Free Post Trial Brief - District Court of Federal Claims - federal

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Robert L. Binu=r Katherine M. Lunsford FOLEY & LARDNER 777 East Wisconsin Avenue Milwaukee, WI 53202-5367 (414) 271-2400
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A. Melvin McDonald, Bar No. 002298 JONES, SKELTON & HOCHULI 2702 North Third Street Suite 3000 Phoenix, Arizona 85004 (602) 263-1700 Attorneys for Claimants UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA UNITED STATES OF AMERICA, Plaintiff, ) ) ) ) ) ) ) No. CIV-90-1827-RCB BRIEF IN SUPPORT OF OBJECTIONS OF CLAIMANTS INNOVAIR AVIATION LIMITED AND BRYAN R. CARMICHAEL TO PROPOSED STIPULATED SUBSTITUTE RES BOND

BASLER TURBO-67 CONVERSION DC-3 AIRCRAFT, et al., Defendants.

) ) ) ) )

INTRODUCTION Claimants Innovair Aviation Limited and Bryan R. Carmichael (hereafter collectively referred to as "Innovair") submit the following brief in support of their objections to the proposed stipulated substitute res bond between the government and Basler Turbo Conversions, Inc. ("BTC") for the defendant known as "One Technology License Agreement" ("the TLA").~

] Pursuant to written stipulation with government counsel, claimants' objections to the proposed bond were filed with this Court on January 28, 1992.
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Althoug~ nnovair approached the go~ 'nment over six months
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ago with a proposal for an operating agreement that would have allowed Innovair to use the TLA -- and thus preserve its value -during the pendency of the forfeiture proceeding, the government was not willing to enter into such an agreement. Neither was the government willing to allow Innovair to post a substitute res 7 bond for the TLA on terms that are virtual.!¥ identical to those 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 2B that it extended to BTC, nor indeed on any other reasonable terms. Instead, the government has allowed BTC to use the TLA -an asset that was sei~ed from and belongs to Innovair -T since November without postinq any securitz, whatsoever. Now, over two months after giving Innovair's asset to BTC, the government asks the Court to approve a bond that will allow BTC to continue using Innovair's asset for the foreseeable future. For the reasons set forth below, Innovair respectfully requests that the Court deny the government's motion, and order the TLA returned to the government pending resolution of this action or the posting of a bond by Innovair. STATEMENT OF FACTS Ao The Backqround of The TLAo To put this case in context, it is important to understand course of events which lead BTC and Innovair to enter into the TLA, as well as the events that lead up to the government's seizure of that agreement. In 1988, Brian Carmichael, along with various investors (collectively, "the Carmichael group"), and Warren and Patricia Basler joined together to start a new business converting old Douglas DC-3 aircraft into modern turbo-

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Declaration of Katherine Dec.") ~ 2

Lunsford ("Lunsford

The parties formed two new corporations, BTC, which is controlled by the Baslers, and Innovair, which is controlled by 5 6 7 8 9
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the Carmichael group. The parties intended that Innovair would handle the international business, and that BTC would handle the. domestic business in conjunction with a company known as Basler Flight Services ("BFS"), which is wholly owned by the Baslers. I__d. at ~ 3. Pursuant to the TLA between BTC and Innovair,

Innovair has exclusive rights outsidethe United States (with the exception of certain foreign military sales) to convert aircraft,

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manufacture and sell completed aircraft and conversion "kits," and to sublicense the rights to the conversion technology. I_~d. at ~ 4. Innovair and BTC were operated essentially as a single entity during the product development and initial sales phases of the business. During 1989 and 1990, BTC developed the technology and built the first prototype aircraft at a facility in Van Nuys, California. Most importantly, the Van Nuys group -- lead by Bryan Carmichael -- procured Federal Aviation Administration certification for the conversion process. I__d. at ~ 5. To help BTC defray these start-up costs, Innovair agreed to

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pay BTC $1,675,000 as its license fee for the international marketing and sales rights. This sum was paid by Innovair in full. The source of those funds was as follows: $300,000 from shareholder contributions; $1,375,000 from progress payments made by Air Colombia in connection with the conversion of an aircraft with the FAAregistration number N95BF and N72BF. All money that 3

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Innovair reCe.ozed from Air Colombia was _ent to BTC, which was free to allocate it any way it chose. I__d. at ¶ 6. In early 1991, a serious dispute arose between the Baslers and the Carmichael group. -In April, 1991, the dispute culminated 5 6
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in unsuccessful negotiations for a buy-out or an equitable separation of the businesses, and the filing of lawsuits by each side thereafter. Those suits are now pending in the United States District Court for the Eastern District of Wisconsin. (Elsa I. Carmichael, et al. v. Basler Turbo Conversions, Case No. 91-C-496.) I__d. at ~ 7. This rupture in the company left Innovair to establish its own manufacturing and conversion facilities so it could continue doing business in its territory. However, the proprietary plans, drawings and other technological information relating to the conversion process were in the possession of BTC. I__d. at ~ 8. Accordingly, on May 17, 1991, Innovair formally requested access to the technology from BTC pursuant to the TLA. BTC

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flatly refused to transfe~ the technology to Innovair, and Innovair filed a motion for a preliminary injunction to compel the transfer. I__d. at ¶ 9. B. The Selzu~e Of The TL~.

On or about July 16, 1991, while Innovair's preliminary injunction motion was pending, the government seized the TLAfrom Innovair. In the seizure warrant for the TLA, the government a11eged that the TLA had been purchased, in part, with tainted funds from Air Colombia.2 The timing of the seizure was very 2 BTC does not dispute that the Air Colombia contracts were negotiated by BTC and not Innovair. I_~d. at ¶ 12.

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fortuitous fc BTC, in that BTC was able o assert in its reply brief (which it filed a few days after the seizure) that the government's action rendered Innovair's motion moot. I__d. at ~

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i0.3 C. Innovair's Neqotiations with. the Govermment.

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On July 17 and 18, 1991, counsel for Innovair participated in lengthy telephone conversations with Assistant U.S. Attorney assigned to this case, Reid Pixler. Even during these early conversations, Innovair's counsel emphasized Innovair's desire to enter into an agreement with the government that would allow Innovair to stay in business. Although there were tentative discussions about the possibility of entering into an operating agreement, after many months wait, that proposai ultimately was

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not approved by the Department of Justice. I__d. at ~ 13. Throughout July and August, counsel for Innovair and the government were in contact on virtually a daily basis to discuss an interim resolution of this matter which would allow Innovair to continue in business and to utilize the TLA. Finally,~ on August 27, 1991, Bryan Carmichael and Innovair's counsel met with AUSA Pixler to discuss the possibility of entering into an operating agreement with the government, which would allow Innovair to continue doing business pending the outcome of this litigation. I_~d. at ~ 14.

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24 25 26 27 28 3 Innovair strongly believes that the government's action was precipitated by misleading information that was supplied by BTC. Indeed; BTC subsequently used the government's seizure of the TLA as a pretext for purportedly canceling the TLA. I_~d. at ¶ ii.

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When it .came obvious that the Del ~tment of Justice was 2 3 not going to be able to provide a reasonably prompt answer about whether an interim operating agreement would be acceptable, counsel for Innovair proposed that Innovair assign its an account 5 6 7 8 9 10
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receivable from BTC in the amount of $1.25 million, which represents Innovair's share of the proceeds from the sale of the prototype conversion, as a substitute res bond. I__d. at ~ 15. On September 17, 1991, counsel for Innovair wrote to AUSA Pixler withdrawing a then-outstanding proposal for a bond in order to give Innovair time to evaluate its.position in light of the district court's decision denying Innovair's motion. In that letter, Innovair's counsel stated: "If, in the future, circumstances change, we can of course reconsider the [bond] issue." I__d. at ~ 16. Several weeks later, in a conversation on October 18, 1991, counsel for Innovair renewed Innovair's offer to post a substitute res bond for the TLA. The substitute offered by Innovair was strikingly similar to the proposal currently before the

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Court:.Innovair offered to assign its portion of the "interlocutory sales proceeds (approximately $ 698,140), plus the right to receive any of the proceeds from the sale of the two planes (up to a total of $1,375,000). The striking difference between the two offers, however, is that Innovair proposed to assist the government in finding an immediate buyer for the planes. That offer was confirmed in November 15, 1991 letter from Innovair's counsel to the government. I__d. at ~ 17. At no time during the October 18 conversation did government counsel so much as hint that the government was negotiating a 6

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Moreover, the governm~

did not respond to

Innovair's November 15 letter until January 8, 1992 -- when it served the proposed bond and motion. I_~d. at ~ 18. Although the government asserts that Innovair "withdrew" from the negotiations for a bond, se__e Stipulated Substitute Res Bond, ~ 3, that claim is quite simply inaccurate. As set forth above, it was the government that let Innovair's proposal for a bond sit for nearly two months without response. Moreover, while government counsel stated in his January 8, 1992 transmittal letter which accompanied this motion that scheduling problems had made him unable to respond to Innovair's proposal in a timely fashion, during that same two month period the government was apparently negotiating ares bond with BTC. I__d. at ¶ 19.

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I.

The Court Lacks The Statutory Authorlt~ To ~llow BTC To Post A Substitute Res Bond In This Case. Although the government relies exclusively on Rule E of the

Supplemental Rules for Certain Admiraity and Maritime Claims as the statutory authority for this court to approve the substitute res bond, see Motion to Approve Substitute Res Bond, p. 3, that rule confers no such authority. To the contrary, Rule E(5)(a) specifically excepts coverage of forfeiture cases: "Except in

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cases of seizure for forfeiture under any law of the United States, whenever process of maritime attachment of garnishment in rem is issued the property [shall be] released, on the . or by

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giving of security, to be approved by the court .

stipulation of the parties" (emphasis supplied). Accordingly,

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the statutory ithority upon which the go :nment relies does not authorize BTC to post a bond for the TLA.4 Where, as in this case, Rule 5(E) does not authorize the. posting of a bond, substitution must be expressly authorized by 6 7 8 9 10
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some other statute. Se__e, e.~., United States v. Marunaka Maru, 559 F. Supp. 1365, 1369 (D. Alaska 1983) (where Rule 5(E) inapplicable, "[t]here is no other way to obtain interim release of vessel subject to forfeiture" absent statutory authorization); United States v. The Jeanny, Iii F. Supp. 294, 295 (N.D. Cal. 1953) (accord).; 7A Moore's Federal Practic~ ~ E.13[I]. It is plain that there is no statutory authority for what BTC and the government have proposed.5 Finally, BTC has not yet filed a claim and cost bond for the TLA. Se__e Rule C(6). Indeed, the Court has not yet granted the government's request to amend its Complaint to add the TLA as a 4 Moreover~ even if Rule E could somehow be read to authorize a bond in such cases, there is no provision for posting a bond where -- as in this case -- the owner (or one of the owners) of the property objects. Inasmuch as Rule E does not authorize posting of a bond, it certainly cannot license the government to do what it did in this case -- that is, hand Innovair's asset over to BTC to use fo__r over two months without either (I) seeking approval of the Court or (2) requiring BTC to post any sort of security whatsoever. Se__e Rule E (5)(c)(with certain exceptions not applicable here, "no property . shall be released without order of the court" and "until the costs and charges" have been paid). ~ Indeed, the only statute that even arguably authorizes a bond -- 26 U.S.C. § 7324 -- is inapplicable here. First, § 7324 contemplates a bond only where retaining the seized property is likely to cause it to become "greatly.reduced" in value. As discussed in Section III, infra, the value of the TLA will be harmed far more by turning it over to BTC then it would be if the government simply retains it until this case is resolved. Second, the government has failed to comply with the procedural requirements for allowing such a bond. See, e.u., ~ 7324(3)(Treasury Secretary must examine and determine value of property before setting amount of bond).

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At . minimum, the Court should .efrain from approving

the bond until such time as (i) it decides whether to allow the government to amend its Complaint, and (2) BTC files a claim to
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the TLA and posts a cost bond. 5 6 7 8 9 10 11 12 13 1,4 15 16 17 18 19 2O 21 22 23 2,4 25 26 27 6 The government's silence is made all the more inexplicable by the fact that the government knew -- as a result of receiving carbon copies of letters and requests for clarification of the government's position regrading use of the TLA-- that throughout the months of October and November, BTC and Innovair were involved in a heated dispute over whether BTC's attempts to make sales in Innovair's territory constituted a violation of the seizure order. I_~d. at ¶ 21. II. Even If A Bond Is Authorized, Equit7 Demands Tha~ Innovair Be Allowed To Post A Bond On The Same Terms As Those Given To BTC. Assuming, arquendo, that the Court finds a bond is permissible in this case, the Court should allow Innovair, rather than BTC, to be the party to post it. As setforth above, Innovair approached the government immediately after the TLAwas seized in order to negotiate an Operating agreement or res bond. Despite that fact -- and despite the fact thatcounsel for Innovair was in virtually constant contact with AUSA Pixler -- the government gave Innovair no notice whatsoever that it was-negotiating a bond with BTC, nor did the government allow Innovairthe opportunity to post a bond on the same terms as those offered by BTC. Lunsford Dec., ~ 20. Indeed, prior to filing this motion, the government never informed Innovair that it had, in fact, siqned a substitute res agreement with BTC on November 14, 1991. I__d. at ~ 21.6 Innovair has been and remains willing to post ares bond on the same terms as those offered by BTc. I__d. at ~ 22. Moreover, as explained below, permitting Innovair rather than BTC to post

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the bond wil. allow this Court to avoi., interfering with the pending action in the Eastern District of Wisconsin, in addition to preventing the devaluation of the TLA that would result if it were given to BTC.
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III. Even Assumlnqn Arquendon That Innovair Is Not Allowed To Post A Bond,.The Court Should Not Approve The Bond That Has Been Proposed B7 The Government And BTC. If the Court is not inclined to allow Innovair to post a bond for the TLA, the Court should nonetheless refuse to approve the government's bond proposal as currently drafted. Allowinq BTC to Post a Bond Ma7 Interfere with the Wisconsin Court's A~ilit7 to Give Effect to its Orders. Allowing BTC to post a bond for the TLA -- particularly at this juncture -- has the very real potential of interfering with litigation currently pending between BTC and Innovair in the Eastern District of Wisconsin. As explained above, that litigation is the result of BTC's refusal to transfer to Innovair technology due under the TLA.
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If the TLA is placed in BTC's

hands, the district court in Wisconsin may well be unable to give effect to an order to transfer the technology, since BTC will undoubtedly claim that by approving the bond, this Court authorized BTC to compete in Innovair's exclusive market. Moreover, the Seventh Circuit Court of Appeals has very recently issued a decision adverse to BTC's claim that it is not required to transfer the technology to Innovair, and has remanded the issue to the district court in Wisconsin. Innovair anticipates

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that the district court will schedule a hearing on this issue
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about the time of the hearing before this court on the substitute
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res bond.
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If this ~ irt allows BTC to post a b~ I for the TLC, and the Wisconsin court rules that BTC is required to transfer the technology to Innovair -- as Innovair fully expects it will -BTC will be able to nullify the court's decision by continuing to 5 6 7 8 9 10 11 12 13
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market DC-3 conversions pursuant to the terms of the res bond. This Court should not countenance such a result. Thus, even if the Court does not wish to allow Innovair to post a bond for the TLA, it should nonetheless decline BTC's request to do so, at least until such time as the district court in Wisconsin renders its decision, on thetechnology transfer issue. B. The Proposed Bond is Harmful to the Government's Interest. The harm to the government that will result from the bond is two-fold. First, the under the current terms of the bond, BTC does not have to put up a single penny for the TLA until such time as someone contracts to purchase 95BF and that plane is completed. Se__e Proposed Bond, ~ 9(A). Indeed, the bond specifically disavows any obligation on BTC's part to fund the bond with money other than that generated from the sale of 95BF. Id. at ~ 9(B). The prospect that BTC will be required to pay anything for the TLA in the foreseeable future is remote, to say the least.7 Pursuant to the sales agreement that is part of the bond, BTC has six months to find a buyer for 95BF. Se__e Sales

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Agreement, p. 2. If BTC is unable to find a buyer during that time, responsibility for selling the aircraft is again foisted back on the government. Id. Even if BTC does find a buyer for the planes (something the well-equipped U.S. Marshal's Service

7 Indeed, it appears from the res bond that if 95BF cannot be sold, BTC will never have to pay the government for the TLA.
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do), BTC has at least thi: ~en months to complete

the plane(s), since the time does not begin running until notice of the sale is published for the required time period, and the sale is approved by the Court. I__d. at p. 7, i0. During the-more

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than year-long construction, BTC is required to pay the government only a small percentage of the money BTC receives f~om the customer. I__d. at p. 5, 8. In short, the government will mot receive its money for well over a year, while BTC will have full use of the TLA during that time. The gross inequities of such an arrangement are plain.8 Second, the bond exposes the government to pqtential-dam~ge claims by Innovair. "Because forfeiture actions.are in rem, the court's subject matter jurisdiction is dependent on its continuing control over the property. The release or removal of the res from the control of the court will terminate jurisdiction,, unless the res is removed accidentally, fraudulently, or improperly." United States v. $2,490.00 in U.S. Currency, 825 F.2d 1419, 1420 (gth Cir. 1987)(per curiam). "~arthermore,once the property is released from the cou~t's control, the court is powerless to effectuate a remedy because it lacks personal jurisdiction order the persons holding the property to return it." United States v. 66 Pieces of Jade, 760 F.2d 970, 973 (gth Cir. 1985~ .

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24 25 26 27 28 ~ In addition to being a poor trade, the res bond is completely arbitrary. First, there is no principled basis ~or treating 95BF and 510NR differently, particularly in terms of ~he proceeds that are allocated to each plane in the Sales Agreement. Although the Sales Agreement provides that $1,547,000 is to c~me from 510NR and $452,807 from 95BF, there is no basis for th~Dse figures. The figures certainly do not represent the amounts p~id by Air Colombia, or the amount of funding allocated to the pla~es by BTC or paid by Innovair.
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Innovair .ully expects that followin% trial in this matter, the Court will find that Innovair is entitled to return of the TLA. Once the Court makes that determination, Innovair will be

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entitled -- as a matter of right -- to have the TLA returned to it. See, e.~., In re New, oft Savinqs & Loan Asstn, 928.F.2d 472, 476 (1st Cir. 1991)(return of property is matter of "right, not

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~rac~")(emphasis in original). However, if BTC is allowed to post a bond for the TLA, the Court will no longer have jurisdiction over the TLA, and thus will not be able to Order it returned. Moreover, even if the Court could somehow retai~ jurisdiction over the TLA, at a minimum, the Court would not be able to return Innovairts asset in the Same condition it was in at the time of seizure. This is due, inter alia, to the fact that BTC will have been allowed to establish contractual relationships in Innovair's exclusive territory. Accordingly, the government

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could be exposed to damage claims by Innovair. See, e.~., ~ire~ v. Eide, 542 F.2d 757, 760 (gth Cir. 1976) (government liable for damages for improper disposition of seized property); ~nite~ States v. Real Propert7 in the Townshi~ of Charlton, 764 F. Supp.. 1219, 1222 (E.D. Mich. 1991)(accord). The proposed res bond will have a substantial negative effec~ on the Innovair's rights under th~ TLA, with little apparent benefit to the government. The Court should decline to ~pprove a proposal that has the dual vices of dramatically altering BTC's and Innovair's contract rights and failing to

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advance the government's interests.

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The Prop, ed Bond is Extremel7 Damaq. Jq to Innovair. Placing the TLA in BTC's hands will not only har~n the

government, but will seriously compromise Inno~air's rights and 5 6 7 interests. First, 95BF -- the plane which BTC plans to use to finance a large part of the res bond -- belonus to Innovair, although it is improperly registered in the name of BFS. Moreover, Innovair contributed approximately $697,000 to conversion of that plane.9 If BTC is allowed to finance the res bond through the sale of 95BF, Innovair will not only lose its plane, BTC will have a windfall of nearly $700,000. Second, as discussed above, BTC currently owes Innovair 12 13
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$1.25 million for Innovair's share of the proceeds from the sale of the prototype conversion. If the government gives the TLA to BTC -- thereby arguably extinguishing the right to collect that

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payment -- not only have Innovair and the government suffered a tremendous loss, but BTC was reaped yet another windfall. Third, the value of the TLA will be irreparably harned if used by a company -- such as BTC-- which lacks personnel who are experienced or qualified in international marketing. Such misuse is of greater potential harm to the value of the TLA than is temporary inactivity, for it will poison international market for the DC-3 conversions. Fourth, giving the TLAto BTC will interfere with Innovair's contractual relationships with its customers. For example, the potential

Innovair currently has a contract with United Technologies Corporation, pursuant to which UTC has the exclusive right to 9 Documents evidencing Innovair's contributions have been provided to the government on a number of occasions. Claimants will be pleased to provide copies to the Court if so requested.
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market conversions in A..a.

That contractual

relationship will be impaired, and potentially irreparably
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damaged, if BTC is allowed to manufacture and market conversions internationally. Indeed, BTC's international marketing may well lay Innovair open to damage claims from UTC. Fifth, Innovair will be severely damaged if BTC is allowed to retain profits on international sales as provided by the

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substitute res bond. See Proposed Bond, ~ 6(A). Innovair is pursuing legal action in the Eastern District of Wisconsin to have its rights to the international market confirmed and to recover damages from BTC for loss of profits. Should BTC be able to retain profits on international sales and use those funds as working capital, Innovair's ability to recover damages would be significantly impaired. More specifically, Innovair will be

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damaged if BTC is allowed to retain profits from the sale of 95BF -- a plane which Innovair owns, and to which it has contributed substantial construction capital. To allow BTC to finance a bond for Innovair's asset using Innovair's money is unconscionable. CONCLUSION For the foregoing reasons, claimants Bryan R. Carmichael and

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Innovair Aviation Limited respectfully request that the Court deny the government's motion to approve the proposed stipulated
substitute res bond.

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DATED: February Ii, 1992.

Katherine M. Lunsford Robert L. Binder FOLEY & LARDNER 2.7 Attorneys for Claimants Bryan R. Carmichael and Innovair Aviation Limited
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CERTIFICATE OF SERVICE Katherine M. Lunsford, one of the attorneys for defendants Bryan R. Carmichael and Innovair Aviation Limited, certifies that a copy of Bryan Carmichael's and Innovair Aviation Limited's Brief in Support of Objections to Substitute Res Bond was served by first-class mail, postage, prepaid, on February Ii, 1992

upon:
Reid C. Pixler Assistant United States Attorney 230 North First Avenue, Suite 4000 Phoenix, AZ 85025 Mike Kimerer 2715 North Third Street Phoenix, AZ 85004-1190 Tim Atkinson 7800 East Union Avenue, suite 650 Denver, CO 80237-2755 Insurance Company of North America c/o John Scott Hoff 115 South LaSalle Street, ~2780 Chicago, IL 60603 Insurance Company of North America c/o Paul Beer 76 East Mitchell Phoenix, AZ 85012 Valley Bank c/o John C. Wenning 310 South Memorial Drive Appleton, WI 54911 Martin R. Nathan, NCN 24 Greenway Plaza Suite 2014 Houston, TX 77046

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Estes & Havins for Burton Golb 440 Louisiana 1730 Lyric Centre Houston, TX 77002

Katherine M. Lunsford Foley & Lardner One South Pinckney Street Post Office Box 1497 Madison, Wisconsin 53701-1497 (608) 257-5035

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1990 - I9~4

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Basler Turbo Conversions, inc. and Innovair Aviation Ltd. Combined Business Plan Contents
Executive summa~j . .. ....... -. ... ".. .................. " .... ............ " Product Description v. Conversion Rationale Marketing ............' ...... " ....... Corporate Structure : ....... ;.. : ......... 1 2 4 5

a) Market Assessment ...... : ....................... "c) Competition . . . ;.. ........... d) Pricing Strategies ......... . ................ 1) Leas~ Rnancing ...... ; .. .......................... Pr~du~ A~dlab~lt~ .................................. Product Support ........... ~';, .... Purch .asing .................................. 10. ,qpares,.~alesAsAProfitC, entar o.. .......... ....-...~ ........ 11. Orgardz~onStr~ctbm ...... ~ .... .13. " .................. -.."12. Sources of Rnance . . .- .......... ¯ ...................... " ................ .; - .... Production Facilities ............... ................. ¯ " ; ....... ,6 7 B 9 9 9 10 :11 11 " 12 12 13

Prop~y Rights ., .................................
" ... .................

14. Special Corporate Relationships 15. F~/e Year Rnancial Projections

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1. EXECUTWE SUMMARY The purpose of this Business Plan is b provide planning and iinanclal data to prospective investors interested in taking an equity position in the companies. Basler Turbo Conversions, Ino. and Innovair Aviation Umited were Incorporated in the first half of . 19B8 w~th the express b .t~inass objective of modernizing and converting Douglas DC~./G47 aircraft to Turbo Prop power. "the companies are in the initial operations stage, and are poised for rapid expansion. On Februa3t 27, 1990, a Supplemental Type Certificate covadng this conversion(Turbo-67) was .. issued by.the Federal Aviation Admlnbtration (FAA). A Pmls Manufacturing Authorization (PMA) w~s Issued bythe FAA in March authorizing the s=e of Turbo-67 conversion kits. Approximately 1200 to 1500 Douglas DC3/P.,47's are still operating in many ¢our~ies around the wodd, in milltmy and civilian miss. "rhls aircraft plays a u~lqus role. parti.cularly in third world countries because of ¯ its broad range of operating capabilities. As a result of the scarcity of avgas and the increasing unrellabi~ity of its piston engines, the need to convert to Turbo Prop power has been a top pdorlly. Since¯ the operationally successful Turbo-67 conversion, interest in ..utilizing ~e DC3/C47 in Western countries has r~urnod, padJcularly for small package freight use. and for drug in|erdiction and-suP~elllaP~mles. Two-converslop~s-am-cummtty-upzl .~o~J~ 4md~.a~_.. .FMA Program and one le committed for lease to the U.S. Army. It is expected that thee will lead :to substantial add'dional orders. Baslar ~urbo onversions are currently completing the manufadur~ of 12 conversion kits, sev~. ::of which ere bal~g i .r~alled on aldramas at a new 75,000 square footfac]lityat Os hkos h,Wi$consin by Basler Rlght SaUce, In~, and two In a rented tac~j by Basler Turbo Convemlons; b~, on the Van Nu~, California, airporL "rhese conwrted aircraft are committed to customers and substantial progress payments have been received. " The Improvement of theTurbo-67 in all performance p:aram.eters over the piston englne DC3/C47, its loW. cap .!~I and operating cost, e=e-a.nd low cost of maintenance, and reliability in a wide range of mi~u~, and. ctv~an roles, makes it a vmy co .mpetllk~ product against other aircraft available wlth comparable-pedormance capabll~tlss. "l'he aircraft conversion industiy has become an accepted supplier of aircraft as a result of the rapidly escalallng cost of new aircmlt, the increase in del~e. ~/delays, the prsssum on ml]Itav/ budgets, and the recant aval]abl~ty of a broader.range of reliable turbo-prop engines to acoompFmh e~clen! conversions. .'The Turbo-S'/cenv~mion modemtzas the cockpit and replaces ~rtually all major s;~stams on the aircraft. "the alrfrsme, with approprbt~ maintenance, has no life limitations, hence the converted aircraft can be positioned agak~ new aircraft withcomparable pedormance. The capital cost of the Turbo-67 is about 1/3..the;price of comparable new alrcr~, providing considerable price ¯ elastiofly to in=ease profitability. " An experienced operational group is in place, and the poter~ for the team that successfully developed the Turbo-67 to develop follow.on conversion products is a sig~lficent easel Several aircraft types Whicti would be logical conversion candidates have already been |denti~ed.

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The financial projactions of the companies present an attractive sales and profit picture as shown in the following summary:

Basle=" Tin'b0 Sa]m 13,649,000. 167,455 Net/ncome

34,200,000 9,692,9dd

38,000,000 "12,005,559

36,100,00D 11,633,231

41,800,000 12,6&3,781

]~nmmir 5al~s Net Income

12;?.93,000 t,957,000

60,800,000 12,260,157

85,500,000 17,242,500

91,e.00,000 18,603,770

81,700~000 16,474,550

2. CORPORATE STRUCTURE Three corporate entities ~ involved in the program to modernize and convert the. DouglaS. Corporate Name:. .BaslerTurbo Conversions, Inc. Incorporated: .; . 0shkosh,.Wisconsin on Janua~/2g, 1gab Shamho|~rs a~ Pe~'centage Ownersh.ip: Warren Basler Patricla Basler Total Basler Family Elsa Carrnichael Barry Wilson TOTAL paid Up Capital Shareholders Notes
Functions:.

.---

25-1/2% 25-1/2% 51% 83% 16% 100% ~'/,500 $1,087,500

President Secretary/Treasurer " Director . Director

* Bull prototype and obt,~n FAA certific~on * B=I~J conversion Idts * Sell conversion kits to Basler Flight S~rvice .1or U.S. madder and Innova]r for inl~v~nllonnl mmla~ts; ''~'

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il. Corporate Name:
Incorporated:

lnnovairAviation Limited Hong K0ng In April 1988

Shareholders and Percentage,Ownership: 34% B.ryan Carmichael Geoffrey Wilson Total Carmlchael/Wilson Warren Basler TOTAL 17% 51% 49% 100%

President (Australia resident & citizen) Director (Br'dish resideht & citizen) Director

Paid Up.Capital Shareholders Notes. " .. Functions~

$37,500 $337,500

* Contributed to cost of building prototype & obtaining S.T.C. ¯ ¯ Ucenspd. to manufizcture conv~, rslon kits, install conversion kits, and sell the ::. Basler Flight 8ewice, Inc. Oshk0s.h,.Wi.sconsin .. Warren Basler- 100% .. . ..... ~.. ....

IIL Corporate Name: " ::: In~orpo.rated:. Shareholden Functions=

* Qp~rates freight aldine ¯ . Opera~. Idt installation f=dilty ¯ Distributor for USA market

Rights to Supplemental Type.Certificate Supplemental Type Certificate (STC) #SA4B40NM covering the Turbo-67 conversion .was issued on Februa=7 27, 1990 in the.name of Baslsr Turbo Conversions, Inc.
¯ An excluslye license agreement was entered into between Basler Turbo Conversions, I~c. and ¯ lnh°vair Avi~on Ltd. granting ]nnovair 1he exclusive dghtsto manufacture and have manufactured conversion kits, |nstall Or have Installed conversion kits, and to maxket and sell convemion kits and conversions, in all markets outside the United States.

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JX6715
A0332

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3. PRODUCTS DESCRIPTION AND CONVERSION RATIONALE

Dougl~ DC3/C47 - a twin-engined passenger and cargo aimraft with a civilian designation as a DC3 and military designation as a C-47. Between 1935 and 1946 approximately 10,500 were built in the United States, and around 2,000 were built under license in the USSR (LI~2) and Japan.
In the civilian llaid the DC-3 was the basis for establishing an economically viable and efficient airline industry in the U.S. and arodnd the world. Approximately 550 civilianDC-3's are operating today. The C-47 was the cargo and personnel carrier workhorse for the military in World War II. it operated under every conceivable condltl, on spanning the arctic to the tropics, deberts to aircraft Cai'riers to 1lost planes and ski equipped operations. In addition arouncl 650 C_,-47's are still .operated by the military In 50 countries.

When the DC-3 was conceived, structural analysis was ir~ Its infancy, and-the airframe was designed b a greaterl~vel of structural strength than would be the case today..The DP_,-3 is not o pressq.dzed, hence it is not subject to the pressure fatigue/cycle factors applicable to pressurized airframes. McDonnell Douglas, in cooperation with the FAA and current operators, comple.tsd In April 1988 a Supplemental Inspection Document (S.LD.) program. As a result o.Hhis program the DC-3/P,,47 airframe la .expected to have an unlimited, operaUonal I'rb spa.n pmvid.~d the S;I.D. ~z'czgmm.]s..]alrdP_m_e_nt_e_d__b.,y_o.ger~to_.m_.,_ .... _ .. :.'.-;.-:.. " . " .: The DC-3/C47 still occupies a unique position in the aviation industry because d replacement.. a~tcratt has not been bu~t whbh will match its operating ~apabilities in the areas o4 "lowco~t ©f ¯ pum~a~se, paylo~l and cubic volume, ease and low cost of aidmme maintan~nce,'-mugh field ..-. " capablrdy and excel.lent f~g~ ch .=mctedstlcs. .. -The one problem arsa'whi~.h I~as developed for the DC-3/C47 involves the piston engines. New piston engines are no longer available and effident engine maintenance is hard to find and¯quite cos~. As ~ result, the plston engines ~r~ no longer reliable.enough for the ef~cient opera, on of :DP_,-3/~47 aircraft,.particulerly on scheduled services. The.solution to th~s problem is theconversion of the sitar=dr to turl~pmp power. Unt=l recently, ¯ turboi~rop engines with sul~dent power to support a wide .sp~-'tmm of opera, on.F. for thp DC-3/C47 '~ have n.ot been.available at ar!. economically viable cost. The Pratt & Whitney PT6-67R now meets "~: the required operational speci~caUons at a cost which makes the conversion of the DC,-3/C47 to turboprop power viable.

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4. MARKETING
a) MARKE'I: ASSESSMENT

Attached is a schedule (Attachment #~) indicaiing that there are mound 1200 DP_,-3/C4"~ aircraft ¯ currently operating around the wodd, according to professionai trade Jo .umals and other sources. The schedule also provides Innovalr's assessment ofthe number which are potential candidates for conversion. There are additional airframes which have been moth-balled, generally because ¯ .the engines have been cannibalized to keep other DC-3/C47's flying. The aircraft numbem listed under Comecon, China and Indo China, on Atkzchment #3, are. a mixof LF2's manubctured under Douglas license in Russia and G-47's left over from World War II ,and the Vietnam war, The ¯ s.uitability of LI-2's for conversion still has to be confirmed. .Them is an ongoing preJecl to update and refine dsta on the number of airframes available and suitable fbr conversion, however it is clear that sufficient airframes exist to support a substantial sales volume. b) MARKET PosmoNING

c~.man use "
Smag package freight-feeder mutes General cargo Converb'ble Cargo]Passenger Commuter ¯ Surveillance oil spas M~.ping ,

mitre+/urn+ "
General Cargo/Passenger Suxvei~lanco Drug Interdiction Intelligence gzzlhedng .... - ~msh~r=

"The fastest growing civi~an markets are the smafl package ft'.elght In the developed world, and converb"de cargolpassenger in the ~ird wodd counldes.
In the m~ary-area the greatest potential for growth wgl be in su~/dllan~and drug interdiction roles as the military gets ]ncreasthgly involved in these functions. The development of marketing material will be carded out by ~ small, focused g~oup located in Hong Kong. The material will be profassiona/]y produced but low key~ concenb'ailng on performance capability a~d special features of the Turbo-67. The main mmkaiing themes will be: Modernization - Reliability - Low c~ital cost- Low cost of operaIion and maintenance - Very low !nfm red signature (See Attachment #7) - Broad range of operational rotes.

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The main marketing tools will be the use of a demonstrator aircraft, supported by videos, 1reds. Journals and presence at.major intemalional airs.hews; A demonstrator aircraft will dominate the marketing program because of the extremely impressive parlormanca for a 50 year old aircraft. It is the most effective way to get across the concept that not onJy has the DC3/C47 been converted ;m turbo prop. power, but virtually every aircraft system has been modernized. It will also drarnaticaily demonstrate the extremely low external noise levels. c) COMPETITION

The most directly-competitive product to the Turbo-67 is a conversion of the Douglas DP-,3/C47 by Aero Medications International (AMI), which was Issued a Supplemental Type Certificate (S.T.C.) in 1987. Only live conversions using the AM! kit have been completed, and one is oper~ng in the U.S. We are of the opinion that the AMI conversion does not represent a serious comps .tRive threat for the following reasonsi . .. The AMI conversion utilizes Pratt and Whitney PT6A-65AR engines. The Turbo-67 utilizes PT6A-67R engines, which provide significantly better, performance from highaltitude airports and in hot conditions. Attachment #6 provides a comparison betweenthe pp .do.truant., Of the FT6A-65AR and the PT6A-67R. AMI did not ]:elnfprce the wings and center section of the aircraft, and as a resu~ ~ .... req0ire.d .to install a total of 1200 Ibs. of lead on the engine firewalis. This effectively ..... TheMaximum Gross Weight for th~ AM! conversion is 26,g00 lbs. Because the wtn~ an~lcenter section are reinforced on theTurbo-67, its Maximum Gross Weight .Is 28,750 ...... Ibs., effe .c~Ive .ly Increeslng. its revenue payload byl,850 pounds..
do

The AMJ converdon vents theexhaust d]rectfrom the side of the cowling. Tl~e Turbo-67. " exhausts are enclo~e~l in the cowling and,ven~ oVe~ the top of the wlng resulting ina ve~/low infra-red signature, prodding prote.~on agEdnst heat-seeking rntss=les, and a lower noise level

.¯

5. AMi has no technical In-h0use capability.t~ s.upport th~ product in the r~Id as far as tra~tng, maintenance and spares are concerned. The Baster organlz~on oper=tes an aIrrme and has in-house training, m~ntenance and spares c~pabllity. Other conversions of theDC3/C4.'_'_7, could be underta~n by another compet~r, but such a program would take 18 months to 2 years, and would be required to Undertake the same c~dificatlon ~'ocjre~n undertaken for the Turbo-67.

OTHER COMP~ON "T~e al~brafl with the most comparable performance to the Turbo-67 am the f~llowlng: Case 235, DaHav=lland Dash-8, and the Shorts =360. Aschedule Is attached (Attachment #9) compadng.kw performance dat~ and price of these aircraft with the Turbo-67. This attachment hlghl~ghts the

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very competitive performance of the Turbo-67 and its low capital cost compared to alternate aircraft. d~ PRICING STRATEGIES A major initial promotional strategy focuses on the low Capital cost of a converted aircraft which is parti~ularly important in third world countries. It.is intended that this pricing policy prevail until the Ttubo-67 achieves initial market penetration and acceptance of its performance advantages.

A one-price policy has been established without recognition of discounts for volume. Because of the.low price ~ctic and absence of direct Competition, this policy should be sustainable with the possible exception of large govemmard orders. A copy of the current primary structure is at'inched (Attachment #B). The initial pricing objective is to provide an IFR capabje rdnimurn ~rlJis converted aircraft for around $2.4 million' and a Part 121 airi:taft with instrumerdstlon to support Categoq/I! operations for $2.8 to $3 million. Most new aircraft with comparable perfonnance capabliig~ are priced in the $B to $12 million range. This' indicates s considerable.price elasticity for the Turbo-67 to pro.~de-incrbased .~ .-. ~fiS]'ff~fility--p0Ss~-li~'BTCITn-IT0V=tir0rl0-~O-V~rco~Tl .n.cr~ O~. eTepotatl~n-oflhe. - ¯ . Turbo-67 Is established (m!d 1991) there should be little difficulty in |ncreasing the minimum-frills .. conversion to$3to$3.2million and the Part121 cohversibn to $3,5 t0 $3.8 million. These poterdlai pdce Increases have not been re~gnlzed:in..th.~proje~on.$,. ".. .. - \....:

Projected sales un~s (excludinginter-comp~y sales)for the pedod.i 990 through 1994 are as .follows: "
" 1990 1991 1992 1993 1994 " Total 5 Years In anivlng at the. sales units included in the forecast we determined a reasonable sales goal for each customer. The total sales for each year where then reduced by 15% as a. factor of conservatism. Based on the very positive feedback from ~ustomers relative to .the perfonnance 44 19 22 Bnslex Tu£oo Convesslon.~ 6 18 Totnl

12 50 .65 66

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JX6719
A0336

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features compared to the cost of the converted aircraft, we have a high degree of c~nfidenee that the sales goals are realistically achievable. "rhe product is excellent and the market is there.
Four sales contracts are in place with Air Columbia and dellvery of the first two is scheduled for mid-June of thls.year. TWO conversions for the U.S. Air Fame under their FMS program are also scheduled for delivery mid-June. Schedules are attached listing the customem inbluded in each year's sales projections and a bdef status on on-golng sales discussions. t) LEASE FINANCING

A ma]o~ factot in marketing the Turbe-67 will be the avallabiflty of lease financing, bothdomestic and lntemationai. Contact has been established with several aircraft.leasing organizations, but firm arrangements to provide lease linandng for customers are not yet in place: A test program iscurrently unde .rway to provide lease finance for a converted aircraft to be operated by I~asler Right Service. A successful completion of this arrangement will pr0vidb a model for expanded international lease.tlnanc.ing arrangsmpnts for ~ustomers.

Sales and dL~dbution will be handled, byi~ .dlst~buto.rs covering the following areas: Ash U.8~. - " P.R.C. & FMA Sales Canada . "" ~. AmbiN" Western Europe Eas~to. m Europe. Me~dco ..-. Middle East. CentmJ Amodca Africa Caribbean ¯

Distribution agreements will be exclusive and dlstributom will .h~ndla the following f~nctions: ¯ * Sales and Marketing ¯ Installation of conversions ¯ Product support and maintenance ¯ Warranty programs ¯ Spares support .. ¯ Training Discussions have taken place with several potential dtst~utors, but we have not made astrong effort to conclude distribution agreements pdo~ to the S.T.C. being Issued. We now plan to initiate a strong effod t6 put distn'butora in place. The two dL~ribution agreements which have been signed are with Dakota Aircraft Ccrporalion (Utah based} covedng Eastom Europe, and Basler Flight Service, Inc., covedng the U.S.A., and Foreign Mi~ Assistance sales. .Pending distributors being in place customer sales contacts am being handled by ~ales Agents operating under~ne year contracts. We currently have six sales agents located in. Miarrd, Van Nuys, Zimbabwe, Au~rati~, Sw~erland, and Monaco. Attachment #4 provides a status on sales program.

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6. PRODUCT AVAILABILITY The Turbo-67 conversion is available in conversion kit form for shipment to conversion facllitles anywhere in the world. It is also available as a completely, converted aircraft ready to commence oper~ons. Airframes can be supplied bythe company (BTC/Innovalr) or by the current DC-3/C47 operator who v~ants hLS aldrames converted. The conversion kit when shipped, is complete wIth all parts including rivets, nuts and bolts required for the conversion and owrages to cover normal |asses during Ihstaitation. All specialized tools, drawings, detailed kIt installation instructions, maintenance manual, flight manbal and structural repair manual are included. .. Completed conversions can ba accomplished for a customer either in Basler facilities or In a distributor's" approved faci .llty, A considerable nurser of optional eq~iipment i~erns am available to equip the converted aircraft for speci~ operatingfunctions. A llst ofthase optional items is attached, along with a list of i~ms included in a conversion kit and a list of Items Installed on a basle conversion. ..

7. PRODUCT-SUPPORT ... p.ratt and Wh .~ey. and Hadzell hav~ effective world.~de product support structures for:englne .,~aOid propell.~.;n~al~anance respectively: .:" ' " " . -! . Distdbut~rs will be ~'equired to provide "~rbduct Support in their territories, including sp~res, maintenance and warranty programs. A copy of the Warranty Policy is attached (Attachment
:

The dl.stdbutors prodUCt support structure wili be backed up by Baslor who will operate 10 or more Turbo-67's.in the U.S. "i'hey v~ also malntaln In-house training, maintenanc~ fad~es and spares Inventory, and will provide a trouble shooting capabillty for domestl~ and international customers. ¯ ..... " ."All parts and components used in the conversions are in ~Jrrent production, most are readily avagable.but a sr~l number hmm lead t~es up to ni~e months, and these v~ll be l~wento~ed by BaslerTurbo Conversions.

8, PRODUCTION FACILmES During the start up ph~e (through July .1990), Basler Turbo Conversions. wgl complete the manufacture of the prototype aircraft, manufacture fabricated parts for 12 converaiori kits, and ¯ install a conversion kit on a secbnd aidmme at the existing rented production fa=Tdy at Van Nuys, . Califomin Dudng the same pedod Basler Flight Service will complete the Instailat~on of 6 conversion kits on aircraft in 1ha Oshkosh, Wisconsin f.actlitie~

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As of August 1, all production will be consolidated at a new custom designed conversion facility in Oshkosh and as of that date, the ranted tectllty at Van Nuys will be closed down. The Turbo-67 conversion involves two separ~,te production activities; kit manufacture by Basler Turbo Conversions, Inc. and conversion kit Installation by Baaler Flight Service, inc. "[hem are approximately 3,500 parts in a conversion Idt, of which approximately 1,500 are manufactured by Basler Turbo Conversions. However around 85% of the money value in a kit is made up of component= and parts purchased from outsido vendors. We can Inventory parts manufactured by Bas|erTu~bo Conversions, hence the pacing Items 1or increasing kit manufacture are the long lead time Items purChased lrorn vendors, The lead times on purchased components will improve as production increases in late 1990 and 1991. The 10,000 sq. lt. Idt m=ufactu, flng facility which will be leased trorn Basler Right Services by Basler Turbo Conversions in Oshkosh, will h~ve the capabillty to produce up to 10D kits annually. from 1991, if required, on a 3 shift basis. The installation of conversion kits will be carded out by Basler Flight Sendco in the new65,000 square foot facility, capable of up to 12 conversions at.a time. The installation of a beslc ' conversion kit will take 6 months, hence lhe maximum Inetall~tion capacity in Oshkosh,(on a one ~=hlflbasis) will be 24 an~ually. AsecondshlftcouldbeputJn'p~]~-~s~lu~~;J~.' " ~ h3t production capacity will be adequate to meet projected needs, however, a beck~Jp conversion .fac=Tdy maybe ne .cessary. In Nodh America. : ..... . .- . .... - -: :..~..-~ :..-- -.,.=. - :- -..-.- -'

9. PURCHASING ;One conversion kit contains approximately $1 n~llion of purchased m~tedals and corriponenis, inctudihg engines and prapel]ers, purchased from 200 vendors. -¯ During the dasign and cert~m~lon phase of the project, purcha~ing of many materFa~s components were held to a mlrdmum urdil the design Was tina~ized. Hence pumhasing Was¯n.ot always cost efficienL " Nowthat the design is fixed, purohasing can be rationalized with a potential for worthwhile savings. .OdgInsi Equipment Manufacture (O.E.M.) status has been established with most vendors and as volume builds up pdces will.be, reduced. "these potential savings have not been built into the projections. Alternatesupply sources have been, or are being, established for all but fwa vendors. This number will be reduced.to two, namely Prett and.Whilney engines and Hadzell propellers. -.

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10. SPARES SUPPLYAS A PROFIT CENTER To date spares supply has been foc.used on only as a part of the product support program. This represents a lucrative source of future Income and a study will be put in place to optimize this progt opportunity.

11. ORGANIZATION STRUCTURE OF OPERATIONS On August 1,199o all operations in {he U.S. will be consolidated at a new lacillty built by Basler ~ght Service in Oshkosh, .Wisconsin. This fadllty will house operations¯ of Basler Turbo Conwrsions., Inc. (lessee) and Basler Right Service, Inc. (lessor). , At September I gg0 anintemstional sales a~l marketing office will b'e established in Hong Kong by Innovalr Aviation Ltd. ¯ The operations at eac.h location can'be summarized as follov~..: Oshkosh:Activities Operations Kit ma~Ji~ctum Conversion kit install~tion Option eq~pment manufacture[instalL Freight aid~. ¯ U.S. Sales Product support activities. .Hong .Kong AutivRies ' Generation of marketing mateda] Marketing and d~ribution activities C0_ ~ersion Idt instal~ion supervision Innovair Aviation Ltd.. Innovalr Aviation Ltd. Irmovalr Aviation Ltd.
¯ ..." Corporate Entity

B~sler Turbo Conversions. ¯ Basler Right Servic~ . :;....:.;..,. Basler Righ.t Sewlce .;~...-: Baslar Right Service . .. ~.asler Right Se~ce " ' BsslerTurbo Conversions .: ....

Management Structure
The operations of the two corporate enti~s located at ~K~ new Oshkosh plant will be managed as one unit for economic andintegrated planning reasons; An Organization Chad.and information on Managsment Personnel are attached (~ents #12 and 13). A Management Board made up of the ~shemholders of both companies, and two. or three, outsi~e directors with business and/or aviation e~pedence and vtslb~ty, will provide board I~vel managemenL An executive search is under way for a General Manager who w~ll have delegated authority to manage the operations within board approved budg .~s and general operating guidelines. The.

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applicant will have proven production management .experience and a strong general business backgmund. The Hong Kong organization will be small, as most sales and product support activities will be ¯ handled by distributors in international markets. All international operations will be managed out of Hong Kong. An Organization Chart and information on Management Personnel are attached (Attachments #14 and 15)...

12. SOURCE OF RNANCE. Thetwo corporate entities, Basler Turbo conversions, Ins,,, and Innovair Aviation Ltd., have bank fines totalling $3mlliion and capital and shareholders loans amounting to $1,5 million as of Apdl 30° 1990. When the =~ircraft pmsantly being converted are delivered to customers in Jdly~August 1990, the combined cash position of Bas/er Turbo Conversions and Innovalr will become positive, From that point future funding requirements are expected to be provided by progress payments from :., .~c_u..sto__m.e~fo_r .kl~ on t.h..e_..fo_~o.~.'~ng basis: ..... : - ~ : -~.-:-~;~.. 12-1/2% of sellingprice 6 months priorto del'r~ery of selling price 4 months prior to delivery .12-1/2% of selling pries 2 months priorto dellvery .---.-' - '.:,.25% 50% . of selling price On Derwery . .. :. :.¯. ...... :,,,.,:. :'.: ;- ...... ~.. ..::o :-, '. ....

"~'h~ finat~ial projections ind~cato that both company's cash positions will become quite,healthy. .- .,.. by the end of 1991.

13. PROPRIEi'ARY RIGHTS There. are no patent rights applicable to the Turbo-b-/' conversion. Ti~ only means of pmv]dir~g- -:-..-.' protection for pmparty dghts are: 1. Adequate security for drawings, structural ana]ysb, engineering rep.orts and other sources of technology
¯2. Confidentiality ag.mements

¯ 3. Use of registered trademarks and Iogos 4. Appropriate drafting~b'f distdbutorshlp~n."~ilJ sales contracts A significant amount of convemion installationwork w~ be managed by organlzafJons outside Baslar/innovair's control and the poter~al for improper use of Turbo-67' technology needs to be address~d.

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This program has not yet been initiated but will be in place by July 1990.

14. SPECIAL RELATIONSHIPS A contract has been entered into with LT.V. Siena Research Division for exclusive cooperation on a U.S. Army project code named "Grisly Hunte~. The project objective Is toprovide an aerial surveillanCe system to be ir~stalled on the Turbo-67. Success on this project could lead to broad 9eographl¢ cooperation betw~n the Wm companies which would create a new and slgnlllcant avenue for sales of the Turbo-67, LT.V. are also interested in participating Jointly on offset. progra, ms in international markets. An agreement is under negotiation with United Techndoglas Corporation (parent of Pratt and Whitney) t.o cooperate on offset programs on a world-wide basis. Unlt~d Technologies would receive the dght of first refusal on all Tud~o-67 projects which are eligible to receive offset credits. The ablllty to approach foreign governments and companies Jointly.with Unlted Technologies will greatly enhance our credentials and ability to make sales overseas.

oo

DX 266 1 15 "
-13C00335~

JX67/15
A0342

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Page 33 of 56

Attachments
1 Five Year Financial Pro]ections 2 a) Copy of S.T.C. b) Copy of PMA 3 Atrlrames Available For Conversion Estim~ted Potential Sales 4 Status of Sales Contacts 50orrespondence From Potential Customers 6 Comparison of Performance of PT6A-45R, PT6A-65AR & PT~R Engln. es 7 Letter From L'rv ahd Photographs Defining LoW Infra-Red Profile 8 Current Pricing Structure 9 Chart of Pdce and Performance Advantages of the Turbo-67 Versus Competition 1~. Copy of Warranty Policy 1"~ Organization Chart- Oshkosh Operations 13 Organization Chart - Hong Kong Oper~tdns 14 Management Personnel Inform~on - Hong Kong Operations 15 Right Test.Program -. : 12 ¯ M~.nageme. ~t Pemonnel Irfformatlon - Oshkosh Opera.tions

DX 266 / 16
¢o0. 335~

JX67/16
A0343

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ATTACHMENT 2A

~,~d==~ ",;~

.BASLER TURBO COHVEP~ZOHS.

Dated. September 1, 1953 (See pa9e 3 of thfs STC for the comp]eted certH~fcatton basts|. ¯ ,JZM~: HcDonne]] Douglas Co~perat~ on (MDC } A-669 ~/~=(-~: See Page 3

~.~y~.~t~,,,~,~,./~: Znstallat.~on of Pr~t & ~h1~ney of Canada PT6A67P, engines, H~ell ~-B~3/HI1276 propelle~, ~d~fted fuel. ~s~m. revised ¯ app~v~ Basle~ Tu~o Conve~]ons, lnc., Has~ ~n9 L]-sL ~o.' B~10~, ~vts~on ~M', ~ed Feb~ry 01, 1990,and ~ ~ 1001 H-1 da~d Feb~a~ 26, 1990. ~~'~..~" Tht~ approval sh0uid not be ex~ended "tO other afrplan~s of" thts model onwhfch other prevfously approved modtftca~.tons are Incorporated an]ess f~. |s determined by ~he ]nstaller that ",he ~nterre]a~-tonsh~p . bel~eenthts change and any of those other previously..approved modifications ¯ wf]l ~ntroduce no adverse effect upon the a!rworth]ness of the aircraft. See Cont]nuatton. pages 3 ~hrough 9 for addftfona] .condfttons or

April 18, 1968 February 27, 1990

JX67117
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ATTACHMENT 2A

( :nnmuatm
¯ he condl~tor~s & limltntlor~s of" Aircraft Speoitlc~tlon Ho. A-669- apply excep~ ~S hOLed herein. ' A copy of ~ht~ S~pplemental Type Certificate Spe~il~~t~on ~h~Ll be maintained as par& o£ the modified aircraft's permanent records.

Model= DC3C--SC3G, 31C3(;, S~CIIG,S3CIIG, R-1830~i3, R-18~0~3A, R-1830-ll9, R-1830-57, R-1830-65, R-1830-67, R-1830-75,' R-1830.-82, R-1830-90C, R-183090D, R-1830-g2, P~-1830-gq, R-1830-~6, R-2000-71~2, R-2000-DS. k~e~ modified by this STC, the aircraft model is unofficially kno~m as I~-TP67 aircraft.
Engine Pael: "2 Pratt & l~Itney of Canada PT6A-67R.

(.See ecrm 8 & "lo).
(See NO~E 9).

~ne

Ratings &

Take Off

Turbine Te~p ~C

(5 HI~)
S.H.P. Jet ~rust - lb Hax Continuous

~1

39o00

10~ 1700 100

825

1~20

39000

10~

1700"

100"

8qO 1000

Startle. (5.sec.)
Tr~nslent - ,. Overspeed (5 sec.)

39000

10~

1871~. 110

DX 266 118

The eng~Lne ratlnEs are bas .ed on static sea level com~ltLo~s. No external accessory! loads and no airbleed. The PT6A-67R maximum coutinuRus ratine ls available to 119UF Air Inlet Temperature aml-takeoff .is available to 9~ Air Inlet Temperature.

JX67118
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ATTACHMENT 2A

HinAmu~ pressure at inlet to the engine £uel system shall not be less than 5 p.s.L above true vapor pressure of the fuel. For emergency operation, with alrframe boost pump inoperative, it must be such that vapor liquid ~atlo does not ~xceed O. I for continuous operation and does not exceed 0.3 foe ~ere tha~ 10 ho~-~ in a pump overhaul ).J..~e.. ¯ Haxicu~ pressure at lrLlet ~b fuel ~ste~., 50 p.s.l.g. 0ii Haxlm, w,. Pressure: Normal (See Note 6) Hlnlmcm

135 90-135 60

+83.5 + .5

.17ll

200

170

19§.8

135

155.5 -

133

153

lO9.S DX 266 ! 19

JX67119
A0346

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A'n'ACHMENT 2A

( o.tmmmm
SA4840NH Haximum Operating Altitude: (See gofie 14)

2g,O00 feet pressure alt~¢~de Fusblage Sta. 242.35 ~nches (13SHAC) Fuselage Sta. 263.1 inches {28SI4AC} Takeoff 28,750 lbs. Landing 28,750 lbs. 26200 lbs. 2 tpilot and copilot) See NOTE 12 See XOT£ 12 USABLE CAPACTTY U.S.~LLUN~ . PuU~S 189.7. 189,7 ¯ 186.6 186,6 "75Z~ 1,271 1,271 1,250 1,250 ~ lbs TOT~I. CAPACITY U.~.~Q~uH5 euut~S 195.0 1,3~0 195,0 1,320 189.0 1,2~6 189,0 . 1,266 ~ ~ lbs

C. G. Range: Maximum Weight: I~ximum Zero Fuel we~.ght: Hint~um Crew: Haximum Passengers: Haxfmum B~ggage: .Fuel Capacfty: TAHI~ Hain-Left Hahn-R| 9ht Aux-Znboard Left Aux-Inboard Rtght" TOTAL OPTIOMAL SYSTEH ¯

Aux-Left Wing Tank 384.0 Aux-Rfght Wing Tank 384.0 TOTAL (S~d. & Opt.) 1,~

2,573 2,573

385.0 2,580 385.0 2,580 .

XOTE: .HEIGHTS BASED OH A FUEL DENSXTf OF 6.7 POUXDS PER U.S.GALLOX.

Oil capacity:

1 t~nk integral ~ith each engine, 2.5 U.S. Gallons. To1~1 usabZe oi1, Z.5U. S. Gallons.

DX 266 / 20

Required Equipment: ]n addition to ~e pe~ne~ ~quf~d b~c eq~p~nt specified ~n ~R 4b and F~ ~ (for ~e ~op~peller fns~lla~on) refe~ ~ "Requf~d Equ~pmn~ List" fn the a~raf~ ~?~ da~ shee~ ~69. ~s ~o p~pelle~ ~ns~11at~on ~qufr~: '

--

, p~5~9~

JX67120
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ATTACHMENT 2A

( ontinuatinn
Required Equipment (continued): 1) Landing Ge~- per Douglas Drawin~ 5203619; 2) B.F. Goodrich H-.2-~5 Expander Tube Brakes; .3) ~a~le~ Turbo Conver~ion, In~., F~A Approved Airplane Flight Manual for t3e Model DG3-T~67, Report No. ER 512-011. d~ted February 27, 1990, or ]~ter FAA Approved revisions . ~nt~iS~ace M~ Elevator up 12 + 1/8 inches, down 8 ÷ 1/8 inches. Aileron up 13 ~ 1/8 i~.hes7 down 8 + 1/2 ln~hes~" Rudder left 26 + 1/~ inches, right 26 +_ 1/~ .t-ncbes. An lnflt.8:ht opePatlonal obeck'must .be conducted in a~cotdance ¯ with ~AR 91.157(a) for each a!n~-art ~odit~i-e~--. ~l~eE-~ffi~l~I ~ ..... alrwor~J~tness certlflcatlon has not previously been .. a~compltshed the applicant.mint a!so comply with FAR 21.130 and 21.183(d).. .-

Prsduction Basis

Ce~ift'oatlon

(1) SFAR 13 ef£ective Deeem~. " 30, 196~..

(2) (3)

CA~ ~b effective Sept~dz~. 1/ 1953, except where superseded b~ ~AR 25 req~tre~m.ts. F~ 25 Sections as a~e.ded b~ A~end~ents 25-1. through 25-63. Re6qflations: .25.33, 25.101 th~ 25.105, 25.107 25.361, 25.363, 25.367, 25.371, 25.613 %hru25.619, .25.SIR, 25.T~7 thr~ 25.78.1, 25.863 thru 25.867, 25.901,

25.903, 25.905 thr~ 25.933(a), 25.937 thPu. 25.977,

25.981 th~ 25-999, 25.1011 th~ 25.10~1, 25..10~3, 25.10~5 thrc 25.1093, 25.1103 thru 25.1123, 25.11~1 .thr~ thru 25.1191, 73.119".} t~r~ 25.1203, 25.1301 thr~ 25.1321~ 25.1337 th~ 25.1351., .25.1353,