070,000 0 314,000 0 29,000 (3,604,000) 9,809,000 3,980,000 3,980,000 17,452,000 19,860,000 3,960,000 0 805,000 (20,645,000) 0 (20,645,000) 0 0 0 (20,645,000) (0.74) 0
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